UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-CSR
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: 12/31/16
Item 1. Reports to Stockholders.
| |
| Contents | |
| |
| Annual Report | |
| Economic and Market Overview | 3 |
| Franklin Conservative Allocation Fund | 5 |
| Franklin Moderate Allocation Fund | 11 |
| Franklin Growth Allocation Fund | 17 |
| Financial Highlights and Statements of Investments | 23 |
| Financial Statements | 41 |
| Notes to Financial Statements | 46 |
| Report of Independent Registered | |
| Public Accounting Firm | 58 |
| Tax Information | 59 |
| Board Members and Officers | 61 |
| Shareholder Information | 65 |
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Economic and Market Overview
The global economy grew moderately during the 12-month period despite slower growth in some countries. In this environment, global developed and emerging market stocks, as measured by the MSCI All Country World Index, rose. Global markets were aided by accommodative monetary policies of various global central banks, improved commodity prices after 2016’s first quarter, finalization of Greece’s new debt deal and generally encouraging global economic data. Further supporting markets were expectations of higher interest rates and inflation in the U.S., driven by talk of expansionary fiscal policies under new U.S. president Donald Trump, and an Organization of the Petroleum Exporting Countries deal to curb oil production. However, these factors were partially offset by a slowdown in China’s economy and declining commodity prices early in the period, geopolitical tensions in certain regions, uncertainty about the U.S. Federal Reserve’s (Fed’s) timing for raising interest rates and worries about the health of European banks. In addition, global economic concerns and the U.K.’s historic referendum to leave the European Union (also known as “Brexit”) contributed to volatility in global stock markets.
The U.S. economy grew in 2016 despite a general decline in private inventory and business investments, which partly offset strength in consumer spending, residential investment and government spending. Manufacturing conditions remained volatile but generally expanded. The services sector also grew for most of the period, contributing to new jobs that helped the unemployment rate decrease from 5.0% in December 2015 to 4.7% at period-end.1 Retail sales generally rose, as did home sales and prices amid declining mortgage rates. At its December meeting, the Fed increased its target range for the federal funds rate to 0.50%–0.75%, as policymakers cited an improvement in U.S. labor markets and higher inflation. The Federal Open Market Committee also hinted at three additional hikes in 2017, and the Fed raised its 2017 U.S. economic growth forecast, while lowering its unemployment projections.
In Europe, the U.K.’s annualized economic growth accelerated in in 2016’s second half, driven by gross fixed capital formation in the third quarter and manufacturing and services in the fourth quarter. Immediate effects of the Brexit vote in June materialized as U.K. stocks declined significantly, the British pound hit a three-decade low amid intensified selling and the U.K.’s credit rating was downgraded. In the eurozone, despite investor concerns about banking sector weakness, low corporate earnings and post-Brexit politics, some regions benefited from rising consumer spending, resulting from a cheaper euro, low inflation and signs of sustained economic growth. The eurozone grew slightly early in the period, aided by lower oil prices, improved exports and the European Central Bank’s (ECB’s) accommodative monetary policy. However, growth moderated in 2016’s second quarter and improved in the third and fourth quarters. After declining in the beginning of 2016, the eurozone’s annual inflation rate increased gradually to reach its highest reading in three years toward period-end, ending at an estimated 1.1% in December. The ECB cut its benchmark interest rate and expanded its massive bond-buying program in March and August 2016 to boost the region’s slowing growth. Furthermore, at its December meeting, the ECB extended the continuation of its monthly asset purchases from March to December of 2017, but it agreed to scale back the purchase amount beginning in April 2017.
In Asia, Japan’s quarterly gross domestic product grew slower in the third quarter than in the second and first quarters, mainly due to declines in private non-residential and public investments. In January 2016, the Bank of Japan (BOJ) introduced negative interest rates on excess reserves held by financial institutions with the central bank to boost lending and help achieve its inflation target. In July 2016, Japan’s Prime Minister Shinzo Abe announced a higher-than-expected fiscal stimulus to revive the economy, followed by an additional monetary stimulus announcement by the BOJ. The BOJ kept its interest rates unchanged toward period-end; however, it overhauled its monetary policy in September to focus on yield-curve control. The bank further announced that it adjusted its Japanese government bond purchases to maintain the 10-year rate for these bonds near 0%.
In emerging markets, economic growth generally moderated during the period. Brazil’s economy continued to be in recession and the country’s central bank cut its benchmark interest rate in October and November 2016 to spur economic growth. Russia’s economic contraction eased in 2016, following a rebound in oil prices and improved industrial production. The Bank of Russia reduced its key interest rates in June and September of 2016 to revive its economy. China’s economy grew at a stable rate in the first three quarters of 2016 and expanded slightly faster in the fourth quarter, as full-year 2016 growth remained within the government’s targeted range. However, the People’s Bank of China employed monetary easing measures that included cutting the cash reserve
1. Source: Bureau of Labor Statistics.
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requirement ratio for the country’s banks and effectively devaluing the Chinese currency against the U.S. dollar. In India, economic growth marginally increased from July through September 2016 due to slower private consumption growth and increased government spending. Overall, emerging market stocks, as measured by the MSCI Emerging Markets Index, rose during the period.
The foregoing information reflects our analysis and opinions as of December 31, 2016. 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.
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Franklin Conservative Allocation Fund
This annual report for Franklin Conservative Allocation Fund covers the fiscal year ended December 31, 2016.
Your Fund’s Goal and Main Investments
The Fund seeks the highest level of long-term total return consistent with an acceptable 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 +4.39% cumulative total return for the 12 months under review. In comparison, the Fund’s equity benchmark, the MSCI All Country World Index (ACWI), which measures equity market performance in global developed and emerging markets, had a +8.48% total return.2 The Fund’s fixed income benchmark, the Bloomberg Barclays Multiverse Index, a broad-based measure of the global fixed income bond market, had a +2.84% total return.2 You can find the Fund’s long-term performance data in the Performance Summary beginning on page 7.
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.
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.
| | |
| Top 10 Fund Holdings | | |
| 12/31/16 | | |
| | % of Total | |
| Net Assets | |
| Franklin Low Duration Total Return Fund – Class R6 | 14.6 | % |
| Franklin U.S. Government Securities Fund – Class R6 | 14.4 | % |
| Franklin Strategic Income Fund – Class R6 | 12.4 | % |
| Franklin Growth Fund – Class R6 | 10.0 | % |
| Templeton Global Total Return Fund – Class R6 | 6.6 | % |
| Franklin Rising Dividends Fund – Class R6 | 6.4 | % |
| Franklin DynaTech Fund – Class R6 | 4.5 | % |
| Franklin K2 Alternative Strategies Fund – Class R6 | 4.4 | % |
| Franklin International Small Cap Growth Fund – Class R6 | 3.4 | % |
| Franklin Mutual European Fund – Class R6 | 3.3 | % |
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 53.0 % of total net assets to fixed income, 40.1% to
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. They do not reflect any feed, expenses or sales charges. 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 28.
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FRANKLIN CONSERVATIVE ALLOCATION FUND
equity and 6.8 % to alternative strategies. Domestic fixed income exposure was 87.5% of the total fixed income weighting, with the balance represented by foreign fixed income. Franklin Low Duration Total Return Fund – Class R6, representing 14.6% of the Fund’s total net assets, was our largest fixed income fund weighting at period-end. On the equity side, domestic exposure was 66.3% 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 December 31, 2016, 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 10.0% of total net assets.
During the 12-month reporting period, our largest domestic growth fund holding, Franklin Growth Fund – Class R6, performed in line with the MSCI ACWI, while our largest foreign equity fund holding, Franklin International Small Cap Growth Fund– Class R6, underperformed the MSCI ACWI. Our largest domestic value fund holding, Franklin Rising Dividends Fund – Class R6, outperformed the MSCI ACWI. On the fixed income side, Franklin Low Duration Total Return Fund – Class R6 and Templeton Global Total Return Fund –Class R6 outperformed the Bloomberg 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 December 31, 2016, 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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FRANKLIN CONSERVATIVE ALLOCATION FUND
Performance Summary as of December 31, 2016
The performance table and graphs do not reflect any taxes that a shareholder would pay on Fund dividends, capital gain distributions, if any, or any realized gains on the sale of Fund shares. Total return reflects reinvestment of the Fund’s dividends and capital gain distributions, if any, and any unrealized gains or losses.
Performance as of 12/31/161
Cumulative total return excludes sales charges. Average annual total return includes maximum sales charges. Sales charges will vary depending on the size of the investment and the class of share purchased. The maximum is 5.75% and the minimum is 0%. Class A: 5.75% maximum initial sales charge; Advisor Class: no sales charges. For other share classes, visit franklintempleton.com.
| | | | |
| | Cumulative | | Average Annual | |
| Share Class | Total Return2 | | Total Return3 | |
| A | | | | |
| 1-Year | +4.39 | % | -1.63 | % |
| 5-Year | +25.71 | % | +3.46 | % |
| 10-Year | +50.49 | % | +3.56 | % |
| Advisor | | | | |
| 1-Year | +4.69 | % | +4.69 | % |
| 5-Year | +27.35 | % | +4.95 | % |
| 10-Year | +54.33 | % | +4.43 | % |
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.
See page 9 for Performance Summary footnotes.
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FRANKLIN CONSERVATIVE ALLOCATION FUND
PERFORMANCE SUMMARY
Total Return Index Comparison for a Hypothetical $10,000 Investment1
Total return represents the change in value of an investment over the periods shown. It includes any applicable maximum sales charge, Fund expenses, account fees and reinvested distributions. The unmanaged indexes include reinvestment of any income or distributions. They differ from the Fund in composition and do not pay management fees or expenses. One cannot invest directly in an index.
See page 9 for Performance Summary footnotes.
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| | | | |
| | | | FRANKLIN CONSERVATIVE ALLOCATION FUND | |
| | | | PERFORMANCE SUMMARY | |
| |
| Total Annual Operating Expenses5 | | | |
| Share Class | With Waiver | | Without Waiver | |
| A | 1.26 | % | 1.26 | % |
| Advisor | 1.01 | % | 1.01 | % |
Each class of shares is available to certain eligible investors and has different annual fees and expenses, as described in the prospectus.
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.
1. The Fund has a fee waiver associated with any investment it makes in a Franklin Templeton money fund, contractually guaranteed through its current fiscal year-end. Fund
investment results reflect the fee waiver; without this waiver, 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.
2. Cumulative total return represents the change in value of an investment over the periods indicated.
3. Average annual total return represents the average annual change in value of an investment over the periods indicated. Return for less than one year, ifany,hasnotbeen
annualized.
4. Source: Morningstar. The MSCI ACWI is a free float-adjusted, market capitalization-weighted index designed to measure equity market performance inglobaldevelopedand
emerging markets. The Bloomberg Barclays Multiverse Index provides a broad-based measure of the global fixed income bond market. The index represents the union of the
Global Aggregate Index and the Global High Yield Index and captures investment-grade and high yield securities in all eligible currencies.
5. Figures are as stated in the Fund’s current prospectus, including the effect of acquired fund fees and expenses, and may differ from the expense ratios disclosed in the Your
Fund’s Expenses and Financial Highlights sections in this report. In periods of market volatility, assets may decline significantly, causing total annual Fund operating expenses
to become higher than the figures shown.
See wwwfranklintempletondatasources.com for additional data provider information.
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FRANKLIN CONSERVATIVE ALLOCATION FUND
Your Fund’s Expenses
As a Fund shareholder, you can incur two types of costs: (1) transaction costs, including sales charges (loads) on Fund purchases and redemptions; and (2) ongoing Fund costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs, sometimes referred to as operating expenses. The table below 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 table below provides information about actual account values and actual expenses in the columns under the heading “Actual.” In these columns the Fund’s actual return, which includes the effect of Fund expenses, is used to calculate the “Ending Account Value” for each class of shares. 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): Divide your account value by $1,000 (if your account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6). Then multiply the result by the number in the row for your class of shares under the headings “Actual” and “Expenses Paid During Period” (if Actual Expenses Paid During Period were $7.50, then 8.6 x $7.50 = $64.50). In this illustration, the actual expenses paid this period are $64.50.
Hypothetical Example for Comparison with Other Funds
Under the heading “Hypothetical” in the table, information is provided about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. This information may not be used to estimate the actual ending account balance or expenses you paid for the period, but it can help you compare ongoing costs of investing in the Fund with those of other funds. To do so, compare this 5% hypothetical example for the class of shares you hold with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that expenses shown in the table are meant to highlight ongoing costs and do not reflect any transactional costs. Therefore, information under the heading “Hypothetical” is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transactional costs were included, your total costs would have been higher.
| | | | | | | | | | | | |
| | | | | | Actual | | Hypothetical | | |
| | | | | (actual return after expenses) | | (5% annual return before expenses) | | |
| | | | | | | Expenses | | | | Expenses | Net | |
| | | Beginning | | Ending | | Paid During | | Ending | | Paid During | Annualized | |
| Share | | Account | | Account | | Period | | Account | | Period | Expense | |
| Class | | Value 7/1/16 | | Value 12/31/16 | | 7/1/16–12/31/161,2 | | Value 12/31/16 | | 7/1/16–12/31/161,2 | Ratio2 | |
| A | $ | 1,000 | $ | 1,027.50 | $ | 3.16 | $ | 1,022.02 | $ | 3.15 | 0.62 | % |
| C | $ | 1,000 | $ | 1,023.20 | $ | 6.92 | $ | 1,018.30 | $ | 6.90 | 1.36 | % |
| R | $ | 1,000 | $ | 1,026.30 | $ | 4.43 | $ | 1,020.76 | $ | 4.42 | 0.87 | % |
| R6 | $ | 1,000 | $ | 1,028.80 | $ | 1.43 | $ | 1,023.73 | $ | 1.42 | 0.28 | % |
| Advisor | $ | 1,000 | $ | 1,029.30 | $ | 1.89 | $ | 1,023.28 | $ | 1.88 | 0.37 | % |
1. Expenses are equal to the annualized expense ratio for the six-month period as indicated above–in the far right column–multiplied by the simple average account value
over the period indicated, and then multiplied by 184/366 to reflect the one-half year period.
2. Reflects expenses after fee waivers and expense reimbursements. Does not include acquired fund fees and expenses.
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Franklin Moderate Allocation Fund
This annual report for Franklin Moderate Allocation Fund covers the fiscal year ended December 31, 2016.
Your Fund’s Goal and Main Investments
The Fund seeks the highest level of long-term total return consistent with an acceptable 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 had a +4.94% cumulative total return for the 12 months under review. In comparison, the Fund’s equity benchmark, the MSCI All Country World Index (ACWI), which measures equity market performance in global developed and emerging markets, had a +8.48% total return.2 The Fund’s fixed income benchmark, the Bloomberg Barclays Multiverse Index, a broad-based measure of the global fixed income bond market, had a +2.84% 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. For most recent month-end performance, go to franklintempleton.com or call (800) 342-5236.
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.
| | |
| Top 10 Fund Holdings | | |
| 12/31/16 | | |
| | % of Total | |
| Net Assets | |
| Franklin Growth Fund – Class R6 | 15.5 | % |
| Franklin Low Duration Total Return Fund – Class R6 | 9.6 | % |
| Franklin Rising Dividends Fund – Class R6 | 9.5 | % |
| Franklin U.S. Government Securities Fund – Class R6 | 8.8 | % |
| Franklin Strategic Income Fund – Class R6 | 7.7 | % |
| Franklin DynaTech Fund – Class R6 | 6.3 | % |
| Franklin International Small Cap Growth Fund – Class R6 | 5.4 | % |
| Franklin Mutual European Fund – Class R6 | 5.1 | % |
| Templeton Foreign Fund – Class R6 | 4.8 | % |
| Franklin K2 Alternative Strategies Fund – Class R6 | 4.4 | % |
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 60.1% of total net assets to equity, 32.9% to fixed income, and
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. They do not reflect any feed, expenses or sales charges. 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 34.
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FRANKLIN MODERATE ALLOCATION FUND
6.9% to alternative strategies. Domestic equity exposure was 65.7% of the total equity weighting, with the balance represented by foreign equity. The portfolio was diversified across capitalization sizes and investment styles, and on December 31, 2016, 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 15.5% of total net assets. On the fixed income side, domestic exposure was 87.8% of the Fund’s total income weighting, with the balance represented by foreign fixed income. Franklin Low Duration Total Return Fund –Class R6 was our largest fixed income fund weighting at 9.6% of total net assets.
During the 12-month reporting period, our largest domestic growth fund holding, Franklin Growth Fund – Class R6, performed in line with the MSCI ACWI, while our largest foreign equity fund holding, Franklin International Small Cap Growth Fund – Class R6, underperformed the MSCI ACWI. Our largest domestic value fund holding, Franklin Rising Dividends Fund – Class R6, outperformed the MSCI ACWI. On the fixed income side, Franklin Low Duration Total Return Fund – Class R6 and Templeton Global Total Return Fund –Class R6 outperformed the Bloomberg 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 December 31, 2016, 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.
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Performance Summary as of December 31, 2016
The performance table and graphs do not reflect any taxes that a shareholder would pay on Fund dividends, capital gain distributions, if any, or any realized gains on the sale of Fund shares. Total return reflects reinvestment of the Fund’s dividends and capital gain distributions, if any, and any unrealized gains or losses.
Performance as of 12/31/161
Cumulative total return excludes sales charges. Average annual total return includes maximum sales charges. Sales charges will vary depending on the size of the investment and the class of share purchased. The maximum is 5.75% and the minimum is 0%. Class A: 5.75% maximum initial sales charge; Advisor Class: no sales charges. For other share classes, visit franklintempleton.com.
| | | | |
| | Cumulative | | Average Annual | |
| Share Class | Total Return2 | | Total Return3 | |
| A | | | | |
| 1-Year | +4.94 | % | -1.07 | % |
| 5-Year | +33.98 | % | +4.78 | % |
| 10-Year | +58.80 | % | +4.11 | % |
| Advisor | | | | |
| 1-Year | +5.26 | % | +5.26 | % |
| 5-Year | +35.70 | % | +6.30 | % |
| 10-Year | +62.91 | % | +5.00 | % |
Performance data represent past performance, which does not guarantee future results. Investment return and principal value will fluctuate, and you may have a gain or loss when you sell your shares. Current performance may differ from figures shown. For most recent month-end performance, go to franklintempleton.com or call (800) 342-5236.
See page 15 for Performance Summary footnotes.
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FRANKLIN MODERATE ALLOCATION FUND
PERFORMANCE SUMMARY
Total Return Index Comparison for a Hypothetical $10,000 Investment1
Total return represents the change in value of an investment over the periods shown. It includes any applicable maximum sales charge, Fund expenses, account fees and reinvested distributions. The unmanaged indexes include reinvestment of any income or distributions. They differ from the Fund in composition and do not pay management fees or expenses. One cannot invest directly in an index.
See page 15 for Performance Summary footnotes.
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| | | |
| | | | FRANKLIN MODERATE ALLOCATION FUND |
| | | | PERFORMANCE SUMMARY |
| |
| Total Annual Operating Expenses5 | | | |
| Share Class | | | |
| A | 1.29 | % | |
| Advisor | 1.04 | % | |
Each class of shares is available to certain eligible investors and has different annual fees and expenses, as described in the prospectus.
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.
1. The Fund has a fee waiver associated with any investment it makes in a Franklin Templeton money fund, contractually guaranteed through its current fiscal year-end. Fund
investment results reflect the fee waiver; without this waiver, 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.
2. Cumulative total return represents the change in value of an investment over the periods indicated.
3. Average annual total return represents the average annual change in value of an investment over the periods indicated. Return for less than one year, ifany,hasnotbeen
annualized.
4. Source: Morningstar. The MSCI ACWI is a free float-adjusted, market capitalization-weighted index designed to measure equity market performance inglobaldevelopedand
emerging markets. The Bloomberg Barclays Multiverse Index provides a broad-based measure of the global fixed income bond market. The index represents the union of the
Global Aggregate Index and the Global High Yield Index and captures investment-grade and high yield securities in all eligible currencies.
5. Figures are as stated in the Fund’s current prospectus, including the effect of acquired fund fees and expenses, and may differ from the expense ratios disclosed in the Your
Fund’s Expenses and Financial Highlights sections in this report. In periods of market volatility, assets may decline significantly, causing total annual Fund operating expenses
to become higher than the figures shown.
See www.franklintempletondatasources.com for additional data provider information.
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15
FRANKLIN MODERATE ALLOCATION FUND
Your Fund’s Expenses
As a Fund shareholder, you can incur two types of costs: (1) transaction costs, including sales charges (loads) on Fund purchases and redemptions; and (2) ongoing Fund costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs, sometimes referred to as operating expenses. The table below 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 table below provides information about actual account values and actual expenses in the columns under the heading “Actual.” In these columns the Fund’s actual return, which includes the effect of Fund expenses, is used to calculate the “Ending Account Value” for each class of shares. 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): Divide your account value by $1,000 (if your account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6). Then multiply the result by the number in the row for your class of shares under the headings “Actual” and “Expenses Paid During Period” (if Actual Expenses Paid During Period were $7.50, then 8.6 x $7.50 = $64.50). In this illustration, the actual expenses paid this period are $64.50.
Hypothetical Example for Comparison with Other Funds
Under the heading “Hypothetical” in the table, information is provided about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. This information may not be used to estimate the actual ending account balance or expenses you paid for the period, but it can help you compare ongoing costs of investing in the Fund with those of other funds. To do so, compare this 5% hypothetical example for the class of shares you hold with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that expenses shown in the table are meant to highlight ongoing costs and do not reflect any transactional costs. Therefore, information under the heading “Hypothetical” is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transactional costs were included, your total costs would have been higher.
| | | | | | | | | | | | |
| | | | | | Actual | | Hypothetical | | |
| | | | | (actual return after expenses) | | (5% annual return before expenses) | | |
| | | | | | | Expenses | | | | Expenses | Net | |
| | | Beginning | | Ending | | Paid During | | Ending | | Paid During | Annualized | |
| Share | | Account | | Account | | Period | | Account | | Period | Expense | |
| Class | | Value 7/1/16 | | Value 12/31/16 | | 7/1/16–12/31/161,2 | | Value 12/31/16 | | 7/1/16–12/31/161,2 | Ratio2 | |
| A | $ | 1,000 | $ | 1,034.40 | $ | 3.17 | $ | 1,022.02 | $ | 3.15 | 0.62 | % |
| C | $ | 1,000 | $ | 1,030.80 | $ | 6.94 | $ | 1,018.30 | $ | 6.90 | 1.36 | % |
| R | $ | 1,000 | $ | 1,033.50 | $ | 4.45 | $ | 1,020.76 | $ | 4.42 | 0.87 | % |
| R6 | $ | 1,000 | $ | 1,036.20 | $ | 1.43 | $ | 1,023.73 | $ | 1.42 | 0.28 | % |
| Advisor | $ | 1,000 | $ | 1,036.20 | $ | 1.89 | $ | 1,023.28 | $ | 1.88 | 0.37 | % |
1. Expenses are equal to the annualized expense ratio for the six-month period as indicated above–in the far right column–multiplied by the simple average account value
over the period indicated, and then multiplied by 184/366 to reflect the one-half year period.
2. Reflects expenses after fee waivers and expense reimbursements. Does not include acquired fund fees and expenses.
16 Annual Report
franklintempleton.com
Franklin Growth Allocation Fund
This annual report for Franklin Growth Allocation Fund covers the fiscal year ended December 31, 2016.
Your Fund’s Goal and Main Investments
The Fund seeks the highest level of long-term total return consistent with an acceptable 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 had a +5.36% cumulative total return for the 12 months under review. In comparison, the Fund’s equity benchmark, the MSCI All Country World Index (ACWI), which measures equity market performance in global developed and emerging markets, had a +8.48% total return.2 The Fund’s fixed income benchmark, the Bloomberg Barclays Multiverse Index, a broad-based measure of the global fixed income bond market, had a +2.84% total return.2 You can find the Fund’s long-term performance data in the Performance Summary beginning on page 19.
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.
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.
| | |
| Top 10 Fund Holdings | | |
| 12/31/16 | | |
| | % of Total | |
| Net Assets | |
| Franklin Growth Fund – Class R6 | 19.6 | % |
| Franklin Rising Dividends Fund – Class R6 | 12.7 | % |
| Franklin DynaTech Fund – Class R6 | 8.6 | % |
| Franklin International Small Cap Growth Fund – Class R6 | 7.6 | % |
| Franklin Mutual European Fund – Class R6 | 6.8 | % |
| Templeton Foreign Fund – Class R6 | 6.7 | % |
| Franklin LibertyQ Emerging Markets ETF | 4.5 | % |
| Franklin K2 Alternative Strategies Fund – Class R6 | 4.4 | % |
| Franklin Utilities Fund – Class R6 | 4.1 | % |
| Franklin Low Duration Total Return Fund – Class R6 | 3.7 | % |
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 80.4% of total net assets to equity, 12.7% to fixed income and
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. They do not reflect any feed, expenses or sales charges. 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 40.
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Annual Report
17
FRANKLIN GROWTH ALLOCATION FUND
6.8% to alternative strategies. Domestic equity exposure was 64.4% of the total equity weighting, with the balance represented by foreign equity. The portfolio was diversified across capitalization sizes and investment styles, and on December 31, 2016, 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 19.6% of total net assets. On the fixed income side, domestic exposure was 88.2% of the Fund’s total income weighting, with the balance represented by foreign fixed income. Franklin Low Duration Total Return Fund –Class R6 was our largest fixed income fund weighting at 3.7% of total net assets.
During the 12-month reporting period, our largest domestic growth fund holding, Franklin Growth Fund – Class R6, performed in line with the MSCI ACWI, while our largest foreign equity fund holding, Franklin International Small Cap Growth Fund – Class R6, underperformed the MSCI ACWI. Our largest domestic value fund holding, Franklin Rising Dividends Fund – Class R6, outperformed the MSCI ACWI. On the fixed income side, Franklin Low Duration Total Return Fund – Class R6 and Templeton Global Total Return Fund –Class R6 outperformed the Bloomberg 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 December 31, 2016, 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.
18 Annual Report
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FRANKLIN GROWTH ALLOCATION FUND
Performance Summary as of December 31, 2016
The performance table and graphs do not reflect any taxes that a shareholder would pay on Fund dividends, capital gain distributions, if any, or any realized gains on the sale of Fund shares. Total return reflects reinvestment of the Fund’s dividends and capital gain distributions, if any, and any unrealized gains or losses.
Performance as of 12/31/161
Cumulative total return excludes sales charges. Average annual total return includes maximum sales charges. Sales charges will vary depending on the size of the investment and the class of share purchased. The maximum is 5.75% and the minimum is 0%. Class A: 5.75% maximum initial sales charge; Advisor Class: no sales charges. For other share classes, visit franklintempleton.com.
| | | | |
| | Cumulative | | Average Annual | |
| Share Class | Total Return2 | | Total Return3 | |
| A | | | | |
| 1-Year | +5.36 | % | -0.71 | % |
| 5-Year | +45.41 | % | +6.50 | % |
| 10-Year | +61.59 | % | +4.30 | % |
| Advisor | | | | |
| 1-Year | +5.60 | % | +5.60 | % |
| 5-Year | +47.25 | % | +8.05 | % |
| 10-Year | +65.69 | % | +5.18 | % |
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.
See page 21 for Performance Summary footnotes.
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Annual Report
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FRANKLIN GROWTH ALLOCATION FUND
PERFORMANCE SUMMARY
Total Return Index Comparison for a Hypothetical $10,000 Investment1
Total return represents the change in value of an investment over the periods shown. It includes any applicable maximum sales charge, Fund expenses, account fees and reinvested distributions. The unmanaged indexes include reinvestment of any income or distributions. They differ from the Fund in composition and do not pay management fees or expenses. One cannot invest directly in an index.
See page 21 for Performance Summary footnotes.
20 Annual Report
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| | | | | |
| | | | | | FRANKLIN GROWTH ALLOCATION FUND |
| | | | | | PERFORMANCE SUMMARY |
| |
| Total Annual Operating Expenses5 | | | | |
| Share Class | With Waiver | | Without Waiver | | |
| A | 1.33 | % | 1.35 | % | |
| Advisor | 1.08 | % | 1.10 | % | |
Each class of shares is available to certain eligible investors and has different annual fees and expenses, as described in the prospectus.
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.
1. The Fund has an expense reduction contractually guaranteed through 4/30/17. The Fund also has a fee waiver associated with any investments it makes in a Franklin
Templeton money fund, contractually guaranteed through at least the Fund’s current fiscal year-end. Fund investment results reflect the expense reduction and fee waiver;
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.
2. Cumulative total return represents the change in value of an investment over the periods indicated.
3. Average annual total return represents the average annual change in value of an investment over the periods indicated. Return for less than one year, ifany,hasnotbeen
annualized.
4. Source: Morningstar. The MSCI ACWI is a free float-adjusted, market capitalization-weighted index designed to measure equity market performance inglobaldevelopedand
emerging markets. The Bloomberg Barclays Multiverse Index provides a broad-based measure of the global fixed income bond market. The index represents the union of the
Global Aggregate Index and the Global High Yield Index and captures investment-grade and high yield securities in all eligible currencies.
5. Figures are as stated in the Fund’s current prospectus, including the effect of acquired fund fees and expenses, and may differ from the expense ratios disclosed in the Your
Fund’s Expenses and Financial Highlights sections in this report. In periods of market volatility, assets may decline significantly, causing total annual Fund operating expenses
to become higher than the figures shown.
See www.franklintempletondatasources.com for additional data provider information.
franklintempleton.com
Annual Report
21
FRANKLIN GROWTH ALLOCATION FUND
Your Fund’s Expenses
As a Fund shareholder, you can incur two types of costs: (1) transaction costs, including sales charges (loads) on Fund purchases and redemptions; and (2) ongoing Fund costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs, sometimes referred to as operating expenses. The table below 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 table below provides information about actual account values and actual expenses in the columns under the heading “Actual.” In these columns the Fund’s actual return, which includes the effect of Fund expenses, is used to calculate the “Ending Account Value” for each class of shares. 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): Divide your account value by $1,000 (if your account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6). Then multiply the result by the number in the row for your class of shares under the headings “Actual” and “Expenses Paid During Period” (if Actual Expenses Paid During Period were $7.50, then 8.6 x $7.50 = $64.50). In this illustration, the actual expenses paid this period are $64.50.
Hypothetical Example for Comparison with Other Funds
Under the heading “Hypothetical” in the table, information is provided about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. This information may not be used to estimate the actual ending account balance or expenses you paid for the period, but it can help you compare ongoing costs of investing in the Fund with those of other funds. To do so, compare this 5% hypothetical example for the class of shares you hold with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that expenses shown in the table are meant to highlight ongoing costs and do not reflect any transactional costs. Therefore, information under the heading “Hypothetical” is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transactional costs were included, your total costs would have been higher.
| | | | | | | | | | | | |
| | | | | | Actual | | Hypothetical | | |
| | | | | (actual return after expenses) | | (5% annual return before expenses) | | |
| | | | | | | Expenses | | | | Expenses | Net | |
| | | Beginning | | Ending | | Paid During | | Ending | | Paid During | Annualized | |
| Share | | Account | | Account | | Period | | Account | | Period | Expense | |
| Class | | Value 7/1/16 | | Value 12/31/16 | | 7/1/16–12/31/161,2 | | Value 12/31/16 | | 7/1/16–12/31/161,2 | Ratio2 | |
| A | $ | 1,000 | $ | 1,041.30 | $ | 3.34 | $ | 1,021.87 | $ | 3.30 | 0.65 | % |
| C | $ | 1,000 | $ | 1,037.00 | $ | 7.12 | $ | 1,018.15 | $ | 7.05 | 1.39 | % |
| R | $ | 1,000 | $ | 1,039.90 | $ | 4.61 | $ | 1,020.61 | $ | 4.57 | 0.90 | % |
| R6 | $ | 1,000 | $ | 1,043.50 | $ | 1.34 | $ | 1,023.83 | $ | 1.32 | 0.26 | % |
| Advisor | $ | 1,000 | $ | 1,042.40 | $ | 2.05 | $ | 1,023.13 | $ | 2.03 | 0.40 | % |
1. Expenses are equal to the annualized expense ratio for the six-month period as indicated above–in the far right column–multiplied by the simple average account value
over the period indicated, and then multiplied by 184/366 to reflect the one-half year period.
2. Reflects expenses after fee waivers and expense reimbursements. Does not include acquired fund fees and expenses.
22 Annual Report
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| | | | | | | | | | | | | | | |
| | | | | | FRANKLIN FUND ALLOCATOR SERIES | |
| |
| |
| |
| Financial Highlights | | | | | | | | | | | | | | | |
| Franklin Conservative Allocation Fund | | | | | | | | | | | | | | | |
| | | | | | Year Ended December 31, | | | | |
| | | 2016 | | | 2015 | | | 2014 | | | 2013 | | | 2012 | |
| Class A | | | | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | | | | |
| (for a share outstanding throughout the year) | | | | | | | | | | | | | | | |
| Net asset value, beginning of year | $ | 13.40 | | $ | 14.53 | | $ | 14.65 | | $ | 14.06 | | $ | 13.33 | |
| Income from investment operationsa: | | | | | | | | | | | | | | | |
| Net investment incomeb,c | | 0.14 | | | 0.28 | | | 0.40 | | | 0.31 | | | 0.27 | |
| Net realized and unrealized gains (losses) | | 0.45 | | | (0.60 | ) | | 0.09 | | | 1.12 | | | 0.79 | |
| Total from investment operations | | 0.59 | | | (0.32 | ) | | 0.49 | | | 1.43 | | | 1.06 | |
| Less distributions from: | | | | | | | | | | | | | | | |
| Net investment income and short term gains received from | | | | | | | | | | | | | | | |
| Underlying Funds and exchange traded funds | | (0.15 | ) | | (0.28 | ) | | (0.42 | ) | | (0.32 | ) | | (0.30 | ) |
| Net realized gains | | (0.10 | ) | | (0.53 | ) | | (0.19 | ) | | (0.52 | ) | | (0.03 | ) |
| Total distributions | | (0.25 | ) | | (0.81 | ) | | (0.61 | ) | | (0.84 | ) | | (0.33 | ) |
| Net asset value, end of year. | $ | 13.74 | | $ | 13.40 | | $ | 14.53 | | $ | 14.65 | | $ | 14.06 | |
| |
| Total returnd | | 4.39 | % | | (2.26 | )% | | 3.35 | % | | 10.39 | % | | 7.99 | % |
| |
| Ratios to average net assets | | | | | | | | | | | | | | | |
| Expenses before waiver and payments by affiliatese | | 0.63 | % | | 0.62 | % | | 0.63 | % | | 0.60 | % | | 0.53 | % |
| Expenses net of waiver and payments by affiliatese | | 0.63 | %f | | 0.62 | %f | | 0.63 | %f | | 0.59 | % | | 0.50 | % |
| Net investment incomec | | 1.01 | % | | 1.97 | % | | 2.67 | % | | 2.11 | % | | 1.98 | % |
| |
| Supplemental data | | | | | | | | | | | | | | | |
| Net assets, end of year (000’s) | $ | 809,039 | | $ | 905,537 | | $ | 910,523 | | $ | 871,541 | | $ | 794,429 | |
| Portfolio turnover rate | | 34.83 | % | | 17.69 | % | | 16.67 | % | | 57.59 | % | | 25.82 | % |
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 inwhichthe
Fund invests.
dTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable.
eDoes 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 0.61% for the year ended December 31, 2016.
fBenefit 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. | Annual Report 23
| | | | | | | | | | | | | | | |
| FRANKLIN FUND ALLOCATOR SERIES | | | | | | | | | | | | | | | |
| FINANCIAL HIGHLIGHTS | | | | | | | | | | | | | | | |
| |
| |
| Franklin Conservative Allocation Fund (continued) | | | | | | | | | | | | | | | |
| | | | | | Year Ended December 31, | | | | |
| | | 2016 | | | 2015 | | | 2014 | | | 2013 | | | 2012 | |
| Class C | | | | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | | | | |
| (for a share outstanding throughout the year) | | | | | | | | | | | | | | | |
| Net asset value, beginning of year | $ | 13.15 | | $ | 14.27 | | $ | 14.40 | | $ | 13.83 | | $ | 13.13 | |
| Income from investment operationsa: | | | | | | | | | | | | | | | |
| Net investment incomeb,c | | 0.04 | | | 0.17 | | | 0.28 | | | 0.20 | | | 0.17 | |
| Net realized and unrealized gains (losses) | | 0.43 | | | (0.58 | ) | | 0.09 | | | 1.11 | | | 0.76 | |
| Total from investment operations | | 0.47 | | | (0.41 | ) | | 0.37 | | | 1.31 | | | 0.93 | |
| Less distributions from: | | | | | | | | | | | | | | | |
| Net investment income and short term gains received from | | | | | | | | | | | | | | | |
| Underlying Funds and exchange traded funds | | (0.05 | ) | | (0.18 | ) | | (0.31 | ) | | (0.22 | ) | | (0.20 | ) |
| Net realized gains | | (0.10 | ) | | (0.53 | ) | | (0.19 | ) | | (0.52 | ) | | (0.03 | ) |
| Total distributions | | (0.15 | ) | | (0.71 | ) | | (0.50 | ) | | (0.74 | ) | | (0.23 | ) |
| Net asset value, end of year. | $ | 13.47 | | $ | 13.15 | | $ | 14.27 | | $ | 14.40 | | $ | 13.83 | |
| |
| Total returnd | | 3.55 | % | | (2.96 | )% | | 2.58 | % | | 9.61 | % | | 7.09 | % |
| |
| Ratios to average net assets | | | | | | | | | | | | | | | |
| Expenses before waiver and payments by affiliatese | | 1.37 | % | | 1.37 | % | | 1.38 | % | | 1.35 | % | | 1.28 | % |
| Expenses net of waiver and payments by affiliatese | | 1.37 | %f | | 1.37 | %f | | 1.38 | %f | | 1.34 | % | | 1.25 | % |
| Net investment incomec | | 0.27 | % | | 1.22 | % | | 1.92 | % | | 1.36 | % | | 1.23 | % |
| |
| Supplemental data | | | | | | | | | | | | | | | |
| Net assets, end of year (000’s) | $ | 470,582 | | $ | 536,548 | | $ | 549,222 | | $ | 524,756 | | $ | 452,211 | |
| Portfolio turnover rate | | 34.83 | % | | 17.69 | % | | 16.67 | % | | 57.59 | % | | 25.82 | % |
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 inwhichthe
Fund invests.
dTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable.
eDoes 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 0.61% for the year ended December 31, 2016.
fBenefit of waiver and payments by affiliates rounds to less than 0.01%.
24 Annual 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) | | | | | | | | | | | | | | | |
| | | | | | Year Ended December 31, | | | | |
| | | 2016 | | | 2015 | | | 2014 | | | 2013 | | | 2012 | |
| Class R | | | | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | | | | |
| (for a share outstanding throughout the year) | | | | | | | | | | | | | | | |
| Net asset value, beginning of year | $ | 13.35 | | $ | 14.48 | | $ | 14.60 | | $ | 14.01 | | $ | 13.29 | |
| Income from investment operationsa: | | | | | | | | | | | | | | | |
| Net investment incomeb,c | | 0.10 | | | 0.24 | | | 0.35 | | | 0.26 | | | 0.24 | |
| Net realized and unrealized gains (losses) | | 0.45 | | | (0.59 | ) | | 0.10 | | | 1.14 | | | 0.78 | |
| Total from investment operations | | 0.55 | | | (0.35 | ) | | 0.45 | | | 1.40 | | | 1.02 | |
| Less distributions from: | | | | | | | | | | | | | | | |
| Net investment income and short term gains received from | | | | | | | | | | | | | | | |
| Underlying Funds and exchange traded funds | | (0.11 | ) | | (0.25 | ) | | (0.38 | ) | | (0.29 | ) | | (0.27 | ) |
| Net realized gains | | (0.10 | ) | | (0.53 | ) | | (0.19 | ) | | (0.52 | ) | | (0.03 | ) |
| Total distributions | | (0.21 | ) | | (0.78 | ) | | (0.57 | ) | | (0.81 | ) | | (0.30 | ) |
| Net asset value, end of year. | $ | 13.69 | | $ | 13.35 | | $ | 14.48 | | $ | 14.60 | | $ | 14.01 | |
| |
| Total return | | 4.15 | % | | (2.52 | )% | | 3.10 | % | | 10.14 | % | | 7.68 | % |
| |
| Ratios to average net assets | | | | | | | | | | | | | | | |
| Expenses before waiver and payments by affiliatesd | | 0.88 | % | | 0.87 | % | | 0.88 | % | | 0.85 | % | | 0.78 | % |
| Expenses net of waiver and payments by affiliatesd | | 0.88 | %e | | 0.87 | %e | | 0.88 | %e | | 0.84 | % | | 0.75 | % |
| Net investment incomec | | 0.76 | % | | 1.72 | % | | 2.42 | % | | 1.86 | % | | 1.73 | % |
| |
| Supplemental data | | | | | | | | | | | | | | | |
| Net assets, end of year (000’s) | $ | 124,018 | | $ | 139,592 | | $ | 159,897 | | $ | 166,927 | | $ | 178,520 | |
| Portfolio turnover rate | | 34.83 | % | | 17.69 | % | | 16.67 | % | | 57.59 | % | | 25.82 | % |
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 inwhichthe
Fund invests.
dDoes 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 0.61% for the year ended December 31, 2016.
eBenefit 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. | Annual Report 25
| | | | | | | | | | | | |
| FRANKLIN FUND ALLOCATOR SERIES | | | | | | | | | | | | |
| FINANCIAL HIGHLIGHTS | | | | | | | | | | | | |
| |
| |
| Franklin Conservative Allocation Fund (continued) | | | | | | | | | | | | |
| | | | | | Year Ended December 31, | | | | |
| | | 2016 | | | 2015 | | | 2014 | | | 2013 | a |
| Class R6 | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | |
| (for a share outstanding throughout the year) | | | | | | | | | | | | |
| Net asset value, beginning of year | $ | 13.39 | | $ | 14.52 | | $ | 14.63 | | $ | 14.62 | |
| Income from investment operationsb: | | | | | | | | | | | | |
| Net investment incomec,d | | 0.18 | | | 0.36 | | | 0.33 | | | 0.54 | |
| Net realized and unrealized gains (losses) | | 0.44 | | | (0.63 | ) | | 0.22 | | | 0.32 | |
| Total from investment operations | | 0.62 | | | (0.27 | ) | | 0.55 | | | 0.86 | |
| Less distributions from: | | | | | | | | | | | | |
| Net investment income and short term gains received from Underlying Funds | | | | | | | | | | | | |
| and exchange traded funds | | (0.19 | ) | | (0.33 | ) | | (0.47 | ) | | (0.33 | ) |
| Net realized gains | | (0.10 | ) | | (0.53 | ) | | (0.19 | ) | | (0.52 | ) |
| Total distributions | | (0.29 | ) | | (0.86 | ) | | (0.66 | ) | | (0.85 | ) |
| Net asset value, end of year | $ | 13.72 | | $ | 13.39 | | $ | 14.52 | | $ | 14.63 | |
| |
| Total returne | | 4.69 | % | | (1.93 | )% | | 3.79 | % | | 6.06 | % |
| |
| Ratios to average net assetsf | | | | | | | | | | | | |
| Expenses before waiver and payments by affiliatesg | | 0.30 | % | | 0.29 | % | | 0.28 | % | | 1.06 | % |
| Expenses net of waiver and payments by affiliatesg | | 0.28 | % | | 0.28 | % | | 0.28 | %h | | 0.28 | % |
| Net investment incomed | | 1.36 | % | | 2.31 | % | | 3.02 | % | | 2.44 | % |
| |
| Supplemental data | | | | | | | | | | | | |
| Net assets, end of year (000’s) | $ | 2,197 | | $ | 2,282 | | $ | 1,654 | | $ | 37 | |
| Portfolio turnover rate | | 34.83 | % | | 17.69 | % | | 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 inwhichthe
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 0.61% for the year ended December 31, 2016.
hBenefit of waiver and payments by affiliates rounds to less than 0.01%.
26 Annual 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) | | | | | | | | | | | | | | | |
| | | | | | Year Ended December 31, | | | | |
| | | 2016 | | | 2015 | | | 2014 | | | 2013 | | | 2012 | |
| Advisor Class | | | | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | | | | |
| (for a share outstanding throughout the year) | | | | | | | | | | | | | | | |
| Net asset value, beginning of year | $ | 13.39 | | $ | 14.52 | | $ | 14.64 | | $ | 14.05 | | $ | 13.32 | |
| Income from investment operationsa: | | | | | | | | | | | | | | | |
| Net investment incomeb,c | | 0.17 | | | 0.32 | | | 0.41 | | | 0.35 | | | 0.31 | |
| Net realized and unrealized gains (losses) | | 0.45 | | | (0.60 | ) | | 0.11 | | | 1.12 | | | 0.79 | |
| Total from investment operations | | 0.62 | | | (0.28 | ) | | 0.52 | | | 1.47 | | | 1.10 | |
| Less distributions from: | | | | | | | | | | | | | | | |
| Net investment income and short term gains received from | | | | | | | | | | | | | | | |
| Underlying Funds and exchange traded funds | | (0.17 | ) | | (0.32 | ) | | (0.45 | ) | | (0.36 | ) | | (0.34 | ) |
| Net realized gains | | (0.10 | ) | | (0.53 | ) | | (0.19 | ) | | (0.52 | ) | | (0.03 | ) |
| Total distributions | | (0.27 | ) | | (0.85 | ) | | (0.64 | ) | | (0.88 | ) | | (0.37 | ) |
| Net asset value, end of year. | $ | 13.74 | | $ | 13.39 | | $ | 14.52 | | $ | 14.64 | | $ | 14.05 | |
| |
| Total return | | 4.69 | % | | (2.02 | )% | | 3.61 | % | | 10.67 | % | | 8.27 | % |
| |
| Ratios to average net assets | | | | | | | | | | | | | | | |
| Expenses before waiver and payments by affiliatesd | | 0.38 | % | | 0.37 | % | | 0.38 | % | | 0.35 | % | | 0.28 | % |
| Expenses net of waiver and payments by affiliatesd | | 0.38 | %e | | 0.37 | %e | | 0.38 | %e | | 0.34 | % | | 0.25 | % |
| Net investment incomec | | 1.26 | % | | 2.22 | % | | 2.92 | % | | 2.36 | % | | 2.23 | % |
| |
| Supplemental data | | | | | | | | | | | | | | | |
| Net assets, end of year (000’s) | $ | 27,578 | | $ | 82,234 | | $ | 90,263 | | $ | 105,657 | | $ | 85,662 | |
| Portfolio turnover rate | | 34.83 | % | | 17.69 | % | | 16.67 | % | | 57.59 | % | | 25.82 | % |
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 inwhichthe
Fund invests.
dDoes 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 0.61% for the year ended December 31, 2016.
eBenefit 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. | Annual Report 27
FRANKLIN FUND ALLOCATOR SERIES
Statement of Investments, December 31, 2016
Franklin Conservative Allocation Fund
| | | | |
| | Shares | | Value | |
| |
| Investments in Underlying Funds and Exchange Traded Funds 99.9% | | | | |
| Alternative Strategies 6.8% | | | | |
| a Franklin K2 Alternative Strategies Fund, Class R6 | 5,855,419 | $ | 63,121,413 | |
| a,b Franklin Pelagos Commodities Strategy Fund, Class R6 | 5,230,884 | | 34,523,838 | |
| | | | 97,645,251 | |
| Domestic Equity 26.6% | | | | |
| Financial Select Sector SPDR ETF | 753,100 | | 17,509,575 | |
| a,b Franklin DynaTech Fund, Class R6 | 1,322,480 | | 65,145,366 | |
| a Franklin Growth Fund, Class R6 | 1,878,039 | | 143,876,605 | |
| a Franklin Rising Dividends Fund, Class R6 | 1,745,373 | | 91,736,806 | |
| a,b Franklin Small Cap Growth Fund, Class R6 | 451,035 | | 8,975,592 | |
| a Franklin Utilities Fund, Class R6 | 1,622,554 | | 28,832,790 | |
| iShares S&P 500 Value ETF | 247,055 | | 25,046,436 | |
| | | | 381,123,170 | |
| Domestic Fixed Income 46.4% | | | | |
| a Franklin Low Duration Total Return Fund, Class R6 | 21,122,177 | | 208,687,107 | |
| a Franklin Strategic Income Fund, Class R6 | 18,464,604 | | 177,998,780 | |
| a Franklin U.S. Government Securities Fund, Class R6 | 33,205,449 | | 206,537,893 | |
| iShares iBoxx $ Investment Grade Corporate Bond ETF | 258,600 | | 30,302,748 | |
| iShares TIPS Bond ETF | 370,562 | | 41,936,502 | |
| | | | 665,463,030 | |
| Foreign Equity 13.5% | | | | |
| a Franklin International Small Cap Growth Fund, Class R6 | 2,996,940 | | 49,179,786 | |
| a Franklin LibertyQ Emerging Markets ETF | 1,238,500 | | 32,956,485 | |
| a Franklin Mutual European Fund, Class R6 | 2,492,970 | | 47,815,162 | |
| iShares MSCI Japan ETF (Japan) | 194,425 | | 9,499,606 | |
| a Templeton Foreign Fund, Class R6 | 6,554,098 | | 45,026,655 | |
| a Templeton Frontier Markets Fund, Class R6 | 769,014 | | 8,366,871 | |
| | | | 192,844,565 | |
| Foreign Fixed Income 6.6% | | | | |
| a,b Templeton Global Total Return Fund, Class R6 | 7,785,702 | | 94,206,991 | |
| Total Investments in Underlying Funds and Exchange Traded Funds | | | | |
| before Short Term Investments (Cost $1,305,901,420) | | | 1,431,283,007 | |
| |
| |
| Short Term Investments (Cost $6,351,087) 0.4% | | | | |
| Money Market Funds 0.4% | | | | |
| a,c Institutional Fiduciary Trust Money Market Portfolio, 0.09% | 6,351,087 | | 6,351,087 | |
| Total Investments in Underlying Funds and Exchange Traded Funds | | | | |
| (Cost $1,312,252,507) 100.3% | | | 1,437,634,094 | |
| Other Assets, less Liabilities (0.3)% | | | (4,218,687 | ) |
| Net Assets 100.0% | | $ | 1,433,415,407 | |
See Abbreviations on page 57.
aSee Note 3(f) regarding investments in FT Underlying Funds.
bNon-income producing.
cThe rate shown is the annualized seven-day yield at period end.
28 Annual Report | The accompanying notes are an integral part of these financial statements.
franklintempleton.com
| | | | | | | | | | | | | | | |
| | | | | | FRANKLIN FUND ALLOCATOR SERIES | |
| |
| |
| |
| Financial Highlights | | | | | | | | | | | | | | | |
| Franklin Moderate Allocation Fund | | | | | | | | | | | | | | | |
| | | | | | Year Ended December 31, | | | | |
| | | 2016 | | | 2015 | | | 2014 | | | 2013 | | | 2012 | |
| Class A | | | | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | | | | |
| (for a share outstanding throughout the year) | | | | | | | | | | | | | | | |
| Net asset value, beginning of year | $ | 14.49 | | $ | 15.71 | | $ | 15.78 | | $ | 14.59 | | $ | 13.69 | |
| Income from investment operationsa: | | | | | | | | | | | | | | | |
| Net investment incomeb,c | | 0.14 | | | 0.24 | | | 0.34 | | | 0.27 | | | 0.29 | |
| Net realized and unrealized gains (losses) | | 0.56 | | | (0.51 | ) | | 0.32 | | | 1.78 | | | 0.97 | |
| Total from investment operations | | 0.70 | | | (0.27 | ) | | 0.66 | | | 2.05 | | | 1.26 | |
| Less distributions from: | | | | | | | | | | | | | | | |
| Net investment income and short term gains received from | | | | | | | | | | | | | | | |
| Underlying Funds and exchange traded funds | | (0.12 | ) | | (0.25 | ) | | (0.37 | ) | | (0.30 | ) | | (0.32 | ) |
| Net realized gains | | (0.21 | ) | | (0.70 | ) | | (0.36 | ) | | (0.56 | ) | | (0.04 | ) |
| Total distributions | | (0.33 | ) | | (0.95 | ) | | (0.73 | ) | | (0.86 | ) | | (0.36 | ) |
| Net asset value, end of year. | $ | 14.86 | | $ | 14.49 | | $ | 15.71 | | $ | 15.78 | | $ | 14.59 | |
| |
| Total returnd | | 4.94 | % | | (1.89 | )% | | 4.07 | % | | 14.35 | % | | 9.34 | % |
| |
| Ratios to average net assets | | | | | | | | | | | | | | | |
| Expenses before waiver and payments by affiliatese | | 0.63 | % | | 0.63 | % | | 0.65 | % | | 0.61 | % | | 0.53 | % |
| Expenses net of waiver and payments by affiliatese | | 0.63 | %f | | 0.63 | %f | | 0.65 | %f | | 0.59 | % | | 0.50 | % |
| Net investment incomec | | 0.93 | % | | 1.52 | % | | 2.08 | % | | 1.74 | % | | 2.00 | % |
| |
| Supplemental data | | | | | | | | | | | | | | | |
| Net assets, end of year (000’s) | $ | 1,416,532 | | $ | 1,594,882 | | $ | 1,667,201 | | $ | 1,636,122 | | $ | 1,452,659 | |
| Portfolio turnover rate | | 29.22 | % | | 22.08 | % | | 17.95 | % | | 46.14 | % | | 25.36 | % |
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 inwhichthe
Fund invests.
dTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable.
eDoes 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 0.64% for the year ended December 31, 2016.
fBenefit 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. | Annual Report 29
| | | | | | | | | | | | | | | |
| FRANKLIN FUND ALLOCATOR SERIES | | | | | | | | | | | | | | | |
| FINANCIAL HIGHLIGHTS | | | | | | | | | | | | | | | |
| |
| |
| Franklin Moderate Allocation Fund (continued) | | | | | | | | | | | | | | | |
| | | | | | Year Ended December 31, | | | | |
| | | 2016 | | | 2015 | | | 2014 | | | 2013 | | | 2012 | |
| Class C | | | | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | | | | |
| (for a share outstanding throughout the year) | | | | | | | | | | | | | | | |
| Net asset value, beginning of year | $ | 14.12 | | $ | 15.33 | | $ | 15.42 | | $ | 14.28 | | $ | 13.40 | |
| Income from investment operationsa: | | | | | | | | | | | | | | | |
| Net investment incomeb,c | | 0.03 | | | 0.12 | | | 0.21 | | | 0.15 | | | 0.17 | |
| Net realized and unrealized gains (losses) | | 0.55 | | | (0.49 | ) | | 0.31 | | | 1.74 | | | 0.97 | |
| Total from investment operations | | 0.58 | | | (0.37 | ) | | 0.52 | | | 1.89 | | | 1.14 | |
| Less distributions from: | | | | | | | | | | | | | | | |
| Net investment income and short term gains received from | | | | | | | | | | | | | | | |
| Underlying Funds and exchange traded funds | | (0.01 | ) | | (0.14 | ) | | (0.25 | ) | | (0.19 | ) | | (0.22 | ) |
| Net realized gains | | (0.21 | ) | | (0.70 | ) | | (0.36 | ) | | (0.56 | ) | | (0.04 | ) |
| Total distributions | | (0.22 | ) | | (0.84 | ) | | (0.61 | ) | | (0.75 | ) | | (0.26 | ) |
| Net asset value, end of year. | $ | 14.48 | | $ | 14.12 | | $ | 15.33 | | $ | 15.42 | | $ | 14.28 | |
| |
| Total returnd | | 4.25 | % | | (2.68 | )% | | 3.35 | % | | 13.41 | % | | 8.51 | % |
| |
| Ratios to average net assets | | | | | | | | | | | | | | | |
| Expenses before waiver and payments by affiliatese | | 1.37 | % | | 1.38 | % | | 1.40 | % | | 1.36 | % | | 1.28 | % |
| Expenses net of waiver and payments by affiliatese | | 1.37 | %f | | 1.38 | %f | | 1.40 | %f | | 1.34 | % | | 1.25 | % |
| Net investment incomec | | 0.19 | % | | 0.77 | % | | 1.33 | % | | 0.99 | % | | 1.25 | % |
| |
| Supplemental data | | | | | | | | | | | | | | | |
| Net assets, end of year (000’s) | $ | 595,911 | | $ | 692,872 | | $ | 716,712 | | $ | 701,224 | | $ | 605,490 | |
| Portfolio turnover rate | | 29.22 | % | | 22.08 | % | | 17.95 | % | | 46.14 | % | | 25.36 | % |
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 inwhichthe
Fund invests.
dTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable.
eDoes 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 0.64% for the year ended December 31, 2016.
fBenefit of waiver and payments by affiliates rounds to less than 0.01%.
30 Annual 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) | | | | | | | | | | | | | | | |
| | | | | | Year Ended December 31, | | | | |
| | | 2016 | | | 2015 | | | 2014 | | | 2013 | | | 2012 | |
| Class R | | | | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | | | | |
| (for a share outstanding throughout the year) | | | | | | | | | | | | | | | |
| Net asset value, beginning of year | $ | 14.44 | | $ | 15.66 | | $ | 15.73 | | $ | 14.55 | | $ | 13.64 | |
| Income from investment operationsa: | | | | | | | | | | | | | | | |
| Net investment incomeb,c | | 0.10 | | | 0.19 | | | 0.28 | | | 0.22 | | | 0.25 | |
| Net realized and unrealized gains (losses) | | 0.57 | | | (0.51 | ) | | 0.34 | | | 1.78 | | | 0.99 | |
| Total from investment operations | | 0.67 | | | (0.32 | ) | | 0.62 | | | 2.00 | | | 1.24 | |
| Less distributions from: | | | | | | | | | | | | | | | |
| Net investment income and short term gains received from | | | | | | | | | | | | | | | |
| Underlying Funds and exchange traded funds | | (0.08 | ) | | (0.20 | ) | | (0.33 | ) | | (0.26 | ) | | (0.29 | ) |
| Net realized gains | | (0.21 | ) | | (0.70 | ) | | (0.36 | ) | | (0.56 | ) | | (0.04 | ) |
| Total distributions | | (0.29 | ) | | (0.90 | ) | | (0.69 | ) | | (0.82 | ) | | (0.33 | ) |
| Net asset value, end of year. | $ | 14.82 | | $ | 14.44 | | $ | 15.66 | | $ | 15.73 | | $ | 14.55 | |
| |
| Total return | | 4.71 | % | | (2.18 | )% | | 3.89 | % | | 13.97 | % | | 9.11 | % |
| |
| Ratios to average net assets | | | | | | | | | | | | | | | |
| Expenses before waiver and payments by affiliatesd | | 0.88 | % | | 0.88 | % | | 0.90 | % | | 0.86 | % | | 0.78 | % |
| Expenses net of waiver and payments by affiliatesd | | 0.88 | %e | | 0.88 | %e | | 0.90 | %e | | 0.84 | % | | 0.75 | % |
| Net investment incomec | | 0.68 | % | | 1.27 | % | | 1.83 | % | | 1.49 | % | | 1.75 | % |
| |
| Supplemental data | | | | | | | | | | | | | | | |
| Net assets, end of year (000’s) | $ | 158,192 | | $ | 202,854 | | $ | 263,864 | | $ | 286,688 | | $ | 274,881 | |
| Portfolio turnover rate | | 29.22 | % | | 22.08 | % | | 17.95 | % | | 46.14 | % | | 25.36 | % |
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 inwhichthe
Fund invests.
dDoes 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 0.64% for the year ended December 31, 2016.
eBenefit 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. | Annual Report 31
| | | | | | | | | | | | |
| FRANKLIN FUND ALLOCATOR SERIES | | | | | | | | | | | | |
| FINANCIAL HIGHLIGHTS | | | | | | | | | | | | |
| |
| |
| Franklin Moderate Allocation Fund (continued) | | | | | | | | | | | | |
| | | | | | Year Ended December 31, | | | | |
| | | 2016 | | | 2015 | | | 2014 | | | 2013 | a |
| Class R6 | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | |
| (for a share outstanding throughout the year) | | | | | | | | | | | | |
| Net asset value, beginning of year | $ | 14.49 | | $ | 15.72 | | $ | 15.79 | | $ | 15.33 | |
| Income from investment operationsb: | | | | | | | | | | | | |
| Net investment incomec,d | | 0.19 | | | 0.31 | | | 0.25 | | | 0.77 | |
| Net realized and unrealized gains (losses) | | 0.57 | | | (0.54 | ) | | 0.47 | | | 0.56 | |
| Total from investment operations | | 0.76 | | | (0.23 | ) | | 0.72 | | | 1.33 | |
| Less distributions from: | | | | | | | | | | | | |
| Net investment income and short term gains received from Underlying Funds | | | | | | | | | | | | |
| and exchange traded funds | | (0.18 | ) | | (0.30 | ) | | (0.43 | ) | | (0.31 | ) |
| Net realized gains | | (0.21 | ) | | (0.70 | ) | | (0.36 | ) | | (0.56 | ) |
| Total distributions | | (0.39 | ) | | (1.00 | ) | | (0.79 | ) | | (0.87 | ) |
| Net asset value, end of year | $ | 14.86 | | $ | 14.49 | | $ | 15.72 | | $ | 15.79 | |
| |
| Total returne | | 5.34 | % | | (1.59 | )% | | 4.52 | % | | 8.93 | % |
| |
| Ratios to average net assetsf | | | | | | | | | | | | |
| Expenses before waiver and payments by affiliatesg | | 0.28 | % | | 0.28 | % | | 0.27 | % | | 0.45 | % |
| Expenses net of waiver and payments by affiliatesg | | 0.28 | %h | | 0.28 | %h | | 0.27 | %h | | 0.26 | % |
| Net investment incomed | | 1.28 | % | | 1.87 | % | | 2.46 | % | | 2.07 | % |
| |
| Supplemental data | | | | | | | | | | | | |
| Net assets, end of year (000’s) | $ | 5,106 | | $ | 4,779 | | $ | 4,205 | | $ | 253 | |
| Portfolio turnover rate | | 29.22 | % | | 22.08 | % | | 17.95 | % | | 46.14 | % |
aForthe 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 inwhichthe
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 0.64% for the year ended December 31, 2016.
hBenefit of waiver and payments by affiliates rounds to less than 0.01%.
32 Annual 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) | | | | | | | | | | | | | | | |
| | | | | | Year Ended December 31, | | | | |
| | | 2016 | | | 2015 | | | 2014 | | | 2013 | | | 2012 | |
| Advisor Class | | | | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | | | | |
| (for a share outstanding throughout the year) | | | | | | | | | | | | | | | |
| Net asset value, beginning of year | $ | 14.50 | | $ | 15.72 | | $ | 15.79 | | $ | 14.60 | | $ | 13.69 | |
| Income from investment operationsa: | | | | | | | | | | | | | | | |
| Net investment incomeb,c | | 0.17 | | | 0.25 | | | 0.33 | | | 0.32 | | | 0.36 | |
| Net realized and unrealized gains (losses) | | 0.58 | | | (0.49 | ) | | 0.37 | | | 1.76 | | | 0.95 | |
| Total from investment operations | | 0.75 | | | (0.24 | ) | | 0.70 | | | 2.08 | | | 1.31 | |
| Less distributions from: | | | | | | | | | | | | | | | |
| Net investment income and short term gains received from | | | | | | | | | | | | | | | |
| Underlying Funds and exchange traded funds | | (0.16 | ) | | (0.28 | ) | | (0.41 | ) | | (0.33 | ) | | (0.36 | ) |
| Net realized gains | | (0.21 | ) | | (0.70 | ) | | (0.36 | ) | | (0.56 | ) | | (0.04 | ) |
| Total distributions | | (0.37 | ) | | (0.98 | ) | | (0.77 | ) | | (0.89 | ) | | (0.40 | ) |
| Net asset value, end of year. | $ | 14.88 | | $ | 14.50 | | $ | 15.72 | | $ | 15.79 | | $ | 14.60 | |
| |
| Total return | | 5.26 | % | | (1.66 | )% | | 4.39 | % | | 14.56 | % | | 9.61 | % |
| |
| Ratios to average net assets | | | | | | | | | | | | | | | |
| Expenses before waiver and payments by affiliatesd | | 0.38 | % | | 0.38 | % | | 0.40 | % | | 0.36 | % | | 0.28 | % |
| Expenses net of waiver and payments by affiliatesd | | 0.38 | %e | | 0.38 | %e | | 0.40 | %e | | 0.34 | % | | 0.25 | % |
| Net investment incomec | | 1.18 | % | | 1.77 | % | | 2.33 | % | | 1.99 | % | | 2.25 | % |
| |
| Supplemental data | | | | | | | | | | | | | | | |
| Net assets, end of year (000’s) | $ | 39,052 | | $ | 52,975 | | $ | 87,612 | | $ | 159,303 | | $ | 123,176 | |
| Portfolio turnover rate | | 29.22 | % | | 22.08 | % | | 17.95 | % | | 46.14 | % | | 25.36 | % |
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 inwhichthe
Fund invests.
dDoes 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 0.64% for the year ended December 31, 2016.
eBenefit 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. | Annual Report 33
FRANKLIN FUND ALLOCATOR SERIES
Statement of Investments, December 31, 2016
Franklin Moderate Allocation Fund
| | | | |
| | Shares | | Value | |
| |
| Investments in Underlying Funds and Exchange Traded Funds 99.9% | | | | |
| Alternative Strategies 6.9% | | | | |
| a Franklin K2 Alternative Strategies Fund, Class R6 | 9,060,708 | $ | 97,674,433 | |
| a,b Franklin Pelagos Commodities Strategy Fund, Class R6 | 8,105,013 | | 53,493,085 | |
| | | | 151,167,518 | |
| Domestic Equity 39.5% | | | | |
| Financial Select Sector SPDR ETF | 1,758,200 | | 40,878,150 | |
| a,b Franklin DynaTech Fund, Class R6 | 2,850,304 | | 140,405,963 | |
| a Franklin Growth Fund, Class R6 | 4,467,176 | | 342,230,363 | |
| a Franklin Rising Dividends Fund, Class R6 | 4,023,486 | | 211,474,420 | |
| a,b Franklin Small Cap Growth Fund, Class R6 | 1,113,321 | | 22,155,097 | |
| a Franklin Utilities Fund, Class R6 | 3,933,350 | | 69,895,628 | |
| iShares S&P 500 Value ETF | 476,069 | | 48,263,876 | |
| | | | 875,303,497 | |
| Domestic Fixed Income 28.9% | | | | |
| a Franklin Low Duration Total Return Fund, Class R6 | 21,415,937 | | 211,589,456 | |
| a Franklin Strategic Income Fund, Class R6 | 17,639,031 | | 170,040,261 | |
| a Franklin U.S. Government Securities Fund, Class R6 | 31,405,709 | | 195,343,508 | |
| iShares iBoxx $ Investment Grade Corporate Bond ETF | 236,300 | | 27,689,634 | |
| iShares TIPS Bond ETF | 310,848 | | 35,178,668 | |
| | | | 639,841,527 | |
| Foreign Equity 20.6% | | | | |
| a Franklin International Small Cap Growth Fund, Class R6 | 7,274,151 | | 119,368,816 | |
| a Franklin LibertyQ Emerging Markets ETF | 2,781,600 | | 74,018,376 | |
| a Franklin Mutual European Fund, Class R6 | 5,897,464 | | 113,113,354 | |
| iShares MSCI Japan ETF (Japan) | 453,345 | | 22,150,437 | |
| a Templeton Foreign Fund, Class R6 | 15,425,155 | | 105,970,818 | |
| a Templeton Frontier Markets Fund, Class R6 | 2,032,287 | | 22,111,286 | |
| | | | 456,733,087 | |
| Foreign Fixed Income 4.0% | | | | |
| a,b Templeton Global Total Return Fund, Class R6 | 7,326,265 | | 88,647,800 | |
| Total Investments in Underlying Funds and Exchange Traded Funds | | | | |
| before Short Term Investments (Cost $1,920,064,510) | | | 2,211,693,429 | |
| |
| |
| Short Term Investments (Cost $10,056,485) 0.4% | | | | |
| Money Market Funds 0.4% | | | | |
| a,c Institutional Fiduciary Trust Money Market Portfolio, 0.09% | 10,056,485 | | 10,056,485 | |
| Total Investments in Underlying Funds and Exchange Traded Funds | | | | |
| (Cost $1,930,120,995) 100.3% | | | 2,221,749,914 | |
| Other Assets, less Liabilities (0.3)% | | | (6,957,158 | ) |
| Net Assets 100.0% | | $ | 2,214,792,756 | |
See Abbreviations on page 57.
aSee Note 3(f) regarding investments in FT Underlying Funds.
bNon-income producing.
cThe rate shown is the annualized seven-day yield at period end.
34 Annual Report | The accompanying notes are an integral part of these financial statements.
franklintempleton.com
| | | | | | | | | | | | | | | |
| | | | | | FRANKLIN FUND ALLOCATOR SERIES | |
| |
| |
| |
| Financial Highlights | | | | | | | | | | | | | | | |
| Franklin Growth Allocation Fund | | | | | | | | | | | | | | | |
| | | | | | Year Ended December 31, | | | | |
| | | 2016 | | | 2015 | | | 2014 | | | 2013 | | | 2012 | |
| Class A | | | | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | | | | |
| (for a share outstanding throughout the year) | | | | | | | | | | | | | | | |
| Net asset value, beginning of year | $ | 17.01 | | $ | 18.57 | | $ | 18.40 | | $ | 15.81 | | $ | 14.53 | |
| Income from investment operationsa: | | | | | | | | | | | | | | | |
| Net investment incomeb,c | | 0.14 | | | 0.21 | | | 0.24 | | | 0.19 | | | 0.21 | |
| Net realized and unrealized gains (losses) | | 0.75 | | | (0.48 | ) | | 0.67 | | | 3.09 | | | 1.32 | |
| Total from investment operations | | 0.89 | | | (0.27 | ) | | 0.91 | | | 3.28 | | | 1.53 | |
| Less distributions from: | | | | | | | | | | | | | | | |
| Net investment income and short term gains received from | | | | | | | | | | | | | | | |
| Underlying Funds and exchange traded funds | | (0.14 | ) | | (0.21 | ) | | (0.29 | ) | | (0.25 | ) | | (0.25 | ) |
| Net realized gains | | (0.33 | ) | | (1.08 | ) | | (0.45 | ) | | (0.44 | ) | | — | |
| Total distributions | | (0.47 | ) | | (1.29 | ) | | (0.74 | ) | | (0.69 | ) | | (0.25 | ) |
| Net asset value, end of year. | $ | 17.43 | | $ | 17.01 | | $ | 18.57 | | $ | 18.40 | | $ | 15.81 | |
| |
| Total returnd | | 5.36 | % | | (1.66 | )% | | 4.95 | % | | 20.98 | % | | 10.52 | % |
| |
| Ratios to average net assets | | | | | | | | | | | | | | | |
| Expenses before waiver and payments by affiliatese | | 0.69 | % | | 0.67 | % | | 0.68 | % | | 0.65 | % | | 0.55 | % |
| Expenses net of waiver and payments by affiliatese | | 0.65 | % | | 0.65 | % | | 0.63 | % | | 0.59 | % | | 0.50 | % |
| Net investment incomec | | 0.83 | % | | 1.10 | % | | 1.25 | % | | 1.10 | % | | 1.34 | % |
| |
| Supplemental data | | | | | | | | | | | | | | | |
| Net assets, end of year (000’s) | $ | 822,833 | | $ | 888,096 | | $ | 887,856 | | $ | 814,901 | | $ | 655,585 | |
| Portfolio turnover rate | | 30.19 | % | | 20.40 | % | | 17.55 | % | | 30.45 | % | | 31.36 | % |
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 inwhichthe
Fund invests.
dTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable.
eDoes 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 year ended December 31, 2016.
franklintempleton.com
The accompanying notes are an integral part of these financial statements. | Annual Report 35
| | | | | | | | | | | | | | | |
| FRANKLIN FUND ALLOCATOR SERIES | | | | | | | | | | | | | | | |
| FINANCIAL HIGHLIGHTS | | | | | | | | | | | | | | | |
| |
| |
| Franklin Growth Allocation Fund (continued) | | | | | | | | | | | | | | | |
| | | | | | Year Ended December 31, | | | | |
| | | 2016 | | | 2015 | | | 2014 | | | 2013 | | | 2012 | |
| Class C | | | | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | | | | |
| (for a share outstanding throughout the year) | | | | | | | | | | | | | | | |
| Net asset value, beginning of year | $ | 16.59 | | $ | 18.15 | | $ | 18.00 | | $ | 15.50 | | $ | 14.25 | |
| Income from investment operationsa: | | | | | | | | | | | | | | | |
| Net investment incomeb,c | | 0.02 | | | 0.07 | | | 0.09 | | | 0.06 | | | 0.09 | |
| Net realized and unrealized gains (losses) | | 0.72 | | | (0.47 | ) | | 0.67 | | | 3.01 | | | 1.29 | |
| Total from investment operations | | 0.74 | | | (0.40 | ) | | 0.76 | | | 3.07 | | | 1.38 | |
| Less distributions from: | | | | | | | | | | | | | | | |
| Net investment income and short term gains received from | | | | | | | | | | | | | | | |
| Underlying Funds and exchange traded funds | | (0.01 | ) | | (0.08 | ) | | (0.16 | ) | | (0.13 | ) | | (0.13 | ) |
| Net realized gains | | (0.33 | ) | | (1.08 | ) | | (0.45 | ) | | (0.44 | ) | | — | |
| Total distributions | | (0.34 | ) | | (1.16 | ) | | (0.61 | ) | | (0.57 | ) | | (0.13 | ) |
| Net asset value, end of year. | $ | 16.99 | | $ | 16.59 | | $ | 18.15 | | $ | 18.00 | | $ | 15.50 | |
| |
| Total returnd | | 4.59 | % | | (2.41 | )% | | 4.21 | % | | 20.04 | % | | 9.71 | % |
| |
| Ratios to average net assets | | | | | | | | | | | | | | | |
| Expenses before waiver and payments by affiliatese | | 1.43 | % | | 1.42 | % | | 1.43 | % | | 1.40 | % | | 1.30 | % |
| Expenses net of waiver and payments by affiliatese | | 1.39 | % | | 1.40 | % | | 1.38 | % | | 1.34 | % | | 1.25 | % |
| Net investment incomec | | 0.09 | % | | 0.35 | % | | 0.50 | % | | 0.35 | % | | 0.59 | % |
| |
| Supplemental data | | | | | | | | | | | | | | | |
| Net assets, end of year (000’s) | $ | 308,736 | | $ | 336,557 | | $ | 336,213 | | $ | 309,869 | | $ | 241,787 | |
| Portfolio turnover rate | | 30.19 | % | | 20.40 | % | | 17.55 | % | | 30.45 | % | | 31.36 | % |
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 inwhichthe
Fund invests.
dTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable.
eDoes 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 year ended December 31, 2016.
36 Annual 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) | | | | | | | | | | | | | | | |
| | | | | | Year Ended December 31, | | | | |
| | | 2016 | | | 2015 | | | 2014 | | | 2013 | | | 2012 | |
| Class R | | | | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | | | | |
| (for a share outstanding throughout the year) | | | | | | | | | | | | | | | |
| Net asset value, beginning of year | $ | 16.80 | | $ | 18.34 | | $ | 18.18 | | $ | 15.63 | | $ | 14.37 | |
| Income from investment operationsa: | | | | | | | | | | | | | | | |
| Net investment incomeb,c | | 0.09 | | | 0.14 | | | 0.17 | | | 0.14 | | | 0.16 | |
| Net realized and unrealized gains (losses) | | 0.75 | | | (0.44 | ) | | 0.68 | | | 3.05 | | | 1.31 | |
| Total from investment operations | | 0.84 | | | (0.30 | ) | | 0.85 | | | 3.19 | | | 1.47 | |
| Less distributions from: | | | | | | | | | | | | | | | |
| Net investment income and short term gains received from | | | | | | | | | | | | | | | |
| Underlying Funds and exchange traded funds | | (0.09 | ) | | (0.16 | ) | | (0.24 | ) | | (0.20 | ) | | (0.21 | ) |
| Net realized gains | | (0.33 | ) | | (1.08 | ) | | (0.45 | ) | | (0.44 | ) | | — | |
| Total distributions | | (0.42 | ) | | (1.24 | ) | | (0.69 | ) | | (0.64 | ) | | (0.21 | ) |
| Net asset value, end of year. | $ | 17.22 | | $ | 16.80 | | $ | 18.34 | | $ | 18.18 | | $ | 15.63 | |
| |
| Total return | | 5.12 | % | | (1.93 | )% | | 4.72 | % | | 20.67 | % | | 10.22 | % |
| |
| Ratios to average net assets | | | | | | | | | | | | | | | |
| Expenses before waiver and payments by affiliatesd | | 0.94 | % | | 0.92 | % | | 0.93 | % | | 0.90 | % | | 0.80 | % |
| Expenses net of waiver and payments by affiliatesd | | 0.90 | % | | 0.90 | % | | 0.88 | % | | 0.84 | % | | 0.75 | % |
| Net investment incomec | | 0.58 | % | | 0.85 | % | | 1.00 | % | | 0.85 | % | | 1.09 | % |
| |
| Supplemental data | | | | | | | | | | | | | | | |
| Net assets, end of year (000’s) | $ | 112,272 | | $ | 147,426 | | $ | 182,211 | | $ | 192,361 | | $ | 169,873 | |
| Portfolio turnover rate | | 30.19 | % | | 20.40 | % | | 17.55 | % | | 30.45 | % | | 31.36 | % |
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 inwhichthe
Fund invests.
dDoes 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 year ended December 31, 2016.
franklintempleton.com
The accompanying notes are an integral part of these financial statements. | Annual Report 37
| | | | | | | | | | | | |
| FRANKLIN FUND ALLOCATOR SERIES | | | | | | | | | | | | |
| FINANCIAL HIGHLIGHTS | | | | | | | | | | | | |
| |
| |
| Franklin Growth Allocation Fund (continued) | | | | | | | | | | | | |
| | | | | | Year Ended December 31, | | | | |
| | | 2016 | | | 2015 | | | 2014 | | | 2013 | a |
| Class R6 | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | |
| (for a share outstanding throughout the year) | | | | | | | | | | | | |
| Net asset value, beginning of year | $ | 17.06 | | $ | 18.61 | | $ | 18.44 | | $ | 16.88 | |
| Income from investment operationsb: | | | | | | | | | | | | |
| Net investment incomec,d | | 0.22 | | | 0.32 | | | 0.15 | | | 0.62 | |
| Net realized and unrealized gains (losses) | | 0.74 | | | (0.51 | ) | | 0.83 | | | 1.68 | |
| Total from investment operations | | 0.96 | | | (0.19 | ) | | 0.98 | | | 2.30 | |
| Less distributions from: | | | | | | | | | | | | |
| Net investment income and short term gains received from Underlying Funds | | | | | | | | | | | | |
| and exchange traded funds | | (0.21 | ) | | (0.28 | ) | | (0.36 | ) | | (0.30 | ) |
| Net realized gains | | (0.33 | ) | | (1.08 | ) | | (0.45 | ) | | (0.44 | ) |
| Total distributions | | (0.54 | ) | | (1.36 | ) | | (0.81 | ) | | (0.74 | ) |
| Net asset value, end of year | $ | 17.48 | | $ | 17.06 | | $ | 18.61 | | $ | 18.44 | |
| |
| Total returne | | 5.77 | % | | (1.27 | )% | | 5.38 | % | | 13.88 | % |
| |
| Ratios to average net assetsf | | | | | | | | | | | | |
| Expenses before waiver and payments by affiliatesg | | 0.30 | % | | 0.29 | % | | 0.28 | % | | 0.95 | % |
| Expenses net of waiver and payments by affiliatesg | | 0.26 | % | | 0.26 | % | | 0.23 | % | | 0.22 | % |
| Net investment incomed | | 1.22 | % | | 1.49 | % | | 1.65 | % | | 1.47 | % |
| |
| Supplemental data | | | | | | | | | | | | |
| Net assets, end of year (000’s) | $ | 2,822 | | $ | 2,549 | | $ | 1,755 | | $ | 42 | |
| Portfolio turnover rate | | 30.19 | % | | 20.40 | % | | 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 inwhichthe
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 0.67% for the year ended December 31, 2016.
38 Annual 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) | | | | | | | | | | | | | | | |
| | | | | | Year Ended December 31, | | | | |
| | | 2016 | | | 2015 | | | 2014 | | | 2013 | | | 2012 | |
| Advisor Class | | | | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | | | | |
| (for a share outstanding throughout the year) | | | | | | | | | | | | | | | |
| Net asset value, beginning of year | $ | 17.06 | | $ | 18.62 | | $ | 18.45 | | $ | 15.85 | | $ | 14.56 | |
| Income from investment operationsa: | | | | | | | | | | | | | | | |
| Net investment incomeb,c | | 0.18 | | | 0.25 | | | 0.27 | | | 0.24 | | | 0.25 | |
| Net realized and unrealized gains (losses) | | 0.76 | | | (0.47 | ) | | 0.68 | | | 3.09 | | | 1.32 | |
| Total from investment operations | | 0.94 | | | (0.22 | ) | | 0.95 | | | 3.33 | | | 1.57 | |
| Less distributions from: | | | | | | | | | | | | | | | |
| Net investment income and short term gains received from | | | | | | | | | | | | | | | |
| Underlying Funds and exchange traded funds | | (0.18 | ) | | (0.26 | ) | | (0.33 | ) | | (0.29 | ) | | (0.28 | ) |
| Net realized gains | | (0.33 | ) | | (1.08 | ) | | (0.45 | ) | | (0.44 | ) | | — | |
| Total distributions | | (0.51 | ) | | (1.34 | ) | | (0.78 | ) | | (0.73 | ) | | (0.28 | ) |
| Net asset value, end of year. | $ | 17.49 | | $ | 17.06 | | $ | 18.62 | | $ | 18.45 | | $ | 15.85 | |
| |
| Total return | | 5.60 | % | | (1.41 | )% | | 5.23 | % | | 21.26 | % | | 10.84 | % |
| |
| Ratios to average net assets | | | | | | | | | | | | | | | |
| Expenses before waiver and payments by affiliatesd | | 0.44 | % | | 0.42 | % | | 0.43 | % | | 0.40 | % | | 0.30 | % |
| Expenses net of waiver and payments by affiliatesd | | 0.40 | % | | 0.40 | % | | 0.38 | % | | 0.34 | % | | 0.25 | % |
| Net investment incomec | | 1.08 | % | | 1.35 | % | | 1.50 | % | | 1.35 | % | | 1.59 | % |
| |
| Supplemental data | | | | | | | | | | | | | | | |
| Net assets, end of year (000’s) | $ | 39,211 | | $ | 49,634 | | $ | 52,250 | | $ | 74,808 | | $ | 55,810 | |
| Portfolio turnover rate | | 30.19 | % | | 20.40 | % | | 17.55 | % | | 30.45 | % | | 31.36 | % |
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 inwhichthe
Fund invests.
dDoes 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 year ended December 31, 2016.
franklintempleton.com
The accompanying notes are an integral part of these financial statements. | Annual Report 39
FRANKLIN FUND ALLOCATOR SERIES
Statement of Investments, December 31, 2016
Franklin Growth Allocation Fund
| | | | |
| | Shares | | Value | |
| |
| Investments in Underlying Funds and Exchange Traded Funds 99.9% | | | | |
| Alternative Strategies 6.8% | | | | |
| a Franklin K2 Alternative Strategies Fund, Class R6 | 5,290,255 | $ | 57,028,943 | |
| a,b Franklin Pelagos Commodities Strategy Fund, Class R6 | 4,669,018 | | 30,815,521 | |
| | | | 87,844,464 | |
| Domestic Equity 51.8% | | | | |
| Financial Select Sector SPDR ETF | 1,368,300 | | 31,812,975 | |
| a,b Franklin DynaTech Fund, Class R6 | 2,234,676 | | 110,080,129 | |
| a Franklin Growth Fund, Class R6 | 3,289,099 | | 251,977,907 | |
| a Franklin Rising Dividends Fund, Class R6 | 3,098,631 | | 162,864,060 | |
| a,b Franklin Small Cap Growth Fund, Class R6 | 805,297 | | 16,025,405 | |
| a Franklin Utilities Fund, Class R6 | 2,962,629 | | 52,645,916 | |
| iShares S&P 500 Value ETF | 405,657 | | 41,125,507 | |
| | | | 666,531,899 | |
| Domestic Fixed Income 11.2% | | | | |
| a Franklin Low Duration Total Return Fund, Class R6 | 4,800,161 | | 47,425,588 | |
| a Franklin Strategic Income Fund, Class R6 | 3,881,188 | | 37,414,656 | |
| a Franklin U.S. Government Securities Fund, Class R6 | 6,947,140 | | 43,211,208 | |
| iShares iBoxx $ Investment Grade Corporate Bond ETF | 56,000 | | 6,562,080 | |
| iShares TIPS Bond ETF | 80,685 | | 9,131,121 | |
| | | | 143,744,653 | |
| Foreign Equity 28.6% | | | | |
| a Franklin International Small Cap Growth Fund, Class R6 | 5,945,325 | | 97,562,786 | |
| a Franklin LibertyQ Emerging Markets ETF | 2,181,500 | | 58,049,715 | |
| a Franklin Mutual European Fund, Class R6 | 4,585,247 | | 87,945,035 | |
| iShares MSCI Japan ETF (Japan) | 346,872 | | 16,948,166 | |
| a Templeton Foreign Fund, Class R6 | 12,583,040 | | 86,445,484 | |
| a Templeton Frontier Markets Fund, Class R6 | 1,841,002 | | 20,030,108 | |
| | | | 366,981,294 | |
| Foreign Fixed Income 1.5% | | | | |
| a,b Templeton Global Total Return Fund, Class R6 | 1,604,547 | | 19,415,017 | |
| Total Investments in Underlying Funds and Exchange Traded Funds | | | | |
| before Short Term Investments (Cost $1,060,758,175) | | | 1,284,517,327 | |
| |
| |
| Short Term Investments (Cost $6,060,504) 0.5% | | | | |
| Money Market Funds 0.5% | | | | |
| a,c Institutional Fiduciary Trust Money Market Portfolio, 0.09% | 6,060,504 | | 6,060,504 | |
| Total Investments in Underlying Funds and Exchange Traded Funds | | | | |
| (Cost $1,066,818,679) 100.4% | | | 1,290,577,831 | |
| Other Assets, less Liabilities (0.4)% | | | (4,703,094 | ) |
| Net Assets 100.0% | | $ | 1,285,874,737 | |
See Abbreviations on page 57.
aSee Note 3(f) regarding investments in FT Underlying Funds.
bNon-income producing.
cThe rate shown is the annualized seven-day yield at period end.
40 Annual 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 | | | | | | | | |
| December 31, 2016 | | | | | | | | |
| |
| | | Franklin | | | Franklin | | | Franklin |
| | | Conservative | | | Moderate | | | Growth |
| | | Allocation Fund | | | Allocation Fund | | Allocation Fund |
| Assets: | | | | | | | | |
| Investments in securities: | | | | | | | | |
| Cost - Controlled affiliates (Note 3f) | $ | 37,039,616 | | $ | 137,019,266 | | $ | — |
| Cost - Non-controlled affiliates (Note 3f) | | 1,152,685,818 | | | 1,622,157,949 | | | 964,031,812 |
| Cost - Unaffiliated Exchange traded funds | | 122,527,073 | | | 170,943,780 | | | 102,786,867 |
| Total cost of investments | $ | 1,312,252,507 | | $ | 1,930,120,995 | $ | 1,066,818,679 |
| Value - Controlled affiliates (Note 3f) | $ | 34,523,838 | | $ | 127,511,461 | | $ | — |
| Value - Non-controlled affiliates (Note 3f) | | 1,278,815,389 | | | 1,920,077,688 | | | 1,184,997,982 |
| Value - Unaffiliated Exchange traded funds | | 124,294,867 | | | 174,160,765 | | | 105,579,849 |
| Total value of investments | | 1,437,634,094 | | | 2,221,749,914 | | | 1,290,577,831 |
| Receivables: | | | | | | | | |
| Investment securities sold | | 205,741 | | | 240,376 | | | 205,740 |
| Capital shares sold | | 1,660,573 | | | 1,494,002 | | | 1,192,631 |
| Other assets | | 136 | | | 206 | | | 116 |
| Total assets | | 1,439,500,544 | | | 2,223,484,498 | | | 1,291,976,318 |
| Liabilities: | | | | | | | | |
| Payables: | | | | | | | | |
| Capital shares redeemed | | 4,209,121 | | | 6,035,872 | | | 4,558,797 |
| Asset allocation fees | | 302,744 | | | 465,886 | | | 246,527 |
| Distribution fees | | 1,231,187 | | | 1,722,195 | | | 953,976 |
| Transfer agent fees | | 271,922 | | | 351,057 | | | 249,998 |
| Accrued expenses and other liabilities | | 70,163 | | | 116,732 | | | 92,283 |
| Total liabilities | | 6,085,137 | | | 8,691,742 | | | 6,101,581 |
| Net assets, at value | $ | 1,433,415,407 | | $ | 2,214,792,756 | $ | 1,285,874,737 |
| Net assets consist of: | | | | | | | | |
| Paid-in capital | $ | 1,338,614,997 | | $ | 1,902,169,260 | $ | 1,029,562,682 |
| Undistributed net investment income | | 2,712,464 | | | 11,024,417 | | | 6,559,625 |
| Net unrealized appreciation (depreciation) | | 125,381,587 | | | 291,628,919 | | | 223,759,152 |
| Accumulated net realized gain (loss) | | (33,293,641 | ) | | 9,970,160 | | | 25,993,278 |
| Net assets, at value | $ | 1,433,415,407 | | $ | 2,214,792,756 | $ | 1,285,874,737 |
franklintempleton.com
The accompanying notes are an integral part of these financial statements. | Annual Report 41
| | | | | | | |
| FRANKLIN FUND ALLOCATOR SERIES | | | | | | | |
| FINANCIAL STATEMENTS | | | | | | | |
| |
| |
| Statements of Assets and Liabilities (continued) | | | | | | | |
| December 31, 2016 | | | | | | | |
| |
| | | Franklin | | | Franklin | | Franklin |
| | | Conservative | | | Moderate | | Growth |
| | | Allocation Fund | | | Allocation Fund | | Allocation Fund |
| Class A: | | | | | | | |
| Net assets, at value | $ | 809,038,730 | $ | | 1,416,531,667 | $ | 822,832,625 |
| Shares outstanding | | 58,886,563 | | | 95,297,415 | | 47,213,142 |
| Net asset value per sharea | $ | 13.74 | | $ | 14.86 | $ | 17.43 |
| Maximum offering price per share (net asset value per share ÷ 94.25%) | $ | 14.58 | | $ | 15.77 | $ | 18.49 |
| Class C: | | | | | | | |
| Net assets, at value | $ | 470,582,473 | $ | | 595,910,606 | $ | 308,736,454 |
| Shares outstanding | | 34,923,336 | | | 41,164,467 | | 18,172,271 |
| Net asset value and maximum offering price per sharea | $ | 13.47 | | $ | 14.48 | $ | 16.99 |
| Class R: | | | | | | | |
| Net assets, at value | $ | 124,018,235 | $ | | 158,192,387 | $ | 112,272,405 |
| Shares outstanding | | 9,062,016 | | | 10,673,964 | | 6,520,541 |
| Net asset value and maximum offering price per share | $ | 13.69 | | $ | 14.82 | $ | 17.22 |
| Class R6: | | | | | | | |
| Net assets, at value | $ | 2,197,477 | $ | | 5,105,802 | $ | 2,822,070 |
| Shares outstanding | | 160,110 | | | 343,547 | | 161,485 |
| Net asset value and maximum offering price per share | $ | 13.72 | | $ | 14.86 | $ | 17.48 |
| Advisor Class: | | | | | | | |
| Net assets, at value | $ | 27,578,492 | $ | | 39,052,294 | $ | 39,211,183 |
| Shares outstanding | | 2,006,947 | | | 2,625,007 | | 2,241,986 |
| Net asset value and maximum offering price per share | $ | 13.74 | | $ | 14.88 | $ | 17.49 |
aRedemption price is equal to net asset value less contingent deferred sales charges, if applicable.
42 Annual 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 year ended December 31, 2016 | | | | | | | | | | | |
| |
| | | Franklin | | | | Franklin | | | | Franklin | |
| | | Conservative | | | | Moderate | | | | Growth | |
| | | Allocation Fund | | | Allocation Fund | | | Allocation Fund | |
| Investment income: | | | | | | | | | | | |
| Dividends: | | | | | | | | | | | |
| Controlled affiliates (Note 3f) | $ | — | | | $ | 253,994 | | | $ | — | |
| Non-controlled affiliates (Note 3f) | | 22,688,062 | | | | 32,991,128 | | | | 17,944,009 | |
| Unaffiliated Exchange traded funds | | 2,855,379 | | | | 3,875,288 | | | | 2,219,096 | |
| Total investment income | | 25,543,441 | | | | 37,120,410 | | | | 20,163,105 | |
| Expenses: | | | | | | | | | | | |
| Asset allocation fees (Note 3a) | | 3,916,737 | | | | 5,961,210 | | | | 3,396,612 | |
| Distribution fees: (Note 3c) | | | | | | | | | | | |
| Class A | | 2,149,768 | | | | 3,773,429 | | | | 2,153,692 | |
| Class C | | 5,032,462 | | | | 6,400,634 | | | | 3,218,567 | |
| Class R | | 651,147 | | | | 894,779 | | | | 629,148 | |
| Transfer agent fees: (Note 3e) | | | | | | | | | | | |
| Class A | | 916,657 | | | | 1,669,648 | | | | 1,364,586 | |
| Class C | | 540,858 | | | | 712,347 | | | | 512,659 | |
| Class R | | 138,816 | | | | 197,960 | | | | 199,391 | |
| Class R6 | | 598 | | | | 588 | | | | 612 | |
| Advisor Class | | 66,341 | | | | 51,318 | | | | 70,637 | |
| Custodian fees (Note 4) | | 4,824 | | | | 2,029 | | | | 1,362 | |
| Reports to shareholders | | 116,035 | | | | 216,446 | | | | 168,507 | |
| Registration and filing fees | | 125,757 | | | | 156,587 | | | | 114,679 | |
| Professional fees | | 39,119 | | | | 44,624 | | | | 37,253 | |
| Trustees’ fees and expenses | | 12,344 | | | | 18,850 | | | | 10,668 | |
| Other | | 27,604 | | | | 38,810 | | | | 27,687 | |
| Total expenses | | 13,739,067 | | | | 20,139,259 | | | | 11,906,060 | |
| Expenses waived/paid by affiliates (Note 3f and 3g) | | (91,488 | ) | | | (61,084 | ) | | | (488,615 | ) |
| Net expenses | | 13,647,579 | | | | 20,078,175 | | | | 11,417,445 | |
| Net investment income | | 11,895,862 | | | | 17,042,235 | | | | 8,745,660 | |
| Realized and unrealized gains (losses): | | | | | | | | | | | |
| Net realized gain (loss) from: | | | | | | | | | | | |
| Sale of investments: | | | | | | | | | | | |
| Controlled affiliates (Note 3f) | | (1,254,502 | ) | | | (1,878,477 | ) | | | — | |
| Non-controlled affiliates (Note 3f) | | (32,421,660 | ) | | | 15,843,313 | | | | 27,895,624 | |
| Unaffiliated Exchange traded funds | | (5,550,567 | ) | | | (15,286,060 | ) | | | (11,522,126 | ) |
| Realized gain distributions: | | | | | | | | | | | |
| Non-controlled affiliates (Note 3f) | | 12,705,482 | | | | 29,743,048 | | | | 22,996,988 | |
| Net realized gain (loss) | | (26,521,247 | ) | | | 28,421,824 | | | | 39,370,486 | |
| Net change in unrealized appreciation (depreciation) on investments | | 77,528,235 | | | | 62,881,574 | | | | 20,368,376 | |
| Net realized and unrealized gain (loss) | | 51,006,988 | | | | 91,303,398 | | | | 59,738,862 | |
| Net increase (decrease) in net assets resulting from operations | $ | 62,902,850 | | $ | 108,345,633 | | $ | 68,484,522 | |
franklintempleton.com
The accompanying notes are an integral part of these financial statements. | Annual Report 43
| | | | | | | | | | | | |
| FRANKLIN FUND ALLOCATOR SERIES | | | | | | | | | | | | |
| FINANCIAL STATEMENTS | | | | | | | | | | | | |
| |
| |
| Statements of Changes in Net Assets | | | | | | | | | | | | |
| |
| | | Franklin Conservative | | | Franklin Moderate | |
| | | Allocation Fund | | | Allocation Fund | |
| | | Year Ended December 31, | | | Year Ended December 31, | |
| | | 2016 | | | 2015 | | | 2016 | | | 2015 | |
| Increase (decrease) in net assets: | | | | | | | | | | | | |
| Operations: | | | | | | | | | | | | |
| Net investment income | $ | 11,895,862 | | $ | 29,532,131 | | $ | 17,042,235 | | $ | 35,233,810 | |
| Net realized gain (loss) | | (26,521,247 | ) | | 42,933,441 | | | 28,421,824 | | | 79,383,856 | |
| Net change in unrealized appreciation (depreciation) | | 77,528,235 | | | (115,281,577 | ) | | 62,881,574 | | | (169,359,603 | ) |
| Net increase (decrease) in net assets resulting | | | | | | | | | | | | |
| from operations | | 62,902,850 | | | (42,816,005 | ) | | 108,345,633 | | | (54,741,937 | ) |
| Distributions to shareholders from: | | | | | | | | | | | | |
| Net investment income and short term gains received | | | | | | | | | | | | |
| from Underlying Funds and exchange traded funds: | | | | | | | | | | | | |
| Class A | | (9,117,348 | ) | | (18,437,469 | ) | | (11,651,361 | ) | | (26,373,066 | ) |
| Class C | | (1,751,300 | ) | | (7,096,466 | ) | | (334,512 | ) | | (6,467,307 | ) |
| Class R | | (1,067,714 | ) | | (2,557,058 | ) | | (838,073 | ) | | (2,854,405 | ) |
| Class R6 | | (33,339 | ) | | (49,277 | ) | | (60,719 | ) | | (92,558 | ) |
| Advisor Class | | (683,806 | ) | | (1,913,425 | ) | | (419,576 | ) | | (1,044,247 | ) |
| Net realized gains: | | | | | | | | | | | | |
| Class A | | (6,125,410 | ) | | (34,590,141 | ) | | (21,972,875 | ) | | (73,931,506 | ) |
| Class C | | (3,686,002 | ) | | (20,931,281 | ) | | (9,651,391 | ) | | (32,893,027 | ) |
| Class R | | (920,983 | ) | | (5,555,467 | ) | | (2,588,815 | ) | | (10,090,808 | ) |
| Class R6 | | (16,730 | ) | | (78,609 | ) | | (85,228 | ) | | (209,246 | ) |
| Advisor Class | | (598,184 | ) | | (3,192,772 | ) | | (742,391 | ) | | (3,024,647 | ) |
| Total distributions to shareholders | | (24,000,816 | ) | | (94,401,965 | ) | | (48,344,941 | ) | | (156,980,817 | ) |
| Capital share transactions: (Note 2) | | | | | | | | | | | | |
| Class A | | (117,603,198 | ) | | 68,912,114 | | | (216,989,710 | ) | | 58,477,157 | |
| Class C | | (78,239,119 | ) | | 32,038,615 | | | (112,586,337 | ) | | 34,357,140 | |
| Class R | | (18,669,848 | ) | | (8,686,144 | ) | | (48,961,723 | ) | | (44,142,289 | ) |
| Class R6 | | (140,699 | ) | | 800,684 | | | 200,603 | | | 966,857 | |
| Advisor Class | | (57,027,314 | ) | | (1,212,639 | ) | | (15,232,178 | ) | | (29,169,449 | ) |
| Total capital share transactions | | (271,680,178 | ) | | 91,852,630 | | | (393,569,345 | ) | | 20,489,416 | |
| Net increase (decrease) in net assets | | (232,778,144 | ) | | (45,365,340 | ) | | (333,568,653 | ) | | (191,233,338 | ) |
| Net assets: | | | | | | | | | | | | |
| Beginning of year | | 1,666,193,551 | | | 1,711,558,891 | | | 2,548,361,409 | | | 2,739,594,747 | |
| End of year | $ | 1,433,415,407 | | $ | 1,666,193,551 | | $ | 2,214,792,756 | | $ | 2,548,361,409 | |
| Undistributed net investment income included in net assets: | | | | | | | | | | | | |
| End of year | $ | 2,712,464 | | $ | 800,076 | | $ | 11,024,417 | | $ | 781,622 | |
44 Annual 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 (continued) | | | | | | | |
| |
| | | | Franklin Growth | |
| | | | Allocation Fund | |
| | | | Year Ended December 31, | |
| | | | 2016 | | | 2015 | |
| Increase (decrease) in net assets: | | | | | | | |
| Operations: | | | | | | | |
| Net investment income | | $ | 8,745,660 | | $ | 13,468,533 | |
| Net realized gain (loss) | | | 39,370,486 | | | 62,845,478 | |
| Net change in unrealized appreciation (depreciation) | | | 20,368,376 | | | (102,938,221 | ) |
| Net increase (decrease) in net assets resulting from operations | | | 68,484,522 | | | (26,624,210 | ) |
| Distributions to shareholders from: | | | | | | | |
| Net investment income and short term gains received from Underlying Funds and exchange traded | | | | | |
| funds: | | | | | | | |
| Class A | | | (6,622,325 | ) | | (10,774,648 | ) |
| Class C | | | (199,946 | ) | | (1,670,180 | ) |
| Class R | | | (583,535 | ) | | (1,337,989 | ) |
| Class R6 | | | (33,831 | ) | | (40,509 | ) |
| Advisor Class. | | | (409,994 | ) | | (721,649 | ) |
| Net realized gains: | | | | | | | |
| Class A | | | (16,777,167 | ) | | (53,303,108 | ) |
| Class C | | | (6,455,785 | ) | | (20,658,511 | ) |
| Class R | | | (2,416,571 | ) | | (9,523,158 | ) |
| Class R6 | | | (56,473 | ) | | (136,324 | ) |
| Advisor Class. | | | (988,239 | ) | | (2,934,714 | ) |
| Total distributions to shareholders | | | (34,543,866 | ) | | (101,100,790 | ) |
| Capital share transactions: (Note 2) | | | | | | | |
| Class A | | | (87,336,666 | ) | | 79,558,253 | |
| Class C | | | (35,825,451 | ) | | 31,096,033 | |
| Class R | | | (37,642,928 | ) | | (21,571,411 | ) |
| Class R6 | | | 185,119 | | | 1,013,444 | |
| Advisor Class. | | | (11,707,981 | ) | | 1,335,467 | |
| Total capital share transactions | | | (172,327,907 | ) | | 91,431,786 | |
| Net increase (decrease) in net assets | | | (138,387,251 | ) | | (36,293,214 | ) |
| Net assets: | | | | | | | |
| Beginning of year | | | 1,424,261,988 | | | 1,460,555,202 | |
| End of year | $ | 1,285,874,737 | | $ | 1,424,261,988 | |
| Undistributed net investment income included in net assets: | | | | | | | |
| End of year | | $ | 6,559,625 | | $ | 341,120 | |
franklintempleton.com
The accompanying notes are an integral part of these financial statements. | Annual Report 45
FRANKLIN FUND ALLOCATOR SERIES
Notes to Financial Statements
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-four 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 in mutual funds (Underlying Funds) and exchange traded funds (ETFs), including affiliated funds managed by Franklin Templeton (FT 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 as of 4 p.m. Eastern time each day the New York Stock Exchange (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 Committee (VC). The VC provides administration and oversight of the Fund’s valuation policies and procedures, which are approved annually by the Board. Among other things, these procedures allow the Funds to utilize independent pricing services, quotations from securities and financial instrument dealers, and other market sources to determine fair value. Investments in the Underlying Funds are valued at their closing NAV each trading day. 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 may recognize an income tax liability related to its uncertain tax positions under U.S. GAAP when the uncertain tax position has a less than 50% probability that it will be sustained upon examination by the tax authorities based on its technical merits. As of December 31, 2016, each Fund has determined that no tax liability is required in its financial statements related to uncertain tax positions for any open tax years (or expected to be taken in future tax years). 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.
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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.
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
2. Shares of Beneficial Interest
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 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 December 31, 2016, there were an unlimited number of shares authorized (without par value). Transactions in the Funds’ shares were as follows:
| | | | | | | | | | |
| | Franklin Conservative | | Franklin Moderate | |
| | Allocation Fund | | Allocation Fund | |
| | Shares | | | Amount | | Shares | | | Amount | |
| Class A Shares: | | | | | | | | | | |
| Year ended December 31, 2016 | | | | | | | | | | |
| Shares sold | 9,876,237 | | $ | 132,182,107 | | 11,038,805 | | $ | 159,601,771 | |
| Shares issued in reinvestment of distributions | 1,112,500 | | | 14,914,678 | | 2,296,983 | | | 33,079,385 | |
| Shares redeemed | (19,663,320 | ) | | (264,699,983 | ) | (28,101,565 | ) | | (409,670,866 | ) |
| Net increase (decrease) | (8,674,583 | ) | $ | (117,603,198 | ) | (14,765,777 | ) | $ | (216,989,710 | ) |
| Year ended December 31, 2015 | | | | | | | | | | |
| Shares sold | 17,092,437 | | $ | 244,905,813 | | 20,354,348 | | $ | 316,387,088 | |
| Shares issued in reinvestment of distributions | 3,730,409 | | | 51,852,094 | | 6,518,174 | | | 98,432,261 | |
| Shares redeemed | (15,925,736 | ) | | (227,845,793 | ) | (22,912,797 | ) | | (356,342,192 | ) |
| Net increase (decrease) | 4,897,110 | | $ | 68,912,114 | | 3,959,725 | | $ | 58,477,157 | |
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| | | | | | | | | | |
| 2. Shares of Beneficial Interest (continued) | | | | | | | | | | |
| |
| | Franklin Conservative | | Franklin Moderate | |
| | Allocation Fund | | Allocation Fund | |
| | Shares | | | Amount | | Shares | | | Amount | |
| Class C Shares: | | | | | | | | | | |
| Year ended December 31, 2016 | | | | | | | | | | |
| Shares sold | 4,863,793 | | $ | 63,561,659 | | 4,660,303 | | $ | 65,455,983 | |
| Shares issued in reinvestment of distributions | 398,830 | | | 5,210,489 | | 702,978 | | | 9,675,738 | |
| Shares redeemed | (11,144,482 | ) | | (147,011,267 | ) | (13,286,035 | ) | | (187,718,058 | ) |
| Net increase (decrease) | (5,881,859 | ) | $ | (78,239,119 | ) | (7,922,754 | ) | $ | (112,586,337 | ) |
| Year ended December 31, 2015 | | | | | | | | | | |
| Shares sold | 8,906,517 | | $ | 125,211,385 | | 8,598,914 | | $ | 130,261,509 | |
| Shares issued in reinvestment of distributions | 1,965,005 | | | 26,793,109 | | 2,574,921 | | | 37,990,036 | |
| Shares redeemed | (8,554,139 | ) | | (119,965,879 | ) | (8,840,782 | ) | | (133,894,405 | ) |
| Net increase (decrease) | 2,317,383 | | $ | 32,038,615 | | 2,333,053 | | $ | 34,357,140 | |
| Class R Shares: | | | | | | | | | | |
| Year ended December 31, 2016 | | | | | | | | | | |
| Shares sold | 1,289,646 | | $ | 17,236,221 | | 1,491,622 | | $ | 21,589,915 | |
| Shares issued in reinvestment of distributions | 144,387 | | | 1,924,897 | | 235,070 | | | 3,355,220 | |
| Shares redeemed | (2,826,823 | ) | | (37,830,966 | ) | (5,099,856 | ) | | (73,906,858 | ) |
| Net increase (decrease) | (1,392,790 | ) | $ | (18,669,848 | ) | (3,373,164 | ) | $ | (48,961,723 | ) |
| Year ended December 31, 2015 | | | | | | | | | | |
| Shares sold | 1,425,914 | | $ | 20,445,548 | | 1,641,527 | | $ | 25,496,276 | |
| Shares issued in reinvestment of distributions | 568,121 | | | 7,875,900 | | 839,104 | | | 12,665,188 | |
| Shares redeemed | (2,584,845 | ) | | (37,007,592 | ) | (5,286,654 | ) | | (82,303,753 | ) |
| Net increase (decrease) | (590,810 | ) | $ | (8,686,144 | ) | (2,806,023 | ) | $ | (44,142,289 | ) |
| Class R6 Shares: | | | | | | | | | | |
| Year ended December 31, 2016 | | | | | | | | | | |
| Shares sold | 57,015 | | $ | 760,599 | | 144,017 | | $ | 2,100,685 | |
| Shares issued in reinvestment of distributions | 3,733 | | | 50,069 | | 10,086 | | | 145,947 | |
| Shares redeemed | (71,025 | ) | | (951,367 | ) | (140,342 | ) | | (2,046,029 | ) |
| Net increase (decrease) | (10,277 | ) | $ | (140,699 | ) | 13,761 | | $ | 200,603 | |
| Year ended December 31, 2015 | | | | | | | | | | |
| Shares sold | 68,870 | | $ | 973,753 | | 89,205 | | $ | 1,371,085 | |
| Shares issued in reinvestment of distributions | 9,251 | | | 127,885 | | 20,026 | | | 301,805 | |
| Shares redeemed | (21,670 | ) | | (300,954 | ) | (47,042 | ) | | (706,033 | ) |
| Net increase (decrease) | 56,451 | | $ | 800,684 | | 62,189 | | $ | 966,857 | |
| Advisor Class Shares: | | | | | | | | | | |
| Year ended December 31, 2016 | | | | | | | | | | |
| Shares sold | 1,191,790 | | $ | 16,036,547 | | 1,189,361 | | $ | 17,404,912 | |
| Shares issued in reinvestment of distributions | 92,307 | | | 1,228,277 | | 74,978 | | | 1,082,144 | |
| Shares redeemed | (5,417,398 | ) | | (74,292,138 | ) | (2,292,721 | ) | | (33,719,234 | ) |
| Net increase (decrease) | (4,133,301 | ) | $ | (57,027,314 | ) | (1,028,382 | ) | $ | (15,232,178 | ) |
| Year ended December 31, 2015 | | | | | | | | | | |
| Shares sold | 936,049 | | $ | 13,410,437 | | 1,214,201 | | $ | 19,002,125 | |
| Shares issued in reinvestment of distributions | 353,270 | | | 4,910,626 | | 249,750 | | | 3,799,192 | |
| Shares redeemed | (1,365,830 | ) | | (19,533,702 | ) | (3,383,987 | ) | | (51,970,766 | ) |
| Net increase (decrease) | (76,511 | ) | $ | (1,212,639 | ) | (1,920,036 | ) | $ | (29,169,449 | ) |
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NOTES TO FINANCIAL STATEMENTS
| | | | | | |
| | Franklin Growth | |
| | Allocation Fund | |
| | Shares | | | | Amount | |
| Class A Shares: | | | | | | |
| Year ended December 31, 2016 | | | | | | |
| Shares sold | 19,985,532 | | $ | 338,147,125 | |
| Shares issued in reinvestment of distributions | 1,380,599 | | | | 23,061,353 | |
| Shares redeemed | (26,369,114 | ) | | | (448,545,144 | ) |
| Net increase (decrease) | (5,002,983 | ) | | $ | (87,336,666 | ) |
| Year ended December 31, 2015 | | | | | | |
| Shares sold | 10,027,542 | | $ | 185,661,705 | |
| Shares issued in reinvestment of distributions | 3,533,130 | | | | 63,072,998 | |
| Shares redeemed | (9,163,774 | ) | | | (169,176,450 | ) |
| Net increase (decrease) | 4,396,898 | | | $ | 79,558,253 | |
| Class C Shares: | | | | | | |
| Year ended December 31, 2016 | | | | | | |
| Shares sold | 2,640,421 | | | $ | 43,293,123 | |
| Shares issued in reinvestment of distributions | 405,959 | | | | 6,488,468 | |
| Shares redeemed | (5,160,971 | ) | | | (85,607,042 | ) |
| Net increase (decrease) | (2,114,591 | ) | | $ | (35,825,451 | ) |
| Year ended December 31, 2015 | | | | | | |
| Shares sold | 3,639,597 | | | $ | 65,500,165 | |
| Shares issued in reinvestment of distributions | 1,243,202 | | | | 21,716,225 | |
| Shares redeemed | (3,123,898 | ) | | | (56,120,357 | ) |
| Net increase (decrease) | 1,758,901 | | | $ | 31,096,033 | |
| Class R Shares: | | | | | | |
| Year ended December 31, 2016 | | | | | | |
| Shares sold | 811,617 | | | $ | 13,599,811 | |
| Shares issued in reinvestment of distributions | 178,979 | | | | 2,934,501 | |
| Shares redeemed | (3,244,832 | ) | | | (54,177,240 | ) |
| Net increase (decrease) | (2,254,236 | ) | | $ | (37,642,928 | ) |
| Year ended December 31, 2015 | | | | | | |
| Shares sold | 1,196,134 | | | $ | 21,889,834 | |
| Shares issued in reinvestment of distributions | 600,945 | | | | 10,634,648 | |
| Shares redeemed | (2,955,040 | ) | | | (54,095,893 | ) |
| Net increase (decrease) | (1,157,961 | ) | | $ | (21,571,411 | ) |
| Class R6 Shares: | | | | | | |
| Year ended December 31, 2016 | | | | | | |
| Shares sold | 105,302 | | | $ | 1,799,872 | |
| Shares issued in reinvestment of distributions | 5,354 | | | | 90,304 | |
| Shares redeemed | (98,611 | ) | | | (1,705,057 | ) |
| Net increase (decrease) | 12,045 | | | $ | 185,119 | |
| Year ended December 31, 2015 | | | | | | |
| Shares sold | 55,117 | | | $ | 1,017,221 | |
| Shares issued in reinvestment of distributions | 9,933 | | | | 176,833 | |
| Shares redeemed | (9,866 | ) | | | (180,610 | ) |
| Net increase (decrease) | 55,184 | | | $ | 1,013,444 | |
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| | | | | |
| 2. Shares of Beneficial Interest (continued) | | | | | |
| |
| | Franklin Growth | |
| | Allocation Fund | |
| | Shares | | | Amount | |
| Advisor Class Shares: | | | | | |
| Year ended December 31, 2016 | | | | | |
| Shares sold | 941,928 | | $ | 16,235,915 | |
| Shares issued in reinvestment of distributions | 77,488 | | | 1,299,870 | |
| Shares redeemed | (1,686,137 | ) | | (29,243,766 | ) |
| Net increase (decrease) | (666,721 | ) | $ | (11,707,981 | ) |
| Year ended December 31, 2015 | | | | | |
| Shares sold | 489,563 | | $ | 8,999,282 | |
| Shares issued in reinvestment of distributions | 193,785 | | | 3,467,793 | |
| Shares redeemed | (594,699 | ) | | (11,131,608 | ) |
| Net increase (decrease) | 88,649 | | $ | 1,335,467 | |
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 FT 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 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. 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
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NOTES TO FINANCIAL STATEMENTS
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 year:
| | | | | | |
| | | Franklin | | Franklin | | Franklin |
| | | Conservative | | Moderate | | Growth |
| | | Allocation Fund | | Allocation Fund | | Allocation Fund |
| |
| Sales charges retained net of commissions paid to | | | | | | |
| unaffiliated brokers/dealers | $ | 287,548 | $ | 510,409 | $ | 478,305 |
| CDSC retained. | $ | 86,811 | $ | 89,990 | $ | 54,495 |
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 shareholder 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 year ended December 31, 2016, 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 | $ | 661,192 | $ | 1,203,396 | $ | 987,455 |
f. Investments in FT Underlying Funds
The Funds invest in FT Underlying Funds which are managed by Advisers (or by an affiliate of Advisers). The Funds do not invest in FT 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.
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| 3. | Transactions with Affiliates (continued) |
| f. | Investments in FT Underlying Funds (continued) |
Investments in FT Underlying Funds for the year ended December 31, 2016, were as follows:
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | % of | |
| | | | | | | | | | | | | | FT Underlying | |
| | Number of | | | | Number of | | | | | | | | Fund Shares | |
| | Shares Held | | | | Shares | | Value | | | | | | Outstanding | |
| | at Beginning | Gross | Gross Held at End | | at End | | Investment | | Realized | | Held at End | |
| FT Underlying Funds | of Year | Additions | Reductions | | of Year | | of Year | | Income | | Gain (Loss) | | of Year | |
| |
| Franklin Conservative Allocation Fund | | | | | | | | | | | | | | |
| Controlled Affiliates | | | | | | | | | | | | | | |
| Franklin Pelagos Commodities Strategy | | | | | | | | | | | | | | |
| Fund, Class R6 | 5,291,099 | 402,500 | (462,715 | ) | 5,230,884 | $ | 34,523,838 | | $ – | $ | (1,254,502 | ) | 25.6 | % |
| Non-Controlled Affiliates | | | | | | | | | | | | | | |
| Franklin DynaTech Fund, Class R6 | 1,435,394 | 256,878 | (369,792 | ) | 1,322,480 | $ | 65,145,366 | | $ – | $ | 4,605,494 | a | 2.2 | % |
| Franklin Emerging Market Debt | | | | | | | | | | | | | | |
| Opportunities Fund | 5,125,963 | – | (5,125,963 | ) | – | | –b | | – | | (9,272,099 | ) | – | |
| Franklin Growth Fund, Class R6 | 2,174,815 | 228,890 | (525,666 | ) | 1,878,039 | | 143,876,605 | | 1,278,948 | | 12,974,726 | a | 1.2 | % |
| Franklin Growth Opportunities Fund, | | | | | | | | | | | | | | |
| ClassR6 | 876,138 | 36,618 | (912,756 | ) | – | | –b | | – | | 15,886,674 | | – | |
| Franklin International Growth Fund, | | | | | | | | | | | | | | |
| ClassR6 | 1,395,369 | 62,515 | (1,457,884 | ) | – | | –b | | – | | (1,087,152 | ) | – | |
| Franklin International Small Cap Growth | | | | | | | | | | | | | | |
| Fund, Class R6 | 2,661,332 | 1,280,260 | (944,652 | ) | 2,996,940 | | 49,179,786 | | 696,347 | | 3,023,945 | a | 4.2 | % |
| Franklin K2 Alternative Strategies Fund, | | | | | | | | | | | | | | |
| ClassR6 | 5,538,042 | 763,319 | (445,942 | ) | 5,855,419 | | 63,121,413 | | 545,656 | | (96,993 | ) | 5.8 | % |
| Franklin Liberty Short Duration U.S. | | | | | | | | | | | | | | |
| Government ETFc | 190,323 | – | (190,323 | ) | – | | –b | | 15,281 | | (210,537 | ) | – | |
| Franklin LibertyQ Emerging Markets ETF . | – | 1,265,400 | (26,900 | ) | 1,238,500 | | 32,956,485 | | 112,384 | | (9,426 | ) | 13.2 | % |
| Franklin Low Duration Total Return Fund, | | | | | | | | | | | | | | |
| ClassR6 | 21,856,514 | 3,789,333 | (4,523,670 | ) | 21,122,177 | | 208,687,107 | | 4,293,294 | | (1,370,145 | ) | 8.4 | % |
| Franklin Mutual European Fund, Class R6 . | 2,769,711 | 422,046 | (698,787 | ) | 2,492,970 | | 47,815,162 | | 1,196,336 | | (2,687,962 | )a | 1.9 | % |
| Franklin Real Estate Securities Fund, | | | | | | | | | | | | | | |
| ClassR6 | 844,353 | 64,716 | (909,069 | ) | – | | –b | | 517,547 | | 5,443,918 | a | – | |
| Franklin Rising Dividends Fund, Class R6 . | 2,022,338 | 214,654 | (491,619 | ) | 1,745,373 | | 91,736,806 | | 1,894,080 | | 6,729,427 | a | 0.5 | % |
| Franklin Small Cap Growth Fund, | | | | | | | | | | | | | | |
| ClassR6 | 543,995 | 38,012 | (130,972 | ) | 451,035 | | 8,975,592 | | – | | (108,225 | ) | 0.3 | % |
| Franklin Strategic Income Fund, Class R6 . | 10,291,767 | 11,553,344 | (3,380,507 | ) | 18,464,604 | | 177,998,780 | | 3,746,144 | | (2,920,918 | ) | 2.5 | % |
| Franklin U.S. Government Securities Fund, | | | | | | | | | | | | | | |
| ClassR6 | 20,286,816 | 19,259,518 | (6,340,885 | ) | 33,205,449 | | 206,537,893 | | 6,187,169 | | (2,000,298 | ) | 3.2 | % |
| Franklin Utilities Fund, Class R6 | 2,022,512 | 482,441 | (882,399 | ) | 1,622,554 | | 28,832,790 | | 1,049,684 | | 2,804,386 | a | 0.5 | % |
| Institutional Fiduciary Trust Money Market | | | | | | | | | | | | | | |
| Portfolio,0.09% | 33,334,181 | 297,779,068 | (324,762,162 | ) | 6,351,087 | | 6,351,087 | | 598 | | – | | –d | |
| Templeton Foreign Fund, Class R6 | 8,594,475 | 732,128 | (2,772,505 | ) | 6,554,098 | | 45,026,655 | | 1,059,362 | | (229,198 | ) | 0.8 | % |
| Templeton Frontier Markets Fund, | | | | | | | | | | | | | | |
| ClassR6 | 1,372,510 | 83,356 | (686,852 | ) | 769,014 | | 8,366,871 | | 95,232 | | (3,219,344 | ) | 4.6 | % |
| Templeton Global Total Return Fund, | | | | | | | | | | | | | | |
| ClassR6 | 27,972,399 | 1,827,601 | (22,014,298 | ) | 7,785,702 | | 94,206,991 | | – | | (47,972,451 | ) | 1.8 | % |
| Total Non-Controlled Affiliates | | | | | | $ | 1,278,815,389 | $ | 22,688,062 | $ | (19,716,178 | ) | | |
| Total | | | | | | $ | 1,313,339,227 | $ | 22,688,062 | $ | (20,970,680 | ) | | |
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NOTES TO FINANCIAL STATEMENTS
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | % of | |
| | | | | | | | | | | | | | FT Underlying | |
| | Number of | | | | Number of | | | | | | | | Fund Shares | |
| | Shares Held | | | | Shares | | Value | | | | | | Outstanding | |
| | at Beginning | Gross | Gross Held at End | | at End | | Investment | | Realized | | Held at End | |
| FT Underlying Funds | of Year | Additions | Reductions | | of Year | | of Year | | Income | | Gain (Loss) | | of Year | |
| |
| Franklin Moderate Allocation Fund | | | | | | | | | | | | | | |
| Controlled Affiliates | | | | | | | | | | | | | | |
| Franklin LibertyQ Emerging Markets ETF . | – | 2,844,100 | (62,500 | ) | 2,781,600 | $ | 74,018,376 | $ | 253,994 | $ | (27,965 | ) | 29.6 | % |
| Franklin Pelagos Commodities Strategy | | | | | | | | | | | | | | |
| Fund, Class R6 | 8,074,252 | 476,429 | (445,668 | ) | 8,105,013 | | 53,493,085 | | – | | (1,850,512 | ) | 39.6 | % |
| Total Controlled Affiliates | | | | | | $ | 127,511,461 | $ | 253,994 | $ | (1,878,477 | ) | | |
| Non-Controlled Affiliates | | | | | | | | | | | | | | |
| Franklin DynaTech Fund, Class R6 | 3,104,067 | 337,875 | (591,638 | ) | 2,850,304 | $ | 140,405,963 | | $ – | $ | 8,592,728 | a | 4.7 | % |
| Franklin Emerging Market Debt | | | | | | | | | | | | | | |
| Opportunities Fund | 4,703,524 | – | (4,703,524 | ) | – | | –b | | – | | (6,713,070 | ) | – | |
| Franklin Growth Fund, Class R6 | 5,082,772 | 305,603 | (921,199 | ) | 4,467,176 | | 342,230,363 | | 3,029,971 | | 27,998,682 | a | 2.8 | % |
| Franklin Growth Opportunities Fund, | | | | | | | | | | | | | | |
| ClassR6 | 2,108,659 | 3,813 | (2,112,472 | ) | – | | –b | | – | | 36,089,139 | | – | |
| Franklin International Growth Fund, | | | | | | | | | | | | | | |
| ClassR6 | 3,518,060 | 7,117 | (3,525,177 | ) | – | | –b | | – | | (2,851,107 | ) | – | |
| Franklin International Small Cap Growth | | | | | | | | | | | | | | |
| Fund, Class R6 | 6,171,863 | 2,916,093 | (1,813,805 | ) | 7,274,151 | | 119,368,816 | | 1,695,979 | | 7,206,696 | a | 10.1 | % |
| Franklin K2 Alternative Strategies Fund, | | | | | | | | | | | | | | |
| ClassR6 | 8,489,495 | 1,060,569 | (489,356 | ) | 9,060,708 | | 97,674,433 | | 844,351 | | (122,633 | ) | 8.9 | % |
| Franklin Liberty Short Duration U.S. | | | | | | | | | | | | | | |
| Government ETFc | 217,513 | – | (217,513 | ) | – | | –b | | 17,464 | | (241,151 | ) | – | |
| Franklin Low Duration Total Return Fund, | | | | | | | | | | | | | | |
| ClassR6 | 20,488,108 | 4,641,079 | (3,713,250 | ) | 21,415,937 | | 211,589,456 | | 4,295,859 | | (1,040,367 | ) | 8.5 | % |
| Franklin Mutual European Fund, Class R6 . | 6,403,471 | 713,742 | (1,219,749 | ) | 5,897,464 | | 113,113,354 | | 2,844,570 | | (3,407,731 | )a | 4.5 | % |
| Franklin Real Estate Securities Fund, | | | | | | | | | | | | | | |
| ClassR6 | 2,118,854 | 72,672 | (2,191,526 | ) | – | | –b | | 1,310,830 | | 13,259,433 | a | – | |
| Franklin Rising Dividends Fund, Class R6 . | 4,580,581 | 279,039 | (836,134 | ) | 4,023,486 | | 211,474,420 | | 4,328,868 | | 13,513,911 | a | 1.2 | % |
| Franklin Small Cap Growth Fund, | | | | | | | | | | | | | | |
| ClassR6 | 1,319,381 | 31,345 | (237,405 | ) | 1,113,321 | | 22,155,097 | | – | | (158,071 | ) | 0.8 | % |
| Franklin Strategic Income Fund, Class R6 . | 9,426,160 | 11,083,832 | (2,870,961 | ) | 17,639,031 | | 170,040,261 | | 3,560,159 | | (2,336,644 | ) | 2.4 | % |
| Franklin U.S. Government Securities Fund, | | | | | | | | | | | | | | |
| ClassR6 | 18,160,278 | 18,455,352 | (5,209,921 | ) | 31,405,709 | | 195,343,508 | | 5,814,168 | | (1,321,002 | ) | 3.1 | % |
| Franklin Utilities Fund, Class R6 | 5,431,764 | 260,947 | (1,759,361 | ) | 3,933,350 | | 69,895,628 | | 2,491,118 | | 8,928,306 | a | 1.1 | % |
| Institutional Fiduciary Trust Money Market | | | | | | | | | | | | | | |
| Portfolio,0.09% | 60,006,957 | 442,818,778 | (492,769,250 | ) | 10,056,485 | | 10,056,485 | | 1,087 | | – | | 0.1 | % |
| Templeton Foreign Fund, Class R6 | 19,839,565 | 801,516 | (5,215,926 | ) | 15,425,155 | | 105,970,818 | | 2,505,987 | | (1,637,335 | ) | 1.8 | % |
| Templeton Frontier Markets Fund, | | | | | | | | | | | | | | |
| ClassR6 | 3,562,592 | 81,047 | (1,611,352 | ) | 2,032,287 | | 22,111,286 | | 250,717 | | (7,712,839 | ) | 12.2 | % |
| Templeton Global Total Return Fund, | | | | | | | | | | | | | | |
| ClassR6 | 25,025,106 | 2,331,596 | (20,030,437 | ) | 7,326,265 | | 88,647,800 | | – | | (42,460,584 | ) | 1.7 | % |
| Total Non-Controlled Affiliates | | | | | | $ | 1,920,077,688 | $ | 32,991,128 | $ | 45,586,361 | | | |
| Total | | | | | | $ | 2,047,589,149 | $ | 33,245,122 | $ | 43,707,884 | | | |
| |
| Franklin Growth Allocation Fund | | | | | | | | | | | | | | |
| Non-Controlled Affiliates | | | | | | | | | | | | | | |
| Franklin DynaTech Fund, Class R6 | 2,375,363 | 240,629 | (381,316 | ) | 2,234,676 | $ | 110,080,129 | | $ – | $ | 5,369,121 | a | 3.7 | % |
| Franklin Emerging Market Debt | | | | | | | | | | | | | | |
| Opportunities Fund | 891,959 | – | (891,959 | ) | – | | –b | | – | | (849,788 | ) | – | |
| Franklin Growth Fund, Class R6 | 3,603,484 | 242,765 | (557,150 | ) | 3,289,099 | | 251,977,907 | | 2,224,690 | | 17,247,529 | a | 2.1 | % |
| Franklin Growth Opportunities Fund, | | | | | | | | | | | | | | |
| ClassR6 | 1,683,916 | 15,922 | (1,699,838 | ) | – | | –b | | – | | 26,844,404 | | – | |
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FRANKLIN FUND ALLOCATOR SERIES
NOTES TO FINANCIAL STATEMENTS
| 3. | Transactions with Affiliates (continued) |
| f. | Investments in FT Underlying Funds (continued) |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | % of | |
| | | | | | | | | | | | | | FT Underlying | |
| | Number of | | | | Number of | | | | | | | | Fund Shares | |
| | Shares Held | | | | Shares | | Value | | | | | | Outstanding | |
| | at Beginning | Gross | Gross Held at End | | at End | | Investment | | Realized | | Held at End | |
| FT Underlying Funds | of Year | Additions | Reductions | | of Year | | of Year | | Income | | Gain (Loss) | | of Year | |
| |
| Franklin Growth Allocation Fund (continued) | | | | | | | | | | | | | |
| Non-Controlled Affiliates (continued) | | | | | | | | | | | | | | |
| Franklin International Growth Fund, | | | | | | | | | | | | | | |
| ClassR6 | 2,523,677 | 24,317 | (2,547,994 | ) | – | | $ –b $ – | $ | (2,045,056 | ) | – | |
| Franklin International Small Cap Growth | | | | | | | | | | | | | | |
| Fund, Class R6 | 4,926,476 | 2,312,239 | (1,293,390 | ) | 5,945,325 | | 97,562,786 | | 1,390,002 | | 4,444,644 | a | 8.3 | % |
| Franklin K2 Alternative Strategies Fund, | | | | | | | | | | | | | | |
| ClassR6 | 4,773,803 | 711,664 | (195,212 | ) | 5,290,255 | | 57,028,943 | | 492,989 | | (47,964 | ) | 5.2 | % |
| Franklin Liberty Short Duration U.S. | | | | | | | | | | | | | | |
| Government ETFc | 43,840 | – | (43,840 | ) | – | | –b | | 3,520 | | (48,487 | ) | – | |
| Franklin LibertyQ Emerging Markets ETF . | – | 2,210,100 | (28,600 | ) | 2,181,500 | | 58,049,715 | | 199,717 | | (5,902 | ) | 23.2 | % |
| Franklin Low Duration Total Return Fund, | | | | | | | | | | | | | | |
| ClassR6 | 4,043,897 | 2,187,926 | (1,431,662 | ) | 4,800,161 | | 47,425,588 | | 948,723 | | (395,439 | ) | 1.9 | % |
| Franklin Mutual European Fund, Class R6 . | 4,754,170 | 610,500 | (779,423 | ) | 4,585,247 | | 87,945,035 | | 2,218,244 | | (3,392,920 | )a | 3.5 | % |
| Franklin Pelagos Commodities Strategy | | | | | | | | | | | | | | |
| Fund, Class R6 | 4,504,698 | 338,474 | (174,154 | ) | 4,669,018 | | 30,815,521 | | – | | (726,656 | ) | 22.8 | % |
| Franklin Real Estate Securities Fund, | | | | | | | | | | | | | | |
| ClassR6 | 1,627,427 | 69,596 | (1,697,023 | ) | – | | –b | | 1,032,791 | | 10,203,803 | a | – | |
| Franklin Rising Dividends Fund, Class R6 . | 3,396,850 | 230,914 | (529,133 | ) | 3,098,631 | | 162,864,060 | | 3,286,077 | | 8,387,143 | a | 0.9 | % |
| Franklin Small Cap Growth Fund, | | | | | | | | | | | | | | |
| ClassR6 | 919,432 | 27,326 | (141,461 | ) | 805,297 | | 16,025,405 | | – | | (105,614 | ) | 0.6 | % |
| Franklin Strategic Income Fund, Class R6 . | 1,841,518 | 3,168,092 | (1,128,422 | ) | 3,881,188 | | 37,414,656 | | 772,027 | | (910,004 | ) | 0.5 | % |
| Franklin U.S. Government Securities Fund, | | | | | | | | | | | | | | |
| ClassR6 | 3,335,076 | 5,645,795 | (2,033,731 | ) | 6,947,140 | | 43,211,208 | | 1,255,850 | | (215,886 | ) | 0.7 | % |
| Franklin Utilities Fund, Class R6 | 3,735,821 | 412,774 | (1,185,966 | ) | 2,962,629 | | 52,645,916 | | 1,840,348 | | 4,691,908 | a | 0.9 | % |
| Institutional Fiduciary Trust Money Market | | | | | | | | | | | | | | |
| Portfolio,0.09% | 31,962,324 | 257,038,610 | (282,940,430 | ) | 6,060,504 | | 6,060,504 | | 762 | | – | | –d | |
| Templeton Foreign Fund, Class R6 | 15,493,988 | 737,131 | (3,648,079 | ) | 12,583,040 | | 86,445,484 | | 2,051,510 | | (1,495,991 | ) | 1.5 | % |
| Templeton Frontier Markets Fund, | | | | | | | | | | | | | | |
| ClassR6 | 3,108,895 | 83,420 | (1,351,313 | ) | 1,841,002 | | 20,030,108 | | 226,759 | | (7,648,246 | ) | 11.0 | % |
| Templeton Global Total Return Fund, | | | | | | | | | | | | | | |
| ClassR6 | 4,877,598 | 1,492,530 | (4,765,581 | ) | 1,604,547 | | 19,415,017 | | – | | (8,407,987 | ) | 0.4 | % |
| Total | | | | | | $ | 1,184,997,982 | $ | 17,944,009 | $ | 50,892,612 | | | |
aIncludes realized gain distributions received.
bAs of December 31, 2016, no longer held by the fund.
cEffective June 1, 2016, Franklin Short Duration U.S. Government ETF was renamed Franklin Liberty Short Duration U.S. Government ETF.
dRounds to less than 0.1%
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NOTES TO FINANCIAL STATEMENTS
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, 2017. Total expenses waived or paid are not subject to recapture subsequent to the Funds’ fiscal year end.
| | | | | | |
| | Franklin | | Franklin | | Franklin | |
| | Conservative | | Moderate | | Growth Allocation | |
| | Fund | | Allocation Fund | | Fund | |
| |
| Class A, Class C, Class R & Advisor Class | 0.40 | % | 0.40 | % | 0.40 | % |
| Class R6 | 0.28 | % | 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 year ended December 31, 2016, there were no credits earned.
5. Income Taxes
For tax purposes, capital losses may be carried over to offset future capital gains, if any. At December 31, 2106, the capital loss carryforwards were as follows:
| | |
| | | Franklin |
| | | Conservative |
| | | Allocation Fund |
| Capital loss carryforwards: | | |
| Short term | $ | 5,477,789 |
| Long term | | 18,100,827 |
| Total capital loss carryforwards | $ | 23,578,616 |
The tax character of distributions paid during the years ended December 31, 2016 and 2015, was as follows:
| | | | | | | | | | | | |
| | | Franklin Conservative | | Franklin Moderate | | Franklin Growth |
| | | Allocation Fund | | Allocation Fund | | Allocation Fund |
| | | 2016 | | 2015 | | 2016 | | 2015 | | 2016 | | 2015 |
| Distributions paid from: | | | | | | | | | | | | |
| Ordinary income | $ | 12,655,818 | $ | 31,946,548 | $ | 13,304,241 | $ | 39,248,227 | $ | 8,101,004 | $ | 15,813,337 |
| Long term capital gain | | 11,344,998 | | 62,455,417 | | 35,040,700 | | 117,732,590 | | 26,442,862 | | 85,287,453 |
| | $ | 24,000,816 | $ | 94,401,965 | $ | 48,344,941 | $ | 156,980,817 | $ | 34,543,866 | $ | 101,100,790 |
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FRANKLIN FUND ALLOCATOR SERIES
NOTES TO FINANCIAL STATEMENTS
5. Income Taxes (continued)
At December 31, 2016, the cost of investments, net unrealized appreciation (depreciation), undistributed ordinary income and undistributed long term capital gains for income tax purposes were as follows:
| | | | | | | | | | | | |
| | | | Franklin | | | | Franklin | | | | Franklin | |
| | | | Conservative | | | | Moderate | | | | Growth | |
| | | Allocation Fund | | | Allocation Fund | | | Allocation Fund | |
| Cost of investments | $ | 1,321,967,538 | | $ | 1,939,182,211 | | $ | 1,070,538,727 | |
| |
| Unrealized appreciation | | $ | 147,435,229 | | | $ | 322,769,914 | | | $ | 236,406,884 | |
| Unrealized depreciation | | | (31,768,673 | ) | | | (40,202,211 | ) | | | (16,367,780 | ) |
| Net unrealized appreciation (depreciation) | | $ | 115,666,556 | | | $ | 282,567,703 | | | $ | 220,039,104 | |
| |
| Undistributed ordinary income | | $ | 2,712,070 | | | $ | 11,024,421 | | | $ | 6,559,634 | |
| Undistributed long term capital gains | | | — | | | | 19,031,373 | | | | 29,713,330 | |
| Distributable earnings | | $ | 2,712,070 | | | $ | 30,055,794 | | | $ | 36,272,964 | |
| |
| 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. | |
| |
| Franklin Moderate Allocation Fund and Franklin Growth Allocation Fund utilized a tax accounting practice to treat a portion of the | |
| proceeds from capital shares redeemed as a distribution from net investment income and realized capital gains. | |
6. Investment Transactions
Purchases and sales of Underlying Funds and ETFs (excluding short term securities) for the year ended December 31, 2016, were as follows:
| | | | | | |
| | | Franklin | | Franklin | | Franklin |
| | | Conservative | | Moderate | | Growth |
| | | Allocation Fund | | Allocation Fund | | Allocation Fund |
| |
| Purchases | $ | 540,749,705 | $ | 693,014,963 | $ | 407,817,945 |
| Sales | $ | 827,889,681 | $ | 1,109,958,994 | $ | 600,135,425 |
7. Credit Facility
Certain or all 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 matured on February 10, 2017. 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. Effective February 10, 2017, the Borrowers renewed the Global Credit Facility for a one year term, maturing February 9, 2018, for a total of $2 billion.
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 0.15% based upon the unused portion of the Global Credit Facility. These fees are reflected in other expenses in the Statements of Operations. During the year ended December 31, 2016, the Funds did not use the Global Credit Facility.
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FRANKLIN FUND ALLOCATOR SERIES
NOTES TO FINANCIAL STATEMENTS
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 December 31, 2016, 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. Investment Company Reporting Modernization
In October 2016, the U.S. Securities and Exchange Commission adopted new rules and amended existing rules (together, final rules) intended to modernize the reporting and disclosure of information by registered investment companies. In part, the final rules amend Regulation S-X and require standardized, enhanced disclosures about derivatives in investment company financial statements, as well as other amendments. The compliance date for the amendments to Regulation S-X is August 1, 2017. Management is currently evaluating the impact that the adoption of the amendments to Regulation S-X will have on the Funds’ financial statements and related disclosures.
10. 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.
| |
| Abbreviations |
| Selected Portfolio |
| ETF | Exchange Traded Fund |
| SPDR | S&P Depository Receipt |
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FRANKLIN FUND ALLOCATOR SERIES
Report of Independent Registered Public Accounting Firm
To the Board of Trustees and Shareholders of Franklin Fund Allocator Series
In our opinion, the accompanying statements of assets and liabilities, including the statements of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Franklin Conservative Allocation Fund, Franklin Moderate Allocation Fund and Franklin Growth Allocation Fund (separate portfolios of Franklin Fund Allocator Series, hereafter referred to as the "Funds") as of December 31, 2016, the results of each of their operations for the year then ended, the changes in each of their net assets for each of the two years in the period then ended and the financial highlights for each of the periods presented, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Funds’ management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities as of December 31, 2016 by correspondence with the transfer agent, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
February 15, 2017
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FRANKLIN FUND ALLOCATOR SERIES
Tax Information (unaudited)
Under Section 852(b)(3)(C) of the Internal Revenue Code (Code), the Funds hereby report the maximum amount allowable but no less than the following amounts as long term capital gain dividends for the fiscal year ended December 31, 2016:
| | | | |
| Franklin | | Franklin | | Franklin |
| Conservative | | Moderate | | Growth |
| Allocation Fund | | Allocation Fund | | Allocation Fund |
| $11,344,998 | $ | 39,659,516 | $ | 32,418,330 |
| |
| Under Section 871(k)(2)(C) of the Code, the Funds hereby report the maximum amount allowable but no less than the following |
| amounts as short term capital gain dividends for purposes of the tax imposed under Section 871(a)(1)(A) of the Code for the fiscal |
| year ended December 31, 2016: | | | | |
| |
| Franklin | | | | |
| Growth | | | | |
| Allocation Fund | | | | |
| $248,204 | | | | |
Under Section 854(b)(1)(A) of the Code, the Funds hereby report the following percentage amounts of the ordinary income dividends as income qualifying for the dividends received deduction for the fiscal year ended December 31, 2016:
| | | | | | | | |
| | Franklin | | | Franklin | | | Franklin | |
| | Conservative | | | Moderate | | | Growth | |
| | Allocation Fund | | | Allocation Fund | | | Allocation Fund | |
| |
| $ | 33.89 | % | $ | 74.80 | % | $ | 91.47 | % |
| |
| | Under Section 854(b)(1)(B) of the Code, the Funds hereby report the maximum amount allowable but no less than the following | |
amounts as qualified dividends for purposes of the maximum rate under Section 1(h)(11) of the Code for the fiscal year ended December 31, 2016:
| | | | | |
| | Franklin | | Franklin | | Franklin |
| | Conservative | | Moderate | | Growth |
| | Allocation Fund | | Allocation Fund | | Allocation Fund |
| |
| $ | 9,094,447 | $ | 20,856,925 | $ | 16,070,436 |
Distributions, including qualified dividend income, paid during calendar year 2016 will be reported to shareholders on Form 1099-DIV by mid-February 2017. Shareholders are advised to check with their tax advisors for information on the treatment of these amounts on their individual income tax returns.
During the fiscal year ended December 31, 2016, the Funds, a qualified fund of funds under Section 852(g)(2) of Code, received an allocation of foreign taxes paid from one or more of its underlying funds. As shown in the table below, the Fund hereby reports to shareholders the foreign source income and foreign taxes paid by underlying funds, pursuant to Section 853 of the Code. This written statement will allow shareholders of record on December 28, 2016, to treat their proportionate share of foreign taxes paid by the underlying funds as having been paid directly by them. The shareholder shall consider these amounts as foreign taxes paid in the tax year in which they receive the Fund distribution.
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FRANKLIN FUND ALLOCATOR SERIES
The following tables provide a detailed analysis of foreign tax paid, foreign source income, and foreign source qualified dividends as reported by the Funds, to Class A, Class C, Class R, Class R6, and Class Advisor Class shareholders of record.
| | | | | | |
| | | Foreign Tax Paid | | Foreign Source | | Foreign Source Qualified |
| Class | | Per Share | | Income Per Share | | Dividends Per Share |
| |
| Franklin Conservative Allocation Fund | | | | | | |
| Class A | $ | 0.0047 | $ | 0.1185 | $ | 0.0324 |
| Class C | $ | 0.0047 | $ | 0.1185 | $ | 0.0324 |
| Class R | $ | 0.0047 | $ | 0.1185 | $ | 0.0324 |
| Class R6 | $ | 0.0047 | $ | 0.1185 | $ | 0.0324 |
| Advisor Class | $ | 0.0047 | $ | 0.1185 | $ | 0.0324 |
| |
| Franklin Moderate Allocation Fund | | | | | | |
| Class A | $ | 0.0064 | $ | 0.1305 | $ | 0.0548 |
| Class C | $ | 0.0064 | $ | 0.1305 | $ | 0.0548 |
| Class R | $ | 0.0064 | $ | 0.1305 | $ | 0.0548 |
| Class R6 | $ | 0.0064 | $ | 0.1305 | $ | 0.0548 |
| Advisor Class | $ | 0.0064 | $ | 0.1305 | $ | 0.0548 |
| |
| Franklin Growth Allocation Fund | | | | | | |
| Class A | $ | 0.0095 | $ | 0.1625 | $ | 0.0896 |
| Class C | $ | 0.0095 | $ | 0.1625 | $ | 0.0896 |
| Class R | $ | 0.0095 | $ | 0.1625 | $ | 0.0896 |
| Class R6 | $ | 0.0095 | $ | 0.1625 | $ | 0.0896 |
| Advisor Class | $ | 0.0095 | $ | 0.1625 | $ | 0.0896 |
Foreign Tax Paid Per Share (Column 1) is the amount per share available to you, as a tax credit (assuming you held your shares in
the Fund for a minimum of 16 days during the 31-day period beginning 15 days before the ex-dividend date of the Fund’s
distribution to which the foreign taxes relate), or, as a tax deduction.
Foreign Source Income Per Share (Column 2) is the amount per share of income dividends attributable to foreign securities held by
the underlying funds, plus any foreign taxes withheld on these dividends. The amounts reported include foreign source qualified
dividends that have not been adjusted for the rate differential applicable to such dividend income.1
Foreign Source Qualified Dividends Per Share (Column 3) is the amount per share of foreign source qualified dividends, plus any
foreign taxes withheld on these dividends. These amounts represent the portion of the Foreign Source Income reported to you in
column 2 that were derived from qualified foreign securities held by the underlying funds.1
By mid-February 2017, shareholders will receive Form 1099-DIV which will include their share of taxes paid and foreign source
income distributed during the calendar year 2016. The Foreign Source Income reported on Form 1099-DIV has not been adjusted
for the rate differential on foreign source qualified dividend income. Shareholders are advised to check with their tax advisors for
information on the treatment of these amounts on their 2016 individual income tax returns.
1Qualified dividends are taxed at reduced long term capital gains tax rates. In determining the amount of foreign tax credit that may be applied against the U.S. tax liability of
individuals receiving foreign source qualified dividends, adjustments may be required to the foreign tax credit limitation calculation to reflect the rate differential applicable to
such dividend income. The rules however permit certain individuals to elect not to apply the rate differential adjustments for capital gains and/or dividends for any taxable
year. Please consult your tax advisor and the instructions to Form 1116 for more information.
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Board Members and Officers
The name, year of birth and address of the officers and board members, as well as their affiliations, positions held with the Trust, principal occupations during at least the past five years and number of U.S. registered portfolios overseen in the Franklin Templeton Investments fund complex, are shown below. Generally, each board member serves until that person’s successor is elected and qualified.
| | | | |
| Independent Board Members | | | |
| |
| | | | Number of Portfolios in | |
| Name, Year of Birth | | Length of | Fund Complex Overseen | Other Directorships Held |
| and Address | Position | Time Served | by Board Member* | During at Least the Past 5 Years |
| |
| Harris J. Ashton (1932) | Trustee | Since 1995 | 142 | Bar-S Foods (meat packing company) |
| One Franklin Parkway | | | | (1981-2010). |
| San Mateo, CA 94403-1906 | | | | |
| Principal Occupation During at Least the Past 5 Years: | | |
| Director of various companies; and formerly, Director, RBC Holdings, Inc. (bank holding company) (until 2002); and President, Chief Executive |
| Officer and Chairman of the Board, General Host Corporation (nursery and craft centers) (until 1998). | |
| |
| Mary C. Choksi (1950) | Trustee | Since 2014 | 136 | Avis Budget Group Inc. (car rental) |
| One Franklin Parkway | | | | (2007-present), Omnicom Group Inc. |
| San Mateo, CA 94403-1906 | | | | (advertising and marketing |
| | | | | communications services) |
| | | | | (2011-present) and H.J. Heinz |
| | | | | Company (processed foods and allied |
| | | | | products) (1998-2006). |
| Principal Occupation During at Least the Past 5 Years: | | |
| Senior Advisor, Strategic Investment Group (investment management group) (2015-present); director of various companies; and formerly, |
| Founding Partner and Senior Managing Director, Strategic Investment Group (1987–2015); Founding Partner and Managing Director, Emerging |
| Markets Management LLC (investment management firm) (1987-2011); and Loan Officer/Senior Loan Officer/Senior Pension Investment |
| Officer, World Bank Group (international financial institution) (1977-1987). | |
| |
| Edith E. Holiday (1952) | Trustee | Since 1998 | 142 | Hess Corporation (exploration and |
| One Franklin Parkway | | | | refining of oil and gas) (1993-present), |
| San Mateo, CA 94403-1906 | | | | Canadian National Railway (railroad) |
| | | | | (2001-present), White Mountains |
| | | | | Insurance Group, Ltd. (holding |
| | | | | company) (2004-present), Santander |
| | | | | Consumer USA Holdings, Inc. |
| | | | | (consumer finance) (November 2016), |
| | | | | RTI International Metals, Inc. |
| | | | | (manufacture and distribution of |
| | | | | titanium) (1999-2015) and H.J. Heinz |
| | | | | Company (processed foods and allied |
| | | | | products) (1994-2013). |
| Principal Occupation During at Least the Past 5 Years: | | |
| Director or Trustee of various companies and trusts; and formerly, Assistant to the President of the United States and Secretary of the |
| Cabinet (1990-1993); General Counsel to the United States Treasury Department (1989-1990); and Counselor to the Secretary and Assistant |
| Secretary for Public Affairs and Public Liaison – United States Treasury Department (1988-1989). | |
| |
| J. Michael Luttig (1954) | Trustee | Since 2009 | 142 | Boeing Capital Corporation (aircraft |
| One Franklin Parkway | | | | financing) (2006-2013). |
| San Mateo, CA 94403-1906 | | | | |
| Principal Occupation During at Least the Past 5 Years: | | |
| Executive Vice President, General Counsel and member of the Executive Council, The Boeing Company (aerospace company) (2006-present); |
| and formerly, Federal Appeals Court Judge, U.S. Court of Appeals for the Fourth Circuit (1991-2006). | |
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FRANKLIN FUND ALLOCATOR SERIES
| | | | |
| Independent Board Members (continued) | | |
| |
| |
| |
| | | | Number of Portfolios in | |
| Name, Year of Birth | | Length of | Fund Complex Overseen | Other Directorships Held |
| and Address | Position | Time Served | by Board Member* | During at Least the Past 5 Years |
| |
| Larry D. Thompson (1945) | Trustee | Since 2007 | 142 | The Southern Company (energy |
| One Franklin Parkway | | | | company) (2014-present; previously |
| San Mateo, CA 94403-1906 | | | | 2010-2012), Graham Holdings |
| | | | | Company (education and media |
| | | | | organization) (2011-present) and |
| | | | | Cbeyond, Inc. (business |
| | | | | communications provider) |
| | | | | (2010-2012). |
| Principal Occupation During at Least the Past 5 Years: | | |
| Director of various companies; John A. Sibley Professor of Corporate and Business Law, University of Georgia School of Law (January 2015; |
| previously 2011-2012); and formerly, Executive Vice President – Government Affairs, General Counsel and Corporate Secretary, PepsiCo, |
| Inc. (consumer products) (2012-2014); Senior Vice President – Government Affairs, General Counsel and Secretary, PepsiCo, Inc. |
| (2004-2011); Senior Fellow of The Brookings Institution (2003-2004); Visiting Professor, (2003-2004); Visiting Professor, University of Georgia |
| School of Law (2004); and Deputy Attorney General, U.S. Department of Justice (2001-2003). | |
| |
| John B. Wilson (1959) | Lead | Trustee since | 116 | None |
| One Franklin Parkway | Independent | 2006 and Lead | | |
| San Mateo, CA 94403-1906 | Trustee | Independent | | |
| | | Trustee since 2008 | | |
| Principal Occupation During at Least the Past 5 Years: | | |
| President, Staples Europe (office supplies) (2012-present); President and Founder, Hyannis Port Capital, Inc. (real estate and private equity |
| investing); serves on private and non-profit boards; and formerly, Chief Operating Officer and Executive Vice President, Gap, Inc. (retail) |
| (1996-2000); Chief Financial Officer and Executive Vice President – Finance and Strategy, Staples, Inc. (1992-1996); Senior Vice President – |
| Corporate Planning, Northwest Airlines, Inc. (airlines) (1990-1992); and Vice President and Partner, Bain & Company (consulting firm) |
| (1986-1990). | | | | |
| |
| |
| Interested Board Members and Officers | | |
| |
| | | | Number of Portfolios in | |
| Name, Year of Birth | | Length of | Fund Complex Overseen | Other Directorships Held |
| and Address | Position | Time Served | by Board Member* | During at Least the Past 5 Years |
| |
| **Gregory E. Johnson (1961) | Trustee | Since 2007 | 158 | None |
| One Franklin Parkway | | | | |
| San Mateo, CA 94403-1906 | | | | |
| Principal Occupation During at Least the Past 5 Years: | | |
| Chairman of the Board, Member – Office of the Chairman, Director and Chief Executive Officer, Franklin Resources, Inc.; officer and/or |
| director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 44 of the investment companies in |
| Franklin Templeton Investments; Vice Chairman, Investment Company Institute; and formerly, President, Franklin Resources, Inc. |
| (1994-2015). | | | | |
| |
| **Rupert H. Johnson, Jr. (1940) | Chairman of | Chairman of the | 142 | None |
| One Franklin Parkway | the Board | Board and Trustee | | |
| San Mateo, CA 94403-1906 | and Trustee | since 2013 | | |
| Principal Occupation During at Least the Past 5 Years: | | |
| Vice Chairman, Member – Office of the Chairman and Director, Franklin Resources, Inc.; Director, Franklin Advisers, Inc.; Senior Vice |
| President, Franklin Advisory Services, LLC; and officer and/or director or trustee, as the case may be, of some of the other subsidiaries of |
| Franklin Resources, Inc. and of 42 of the investment companies in Franklin Templeton Investments. | |
| |
| Alison E. Baur (1964) | Vice President | Since 2012 | Not Applicable | Not Applicable |
| One Franklin Parkway | | | | |
| San Mateo, CA 94403-1906 | | | | |
| Principal Occupation During at Least the Past 5 Years: | | |
| Deputy General Counsel, Franklin Templeton Investments; and officer of some of the other subsidiaries of Franklin Resources, Inc. and of 45 |
| of the investment companies in Franklin Templeton Investments. | | |
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| | | | |
| Interested Board Members and Officers (continued) | |
| |
| |
| |
| | | | Number of Portfolios in | |
| Name, Year of Birth | | Length of | Fund Complex Overseen | Other Directorships Held |
| and Address | Position | Time Served | by Board Member* | During at Least the Past 5 Years |
| |
| Laura F. Fergerson (1962) | Chief Executive Since 2009 | Not Applicable | Not Applicable |
| One Franklin Parkway | Officer – | | | |
| San Mateo, CA 94403-1906 | Finance and | | |
| | Administration | | |
| Principal Occupation During at Least the Past 5 Years: | | |
| Senior Vice President, Franklin Templeton Services, LLC; Vice President, Franklin Advisers, Inc. and Franklin Templeton Institutional, LLC; and |
| officer of 45 of the investment companies in Franklin Templeton Investments. | |
| |
| Gaston Gardey (1967) | Treasurer, | Since 2009 | Not Applicable | Not Applicable |
| One Franklin Parkway | Chief Financial | | |
| San Mateo, CA 94403-1906 | Officer and | | | |
| | Chief | | | |
| | Accounting | | | |
| | Officer | | | |
| Principal Occupation During at Least the Past 5 Years: | | |
| Treasurer, U.S. Fund Administration & Reporting, Franklin Templeton Investments; and officer of 27 of the investment companies in Franklin |
| Templeton Investments. | | | | |
| |
| Aliya S. Gordon (1973) | Vice President Since 2009 | Not Applicable | Not Applicable |
| One Franklin Parkway | | | | |
| San Mateo, CA 94403-1906 | | | | |
| Principal Occupation During at Least the Past 5 Years: | | |
| Senior Associate General Counsel, Franklin Templeton Investments; and officer of 45 of the investment companies in Franklin Templeton |
| Investments. | | | | |
| |
| Steven J. Gray (1955) | Vice President Since 2009 | Not Applicable | Not Applicable |
| One Franklin Parkway | | | | |
| San Mateo, CA 94403-1906 | | | | |
| Principal Occupation During at Least the Past 5 Years: | | |
| Senior Associate General Counsel, Franklin Templeton Investments; Vice President, Franklin Templeton Distributors, Inc. and Franklin |
| Alternative Strategies Advisers, LLC; and officer of 45 of the investment companies in Franklin Templeton Investments. |
| |
| Edward B. Jamieson (1948) | President and Since 2010 | Not Applicable | Not Applicable |
| One Franklin Parkway | Chief Executive | | |
| San Mateo, CA 94403-1906 | Officer – | | | |
| | Investment | | | |
| | Management | | |
| Principal Occupation During at Least the Past 5 Years: | | |
| President, Chief Investment Officer and Director, Franklin Advisers, Inc.; Executive Vice President, Franklin Templeton Institutional, LLC; and |
| officer and/or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 10 of the investment |
| companies in Franklin Templeton Investments. | | | |
| |
| Robert Lim (1948) | Vice President Since May 2016 | Not Applicable | Not Applicable |
| One Franklin Parkway | –AML | | | |
| San Mateo, CA 94403-1906 | Compliance | | | |
| Principal Occupation During at Least the Past 5 Years: | | |
| Vice President, Franklin Templeton Companies, LLC; Chief Compliance Officer, Franklin Templeton Distributors, Inc. and Franklin Templeton |
| Investor Services, LLC; and officer of 45 of the investment companies in Franklin Templeton Investments. |
| |
| Kimberly H. Novotny (1972) | Vice President Since 2013 | Not Applicable | Not Applicable |
| 300 S.E. 2nd Street | | | | |
| Fort Lauderdale, FL 33301-1923 | | | | |
| Principal Occupation During at Least the Past 5 Years: | | |
| Associate General Counsel, Franklin Templeton Investments; Vice President and Corporate Secretary, Fiduciary Trust International of the |
| South; Vice President, Templeton Investment Counsel, LLC; Assistant Secretary, Franklin Resources, Inc.; and officer of 45 of the investment |
| companies in Franklin Templeton Investments. | | | |
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FRANKLIN FUND ALLOCATOR SERIES
| | | | |
| Interested Board Members and Officers (continued) | |
| |
| |
| |
| | | | Number of Portfolios in | |
| Name, Year of Birth | | Length of | Fund Complex Overseen | Other Directorships Held |
| and Address | Position | Time Served | by Board Member* | During at Least the Past 5 Years |
| |
| Robert C. Rosselot (1960) | Chief | Since 2013 | Not Applicable | Not Applicable |
| 300 S.E. 2nd Street | Compliance | | | |
| Fort Lauderdale, FL 33301-1923 | Officer | | | |
| Principal Occupation During at Least the Past 5 Years: | | |
| Director, Global Compliance, Franklin Templeton Investments; Vice President, Franklin Templeton Companies, LLC; officer of 45 of the |
| investment companies in Franklin Templeton Investments; and formerly, Senior Associate General Counsel, Franklin Templeton Investments |
| (2007-2013); and Secretary and Vice President, Templeton Group of Funds (2004-2013). | |
| |
| Karen L. Skidmore (1952) | Vice President | Since 2006 | Not Applicable | Not Applicable |
| One Franklin Parkway | and Secretary | | | |
| San Mateo, CA 94403-1906 | | | | |
| Principal Occupation During at Least the Past 5 Years: | | |
| Senior Associate General Counsel, Franklin Templeton Investments; and officer of 45 of the investment companies in Franklin Templeton |
| Investments. | | | | |
| |
| Navid J. Tofigh (1972) | Vice President | Since 2015 | Not Applicable | Not Applicable |
| One Franklin Parkway | | | | |
| San Mateo, CA 94403-1906 | | | | |
| Principal Occupation During at Least the Past 5 Years: | | |
| Associate General Counsel, Franklin Templeton Investments; and officer of 45 of the investment companies in Franklin Templeton Investments |
| |
| Craig S. Tyle (1960) | Vice President | Since 2005 | Not Applicable | Not Applicable |
| One Franklin Parkway | | | | |
| San Mateo, CA 94403-1906 | | | | |
| Principal Occupation During at Least the Past 5 Years: | | |
| General Counsel and Executive Vice President, Franklin Resources, Inc.; and officer of some of the other subsidiaries of Franklin Resources, |
| Inc. and of 45 of the investment companies in Franklin Templeton Investments. | |
| |
| Lori A. Weber (1964) | Vice President | Since 2011 | Not Applicable | Not Applicable |
| 300 S.E. 2nd Street | | | | |
| Fort Lauderdale, FL 33301-1923 | | | | |
| Principal Occupation During at Least the Past 5 Years: | | |
| Senior Associate General Counsel, Franklin Templeton Investments; Assistant Secretary, Franklin Resources, Inc.; Vice President and |
| Secretary, Templeton Investment Counsel, LLC; and officer of 45 of the investment companies in Franklin Templeton Investments. |
.
*We base the number of portfolios on each separate series of the U.S. registered investment companies within the Franklin Templeton Investments fund complex. These
portfolios have a common investment manager or affiliated investment managers.
**Gregory E. Johnson is considered to be an interested person of the Fund under the federal securities laws due to his position as an officer and director ofFranklin
Resources, Inc. (Resources), which is the parent company of the Fund’s investment manager and distributor. Rupert H. Johnson, Jr. is considered to be an interested person
of the Fund under the federal securities laws due to his position as officer and director and major shareholder of Resources.
Note 1: Rupert H. Johnson, Jr. is the uncle of Gregory E. Johnson.
Note 2: Officer information is current as of the date of this report. It is possible that after this date, information about officers may change.
Note 3: Effective November 1, 2016, Frank Olson ceased to be a trustee of the Trust.
The Sarbanes-Oxley Act of 2002 and Rules adopted by the Securities and Exchange Commission require the Fund to disclose whether the Fund’s Audit
Committee includes at least one member who is an audit committee financial expert within the meaning of such Act and Rules. The Fund’s Board has determined
that there is at least one such financial expert on the Audit Committee and has designated John B. Wilson as its audit committee financial expert. The Board
believes that Mr. Wilson qualifies as such an expert in view of his extensive business background and experience, including service as chief financial officer of
Staples, Inc. from 1992 to 1996. Mr. Wilson has been a Member and Chairman of the Fund’s Audit Committee since 2006. As a result of such background and
experience, the Board believes that Mr. Wilson has acquired an understanding of generally accepted accounting principles and financial statements, the general
application of such principles in connection with the accounting estimates, accruals and reserves, and analyzing and evaluating financial statements that
present a breadth and level of complexity of accounting issues generally comparable to those of the Fund, as well as an understanding of internal controls and
procedures for financial reporting and an understanding of audit committee functions. Mr. Wilson is an independent Board member as that term is defined under
the relevant Securities and Exchange Commission Rules and Releases.
The Statement of Additional Information (SAI) includes additional information about the board members and is available, without charge, upon request.
Shareholders may call (800) DIAL BEN/342-5236 to request the SAI.
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FRANKLIN FUND ALLOCATOR SERIES
Shareholder Information
Proxy Voting Policies and Procedures
The Trust’s investment manager has established Proxy Voting Policies and Procedures (Policies) that the Trust uses to determine how to vote proxies relating to portfolio securities. Shareholders may view the Trust’s complete Policies online at franklintempleton.com. Alternatively, shareholders may request copies of the Policies free of charge by calling the Proxy Group collect at (954) 527-7678 or by sending a written request to: Franklin Templeton Companies, LLC, 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.
Householding of Reports and Prospectuses
You will receive each Fund’s financial reports every six months as well as an annual updated summary prospectus (prospectus available upon request). To reduce Fund expenses, we try to identify related shareholders in a household and send only one copy of the financial reports and summary prospectus. This process, called “householding,” will continue indefinitely unless you instruct us otherwise. If you prefer not to have these documents householded, please call us at (800) 632-2301. At any time you may view current prospectuses/summary prospectuses and financial reports on our website. If you choose, you may receive these documents through electronic delivery.
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| |
| Contents | |
| |
| Annual Report | |
| Economic and Market Overview | 3 |
| Franklin Corefolio Allocation Fund | 5 |
| Franklin Founding Funds Allocation Fund | 11 |
| Financial Highlights and Statements of Investments | 17 |
| Financial Statements | 27 |
| Notes to Financial Statements | 30 |
| Report of Independent Registered | |
| Public Accounting Firm | 38 |
| Tax Information | 39 |
| Board Members and Officers | 41 |
| Shareholder Information | 45 |
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Economic and Market Overview
The global economy grew moderately during the 12-month period despite slower growth in some countries. In this environment, global developed and emerging market stocks, as measured by the MSCI All Country World Index, rose. Global markets were aided by accommodative monetary policies of various global central banks, improved commodity prices after 2016’s first quarter, finalization of Greece’s new debt deal and generally encouraging global economic data. Further supporting markets were expectations of higher interest rates and inflation in the U.S., driven by talk of expansionary fiscal policies under new U.S. president Donald Trump, and an Organization of the Petroleum Exporting Countries deal to curb oil production. However, these factors were partially offset by a slowdown in China’s economy and declining commodity prices early in the period, geopolitical tensions in certain regions, uncertainty about the U.S. Federal Reserve’s (Fed’s) timing for raising interest rates and worries about the health of European banks. In addition, global economic concerns and the U.K.’s historic referendum to leave the European Union (also known as “Brexit”) contributed to volatility in global stock markets.
The U.S. economy grew in 2016 despite a general decline in private inventory and business investments, which partly offset strength in consumer spending, residential investment and government spending. Manufacturing conditions remained volatile but generally expanded. The services sector also grew for most of the period, contributing to new jobs that helped the unemployment rate decrease from 5.0% in December 2015 to 4.7% at period-end.1 Retail sales generally rose, as did home sales and prices amid declining mortgage rates. At its December meeting, the Fed increased its target range for the federal funds rate to 0.50%–0.75%, as policymakers cited an improvement in U.S. labor markets and higher inflation. The Federal Open Market Committee also hinted at three additional hikes in 2017, and the Fed raised its 2017 U.S. economic growth forecast, while lowering its unemployment projections.
In Europe, the U.K.’s annualized economic growth accelerated in 2016’s second half, driven by gross fixed capital formation in the third quarter and manufacturing and services in the fourth quarter. Immediate effects of the Brexit vote in June materialized as U.K. stocks declined significantly, the British pound hit a three-decade low amid intensified selling and the U.K.’s credit rating was downgraded. In the eurozone, despite investor concerns about banking sector weakness, low corporate earnings and post-Brexit politics, some regions benefited from rising consumer spending, resulting from a cheaper euro, low inflation and signs of sustained economic growth. The eurozone grew slightly early in the period, aided by lower oil prices, improved exports and the European Central Bank’s (ECB’s) accommodative monetary policy. However, growth moderated in 2016’s second quarter and improved in the third and fourth quarters. After declining in the beginning of 2016, the eurozone’s annual inflation rate increased gradually to reach its highest reading in three years toward period-end, ending at an estimated 1.1% in December. The ECB cut its benchmark interest rate and expanded its massive bond-buying program in March and August 2016 to boost the region’s slowing growth. Furthermore, at its December meeting, the ECB extended the continuation of its monthly asset purchases from March to December of 2017, but it agreed to scale back the purchase amount beginning in April 2017.
In Asia, Japan’s quarterly gross domestic product grew slower in the third quarter than in the second and first quarters, mainly due to declines in private non-residential and public investments. In January 2016, the Bank of Japan (BOJ) introduced negative interest rates on excess reserves held by financial institutions with the central bank to boost lending and help achieve its inflation target. In July 2016, Japan’s Prime Minister Shinzo Abe announced a higher-than-expected fiscal stimulus to revive the economy, followed by an additional monetary stimulus announcement by the BOJ. The BOJ kept its interest rates unchanged toward period-end; however, it overhauled its monetary policy in September to focus on yield-curve control. The bank further announced that it adjusted its Japanese government bond purchases to maintain the 10-year rate for these bonds near 0%.
In emerging markets, economic growth generally moderated during the period. Brazil’s economy continued to be in recession and the country’s central bank cut its benchmark interest rate in October and November 2016 to spur economic growth. Russia’s economic contraction eased in 2016, following a rebound in oil prices and improved industrial production. The Bank of Russia reduced its key interest rates in June and September of 2016 to revive its economy. China’s economy grew at a stable rate in the first three quarters of 2016 and expanded slightly faster in the fourth quarter, as full-year 2016 growth remained within the government’s targeted range. However, the People’s Bank of China employed monetary easing measures that included cutting the cash reserve
1. Source: Bureau of Labor Statistics.
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requirement ratio for the country’s banks and effectively devaluing the Chinese currency against the U.S. dollar. In India, economic growth marginally increased from July through September 2016 due to slower private consumption growth and increased government spending. Overall, emerging market stocks, as measured by the MSCI Emerging Markets Index, rose during the period.
The foregoing information reflects our analysis and opinions as of December 31, 2016. 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.
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Franklin Corefolio Allocation Fund
This annual report for Franklin Corefolio Allocation Fund covers the fiscal year ended December 31, 2016.
Your Fund’s Goal and Main Investments
The Fund seeks capital appreciation through investments in a combination of Franklin Growth Opportunities 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.
Performance Overview
The Fund’s Class A shares delivered a +7.64% cumulative total return for the 12 months under review. In comparison, the Fund’s benchmarks, the Standard & Poor’s 500 Index (S&P 500®), which is a broad measure of U.S. stock performance, generated a +11.96% cumulative total return, and the MSCI World Index, which tracks equity performance in global developed markets, had a +8.15% total return.1 You can find the Fund’s long-term performance data in the Performance Summary beginning on page 7.
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.
Investment Strategy
The Fund invests its assets allocated approximately 25% each in Franklin Growth Opportunities Fund, Franklin Growth Fund, Franklin Mutual Shares Fund and Templeton Growth Fund. Prior to 8/27/16, the Fund invested its assets allocated approximately 25% each in Franklin Flex Cap Growth Fund, Franklin Growth Fund, Franklin Mutual Shares 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 Mutual Shares Fund – Class R6 outperformed the S&P 500, while Franklin Growth Fund – Class R6 underperformed the index. The Franklin Flex Cap Growth Fund was reorganized into the Franklin Growth Opportunities Fund effective 8/26/16 because the investment management believe that both share similar investment goals, strategies and holdings. The Franklin Growth Opportunities Fund – Class R6 (from 8/26/16 – 12/31/16), and the Franklin Flex Cap Growth Fund – Class R6 (from 1/1/16 – 8/25/16) underperformed the S&P 500, while the Templeton Growth Fund – Class R6 outperformed the MSCI World Index.
1. Source: Morningstar.
The indexes are unmanaged and include reinvested distributions. They do not reflect any fees, expenses or sales charges. 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 21.
franklintempleton.com
Annual Report
5
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 December 31, 2016, 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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FRANKLIN COREFOLIO ALLOCATION FUND
Performance Summary as of December 31, 2016
The performance table and graphs do not reflect any taxes that a shareholder would pay on Fund dividends, capital gain distributions, if any, or any realized gains on the sale of Fund shares. Total return reflects reinvestment of the Fund’s dividends and capital gain distributions, if any, and any unrealized gains or losses.
Performance as of 12/31/161
Cumulative total return excludes sales charges. Average annual total return includes maximum sales charges. Sales charges will vary depending on the size of the investment and the class of share purchased. The maximum is 5.75% and the minimum is 0%. Class A: 5.75% maximum initial sales charge; Advisor Class: no sales charges. For other share classes, visit franklintempleton.com.
| | | | |
| | Cumulative | | Average Annual | |
| Share Class | Total Return2 | | Total Return3 | |
| A | | | | |
| 1-Year | +7.64 | % | +1.48 | % |
| 5-Year | +70.32 | % | +9.92 | % |
| 10-Year | +61.64 | % | +4.30 | % |
| Advisor | | | | |
| 1-Year | +7.90 | % | +7.90 | % |
| 5-Year | +72.59 | % | +11.53 | % |
| 10-Year | +66.22 | % | +5.21 | % |
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.
See page 9 for Performance Summary footnotes.
franklintempleton.com
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7
FRANKLIN COREFOLIO ALLOCATION FUND
PERFORMANCE SUMMARY
Total Return Index Comparison for a Hypothetical $10,000 Investment1
Total return represents the change in value of an investment over the periods shown. It includes any applicable maximum sales charge, Fund expenses, account fees and reinvested distributions. The unmanaged indexes include reinvestment of any income or distributions. They differ from the Fund in composition and do not pay management fees or expenses. One cannot invest directly in an index.
See page 9 for Performance Summary footnotes.
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FRANKLIN COREFOLIO ALLOCATION FUND
PERFORMANCE SUMMARY
| | |
| Total Annual Operating Expenses5 | | |
| Share Class | | |
| A | 1.02 | % |
| Advisor | 0.77 | % |
Each class of shares is available to certain eligible investors and has different annual fees and expenses, as described in the prospectus.
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 may be subject to those same risks. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors
affecting individual companies, particular industries or sectors, or general 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. The Fund includes investments in specialized industry sectors such as the
technology sector, which has been among the most volatile in the market. The Fund’s prospectus also includes a description of the main investment risks.
1. The Fund has a fee waiver associated with any investment it makes in a Franklin Templeton money fund, contractually guaranteed through its current fiscal year-end. Fund
investment results reflect the fee waiver; without this waiver, the results would have been lower.
2. Cumulative total return represents the change in value of an investment over the periods indicated.
3. Average annual total return represents the average annual change in value of an investment over the periods indicated. Return for less than one year, ifany,hasnotbeen
annualized.
4. Source Morningstar. The S&P 500 is a market capitalization-weighted index of 500 stocks designed to measure total U.S. Equity Market performance. The MSCI World Index
is a free float-adjusted, market capitalization-weighted index designed to measure equity market performance in global developed markets.
5. Figures are as stated in the Fund’s current prospectus, including the effect of acquired fund fees and expenses, and may differ from the expense ratios disclosed in the Your
Fund’s Expenses and Financial Highlights sections in this report. In periods of volatility, assets may decline significantly, causing total annual Fund operating expenses to
become higher than the figures shown.
See www.franklintempletondatsources.com for additional data provider information.
franklintempleton.com
Annual Report
9
FRANKLIN COREFOLIO ALLOCATION FUND
Your Fund’s Expenses
As a Fund shareholder, you can incur two types of costs: (1) transaction costs, including sales charges (loads) on Fund purchases and redemptions; and (2) ongoing Fund costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs, sometimes referred to as operating expenses. The table below 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 table below provides information about actual account values and actual expenses in the columns under the heading “Actual.” In these columns the Fund’s actual return, which includes the effect of Fund expenses, is used to calculate the “Ending Account Value” for each class of shares. 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): Divide your account value by $1,000 (if your account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6). Then multiply the result by the number in the row for your class of shares under the headings “Actual” and “Expenses Paid During Period” (if Actual Expenses Paid During Period were $7.50, then 8.6 x $7.50 = $64.50). In this illustration, the actual expenses paid this period are $64.50.
Hypothetical Example for Comparison with Other Funds
Under the heading “Hypothetical” in the table, information is provided about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. This information may not be used to estimate the actual ending account balance or expenses you paid for the period, but it can help you compare ongoing costs of investing in the Fund with those of other funds. To do so, compare this 5% hypothetical example for the class of shares you hold with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that expenses shown in the table are meant to highlight ongoing costs and do not reflect any transactional costs. Therefore, information under the heading “Hypothetical” is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transactional costs were included, your total costs would have been higher.
| | | | | | | | | | | | |
| | | | | | Actual | | Hypothetical | | |
| | | | | (actual return after expenses) | | (5% annual return before expenses) | | |
| | | | | | | Expenses | | | | Expenses | Net | |
| | | Beginning | | Ending | | Paid During | | Ending | | Paid During | Annualized | |
| Share | | Account | | Account | | Period | | Account | | Period | Expense | |
| Class | | Value 7/1/16 | | Value 12/31/16 | | 7/1/16–12/31/161,2 | | Value 12/31/16 | | 7/1/16–12/31/161,2 | Ratio2 | |
| A | $ | 1,000 | $ | 1,084.30 | $ | 2.36 | $ | 1,022.87 | $ | 2.29 | 0.45 | % |
| C | $ | 1,000 | $ | 1,080.00 | $ | 6.27 | $ | 1,019.10 | $ | 6.09 | 1.20 | % |
| R | $ | 1,000 | $ | 1,082.40 | $ | 3.66 | $ | 1,021.62 | $ | 3.56 | 0.70 | % |
| Advisor | $ | 1,000 | $ | 1,085.00 | $ | 1.05 | $ | 1,024.13 | $ | 1.02 | 0.20 | % |
1. Expenses are equal to the annualized expense ratio for the six-month period as indicated above–in the far right column–multiplied by the simple average account value
over the period indicated, and then multiplied by 184/366 to reflect the one-half year period.
2. Reflects expenses after fee waivers and expense reimbursements. Does not include acquired fund fees and expenses.
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Franklin Founding Funds Allocation Fund
This annual report for Franklin Founding Funds Allocation Fund covers the fiscal year ended December 31, 2016.
Your Fund’s Goal 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 had a +13.52% cumulative total return for the 12 months under review. In comparison, the Fund’s benchmarks, the Standard & Poor’s 500 Index (S&P 500), which is a broad measure of U.S. stock performance, generated a +11.96% total return and the MSCI World Index, which tracks equity performance in global developed markets, had a +8.15% 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. For most recent month-end performance, go to franklintempleton.com or call (800) 342-5236.
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 33S% 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 and Franklin Mutual Shares Fund – Class R6 outperformed the S&P 500. Templeton Growth Fund –Class R6 outperformed the MSCI World Index.
1. Source: Morningstar.
The indexes are unmanaged and include reinvested distributions. They do not reflect any fees, expenses or sales charges. 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 26.
franklintempleton.com
Annual 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 December 31, 2016, 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 Annual Report
franklintempleton.com
FRANKLIN FOUNDING FUNDS ALLOCATION FUND
Performance Summary as of December 31, 2016
The performance table and graphs do not reflect any taxes that a shareholder would pay on Fund dividends, capital gain distributions, if any, or any realized gains on the sale of Fund shares. Total return reflects reinvestment of the Fund’s dividends and capital gain distributions, if any, and any unrealized gains or losses.
Performance as of 12/31/161
Cumulative total return excludes sales charges. Average annual total return includes maximum sales charges. Sales charges will vary depending on the size of the investment and the class of share purchased. The maximum is 5.75% and the minimum is 0%. Class A: 5.75% maximum initial sales charge; Advisor Class: no sales charges. For other share classes, visit franklintempleton.com.
| | | | |
| | Cumulative | | Average Annual | |
| Share Class | Total Return2 | | Total Return3 | |
| A | | | | |
| 1-Year | +13.52 | % | +7.00 | % |
| 5-Year | +58.24 | % | +8.33 | % |
| 10-Year | +44.59 | % | +3.15 | % |
| Advisor | | | | |
| 1-Year | +13.82 | % | +13.82 | % |
| 5-Year | +60.18 | % | +9.88 | % |
| 10-Year | +48.43 | % | +4.03 | % |
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.
See page 15 for Performance Summary footnotes.
franklintempleton.com
Annual Report
13
FRANKLIN FOUNDING FUNDS ALLOCATION FUND
PERFORMANCE SUMMARY
Total Return Index Comparison for a Hypothetical $10,000 Investment1
Total return represents the change in value of an investment over the periods shown. It includes any applicable maximum sales charge, Fund expenses, account fees and reinvested distributions. The unmanaged indexes include reinvestment of any income or distributions. They differ from the Fund in composition and do not pay management fees or expenses. One cannot invest directly in an index.
See page 15 for Performance Summary footnotes.
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| | | |
| | | | FRANKLIN FOUNDING FUNDS ALLOCATION FUND |
| | | | PERFORMANCE SUMMARY |
| |
| Total Annual Operating Expenses5 | | | |
| Share Class | | | |
| A | 1.00 | % | |
| Advisor | 0.75 | % | |
Each class of shares is available to certain eligible investors and has different annual fees and expenses, as described in the prospectus.
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.
1. The Fund has a fee waiver associated with any investment it makes in a Franklin Templeton money fund, contractually guaranteed through its current fiscal year-end. Fund
investment results reflect the fee waiver; without this waiver, the results would have been lower.
2. Cumulative total return represents the change in value of an investment over the periods indicated.
3. Average annual total return represents the average annual change in value of an investment over the periods indicated. Return for less than one year, ifany,hasnotbeen
annualized.
4. Source Morningstar. The S&P 500 is a market capitalization-weighted index of 500 stocks designed to measure total U.S. Equity Market performance. The MSCI World Index
is a free float-adjusted, market capitalization-weighted index designed to measure equity market performance in global developed markets.
5. Figures are as stated in the Fund’s current prospectus, including the effect of acquired fund fees and expenses, and may differ from the expense ratios disclosed in the Your
Fund’s Expenses and Financial Highlights sections in this report. In periods of market volatility, assets may decline significantly, causing total annual Fund operating expenses
to become higher than the figures shown.
See www.franklintempletondatsources.com for additional data provider information.
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15
FRANKLIN FOUNDING FUNDS ALLOCATION FUND
Your Fund’s Expenses
As a Fund shareholder, you can incur two types of costs: (1) transaction costs, including sales charges (loads) on Fund purchases and redemptions; and (2) ongoing Fund costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs, sometimes referred to as operating expenses. The table below 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 table below provides information about actual account values and actual expenses in the columns under the heading “Actual.” In these columns the Fund’s actual return, which includes the effect of Fund expenses, is used to calculate the “Ending Account Value” for each class of shares. 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): Divide your account value by $1,000 (if your account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6). Then multiply the result by the number in the row for your class of shares under the headings “Actual” and “Expenses Paid During Period” (if Actual Expenses Paid During Period were $7.50, then 8.6 x $7.50 = $64.50). In this illustration, the actual expenses paid this period are $64.50.
Hypothetical Example for Comparison with Other Funds
Under the heading “Hypothetical” in the table, information is provided about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. This information may not be used to estimate the actual ending account balance or expenses you paid for the period, but it can help you compare ongoing costs of investing in the Fund with those of other funds. To do so, compare this 5% hypothetical example for the class of shares you hold with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that expenses shown in the table are meant to highlight ongoing costs and do not reflect any transactional costs. Therefore, information under the heading “Hypothetical” is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transactional costs were included, your total costs would have been higher.
| | | | | | | | | | | | |
| | | | | | Actual | | Hypothetical | | |
| | | | | (actual return after expenses) | | (5% annual return before expenses) | | |
| | | | | | | Expenses | | | | Expenses | Net | |
| | | Beginning | | Ending | | Paid During | | Ending | | Paid During | Annualized | |
| Share | | Account | | Account | | Period | | Account | | Period | Expense | |
| Class | | Value 7/1/16 | | Value 12/31/16 | | 7/1/16–12/31/161,2 | | Value 12/31/16 | | 7/1/16–12/31/161,2 | Ratio2 | |
| A | $ | 1,000 | $ | 1,105.90 | $ | 2.17 | $ | 1,023.08 | $ | 2.08 | 0.41 | % |
| C | $ | 1,000 | $ | 1,101.40 | $ | 6.07 | $ | 1,019.36 | $ | 5.84 | 1.15 | % |
| R | $ | 1,000 | $ | 1,104.10 | $ | 3.49 | $ | 1,021.82 | $ | 3.35 | 0.66 | % |
| Advisor | $ | 1,000 | $ | 1,106.80 | $ | 0.85 | $ | 1,024.33 | $ | 0.81 | 0.16 | % |
1. Expenses are equal to the annualized expense ratio for the six-month period as indicated above–in the far right column–multiplied by the simple average account value
over the period indicated, and then multiplied by 184/366 to reflect the one-half year period.
2. Reflects expenses after fee waivers and expense reimbursements. Does not include acquired fund fees and expenses.
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| | | | | | | | | | | | | | | |
| | | | | | FRANKLIN FUND ALLOCATOR SERIES | |
| |
| |
| |
| Financial Highlights | | | | | | | | | | | | | | | |
| Franklin Corefolio Allocation Fund | | | | | | | | | | | | | | | |
| | | | | | Year Ended December 31, | | | | |
| | | 2016 | | | 2015 | | | 2014 | | | 2013 | | | 2012 | |
| Class A | | | | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | | | | |
| (for a share outstanding throughout the year) | | | | | | | | | | | | | | | |
| Net asset value, beginning of year | $ | 16.80 | | $ | 18.00 | | $ | 17.61 | | $ | 13.57 | | $ | 11.93 | |
| Income from investment operationsa: | | | | | | | | | | | | | | | |
| Net investment incomeb,c | | 0.14 | | | 0.14 | | | 0.23 | | | 0.11 | | | 0.11 | |
| Net realized and unrealized gains (losses) | | 1.07 | | | (0.32 | ) | | 0.91 | | | 4.09 | | | 1.65 | |
| Total from investment operations | | 1.21 | | | (0.18 | ) | | 1.14 | | | 4.20 | | | 1.76 | |
| Less distributions from: | | | | | | | | | | | | | | | |
| Net investment income and short term gains received from | | | | | | | | | | | | | | | |
| Underlying Funds | | (0.17 | ) | | (0.16 | ) | | (0.29 | ) | | (0.16 | ) | | (0.12 | ) |
| Net realized gains | | (0.78 | ) | | (0.86 | ) | | (0.46 | ) | | — | | | — | |
| Total distributions | | (0.95 | ) | | (1.02 | ) | | (0.75 | ) | | (0.16 | ) | | (0.12 | ) |
| Net asset value, end of year. | $ | 17.06 | | $ | 16.80 | | $ | 18.00 | | $ | 17.61 | | $ | 13.57 | |
| |
| Total returnd | | 7.64 | % | | (1.20 | )% | | 6.48 | % | | 31.01 | % | | 14.80 | % |
| |
| Ratios to average net assets | | | | | | | | | | | | | | | |
| Expensese | | 0.45 | %f | | 0.47 | %f | | 0.48 | %f | | 0.44 | % | | 0.36 | % |
| Net investment incomec | | 0.83 | % | | 0.80 | % | | 1.27 | % | | 0.68 | % | | 0.86 | % |
| |
| Supplemental data | | | | | | | | | | | | | | | |
| Net assets, end of year (000’s) | $ | 507,530 | | $ | 523,540 | | $ | 558,862 | | $ | 558,124 | | $ | 449,252 | |
| Portfolio turnover rate | | 0.40 | % | | 0.53 | % | | 5.77 | % | | 5.90 | % | | 2.14 | % |
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.
eDoes 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 year
ended December 31, 2016.
fBenefit 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. | Annual Report 17
| | | | | | | | | | | | | | | |
| FRANKLIN FUND ALLOCATOR SERIES | | | | | | | | | | | | | | | |
| FINANCIAL HIGHLIGHTS | | | | | | | | | | | | | | | |
| |
| |
| Franklin Corefolio Allocation Fund (continued) | | | | | | | | | | | | | | | |
| | | | | | Year Ended December 31, | | | | |
| | | 2016 | | | 2015 | | | 2014 | | | 2013 | | | 2012 | |
| Class C | | | | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | | | | |
| (for a share outstanding throughout the year) | | | | | | | | | | | | | | | |
| Net asset value, beginning of year | $ | 16.61 | | $ | 17.81 | | $ | 17.44 | | $ | 13.45 | | $ | 11.82 | |
| Income from investment operationsa: | | | | | | | | | | | | | | | |
| Net investment income (loss)b,c | | 0.01 | | | 0.02 | | | 0.10 | | | (—)d | | | 0.02 | |
| Net realized and unrealized gains (losses) | | 1.05 | | | (0.33 | ) | | 0.89 | | | 4.04 | | | 1.64 | |
| Total from investment operations | | 1.06 | | | (0.31 | ) | | 0.99 | | | 4.04 | | | 1.66 | |
| Less distributions from: | | | | | | | | | | | | | | | |
| Net investment income and short term gains received from | | | | | | | | | | | | | | | |
| Underlying Funds | | (0.04 | ) | | (0.03 | ) | | (0.16 | ) | | (0.05 | ) | | (0.03 | ) |
| Net realized gains | | (0.78 | ) | | (0.86 | ) | | (0.46 | ) | | — | | | — | |
| Total distributions | | (0.82 | ) | | (0.89 | ) | | (0.62 | ) | | (0.05 | ) | | (0.03 | ) |
| Net asset value, end of year. | $ | 16.85 | | $ | 16.61 | | $ | 17.81 | | $ | 17.44 | | $ | 13.45 | |
| |
| Total returne | | 6.82 | % | | (1.92 | )% | | 5.69 | % | | 30.09 | % | | 14.04 | % |
| |
| Ratios to average net assets | | | | | | | | | | | | | | | |
| Expensesf | | 1.20 | %g | | 1.19 | %g | | 1.19 | %g | | 1.15 | % | | 1.07 | % |
| Net investment income (loss)c | | 0.08 | % | | 0.08 | % | | 0.56 | % | | (0.03 | )% | | 0.15 | % |
| |
| Supplemental data | | | | | | | | | | | | | | | |
| Net assets, end of year (000’s) | $ | 160,729 | | $ | 172,116 | | $ | 176,680 | | $ | 176,332 | | $ | 142,879 | |
| Portfolio turnover rate | | 0.40 | % | | 0.53 | % | | 5.77 | % | | 5.90 | % | | 2.14 | % |
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.
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 year
ended December 31, 2016.
gBenefit of waiver and payments by affiliates rounds to less than 0.01%.
18 Annual 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) | | | | | | | | | | | | | | | |
| | | | | | Year Ended December 31, | | | | |
| | | 2016 | | | 2015 | | | 2014 | | | 2013 | | | 2012 | |
| Class R | | | | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | | | | |
| (for a share outstanding throughout the year) | | | | | | | | | | | | | | | |
| Net asset value, beginning of year | $ | 16.81 | | $ | 18.01 | | $ | 17.60 | | $ | 13.56 | | $ | 11.93 | |
| Income from investment operationsa: | | | | | | | | | | | | | | | |
| Net investment incomeb,c | | 0.10 | | | 0.10 | | | 0.16 | | | 0.06 | | | 0.09 | |
| Net realized and unrealized gains (losses) | | 1.06 | | | (0.32 | ) | | 0.95 | | | 4.11 | | | 1.64 | |
| Total from investment operations | | 1.16 | | | (0.22 | ) | | 1.11 | | | 4.17 | | | 1.73 | |
| Less distributions from: | | | | | | | | | | | | | | | |
| Net investment income and short term gains received from | | | | | | | | | | | | | | | |
| Underlying Funds | | (0.13 | ) | | (0.12 | ) | | (0.24 | ) | | (0.13 | ) | | (0.10 | ) |
| Net realized gains | | (0.78 | ) | | (0.86 | ) | | (0.46 | ) | | — | | | — | |
| Total distributions | | (0.91 | ) | | (0.98 | ) | | (0.70 | ) | | (0.13 | ) | | (0.10 | ) |
| Net asset value, end of year. | $ | 17.06 | | $ | 16.81 | | $ | 18.01 | | $ | 17.60 | | $ | 13.56 | |
| |
| Total return | | 7.33 | % | | (1.43 | )% | | 6.30 | % | | 30.76 | % | | 14.49 | % |
| |
| Ratios to average net assets | | | | | | | | | | | | | | | |
| Expensesd | | 0.70 | %e | | 0.69 | %e | | 0.69 | %e | | 0.65 | % | | 0.57 | % |
| Net investment incomec | | 0.58 | % | | 0.58 | % | | 1.06 | % | | 0.47 | % | | 0.65 | % |
| |
| Supplemental data | | | | | | | | | | | | | | | |
| Net assets, end of year (000’s) | $ | 1,461 | | $ | 1,423 | | $ | 1,545 | | $ | 1,903 | | $ | 1,856 | |
| Portfolio turnover rate | | 0.40 | % | | 0.53 | % | | 5.77 | % | | 5.90 | % | | 2.14 | % |
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.
dDoes 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 year
ended December 31, 2016.
eBenefit 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. | Annual Report 19
| | | | | | | | | | | | | | | |
| FRANKLIN FUND ALLOCATOR SERIES | | | | | | | | | | | | | | | |
| FINANCIAL HIGHLIGHTS | | | | | | | | | | | | | | | |
| |
| |
| Franklin Corefolio Allocation Fund (continued) | | | | | | | | | | | | | | | |
| | | | | | Year Ended December 31, | | | | |
| | | 2016 | | | 2015 | | | 2014 | | | 2013 | | | 2012 | |
| Advisor Class | | | | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | | | | |
| (for a share outstanding throughout the year) | | | | | | | | | | | | | | | |
| Net asset value, beginning of year | $ | 16.82 | | $ | 18.03 | | $ | 17.64 | | $ | 13.59 | | $ | 11.95 | |
| Income from investment operationsa: | | | | | | | | | | | | | | | |
| Net investment incomeb,c | | 0.21 | | | 0.21 | | | 0.32 | | | 0.18 | | | 0.18 | |
| Net realized and unrealized gains (losses) | | 1.04 | | | (0.35 | ) | | 0.88 | | | 4.08 | | | 1.62 | |
| Total from investment operations | | 1.25 | | | (0.14 | ) | | 1.20 | | | 4.26 | | | 1.80 | |
| Less distributions from: | | | | | | | | | | | | | | | |
| Net investment income and short term gains received from | | | | | | | | | | | | | | | |
| Underlying Funds | | (0.21 | ) | | (0.21 | ) | | (0.35 | ) | | (0.21 | ) | | (0.16 | ) |
| Net realized gains | | (0.78 | ) | | (0.86 | ) | | (0.46 | ) | | — | | | — | |
| Total distributions | | (0.99 | ) | | (1.07 | ) | | (0.81 | ) | | (0.21 | ) | | (0.16 | ) |
| Net asset value, end of year. | $ | 17.08 | | $ | 16.82 | | $ | 18.03 | | $ | 17.64 | | $ | 13.59 | |
| |
| Total return | | 7.90 | % | | (0.96 | )% | | 6.79 | % | | 31.38 | % | | 15.11 | % |
| |
| Ratios to average net assets | | | | | | | | | | | | | | | |
| Expensesd | | 0.20 | %e | | 0.19 | %e | | 0.19 | %e | | 0.15 | % | | 0.07 | % |
| Net investment incomec | | 1.08 | % | | 1.08 | % | | 1.56 | % | | 0.97 | % | | 1.15 | % |
| |
| Supplemental data | | | | | | | | | | | | | | | |
| Net assets, end of year (000’s) | $ | 22,721 | | $ | 19,396 | | $ | 18,918 | | $ | 15,495 | | $ | 10,245 | |
| Portfolio turnover rate | | 0.40 | % | | 0.53 | % | | 5.77 | % | | 5.90 | % | | 2.14 | % |
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.
dDoes 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 year
ended December 31, 2016.
eBenefit of waiver and payments by affiliates rounds to less than 0.01%.
20 Annual Report | The accompanying notes are an integral part of these financial statements.
franklintempleton.com
FRANKLIN FUND ALLOCATOR SERIES
| | | | |
| Statement of Investments, December 31, 2016 | | | | |
| Franklin Corefolio Allocation Fund | | | | |
| | Shares | | Value | |
| Investments in Underlying Funds 100.1% | | | | |
| Domestic Equity 74.7% | | | | |
| a Franklin Growth Fund, Class R6 | 2,263,209 | $ | 173,384,433 | |
| a,b Franklin Growth Opportunities Fund, Class R6 | 5,120,061 | | 167,835,614 | |
| a Franklin Mutual Shares Fund, Class R6 | 6,230,761 | | 175,769,754 | |
| | | | 516,989,801 | |
| Foreign Equity 25.4% | | | | |
| a Templeton Growth Fund Inc., Class R6 | 7,490,909 | | 176,261,100 | |
| Total Investments in Underlying Funds | | | | |
| before Short Term Investments (Cost $531,432,400) | | | 693,250,901 | |
| |
| |
| Short Term Investments (Cost $329,163) 0.1% | | | | |
| Money Market Funds 0.1% | | | | |
| a,c Institutional Fiduciary Trust Money Market Portfolio, 0.09% | 329,163 | | 329,163 | |
| Total Investments in Underlying Funds (Cost $531,761,563) 100.2% | | | 693,580,064 | |
| Other Assets, less Liabilities (0.2)% | | | (1,139,598 | ) |
| Net Assets 100.0% | | $ | 692,440,466 | |
aSee Note 3(e) regarding investments in Underlying Funds.
bNon-income producing.
cThe rate shown is the annualized seven-day yield at period end.
franklintempleton.com
The accompanying notes are an integral part of these financial statements. | Annual Report 21
| | | | | | | | | | | | | | | |
| FRANKLIN FUND ALLOCATOR SERIES | | | | | | | | | | | | | | | |
| |
| |
| Financial Highlights | | | | | | | | | | | | | | | |
| Franklin Founding Funds Allocation Fund | | | | | | | | | | | | | | | |
| | | | | | Year Ended December 31, | | | | |
| | | 2016 | | | 2015 | | | 2014 | | | 2013 | | | 2012 | |
| Class A | | | | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | | | | |
| (for a share outstanding throughout the year) | | | | | | | | | | | | | | | |
| Net asset value, beginning of year | $ | 12.14 | | $ | 13.31 | | $ | 13.37 | | $ | 11.14 | | $ | 9.88 | |
| Income from investment operationsa: | | | | | | | | | | | | | | | |
| Net investment incomeb,c | | 0.36 | | | 0.35 | | | 0.46 | | | 0.32 | | | 0.35 | |
| Net realized and unrealized gains (losses) | | 1.26 | | | (1.16 | ) | | (0.06 | ) | | 2.29 | | | 1.28 | |
| Total from investment operations | | 1.62 | | | (0.81 | ) | | 0.40 | | | 2.61 | | | 1.63 | |
| Less distributions from net investment income | | (0.29 | ) | | (0.36 | ) | | (0.46 | ) | | (0.38 | ) | | (0.37 | ) |
| Net asset value, end of year. | $ | 13.47 | | $ | 12.14 | | $ | 13.31 | | $ | 13.37 | | $ | 11.14 | |
| |
| Total returnd | | 13.52 | % | | (6.18 | )% | | 2.92 | % | | 23.64 | % | | 16.76 | % |
| |
| Ratios to average net assets | | | | | | | | | | | | | | | |
| Expensese | | 0.42 | %f | | 0.41 | %f | | 0.41 | %f | | 0.39 | % | | 0.33 | % |
| Net investment incomec | | 2.87 | % | | 2.65 | % | | 3.35 | % | | 2.63 | % | | 3.24 | % |
| |
| Supplemental data | | | | | | | | | | | | | | | |
| Net assets, end of year (000’s) | $ | 3,310,397 | | $ | 3,346,192 | | $ | 3,958,706 | | $ | 4,170,045 | | $ | 3,766,640 | |
| Portfolio turnover rate | | 0.06 | % | | —% | | | 3.79 | % | | 3.04 | % | | 3.59 | % |
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.
eDoes 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 year
ended December 31, 2016.
fBenefit of waiver and payments by affiliates rounds to less than 0.01%.
22 Annual 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) | | | | | | | | | | | | | | | |
| | | | | | Year Ended December 31, | | | | |
| | | 2016 | | | 2015 | | | 2014 | | | 2013 | | | 2012 | |
| Class C | | | | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | | | | |
| (for a share outstanding throughout the year) | | | | | | | | | | | | | | | |
| Net asset value, beginning of year | $ | 11.96 | | $ | 13.11 | | $ | 13.18 | | $ | 10.99 | | $ | 9.75 | |
| Income from investment operationsa: | | | | | | | | | | | | | | | |
| Net investment incomeb,c | | 0.26 | | | 0.25 | | | 0.35 | | | 0.23 | | | 0.26 | |
| Net realized and unrealized gains (losses) | | 1.25 | | | (1.14 | ) | | (0.07 | ) | | 2.25 | | | 1.27 | |
| Total from investment operations | | 1.51 | | | (0.89 | ) | | 0.28 | | | 2.48 | | | 1.53 | |
| Less distributions from net investment income | | (0.20 | ) | | (0.26 | ) | | (0.35 | ) | | (0.29 | ) | | (0.29 | ) |
| Net asset value, end of year. | $ | 13.27 | | $ | 11.96 | | $ | 13.11 | | $ | 13.18 | | $ | 10.99 | |
| |
| Total returnd | | 12.71 | % | | (6.85 | )% | | 2.12 | % | | 22.69 | % | | 15.87 | % |
| |
| Ratios to average net assets | | | | | | | | | | | | | | | |
| Expensese | | 1.17 | %f | | 1.16 | %f | | 1.16 | %f | | 1.14 | % | | 1.08 | % |
| Net investment incomec | | 2.12 | % | | 1.90 | % | | 2.60 | % | | 1.88 | % | | 2.49 | % |
| |
| Supplemental data | | | | | | | | | | | | | | | |
| Net assets, end of year (000’s) | $ | 1,402,623 | | $ | 1,458,281 | | $ | 1,745,766 | | $ | 1,829,111 | | $ | 1,657,087 | |
| Portfolio turnover rate | | 0.06 | % | | —% | | | 3.79 | % | | 3.04 | % | | 3.59 | % |
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.
eDoes 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 year
ended December 31, 2016.
fBenefit 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. | Annual Report 23
| | | | | | | | | | | | | | | |
| FRANKLIN FUND ALLOCATOR SERIES | | | | | | | | | | | | | | | |
| FINANCIAL HIGHLIGHTS | | | | | | | | | | | | | | | |
| |
| |
| Franklin Founding Funds Allocation Fund (continued) | | | | | | | | | | | | | | | |
| | | | | | Year Ended December 31, | | | | |
| | | 2016 | | | 2015 | | | 2014 | | | 2013 | | | 2012 | |
| Class R | | | | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | | | | |
| (for a share outstanding throughout the year) | | | | | | | | | | | | | | | |
| Net asset value, beginning of year | $ | 12.16 | | $ | 13.33 | | $ | 13.39 | | $ | 11.16 | | $ | 9.89 | |
| Income from investment operationsa: | | | | | | | | | | | | | | | |
| Net investment incomeb,c | | 0.33 | | | 0.32 | | | 0.44 | | | 0.29 | | | 0.31 | |
| Net realized and unrealized gains (losses) | | 1.26 | | | (1.16 | ) | | (0.08 | ) | | 2.29 | | | 1.30 | |
| Total from investment operations | | 1.59 | | | (0.84 | ) | | 0.36 | | | 2.58 | | | 1.61 | |
| Less distributions from net investment income | | (0.26 | ) | | (0.33 | ) | | (0.42 | ) | | (0.35 | ) | | (0.34 | ) |
| Net asset value, end of year. | $ | 13.49 | | $ | 12.16 | | $ | 13.33 | | $ | 13.39 | | $ | 11.16 | |
| |
| Total return | | 13.22 | % | | (6.40 | )% | | 2.68 | % | | 23.28 | % | | 16.52 | % |
| |
| Ratios to average net assets | | | | | | | | | | | | | | | |
| Expensesd | | 0.67 | %e | | 0.66 | %e | | 0.66 | %e | | 0.64 | % | | 0.58 | % |
| Net investment incomec | | 2.62 | % | | 2.40 | % | | 3.10 | % | | 2.38 | % | | 2.99 | % |
| |
| Supplemental data | | | | | | | | | | | | | | | |
| Net assets, end of year (000’s) | $ | 10,776 | | $ | 10,724 | | $ | 11,619 | | $ | 10,597 | | $ | 10,058 | |
| Portfolio turnover rate | | 0.06 | % | | —% | | | 3.79 | % | | 3.04 | % | | 3.59 | % |
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.
dDoes 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 year
ended December 31, 2016.
eBenefit of waiver and payments by affiliates rounds to less than 0.01%.
24 Annual 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) | | | | | | | | | | | | | | | |
| | | | | | Year Ended December 31, | | | | |
| | | 2016 | | | 2015 | | | 2014 | | | 2013 | | | 2012 | |
| Advisor Class | | | | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | | | | |
| (for a share outstanding throughout the year) | | | | | | | | | | | | | | | |
| Net asset value, beginning of year | $ | 12.20 | | $ | 13.38 | | $ | 13.44 | | $ | 11.20 | | $ | 9.93 | |
| Income from investment operationsa: | | | | | | | | | | | | | | | |
| Net investment incomeb,c | | 0.40 | | | 0.39 | | | 0.53 | | | 0.39 | | | 0.38 | |
| Net realized and unrealized gains (losses) | | 1.26 | | | (1.18 | ) | | (0.10 | ) | | 2.26 | | | 1.29 | |
| Total from investment operations | | 1.66 | | | (0.79 | ) | | 0.43 | | | 2.65 | | | 1.67 | |
| Less distributions from net investment income | | (0.32 | ) | | (0.39 | ) | | (0.49 | ) | | (0.41 | ) | | (0.40 | ) |
| Net asset value, end of year. | $ | 13.54 | | $ | 12.20 | | $ | 13.38 | | $ | 13.44 | | $ | 11.20 | |
| |
| Total return | | 13.82 | % | | (5.98 | )% | | 3.17 | % | | 23.93 | % | | 17.08 | % |
| |
| Ratios to average net assets | | | | | | | | | | | | | | | |
| Expensesd | | 0.17 | %e | | 0.16 | %e | | 0.16 | %e | | 0.14 | % | | 0.08 | % |
| Net investment incomec | | 3.12 | % | | 2.90 | % | | 3.60 | % | | 2.88 | % | | 3.49 | % |
| |
| Supplemental data | | | | | | | | | | | | | | | |
| Net assets, end of year (000’s) | $ | 131,368 | | $ | 123,966 | | $ | 141,932 | | $ | 114,369 | | $ | 71,487 | |
| Portfolio turnover rate | | 0.06 | % | | —% | | | 3.79 | % | | 3.04 | % | | 3.59 | % |
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.
dDoes 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 year
ended December 31, 2016.
eBenefit 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. | Annual Report 25
FRANKLIN FUND ALLOCATOR SERIES
| | | | |
| Statement of Investments, December 31, 2016 | | | | |
| Franklin Founding Funds Allocation Fund | | | | |
| | Shares | | Value | |
| Investments in Underlying Funds 99.3% | | | | |
| Domestic Equity 33.0% | | | | |
| a Franklin Mutual Shares Fund, Class R6 | 56,858,363 | $ | 1,603,974,430 | |
| Domestic Hybrid 33.2% | | | | |
| a Franklin Income Fund, Class R6 | 702,953,600 | | 1,609,763,745 | |
| Foreign Equity 33.1% | | | | |
| a Templeton Growth Fund Inc., Class R6 | 68,244,005 | | 1,605,781,434 | |
| Total Investments in Underlying Funds | | | | |
| before Short Term Investments (Cost $4,674,680,686) | | | 4,819,519,609 | |
| |
| Short Term Investments (Cost $45,364,019) 0.9% | | | | |
| Money Market Funds 0.9% | | | | |
| a,b Institutional Fiduciary Trust Money Market Portfolio, 0.09% | 45,364,019 | | 45,364,019 | |
| Total Investments in Underlying Funds (Cost $4,720,044,705) 100.2% | | | 4,864,883,628 | |
| Other Assets, less Liabilities (0.2)% | | | (9,720,037 | ) |
| Net Assets 100.0% | | $ | 4,855,163,591 | |
aSee Note 3(e) regarding investments in Underlying Funds.
bThe rate shown is the annualized seven-day yield at period end.
26 Annual 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 | | | | | | | |
| December 31, 2016 | | | | | | | |
| |
| | | Franklin | | | | Franklin | |
| | | Corefolio | | Founding Funds | |
| | | Allocation Fund | | Allocation Fund | |
| Assets: | | | | | | | |
| Investments in securities: | | | | | | | |
| Cost - Non-controlled affiliates (Note 3e) | $ | 531,761,563 | $ | 4,720,044,705 | |
| Value - Non-controlled affiliates (Note 3e) | $ | 693,580,064 | $ | 4,864,883,628 | |
| Receivables: | | | | | | | |
| Capital shares sold | | 537,624 | | | | 4,499,082 | |
| Other assets | | 56 | | | | 397 | |
| Total assets | | 694,117,744 | | | | 4,869,383,107 | |
| Liabilities: | | | | | | | |
| Payables: | | | | | | | |
| Capital shares redeemed | | 988,843 | | | | 9,296,264 | |
| Administrative fees | | 17,652 | | | | 122,554 | |
| Distribution fees | | 478,729 | | | | 3,681,672 | |
| Transfer agent fees | | 141,098 | | | | 894,397 | |
| Accrued expenses and other liabilities. | | 50,956 | | | | 224,629 | |
| Total liabilities | | 1,677,278 | | | | 14,219,516 | |
| Net assets, at value | $ | 692,440,466 | $ | 4,855,163,591 | |
| Net assets consist of: | | | | | | | |
| Paid-in capital | $ | 519,787,896 | $ | 6,290,797,973 | |
| Undistributed net investment income. | | 497,334 | | | | 54,471,274 | |
| Net unrealized appreciation (depreciation) | | 161,818,501 | | | | 144,838,923 | |
| Accumulated net realized gain (loss) | | 10,336,735 | | | | (1,634,944,579 | ) |
| Net assets, at value | $ | 692,440,466 | $ | 4,855,163,591 | |
| Class A: | | | | | | | |
| Net assets, at value | $ | 507,529,630 | $ | 3,310,397,155 | |
| Shares outstanding. | | 29,757,955 | | | | 245,813,550 | |
| Net asset value per sharea | $ | 17.06 | | | $ | 13.47 | |
| Maximum offering price per share (net asset value per share ÷ 94.25%) | $ | 18.10 | | | $ | 14.29 | |
| Class C: | | | | | | | |
| Net assets, at value | $ | 160,728,525 | $ | 1,402,622,968 | |
| Shares outstanding. | | 9,538,774 | | | | 105,722,325 | |
| Net asset value and maximum offering price per sharea | $ | 16.85 | | | $ | 13.27 | |
| Class R: | | | | | | | |
| Net assets, at value | $ | 1,461,337 | | $ | | 10,775,769 | |
| Shares outstanding. | | 85,661 | | | | 798,888 | |
| Net asset value and maximum offering price per share | $ | 17.06 | | | $ | 13.49 | |
| Advisor Class: | | | | | | | |
| Net assets, at value | $ | 22,720,974 | | $ | | 131,367,699 | |
| Shares outstanding. | | 1,330,090 | | | | 9,700,420 | |
| Net asset value and maximum offering price per share | $ | 17.08 | | | $ | 13.54 | |
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. | Annual Report 27
FRANKLIN FUND ALLOCATOR SERIES
FINANCIAL STATEMENTS
| | | | | | |
| Statements of Operations | | | | | | |
| for the year ended December 31, 2016 | | | | | | |
| |
| | | Franklin | | | Franklin | |
| | | Corefolio | | | Founding Funds | |
| | | Allocation Fund | | | Allocation Fund | |
| Investment income: | | | | | | |
| Dividends from non-controlled affliates (Note 3e) | $ | 8,693,286 | | $ | 156,700,986 | |
| Expenses: | | | | | | |
| Administrative fees (Note 3a) | | 204,431 | | | 1,429,249 | |
| Distribution fees: (Note 3b) | | | | | | |
| Class A | | 1,246,452 | | | 8,100,549 | |
| Class C | | 1,618,055 | | | 13,883,061 | |
| Class R | | 7,084 | | | 53,008 | |
| Transfer agent fees: (Note 3d) | | | | | | |
| Class A | | 691,142 | | | 4,034,635 | |
| Class C | | 224,295 | | | 1,732,402 | |
| Class R | | 1,964 | | | 13,200 | |
| Advisor Class. | | 27,312 | | | 152,092 | |
| Reports to shareholders | | 73,741 | | | 466,859 | |
| Registration and filing fees | | 75,805 | | | 137,660 | |
| Professional fees | | 32,531 | | | 56,259 | |
| Trustees’ fees and expenses | | 5,302 | | | 37,085 | |
| Other | | 21,296 | | | 51,315 | |
| Total expenses | | 4,229,410 | | | 30,147,374 | |
| Expenses waived/paid by affiliates (Note 3e) | | (174 | ) | | (13,564 | ) |
| Net expenses. | | 4,229,236 | | | 30,133,810 | |
| Net investment income | | 4,464,050 | | | 126,567,176 | |
| Realized and unrealized gains (losses): | | | | | | |
| Net realized gain (loss) from: | | | | | | |
| Sale of investments: | | | | | | |
| Non-controlled affiliates (Note 3e) | | 7,096,982 | | | 27,301,247 | |
| Realized gain distributions: | | | | | | |
| Non-controlled affiliates (Note 3e) | | 16,222,442 | | | 68,672,338 | |
| Net realized gain (loss) | | 23,319,424 | | | 95,973,585 | |
| Net change in unrealized appreciation (depreciation) on investments | | 20,074,183 | | | 368,692,349 | |
| Net realized and unrealized gain (loss) | | 43,393,607 | | | 464,665,934 | |
| Net increase (decrease) in net assets resulting from operations | $ | 47,857,657 | | $ | 591,233,110 | |
28 Annual 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 Corefolio | | | Franklin Founding Funds | |
| | | Allocation Fund | | | Allocation Fund | |
| | | Year Ended December 31, | | | Year Ended December 31, | |
| | | 2016 | | | 2015 | | | 2016 | | | 2015 | |
| Increase (decrease) in net assets: | | | | | | | | | | | | |
| Operations: | | | | | | | | | | | | |
| Net investment income | $ | 4,464,050 | | $ | 4,810,657 | | $ | 126,567,176 | | $ | 134,996,183 | |
| Net realized gain (loss) | | 23,319,424 | | | 44,600,689 | | | 95,973,585 | | | 182,112,276 | |
| Net change in unrealized appreciation (depreciation) | | 20,074,183 | | | (59,102,865 | ) | | 368,692,349 | | | (658,109,619 | ) |
| Net increase (decrease) in net assets resulting from | | | | | | | | | | | | |
| operations | | 47,857,657 | | | (9,691,519 | ) | | 591,233,110 | | | (341,001,160 | ) |
| Distributions to shareholders from: | | | | | | | | | | | | |
| Net investment income and short term gains received from | | | | | | | | | | | | |
| Underlying Funds: | | | | | | | | | | | | |
| Class A | | (4,860,981 | ) | | (4,857,615 | ) | | (73,164,442 | ) | | (98,500,766 | ) |
| Class C | | (353,650 | ) | | (344,671 | ) | | (21,414,705 | ) | | (31,651,129 | ) |
| Class R | | (10,552 | ) | | (9,705 | ) | | (214,299 | ) | | (288,382 | ) |
| Advisor Class | | (273,325 | ) | | (237,700 | ) | | (3,114,421 | ) | | (4,014,176 | ) |
| Net realized gains: | | | | | | | | | | | | |
| Class A | | (23,135,786 | ) | | (26,103,339 | ) | | — | | | — | |
| Class C | | (7,634,487 | ) | | (8,598,561 | ) | | — | | | — | |
| Class R | | (68,108 | ) | | (72,612 | ) | | — | | | — | |
| Advisor Class | | (918,626 | ) | | (921,242 | ) | | — | | | — | |
| Total distributions to shareholders | | (37,255,515 | ) | | (41,145,445 | ) | | (97,907,867 | ) | | (134,454,453 | ) |
| Capital share transactions: (Note 2) | | | | | | | | | | | | |
| Class A | | (23,919,590 | ) | | 1,681,278 | | | (372,282,081 | ) | | (291,816,141 | ) |
| Class C | | (13,720,355 | ) | | 7,843,594 | | | (198,606,550 | ) | | (145,892,163 | ) |
| Class R | | 10,564 | | | (17,938 | ) | | (1,069,039 | ) | | 143,883 | |
| Advisor Class | | 2,992,796 | | | 1,799,263 | | | (5,366,638 | ) | | (5,840,597 | ) |
| Total capital share transactions | | (34,636,585 | ) | | 11,306,197 | | | (577,324,308 | ) | | (443,405,018 | ) |
| Net increase (decrease) in net assets | | (24,034,443 | ) | | (39,530,767 | ) | | (83,999,065 | ) | | (918,860,631 | ) |
| Net assets: | | | | | | | | | | | | |
| Beginning of year | | 716,474,909 | | | 756,005,676 | | | 4,939,162,656 | | | 5,858,023,287 | |
| End of year. | $ | 692,440,466 | | $ | 716,474,909 | | $ | 4,855,163,591 | | $ | 4,939,162,656 | |
| Undistributed net investment income included in net assets: | | | | | | | | | | | | |
| End of year. | $ | 497,334 | | $ | 253,021 | | $ | 54,471,274 | | $ | 14,190,856 | |
franklintempleton.com
The accompanying notes are an integral part of these financial statements. | Annual Report 29
FRANKLIN FUND ALLOCATOR SERIES
Notes to Financial Statements
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-four 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 in affiliated mutual funds managed by Franklin Templeton (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 as of 4 p.m. Eastern time each day the New York Stock Exchange (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 Committee (VC). The VC 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 excise taxes. As a result, no provision for U.S. federal income taxes is required.
Each Fund may recognize an income tax liability related to its uncertain tax positions under U.S. GAAP when the uncertain tax position has a less than 50% probability that it will be sustained upon examination by the tax authorities based on its technical merits. As of December 31, 2016, each Fund has determined that no tax liability is required in its financial statements related to uncertain tax positions for any open tax years (or expected to be taken in future tax years). 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.
30 Annual Report
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FRANKLIN FUND ALLOCATOR SERIES
NOTES TO FINANCIAL STATEMENTS
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.
2. Shares of Beneficial Interest
At December 31, 2016, there were an unlimited number of shares authorized (without par value). Transactions in the Funds’ shares were as follows:
| | | | | | | | | | |
| | Franklin Corefolio | | Franklin Founding Funds | |
| | Allocation Fund | | Allocation Fund | |
| | Shares | | | Amount | | Shares | | | Amount | |
| Class A Shares: | | | | | | | | | | |
| Year ended December 31, 2016 | | | | | | | | | | |
| Shares sold | 2,026,622 | | $ | 33,409,181 | | 11,424,321 | | $ | 142,666,866 | |
| Shares issued in reinvestment of distributions | 1,710,558 | | | 27,406,298 | | 5,568,616 | | | 70,554,700 | |
| Shares redeemed | (5,142,894 | ) | | (84,735,069 | ) | (46,872,408 | ) | | (585,503,647 | ) |
| Net increase (decrease) | (1,405,714 | ) | $ | (23,919,590 | ) | (29,879,471 | ) | $ | (372,282,081 | ) |
| Year ended December 31, 2015 | | | | | | | | | | |
| Shares sold | 3,001,182 | | $ | 54,267,449 | | 18,163,303 | | $ | 240,044,331 | |
| Shares issued in reinvestment of distributions | 1,707,783 | | | 30,211,212 | | 7,502,937 | | | 94,732,766 | |
| Shares redeemed | (4,587,530 | ) | | (82,797,383 | ) | (47,501,150 | ) | | (626,593,238 | ) |
| Net increase (decrease) | 121,435 | | $ | 1,681,278 | | (21,834,910 | ) | $ | (291,816,141 | ) |
| Class C Shares: | | | | | | | | | | |
| Year ended December 31, 2016 | | | | | | | | | | |
| Shares sold | 838,806 | | $ | 13,585,869 | | 5,306,931 | | $ | 65,224,907 | |
| Shares issued in reinvestment of distributions | 492,310 | | | 7,691,548 | | 1,597,787 | | | 19,904,491 | |
| Shares redeemed | (2,153,618 | ) | | (34,997,772 | ) | (23,112,939 | ) | | (283,735,948 | ) |
| Net increase (decrease) | (822,502 | ) | $ | (13,720,355 | ) | (16,208,221 | ) | $ | (198,606,550 | ) |
| Year ended December 31, 2015 | | | | | | | | | | |
| Shares sold | 1,337,864 | | $ | 23,778,283 | | 7,259,845 | | $ | 93,929,359 | |
| Shares issued in reinvestment of distributions | 489,808 | | | 8,602,866 | | 2,368,889 | | | 29,282,876 | |
| Shares redeemed | (1,384,615 | ) | | (24,537,555 | ) | (20,826,861 | ) | | (269,104,398 | ) |
| Net increase (decrease) | 443,057 | | $ | 7,843,594 | | (11,198,127 | ) | $ | (145,892,163 | ) |
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Annual Report
31
FRANKLIN FUND ALLOCATOR SERIES
NOTES TO FINANCIAL STATEMENTS
| | | | | | | | | | |
| 2. Shares of Beneficial Interest (continued) | | | | | | | | | | |
| |
| | Franklin Corefolio | | Franklin Founding Funds | |
| | Allocation Fund | | Allocation Fund | |
| | Shares | | | Amount | | Shares | | | Amount | |
| Class R Shares: | | | | | | | | | | |
| Year ended December 31, 2016 | | | | | | | | | | |
| Shares sold | 10,968 | | $ | 181,668 | | 167,403 | | $ | 2,071,803 | |
| Shares issued in reinvestment of distributions | 4,929 | | | 78,660 | | 16,509 | | | 208,973 | |
| Shares redeemed | (14,885 | ) | | (249,764 | ) | (267,033 | ) | | (3,349,815 | ) |
| Net increase (decrease) | 1,012 | | $ | 10,564 | | (83,121 | ) | $ | (1,069,039 | ) |
| Year ended December 31, 2015 | | | | | | | | | | |
| Shares sold | 2,501 | | $ | 44,950 | | 157,570 | | $ | 2,082,811 | |
| Shares issued in reinvestment of distributions | 4,643 | | | 82,317 | | 22,443 | | | 283,329 | |
| Shares redeemed | (8,291 | ) | | (145,205 | ) | (169,724 | ) | | (2,222,257 | ) |
| Net increase (decrease) | (1,147 | ) | $ | (17,938 | ) | 10,289 | | $ | 143,883 | |
| Advisor Class Shares: | | | | | | | | | | |
| Year ended December 31, 2016 | | | | | | | | | | |
| Shares sold | 321,791 | | $ | 5,439,280 | | 2,448,383 | | $ | 30,854,553 | |
| Shares issued in reinvestment of distributions | 58,899 | | | 951,211 | | 223,369 | | | 2,852,608 | |
| Shares redeemed | (203,470 | ) | | (3,397,695 | ) | (3,128,645 | ) | | (39,073,799 | ) |
| Net increase (decrease) | 177,220 | | $ | 2,992,796 | | (456,893 | ) | $ | (5,366,638 | ) |
| Year ended December 31, 2015 | | | | | | | | | | |
| Shares sold | 253,472 | | $ | 4,523,516 | | 2,770,971 | | $ | 36,825,401 | |
| Shares issued in reinvestment of distributions | 53,169 | | | 939,787 | | 291,017 | | | 3,703,795 | |
| Shares redeemed | (202,887 | ) | | (3,664,040 | ) | (3,514,049 | ) | | (46,369,793 | ) |
| Net increase (decrease) | 103,754 | | $ | 1,799,263 | | (452,061 | ) | $ | (5,840,597 | ) |
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. 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.
32 Annual Report
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FRANKLIN FUND ALLOCATOR SERIES
NOTES TO FINANCIAL STATEMENTS
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 | 0.35 | % |
| Class C | 1.00 | % |
| Class R | 0.50 | % |
The Board has set the current rate at 0.25% per year for Class A shares 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 year:
| | | | |
| | | Franklin | | Franklin |
| | | Corefolio | | Founding Funds |
| | | Allocation Fund | | Allocation Fund |
| |
| Sales charges retained net of commissions paid to | | | | |
| unaffiliated brokers/dealers | $ | 125,435 | $ | 514,621 |
| CDSC retained. | $ | 10,127 | $ | 45,783 |
| |
| 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 shareholder servicing fees paid to third parties. These fees are allocated daily based upon their relative proportion of such classes’ aggregate net assets.
For the year ended December 31, 2016, 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 | $ | 591,649 | $ | 2,806,440 |
| |
| e. Investments in Underlying Funds | | | | |
The Funds invest in 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 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.
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Annual Report
33
FRANKLIN FUND ALLOCATOR SERIES
NOTES TO FINANCIAL STATEMENTS
| | | | | | | | | | | | | | | |
| 3. Transactions with Affiliates (continued) | | | | | | | | | | | | | |
| |
| e. Investments in Underlying Funds (continued) | | | | | | | | | | | | | |
| |
| Investments in Underlying Funds for the year ended December 31, 2016, were as follows: | | | | | | | |
| |
| | | | | | | | | | | | | | | % of | |
| | | | | | | | | | | | | | | Underlying | |
| | Number of | | | | | Number of | | | | | | | | Fund Shares | |
| | Shares Held | | | | | Shares | | Value | | | | | | Outstanding | |
| | at Beginning | Gross | | Gross Held at End | | at End | | Investment | | Realized | | Held at End | |
| Underlying Funds | of Year | Additions | | Reductions | | of Year | | of Year | | Income | | Gain (Loss) | | of Year | |
| |
| Franklin Corefolio Allocation Fund | | | | | | | | | | | | | | | |
| Non-Controlled Affiliates | | | | | | | | | | | | | | | |
| Franklin Flex Cap Growth Fund, | | | | | | | | | | | | | | | |
| ClassR6 | 3,801,458 | 8,395 | | (3,809,853 | )a | – | | $ –b $ – | $ | (604,324 | )c | – | |
| Franklin Growth Fund, Class R6 | 2,473,407 | 108,597 | | (318,795 | ) | 2,263,209 | | 173,384,433 | | 1,557,729 | | 12,415,407 | c | 1.4 | % |
| Franklin Growth Opportunities Fund, | | | | | | | | | | | | | | | |
| ClassR6 | – | 5,163,898 | a | (43,837 | ) | 5,120,061 | | 167,835,614 | | – | | 3,158,656 | c | 4.7 | % |
| Franklin Mutual Shares Fund, | | | | | | | | | | | | | | | |
| ClassR6 | 6,905,289 | 421,006 | | (1,095,534 | ) | 6,230,761 | | 175,769,754 | | 4,018,843 | | 8,758,918 | c | 1.1 | % |
| Institutional Fiduciary Trust Money | | | | | | | | | | | | | | | |
| Market Portfolio, 0.09% | 1,313,882 | 36,598,081 | | (37,582,800 | ) | 329,163 | | 329,163 | | 30 | | – | | –d | |
| Templeton Growth Fund Inc., Class R6 . | 7,963,031 | 171,374 | | (643,496 | ) | 7,490,909 | | 176,261,100 | | 3,116,684 | | (409,233 | ) | 1.3 | % |
| Total | | | | | | | $ | 693,580,064 | $ | 8,693,286 | $ | 23,319,424 | | | |
| |
| Franklin Founding Funds Allocation Fund | | | | | | | | | | | | | | |
| Non-Controlled Affiliates | | | | | | | | | | | | | | | |
| Franklin Income Fund, Class R6 | 786,503,572 | 43,058,317 | | (126,608,289 | ) | 702,953,600 | $ | 1,609,763,745 | $ | 91,816,166 | $ | (19,462,900 | ) | 2.0 | % |
| Franklin Mutual Shares Fund, | | | | | | | | | | | | | | | |
| ClassR6 | 63,039,216 | 3,711,007 | | (9,891,860 | ) | 56,858,363 | | 1,603,974,430 | | 36,436,509 | | 110,563,164 | c | 10.3 | % |
| Institutional Fiduciary Trust Money | | | | | | | | | | | | | | | |
| Market Portfolio, 0.09% | 42,916,312 | 329,146,615 | | (326,698,908 | ) | 45,364,019 | | 45,364,019 | | 1,785 | | – | | 0.3 | % |
| Templeton Growth Fund Inc., Class R6 . | 74,595,691 | 1,337,394 | | (7,689,080 | ) | 68,244,005 | | 1,605,781,434 | | 28,446,526 | | 4,873,321 | | 11.8 | % |
| Total | | | | | | | $ | 4,864,883,628 | $ | 156,700,986 | $ | 95,973,585 | | | |
aIncludes shares received/delivered related to a reorganization of Franklin Flex Cap Growth Fund with and into Franklin Growth Opportunities Fund effective August 26, 2016.
bAs of December 31, 2016, no longer held by the fund.
cIncludes realized gain distributions received.
dRounds to less than 0.1%
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.
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NOTES TO FINANCIAL STATEMENTS
At December 31, 2016, the capital loss carryforwards were as follows:
| | |
| | | Franklin |
| | | Founding Funds |
| | | Allocation Fund |
| Capital loss carryforwards subject to expiration: | | |
| 2017 | $ | 1,091,470,427 |
| 2018 | | 465,945,460 |
| Capital loss carryforwards not subject to expiration | | |
| Short Term | | 1,107,590 |
| Long term | | 48,368,501 |
| Total capital loss carryforwards | $ | 1,606,891,978 |
During the year ended December 31, 2016, Franklin Founding Funds Allocation Fund utilized $83,187,801 of capital loss carryforwards.
On December 31, 2016, Franklin Founding Funds Allocation Fund had expired capital loss carryforwards of $666,677,037, which were reclassified to paid-in capital.
The tax character of distributions paid during the years ended December 31, 2016 and 2015, was as follows:
| | | | | | | | |
| | | Franklin Corefolio | | Franklin Founding Funds |
| | | Allocation Fund | | Allocation Fund |
| | | 2016 | | 2015 | | 2016 | | 2015 |
| Distributions paid from: | | | | | | | | |
| Ordinary income. | $ | 5,497,971 | $ | 5,449,691 | $ | 97,907,867 | $ | 134,454,453 |
| Long term capital gain. | | 31,757,544 | | 35,695,754 | | — | | — |
| | $ | 37,255,515 | $ | 41,145,445 | $ | 97,907,867 | $ | 134,454,453 |
At December 31, 2016, the cost of investments, net unrealized appreciation (depreciation), undistributed ordinary income and undistributed long term capital gains for income tax purposes were as follows:
| | | | | | |
| | | Franklin | | | Franklin | |
| | | Corefolio | | | Founding Funds | |
| | | Allocation Fund | | | Allocation Fund | |
| Cost of investments | $ | 535,406,553 | | $ | 4,748,097,307 | |
| |
| Unrealized appreciation | $ | 161,818,501 | | $ | 226,369,661 | |
| Unrealized depreciation | | (3,644,990 | ) | | (109,583,340 | ) |
| Net unrealized appreciation (depreciation) | $ | 158,173,511 | | $ | 116,786,321 | |
| |
| Undistributed ordinary income | $ | 497,384 | | $ | 54,471,291 | |
| Undistributed long term capital gains | | 13,981,725 | | | — | |
| Distributable earnings | $ | 14,479,109 | | $ | 54,471,291 | |
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 from Underlying Funds and wash sales.
Franklin Corefolio Allocation Fund utilized a tax accounting practice to treat a portion of the proceeds from capital shares redeemed as a distribution from net investment income and realized capital gains.
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FRANKLIN FUND ALLOCATOR SERIES
NOTES TO FINANCIAL STATEMENTS
5. Investment Transactions
Purchases and sales of Underlying Funds (excluding short term securities) for the year ended December 31, 2016, were as follows:
| | | | |
| | | Franklin | | Franklin |
| | | Corefolio | | Founding Funds |
| | | Allocation Fund | | Allocation Fund |
| |
| Purchases | $ | 2,749,827 | $ | 3,000,000 |
| Sales | $ | 77,559,984 | $ | 709,939,552 |
6. Credit Facility
Certain or all 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 matured on February 10, 2017. 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. Effective February 10, 2017, the Borrowers renewed the Global Credit Facility for a one year term, maturing February 9, 2018, for a total of $2 billion.
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 0.15% based upon the unused portion of the Global Credit Facility. These fees are reflected in other expenses in the Statements of Operations. During the year ended December 31, 2016, the Funds did not use the Global Credit Facility.
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 December 31, 2016, 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.
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NOTES TO FINANCIAL STATEMENTS
8. Investment Company Reporting Modernization
In October 2016, the U.S. Securities and Exchange Commission adopted new rules and amended existing rules (together, final rules) intended to modernize the reporting and disclosure of information by registered investment companies. In part, the final rules amend Regulation S-X and require standardized, enhanced disclosures about derivatives in investment company financial statements, as well as other amendments. The compliance date for the amendments to Regulation S-X is August 1, 2017. Management is currently evaluating the impact that the adoption of the amendments to Regulation S-X will have on the Funds’ financial statements and related disclosures.
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 other than those already disclosed in the financial statements.
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FRANKLIN FUND ALLOCATOR SERIES
Report of Independent Registered Public Accounting Firm
To the Board of Trustees and Shareholders of Franklin Fund Allocator Series
In our opinion, the accompanying statements of assets and liabilities, including the statements of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Franklin Corefolio Allocation Fund and Franklin Founding Funds Allocation Fund (separate portfolios of Franklin Fund Allocator Series, hereafter referred to as the "Funds") as of December 31, 2016, the results of each of their operations for the year then ended, the changes in each of their net assets for each of the two years in the period then ended and the financial highlights for each of the periods presented, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Funds’ management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities as of December 31, 2016 by correspondence with the transfer agent, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
February 15, 2017
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Tax Information (unaudited)
Under Section 852(b)(3)(C) of the Internal Revenue Code (Code), Franklin Corefolio Allocation Fund hereby reports the maximum amount allowable but no less than $33,162,426 as a long term capital gain dividend for the fiscal year ended December 31, 2016.
Under Section 854(b)(1)(A) of the Code, the Funds hereby report the following percentage amounts of the ordinary income dividends as income qualifying for the dividends received deduction for the fiscal year ended December 31, 2016:
| | | |
| Franklin | | Franklin | |
| Corefolio | | Founding Funds | |
| Allocation Fund | | Allocation Fund | |
| |
| 91.61 | % | 53.28 | % |
Under Section 854(b)(1)(B) of the Code, the Funds hereby report the maximum amount allowable but no less than the following amounts as qualified dividends for purposes of the maximum rate under Section 1(h)(11) of the Code for the fiscal year ended December 31, 2016:
| | | |
| | Franklin | | Franklin |
| | Corefolio | | Founding Funds |
| | Allocation Fund | | Allocation Fund |
| |
| $ | 9,124,327 | $ | 105,406,637 |
Distributions, including qualified dividend income, paid during calendar year 2016 will be reported to shareholders on Form 1099-DIV by mid-February 2017. Shareholders are advised to check with their tax advisors for information on the treatment of these amounts on their individual income tax returns.
During the fiscal year ended December 31, 2016, the Funds’ qualified fund of funds under Section 852(g)(2) of Code, received an allocation of foreign taxes paid from one or more of its underlying funds. As shown in the table below, the Funds hereby report to shareholders the foreign source income and foreign taxes paid by underlying funds, pursuant to Section 853 of the Code. This written statement will allow shareholders of record on December 28, 2016, to treat their proportionate share of foreign taxes paid by the underlying funds as having been paid directly by them. The shareholder shall consider these amounts as foreign taxes paid in the tax year in which they receive the Fund distribution.
The following table provides a detailed analysis of foreign tax paid, foreign source income and foreign source qualified dividends as reported by the Funds, to Class A, Class C, Class R, and Advisor Class shareholders of record.
| | | | | | |
| | | Foreign Tax Paid | | Foreign Source | | Foreign Source Qualified |
| Class | | Per Share | | Income Per Share | | Dividends Per Share |
| |
| Franklin Corefolio Allocation Fund | | | | | | |
| Class A | $ | 0.0079 | $ | 0.0724 | $ | 0.0528 |
| Class C | $ | 0.0079 | $ | 0.0724 | $ | 0.0528 |
| Class R | $ | 0.0079 | $ | 0.0724 | $ | 0.0528 |
| Advisor Class | $ | 0.0079 | $ | 0.0724 | $ | 0.0528 |
| |
| Franklin Founding Funds Allocation Fund | | | | | | |
| Class A | $ | 0.0080 | $ | 0.0737 | $ | 0.0538 |
| Class C | $ | 0.0080 | $ | 0.0737 | $ | 0.0538 |
| Class R | $ | 0.0080 | $ | 0.0737 | $ | 0.0538 |
| Advisor Class | $ | 0.0080 | $ | 0.0737 | $ | 0.0538 |
Foreign Tax Paid Per Share (Column 1) is the amount per share available to you, as a tax credit (assuming you held your shares in the Fund for a minimum of 16 days during the 31-day period beginning 15 days before the ex-dividend date of the Fund’s distribution to which the foreign taxes relate), or, as a tax deduction.
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Foreign Source Income Per Share (Column 2) is the amount per share of income dividends attributable to foreign securities held by
the underlying funds, plus any foreign taxes withheld on these dividends. The amounts reported include foreign source qualified
dividends that have not been adjusted for the rate differential applicable to such dividend income.1
Foreign Source Qualified Dividends Per Share (Column 3) is the amount per share of foreign source qualified dividends, plus any
foreign taxes withheld on these dividends. These amounts represent the portion of the Foreign Source Income reported to you in
column 2 that were derived from qualified foreign securities held by the underlying funds.1
By mid-February 2017, shareholders will receive Form 1099-DIV which will include their share of taxes paid and foreign source
income distributed during the calendar year 2016. The Foreign Source Income reported on Form 1099-DIV has not been adjusted
for the rate differential on foreign source qualified dividend income. Shareholders are advised to check with their tax advisors for
information on the treatment of these amounts on their 2016 individual income tax returns.
1Qualified dividends are taxed at reduced long term capital gains tax rates. In determining the amount of foreign tax credit that may be applied against the U.S. tax liability of
individuals receiving foreign source qualified dividends, adjustments may be required to the foreign tax credit limitation calculation to reflect the rate differential applicable to
such dividend income. The rules however permit certain individuals to elect not to apply the rate differential adjustments for capital gains and/or dividends for any taxable
year. Please consult your tax advisor and the instructions to Form 1116 for more information.
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Board Members and Officers
The name, year of birth and address of the officers and board members, as well as their affiliations, positions held with the Trust, principal occupations during at least the past five years and number of U.S. registered portfolios overseen in the Franklin Templeton Investments fund complex, are shown below. Generally, each board member serves until that person’s successor is elected and qualified.
| | | | |
| Independent Board Members | | | |
| |
| | | | Number of Portfolios in | |
| Name, Year of Birth | | Length of | Fund Complex Overseen | Other Directorships Held |
| and Address | Position | Time Served | by Board Member* | During at Least the Past 5 Years |
| |
| Harris J. Ashton (1932) | Trustee | Since 1995 | 142 | Bar-S Foods (meat packing company) |
| One Franklin Parkway | | | | (1981-2010). |
| San Mateo, CA 94403-1906 | | | | |
| Principal Occupation During at Least the Past 5 Years: | | |
| Director of various companies; and formerly, Director, RBC Holdings, Inc. (bank holding company) (until 2002); and President, Chief Executive |
| Officer and Chairman of the Board, General Host Corporation (nursery and craft centers) (until 1998). | |
| |
| Mary C. Choksi (1950) | Trustee | Since 2014 | 136 | Avis Budget Group Inc. (car rental) |
| One Franklin Parkway | | | | (2007-present), Omnicom Group Inc. |
| San Mateo, CA 94403-1906 | | | | (advertising and marketing |
| | | | | communications services) |
| | | | | (2011-present) and H.J. Heinz |
| | | | | Company (processed foods and allied |
| | | | | products) (1998-2006). |
| Principal Occupation During at Least the Past 5 Years: | | |
| Senior Advisor, Strategic Investment Group (investment management group) (2015-present); director of various companies; and formerly, |
| Founding Partner and Senior Managing Director, Strategic Investment Group (1987–2015); Founding Partner and Managing Director, Emerging |
| Markets Management LLC (investment management firm) (1987-2011); and Loan Officer/Senior Loan Officer/Senior Pension Investment |
| Officer, World Bank Group (international financial institution) (1977-1987). | |
| |
| Edith E. Holiday (1952) | Trustee | Since 1998 | 142 | Hess Corporation (exploration and |
| One Franklin Parkway | | | | refining of oil and gas) (1993-present), |
| San Mateo, CA 94403-1906 | | | | Canadian National Railway (railroad) |
| | | | | (2001-present), White Mountains |
| | | | | Insurance Group, Ltd. (holding |
| | | | | company) (2004-present), Santander |
| | | | | Consumer USA Holdings, Inc. |
| | | | | (consumer finance) (November 2016), |
| | | | | RTI International Metals, Inc. |
| | | | | (manufacture and distribution of |
| | | | | titanium) (1999-2015) and H.J. Heinz |
| | | | | Company (processed foods and allied |
| | | | | products) (1994-2013). |
| Principal Occupation During at Least the Past 5 Years: | | |
| Director or Trustee of various companies and trusts; and formerly, Assistant to the President of the United States and Secretary of the |
| Cabinet (1990-1993); General Counsel to the United States Treasury Department (1989-1990); and Counselor to the Secretary and Assistant |
| Secretary for Public Affairs and Public Liaison – United States Treasury Department (1988-1989). | |
| |
| J. Michael Luttig (1954) | Trustee | Since 2009 | 142 | Boeing Capital Corporation (aircraft |
| One Franklin Parkway | | | | financing) (2006-2013). |
| San Mateo, CA 94403-1906 | | | | |
| Principal Occupation During at Least the Past 5 Years: | | |
| Executive Vice President, General Counsel and member of the Executive Council, The Boeing Company (aerospace company) (2006-present); |
| and formerly, Federal Appeals Court Judge, U.S. Court of Appeals for the Fourth Circuit (1991-2006). | |
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| | | | |
| Independent Board Members (continued) | | |
| |
| |
| |
| | | | Number of Portfolios in | |
| Name, Year of Birth | | Length of | Fund Complex Overseen | Other Directorships Held |
| and Address | Position | Time Served | by Board Member* | During at Least the Past 5 Years |
| |
| Larry D. Thompson (1945) | Trustee | Since 2007 | 142 | The Southern Company (energy |
| One Franklin Parkway | | | | company) (2014-present; previously |
| San Mateo, CA 94403-1906 | | | | 2010-2012), Graham Holdings |
| | | | | Company (education and media |
| | | | | organization) (2011-present) and |
| | | | | Cbeyond, Inc. (business |
| | | | | communications provider) |
| | | | | (2010-2012). |
| Principal Occupation During at Least the Past 5 Years: | | |
| Director of various companies; John A. Sibley Professor of Corporate and Business Law, University of Georgia School of Law (January 2015; |
| previously 2011-2012); and formerly, Executive Vice President – Government Affairs, General Counsel and Corporate Secretary, PepsiCo, |
| Inc. (consumer products) (2012-2014); Senior Vice President – Government Affairs, General Counsel and Secretary, PepsiCo, Inc. |
| (2004-2011); Senior Fellow of The Brookings Institution (2003-2004); Visiting Professor, (2003-2004); Visiting Professor, University of Georgia |
| School of Law (2004); and Deputy Attorney General, U.S. Department of Justice (2001-2003). | |
| |
| John B. Wilson (1959) | Lead | Trustee since | 116 | None |
| One Franklin Parkway | Independent | 2006 and Lead | | |
| San Mateo, CA 94403-1906 | Trustee | Independent | | |
| | | Trustee since 2008 | | |
| Principal Occupation During at Least the Past 5 Years: | | |
| President, Staples Europe (office supplies) (2012-present); President and Founder, Hyannis Port Capital, Inc. (real estate and private equity |
| investing); serves on private and non-profit boards; and formerly, Chief Operating Officer and Executive Vice President, Gap, Inc. (retail) |
| (1996-2000); Chief Financial Officer and Executive Vice President – Finance and Strategy, Staples, Inc. (1992-1996); Senior Vice President – |
| Corporate Planning, Northwest Airlines, Inc. (airlines) (1990-1992); and Vice President and Partner, Bain & Company (consulting firm) |
| (1986-1990). | | | | |
| |
| |
| Interested Board Members and Officers | | |
| |
| | | | Number of Portfolios in | |
| Name, Year of Birth | | Length of | Fund Complex Overseen | Other Directorships Held |
| and Address | Position | Time Served | by Board Member* | During at Least the Past 5 Years |
| |
| **Gregory E. Johnson (1961) | Trustee | Since 2007 | 158 | None |
| One Franklin Parkway | | | | |
| San Mateo, CA 94403-1906 | | | | |
| Principal Occupation During at Least the Past 5 Years: | | |
| Chairman of the Board, Member – Office of the Chairman, Director and Chief Executive Officer, Franklin Resources, Inc.; officer and/or |
| director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 44 of the investment companies in |
| Franklin Templeton Investments; Vice Chairman, Investment Company Institute; and formerly, President, Franklin Resources, Inc. |
| (1994-2015). | | | | |
| |
| **Rupert H. Johnson, Jr. (1940) | Chairman of | Chairman of the | 142 | None |
| One Franklin Parkway | the Board | Board and Trustee | | |
| San Mateo, CA 94403-1906 | and Trustee | since 2013 | | |
| Principal Occupation During at Least the Past 5 Years: | | |
| Vice Chairman, Member – Office of the Chairman and Director, Franklin Resources, Inc.; Director, Franklin Advisers, Inc.; Senior Vice |
| President, Franklin Advisory Services, LLC; and officer and/or director or trustee, as the case may be, of some of the other subsidiaries of |
| Franklin Resources, Inc. and of 42 of the investment companies in Franklin Templeton Investments. | |
| |
| Alison E. Baur (1964) | Vice President | Since 2012 | Not Applicable | Not Applicable |
| One Franklin Parkway | | | | |
| San Mateo, CA 94403-1906 | | | | |
| Principal Occupation During at Least the Past 5 Years: | | |
| Deputy General Counsel, Franklin Templeton Investments; and officer of some of the other subsidiaries of Franklin Resources, Inc. and of 45 |
| of the investment companies in Franklin Templeton Investments. | | |
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| | | | |
| Interested Board Members and Officers (continued) | |
| |
| |
| |
| | | | Number of Portfolios in | |
| Name, Year of Birth | | Length of | Fund Complex Overseen | Other Directorships Held |
| and Address | Position | Time Served | by Board Member* | During at Least the Past 5 Years |
| |
| Laura F. Fergerson (1962) | Chief Executive Since 2009 | Not Applicable | Not Applicable |
| One Franklin Parkway | Officer – | | | |
| San Mateo, CA 94403-1906 | Finance and | | |
| | Administration | | |
| Principal Occupation During at Least the Past 5 Years: | | |
| Senior Vice President, Franklin Templeton Services, LLC; Vice President, Franklin Advisers, Inc. and Franklin Templeton Institutional, LLC; and |
| officer of 45 of the investment companies in Franklin Templeton Investments. | |
| |
| Gaston Gardey (1967) | Treasurer, | Since 2009 | Not Applicable | Not Applicable |
| One Franklin Parkway | Chief Financial | | |
| San Mateo, CA 94403-1906 | Officer and | | | |
| | Chief | | | |
| | Accounting | | | |
| | Officer | | �� | |
| Principal Occupation During at Least the Past 5 Years: | | |
| Treasurer, U.S. Fund Administration & Reporting, Franklin Templeton Investments; and officer of 27 of the investment companies in Franklin |
| Templeton Investments. | | | | |
| |
| Aliya S. Gordon (1973) | Vice President Since 2009 | Not Applicable | Not Applicable |
| One Franklin Parkway | | | | |
| San Mateo, CA 94403-1906 | | | | |
| Principal Occupation During at Least the Past 5 Years: | | |
| Senior Associate General Counsel, Franklin Templeton Investments; and officer of 45 of the investment companies in Franklin Templeton |
| Investments. | | | | |
| |
| Steven J. Gray (1955) | Vice President Since 2009 | Not Applicable | Not Applicable |
| One Franklin Parkway | | | | |
| San Mateo, CA 94403-1906 | | | | |
| Principal Occupation During at Least the Past 5 Years: | | |
| Senior Associate General Counsel, Franklin Templeton Investments; Vice President, Franklin Templeton Distributors, Inc. and Franklin |
| Alternative Strategies Advisers, LLC; and officer of 45 of the investment companies in Franklin Templeton Investments. |
| |
| Edward B. Jamieson (1948) | President and Since 2010 | Not Applicable | Not Applicable |
| One Franklin Parkway | Chief Executive | | |
| San Mateo, CA 94403-1906 | Officer – | | | |
| | Investment | | | |
| | Management | | |
| Principal Occupation During at Least the Past 5 Years: | | |
| President, Chief Investment Officer and Director, Franklin Advisers, Inc.; Executive Vice President, Franklin Templeton Institutional, LLC; and |
| officer and/or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 10 of the investment |
| companies in Franklin Templeton Investments. | | | |
| |
| Robert Lim (1948) | Vice President Since May 2016 | Not Applicable | Not Applicable |
| One Franklin Parkway | –AML | | | |
| San Mateo, CA 94403-1906 | Compliance | | | |
| Principal Occupation During at Least the Past 5 Years: | | |
| Vice President, Franklin Templeton Companies, LLC; Chief Compliance Officer, Franklin Templeton Distributors, Inc. and Franklin Templeton |
| Investor Services, LLC; and officer of 45 of the investment companies in Franklin Templeton Investments. |
| |
| Kimberly H. Novotny (1972) | Vice President Since 2013 | Not Applicable | Not Applicable |
| 300 S.E. 2nd Street | | | | |
| Fort Lauderdale, FL 33301-1923 | | | | |
| Principal Occupation During at Least the Past 5 Years: | | |
| Associate General Counsel, Franklin Templeton Investments; Vice President and Corporate Secretary, Fiduciary Trust International of the |
| South; Vice President, Templeton Investment Counsel, LLC; Assistant Secretary, Franklin Resources, Inc.; and officer of 45 of the investment |
| companies in Franklin Templeton Investments. | | | |
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| | | | |
| Interested Board Members and Officers (continued) | |
| |
| |
| |
| | | | Number of Portfolios in | |
| Name, Year of Birth | | Length of | Fund Complex Overseen | Other Directorships Held |
| and Address | Position | Time Served | by Board Member* | During at Least the Past 5 Years |
| |
| Robert C. Rosselot (1960) | Chief | Since 2013 | Not Applicable | Not Applicable |
| 300 S.E. 2nd Street | Compliance | | | |
| Fort Lauderdale, FL 33301-1923 | Officer | | | |
| Principal Occupation During at Least the Past 5 Years: | | |
| Director, Global Compliance, Franklin Templeton Investments; Vice President, Franklin Templeton Companies, LLC; officer of 45 of the |
| investment companies in Franklin Templeton Investments; and formerly, Senior Associate General Counsel, Franklin Templeton Investments |
| (2007-2013); and Secretary and Vice President, Templeton Group of Funds (2004-2013). | |
| |
| Karen L. Skidmore (1952) | Vice President | Since 2006 | Not Applicable | Not Applicable |
| One Franklin Parkway | and Secretary | | | |
| San Mateo, CA 94403-1906 | | | | |
| Principal Occupation During at Least the Past 5 Years: | | |
| Senior Associate General Counsel, Franklin Templeton Investments; and officer of 45 of the investment companies in Franklin Templeton |
| Investments. | | | | |
| |
| Navid J. Tofigh (1972) | Vice President | Since 2015 | Not Applicable | Not Applicable |
| One Franklin Parkway | | | | |
| San Mateo, CA 94403-1906 | | | | |
| Principal Occupation During at Least the Past 5 Years: | | |
| Associate General Counsel, Franklin Templeton Investments; and officer of 45 of the investment companies in Franklin Templeton Investments. |
| |
| Craig S. Tyle (1960) | Vice President | Since 2005 | Not Applicable | Not Applicable |
| One Franklin Parkway | | | | |
| San Mateo, CA 94403-1906 | | | | |
| Principal Occupation During at Least the Past 5 Years: | | |
| General Counsel and Executive Vice President, Franklin Resources, Inc.; and officer of some of the other subsidiaries of Franklin Resources, |
| Inc. and of 45 of the investment companies in Franklin Templeton Investments. | |
| |
| Lori A. Weber (1964) | Vice President | Since 2011 | Not Applicable | Not Applicable |
| 300 S.E. 2nd Street | | | | |
| Fort Lauderdale, FL 33301-1923 | | | | |
| Principal Occupation During at Least the Past 5 Years: | | |
| Senior Associate General Counsel, Franklin Templeton Investments; Assistant Secretary, Franklin Resources, Inc.; Vice President and |
| Secretary, Templeton Investment Counsel, LLC; and officer of 45 of the investment companies in Franklin Templeton Investments. |
*We base the number of portfolios on each separate series of the U.S. registered investment companies within the Franklin Templeton Investments fund complex. These
portfolios have a common investment manager or affiliated investment managers.
**Gregory E. Johnson is considered to be an interested person of the Fund under the federal securities laws due to his position as an officer and director ofFranklin
Resources, Inc. (Resources), which is the parent company of the Fund’s investment manager and distributor. Rupert H. Johnson, Jr. is considered to be an interested person
of the Fund under the federal securities laws due to his position as officer and director and major shareholder of Resources.
Note 1: Rupert H. Johnson, Jr. is the uncle of Gregory E. Johnson.
Note 2: Officer information is current as of the date of this report. It is possible that after this date, information about officers may change.
Note 3: Effective November 1, 2016, Frank Olson ceased to be a trustee of the Trust.
The Sarbanes-Oxley Act of 2002 and Rules adopted by the Securities and Exchange Commission require the Fund to disclose whether the Fund’s Audit
Committee includes at least one member who is an audit committee financial expert within the meaning of such Act and Rules. The Fund’s Board has determined
that there is at least one such financial expert on the Audit Committee and has designated John B. Wilson as its audit committee financial expert. The Board
believes that Mr. Wilson qualifies as such an expert in view of his extensive business background and experience, including service as chief financial officer of
Staples, Inc. from 1992 to 1996. Mr. Wilson has been a Member and Chairman of the Fund’s Audit Committee since 2006. As a result of such background and
experience, the Board believes that Mr. Wilson has acquired an understanding of generally accepted accounting principles and financial statements, the general
application of such principles in connection with the accounting estimates, accruals and reserves, and analyzing and evaluating financial statements that
present a breadth and level of complexity of accounting issues generally comparable to those of the Fund, as well as an understanding of internal controls and
procedures for financial reporting and an understanding of audit committee functions. Mr. Wilson is an independent Board member as that term is defined under
the relevant Securities and Exchange Commission Rules and Releases.
The Statement of Additional Information (SAI) includes additional information about the board members and is available, without charge, upon request.
Shareholders may call (800) DIAL BEN/342-5236 to request the SAI.
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FRANKLIN FUND ALLOCATOR SERIES
Shareholder Information
Proxy Voting Policies and Procedures
The Trust’s investment manager has established Proxy Voting Policies and Procedures (Policies) that the Trust uses to determine how to vote proxies relating to portfolio securities. Shareholders may view the Trust’s complete Policies online at franklintempleton.com. Alternatively, shareholders may request copies of the Policies free of charge by calling the Proxy Group collect at (954) 527-7678 or by sending a written request to: Franklin Templeton Companies, LLC, 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.
Householding of Reports and Prospectuses
You will receive each Fund’s financial reports every six months as well as an annual updated summary prospectus (prospectus available upon request). To reduce Fund expenses, we try to identify related shareholders in a household and send only one copy of the financial reports and summary prospectus. This process, called “householding,” will continue indefinitely unless you instruct us otherwise. If you prefer not to have these documents householded, please call us at (800) 632-2301. At any time you may view current prospectuses/summary prospectuses and financial reports on our website. If you choose, you may receive these documents through electronic delivery.
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| Contents | |
| |
| Annual Report | |
| Economic and Market Overview | 3 |
| Franklin LifeSmart™ Retirement Income Fund | 5 |
| Franklin LifeSmart™ 2020 Retirement Target Fund | 13 |
| Franklin LifeSmart™ 2025 Retirement Target Fund | 19 |
| Franklin LifeSmart™ 2030 Retirement Target Fund | 25 |
| Franklin LifeSmart™ 2035 Retirement Target Fund | 43 |
| Franklin LifeSmart™ 2040 Retirement Target Fund | 49 |
| Franklin LifeSmart™ 2045 Retirement Target Fund | 43 |
| Franklin LifeSmart™ 2050 Retirement Target Fund | 49 |
| Franklin LifeSmart™ 2055 Retirement Target Fund | 55 |
| Financial Highlights and Statements of Investments | 61 |
| Financial Statements | 115 |
| Notes to Financial Statements | 129 |
| Report of Independent Registered | |
| Public Accounting Firm | 155 |
| Tax Information | 156 |
| Board Members and Officers | 159 |
| Shareholder Information | 163 |
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Economic and Market Overview
The global economy grew moderately during the 12-month period despite slower growth in some countries. In this environment, global developed and emerging market stocks, as measured by the MSCI All Country World Index, rose. Global markets were aided by accommodative monetary policies of various global central banks, improved commodity prices after 2016’s first quarter, finalization of Greece’s new debt deal and generally encouraging global economic data. Further supporting markets were expectations of higher interest rates and inflation in the U.S., driven by talk of expansionary fiscal policies under new U.S. president Donald Trump, and an Organization of the Petroleum Exporting Countries deal to curb oil production. However, these factors were partially offset by a slowdown in China’s economy and declining commodity prices early in the period, geopolitical tensions in certain regions, uncertainty about the U.S. Federal Reserve’s (Fed’s) timing for raising interest rates and worries about the health of European banks. In addition, global economic concerns and the U.K.’s historic referendum to leave the European Union (also known as “Brexit”) contributed to volatility in global stock markets.
The U.S. economy grew in 2016 despite a general decline in private inventory and business investments, which partly offset strength in consumer spending, residential investment and government spending. Manufacturing conditions remained volatile but generally expanded. The services sector also grew for most of the period, contributing to new jobs that helped the unemployment rate decrease from 5.0% in December 2015 to 4.7% at period-end.1 Retail sales generally rose, as did home sales and prices amid declining mortgage rates. At its December meeting, the Fed increased its target range for the federal funds rate to 0.50%–0.75%, as policymakers cited an improvement in U.S. labor markets and higher inflation. The Federal Open Market Committee also hinted at three additional hikes in 2017, and the Fed raised its 2017 U.S. economic growth forecast, while lowering its unemployment projections.
In Europe, the U.K.’s annualized economic growth accelerated in 2016’s second half, driven by gross fixed capital formation in the third quarter and manufacturing and services in the fourth quarter. Immediate effects of the Brexit vote in June materialized as U.K. stocks declined significantly, the British pound hit a three-decade low amid intensified selling and the U.K.’s credit rating was downgraded. In the eurozone, despite investor concerns about banking sector weakness, low corporate earnings and post-Brexit politics, some regions benefited from rising consumer spending, resulting from a cheaper euro, low inflation and signs of sustained economic growth. The eurozone grew slightly early in the period, aided by lower oil prices, improved exports and the European Central Bank’s (ECB’s) accommodative monetary policy. However, growth moderated in 2016’s second quarter and improved in the third and fourth quarters. After declining in the beginning of 2016, the eurozone’s annual inflation rate increased gradually to reach its highest reading in three years toward period-end, ending at an estimated 1.1% in December. The ECB cut its benchmark interest rate and expanded its massive bond-buying program in March and August 2016 to boost the region’s slowing growth. Furthermore, at its December meeting, the ECB extended the continuation of its monthly asset purchases from March to December of 2017, but it agreed to scale back the purchase amount beginning in April 2017.
In Asia, Japan’s quarterly gross domestic product grew slower in the third quarter than in the second and first quarters, mainly due to declines in private non-residential and public investments. In January 2016, the Bank of Japan (BOJ) introduced negative interest rates on excess reserves held by financial institutions with the central bank to boost lending and help achieve its inflation target. In July 2016, Japan’s Prime Minister Shinzo Abe announced a higher-than-expected fiscal stimulus to revive the economy, followed by an additional monetary stimulus announcement by the BOJ. The BOJ kept its interest rates unchanged toward period-end; however, it overhauled its monetary policy in September to focus on yield-curve control. The bank further announced that it adjusted its Japanese government bond purchases to maintain the 10-year rate for these bonds near 0%.
In emerging markets, economic growth generally moderated during the period. Brazil’s economy continued to be in recession and the country’s central bank cut its benchmark interest rate in October and November 2016 to spur economic growth. Russia’s economic contraction eased in 2016, following a rebound in oil prices and improved industrial production. The Bank of Russia reduced its key interest rates in June and September of 2016 to help revive its economy. China’s economy grew at a stable rate in the first three quarters of 2016 and expanded slightly faster in the fourth quarter, as full-year 2016 growth remained within the government’s targeted range. However, the People’s Bank of China employed monetary easing measures that included cutting the cash
1. Source: Bureau of Labor Statistics.
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reserve requirement ratio for the country’s banks and effectively devaluing the Chinese currency against the U.S. dollar. In India, economic growth marginally increased from July through September 2016 due to slower private consumption growth and increased government spending. Overall, emerging market stocks, as measured by the MSCI Emerging Markets Index, rose during the period.
The foregoing information reflects our analysis and opinions as of December 31, 2016. 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.
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Franklin LifeSmart Retirement Income Fund
Formerly, Franklin LifeSmart 2015 Retirement Target Fund
This annual report for Franklin LifeSmart Retirement Income Fund covers the fiscal year ended December 31, 2016.
As previously communicated, the Fund changed its investment goal and strategies effective May 1, 2016. Previously, the Fund’s goal was to seek the highest level of long-term total return, which consists of capital appreciation and income. Effective May 1, 2016, the Fund changed its goal and main investments as described below.
Your Fund’s Goal and Main Investments
The Fund seeks to make monthly distributions, while preserving the investors’ capital over the long term. The Fund employs an asset allocation strategy, combined with an income generation strategy, designed for investors in retirement. Under normal market conditions, the Fund allocates its assets among the broad asset classes of equity, fixed income and alternative (non-traditional) investments by investing primarily in a distinctly weighted combination of underlying funds, predominantly other Franklin Templeton mutual funds and exchange-traded funds (ETFs), based on each underlying fund’s predominant asset class and strategy.
*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 +5.25% cumulative total return for the 12 months ended December 31, 2016. In comparison, the Fund’s equity benchmark, the MSCI All Country World Index (ACWI), which measures equity market performance in global developed and emerging markets, generated a +8.48% total return.1 The Fund’s fixed income benchmark, the Bloomberg Barclays Multiverse Index, a broad-based measure of the global fixed income bond market, delivered a +2.84% total return.1 The Citigroup 3-Month Treasury Bill Index, a proxy for short-term investments and other net assets, returned +0.27%.2 You can find the Fund’s long-term performance data in the Performance Summary beginning on page 8.
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.
Investment Strategy
When selecting equity funds, we consider the foreign and domestic exposure, market capitalization ranges, and investment style (growth vs. value) of the underlying funds and other fund investments (collectively, “fund investments”). When selecting fixed income funds, we focus primarily on maximizing income appropriate to the Fund’s specific risk profile. In evaluating the risk level of the fund investments, including alternative investment funds, we analyze such factors as: (a) relative and absolute performance, including correlations with other fund investments as well as corresponding benchmarks, and (b) their volatility (the variability of returns from one period to the next).
In order to generate additional income for the Fund, we employ an income generation strategy. Under this strategy, we regularly engage in: (1) a direct covered call strategy by writing covered call options on equity indexes, equity ETFs and equity index futures; and (2) an indirect covered call strategy through the use of equity index-linked notes, which are notes that
1. Source: Morningstar.
2. Source: FactSet.
The indexes are unmanaged and include reinvestment of any income or distributions. They do not reflect any fees, expenses or sales charges. 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 66.
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FRANKLIN LIFESMART RETIREMENT INCOME FUND
| | |
| Top Fund Holdings | | |
| 12/31/16 | | |
| | % of Total | |
| | Net Assets | |
| Franklin Floating Rate Daily Access Fund – Class R6 | 24.7 | % |
| Franklin U.S. Government Securities Fund – Class R6 | 22.0 | % |
| Franklin Income Fund – Class R6 | 17.4 | % |
| iShares iBoxx High Yield Corporate Bond ETF | 10.3 | % |
| Franklin Strategic Income Fund – Class R6 | 8.8 | % |
| iShares U.S. Preferred Stock ETF | 8.3 | % |
| Morgan Stanley Indexed-Linked Note | 4.4 | % |
| Templeton Global Total Return Fund – Class R6 | 4.3 | % |
synthetically combine the return of the ownership of an equity index and a covered call on that index and produce coupon payments to the Fund. In addition, we may engage in equity index futures and purchase exchange-traded and OTC put options on equity indexes, equity ETFs and equity index futures for hedging purposes to tactically adjust the Fund’s exposure to certain asset classes and for efficient portfolio management purposes. The derivatives in which we invest for the Fund’s income generation strategy are allocated to the Fund’s equity asset class for purposes of the Fund’s asset allocations.
Manager’s Discussion
The Fund’s performance can be attributed largely to its allocation among equities and fixed income securities and to the actual performance of the fund investments.
At period-end, Franklin LifeSmart Retirement Income Fund allocated 70.1% of total net assets to fixed income, 8.3% to equity and 17.4% to domestic hybrid, which includes both fixed income and equity. The lone derivative holding was an indexed-linked note. Domestic fixed income exposure was 93.9% of the total fixed income weighting, and foreign fixed income made up the balance. Franklin Floating Rate Daily Access Fund – Class R6, at 24.7% of the Fund’s total net assets, was our largest fixed income fund weighting at period-end. On the equity side, domestic exposure was 100.0% of the Fund’s total equity weighting. iShares U.S. Preferred Stock ETF, at 8.3% of the Fund’s total net assets, was our only equity fund weighting. Franklin Income Fund – Class R6 comprised our domestic hybrid holding.
Our largest domestic fixed income fund holding, Franklin Floating Rate Daily Access Fund – Class R6, and our foreign fixed income fund holding, Templeton Global Total Return Fund – Class R6, outperformed the Fund’s fixed income benchmark, the Bloomberg Barclays Multiverse Index. Our domestic equity fund holding, iShares U.S. Preferred Stock ETF, underperformed the Fund’s equity benchmark, the MSCI ACWI. Our domestic hybrid fund holding, Franklin Income Fund – Class R6, outperformed the MSCI ACWI and the Bloomberg Barclays Multiverse Index. The index-linked note increased the level of income the fund was able to generate.
Thank you for your continued participation in Franklin LifeSmart Retirement Income Fund. We look forward to serving your future investment needs.
CFA® is a trademark owned by CFA Institute.
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FRANKLIN LIFESMART RETIREMENT INCOME FUND
The foregoing information reflects our analysis, opinions and portfolio
holdings as of December 31, 2016, 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.
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FRANKLIN LIFESMART RETIREMENT INCOME FUND
Performance Summary as of December 31, 2016
The performance table and graphs do not reflect any taxes that a shareholder would pay on Fund dividends, capital gain distributions, if any, or any realized gains on the sale of Fund shares. Total return reflects reinvestment of the Fund’s dividends and capital gain distributions, if any, and any unrealized gains or losses.
Performance as of 12/31/161
Cumulative total return excludes sales charges. Average annual total return includes maximum sales charges. Sales charges will vary depending on the size of the investment and the class of share purchased. The maximum is 5.75% and the minimum is 0%. Class A: 5.75% maximum initial sales charge; Advisor Class: no sales charges. For other share classes, visit franklintempleton.com.
| | | | |
| | Cumulative | | Average Annual | |
| Share Class | Total Return2 | | Total Return3 | |
| A | | | | |
| 1-Year | +5.25 | % | -0.82 | % |
| 5-Year | +29.54 | % | +4.07 | % |
| 10-Year | +52.22 | % | +3.68 | % |
| Advisor | | | | |
| 1-Year | +5.55 | % | +5.55 | % |
| 5-Year | +31.45 | % | +5.62 | % |
| 10-Year | +56.74 | % | +4.60 | % |
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.
See page 11 for Performance Summary footnotes.
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FRANKLIN LIFESMART RETIREMENT INCOME FUND
PERFORMANCE SUMMARY
Total Return Index Comparison for a Hypothetical $10,000 Investment1
Total return represents the change in value of an investment over the periods shown. It includes any applicable maximum sales charge, Fund expenses, account fees and reinvested distributions. The unmanaged indexes include reinvestment of any income or distributions. They differ from the Fund in composition and do not pay management fees or expenses. One cannot invest directly in an index.
See page 11 for Performance Summary footnotes.
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| | | | | | | | | | |
| FRANKLIN LIFESMART RETIREMENT INCOME FUND | | | | | |
| PERFORMANCE SUMMARY | | | | | | | | | | |
| |
| |
| |
| Net Asset Value | | | | | | | | | | |
| Share Class (Symbol) | | 12/31/16 | | | 12/31/15 | | | Change | | |
| A (FTRAX) | $ | 10.96 | | $ | 10.78 | | +$ | 0.18 | | |
| C (FRTCX) | $ | 10.83 | | $ | 10.66 | | +$ | 0.17 | | |
| R (FBRLX) | $ | 10.92 | | $ | 10.74 | | +$ | 0.18 | | |
| R6 (FLMTX) | $ | 11.01 | | $ | 10.82 | | +$ | 0.19 | | |
| Advisor (FLRDX) | $ | 11.00 | | $ | 10.81 | | +$ | 0.19 | | |
| |
| |
| Distributions6 (1/1/16–12/31/16) | | | | | | | | | | |
| | | Dividend | | | Long-Term | | | Tax Return | | |
| Share Class | | Income | | | Capital Gain | | | of Capital | | Total |
| A | $ | 0.2808 | | $ | 0.0535 | | $ | 0.0411 | $ | 0.3754 |
| C | $ | 0.2162 | | $ | 0.0535 | | $ | 0.0324 | $ | 0.3021 |
| R | $ | 0.2600 | | $ | 0.0535 | | $ | 0.0382 | $ | 0.3517 |
| R6 | $ | 0.3060 | | $ | 0.0535 | | $ | 0.0448 | $ | 0.4043 |
| Advisor | $ | 0.3015 | | $ | 0.0535 | | $ | 0.0439 | $ | 0.3989 |
| |
| |
| Total Annual Operating Expenses7 | | | | | | | | |
| Share Class | | With Waiver | | | Without Waiver | | | | | |
| A | | 0.98 | % | | 1.57 | % | | | | |
| Advisor | | 0.73 | % | | 1.32 | % | | | | |
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FRANKLIN LIFESMART RETIREMENT INCOME FUND
PERFORMANCE SUMMARY
Each class of shares is available to certain eligible investors and has different annual fees and expenses, as described in the prospectus.
All investments involve risks, including possible loss of principal. Since the 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. 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 the prices of bonds in the Fund adjust to a rise in interest rates, the Fund’s share price may decline. Foreign investing carries additional risks such as currency
and market volatility and political or social instability, risks which are heightened in developing countries. Investments in equity-linked notes (ELNs) often have
risks similar to their underlying securities, which could include management, market, and, as applicable, foreign securities and currency risks. In addition, ELNs
are subject to certain debt securities risks, such as interest rate and credit risks, as well as counterparty and liquidity risk. Investments in derivatives involve costs
and can create economic leverage, which may result in significant volatility and cause the fund to participate in losses (as well as gains) that exceed the fund’s
initial investment. The Fund is not guaranteed to achieve its investment goal of preserving capital while making monthly distributions nor is there any guarantee
that the Fund will provide sufficient income at or through the investor’s retirement. In addition, some of its distributions may be treated in part as a return of
capital which will decrease shareholders’ cost basis in the Fund and affect the amount of any capital gain or loss that shareholders realize when selling or
exchanging Fund shares. The annual payout rate may be adjusted higher or lower from year to year, and could vary substantially over time. It is possible for the
Fund to suffer substantial investment losses and simultaneously experience additional asset reductions as a result of its distributions to shareholders under the
managed distribution policy. Investors who hold the Fund within a tax-advantaged retirement account should consult their tax advisors to discuss tax
consequences of receiving cash distributions. In addition, use of the Fund or election of the option to receive distribution payments in cash may be restricted in
certain retirement plans by the terms of the governing plan documents and/or the discretion of the plan administrator. Investors are strongly advised to consult
with their financial advisor for assistance before selecting the appropriate fund, based on their goals and personal situations, including time horizon, retirement
income needs, risk tolerance and tax bracket. These and other risks are described more fully in the Fund’s prospectus.
1. The Fund has a fee waiver and expense reduction contractually guaranteed through 4/30/17. The Fund also has a fee waiver associated with any investments it makes in a
Franklin Templeton money fund, contractually guaranteed through the Fund’s current fiscal year-end. Fund investment results reflect these fee waivers and expense reductions;
without these reductions, the results would have been lower. As of May 1, 2016, the Fund changed its name from Franklin LifeSmart 2015 Retirement Target Date Fund in
connection with changes to its strategies including, among other things, the addition of an income generation strategy to support the Fund’s managed distribution policy. Prior to
that, as of October 2013, the Fund’s glide path was modified, and among other changes, reflects a lower starting allocation to equity funds; such a change can impact
performance.
2. Cumulative total return represents the change in value of an investment over the periods indicated.
3. Average annual total return represents the average annual change in value of an investment over the period indicated. Return for less than one year, if any, has not been
annualized.
4. Source: Morningstar. The MSCI ACWI is a free float-adjusted, market capitalization-weighted index designed to measure equity market performance inglobaldevelopedand
emerging markets. The Bloomberg Barclays Multiverse Index provides a broad-based measure of the global fixed income bond market. The index represents the union of the
Global Aggregate Index and the Global High Yield Index and captures investment-grade and high yield securities in all eligible currencies.
5. Source: FactSet. Citigroup 3-Month Treasury Bill Index is an unmanaged index representing monthly return equivalents of yield averages of the last 3-Month Treasury Bill
issues.
6. 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, capital gain
and the tax return of capital.
7. Figures are as stated in the Fund’s current prospectus, including the effect of acquired fund fees and expenses, and may differ from the expense ratios disclosed in the Your
Fund’s Expenses and Financial Highlights sections in this report. In periods of market volatility, assets may decline significantly, causing total annual Fund operating expenses
to become higher than the figures shown.
See www.franklintempletondatasources.com for additional data provider information.
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FRANKLIN LIFESMART RETIREMENT INCOME FUND
Your Fund’s Expenses
As a Fund shareholder, you can incur two types of costs: (1) transaction costs, including sales charges (loads) on Fund purchases and redemptions; and (2) ongoing Fund costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs, sometimes referred to as operating expenses. The table below 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 table below provides information about actual account values and actual expenses in the columns under the heading “Actual.” In these columns the Fund’s actual return, which includes the effect of Fund expenses, is used to calculate the “Ending Account Value” for each class of shares. 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): Divide your account value by $1,000 (if your account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6). Then multiply the result by the number in the row for your class of shares under the headings “Actual” and “Expenses Paid During Period” (if Actual Expenses Paid During Period were $7.50, then 8.6 x $7.50 = $64.50). In this illustration, the actual expenses paid this period are $64.50.
Hypothetical Example for Comparison with Other Funds
Under the heading “Hypothetical” in the table, information is provided about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. This information may not be used to estimate the actual ending account balance or expenses you paid for the period, but it can help you compare ongoing costs of investing in the Fund with those of other funds. To do so, compare this 5% hypothetical example for the class of shares you hold with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that expenses shown in the table are meant to highlight ongoing costs and do not reflect any transactional costs. Therefore, information under the heading “Hypothetical” is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transactional costs were included, your total costs would have been higher.
| | | | | | | | | | | | |
| | | | | | Actual | | Hypothetical | | |
| | | | | (actual return after expenses) | | (5% annual return before expenses) | | |
| | | | | | | Expenses | | | | Expenses | Net | |
| | | Beginning | | Ending | | Paid During | | Ending | | Paid During | Annualized | |
| Share | | Account | | Account | | Period | | Account | | Period | Expense | |
| Class | | Value 7/1/16 | | Value 12/31/16 | | 7/1/16–12/31/161,2 | | Value 12/31/16 | | 7/1/16–12/31/161,2 | Ratio2 | |
| A | $ | 1,000 | $ | 1,033.80 | $ | 1.53 | $ | 1,023.63 | $ | 1.53 | 0.30 | % |
| C | $ | 1,000 | $ | 1,030.10 | $ | 5.31 | $ | 1,019.91 | $ | 5.28 | 1.04 | % |
| R | $ | 1,000 | $ | 1,032.60 | $ | 2.81 | $ | 1,022.37 | $ | 2.80 | 0.55 | % |
| R6 | $ | 1,000 | $ | 1,035.20 | $ | 0.00 | $ | 1,025.14 | $ | 0.00 | 0.00 | % |
| Advisor | $ | 1,000 | $ | 1,035.00 | $ | 0.26 | $ | 1,024.89 | $ | 0.25 | 0.05 | % |
1. Expenses are equal to the annualized expense ratio for the six-month period as indicated above–in the far right column–multiplied by the simple average account value
over the period indicated, and then multiplied by 184/366 to reflect the one-half year period.
2. Reflects expenses after fee waivers and expense reimbursements. Does not include acquired fund fees and expenses.
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Franklin LifeSmart 2020 Retirement Target Fund
This annual report for Franklin LifeSmart 2020 Retirement Target Fund covers the fiscal year ended December 31, 2016.
Your Fund’s Goal and Main Investments
The Fund seeks the highest level of long-term total return, which consists of capital appreciation and income, consistent with the Fund’s asset allocation. The Fund allocates among the broad asset classes of equity, fixed income and alternative (non-traditional) investments by investing primarily in a distinctly weighted combination of underlying funds, predominantly other Franklin Templeton mutual funds and exchange-traded funds (ETFs), with an increasing emphasis on income as the target date of 2020 approaches. The target date is the approximate retirement year of the investor.
*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 +3.03% cumulative total return for the 12 months ended December 31, 2016. In comparison, the Fund’s equity benchmark, the MSCI All Country World Index (ACWI), which measures equity market performance in global developed and emerging markets, generated a +8.48% total return.1 The Fund’s fixed income benchmark, the Bloomberg Barclays Multiverse Index, a broad-based measure of the global fixed income bond market, produced a +2.84% total return.1 The Citigroup 3-Month Treasury Bill Index, a proxy for short-term investments and other net assets, returned +0.27%.2 Youcanfindmoreofthe Fund’s performance data in the Performance Summary beginning on page 15.
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.
Investment Strategy
When selecting equity funds, we consider the foreign and domestic exposure, market capitalization ranges, and investment style (growth vs. value) of the underlying funds and other fund investments (collectively, “fund investments”). When selecting fixed income funds, we focus primarily on maximizing income appropriate to the Fund’s specific risk profile. In evaluating the risk level of the fund investments, including alternative investment funds, we analyze such factors as: (a) relative and absolute performance, including correlations with other fund investments as well as corresponding benchmarks, and (b) their volatility (the variability of returns from one period to the next). We attempt to invest the assets of each Fund with a target date comprising Franklin Fund Allocator Series (each a “Target Date Fund”) in the same fund investments but will vary the fund investments’ allocation percentages based upon each Fund’s risk/return level. We change the Fund’s target asset allocations over time, reducing its exposure to equity investments, and it becomes increasingly conservative until the stated target date. At the “landing point” (reached at the target date), the Fund reaches its most conservative asset allocation and thereafter, such strategic asset allocation will become fixed.
Manager’s Discussion
The Fund’s performance can be attributed largely to its allocation among equities and fixed income securities and to the actual performance of the fund investments. This allocation
1. Source: Morningstar.
2. Source: FactSet.
The indexes are unmanaged and include reinvestment of any income or distributions. They do not reflect any fees, expenses or sales charges. 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 72.
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FRANKLIN LIFESMART 2020 RETIREMENT TARGET FUND
| | |
| Top 10 Fund Holdings | | |
| 12/31/16 | | |
| | % of Total | |
| | Net Assets | |
| Franklin Low Duration Total Return Fund – Class R6 | 13.8 | % |
| Franklin Growth Fund – Class R6 | 10.8 | % |
| Franklin U.S. Government Securities Fund – Class R6 | 6.9 | % |
| Templeton Global Total Return Fund – Class R6 | 6.8 | % |
| Franklin Rising Dividends Fund – Class R6 | 6.2 | % |
| iShares TIPS Bond ETF | 5.1 | % |
| Franklin Strategic Income Fund – Class R6 | 4.8 | % |
| Franklin Growth Opportunities Fund – Class R6 | 4.2 | % |
| iShares Core U.S. Aggregate Bond ETF | 3.9 | % |
| Franklin LibertyQ Emerging Markets ETF | 3.6 | % |
shifts every year, in accordance with the target date associated with the portfolio.
At period-end, Franklin LifeSmart 2020 Retirement Target Fund allocated 48.8% of total net assets to equity, 43.1% to fixed income and 7.7% to alternative strategies. Domestic equity exposure was 65.0% of the total equity weighting, and foreign equity made up the balance. The portfolio was diversified across capitalization sizes and investment styles, and on December 31, 2016, we held shares in large-, mid- and small-capitalization equity funds, representing both growth and value styles. Franklin Growth Fund – Class R6, at 10.8% of the Fund’s total net assets, was our largest equity fund weighting at period-end. On the fixed income side, domestic exposure was 84.2% of the Fund’s total fixed income weighting, with the balance in foreign fixed income. Franklin Low Duration Total Return Fund – Class R6 was our largest fixed income fund weighting at 13.8% of total net assets.
Our largest domestic value fund holding, Franklin Rising Dividends Fund – Class R6, outperformed the Fund’s equity benchmark, the MSCI ACWI, while our largest domestic growth fund holding, Franklin Growth Fund – Class R6, performed in line with the index. Our largest foreign equity fund holding, Franklin LibertyQ Emerging Markets ETF, underperformed the index. On the fixed income side, our largest domestic fixed income fund holding, Franklin Low Duration Total Return Fund – Class R6, underperformed the Fund’s fixed income benchmark, the Bloomberg Barclays Multiverse Index, while our foreign fixed income fund holding, Templeton Global Total Return Fund – Class R6, outperformed the index.
Thank you for your continued participation in Franklin LifeSmart 2020 Retirement Target Fund. We look forward to serving your future investment needs.
The foregoing information reflects our analysis, opinions and portfolio holdings as of December 31, 2016, 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.
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FRANKLIN LIFESMART 2020 RETIREMENT TARGET FUND
Performance Summary as of December 31, 2016
The performance table and graphs do not reflect any taxes that a shareholder would pay on Fund dividends, capital gain distributions, if any, or any realized gains on the sale of Fund shares. Total return reflects reinvestment of the Fund’s dividends and capital gain distributions, if any, and any unrealized gains or losses.
Performance as of 12/31/161
Cumulative total return excludes sales charges. Average annual total return includes maximum sales charges. Sales charges will vary depending on the size of the investment and the class of share purchased. The maximum is 5.75% and the minimum is 0%. Class A: 5.75% maximum initial sales charge; Advisor Class: no sales charges. For other share classes, visit franklintempleton.com.
| | | | |
| | Cumulative | | Average Annual | |
| Share Class | Total Return2 | | Total Return3 | |
| A | | | | |
| 1-Year | +3.03 | % | -2.91 | % |
| 3-Year | +5.66 | % | -0.15 | % |
| Since Inception (7/1/13) | +16.95 | % | +2.82 | % |
| Advisor | | | | |
| 1-Year | +3.28 | % | +3.28 | % |
| 3-Year | +6.52 | % | +2.13 | % |
| Since Inception (7/1/13) | +18.05 | % | +4.85 | % |
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.
See page 17 for Performance Summary footnotes.
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FRANKLIN LIFESMART 2020 RETIREMENT TARGET FUND
PERFORMANCE SUMMARY
Total Return Index Comparison for a Hypothetical $10,000 Investment1
Total return represents the change in value of an investment over the periods shown. It includes any applicable maximum sales charge, Fund expenses, account fees and reinvested distributions. The unmanaged indexes include reinvestment of any income or distributions. They differ from the Fund in composition and do not pay management fees or expenses. One cannot invest directly in an index.
See page 17 for Performance Summary footnotes.
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| | | | |
| | | | FRANKLIN LIFESMART 2020 RETIREMENT TARGET FUND | |
| | | | PERFORMANCE SUMMARY | |
| |
| Total Annual Operating Expenses6 | | | |
| Share Class | With Waiver | | Without Waiver | |
| A | 1.02 | % | 1.75 | % |
| Advisor | 0.77 | % | 1.50 | % |
Each class of shares is available to certain eligible investors and has different annual fees and expenses, as described in the prospectus.
The Fund’s investment risk changes over time as its asset allocation changes. Since the 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. All investments involve risks, including possible loss of principal. Principal
invested is not guaranteed at any time, including at or after the Fund’s retirement target date; nor is there any guarantee that the Fund will provide sufficient
income at or through the investor’s retirement. 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 the prices of bonds
in the Fund adjust to a rise in interest rates, the Fund’s share price may decline. Foreign investing carries additional risks such as currency and market volatility
and political or social instability, risks which are heightened in developing countries. These risks are described more fully in the Fund’s prospectus. Investors
should consult their financial advisor for help selecting the appropriate fund of funds, or fund combination, based on an evaluation of their investment objectives,
retirement time horizons and risk tolerance.
1. The Fund has a fee waiver and expense reduction contractually guaranteed through 4/30/17. The Fund also has a fee waiver associated with any investments it makes in a
Franklin Templeton money fund, contractually guaranteed through the Fund’s current fiscal year-end. Fund investment results reflect these fee waivers and expense reductions;
without these reductions, the results would have been lower. As of October 2013, the Fund’s glide path was modified, and among other changes, reflects a lower starting
allocation to equity funds; such a change can impact performance.
2. Cumulative total return represents the change in value of an investment over the periods indicated.
3. Average annual total return represents the average annual change in value of an investment over the periods indicated. Return for less than one year, ifany,hasnotbeen
annualized.
4.Source: Morningstar. The MSCI ACWI is a free float-adjusted, market capitalization-weighted index designed to measure equity market performance in global developed and
emerging markets. The Bloomberg Barclays Multiverse Index provides a broad-based measure of the global fixed income bond market. The index represents the union of the
Global Aggregate Index and the Global High Yield Index and captures investment-grade and high yield securities in all eligible currencies.
5.Source: FactSet. The Citigroup 3-Month Treasury Bill Index is an unmanaged index representing monthly return equivalents of yield averages of the last 3-Month Treasury Bill
issues.
6. Figures are as stated in the Fund’s current prospectus, including the effect of acquired fund fees and expenses, and may differ from the expense ratios disclosed in the Your
Funds Expenses and Financial Highlights sections in this report. In periods of market volatility, assets may decline significantly, causing total annual Fund operating expenses to
become higher than the figures shown.
See www.franklintempletondatasources.com for additional data provider information.
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17
FRANKLIN LIFESMART 2020 RETIREMENT TARGET FUND
Your Fund’s Expenses
As a Fund shareholder, you can incur two types of costs: (1) transaction costs, including sales charges (loads) on Fund purchases and redemptions; and (2) ongoing Fund costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs, sometimes referred to as operating expenses. The table below 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 table below provides information about actual account values and actual expenses in the columns under the heading “Actual.” In these columns the Fund’s actual return, which includes the effect of Fund expenses, is used to calculate the “Ending Account Value” for each class of shares. 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): Divide your account value by $1,000 (if your account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6). Then multiply the result by the number in the row for your class of shares under the headings “Actual” and “Expenses Paid During Period” (if Actual Expenses Paid During Period were $7.50, then 8.6 x $7.50 = $64.50). In this illustration, the actual expenses paid this period are $64.50.
Hypothetical Example for Comparison with Other Funds
Under the heading “Hypothetical” in the table, information is provided about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. This information may not be used to estimate the actual ending account balance or expenses you paid for the period, but it can help you compare ongoing costs of investing in the Fund with those of other funds. To do so, compare this 5% hypothetical example for the class of shares you hold with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that expenses shown in the table are meant to highlight ongoing costs and do not reflect any transactional costs. Therefore, information under the heading “Hypothetical” is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transactional costs were included, your total costs would have been higher.
| | | | | | | | | | | | |
| | | | | | Actual | | Hypothetical | | |
| | | | | (actual return after expenses) | | (5% annual return before expenses) | | |
| | | | | | | Expenses | | | | Expenses | Net | |
| | | Beginning | | Ending | | Paid During | | Ending | | Paid During | Annualized | |
| Share | | Account | | Account | | Period | | Account | | Period | Expense | |
| Class | | Value 7/1/16 | | Value 12/31/16 | | 7/1/16–12/31/161,2 | | Value 12/31/16 | | 7/1/16–12/31/161,2 | Ratio2 | |
| A | $ | 1,000 | $ | 1,026.30 | $ | 1.53 | $ | 1,023.63 | $ | 1.53 | 0.30 | % |
| C | $ | 1,000 | $ | 1,022.40 | $ | 5.34 | $ | 1,019.86 | $ | 5.33 | 1.05 | % |
| R | $ | 1,000 | $ | 1,024.90 | $ | 2.80 | $ | 1,022.37 | $ | 2.80 | 0.55 | % |
| R6 | $ | 1,000 | $ | 1,026.90 | $ | 0.00 | $ | 1,025.14 | $ | 0.00 | 0.00 | % |
| Advisor | $ | 1,000 | $ | 1,026.60 | $ | 0.25 | $ | 1,024.89 | $ | 0.25 | 0.05 | % |
1. Expenses are equal to the annualized expense ratio for the six-month period as indicated above–in the far right column–multiplied by the simple average account value
over the period indicated, and then multiplied by 184/366 to reflect the one-half year period.
2. Reflects expenses after fee waivers and expense reimbursements. Does not include acquired fund fees and expenses.
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Franklin LifeSmart 2025 Retirement Target Fund
This annual report for Franklin LifeSmart 2025 Retirement Target Fund covers the fiscal year ended December 31, 2016.
Your Fund’s Goal and Main Investments
The Fund seeks the highest level of long-term total return, which consists of capital appreciation and income, consistent with the Fund’s asset allocation. The Fund allocates among the broad asset classes of equity, fixed income and alternative (non-traditional) investments by investing primarily in a distinctly weighted combination of underlying funds, predominantly other Franklin Templeton mutual funds and exchange-traded funds (ETFs), with an increasing emphasis on income as the target date of 2025 approaches. The target date is the approximate retirement year of the investor.
*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 had a +2.96% cumulative total return for the 12 months ended December 31, 2016. In comparison, the Fund’s equity benchmark, the MSCI All Country World Index (ACWI), which measures equity market performance in global developed and emerging markets, generated a +8.48% total return.1 The Fund’s fixed income benchmark, the Bloomberg Barclays Multiverse Index, a broad-based measure of the global fixed income bond market, produced a +2.84% total return.1 The Citigroup 3-Month Treasury Bill Index, a proxy for short-term investments and other net assets, returned +0.27%.2 You can find the Fund’s long-term performance data in the Performance Summary beginning on page 21.
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.
Investment Strategy
When selecting equity funds, we consider the foreign and domestic exposure, market capitalization ranges, and investment style (growth vs. value) of the underlying funds and other fund investments (collectively, “fund investments”). When selecting fixed income funds, we focus primarily on maximizing income appropriate to the Fund’s specific risk profile. In evaluating the risk level of the fund investments, including alternative investment funds, we analyze such factors as: (a) relative and absolute performance, including correlations with other fund investments as well as corresponding benchmarks, and (b) their volatility (the variability of returns from one period to the next). We attempt to invest the assets of each Fund with a target date comprising Franklin Fund Allocator Series (each a “Target Date Fund”) in the same fund investments but will vary the fund investments’ allocation percentages based upon each Fund’s risk/return level. We change the Fund’s target asset allocations over time, reducing its exposure to equity investments, and it becomes increasingly conservative until the stated target date. At the “landing point” (reached at the target date), the Fund reaches its most conservative asset allocation and thereafter, such strategic asset allocation will become fixed.
Manager’s Discussion
The Fund’s performance can be attributed largely to its allocation among equities and fixed income securities and to the actual performance of the fund investments. This allocation
1. Source: Morningstar.
2. Source: FactSet.
The indexes are unmanaged and include reinvestment of any income or distributions. They do not reflect any fees, expenses or sales charges. 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 78.
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19
FRANKLIN LIFESMART 2025 RETIREMENT TARGET FUND
| | |
| Top 10 Fund Holdings | | |
| 12/31/16 | | |
| | % of Total | |
| | Net Assets | |
| Franklin Growth Fund – Class R6 | 13.7 | % |
| Franklin Low Duration Total Return Fund – Class R6 | 9.1 | % |
| Franklin Rising Dividends Fund – Class R6 | 8.1 | % |
| Franklin Growth Opportunities Fund – Class R6 | 5.2 | % |
| Franklin LibertyQ Emerging Markets ETF | 4.9 | % |
| Franklin U.S. Government Securities Fund – Class R6 | 4.7 | % |
| Franklin International Small Cap Growth Fund – | | |
| Class R6 | 4.5 | % |
| Templeton Global Total Return Fund – Class R6 | 4.5 | % |
| Franklin Focused Core Equity Fund – Class R6 | 3.7 | % |
| iShares TIPS Bond ETF | 3.6 | % |
shifts every year, in accordance with the target date associated with the portfolio.
At period-end, Franklin LifeSmart 2025 Retirement Target Fund allocated 62.8% of total net assets to equity, 28.9% to fixed income and 7.8% to alternative strategies. Domestic equity exposure was 64.3% of the total equity weighting, and foreign equity made up the balance. The portfolio was diversified across capitalization sizes and investment styles, and on December 31, 2016, we held shares in large-, mid- and small-capitalization equity funds, representing both growth and value styles. Franklin Growth Fund – Class R6, at 13.7% of the Fund’s total net assets, was our largest equity fund weighting at period-end. On the fixed income side, domestic exposure was 84.4% of the Fund’s total fixed income weighting, with the balance in foreign fixed income. Franklin Low Duration Total Return Fund – Class R6 was our largest fixed income fund weighting at 9.1% of total net assets.
Our largest domestic value fund holding, Franklin Rising Dividends Fund – Class R6, outperformed the Fund’s equity benchmark, the MSCI ACWI, while our largest domestic growth fund holding, Franklin Growth Fund – Class R6, performed in line with the index. Our largest foreign equity fund holding, Franklin LibertyQ Emerging Markets ETF, underperformed the index. On the fixed income side, our largest domestic fixed income fund holding, Franklin Low Duration Total Return Fund – Class R6, underperformed the Fund’s fixed income benchmark, the Bloomberg Barclays Multiverse Index, while our foreign fixed income fund holding, Templeton Global Total Return Fund – Class R6, outperformed the Index.
Thank you for your continued participation in Franklin LifeSmart 2025 Retirement Target Fund. We look forward to serving your future investment needs.
The foregoing information reflects our analysis, opinions and portfolio holdings as of December 31, 2016, 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.
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FRANKLIN LIFESMART 2025 RETIREMENT TARGET FUND
Performance Summary as of December 31, 2016
The performance table and graphs do not reflect any taxes that a shareholder would pay on Fund dividends, capital gain distributions, if any, or any realized gains on the sale of Fund shares. Total return reflects reinvestment of the Fund’s dividends and capital gain distributions, if any, and any unrealized gains or losses.
Performance as of 12/31/161
Cumulative total return excludes sales charges. Average annual total return includes maximum sales charges. Sales charges will vary depending on the size of the investment and the class of share purchased. The maximum is 5.75% and the minimum is 0%. Class A: 5.75% maximum initial sales charge; Advisor Class: no sales charges. For other share classes, visit franklintempleton.com.
| | | | |
| | Cumulative | | Average Annual | |
| Share Class | Total Return2 | | Total Return3 | |
| A | | | | |
| 1-Year | +2.96 | % | -2.98 | % |
| 5-Year | +39.51 | % | +5.63 | % |
| 10-Year | +52.80 | % | +3.71 | % |
| Advisor | | | | |
| 1-Year | +3.20 | % | +3.20 | % |
| 5-Year | +41.47 | % | +7.19 | % |
| 10-Year | +57.09 | % | +4.62 | % |
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.
See page 23 for Performance Summary footnotes.
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FRANKLIN LIFESMART 2025 RETIREMENT TARGET FUND
PERFORMANCE SUMMARY
Total Return Index Comparison for a Hypothetical $10,000 Investment1
Total return represents the change in value of an investment over the periods shown. It includes any applicable maximum sales charge, Fund expenses, account fees and reinvested distributions. The unmanaged indexes include reinvestment of any income or distributions. They differ from the Fund in composition and do not pay management fees or expenses. One cannot invest directly in an index.
See page 23 for Performance Summary footnotes.
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| | | | |
| | | | FRANKLIN LIFESMART 2025 RETIREMENT TARGET FUND | |
| | | | PERFORMANCE SUMMARY | |
| |
| Total Annual Operating Expenses6 | | | |
| Share Class | With Waiver | | Without Waiver | |
| A | 1.03 | % | 1.47 | % |
| Advisor | 0.78 | % | 1.22 | % |
Each class of shares is available to certain eligible investors and has different annual fees and expenses, as described in the prospectus.
The Fund’s investment risk changes over time as its asset allocation changes. Since the 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. All investments involve risks, including possible loss of principal. Principal
invested is not guaranteed at any time, including at or after the Fund’s retirement target date; nor is there any guarantee that the Fund will provide sufficient
income at or through the investor’s retirement. 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 the prices of bonds
in the Fund adjust to a rise in interest rates, the Fund’s share price may decline. Foreign investing carries additional risks such as currency and market volatility
and political or social instability, risks which are heightened in developing countries. These risks are described more fully in the Fund’s prospectus. Investors
should consult their financial advisor for help selecting the appropriate fund of funds, or fund combination, based on an evaluation of their investment objectives,
retirement time horizons and risk tolerance.
1. The Fund has a fee waiver and expense reduction contractually guaranteed through 4/30/17. The Fund also has a fee waiver associated with any investments it makes in a
Franklin Templeton money fund, contractually guaranteed through the Fund’s current fiscal year-end. Fund investment results reflect these fee waivers and expense reductions;
without these reductions, the results would have been lower. As of October 2013, the Fund’s glide path was modified, and among other changes, reflects a lower starting
allocation to equity funds; such a change can impact performance.
2. Cumulative total return represents the change in value of an investment over the periods indicated.
3. Average annual total return represents the average annual change in value of an investment over the periods indicated. Return for less than one year, ifany,hasnotbeen
annualized.
4.Source: Morningstar. The MSCI ACWI is a free float-adjusted, market capitalization-weighted index designed to measure equity market performance in global developed and
emerging markets. The Bloomberg Barclays Multiverse Index provides a broad-based measure of the global fixed income bond market. The index represents the union of the
Global Aggregate Index and the Global High Yield Index and captures investment-grade and high yield securities in all eligible currencies.
5. Source: FactSet. Citigroup 3-Month Treasury Bill Index is an unmanaged index representing monthly return equivalents of yield averages of the last 3-Month Treasury Bill
issues.
6. Figures are as stated in the Fund’s current prospectus, including the effect of acquired fund fees and expenses, and may differ from the expense ratios disclosed in the Your
Fund’s Expenses and Financial Highlights sections in this report. In periods of market volatility, assets may decline significantly, causing total annual Fund operating expenses
to become higher than the figures shown.
See www.franklintempletondatasources.com for additional data provider information.
franklintempleton.com
Annual Report
23
FRANKLIN LIFESMART 2025 RETIREMENT TARGET FUND
Your Fund’s Expenses
As a Fund shareholder, you can incur two types of costs: (1) transaction costs, including sales charges (loads) on Fund purchases and redemptions; and (2) ongoing Fund costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs, sometimes referred to as operating expenses. The table below 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 table below provides information about actual account values and actual expenses in the columns under the heading “Actual.” In these columns the Fund’s actual return, which includes the effect of Fund expenses, is used to calculate the “Ending Account Value” for each class of shares. 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): Divide your account value by $1,000 (if your account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6). Then multiply the result by the number in the row for your class of shares under the headings “Actual” and “Expenses Paid During Period” (if Actual Expenses Paid During Period were $7.50, then 8.6 x $7.50 = $64.50). In this illustration, the actual expenses paid this period are $64.50.
Hypothetical Example for Comparison with Other Funds
Under the heading “Hypothetical” in the table, information is provided about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. This information may not be used to estimate the actual ending account balance or expenses you paid for the period, but it can help you compare ongoing costs of investing in the Fund with those of other funds. To do so, compare this 5% hypothetical example for the class of shares you hold with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that expenses shown in the table are meant to highlight ongoing costs and do not reflect any transactional costs. Therefore, information under the heading “Hypothetical” is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transactional costs were included, your total costs would have been higher.
| | | | | | | | | | | | |
| | | | | | Actual | | Hypothetical | | |
| | | | | (actual return after expenses) | | (5% annual return before expenses) | | |
| | | | | | | Expenses | | | | Expenses | Net | |
| | | Beginning | | Ending | | Paid During | | Ending | | Paid During | Annualized | |
| Share | | Account | | Account | | Period | | Account | | Period | Expense | |
| Class | | Value 7/1/16 | | Value 12/31/16 | | 7/1/16–12/31/161,2 | | Value 12/31/16 | | 7/1/16–12/31/161,2 | Ratio2 | |
| A | $ | 1,000 | $ | 1,030.20 | $ | 1.53 | $ | 1,023.63 | $ | 1.53 | 0.30 | % |
| C | $ | 1,000 | $ | 1,026.40 | $ | 5.35 | $ | 1,019.86 | $ | 5.33 | 1.05 | % |
| R | $ | 1,000 | $ | 1,028.90 | $ | 2.80 | $ | 1,022.37 | $ | 2.80 | 0.55 | % |
| R6 | $ | 1,000 | $ | 1,031.30 | $ | 0.00 | $ | 1,025.14 | $ | 0.00 | 0.00 | % |
| Advisor | $ | 1,000 | $ | 1,030.80 | $ | 0.26 | $ | 1,024.89 | $ | 0.25 | 0.05 | % |
1. Expenses are equal to the annualized expense ratio for the six-month period as indicated above–in the far right column–multiplied by the simple average account value
over the period indicated, and then multiplied by 184/366 to reflect the one-half year period.
2. Reflects expenses after fee waivers and expense reimbursements. Does not include acquired fund fees and expenses.
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Franklin LifeSmart 2030 Retirement Target Fund
This annual report for Franklin LifeSmart 2030 Retirement Target Fund covers the fiscal year ended December 31, 2016.
Your Fund’s Goal and Main Investments
The Fund seeks the highest level of long-term total return, which consists of capital appreciation and income, consistent with the Fund’s asset allocation. The Fund allocates among the broad asset classes of equity, fixed income and alternative (non-traditional) investments by investing primarily in a distinctly weighted combination of underlying funds, predominantly other Franklin Templeton mutual funds and exchange-traded funds (ETFs), with an increasing emphasis on income as the target date of 2030 approaches. The target date is the approximate retirement year of the investor.
*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 had a +2.93% cumulative total return for the 12 months ended December 31, 2016. In comparison, the Fund’s equity benchmark, the MSCI All Country World Index (ACWI), which measures equity market performance in global developed and emerging markets, generated a +8.48% total return.1 The Fund’s fixed income benchmark, the Bloomberg Barclays Multiverse Index, a broad-based measure of the global fixed income bond market, produced a +2.84% total return.1 The Citigroup 3-Month Treasury Bill Index, a proxy for short-term investments and other net assets, returned +0.27%.2 Youcanfindmoreofthe Fund’s performance data in the Performance Summary beginning on page 27.
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.
Investment Strategy
When selecting equity funds, we consider the foreign and domestic exposure, market capitalization ranges, and investment style (growth vs. value) of the underlying funds and other fund investments (collectively, “fund investments”). When selecting fixed income funds, we focus primarily on maximizing income appropriate to the Fund’s specific risk profile. In evaluating the risk level of the fund investments, including alternative investment funds, we analyze such factors as: (a) relative and absolute performance, including correlations with other fund investments as well as corresponding benchmarks, and (b) their volatility (the variability of returns from one period to the next). We attempt to invest the assets of each Fund with a target date comprising Franklin Fund Allocator Series (each a “Target Date Fund”) in the same fund investments but will vary the fund investments’ allocation percentages based upon each Fund’s risk/return level. We change the Fund’s target asset allocations over time, reducing its exposure to equity investments, and it becomes increasingly conservative until the stated target date. At the “landing point” (reached at the target date), the Fund reaches its most conservative asset allocation and thereafter, such strategic asset allocation will become fixed.
Manager’s Discussion
The Fund’s performance can be attributed largely to its allocation among equities and fixed income securities and to the actual performance of the fund investments. This allocation
1. Source: Morningstar.
2. Source: FactSet.
The indexes are unmanaged and include reinvestment of any income or distributions. They do not reflect any fees, expenses or sales charges. 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 84.
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FRANKLIN LIFESMART 2030 RETIREMENT TARGET FUND
| | |
| Top 10 Fund Holdings | | |
| 12/31/16 | | |
| | % of Total | |
| | Net Assets | |
| Franklin Growth Fund – Class R6 | 14.6 | % |
| Franklin Rising Dividends Fund – Class R6 | 8.8 | % |
| Franklin Low Duration Total Return Fund – Class R6 | 7.0 | % |
| Franklin International Small Cap Growth Fund – | | |
| Class R6 | 5.8 | % |
| Franklin Growth Opportunities Fund – Class R6 | 5.7 | % |
| Franklin LibertyQ Emerging Markets ETF | 5.5 | % |
| Franklin Focused Core Equity Fund – Class R6 | 3.9 | % |
| Franklin U.S. Government Securities Fund – Class R6 | 3.7 | % |
| iShares S&P 500 Value ETF | 3.6 | % |
| Templeton Global Total Return Fund – Class R6 | 3.5 | % |
shifts every year, in accordance with the target date associated with the portfolio.
At period-end, Franklin LifeSmart 2030 Retirement Target Fund allocated 69.0% of total net assets to equity, 22.4% to fixed income and 7.6% to alternative strategies. Domestic equity exposure was 64.2% of the total equity weighting, and foreign equity made up the balance. The portfolio was diversified across capitalization sizes and investment styles, and on December 31, 2016, we held shares in large-, mid- and small-capitalization equity funds, representing both growth and value styles. Franklin Growth Fund – Class R6, at 14.6% of the Fund’s total net assets, was our largest equity fund weighting at period-end. On the fixed income side, domestic exposure was 84.4% of the Fund’s total fixed income weighting, with the balance in foreign fixed income. Franklin Low Duration Total Return Fund – Class R6 was our largest fixed income fund weighting at 7.0% of total net assets.
Our largest domestic value fund holding, Franklin Rising Dividends Fund – Class R6, outperformed the Fund’s equity benchmark, the MSCI ACWI, while our largest domestic growth fund holding, Franklin Growth Fund – Class R6, performed in line with the index. Our largest foreign equity fund holding, Franklin International Small Cap Growth Fund –Class R6, underperformed the index. On the fixed income side, our largest domestic fixed income fund holding, Franklin Low Duration Total Return Fund – Class R6, underperformed the Fund’s fixed income benchmark, the Bloomberg Barclays Multiverse Index, while our foreign fixed income fund holding, Templeton Global Total Return Fund – Class R6, outperformed the Index.
Thank you for your continued participation in Franklin LifeSmart 2030 Retirement Target Fund. We look forward to serving your future investment needs.
The foregoing information reflects our analysis, opinions and portfolio holdings as of December 31, 2016, 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.
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FRANKLIN LIFESMART 2030 RETIREMENT TARGET FUND
Performance Summary as of December 31, 2016
The performance table and graphs do not reflect any taxes that a shareholder would pay on Fund dividends, capital gain distributions, if any, or any realized gains on the sale of Fund shares. Total return reflects reinvestment of the Fund’s dividends and capital gain distributions, if any, and any unrealized gains or losses.
Performance as of 12/31/161
Cumulative total return excludes sales charges. Average annual total return includes maximum sales charges. Sales charges will vary depending on the size of the investment and the class of share purchased. The maximum is 5.75% and the minimum is 0%. Class A: 5.75% maximum initial sales charge; Advisor Class: no sales charges. For other share classes, visit franklintempleton.com.
| | | | |
| | Cumulative | | Average Annual | |
| Share Class | Total Return2 | | Total Return3 | |
| A | | | | |
| 1-Year | +2.93 | % | -3.01 | % |
| 3-Year | +6.47 | % | +0.11 | % |
| Since Inception (7/1/13) | +19.45 | % | +3.44 | % |
| Advisor | | | | |
| 1-Year | +3.15 | % | +3.15 | % |
| 3-Year | +7.30 | % | +2.38 | % |
| Since Inception (7/1/13) | +20.52 | % | +5.47 | % |
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.
See page 29 for Performance Summary footnotes.
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FRANKLIN LIFESMART 2030 RETIREMENT TARGET FUND
PERFORMANCE SUMMARY
Total Return Index Comparison for a Hypothetical $10,000 Investment1
Total return represents the change in value of an investment over the periods shown. It includes any applicable maximum sales charge, Fund expenses, account fees and reinvested distributions. The unmanaged indexes include reinvestment of any income or distributions. They differ from the Fund in composition and do not pay management fees or expenses. One cannot invest directly in an index.
See page 29 for Performance Summary footnotes.
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| | | | |
| | | | FRANKLIN LIFESMART 2030 RETIREMENT TARGET FUND | |
| | | | PERFORMANCE SUMMARY | |
| |
| Total Annual Operating Expenses6 | | | |
| Share Class | With Waiver | | Without Waiver | |
| A | 1.05 | % | 1.90 | % |
| Advisor | 0.80 | % | 1.65 | % |
Each class of shares is available to certain eligible investors and has different annual fees and expenses, as described in the prospectus.
The Fund’s investment risk changes over time as its asset allocation changes. Since the 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. All investments involve risks, including possible loss of principal. Principal
invested is not guaranteed at any time, including at or after the Fund’s retirement target date; nor is there any guarantee that the Fund will provide sufficient
income at or through the investor’s retirement. 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 the prices of bonds
in the Fund adjust to a rise in interest rates, the Fund’s share price may decline. Foreign investing carries additional risks such as currency and market volatility
and political or social instability, risks which are heightened in developing countries. These risks are described more fully in the Fund’s prospectus. Investors
should consult their financial advisor for help selecting the appropriate fund of funds, or fund combination, based on an evaluation of their investment objectives,
retirement time horizons and risk tolerance.
1. The Fund has a fee waiver and expense reduction contractually guaranteed through 4/30/17. The Fund also has a fee waiver associated with any investments it makes in a
Franklin Templeton money fund, contractually guaranteed through the Fund’s current fiscal year-end. Fund investment results reflect these fee waivers and expense reductions;
without these reductions, the results would have been lower. As of October 2013, the Fund’s glide path was modified, and among other changes, reflects a lower starting
allocation to equity funds; such a change can impact performance.
2. Cumulative total return represents the change in value of an investment over the periods indicated.
3. Average annual total return represents the average annual change in value of an investment over the periods indicated. Return for less than one year, ifany,hasnotbeen
annualized.
4.Source: Morningstar. The MSCI ACWI is a free float-adjusted, market capitalization-weighted index designed to measure equity market performance in global developed and
emerging markets. The Bloomberg Barclays Multiverse Index provides a broad-based measure of the global fixed income bond market. The index represents the union of the
Global Aggregate Index and the Global High Yield Index and captures investment-grade and high yield securities in all eligible currencies.
5. Source: FactSet. Citigroup 3-Month Treasury Bill Index is an unmanaged index representing monthly return equivalents of yield averages of the last 3-Month Treasury Bill
issues.
6. Figures are as stated in the Fund’s current prospectus, including the effect of acquired fund fees and expenses, and may differ from the expense ratios disclosed in the Your
Fund’s Expenses and Financial Highlights sections in this report. In periods of market volatility, assets may decline significantly, causing total annual Fund operating expenses
to become higher than the figures shown.
See www.franklintempletondatasources.com for additional data provider information.
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FRANKLIN LIFESMART 2030 RETIREMENT TARGET FUND
Your Fund’s Expenses
As a Fund shareholder, you can incur two types of costs: (1) transaction costs, including sales charges (loads) on Fund purchases and redemptions; and (2) ongoing Fund costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs, sometimes referred to as operating expenses. The table below 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 table below provides information about actual account values and actual expenses in the columns under the heading “Actual.” In these columns the Fund’s actual return, which includes the effect of Fund expenses, is used to calculate the “Ending Account Value” for each class of shares. 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): Divide your account value by $1,000 (if your account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6). Then multiply the result by the number in the row for your class of shares under the headings “Actual” and “Expenses Paid During Period” (if Actual Expenses Paid During Period were $7.50, then 8.6 x $7.50 = $64.50). In this illustration, the actual expenses paid this period are $64.50.
Hypothetical Example for Comparison with Other Funds
Under the heading “Hypothetical” in the table, information is provided about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. This information may not be used to estimate the actual ending account balance or expenses you paid for the period, but it can help you compare ongoing costs of investing in the Fund with those of other funds. To do so, compare this 5% hypothetical example for the class of shares you hold with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that expenses shown in the table are meant to highlight ongoing costs and do not reflect any transactional costs. Therefore, information under the heading “Hypothetical” is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transactional costs were included, your total costs would have been higher.
| | | | | | | | | | | | |
| | | | | | Actual | | Hypothetical | | |
| | | | | (actual return after expenses) | | (5% annual return before expenses) | | |
| | | | | | | Expenses | | | | Expenses | Net | |
| | | Beginning | | Ending | | Paid During | | Ending | | Paid During | Annualized | |
| Share | | Account | | Account | | Period | | Account | | Period | Expense | |
| Class | | Value 7/1/16 | | Value 12/31/16 | | 7/1/16–12/31/161,2 | | Value 12/31/16 | | 7/1/16–12/31/161,2 | Ratio2 | |
| A | $ | 1,000 | $ | 1,033.20 | $ | 1.53 | $ | 1,023.63 | $ | 1.53 | 0.30 | % |
| C | $ | 1,000 | $ | 1,029.40 | $ | 5.36 | $ | 1,019.86 | $ | 5.33 | 1.05 | % |
| R | $ | 1,000 | $ | 1,032.80 | $ | 2.81 | $ | 1,022.37 | $ | 2.80 | 0.55 | % |
| R6 | $ | 1,000 | $ | 1,034.90 | $ | 0.00 | $ | 1,025.14 | $ | 0.00 | 0.00 | % |
| Advisor | $ | 1,000 | $ | 1,035.50 | $ | 0.26 | $ | 1,024.89 | $ | 0.25 | 0.05 | % |
1. Expenses are equal to the annualized expense ratio for the six-month period as indicated above–in the far right column–multiplied by the simple average account value
over the period indicated, and then multiplied by 184/366 to reflect the one-half year period.
2. Reflects expenses after fee waivers and expense reimbursements. Does not include acquired fund fees and expenses.
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Franklin LifeSmart 2035 Retirement Target Fund
This annual report for Franklin LifeSmart 2035 Retirement Target Fund covers the fiscal year ended December 31, 2016.
Your Fund’s Goal and Main Investments
The Fund seeks the highest level of long-term total return, which consists of capital appreciation and income, consistent with the Fund’s asset allocation. The Fund allocates among the broad asset classes of equity, fixed income and alternative (non-traditional) investments by investing primarily in a distinctly weighted combination of underlying funds, predominantly other Franklin Templeton mutual funds and exchange-traded funds (ETFs), with an increasing emphasis on income as the target date of 2035 approaches. The target date is the approximate retirement year of the investor.
*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 had a +3.11% cumulative total return for the 12 months ended December 31, 2016. In comparison, the Fund’s equity benchmark, the MSCI All Country World Index (ACWI), which measures equity market performance in global developed and emerging markets, generated a +8.48% total return.1 The Fund’s fixed income benchmark, the Bloomberg Barclays Multiverse Index, a broad-based measure of the global fixed income bond market, produced a +2.84% total return.1 The Citigroup 3-Month Treasury Bill Index, a proxy for short-term investments and other net assets, returned +0.27%.2 You can find the Fund’s long-term performance data in the Performance Summary beginning on page 33.
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.
Investment Strategy
When selecting equity funds, we consider the foreign and domestic exposure, market capitalization ranges, and investment style (growth vs. value) of the underlying funds and other fund investments (collectively, “fund investments”). When selecting fixed income funds, we focus primarily on maximizing income appropriate to the Fund’s specific risk profile. In evaluating the risk level of the fund investments, including alternative investment funds, we analyze such factors as: (a) relative and absolute performance, including correlations with other fund investments as well as corresponding benchmarks, and (b) their volatility (the variability of returns from one period to the next). We attempt to invest the assets of each Fund with a target date comprising Franklin Fund Allocator Series (each a “Target Date Fund”) in the same fund investments but will vary the fund investments’ allocation percentages based upon each Fund’s risk/return level. We change the Fund’s target asset allocations over time, reducing its exposure to equity investments, and it becomes increasingly conservative until the stated target date. At the “landing point” (reached at the target date), the Fund reaches its most conservative asset allocation and thereafter, such strategic asset allocation will become fixed.
Manager’s Discussion
The Fund’s performance can be attributed largely to its allocation among equities and fixed income securities and to the actual performance of the fund investments. This allocation
1. Source: Morningstar.
2. Source: FactSet.
The indexes are unmanaged and include reinvestment of any income or distributions. They do not reflect any fees, expenses or sales charges. 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 90.
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FRANKLIN LIFESMART 2035 RETIREMENT TARGET FUND
| | |
| Top 10 Fund Holdings | | |
| 12/31/16 | | |
| | % of Total | |
| | Net Assets | |
| Franklin Growth Fund – Class R6 | 15.8 | % |
| Franklin Rising Dividends Fund – Class R6 | 8.8 | % |
| Franklin Growth Opportunities Fund – Class R6 | 6.8 | % |
| Franklin International Small Cap Growth Fund – | | |
| Class R6 | 6.6 | % |
| Franklin LibertyQ Emerging Markets ETF | 5.5 | % |
| Franklin Low Duration Total Return Fund – Class R6 | 5.2 | % |
| Franklin Focused Core Equity Fund – Class R6 | 4.3 | % |
| Franklin Mutual International Fund – Class R6 | 4.1 | % |
| Templeton Foreign Fund – Class R6 | 4.1 | % |
| iShares S&P 500 Value ETF | 3.6 | % |
shifts every year, in accordance with the target date associated with the portfolio.
At period-end, Franklin LifeSmart 2035 Retirement Target Fund allocated 74.6% of total net assets to equity, 17.1% to fixed income and 7.8% to alternative strategies. Domestic equity exposure was 62.6% of the total equity weighting, and foreign equity made up the balance. The portfolio was diversified across capitalization sizes and investment styles, and on December 31, 2016, we held shares in large-, mid- and small-capitalization equity funds, representing both growth and value styles. Franklin Growth Fund – Class R6, at 15.8% of the Fund’s total net assets, was our largest equity fund weighting at period-end. On the fixed income side, domestic exposure was 84.2% of the Fund’s total fixed income weighting, with the balance in foreign fixed income. Franklin Low Duration Total Return Fund – Class R6 was our largest fixed income fund weighting at 5.2% of total net assets.
Our largest domestic value fund holding, Franklin Rising Dividends Fund – Class R6, outperformed the Fund’s equity benchmark, the MSCI ACWI, while our largest domestic growth fund holding, Franklin Growth Fund – Class R6, performed in line with the index. Our largest foreign equity fund holding, Franklin International Small Cap Growth Fund –Class R6, underperformed the index. On the fixed income side, our largest domestic fixed income fund holding, Franklin Low Duration Total Return Fund – Class R6, underperformed the Fund’s fixed income benchmark, the Bloomberg Barclays Multiverse Index, while our foreign fixed income fund holding, Templeton Global Total Return Fund – Class R6, outperformed the Index.
Thank you for your continued participation in Franklin LifeSmart 2035 Retirement Target Fund. We look forward to serving your future investment needs.
The foregoing information reflects our analysis, opinions and portfolio holdings as of December 31, 2016, 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.
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FRANKLIN LIFESMART 2035 RETIREMENT TARGET FUND
Performance Summary as of December 31, 2016
The performance table and graphs do not reflect any taxes that a shareholder would pay on Fund dividends, capital gain distributions, if any, or any realized gains on the sale of Fund shares. Total return reflects reinvestment of the Fund’s dividends and capital gain distributions, if any, and any unrealized gains or losses.
Performance as of 12/31/161
Cumulative total return excludes sales charges. Average annual total return includes maximum sales charges. Sales charges will vary depending on the size of the investment and the class of share purchased. The maximum is 5.75% and the minimum is 0%. Class A: 5.75% maximum initial sales charge; Advisor Class: no sales charges. For other share classes, visit franklintempleton.com.
| | | | |
| | Cumulative | | Average Annual | |
| Share Class | Total Return2 | | Total Return3 | |
| A | | | | |
| 1-Year | +3.11 | % | -2.83 | % |
| 5-Year | +42.84 | % | +6.12 | % |
| 10-Year | +52.76 | % | +3.72 | % |
| Advisor | | | | |
| 1-Year | +3.42 | % | +3.42 | % |
| 5-Year | +45.00 | % | +7.71 | % |
| 10-Year | +57.40 | % | +4.64 | % |
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.
See page 35 for Performance Summary footnotes.
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FRANKLIN LIFESMART 2035 RETIREMENT TARGET FUND
PERFORMANCE SUMMARY
Total Return Index Comparison for a Hypothetical $10,000 Investment1
Total return represents the change in value of an investment over the periods shown. It includes any applicable maximum sales charge, Fund expenses, account fees and reinvested distributions. The unmanaged indexes include reinvestment of any income or distributions. They differ from the Fund in composition and do not pay management fees or expenses. One cannot invest directly in an index.
See page 35 for Performance Summary footnotes.
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| | | | |
| | | | FRANKLIN LIFESMART 2035 RETIREMENT TARGET FUND | |
| | | | PERFORMANCE SUMMARY | |
| |
| Total Annual Operating Expenses6 | | | |
| Share Class | With Waiver | | Without Waiver | |
| A | 1.04 | % | 1.55 | % |
| Advisor | 0.79 | % | 1.30 | % |
Each class of shares is available to certain eligible investors and has different annual fees and expenses, as described in the prospectus.
The Fund’s investment risk changes over time as its asset allocation changes. Since the 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. All investments involve risks, including possible loss of principal. Principal
invested is not guaranteed at any time, including at or after the Fund’s retirement target date; nor is there any guarantee that the Fund will provide sufficient
income at or through the investor’s retirement. 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 the prices of bonds
in the Fund adjust to a rise in interest rates, the Fund’s share price may decline. Foreign investing carries additional risks such as currency and market volatility
and political or social instability, risks which are heightened in developing countries. These risks are described more fully in the Fund’s prospectus. Investors
should consult their financial advisor for help selecting the appropriate fund of funds, or fund combination, based on an evaluation of their investment objectives,
retirement time horizons and risk tolerance.
1. The Fund has a fee waiver and expense reduction contractually guaranteed through 4/30/17. The Fund also has a fee waiver associated with any investments it makes in a
Franklin Templeton money fund, contractually guaranteed through the Fund’s current fiscal year-end. Fund investment results reflect these fee waivers and expense reductions;
without these reductions, the results would have been lower. As of October 2013, the Fund’s glide path was modified, and among other changes, reflects a lower starting
allocation to equity funds; such a change can impact performance.
2. Cumulative total return represents the change in value of an investment over the periods indicated.
3. Average annual total return represents the average annual change in value of an investment over the periods indicated. Return for less than one year, ifany,hasnotbeen
annualized.
4.Source: Morningstar. The MSCI ACWI is a free float-adjusted, market capitalization-weighted index designed to measure equity market performance in global developed and
emerging markets. The Bloomberg Barclays Multiverse Index provides a broad-based measure of the global fixed income bond market. The index represents the union of the
Global Aggregate Index and the Global High Yield Index and captures investment-grade and high yield securities in all eligible currencies.
5. Source: FactSet. Citigroup 3-Month Treasury Bill Index is an unmanaged index representing monthly return equivalents of yield averages of the last 3-Month Treasury Bill
issues.
6. Figures are as stated in the Fund’s current prospectus, including the effect of acquired fund fees and expenses, and may differ from the expense ratios disclosed in the Your
Fund’s Expenses and Financial Highlights sections in this report. In periods of market volatility, assets may decline significantly, causing total annual Fund operating expenses
to become higher than the figures shown.
See www.franklintempletondatasources.com for additional data provider information.
franklintempleton.com
Annual Report
35
FRANKLIN LIFESMART 2035 RETIREMENT TARGET FUND
Your Fund’s Expenses
As a Fund shareholder, you can incur two types of costs: (1) transaction costs, including sales charges (loads) on Fund purchases and redemptions; and (2) ongoing Fund costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs, sometimes referred to as operating expenses. The table below 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 table below provides information about actual account values and actual expenses in the columns under the heading “Actual.” In these columns the Fund’s actual return, which includes the effect of Fund expenses, is used to calculate the “Ending Account Value” for each class of shares. 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): Divide your account value by $1,000 (if your account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6). Then multiply the result by the number in the row for your class of shares under the headings “Actual” and “Expenses Paid During Period” (if Actual Expenses Paid During Period were $7.50, then 8.6 x $7.50 = $64.50). In this illustration, the actual expenses paid this period are $64.50.
Hypothetical Example for Comparison with Other Funds
Under the heading “Hypothetical” in the table, information is provided about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. This information may not be used to estimate the actual ending account balance or expenses you paid for the period, but it can help you compare ongoing costs of investing in the Fund with those of other funds. To do so, compare this 5% hypothetical example for the class of shares you hold with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that expenses shown in the table are meant to highlight ongoing costs and do not reflect any transactional costs. Therefore, information under the heading “Hypothetical” is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transactional costs were included, your total costs would have been higher.
| | | | | | | | | | | | |
| | | | | | Actual | | Hypothetical | | |
| | | | | (actual return after expenses) | | (5% annual return before expenses) | | |
| | | | | | | Expenses | | | | Expenses | Net | |
| | | Beginning | | Ending | | Paid During | | Ending | | Paid During | Annualized | |
| Share | | Account | | Account | | Period | | Account | | Period | Expense | |
| Class | | Value 7/1/16 | | Value 12/31/16 | | 7/1/16–12/31/161,2 | | Value 12/31/16 | | 7/1/16–12/31/161,2 | Ratio2 | |
| A | $ | 1,000 | $ | 1,036.60 | $ | 1.54 | $ | 1,023.63 | $ | 1.53 | 0.30 | % |
| C | $ | 1,000 | $ | 1,031.60 | $ | 5.36 | $ | 1,019.86 | $ | 5.33 | 1.05 | % |
| R | $ | 1,000 | $ | 1,035.00 | $ | 2.81 | $ | 1,022.37 | $ | 2.80 | 0.55 | % |
| R6 | $ | 1,000 | $ | 1,037.60 | $ | 0.00 | $ | 1,025.14 | $ | 0.00 | 0.00 | % |
| Advisor | $ | 1,000 | $ | 1,037.90 | $ | 0.26 | $ | 1,024.89 | $ | 0.25 | 0.05 | % |
1. Expenses are equal to the annualized expense ratio for the six-month period as indicated above–in the far right column–multiplied by the simple average account value
over the period indicated, and then multiplied by 184/366 to reflect the one-half year period.
2. Reflects expenses after fee waivers and expense reimbursements. Does not include acquired fund fees and expenses.
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Franklin LifeSmart 2040 Retirement Target Fund
This annual report for Franklin LifeSmart 2040 Retirement Target Fund covers the fiscal year ended December 31, 2016.
Your Fund’s Goal and Main Investments
The Fund seeks the highest level of long-term total return, which consists of capital appreciation and income, consistent with the Fund’s asset allocation. The Fund allocates among the broad asset classes of equity, fixed income and alternative (non-traditional) investments by investing primarily in a distinctly weighted combination of underlying funds, predominantly other Franklin Templeton mutual funds and exchange-traded funds (ETFs), with an increasing emphasis on income as the target date of 2040 approaches. The target date is the approximate retirement year of the investor.
*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 had a +2.91% cumulative total return for the 12 months ended December 31, 2016. In comparison, the Fund’s equity benchmark, the MSCI All Country World Index (ACWI), which measures equity market performance in global developed and emerging markets, generated a +8.48% total return.1 The Fund’s fixed income benchmark, the Bloomberg Barclays Multiverse Index, a broad-based measure of the global fixed income bond market, produced a +2.84% total return.1 The Citigroup 3-Month Treasury Bill Index, a proxy for short-term investments and other net assets, returned +0.27%.2 Youcanfindmoreofthe Fund’s performance data in the Performance Summary beginning on page 39.
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.
Investment Strategy
When selecting equity funds, we consider the foreign and domestic exposure, market capitalization ranges, and investment style (growth vs. value) of the underlying funds and other fund investments (collectively, “fund investments”). When selecting fixed income funds, we focus primarily on maximizing income appropriate to the Fund’s specific risk profile. In evaluating the risk level of the fund investments, including alternative investment funds, we analyze such factors as: (a) relative and absolute performance, including correlations with other fund investments as well as corresponding benchmarks, and (b) their volatility (the variability of returns from one period to the next). We attempt to invest the assets of each Fund with a target date comprising Franklin Fund Allocator Series (each a “Target Date Fund”) in the same fund investments but will vary the fund investments’ allocation percentages based upon each Fund’s risk/return level. We change the Fund’s target asset allocations over time, reducing its exposure to equity investments, and it becomes increasingly conservative until the stated target date. At the “landing point” (reached at the target date), the Fund reaches its most conservative asset allocation and thereafter, such strategic asset allocation will become fixed.
Manager’s Discussion
The Fund’s performance can be attributed largely to its allocation among equities and fixed income securities and to the actual performance of the fund investments. This allocation
1. Source: Morningstar.
2. Source: FactSet.
The indexes are unmanaged and include reinvestment of any income or distributions. They do not reflect any fees, expenses or sales charges. 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 96.
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FRANKLIN LIFESMART 2040 RETIREMENT TARGET FUND
| | |
| Top 10 Fund Holdings | | |
| 12/31/16 | | |
| | % of Total | |
| | Net Assets | |
| Franklin Growth Fund – Class R6 | 16.2 | % |
| Franklin Rising Dividends Fund – Class R6 | 9.0 | % |
| Franklin Growth Opportunities Fund – Class R6 | 7.2 | % |
| Franklin International Small Cap Growth Fund – | | |
| Class R6 | 6.9 | % |
| Franklin LibertyQ Emerging Markets ETF | 5.6 | % |
| Franklin Focused Core Equity Fund – Class R6 | 4.5 | % |
| Franklin Low Duration Total Return Fund – Class R6 | 4.5 | % |
| Franklin Mutual International Fund – Class R6 | 4.3 | % |
| Templeton Foreign Fund – Class R6 | 3.9 | % |
| iShares S&P 500 Value ETF | 3.7 | % |
shifts every year, in accordance with the target date associated with the portfolio.
At period-end, Franklin LifeSmart 2040 Retirement Target Fund allocated 76.5% of total net assets to equity, 14.9% to fixed income and 7.7% to alternative strategies. Domestic equity exposure was 63.1% of the total equity weighting, and foreign equity made up the balance. The portfolio was diversified across capitalization sizes and investment styles, and on December 31, 2016, we held shares in large-, mid- and small-capitalization equity funds, representing both growth and value styles. Franklin Growth Fund – Class R6, at 16.2% of the Fund’s total net assets, was our largest equity fund weighting at period-end. On the fixed income side, domestic exposure was 85.2% of the Fund’s total fixed income weighting, with the balance in foreign fixed income. Franklin Low Duration Total Return Fund – Class R6 was our largest fixed income fund weighting at 4.5% of total net assets.
Our largest domestic value fund holding, Franklin Rising Dividends Fund – Class R6, outperformed the Fund’s equity benchmark, the MSCI ACWI, while our largest domestic growth fund holding, Franklin Growth Fund – Class R6, performed in line with the index. Our largest foreign equity fund holding, Franklin International Small Cap Growth Fund –Class R6, underperformed the index. On the fixed income side, our largest domestic fixed income fund holding, Franklin Low Duration Total Return Fund – Class R6, underperformed the Fund’s fixed income benchmark, the Bloomberg Barclays Multiverse Index, while our foreign fixed income fund holding, Templeton Global Total Return Fund – Class R6, outperformed the Index.
Thank you for your continued participation in Franklin LifeSmart 2040 Retirement Target Fund. We look forward to serving your future investment needs.
The foregoing information reflects our analysis, opinions and portfolio holdings as of December 31, 2016, 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.
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FRANKLIN LIFESMART 2040 RETIREMENT TARGET FUND
Performance Summary as of December 31, 2016
The performance table and graphs do not reflect any taxes that a shareholder would pay on Fund dividends, capital gain distributions, if any, or any realized gains on the sale of Fund shares. Total return reflects reinvestment of the Fund’s dividends and capital gain distributions, if any, and any unrealized gains or losses.
Performance as of 12/31/161
Cumulative total return excludes sales charges. Average annual total return includes maximum sales charges. Sales charges will vary depending on the size of the investment and the class of share purchased. The maximum is 5.75% and the minimum is 0%. Class A: 5.75% maximum initial sales charge; Advisor Class: no sales charges. For other share classes, visit franklintempleton.com.
| | | | |
| | Cumulative | | Average Annual | |
| Share Class | Total Return2 | | Total Return3 | |
| A | | | | |
| 1-Year | +2.91 | % | -2.97 | % |
| 3-Year | +6.62 | % | +0.17 | % |
| Since Inception (7/1/13) | +20.39 | % | +3.68 | % |
| Advisor | | | | |
| 1-Year | +3.15 | % | +3.15 | % |
| 3-Year | +7.53 | % | +2.45 | % |
| Since Inception (7/1/13) | +21.56 | % | +5.73 | % |
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.
See page 41 for Performance Summary footnotes.
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39
FRANKLIN LIFESMART 2040 RETIREMENT TARGET FUND
PERFORMANCE SUMMARY
Total Return Index Comparison for a Hypothetical $10,000 Investment1
Total return represents the change in value of an investment over the periods shown. It includes any applicable maximum sales charge, Fund expenses, account fees and reinvested distributions. The unmanaged indexes include reinvestment of any income or distributions. They differ from the Fund in composition and do not pay management fees or expenses. One cannot invest directly in an index.
See page 41 for Performance Summary footnotes.
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| | | | |
| | | | FRANKLIN LIFESMART 2040 RETIREMENT TARGET FUND | |
| | | | PERFORMANCE SUMMARY | |
| |
| Total Annual Operating Expenses6 | | | |
| Share Class | With Waiver | | Without Waiver | |
| A | 1.06 | % | 2.14 | % |
| Advisor | 0.81 | % | 1.89 | % |
Each class of shares is available to certain eligible investors and has different annual fees and expenses, as described in the prospectus.
The Fund’s investment risk changes over time as its asset allocation changes. Since the 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. All investments involve risks, including possible loss of principal. Principal
invested is not guaranteed at any time, including at or after the Fund’s retirement target date; nor is there any guarantee that the Fund will provide sufficient
income at or through the investor’s retirement. 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 the prices of bonds
in the Fund adjust to a rise in interest rates, the Fund’s share price may decline. Foreign investing carries additional risks such as currency and market volatility
and political or social instability, risks which are heightened in developing countries. These risks are described more fully in the Fund’s prospectus. Investors
should consult their financial advisor for help selecting the appropriate fund of funds, or fund combination, based on an evaluation of their investment objectives,
retirement time horizons and risk tolerance.
1. The Fund has a fee waiver and expense reduction contractually guaranteed through 4/30/17. The Fund also has a fee waiver associated with any investments it makes in a
Franklin Templeton money fund, contractually guaranteed through the Fund’s current fiscal year-end. Fund investment results reflect these fee waivers and expense reductions;
without these reductions, the results would have been lower. As of October 2013, the Fund’s glide path was modified, and among other changes, reflects a lower starting
allocation to equity funds; such a change can impact performance.
2. Cumulative total return represents the change in value of an investment over the periods indicated.
3. Average annual total return represents the average annual change in value of an investment over the periods indicated. Return for less than one year, ifany,hasnotbeen
annualized.
4.Source: Morningstar. The MSCI ACWI is a free float-adjusted, market capitalization-weighted index designed to measure equity market performance in global developed and
emerging markets. The Bloomberg Barclays Multiverse Index provides a broad-based measure of the global fixed income bond market. The index represents the union of the
Global Aggregate Index and the Global High Yield Index and captures investment-grade and high yield securities in all eligible currencies.
5. Source: FactSet. Citigroup 3-Month Treasury Bill Index is an unmanaged index representing monthly return equivalents of yield averages of the last 3-Month Treasury Bill
issues.
6. Figures are as stated in the Fund’s current prospectus, including the effect of acquired fund fees and expenses, and may differ from the expense ratios disclosed in the Your
Fund’s Expenses and Financial Highlights sections in this report. In periods of market volatility, assets may decline significantly, causing total annual Fund operating expenses
to become higher than the figures shown.
See www.franklintempletondatasources.com for additional data provider information.
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Annual Report
41
FRANKLIN LIFESMART 2040 RETIREMENT TARGET FUND
Your Fund’s Expenses
As a Fund shareholder, you can incur two types of costs: (1) transaction costs, including sales charges (loads) on Fund purchases and redemptions; and (2) ongoing Fund costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs, sometimes referred to as operating expenses. The table below 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 table below provides information about actual account values and actual expenses in the columns under the heading “Actual.” In these columns the Fund’s actual return, which includes the effect of Fund expenses, is used to calculate the “Ending Account Value” for each class of shares. 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): Divide your account value by $1,000 (if your account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6). Then multiply the result by the number in the row for your class of shares under the headings “Actual” and “Expenses Paid During Period” (if Actual Expenses Paid During Period were $7.50, then 8.6 x $7.50 = $64.50). In this illustration, the actual expenses paid this period are $64.50.
Hypothetical Example for Comparison with Other Funds
Under the heading “Hypothetical” in the table, information is provided about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. This information may not be used to estimate the actual ending account balance or expenses you paid for the period, but it can help you compare ongoing costs of investing in the Fund with those of other funds. To do so, compare this 5% hypothetical example for the class of shares you hold with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that expenses shown in the table are meant to highlight ongoing costs and do not reflect any transactional costs. Therefore, information under the heading “Hypothetical” is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transactional costs were included, your total costs would have been higher.
| | | | | | | | | | | | |
| | | | | | Actual | | Hypothetical | | |
| | | | | (actual return after expenses) | | (5% annual return before expenses) | | |
| | | | | | | Expenses | | | | Expenses | Net | |
| | | Beginning | | Ending | | Paid During | | Ending | | Paid During | Annualized | |
| Share | | Account | | Account | | Period | | Account | | Period | Expense | |
| Class | | Value 7/1/16 | | Value 12/31/16 | | 7/1/16–12/31/161,2 | | Value 12/31/16 | | 7/1/16–12/31/161,2 | Ratio2 | |
| A | $ | 1,000 | $ | 1,036.80 | $ | 1.54 | $ | 1,023.63 | $ | 1.53 | 0.30 | % |
| C | $ | 1,000 | $ | 1,033.20 | $ | 5.37 | $ | 1,019.86 | $ | 5.33 | 1.05 | % |
| R | $ | 1,000 | $ | 1,035.30 | $ | 2.76 | $ | 1,022.42 | $ | 2.75 | 0.54 | % |
| R6 | $ | 1,000 | $ | 1,038.40 | $ | 0.00 | $ | 1,025.14 | $ | 0.00 | 0.00 | % |
| Advisor | $ | 1,000 | $ | 1,037.30 | $ | 0.26 | $ | 1,024.89 | $ | 0.25 | 0.05 | % |
1. Expenses are equal to the annualized expense ratio for the six-month period as indicated above–in the far right column–multiplied by the simple average account value
over the period indicated, and then multiplied by 184/366 to reflect the one-half year period.
2. Reflects expenses after fee waivers and expense reimbursements. Does not include acquired fund fees and expenses.
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Franklin LifeSmart 2045 Retirement Target Fund
This annual report for Franklin LifeSmart 2045 Retirement Target Fund covers the fiscal year ended December 31, 2016.
Your Fund’s Goal and Main Investments
The Fund seeks the highest level of long-term total return, which consists of capital appreciation and income, consistent with the Fund’s asset allocation. The Fund allocates among the broad asset classes of equity, fixed income and alternative (non-traditional) investments by investing primarily in a distinctly weighted combination of underlying funds, predominantly other Franklin Templeton mutual funds and exchange-traded funds (ETFs), with an increasing emphasis on income as the target date of 2045 approaches. The target date is the approximate retirement year of the investor.
*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 had a +3.29% cumulative total return for the 12 months ended December 31, 2016. In comparison, the Fund’s equity benchmark, the MSCI All Country World Index (ACWI), which measures equity market performance in global developed and emerging markets, generated a +8.48% total return.1 The Fund’s fixed income benchmark, the Bloomberg Barclays Multiverse Index, a broad-based measure of the global fixed income bond market, produced a +2.84% total return.1 The Citigroup 3-Month Treasury Bill Index, a proxy for short-term investments and other net assets, returned +0.27%.2 You can find the Fund’s long-term performance data in the Performance Summary beginning on page 45.
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.
Investment Strategy
When selecting equity funds, we consider the foreign and domestic exposure, market capitalization ranges, and investment style (growth vs. value) of the underlying funds and other fund investments (collectively, “fund investments”). When selecting fixed income funds, we focus primarily on maximizing income appropriate to the Fund’s specific risk profile. In evaluating the risk level of the fund investments, including alternative investment funds, we analyze such factors as: (a) relative and absolute performance, including correlations with other fund investments as well as corresponding benchmarks, and (b) their volatility (the variability of returns from one period to the next). We attempt to invest the assets of each Fund with a target date comprising Franklin Fund Allocator Series (each a “Target Date Fund”) in the same fund investments but will vary the fund investments’ allocation percentages based upon each Fund’s risk/return level. We change the Fund’s target asset allocations over time, reducing its exposure to equity investments, and it becomes increasingly conservative until the stated target date. At the “landing point” (reached at the target date), the Fund reaches its most conservative asset allocation and thereafter, such strategic asset allocation will become fixed.
Manager’s Discussion
The Fund’s performance can be attributed largely to its allocation among equities and fixed income securities and to the actual performance of the fund investments. This allocation
1. Source: Morningstar.
2. Source: FactSet.
The indexes are unmanaged and include reinvestment of any income or distributions. They do not reflect any fees, expenses or sales charges. 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 102.
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Annual Report
43
FRANKLIN LIFESMART 2045 RETIREMENT TARGET FUND
| | |
| Top 10 Fund Holdings | | |
| 12/31/16 | | |
| | % of Total | |
| | Net Assets | |
| Franklin Growth Fund – Class R6 | 16.1 | % |
| Franklin Rising Dividends Fund – Class R6 | 9.0 | % |
| Franklin Growth Opportunities Fund – Class R6 | 7.2 | % |
| Franklin International Small Cap Growth Fund – | | |
| Class R6 | 6.8 | % |
| Franklin LibertyQ Emerging Markets ETF | 5.9 | % |
| Templeton Foreign Fund – Class R6 | 4.9 | % |
| Franklin Focused Core Equity Fund – Class R6 | 4.5 | % |
| Franklin Mutual International Fund – Class R6 | 4.2 | % |
| Franklin Low Duration Total Return Fund – Class R6 | 4.1 | % |
| iShares S&P 500 Value ETF | 3.6 | % |
shifts every year, in accordance with the target date associated with the portfolio.
At period-end, Franklin LifeSmart 2045 Retirement Target Fund allocated 77.8% of total net assets to equity, 14.1% to fixed income and 7.7% to alternative strategies. Domestic equity exposure was 62.1% of the total equity weighting, and foreign equity made up the balance. The portfolio was diversified across capitalization sizes and investment styles, and on December 31, 2016, we held shares in large-, mid- and small-capitalization equity funds, representing both growth and value styles. Franklin Growth Fund – Class R6, at 16.1% of the Fund’s total net assets, was our largest equity fund weighting at period-end. On the fixed income side, domestic exposure was 84.4% of the Fund’s total fixed income weighting, with the balance in foreign fixed income. Franklin Low Duration Total Return Fund – Class R6 was our largest fixed income fund weighting at 4.1% of total net assets.
Our largest domestic value fund holding, Franklin Rising Dividends Fund – Class R6, outperformed the Fund’s equity benchmark, the MSCI ACWI, while our largest domestic growth fund holding, Franklin Growth Fund – Class R6, performed in line with the index. Our largest foreign equity fund holding, Franklin International Small Cap Growth Fund –Class R6, underperformed the index. On the fixed income side, our largest domestic fixed income fund holding, Franklin Low Duration Total Return Fund – Class R6, underperformed the Fund’s fixed income benchmark, the Bloomberg Barclays Multiverse Index, while our foreign fixed income fund holding, Templeton Global Total Return Fund – Class R6, outperformed the Index.
Thank you for your continued participation in Franklin LifeSmart 2045 Retirement Target Fund. We look forward to serving your future investment needs.
The foregoing information reflects our analysis, opinions and portfolio holdings as of December 31, 2016, 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.
44 Annual Report
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FRANKLIN LIFESMART 2045 RETIREMENT TARGET FUND
Performance Summary as of December 31, 2016
The performance table and graphs do not reflect any taxes that a shareholder would pay on Fund dividends, capital gain distributions, if any, or any realized gains on the sale of Fund shares. Total return reflects reinvestment of the Fund’s dividends and capital gain distributions, if any, and any unrealized gains or losses.
Performance as of 12/31/161
Cumulative total return excludes sales charges. Average annual total return includes maximum sales charges. Sales charges will vary depending on the size of the investment and the class of share purchased. The maximum is 5.75% and the minimum is 0%. Class A: 5.75% maximum initial sales charge; Advisor Class: no sales charges. For other share classes, visit franklintempleton.com.
| | | | |
| | Cumulative | | Average Annual | |
| Share Class | Total Return2 | | Total Return3 | |
| A | | | | |
| 1-Year | +3.29 | % | -2.68 | % |
| 5-Year | +44.35 | % | +6.35 | % |
| 10-Year | +54.58 | % | +3.84 | % |
| Advisor | | | | |
| 1-Year | +3.49 | % | +3.49 | % |
| 5-Year | +46.31 | % | +7.91 | % |
| 10-Year | +59.07 | % | +4.75 | % |
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.
See page 47 for Performance Summary footnotes.
franklintempleton.com
Annual Report
45
FRANKLIN LIFESMART 2045 RETIREMENT TARGET FUND
PERFORMANCE SUMMARY
Total Return Index Comparison for a Hypothetical $10,000 Investment1
Total return represents the change in value of an investment over the periods shown. It includes any applicable maximum sales charge, Fund expenses, account fees and reinvested distributions. The unmanaged indexes include reinvestment of any income or distributions. They differ from the Fund in composition and do not pay management fees or expenses. One cannot invest directly in an index.
See page 47 for Performance Summary footnotes.
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| | | | |
| | | | FRANKLIN LIFESMART 2045 RETIREMENT TARGET FUND | |
| | | | PERFORMANCE SUMMARY | |
| |
| Total Annual Operating Expenses6 | | | |
| Share Class | With Waiver | | Without Waiver | |
| A | 1.05 | % | 1.73 | % |
| Advisor | 0.80 | % | 1.48 | % |
Each class of shares is available to certain eligible investors and has different annual fees and expenses, as described in the prospectus.
The Fund’s investment risk changes over time as its asset allocation changes. Since the 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. All investments involve risks, including possible loss of principal. Principal
invested is not guaranteed at any time, including at or after the Fund’s retirement target date; nor is there any guarantee that the Fund will provide sufficient
income at or through the investor’s retirement. 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 the prices of bonds
in the Fund adjust to a rise in interest rates, the Fund’s share price may decline. Foreign investing carries additional risks such as currency and market volatility
and political or social instability, risks which are heightened in developing countries. These risks are described more fully in the Fund’s prospectus. Investors
should consult their financial advisor for help selecting the appropriate fund of funds, or fund combination, based on an evaluation of their investment objectives,
retirement time horizons and risk tolerance.
1. The Fund has a fee waiver and expense reduction contractually guaranteed through 4/30/17. The Fund also has a fee waiver associated with any investments it makes in a
Franklin Templeton money fund, contractually guaranteed through the Fund’s current fiscal year-end. Fund investment results reflect these fee waivers and expense reductions;
without these reductions, the results would have been lower. As of October 2013, the Fund’s glide path was modified, and among other changes, reflects a lower starting
allocation to equity funds; such a change can impact performance.
2. Cumulative total return represents the change in value of an investment over the periods indicated.
3. Average annual total return represents the average annual change in value of an investment over the periods indicated. Return for less than one year, ifany,hasnotbeen
annualized.
4.Source: Morningstar. The MSCI ACWI is a free float-adjusted, market capitalization-weighted index designed to measure equity market performance in global developed and
emerging markets. The Bloomberg Barclays Multiverse Index provides a broad-based measure of the global fixed income bond market. The index represents the union of the
Global Aggregate Index and the Global High Yield Index and captures investment-grade and high yield securities in all eligible currencies.
5. Source: FactSet. Citigroup 3-Month Treasury Bill Index is an unmanaged index representing monthly return equivalents of yield averages of the last 3-Month Treasury Bill
issues.
6. Figures are as stated in the Fund’s current prospectus, including the effect of acquired fund fees and expenses, and may differ from the expense ratios disclosed in the Your
Fund’s Expenses and Financial Highlights sections in this report. In periods of market volatility, assets may decline significantly, causing total annual Fund operating expenses
to become higher than the figures shown.
See www.franklintempletondatasources.com for additional data provider information.
franklintempleton.com
Annual Report
47
FRANKLIN LIFESMART 2045 RETIREMENT TARGET FUND
Your Fund’s Expenses
As a Fund shareholder, you can incur two types of costs: (1) transaction costs, including sales charges (loads) on Fund purchases and redemptions; and (2) ongoing Fund costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs, sometimes referred to as operating expenses. The table below 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 table below provides information about actual account values and actual expenses in the columns under the heading “Actual.” In these columns the Fund’s actual return, which includes the effect of Fund expenses, is used to calculate the “Ending Account Value” for each class of shares. 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): Divide your account value by $1,000 (if your account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6). Then multiply the result by the number in the row for your class of shares under the headings “Actual” and “Expenses Paid During Period” (if Actual Expenses Paid During Period were $7.50, then 8.6 x $7.50 = $64.50). In this illustration, the actual expenses paid this period are $64.50.
Hypothetical Example for Comparison with Other Funds
Under the heading “Hypothetical” in the table, information is provided about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. This information may not be used to estimate the actual ending account balance or expenses you paid for the period, but it can help you compare ongoing costs of investing in the Fund with those of other funds. To do so, compare this 5% hypothetical example for the class of shares you hold with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that expenses shown in the table are meant to highlight ongoing costs and do not reflect any transactional costs. Therefore, information under the heading “Hypothetical” is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transactional costs were included, your total costs would have been higher.
| | | | | | | | | | | | |
| | | | | | Actual | | Hypothetical | | |
| | | | | (actual return after expenses) | | (5% annual return before expenses) | | |
| | | | | | | Expenses | | | | Expenses | Net | |
| | | Beginning | | Ending | | Paid During | | Ending | | Paid During | Annualized | |
| Share | | Account | | Account | | Period | | Account | | Period | Expense | |
| Class | | Value 7/1/16 | | Value 12/31/16 | | 7/1/16–12/31/161,2 | | Value 12/31/16 | | 7/1/16–12/31/161,2 | Ratio2 | |
| A | $ | 1,000 | $ | 1,037.60 | $ | 1.54 | $ | 1,023.63 | $ | 1.53 | 0.30 | % |
| C | $ | 1,000 | $ | 1,033.60 | $ | 5.37 | $ | 1,019.86 | $ | 5.33 | 1.05 | % |
| R | $ | 1,000 | $ | 1,036.40 | $ | 2.82 | $ | 1,022.37 | $ | 2.80 | 0.55 | % |
| R6 | $ | 1,000 | $ | 1,039.30 | $ | 0.00 | $ | 1,025.14 | $ | 0.00 | 0.00 | % |
| Advisor | $ | 1,000 | $ | 1,039.60 | $ | 0.26 | $ | 1,024.89 | $ | 0.25 | 0.05 | % |
1. Expenses are equal to the annualized expense ratio for the six-month period as indicated above–in the far right column–multiplied by the simple average account value
over the period indicated, and then multiplied by 184/366 to reflect the one-half year period.
2. Reflects expenses after fee waivers and expense reimbursements. Does not include acquired fund fees and expenses.
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Franklin LifeSmart 2050 Retirement Target Fund
This annual report for Franklin LifeSmart 2050 Retirement Target Fund covers the fiscal year ended December 31, 2016.
Your Fund’s Goal and Main Investments
The Fund seeks the highest level of long-term total return, which consists of capital appreciation and income, consistent with the Fund’s asset allocation. The Fund allocates among the broad asset classes of equity, fixed income and alternative (non-traditional) investments by investing primarily in a distinctly weighted combination of underlying funds, predominantly other Franklin Templeton mutual funds and exchange-traded funds (ETFs), with an increasing emphasis on income as the target date of 2050 approaches. The target date is the approximate retirement year of the investor.
*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 had a +3.32% cumulative total return for the 12 months ended December 31, 2016. In comparison, the Fund’s equity benchmark, the MSCI All Country World Index (ACWI), which measures equity market performance in global developed and emerging markets, generated a +8.48% total return.1 The Fund’s fixed income benchmark, the Bloomberg Barclays Multiverse Index, a broad-based measure of the global fixed income bond market, produced a +2.84% total return.1 The Citiigroup 3-Month Treasury Bill Index, a proxy for short-term investments and other net assets, returned +0.27%.2 Youcanfindmoreofthe Fund’s performance data in the Performance Summary beginning on page 51.
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.
Investment Strategy
When selecting equity funds, we consider the foreign and domestic exposure, market capitalization ranges, and investment style (growth vs. value) of the underlying funds and other fund investments (collectively, “fund investments”). When selecting fixed income funds, we focus primarily on maximizing income appropriate to the Fund’s specific risk profile. In evaluating the risk level of the fund investments, including alternative investment funds, we analyze such factors as: (a) relative and absolute performance, including correlations with other fund investments as well as corresponding benchmarks, and (b) their volatility (the variability of returns from one period to the next). We attempt to invest the assets of each Fund with a target date comprising Franklin Fund Allocator Series (each a “Target Date Fund”) in the same fund investments but will vary the fund investments’ allocation percentages based upon each Fund’s risk/return level. We change the Fund’s target asset allocations over time, reducing its exposure to equity investments, and it becomes increasingly conservative until the stated target date. At the “landing point” (reached at the target date), the Fund reaches its most conservative asset allocation and thereafter, such strategic asset allocation will become fixed.
Manager’s Discussion
The Fund’s performance can be attributed largely to its allocation among equities and fixed income securities and to the actual performance of the fund investments. This allocation
1. Source: Morningstar.
2. Source: FactSet.
The indexes are unmanaged and include reinvestment of any income or distributions. They do not reflect any fees, expenses or sales charges. 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 108.
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FRANKLIN LIFESMART 2050 RETIREMENT TARGET FUND
| | |
| Top 10 Fund Holdings | | |
| 12/31/16 | | |
| | % of Total | |
| | Net Assets | |
| Franklin Growth Fund – Class R6 | 16.5 | % |
| Franklin Rising Dividends Fund – Class R6 | 9.0 | % |
| Franklin Growth Opportunities Fund – Class R6 | 7.3 | % |
| Franklin International Small Cap Growth Fund – | | |
| Class R6 | 6.8 | % |
| Franklin LibertyQ Emerging Markets ETF | 6.2 | % |
| Templeton Foreign Fund – Class R6 | 5.0 | % |
| Franklin Focused Core Equity Fund – Class R6 | 4.8 | % |
| Franklin Mutual International Fund – Class R6 | 4.3 | % |
| Franklin Low Duration Total Return Fund – Class R6 | 4.0 | % |
| iShares S&P 500 Value ETF | 3.6 | % |
shifts every year, in accordance with the target date associated with the portfolio.
At period-end, Franklin LifeSmart 2050 Retirement Target Fund allocated 78.3% of total net assets to equity, 13.0% to fixed income and 7.6% to alternative strategies. Domestic equity exposure was 62.2% of the total equity weighting, and foreign equity made up the balance. The portfolio was diversified across capitalization sizes and investment styles, and on December 31, 2016, we held shares in large-, mid- and small-capitalization equity funds, representing both growth and value styles. Franklin Growth Fund – Class R6, at 16.5% of the Fund’s total net assets, was our largest equity fund weighting at period-end. On the fixed income side, domestic exposure was 85.4% of the Fund’s total fixed income weighting, with the balance in foreign fixed income. Franklin Low Duration Total Return Fund – Class R6 was our largest fixed income fund weighting at 4.0% of total net assets.
Our largest domestic value fund holding, Franklin Rising Dividends Fund – Class R6, outperformed the Fund’s equity benchmark, the MSCI ACWI, while our largest domestic growth fund holding, Franklin Growth Fund – Class R6, performed in line with the index. Our largest foreign equity fund holding, Franklin International Small Cap Growth Fund –Class R6, underperformed the index. On the fixed income side, our largest domestic fixed income fund holding, Franklin Low Duration Total Return Fund – Class R6, underperformed the Fund’s fixed income benchmark, the Bloomberg Barclays Multiverse Index, while our foreign fixed income fund holding, Templeton Global Total Return Fund – Class R6, outperformed the Index.
Thank you for your continued participation in Franklin LifeSmart 2050 Retirement Target Fund. We look forward to serving your future investment needs.
The foregoing information reflects our analysis, opinions and portfolio holdings as of December 31, 2016, 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.
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FRANKLIN LIFESMART 2050 RETIREMENT TARGET FUND
Performance Summary as of December 31, 2016
The performance table and graphs do not reflect any taxes that a shareholder would pay on Fund dividends, capital gain distributions, if any, or any realized gains on the sale of Fund shares. Total return reflects reinvestment of the Fund’s dividends and capital gain distributions, if any, and any unrealized gains or losses.
Performance as of 12/31/161
Cumulative total return excludes sales charges. Average annual total return includes maximum sales charges. Sales charges will vary depending on the size of the investment and the class of share purchased. The maximum is 5.75% and the minimum is 0%. Class A: 5.75% maximum initial sales charge; Advisor Class: no sales charges. For other share classes, visit franklintempleton.com.
| | | | |
| | Cumulative | | Average Annual | |
| Share Class | Total Return2 | | Total Return3 | |
| A | | | | |
| 1-Year | +3.32 | % | -2.64 | % |
| 3-Year | +7.39 | % | +0.41 | % |
| Since Inception (7/1/13) | +21.50 | % | +3.95 | % |
| Advisor | | | | |
| 1-Year | +3.59 | % | +3.59 | % |
| 3-Year | +8.45 | % | +2.74 | % |
| Since Inception (7/1/13) | +22.83 | % | +6.05 | % |
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.
See page 53 for Performance Summary footnotes.
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FRANKLIN LIFESMART 2050 RETIREMENT TARGET FUND
PERFORMANCE SUMMARY
Total Return Index Comparison for a Hypothetical $10,000 Investment1
Total return represents the change in value of an investment over the periods shown. It includes any applicable maximum sales charge, Fund expenses, account fees and reinvested distributions. The unmanaged indexes include reinvestment of any income or distributions. They differ from the Fund in composition and do not pay management fees or expenses. One cannot invest directly in an index.
See page 53 for Performance Summary footnotes.
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| | | | |
| | | | FRANKLIN LIFESMART 2050 RETIREMENT TARGET FUND | |
| | | | PERFORMANCE SUMMARY | |
| |
| Total Annual Operating Expenses6 | | | |
| Share Class | With Waiver | | Without Waiver | |
| A | 1.05 | % | 2.55 | % |
| Advisor | 0.80 | % | 2.30 | % |
Each class of shares is available to certain eligible investors and has different annual fees and expenses, as described in the prospectus.
The Fund’s investment risk changes over time as its asset allocation changes. Since the 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. All investments involve risks, including possible loss of principal. Principal
invested is not guaranteed at any time, including at or after the Fund’s retirement target date; nor is there any guarantee that the Fund will provide sufficient
income at or through the investor’s retirement. 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 the prices of bonds
in the Fund adjust to a rise in interest rates, the Fund’s share price may decline. Foreign investing carries additional risks such as currency and market volatility
and political or social instability, risks which are heightened in developing countries. These risks are described more fully in the Fund’s prospectus. Investors
should consult their financial advisor for help selecting the appropriate fund of funds, or fund combination, based on an evaluation of their investment objectives,
retirement time horizons and risk tolerance.
1. The Fund has a fee waiver and expense reduction contractually guaranteed through 4/30/17. The Fund also has a fee waiver associated with any investments it makes in a
Franklin Templeton money fund, contractually guaranteed through the Fund’s current fiscal year-end. Fund investment results reflect these fee waivers and expense reductions;
without these reductions, the results would have been lower. As of October 2013, the Fund’s glide path was modified, and among other changes, reflects a lower starting
allocation to equity funds; such a change can impact performance.
2. Cumulative total return represents the change in value of an investment over the periods indicated.
3. Average annual total return represents the average annual change in value of an investment over the periods indicated. Return for less than one year, ifany,hasnotbeen
annualized.
4.Source: Morningstar. The MSCI ACWI is a free float-adjusted, market capitalization-weighted index designed to measure equity market performance in global developed and
emerging markets. The Bloomberg Barclays Multiverse Index provides a broad-based measure of the global fixed income bond market. The index represents the union of the
Global Aggregate Index and the Global High Yield Index and captures investment-grade and high yield securities in all eligible currencies.
5. Source: FactSet. Citigroup 3-Month Treasury Bill Index is an unmanaged index representing monthly return equivalents of yield averages of the last 3-Month Treasury Bill
issues.
6. Figures are as stated in the Fund’s current prospectus, including the effect of acquired fund fees and expenses, and may differ from the expense ratios disclosed in the Your
Fund’s Expenses and Financial Highlights sections in this report. In periods of market volatility, assets may decline significantly, causing total annual Fund operating expenses
to become higher than the figures shown.
See www.franklintempletondatasources.com for additional data provider information.
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53
FRANKLIN LIFESMART 2050 RETIREMENT TARGET FUND
Your Fund’s Expenses
As a Fund shareholder, you can incur two types of costs: (1) transaction costs, including sales charges (loads) on Fund purchases and redemptions; and (2) ongoing Fund costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs, sometimes referred to as operating expenses. The table below 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 table below provides information about actual account values and actual expenses in the columns under the heading “Actual.” In these columns the Fund’s actual return, which includes the effect of Fund expenses, is used to calculate the “Ending Account Value” for each class of shares. 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): Divide your account value by $1,000 (if your account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6). Then multiply the result by the number in the row for your class of shares under the headings “Actual” and “Expenses Paid During Period” (if Actual Expenses Paid During Period were $7.50, then 8.6 x $7.50 = $64.50). In this illustration, the actual expenses paid this period are $64.50.
Hypothetical Example for Comparison with Other Funds
Under the heading “Hypothetical” in the table, information is provided about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. This information may not be used to estimate the actual ending account balance or expenses you paid for the period, but it can help you compare ongoing costs of investing in the Fund with those of other funds. To do so, compare this 5% hypothetical example for the class of shares you hold with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that expenses shown in the table are meant to highlight ongoing costs and do not reflect any transactional costs. Therefore, information under the heading “Hypothetical” is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transactional costs were included, your total costs would have been higher.
| | | | | | | | | | | | |
| | | | | | Actual | | Hypothetical | | |
| | | | | (actual return after expenses) | | (5% annual return before expenses) | | |
| | | | | | | Expenses | | | | Expenses | Net | |
| | | Beginning | | Ending | | Paid During | | Ending | | Paid During | Annualized | |
| Share | | Account | | Account | | Period | | Account | | Period | Expense | |
| Class | | Value 7/1/16 | | Value 12/31/16 | | 7/1/16–12/31/161,2 | | Value 12/31/16 | | 7/1/16–12/31/161,2 | Ratio2 | |
| A | $ | 1,000 | $ | 1,037.70 | $ | 1.54 | $ | 1,023.63 | $ | 1.53 | 0.30 | % |
| C | $ | 1,000 | $ | 1,034.80 | $ | 5.37 | $ | 1,019.86 | $ | 5.33 | 1.05 | % |
| R | $ | 1,000 | $ | 1,036.50 | $ | 2.76 | $ | 1,022.42 | $ | 2.75 | 0.54 | % |
| R6 | $ | 1,000 | $ | 1,039.00 | $ | 0.00 | $ | 1,025.14 | $ | 0.00 | 0.00 | % |
| Advisor | $ | 1,000 | $ | 1,039.40 | $ | 0.26 | $ | 1,024.89 | $ | 0.25 | 0.05 | % |
1. Expenses are equal to the annualized expense ratio for the six-month period as indicated above–in the far right column–multiplied by the simple average account value
over the period indicated, and then multiplied by 184/366 to reflect the one-half year period.
2. Reflects expenses after fee waivers and expense reimbursements. Does not include acquired fund fees and expenses.
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Franklin LifeSmart 2055 Retirement Target Fund
This annual report for Franklin LifeSmart 2055 Retirement Target Fund covers the fiscal year ended December 31, 2016.
Your Fund’s Goal and Main Investments
The Fund seeks the highest level of long-term total return, which consists of capital appreciation and income, consistent with the Fund’s asset allocation. The Fund allocates among the broad asset classes of equity, fixed income and alternative (non-traditional) investments by investing primarily in a distinctly weighted combination of underlying funds, predominantly other Franklin Templeton mutual funds and exchange-traded funds (ETFs), with an increasing emphasis on income as the target date of 2055 approaches. The target date is the approximate retirement year of the investor.
*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 had a +3.13% cumulative total return for the 12 months ended December 31, 2016. In comparison, the Fund’s equity benchmark, the MSCI All Country World Index (ACWI), which measures equity market performance in global developed and emerging markets, generated a +8.48% total return.1 The Fund’s fixed income benchmark, the Bloomberg Barclays Multiverse Index, a broad-based measure of the global fixed income bond market, produced a +2.84% total return.1 The Citigroup 3-Month Treasury Bill Index, a proxy for short-term investments and other net assets, returned +0.27%.2 You can find the Fund’s long-term performance data in the Performance Summary beginning on page 57.
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.
Investment Strategy
When selecting equity funds, we consider the foreign and domestic exposure, market capitalization ranges, and investment style (growth vs. value) of the underlying funds and other fund investments (collectively, “fund investments”). When selecting fixed income funds, we focus primarily on maximizing income appropriate to the Fund’s specific risk profile. In evaluating the risk level of the fund investments, including alternative investment funds, we analyze such factors as: (a) relative and absolute performance, including correlations with other fund investments as well as corresponding benchmarks, and (b) their volatility (the variability of returns from one period to the next). We attempt to invest the assets of each Fund with a target date comprising Franklin Fund Allocator Series (each a “Target Date Fund”) in the same fund investments but will vary the fund investments’ allocation percentages based upon each Fund’s risk/return level. We change the Fund’s target asset allocations over time, reducing its exposure to equity investments, and it becomes increasingly conservative until the stated target date. At the “landing point” (reached at the target date), the Fund reaches its most conservative asset allocation and thereafter, such strategic asset allocation will become fixed.
Manager’s Discussion
The Fund’s performance can be attributed largely to its allocation among equities and fixed income securities and to the actual performance of the fund investments. This allocation
1. Source: Morningstar.
2. Source: FactSet.
The indexes are unmanaged and include reinvestment of any income or distributions. They do not reflect any fees, expenses or sales charges. 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 114.
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FRANKLIN LIFESMART 2055 RETIREMENT TARGET FUND
| | |
| Top 10 Fund Holdings | | |
| 12/31/16 | | |
| | % of Total | |
| | Net Assets | |
| Franklin Growth Fund – Class R6 | 16.8 | % |
| Franklin Rising Dividends Fund – Class R6 | 9.2 | % |
| Franklin Growth Opportunities Fund – Class R6 | 7.2 | % |
| Franklin International Small Cap Growth Fund – | | |
| Class R6 | 7.0 | % |
| Franklin LibertyQ Emerging Markets ETF | 5.6 | % |
| Templeton Foreign Fund – Class R6 | 5.4 | % |
| Franklin Focused Core Equity Fund – Class R6 | 4.8 | % |
| Franklin Mutual International Fund – Class R6 | 4.4 | % |
| Franklin Low Duration Total Return Fund – Class R6 | 3.7 | % |
| iShares S&P 500 Value ETF | 3.2 | % |
shifts every year, in accordance with the target date associated with the portfolio.
At period-end, Franklin LifeSmart 2055 Retirement Target Fund allocated 78.0% of total net assets to equity, 12.1% to fixed income and 7.6% to alternative strategies. Domestic equity exposure was 62.8% of the total equity weighting, and foreign equity made up the balance. The portfolio was diversified across capitalization sizes and investment styles, and on December 31, 2016, we held shares in large-, mid- and small-capitalization equity funds, representing both growth and value styles. Franklin Growth Fund – Class R6, at 16.8% of the Fund’s total net assets, was our largest equity fund weighting at period-end. On the fixed income side, domestic exposure was 86.0% of the Fund’s total fixed income weighting, with the balance in foreign fixed income. Franklin Low Duration Total Return Fund – Class R6 was our largest fixed income fund weighting at 3.7% of total net assets.
Our largest domestic value fund holding, Franklin Rising Dividends Fund – Class R6, outperformed the Fund’s equity benchmark, the MSCI ACWI, while our largest domestic growth fund holding, Franklin Growth Fund – Class R6, performed in line with the index. Our largest foreign equity fund holding, Franklin International Small Cap Growth Fund –Class R6, underperformed the index. On the fixed income side, our largest domestic fixed income fund holding, Franklin Low Duration Total Return Fund – Class R6, underperformed the Fund’s fixed income benchmark, the Bloomberg Barclays Multiverse Index, while our foreign fixed income fund holding, Templeton Global Total Return Fund – Class R6, outperformed the Index.
Thank you for your continued participation in Franklin LifeSmart 2055 Retirement Target Fund. We look forward to serving your future investment needs.
The foregoing information reflects our analysis, opinions and portfolio holdings as of December 31, 2016, 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.
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FRANKLIN LIFESMART 2055 RETIREMENT TARGET FUND
Performance Summary as of December 31, 2016
The performance table and graphs do not reflect any taxes that a shareholder would pay on Fund dividends, capital gain distributions, if any, or any realized gains on the sale of Fund shares. Total return reflects reinvestment of the Fund’s dividends and capital gain distributions, if any, and any unrealized gains or losses.
Performance as of 12/31/161
Cumulative total return excludes sales charges. Average annual total return includes maximum sales charges. Sales charges will vary depending on the size of the investment and the class of share purchased. The maximum is 5.75% and the minimum is 0%. Class A: 5.75% maximum initial sales charge; Advisor Class: no sales charges. For other share classes, visit franklintempleton.com.
| | | | |
| | Cumulative | | Average Annual | |
| Share Class | Total Return2 | | Total Return3 | |
| A | | | | |
| 1-Year | +3.13 | % | -2.80 | % |
| Since Inception (5/1/15) | -2.44 | % | -4.90 | % |
| Advisor | | | | |
| 1-Year | +3.45 | % | +3.45 | % |
| Since Inception (5/1/15) | -2.11 | % | -1.27 | % |
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.
See page 59 for Performance Summary footnotes.
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FRANKLIN LIFESMART 2055 RETIREMENT TARGET FUND
PERFORMANCE SUMMARY
Total Return Index Comparison for a Hypothetical $10,000 Investment1
Total return represents the change in value of an investment over the periods shown. It includes any applicable maximum sales charge, Fund expenses, account fees and reinvested distributions. The unmanaged indexes include reinvestment of any income or distributions. They differ from the Fund in composition and do not pay management fees or expenses. One cannot invest directly in an index.
See page 59 for Performance Summary footnotes.
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| | | | |
| | | | FRANKLIN LIFESMART 2055 RETIREMENT TARGET FUND | |
| | | | PERFORMANCE SUMMARY | |
| |
| Total Annual Operating Expenses6 | | | |
| Share Class | With Waiver | | Without Waiver | |
| A | 1.08 | % | 10.55 | % |
| Advisor | 0.83 | % | 10.30 | % |
Each class of shares is available to certain eligible investors and has different annual fees and expenses, as described in the prospectus.
The Fund’s investment risk changes over time as its asset allocation changes. Since the 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. All investments involve risks, including possible loss of principal. Principal
invested is not guaranteed at any time, including at or after the Fund’s retirement target date; nor is there any guarantee that the Fund will provide sufficient
income at or through the investor’s retirement. 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 the prices of bonds
in the Fund adjust to a rise in interest rates, the Fund’s share price may decline. Foreign investing carries additional risks such as currency and market volatility
and political or social instability, risks which are heightened in developing countries. These risks are described more fully in the Fund’s prospectus. Investors
should consult their financial advisor for help selecting the appropriate fund of funds, or fund combination, based on an evaluation of their investment objectives,
retirement time horizons and risk tolerance.
1. The Fund has a fee waiver and expense reduction contractually guaranteed through 4/30/17. The Fund also has a fee waiver associated with any investments it makes in a
Franklin Templeton money fund, contractually guaranteed through the Fund’s current fiscal year-end. Fund investment results reflect these fee waivers and expense reductions;
without these reductions, the results would have been lower.
2. Cumulative total return represents the change in value of an investment over the periods indicated.
3. Average annual total return represents the average annual change in value of an investment over the periods indicated. Return for less than one year, ifany,hasnotbeen
annualized.
4.Source: Morningstar. The MSCI ACWI is a free float-adjusted, market capitalization-weighted index designed to measure equity market performance in global developed and
emerging markets. The Bloomberg Barclays Multiverse Index provides a broad-based measure of the global fixed income bond market. The index represents the union of the
Global Aggregate Index and the Global High Yield Index and captures investment-grade and high yield securities in all eligible currencies.
5. Source: FactSet. Citigroup 3-Month Treasury Bill Index is an unmanaged index representing monthly return equivalents of yield averages of the last 3-Month Treasury Bill
issues.
6. Figures are as stated in the Fund’s current prospectus, including the effect of acquired fund fees and expenses, and may differ from the expense ratios disclosed in the Your
Fund’s Expenses and Financial Highlights sections in this report. In periods of market volatility, assets may decline significantly, causing total annual Fund operating expenses
to become higher than the figures shown.
See www.franklintempletondatasources.com for additional data provider information.
franklintempleton.com
Annual Report
59
FRANKLIN LIFESMART 2055 RETIREMENT TARGET FUND
Your Fund’s Expenses
As a Fund shareholder, you can incur two types of costs: (1) transaction costs, including sales charges (loads) on Fund purchases and redemptions; and (2) ongoing Fund costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs, sometimes referred to as operating expenses. The table below 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 table below provides information about actual account values and actual expenses in the columns under the heading “Actual.” In these columns the Fund’s actual return, which includes the effect of Fund expenses, is used to calculate the “Ending Account Value” for each class of shares. 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): Divide your account value by $1,000 (if your account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6). Then multiply the result by the number in the row for your class of shares under the headings “Actual” and “Expenses Paid During Period” (if Actual Expenses Paid During Period were $7.50, then 8.6 x $7.50 = $64.50). In this illustration, the actual expenses paid this period are $64.50.
Hypothetical Example for Comparison with Other Funds
Under the heading “Hypothetical” in the table, information is provided about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. This information may not be used to estimate the actual ending account balance or expenses you paid for the period, but it can help you compare ongoing costs of investing in the Fund with those of other funds. To do so, compare this 5% hypothetical example for the class of shares you hold with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that expenses shown in the table are meant to highlight ongoing costs and do not reflect any transactional costs. Therefore, information under the heading “Hypothetical” is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transactional costs were included, your total costs would have been higher.
| | | | | | | | | | | | |
| | | | | | Actual | | Hypothetical | | |
| | | | | (actual return after expenses) | | (5% annual return before expenses) | | |
| | | | | | | Expenses | | | | Expenses | Net | |
| | | Beginning | | Ending | | Paid During | | Ending | | Paid During | Annualized | |
| Share | | Account | | Account | | Period | | Account | | Period | Expense | |
| Class | | Value 7/1/16 | | Value 12/31/16 | | 7/1/16–12/31/161,2 | | Value 12/31/16 | | 7/1/16–12/31/161,2 | Ratio2 | |
| A | $ | 1,000 | $ | 1,041.10 | $ | 1.59 | $ | 1,023.58 | $ | 1.58 | 0.31 | % |
| C | $ | 1,000 | $ | 1,036.80 | $ | 5.38 | $ | 1,019.86 | $ | 5.33 | 1.05 | % |
| R | $ | 1,000 | $ | 1,039.30 | $ | 2.82 | $ | 1,022.37 | $ | 2.80 | 0.55 | % |
| R6 | $ | 1,000 | $ | 1,042.60 | $ | 0.00 | $ | 1,025.14 | $ | 0.00 | 0.00 | % |
| Advisor | $ | 1,000 | $ | 1,042.10 | $ | 0.26 | $ | 1,024.89 | $ | 0.25 | 0.05 | % |
1. Expenses are equal to the annualized expense ratio for the six-month period as indicated above–in the far right column–multiplied by the simple average account value
over the period indicated, and then multiplied by 184/366 to reflect the one-half year period.
2. Reflects expenses after fee waivers and expense reimbursements. Does not include acquired fund fees and expenses.
60 Annual Report
franklintempleton.com
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| | | | | | FRANKLIN FUND ALLOCATOR SERIES | |
| |
| |
| |
| Financial Highlights | | | | | | | | | | | | | | | |
| Franklin LifeSmart Retirement Income Fund | | | | | | | | | | | | | | | |
| | | | | | Year Ended December 31, | | | | |
| | | 2016 | | | 2015 | | | 2014 | | | 2013 | | | 2012 | |
| Class A | | | | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | | | | |
| (for a share outstanding throughout the year) | | | | | | | | | | | | | | | |
| Net asset value, beginning of year | $ | 10.78 | | $ | 11.67 | | $ | 12.28 | | $ | 11.67 | | $ | 10.92 | |
| Income from investment operationsa: | | | | | | | | | | | | | | | |
| Net investment incomeb,c | | 0.27 | | | 0.26 | | | 0.39 | | | 0.25 | | | 0.24 | |
| Net realized and unrealized gains (losses) | | 0.28 | | | (0.55 | ) | | (0.01 | ) | | 1.16 | | | 0.76 | |
| Total from investment operations | | 0.55 | | | (0.29 | ) | | 0.38 | | | 1.41 | | | 1.00 | |
| Less distributions from: | | | | | | | | | | | | | | | |
| Net investment income | | (0.28 | ) | | (0.27 | ) | | (0.40 | ) | | (0.27 | ) | | (0.25 | ) |
| Net realized gains | | (0.05 | ) | | (0.33 | ) | | (0.59 | ) | | (0.53 | ) | | — | |
| Tax return of capital. | | (0.04 | ) | | — | | | — | | | — | | | — | |
| Total distributions | | (0.37 | ) | | (0.60 | ) | | (0.99 | ) | | (0.80 | ) | | (0.25 | ) |
| Net asset value, end of year. | $ | 10.96 | | $ | 10.78 | | $ | 11.67 | | $ | 12.28 | | $ | 11.67 | |
| |
| Total returnd | | 5.25 | % | | (2.59 | )% | | 3.07 | % | | 12.27 | % | | 9.20 | % |
| |
| Ratios to average net assets | | | | | | | | | | | | | | | |
| Expenses before waiver and payments by affiliatese | | 0.90 | % | | 0.92 | % | | 0.84 | % | | 0.83 | % | | 0.71 | % |
| Expenses net of waiver and payments by affiliatese | | 0.30 | % | | 0.33 | % | | 0.35 | % | | 0.38 | % | | 0.45 | % |
| Net investment incomec | | 2.50 | % | | 2.27 | % | | 3.20 | % | | 2.04 | % | | 2.13 | % |
| |
| Supplemental data | | | | | | | | | | | | | | | |
| Net assets, end of year (000’s) | $ | 39,713 | | $ | 44,823 | | $ | 48,121 | | $ | 44,347 | | $ | 37,507 | |
| Portfolio turnover rate | | 149.53 | % | | 38.48 | % | | 68.98 | % | | 73.66 | % | | 25.12 | % |
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 inwhichthe
Fund invests.
dTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable.
eDoes 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 0.55% for the year ended December 31, 2016.
franklintempleton.com
The accompanying notes are an integral part of these financial statements. | Annual Report 61
| | | | | | | | | | | | | | | |
| FRANKLIN FUND ALLOCATOR SERIES | | | | | | | | | | | | | | | |
| FINANCIAL HIGHLIGHTS | | | | | | | | | | | | | | | |
| |
| |
| Franklin LifeSmart Retirement Income Fund (continued) | | | | | | | | | | | | | | | |
| | | | | | Year Ended December 31, | | | | |
| | | 2016 | | | 2015 | | | 2014 | | | 2013 | | | 2012 | |
| Class C | | | | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | | | | |
| (for a share outstanding throughout the year) | | | | | | | | | | | | | | | |
| Net asset value, beginning of year | $ | 10.66 | | $ | 11.55 | | $ | 12.16 | | $ | 11.57 | | $ | 10.83 | |
| Income from investment operationsa: | | | | | | | | | | | | | | | |
| Net investment incomeb,c | | 0.19 | | | 0.18 | | | 0.30 | | | 0.16 | | | 0.16 | |
| Net realized and unrealized gains (losses) | | 0.28 | | | (0.55 | ) | | (0.01 | ) | | 1.15 | | | 0.75 | |
| Total from investment operations | | 0.47 | | | (0.37 | ) | | 0.29 | | | 1.31 | | | 0.91 | |
| Less distributions from: | | | | | | | | | | | | | | | |
| Net investment income | | (0.22 | ) | | (0.19 | ) | | (0.31 | ) | | (0.19 | ) | | (0.17 | ) |
| Net realized gains | | (0.05 | ) | | (0.33 | ) | | (0.59 | ) | | (0.53 | ) | | — | |
| Tax return of capital. | | (0.03 | ) | | — | | | �� | | | — | | | — | |
| Total distributions | | (0.30 | ) | | (0.52 | ) | | (0.90 | ) | | (0.72 | ) | | (0.17 | ) |
| Net asset value, end of year. | $ | 10.83 | | $ | 10.66 | | $ | 11.55 | | $ | 12.16 | | $ | 11.57 | |
| |
| Total returnd | | 4.50 | % | | (3.32 | )% | | 2.39 | % | | 11.46 | % | | 8.44 | % |
| |
| Ratios to average net assets | | | | | | | | | | | | | | | |
| Expenses before waiver and payments by affiliatese | | 1.64 | % | | 1.64 | % | | 1.54 | % | | 1.53 | % | | 1.41 | % |
| Expenses net of waiver and payments by affiliatese | | 1.04 | % | | 1.05 | % | | 1.05 | % | | 1.08 | % | | 1.15 | % |
| Net investment incomec | | 1.76 | % | | 1.55 | % | | 2.50 | % | | 1.34 | % | | 1.43 | % |
| |
| Supplemental data | | | | | | | | | | | | | | | |
| Net assets, end of year (000’s) | $ | 17,570 | | $ | 20,858 | | $ | 21,189 | | $ | 20,395 | | $ | 16,912 | |
| Portfolio turnover rate | | 149.53 | % | | 38.48 | % | | 68.98 | % | | 73.66 | % | | 25.12 | % |
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 inwhichthe
Fund invests.
dTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable.
eDoes 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 0.55% for the year ended December 31, 2016.
62 Annual Report | The accompanying notes are an integral part of these financial statements.
franklintempleton.com
| | | | | | | | | | | | | | | |
| | | | | | FRANKLIN FUND ALLOCATOR SERIES | |
| | | | | | | | | FINANCIAL HIGHLIGHTS | |
| |
| |
| Franklin LifeSmart Retirement Income Fund (continued) | | | | | | | | | | | | | | | |
| | | | | | Year Ended December 31, | | | | |
| | | 2016 | | | 2015 | | | 2014 | | | 2013 | | | 2012 | |
| Class R | | | | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | | | | |
| (for a share outstanding throughout the year) | | | | | | | | | | | | | | | |
| Net asset value, beginning of year | $ | 10.74 | | $ | 11.64 | | $ | 12.25 | | $ | 11.64 | | $ | 10.89 | |
| Income from investment operationsa: | | | | | | | | | | | | | | | |
| Net investment incomeb,c | | 0.25 | | | 0.25 | | | 0.36 | | | 0.22 | | | 0.22 | |
| Net realized and unrealized gains (losses) | | 0.28 | | | (0.57 | ) | | (—)d | | | 1.16 | | | 0.75 | |
| Total from investment operations | | 0.53 | | | (0.32 | ) | | 0.36 | | | 1.38 | | | 0.97 | |
| Less distributions from: | | | | | | | | | | | | | | | |
| Net investment income | | (0.26 | ) | | (0.25 | ) | | (0.38 | ) | | (0.24 | ) | | (0.22 | ) |
| Net realized gains | | (0.05 | ) | | (0.33 | ) | | (0.59 | ) | | (0.53 | ) | | — | |
| Tax return of capital. | | (0.04 | ) | | — | | | — | | | — | | | — | |
| Total distributions | | (0.35 | ) | | (0.58 | ) | | (0.97 | ) | | (0.77 | ) | | (0.22 | ) |
| Net asset value, end of year. | $ | 10.92 | | $ | 10.74 | | $ | 11.64 | | $ | 12.25 | | $ | 11.64 | |
| |
| Total return | | 4.94 | % | | (2.87 | )% | | 2.89 | % | | 12.04 | % | | 8.96 | % |
| |
| Ratios to average net assets | | | | | | | | | | | | | | | |
| Expenses before waiver and payments by affiliatese | | 1.15 | % | | 1.14 | % | | 1.04 | % | | 1.03 | % | | 0.91 | % |
| Expenses net of waiver and payments by affiliatese | | 0.55 | % | | 0.55 | % | | 0.55 | % | | 0.58 | % | | 0.65 | % |
| Net investment incomec | | 2.25 | % | | 2.05 | % | | 3.00 | % | | 1.84 | % | | 1.93 | % |
| |
| Supplemental data | | | | | | | | | | | | | | | |
| Net assets, end of year (000’s) | $ | 4,920 | | $ | 4,130 | | $ | 2,828 | | $ | 2,279 | | $ | 1,862 | |
| Portfolio turnover rate | | 149.53 | % | | 38.48 | % | | 68.98 | % | | 73.66 | % | | 25.12 | % |
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 inwhichthe
Fund invests.
dAmount rounds to less than $0.01 per share.
eDoes 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 0.55% for the year ended December 31, 2016.
franklintempleton.com
The accompanying notes are an integral part of these financial statements. | Annual Report 63
| | | | | | | | | | | | |
| FRANKLIN FUND ALLOCATOR SERIES | | | | | | | | | | | | |
| FINANCIAL HIGHLIGHTS | | | | | | | | | | | | |
| |
| |
| Franklin LifeSmart Retirement Income Fund (continued) | | | | | | | | | | | | |
| | | | | | Year Ended December 31, | | | | |
| | | 2016 | | | 2015 | | | 2014 | | | 2013 | a |
| Class R6 | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | |
| (for a share outstanding throughout the year) | | | | | | | | | | | | |
| Net asset value, beginning of year | $ | 10.82 | | $ | 11.72 | | $ | 12.32 | | $ | 12.17 | |
| Income from investment operationsb: | | | | | | | | | | | | |
| Net investment incomec,d | | 0.30 | | | 0.31 | | | 0.57 | | | 0.49 | |
| Net realized and unrealized gains (losses) | | 0.29 | | | (0.57 | ) | | (0.14 | ) | | 0.44 | |
| Total from investment operations | | 0.59 | | | (0.26 | ) | | 0.43 | | | 0.93 | |
| Less distributions from: | | | | | | | | | | | | |
| Net investment income. | | (0.31 | ) | | (0.31 | ) | | (0.44 | ) | | (0.25 | ) |
| Net realized gains | | (0.05 | ) | | (0.33 | ) | | (0.59 | ) | | (0.53 | ) |
| Tax return of capital | | (0.04 | ) | | — | | | — | | | — | |
| Total distributions | | (0.40 | ) | | (0.64 | ) | | (1.03 | ) | | (0.78 | ) |
| Net asset value, end of year | $ | 11.01 | | $ | 10.82 | | $ | 11.72 | | $ | 12.32 | |
| |
| Total returne | | 5.60 | % | | (2.34 | )% | | 3.49 | % | | 7.78 | % |
| |
| Ratios to average net assetsf | | | | | | | | | | | | |
| Expenses before waiver and payments by affiliatesg | | 0.55 | % | | 0.53 | % | | 0.44 | % | | 0.60 | % |
| Expenses net of waiver and payments by affiliatesg | | —% | | | —% | | | —% | | | —% | |
| Net investment incomed | | 2.80 | % | | 2.60 | % | | 3.55 | % | | 2.42 | % |
| |
| Supplemental data | | | | | | | | | | | | |
| Net assets, end of year (000’s) | $ | 3,930 | | $ | 6,828 | | $ | 6,709 | | $ | 763 | |
| Portfolio turnover rate | | 149.53 | % | | 38.48 | % | | 68.98 | % | | 73.66 | % |
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 inwhichthe
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 0.55% for the year ended December 31, 2016.
64 Annual Report | The accompanying notes are an integral part of these financial statements.
franklintempleton.com
| | | | | | | | | | | | | | | |
| | | | | | FRANKLIN FUND ALLOCATOR SERIES | |
| | | | | | | | | FINANCIAL HIGHLIGHTS | |
| |
| |
| Franklin LifeSmart Retirement Income Fund (continued) | | | | | | | | | | | | | | | |
| | | | | | Year Ended December 31, | | | | |
| | | 2016 | | | 2015 | | | 2014 | | | 2013 | | | 2012 | |
| Advisor Class | | | | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | | | | |
| (for a share outstanding throughout the year) | | | | | | | | | | | | | | | |
| Net asset value, beginning of year | $ | 10.81 | | $ | 11.71 | | $ | 12.31 | | $ | 11.70 | | $ | 10.94 | |
| Income from investment operationsa: | | | | | | | | | | | | | | | |
| Net investment incomeb,c | | 0.29 | | | 0.25 | | | 0.43 | | | 0.29 | | | 0.28 | |
| Net realized and unrealized gains (losses) | | 0.29 | | | (0.52 | ) | | (—)d | | | 1.16 | | | 0.76 | |
| Total from investment operations | | 0.58 | | | (0.27 | ) | | 0.43 | | | 1.45 | | | 1.04 | |
| Less distributions from: | | | | | | | | | | | | | | | |
| Net investment income | | (0.30 | ) | | (0.30 | ) | | (0.44 | ) | | (0.31 | ) | | (0.28 | ) |
| Net realized gains | | (0.05 | ) | | (0.33 | ) | | (0.59 | ) | | (0.53 | ) | | — | |
| Tax return of capital. | | (0.04 | ) | | — | | | — | | | — | | | — | |
| Total distributions | | (0.39 | ) | | (0.63 | ) | | (1.03 | ) | | (0.84 | ) | | (0.28 | ) |
| Net asset value, end of year. | $ | 11.00 | | $ | 10.81 | | $ | 11.71 | | $ | 12.31 | | $ | 11.70 | |
| |
| Total return | | 5.55 | % | | (2.40 | )% | | 3.45 | % | | 12.55 | % | | 9.59 | % |
| |
| Ratios to average net assets | | | | | | | | | | | | | | | |
| Expenses before waiver and payments by affiliatese | | 0.65 | % | | 0.64 | % | | 0.54 | % | | 0.53 | % | | 0.41 | % |
| Expenses net of waiver and payments by affiliatese | | 0.05 | % | | 0.05 | % | | 0.05 | % | | 0.08 | % | | 0.15 | % |
| Net investment incomec | | 2.75 | % | | 2.55 | % | | 3.50 | % | | 2.34 | % | | 2.43 | % |
| |
| Supplemental data | | | | | | | | | | | | | | | |
| Net assets, end of year (000’s) | $ | 1,696 | | $ | 880 | | $ | 2,194 | | $ | 2,494 | | $ | 1,840 | |
| Portfolio turnover rate | | 149.53 | % | | 38.48 | % | | 68.98 | % | | 73.66 | % | | 25.12 | % |
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 inwhichthe
Fund invests.
dAmount rounds to less than $0.01 per share.
eDoes 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 0.55% for the year ended December 31, 2016.
franklintempleton.com
The accompanying notes are an integral part of these financial statements. | Annual Report 65
| | | | |
| FRANKLIN FUND ALLOCATOR SERIES | | | | |
| |
| |
| |
| Statement of Investments, December 31, 2016 | | | | |
| Franklin LifeSmart Retirement Income Fund | | | | |
| | Shares | | Value | |
| Investments in Underlying Funds and Exchange Traded Funds 95.8% | | | | |
| Domestic Equity 8.3% | | | | |
| iShares U.S. Preferred Stock ETF | 150,300 | $ | 5,592,663 | |
| Domestic Fixed Income 65.8% | | | | |
| a Franklin Floating Rate Daily Access Fund, Class R6 | 1,884,664 | | 16,754,661 | |
| a Franklin Strategic Income Fund, Class R6 | 622,444 | | 6,000,366 | |
| a Franklin U.S. Government Securities Fund, Class R6 | 2,398,566 | | 14,919,080 | |
| iShares iBoxx High Yield Corporate Bond ETF | 80,700 | | 6,984,585 | |
| | | | 44,658,692 | |
| Domestic Hybrid 17.4% | | | | |
| a Franklin Income Fund, Class R6 | 5,166,874 | | 11,832,142 | |
| Foreign Fixed Income 4.3% | | | | |
| a,b Templeton Global Total Return Fund, Class R6 | 239,735 | | 2,900,786 | |
| Total Investments in Underlying Funds and Exchange Traded Funds | | | | |
| (Cost $63,771,398) | | | 64,984,283 | |
| |
| | Units | | | |
| c Index-Linked Notes (Cost $2,997,797) 4.4% | | | | |
| d,e Morgan Stanley, senior note, 144A, 4.39%, 3/29/18 | 26,778 | | 3,010,482 | |
| Total Investments before Short Term Investments (Cost $66,769,195) | | | 67,994,765 | |
| |
| | Shares | | | |
| Short Term Investments (Cost $15) 0.0%† | | | | |
| Money Market Funds 0.0%† | | | | |
| a,f Institutional Fiduciary Trust Money Market Portfolio, 0.09% | 15 | | 15 | |
| Total Investments (Cost $66,769,210) 100.2% | | | 67,994,780 | |
| Other Assets, less Liabilities (0.2)% | | | (166,180 | ) |
| Net Assets 100.0% | | $ | 67,828,600 | |
See Abbreviations on page 154.
†Rounds to less than 0.1% of net assets.
aSee Note 3(f) regarding investments in FT Underlying Funds.
bNon-income producing.
cSee Note 1(b) regarding index-linked notes.
dSecurity was purchased pursuant to Rule 144A under the Securities Act of 1933 and may be sold in transactions exempt from registration only to qualified institutional buyers
or in a public offering registered under the Securities Act of 1933. This security has been deemed liquid under guidelines approved by the Trust’s Board of Trustees.
eSecurity will pay a coupon each month based on a fixed rate and a variable distribution of the Morgan Stanley Custom Enhanced SPX B DT Index. The coupon rate shown
represents the rate at period end. The security does not guarantee any return of principal at maturity, upon redemption or otherwise. Cash payment at maturity or upon early
redemption is based on the performance of the Morgan Stanley Custom Enhanced SPX B Index.
fThe rate shown is the annualized seven-day yield at period end.
66 Annual Report | The accompanying notes are an integral part of these financial statements.
franklintempleton.com
| | | | | | | | | | | | |
| | | FRANKLIN FUND ALLOCATOR SERIES | |
| |
| |
| |
| Financial Highlights | | | | | | | | | | | | |
| Franklin LifeSmart 2020 Retirement Target Fund | | | | | | | | | | | | |
| | | | | | Year Ended December 31, | | | | |
| | | 2016 | | | 2015 | | | 2014 | | | 2013 | a |
| Class A | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | |
| (for a share outstanding throughout the year) | | | | | | | | | | | | |
| Net asset value, beginning of year | $ | 10.61 | | $ | 11.14 | | $ | 10.94 | | $ | 10.00 | |
| Income from investment operationsb: | | | | | | | | | | | | |
| Net investment incomec,d | | 0.13 | | | 0.24 | | | 0.33 | | | 0.16 | |
| Net realized and unrealized gains (losses) | | 0.19 | | | (0.48 | ) | | 0.20 | | | 0.91 | |
| Total from investment operations | | 0.32 | | | (0.24 | ) | | 0.53 | | | 1.07 | |
| Less distributions from: | | | | | | | | | | | | |
| Net investment income. | | (0.17 | ) | | (0.19 | ) | | (0.27 | ) | | (0.13 | ) |
| Net realized gains | | (0.08 | ) | | (0.10 | ) | | (0.06 | ) | | (—)e | |
| Total distributions | | (0.25 | ) | | (0.29 | ) | | (0.33 | ) | | (0.13 | ) |
| Net asset value, end of year | $ | 10.68 | | $ | 10.61 | | $ | 11.14 | | $ | 10.94 | |
| |
| Total returnf | | 3.03 | % | | (2.18 | )% | | 4.83 | % | | 10.69 | % |
| |
| Ratios to average net assetsg | | | | | | | | | | | | |
| Expenses before waiver and payments by affiliatesh | | 0.98 | % | | 1.05 | % | | 2.25 | % | | 11.14 | % |
| Expenses net of waiver and payments by affiliatesh | | 0.30 | % | | 0.32 | % | | 0.35 | % | | 0.24 | % |
| Net investment incomed | | 1.25 | % | | 2.06 | % | | 3.20 | % | | 3.12 | % |
| |
| Supplemental data | | | | | | | | | | | | |
| Net assets, end of year (000’s) | $ | 19,292 | | $ | 19,895 | | $ | 7,302 | | $ | 2,189 | |
| Portfolio turnover rate | | 87.38 | % | | 47.51 | % | | 64.70 | % | | 33.36 | % |
aFor the period July 1, 2013 (commencement of operations) 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 inwhichthe
Fund invests.
eAmount rounds to less than $0.01 per share.
fTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable, and 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 0.65% for the year ended December 31, 2016.
franklintempleton.com
The accompanying notes are an integral part of these financial statements. | Annual Report 67
| | | | | | | | | | | | |
| FRANKLIN FUND ALLOCATOR SERIES | | | | | | | | | | | | |
| FINANCIAL HIGHLIGHTS | | | | | | | | | | | | |
| |
| |
| Franklin LifeSmart 2020 Retirement Target Fund (continued) | | | | | | | | | | | | |
| | | | | | Year Ended December 31, | | | | |
| | | 2016 | | | 2015 | | | 2014 | | | 2013 | a |
| Class C | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | |
| (for a share outstanding throughout the year) | | | | | | | | | | | | |
| Net asset value, beginning of year | $ | 10.56 | | $ | 11.08 | | $ | 10.90 | | $ | 10.00 | |
| Income from investment operationsb: | | | | | | | | | | | | |
| Net investment incomec,d | | 0.05 | | | 0.14 | | | 0.24 | | | 0.18 | |
| Net realized and unrealized gains (losses) | | 0.18 | | | (0.44 | ) | | 0.21 | | | 0.83 | |
| Total from investment operations | | 0.23 | | | (0.30 | ) | | 0.45 | | | 1.01 | |
| Less distributions from: | | | | | | | | | | | | |
| Net investment income. | | (0.09 | ) | | (0.12 | ) | | (0.21 | ) | | (0.11 | ) |
| Net realized gains | | (0.08 | ) | | (0.10 | ) | | (0.06 | ) | | (—)e | |
| Total distributions | | (0.17 | ) | | (0.22 | ) | | (0.27 | ) | | (0.11 | ) |
| Net asset value, end of year | $ | 10.62 | | $ | 10.56 | | $ | 11.08 | | $ | 10.90 | |
| |
| Total returnf | | 2.29 | % | | (2.84 | )% | | 4.09 | % | | 10.16 | % |
| |
| Ratios to average net assetsg | | | | | | | | | | | | |
| Expenses before waiver and payments by affiliatesh | | 1.73 | % | | 1.78 | % | | 2.95 | % | | 11.95 | % |
| Expenses net of waiver and payments by affiliatesh | | 1.05 | % | | 1.05 | % | | 1.05 | % | | 1.05 | % |
| Net investment incomed | | 0.50 | % | | 1.33 | % | | 2.50 | % | | 2.31 | % |
| |
| Supplemental data | | | | | | | | | | | | |
| Net assets, end of year (000’s) | $ | 5,138 | | $ | 5,221 | | $ | 2,617 | | $ | 250 | |
| Portfolio turnover rate | | 87.38 | % | | 47.51 | % | | 64.70 | % | | 33.36 | % |
aFor the period July 1, 2013 (commencement of operations) 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 inwhichthe
Fund invests.
eAmount rounds to less than $0.01 per share.
fTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable, and 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 0.65% for the year ended December 31, 2016.
68 Annual Report | The accompanying notes are an integral part of these financial statements.
franklintempleton.com
| | | | | | | | | | | | |
| | | FRANKLIN FUND ALLOCATOR SERIES | |
| | | | | | FINANCIAL HIGHLIGHTS | |
| |
| |
| Franklin LifeSmart 2020 Retirement Target Fund (continued) | | | | | | | | | | | | |
| | | | | | Year Ended December 31, | | | | |
| | | 2016 | | | 2015 | | | 2014 | | | 2013 | a |
| Class R | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | |
| (for a share outstanding throughout the year) | | | | | | | | | | | | |
| Net asset value, beginning of year | $ | 10.59 | | $ | 11.12 | | $ | 10.93 | | $ | 10.00 | |
| Income from investment operationsb: | | | | | | | | | | | | |
| Net investment incomec,d | | 0.10 | | | 0.35 | | | 0.42 | | | 0.11 | |
| Net realized and unrealized gains (losses) | | 0.18 | | | (0.61 | ) | | 0.08 | | | 0.93 | |
| Total from investment operations | | 0.28 | | | (0.26 | ) | | 0.50 | | | 1.04 | |
| Less distributions from: | | | | | | | | | | | | |
| Net investment income. | | (0.13 | ) | | (0.17 | ) | | (0.25 | ) | | (0.11 | ) |
| Net realized gains | | (0.08 | ) | | (0.10 | ) | | (0.06 | ) | | (—)e | |
| Total distributions | | (0.21 | ) | | (0.27 | ) | | (0.31 | ) | | (0.11 | ) |
| Net asset value, end of year | $ | 10.66 | | $ | 10.59 | | $ | 11.12 | | $ | 10.93 | |
| |
| Total returnf | | 2.74 | % | | (2.35 | )% | | 4.61 | % | | 10.48 | % |
| |
| Ratios to average net assetsg | | | | | | | | | | | | |
| Expenses before waiver and payments by affiliatesh | | 1.23 | % | | 1.28 | % | | 2.45 | % | | 11.45 | % |
| Expenses net of waiver and payments by affiliatesh | | 0.55 | % | | 0.55 | % | | 0.55 | % | | 0.55 | % |
| Net investment incomed | | 1.00 | % | | 1.83 | % | | 3.00 | % | | 2.81 | % |
| |
| Supplemental data | | | | | | | | | | | | |
| Net assets, end of year (000’s) | $ | 3,145 | | $ | 3,189 | | $ | 80 | | $ | 11 | |
| Portfolio turnover rate | | 87.38 | % | | 47.51 | % | | 64.70 | % | | 33.36 | % |
aFor the period July 1, 2013 (commencement of operations) 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 inwhichthe
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 0.65% for the year ended December 31, 2016.
franklintempleton.com
The accompanying notes are an integral part of these financial statements. | Annual Report 69
| | | | | | | | | | | | |
| FRANKLIN FUND ALLOCATOR SERIES | | | | | | | | | | | | |
| FINANCIAL HIGHLIGHTS | | | | | | | | | | | | |
| |
| |
| Franklin LifeSmart 2020 Retirement Target Fund (continued) | | | | | | | | | | | | |
| | | | | | Year Ended December 31, | | | | |
| | | 2016 | | | 2015 | | | 2014 | | | 2013 | a |
| Class R6 | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | |
| (for a share outstanding throughout the year) | | | | | | | | | | | | |
| Net asset value, beginning of year | $ | 10.64 | | $ | 11.15 | | $ | 10.95 | | $ | 10.00 | |
| Income from investment operationsb: | | | | | | | | | | | | |
| Net investment incomec,d | | 0.17 | | | 0.23 | | | 0.45 | | | 0.14 | |
| Net realized and unrealized gains (losses) | | 0.17 | | | (0.42 | ) | | 0.11 | | | 0.94 | |
| Total from investment operations | | 0.34 | | | (0.19 | ) | | 0.56 | | | 1.08 | |
| Less distributions from: | | | | | | | | | | | | |
| Net investment income. | | (0.20 | ) | | (0.22 | ) | | (0.30 | ) | | (0.13 | ) |
| Net realized gains | | (0.08 | ) | | (0.10 | ) | | (0.06 | ) | | (—)e | |
| Total distributions | | (0.28 | ) | | (0.32 | ) | | (0.36 | ) | | (0.13 | ) |
| Net asset value, end of year | $ | 10.70 | | $ | 10.64 | | $ | 11.15 | | $ | 10.95 | |
| |
| Total returnf | | 3.33 | % | | (1.80 | )% | | 5.14 | % | | 10.84 | % |
| |
| Ratios to average net assetsg | | | | | | | | | | | | |
| Expenses before waiver and payments by affiliatesh | | 0.57 | % | | 0.66 | % | | 1.81 | % | | 11.51 | % |
| Expenses net of waiver and payments by affiliatesh | | —% | | | —% | | | —% | | | —% | |
| Net investment incomed | | 1.55 | % | | 2.38 | % | | 3.55 | % | | 3.36 | % |
| |
| Supplemental data | | | | | | | | | | | | |
| Net assets, end of year (000’s) | $ | 6,670 | | $ | 6,751 | | $ | 7,361 | | $ | 11 | |
| Portfolio turnover rate | | 87.38 | % | | 47.51 | % | | 64.70 | % | | 33.36 | % |
aFor the period July 1, 2013 (commencement of operations) 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 inwhichthe
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 0.65% for the year ended December 31, 2016.
70 Annual Report | The accompanying notes are an integral part of these financial statements.
franklintempleton.com
| | | | | | | | | | | | |
| | | FRANKLIN FUND ALLOCATOR SERIES | |
| | | | | | FINANCIAL HIGHLIGHTS | |
| |
| |
| Franklin LifeSmart 2020 Retirement Target Fund (continued) | | | | | | | | | | | | |
| | | | | | Year Ended December 31, | | | | |
| | | 2016 | | | 2015 | | | 2014 | | | 2013 | a |
| Advisor Class | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | |
| (for a share outstanding throughout the year) | | | | | | | | | | | | |
| Net asset value, beginning of year | $ | 10.63 | | $ | 11.15 | | $ | 10.95 | | $ | 10.00 | |
| Income from investment operationsb: | | | | | | | | | | | | |
| Net investment incomec,d | | 0.16 | | | 0.25 | | | 0.39 | | | 0.17 | |
| Net realized and unrealized gains (losses) | | 0.18 | | | (0.45 | ) | | 0.17 | | | 0.91 | |
| Total from investment operations | | 0.34 | | | (0.20 | ) | | 0.56 | | | 1.08 | |
| Less distributions from: | | | | | | | | | | | | |
| Net investment income. | | (0.19 | ) | | (0.22 | ) | | (0.30 | ) | | (0.13 | ) |
| Net realized gains | | (0.08 | ) | | (0.10 | ) | | (0.06 | ) | | (—)e | |
| Total distributions | | (0.27 | ) | | (0.32 | ) | | (0.36 | ) | | (0.13 | ) |
| Net asset value, end of year | $ | 10.70 | | $ | 10.63 | | $ | 11.15 | | $ | 10.95 | |
| |
| Total returnf | | 3.28 | % | | (1.85 | )% | | 5.08 | % | | 10.83 | % |
| |
| Ratios to average net assetsg | | | | | | | | | | | | |
| Expenses before waiver and payments by affiliatesh | | 0.73 | % | | 0.78 | % | | 1.95 | % | | 10.95 | % |
| Expenses net of waiver and payments by affiliatesh | | 0.05 | % | | 0.05 | % | | 0.05 | % | | 0.05 | % |
| Net investment incomed | | 1.50 | % | | 2.33 | % | | 3.50 | % | | 3.31 | % |
| |
| Supplemental data | | | | | | | | | | | | |
| Net assets, end of year (000’s) | $ | 317 | | $ | 290 | | $ | 98 | | $ | 44 | |
| Portfolio turnover rate | | 87.38 | % | | 47.51 | % | | 64.70 | % | | 33.36 | % |
aFor the period July 1, 2013 (commencement of operations) 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 inwhichthe
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 0.65% for the year ended December 31, 2016.
franklintempleton.com
The accompanying notes are an integral part of these financial statements. | Annual Report 71
| | | | |
| FRANKLIN FUND ALLOCATOR SERIES | | | | |
| |
| |
| |
| |
| Statement of Investments, December 31, 2016 | | | | |
| |
| Franklin LifeSmart 2020 Retirement Target Fund | | | | |
| |
| | Shares | | Value | |
| |
| Investments in Underlying Funds and Exchange Traded Funds 99.6% | | | | |
| Alternative Strategies 7.7% | | | | |
| a Franklin K2 Alternative Strategies Fund, Class R6 | 90,400 | $ | 974,509 | |
| a Franklin K2 Long Short Credit Fund, Class R6 | 97,573 | | 1,004,031 | |
| a,b Franklin Pelagos Commodities Strategy Fund, Class R6 | 104,776 | | 691,521 | |
| | | | 2,670,061 | |
| Domestic Equity 31.7% | | | | |
| Financial Select Sector SPDR ETF | 21,400 | | 497,550 | |
| a,b Franklin Focused Core Equity Fund, Class R6 | 71,450 | | 1,045,317 | |
| a Franklin Growth Fund, Class R6 | 48,806 | | 3,739,052 | |
| a,b Franklin Growth Opportunities Fund, Class R6 | 43,927 | | 1,439,918 | |
| a Franklin Rising Dividends Fund, Class R6 | 41,021 | | 2,156,085 | |
| a,b Franklin Small Cap Growth Fund, Class R6 | 25,385 | | 505,155 | |
| a Franklin Utilities Fund, Class R6 | 38,257 | | 679,819 | |
| iShares S&P 500 Value ETF | 8,678 | | 879,776 | |
| | | | 10,942,672 | |
| Domestic Fixed Income 36.3% | | | | |
| a Franklin Low Duration Total Return Fund, Class R6 | 482,134 | | 4,763,482 | |
| a Franklin Strategic Income Fund, Class R6 | 173,601 | | 1,673,513 | |
| a Franklin U.S. Government Securities Fund, Class R6 | 381,149 | | 2,370,751 | |
| iShares Core U.S. Aggregate Bond ETF | 12,600 | | 1,361,556 | |
| iShares iBoxx $ Investment Grade Corporate Bond ETF | 5,100 | | 597,618 | |
| iShares TIPS Bond ETF | 15,605 | | 1,766,018 | |
| | | | 12,532,938 | |
| Foreign Equity 17.1% | | | | |
| a,b Franklin India Growth Fund, Class R6 | 50,406 | | 625,028 | |
| a Franklin International Small Cap Growth Fund, Class R6 | 73,900 | | 1,212,698 | |
| a Franklin LibertyQ Emerging Markets ETF | 46,200 | | 1,229,382 | |
| a Franklin Mutual International Fund, Class R6 | 56,683 | | 811,703 | |
| iShares Global Infrastructure ETF | 13,402 | | 523,214 | |
| iShares MSCI Japan ETF (Japan) | 10,360 | | 506,190 | |
| a Templeton Foreign Fund, Class R6 | 146,086 | | 1,003,612 | |
| | | | 5,911,827 | |
| Foreign Fixed Income 6.8% | | | | |
| a,b Templeton Global Total Return Fund, Class R6 | 195,805 | | 2,369,241 | |
| Total Investments in Underlying Funds and Exchange Traded Funds | | | | |
| before Short Term Investments (Cost $33,715,705) | | | 34,426,739 | |
| |
| |
| Short Term Investments (Cost $190,417) 0.6% | | | | |
| Money Market Funds 0.6% | | | | |
| a,c Institutional Fiduciary Trust Money Market Portfolio, 0.09% | 190,417 | | 190,417 | |
| Total Investments in Underlying Funds and Exchange Traded Funds | | | | |
| (Cost $33,906,122) 100.2% | | | 34,617,156 | |
| Other Assets, less Liabilities (0.2)% | | | (54,714 | ) |
| Net Assets 100.0% | | $ | 34,562,442 | |
See Abbreviations on page 154.
aSee Note 3(f) regarding investments in FT Underlying Funds.
bNon-income producing.
cThe rate shown is the annualized seven-day yield at period end.
72 Annual Report | The accompanying notes are an integral part of these financial statements.
franklintempleton.com
| | | | | | | | | | | | | | | |
| | | | | | FRANKLIN FUND ALLOCATOR SERIES | |
| |
| |
| |
| Financial Highlights | | | | | | | | | | | | | | | |
| Franklin LifeSmart 2025 Retirement Target Fund | | | | | | | | | | | | | | | |
| | | | | | Year Ended December 31, | | | | |
| | | 2016 | | | 2015 | | | 2014 | | | 2013 | | | 2012 | |
| Class A | | | | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | | | | |
| (for a share outstanding throughout the year) | | | | | | | | | | | | | | | |
| Net asset value, beginning of year | $ | 11.44 | | $ | 12.36 | | $ | 12.76 | | $ | 11.11 | | $ | 10.22 | |
| Income from investment operationsa: | | | | | | | | | | | | | | | |
| Net investment incomeb,c | | 0.14 | | | 0.19 | | | 0.26 | | | 0.16 | | | 0.17 | |
| Net realized and unrealized gains (losses) | | 0.19 | | | (0.43 | ) | | 0.30 | | | 2.06 | | | 0.88 | |
| Total from investment operations | | 0.33 | | | (0.24 | ) | | 0.56 | | | 2.22 | | | 1.05 | |
| Less distributions from: | | | | | | | | | | | | | | | |
| Net investment income and short term gains received from | | | | | | | | | | | | | | | |
| Underlying Funds and exchange traded funds | | (0.13 | ) | | (0.19 | ) | | (0.28 | ) | | (0.19 | ) | | (0.16 | ) |
| Net realized gains | | (0.15 | ) | | (0.49 | ) | | (0.68 | ) | | (0.38 | ) | | — | |
| Total distributions | | (0.28 | ) | | (0.68 | ) | | (0.96 | ) | | (0.57 | ) | | (0.16 | ) |
| Net asset value, end of year. | $ | 11.49 | | $ | 11.44 | | $ | 12.36 | | $ | 12.76 | | $ | 11.11 | |
| |
| Total returnd | | 2.96 | % | | (2.08 | )% | | 4.39 | % | | 20.18 | % | | 10.30 | % |
| |
| Ratios to average net assets | | | | | | | | | | | | | | | |
| Expenses before waiver and payments by affiliatese | | 0.76 | % | | 0.77 | % | | 0.83 | % | | 0.84 | % | | 0.71 | % |
| Expenses net of waiver and payments by affiliatese | | 0.30 | % | | 0.33 | % | | 0.35 | % | | 0.38 | % | | 0.45 | % |
| Net investment incomec | | 1.18 | % | | 1.52 | % | | 2.03 | % | | 1.31 | % | | 1.55 | % |
| |
| Supplemental data | | | | | | | | | | | | | | | |
| Net assets, end of year (000’s) | $ | 74,746 | | $ | 72,625 | | $ | 67,854 | | $ | 58,811 | | $ | 45,299 | |
| Portfolio turnover rate | | 83.67 | % | | 36.22 | % | | 62.00 | % | | 47.39 | % | | 25.67 | % |
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 inwhichthe
Fund invests.
dTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable.
eDoes 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 year ended December 31, 2016.
franklintempleton.com
The accompanying notes are an integral part of these financial statements. | Annual Report 73
| | | | | | | | | | | | | | | |
| FRANKLIN FUND ALLOCATOR SERIES | | | | | | | | | | | | | | | |
| FINANCIAL HIGHLIGHTS | | | | | | | | | | | | | | | |
| |
| |
| Franklin LifeSmart 2025 Retirement Target Fund (continued) | | | | | | | | | | | | | |
| | | | | | Year Ended December 31, | | | | |
| | | 2016 | | | 2015 | | | 2014 | | | 2013 | | | 2012 | |
| Class C | | | | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | | | | |
| (for a share outstanding throughout the year) | | | | | | | | | | | | | | | |
| Net asset value, beginning of year | $ | 11.27 | | $ | 12.18 | | $ | 12.60 | | $ | 10.97 | | $ | 10.11 | |
| Income from investment operationsa: | | | | | | | | | | | | | | | |
| Net investment incomeb,c | | 0.05 | | | 0.10 | | | 0.16 | | | 0.07 | | | 0.09 | |
| Net realized and unrealized gains (losses) | | 0.20 | | | (0.42 | ) | | 0.29 | | | 2.05 | | | 0.86 | |
| Total from investment operations | | 0.25 | | | (0.32 | ) | | 0.45 | | | 2.12 | | | 0.95 | |
| Less distributions from: | | | | | | | | | | | | | | | |
| Net investment income and short term gains received from | | | | | | | | | | | | | | | |
| Underlying Funds and exchange traded funds | | (0.05 | ) | | (0.10 | ) | | (0.19 | ) | | (0.11 | ) | | (0.09 | ) |
| Net realized gains | | (0.15 | ) | | (0.49 | ) | | (0.68 | ) | | (0.38 | ) | | — | |
| Total distributions | | (0.20 | ) | | (0.59 | ) | | (0.87 | ) | | (0.49 | ) | | (0.09 | ) |
| Net asset value, end of year. | $ | 11.32 | | $ | 11.27 | | $ | 12.18 | | $ | 12.60 | | $ | 10.97 | |
| |
| Total returnd | | 2.21 | % | | (2.74 | )% | | 3.58 | % | | 19.52 | % | | 9.42 | % |
| |
| Ratios to average net assets | | | | | | | | | | | | | | | |
| Expenses before waiver and payments by affiliatese | | 1.51 | % | | 1.49 | % | | 1.53 | % | | 1.54 | % | | 1.41 | % |
| Expenses net of waiver and payments by affiliatese | | 1.05 | % | | 1.05 | % | | 1.05 | % | | 1.08 | % | | 1.15 | % |
| Net investment incomec | | 0.43 | % | | 0.80 | % | | 1.33 | % | | 0.61 | % | | 0.85 | % |
| |
| Supplemental data | | | | | | | | | | | | | | | |
| Net assets, end of year (000’s) | $ | 26,401 | | $ | 29,425 | | $ | 28,712 | | $ | 25,248 | | $ | 18,312 | |
| Portfolio turnover rate | | 83.67 | % | | 36.22 | % | | 62.00 | % | | 47.39 | % | | 25.67 | % |
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 inwhichthe
Fund invests.
dTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable.
eDoes 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 year ended December 31, 2016.
74 Annual Report | The accompanying notes are an integral part of these financial statements.
franklintempleton.com
| | | | | | | | | | | | | | | |
| | | | | | FRANKLIN FUND ALLOCATOR SERIES | |
| | | | | | | | | FINANCIAL HIGHLIGHTS | |
| |
| |
| Franklin LifeSmart 2025 Retirement Target Fund (continued) | | | | | | | | | | | | | |
| | | | | | Year Ended December 31, | | | | |
| | | 2016 | | | 2015 | | | 2014 | | | 2013 | | | 2012 | |
| Class R | | | | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | | | | |
| (for a share outstanding throughout the year) | | | | | | | | | | | | | | | |
| Net asset value, beginning of year | $ | 11.40 | | $ | 12.31 | | $ | 12.72 | | $ | 11.07 | | $ | 10.19 | |
| Income from investment operationsa: | | | | | | | | | | | | | | | |
| Net investment incomeb,c | | 0.11 | | | 0.17 | | | 0.23 | | | 0.13 | | | 0.15 | |
| Net realized and unrealized gains (losses) | | 0.19 | | | (0.42 | ) | | 0.30 | | | 2.07 | | | 0.87 | |
| Total from investment operations | | 0.30 | | | (0.25 | ) | | 0.53 | | | 2.20 | | | 1.02 | |
| Less distributions from: | | | | | | | | | | | | | | | |
| Net investment income and short term gains received from | | | | | | | | | | | | | | | |
| Underlying Funds and exchange traded funds | | (0.11 | ) | | (0.17 | ) | | (0.26 | ) | | (0.17 | ) | | (0.14 | ) |
| Net realized gains | | (0.15 | ) | | (0.49 | ) | | (0.68 | ) | | (0.38 | ) | | — | |
| Total distributions | | (0.26 | ) | | (0.66 | ) | | (0.94 | ) | | (0.55 | ) | | (0.14 | ) |
| Net asset value, end of year. | $ | 11.44 | | $ | 11.40 | | $ | 12.31 | | $ | 12.72 | | $ | 11.07 | |
| |
| Total return | | 2.65 | % | | (2.20 | )% | | 4.12 | % | | 20.05 | % | | 10.05 | % |
| |
| Ratios to average net assets | | | | | | | | | | | | | | | |
| Expenses before waiver and payments by affiliatesd | | 1.01 | % | | 0.99 | % | | 1.03 | % | | 1.04 | % | | 0.91 | % |
| Expenses net of waiver and payments by affiliatesd | | 0.55 | % | | 0.55 | % | | 0.55 | % | | 0.58 | % | | 0.65 | % |
| Net investment incomec | | 0.93 | % | | 1.30 | % | | 1.83 | % | | 1.11 | % | | 1.35 | % |
| |
| Supplemental data | | | | | | | | | | | | | | | |
| Net assets, end of year (000’s) | $ | 7,411 | | $ | 6,062 | | $ | 5,361 | | $ | 4,835 | | $ | 3,442 | |
| Portfolio turnover rate | | 83.67 | % | | 36.22 | % | | 62.00 | % | | 47.39 | % | | 25.67 | % |
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 inwhichthe
Fund invests.
dDoes 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 year ended December 31, 2016.
franklintempleton.com
The accompanying notes are an integral part of these financial statements. | Annual Report 75
| | | | | | | | | | | | |
| FRANKLIN FUND ALLOCATOR SERIES | | | | | | | | | | | | |
| FINANCIAL HIGHLIGHTS | | | | | | | | | | | | |
| |
| |
| Franklin LifeSmart 2025 Retirement Target Fund (continued) | | | | | | | | | | | | |
| | | | | | Year Ended December 31, | | | | |
| | | 2016 | | | 2015 | | | 2014 | | | 2013 | a |
| Class R6 | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | |
| (for a share outstanding throughout the year) | | | | | | | | | | | | |
| Net asset value, beginning of year | $ | 11.47 | | $ | 12.39 | | $ | 12.79 | | $ | 11.74 | |
| Income from investment operationsb: | | | | | | | | | | | | |
| Net investment incomec,d | | 0.17 | | | 0.24 | | | 0.41 | | | 0.55 | |
| Net realized and unrealized gains (losses) | | 0.20 | | | (0.44 | ) | | 0.20 | | | 1.06 | |
| Total from investment operations | | 0.37 | | | (0.20 | ) | | 0.61 | | | 1.61 | |
| Less distributions from: | | | | | | | | | | | | |
| Net investment income and short term gains received from Underlying Funds | | | | | | | | | | | | |
| and exchange traded funds | | (0.17 | ) | | (0.23 | ) | | (0.33 | ) | | (0.18 | ) |
| Net realized gains | | (0.15 | ) | | (0.49 | ) | | (0.68 | ) | | (0.38 | ) |
| Total distributions | | (0.32 | ) | | (0.72 | ) | | (1.01 | ) | | (0.56 | ) |
| Net asset value, end of year | $ | 11.52 | | $ | 11.47 | | $ | 12.39 | | $ | 12.79 | |
| |
| Total returne | | 3.24 | % | | (1.74 | )% | | 4.74 | % | | 13.90 | % |
| |
| Ratios to average net assetsf | | | | | | | | | | | | |
| Expenses before waiver and payments by affiliatesg | | 0.37 | % | | 0.36 | % | | 0.39 | % | | 0.45 | % |
| Expenses net of waiver and payments by affiliatesg | | —% | | | —% | | | —% | | | —% | |
| Net investment incomed | | 1.48 | % | | 1.85 | % | | 2.38 | % | | 1.69 | % |
| |
| Supplemental data | | | | | | | | | | | | |
| Net assets, end of year (000’s) | $ | 13,936 | | $ | 17,129 | | $ | 14,010 | | $ | 2,339 | |
| Portfolio turnover rate | | 83.67 | % | | 36.22 | % | | 62.00 | % | | 47.39 | % |
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 inwhichthe
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 0.67% for the year ended December 31, 2016.
76 Annual Report | The accompanying notes are an integral part of these financial statements.
franklintempleton.com
| | | | | | | | | | | | | | | |
| | | | | | FRANKLIN FUND ALLOCATOR SERIES | |
| | | | | | | | | FINANCIAL HIGHLIGHTS | |
| |
| |
| Franklin LifeSmart 2025 Retirement Target Fund (continued) | | | | | | | | | | | | | |
| | | | | | Year Ended December 31, | | | | |
| | | 2016 | | | 2015 | | | 2014 | | | 2013 | | | 2012 | |
| Advisor Class | | | | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | | | | |
| (for a share outstanding throughout the year) | | | | | | | | | | | | | | | |
| Net asset value, beginning of year | $ | 11.46 | | $ | 12.38 | | $ | 12.79 | | $ | 11.12 | | $ | 10.23 | |
| Income from investment operationsa: | | | | | | | | | | | | | | | |
| Net investment incomeb,c | | 0.17 | | | 0.16 | | | 0.29 | | | 0.19 | | | 0.20 | |
| Net realized and unrealized gains (losses) | | 0.19 | | | (0.37 | ) | | 0.30 | | | 2.08 | | | 0.88 | |
| Total from investment operations | | 0.36 | | | (0.21 | ) | | 0.59 | | | 2.27 | | | 1.08 | |
| Less distributions from: | | | | | | | | | | | | | | | |
| Net investment income and short term gains received from | | | | | | | | | | | | | | | |
| Underlying Funds and exchange traded funds | | (0.16 | ) | | (0.22 | ) | | (0.32 | ) | | (0.22 | ) | | (0.19 | ) |
| Net realized gains | | (0.15 | ) | | (0.49 | ) | | (0.68 | ) | | (0.38 | ) | | — | |
| Total distributions | | (0.31 | ) | | (0.71 | ) | | (1.00 | ) | | (0.60 | ) | | (0.19 | ) |
| Net asset value, end of year. | $ | 11.51 | | $ | 11.46 | | $ | 12.38 | | $ | 12.79 | | $ | 11.12 | |
| |
| Total return | | 3.20 | % | | (1.80 | )% | | 4.61 | % | | 20.66 | % | | 10.59 | % |
| |
| Ratios to average net assets | | | | | | | | | | | | | | | |
| Expenses before waiver and payments by affiliatesd | | 0.51 | % | | 0.49 | % | | 0.53 | % | | 0.54 | % | | 0.41 | % |
| Expenses net of waiver and payments by affiliatesd | | 0.05 | % | | 0.05 | % | | 0.05 | % | | 0.08 | % | | 0.15 | % |
| Net investment incomec | | 1.43 | % | | 1.80 | % | | 2.33 | % | | 1.61 | % | | 1.85 | % |
| |
| Supplemental data | | | | | | | | | | | | | | | |
| Net assets, end of year (000’s) | $ | 1,381 | | $ | 1,194 | | $ | 2,814 | | $ | 2,487 | | $ | 1,873 | |
| Portfolio turnover rate | | 83.67 | % | | 36.22 | % | | 62.00 | % | | 47.39 | % | | 25.67 | % |
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 inwhichthe
Fund invests.
dDoes 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 year ended December 31, 2016.
franklintempleton.com
The accompanying notes are an integral part of these financial statements. | Annual Report 77
| | | | |
| FRANKLIN FUND ALLOCATOR SERIES | | | | |
| |
| |
| |
| |
| Statement of Investments, December 31, 2016 | | | | |
| |
| Franklin LifeSmart 2025 Retirement Target Fund | | | | |
| |
| | Shares | | Value | |
| |
| Investments in Underlying Funds and Exchange Traded Funds 99.5% | | | | |
| Alternative Strategies 7.8% | | | | |
| a Franklin K2 Alternative Strategies Fund, Class R6 | 322,782 | $ | 3,479,586 | |
| a Franklin K2 Long Short Credit Fund, Class R6 | 347,486 | | 3,575,632 | |
| a,b Franklin Pelagos Commodities Strategy Fund, Class R6 | 384,794 | | 2,539,643 | |
| | | | 9,594,861 | |
| Domestic Equity 40.4% | | | | |
| Financial Select Sector SPDR ETF | 98,200 | | 2,283,150 | |
| a,b Franklin Focused Core Equity Fund, Class R6 | 310,586 | | 4,543,867 | |
| a Franklin Growth Fund, Class R6 | 222,262 | | 17,027,529 | |
| a,b Franklin Growth Opportunities Fund, Class R6 | 196,335 | | 6,435,875 | |
| a Franklin Rising Dividends Fund, Class R6 | 191,281 | | 10,053,709 | |
| a,b Franklin Small Cap Growth Fund, Class R6 | 139,063 | | 2,767,348 | |
| a Franklin Utilities Fund, Class R6 | 175,188 | | 3,113,092 | |
| iShares S&P 500 Value ETF | 37,981 | | 3,850,514 | |
| | | | 50,075,084 | |
| Domestic Fixed Income 24.4% | | | | |
| a Franklin Low Duration Total Return Fund, Class R6 | 1,135,007 | | 11,213,874 | |
| a Franklin Strategic Income Fund, Class R6 | 390,110 | | 3,760,658 | |
| a Franklin U.S. Government Securities Fund, Class R6 | 931,341 | | 5,792,941 | |
| iShares Core U.S. Aggregate Bond ETF | 31,800 | | 3,436,308 | |
| iShares iBoxx $ Investment Grade Corporate Bond ETF | 13,600 | | 1,593,648 | |
| iShares TIPS Bond ETF | 39,226 | | 4,439,206 | |
| | | | 30,236,635 | |
| Foreign Equity 22.4% | | | | |
| a,b Franklin India Growth Fund, Class R6 | 236,461 | | 2,932,119 | |
| a Franklin International Small Cap Growth Fund, Class R6 | 341,435 | | 5,602,941 | |
| a Franklin LibertyQ Emerging Markets ETF | 230,100 | | 6,122,961 | |
| a Franklin Mutual International Fund, Class R6 | 257,590 | | 3,688,680 | |
| iShares Global Infrastructure ETF | 73,099 | | 2,853,785 | |
| iShares MSCI Japan ETF (Japan) | 47,925 | | 2,341,615 | |
| a Templeton Foreign Fund, Class R6 | 616,488 | | 4,235,275 | |
| | | | 27,777,376 | |
| Foreign Fixed Income 4.5% | | | | |
| a,b Templeton Global Total Return Fund, Class R6 | 462,110 | | 5,591,536 | |
| Total Investments in Underlying Funds and Exchange Traded Funds | | | | |
| before Short Term Investments (Cost $114,748,211) | | | 123,275,492 | |
| |
| |
| Short Term Investments (Cost $722,986) 0.6% | | | | |
| Money Market Funds 0.6% | | | | |
| a,c Institutional Fiduciary Trust Money Market Portfolio, 0.09% | 722,986 | | 722,986 | |
| Total Investments in Underlying Funds and Exchange Traded Funds | | | | |
| (Cost $115,471,197) 100.1% | | | 123,998,478 | |
| Other Assets, less Liabilities (0.1)% | | | (124,212 | ) |
| Net Assets 100.0% | | $ | 123,874,266 | |
See Abbreviations on page 154.
aSee Note 3(f) regarding investments in FT Underlying Funds.
bNon-income producing.
cThe rate shown is the annualized seven-day yield at period end.
78 Annual Report | The accompanying notes are an integral part of these financial statements.
franklintempleton.com
| | | | | | | | | | | | |
| | | FRANKLIN FUND ALLOCATOR SERIES | |
| |
| |
| |
| Financial Highlights | | | | | | | | | | | | |
| Franklin LifeSmart 2030 Retirement Target Fund | | | | | | | | | | | | |
| | | | | | Year Ended December 31, | | | | |
| | | 2016 | | | 2015 | | | 2014 | | | 2013 | a |
| Class A | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | |
| (for a share outstanding throughout the year) | | | | | | | | | | | | |
| Net asset value, beginning of year | $ | 10.95 | | $ | 11.45 | | $ | 11.11 | | $ | 10.00 | |
| Income from investment operationsb: | | | | | | | | | | | | |
| Net investment incomec,d | | 0.13 | | | 0.20 | | | 0.25 | | | 0.15 | |
| Net realized and unrealized gains (losses) | | 0.19 | | | (0.39 | ) | | 0.33 | | | 1.07 | |
| Total from investment operations | | 0.32 | | | (0.19 | ) | | 0.58 | | | 1.22 | |
| Less distributions from: | | | | | | | | | | | | |
| Net investment income and short term gains received from Underlying Funds | | | | | | | | | | | | |
| and exchange traded funds | | (0.09 | ) | | (0.16 | ) | | (0.18 | ) | | (0.11 | ) |
| Net realized gains | | (0.10 | ) | | (0.15 | ) | | (0.06 | ) | | (—)e | |
| Total distributions | | (0.19 | ) | | (0.31 | ) | | (0.24 | ) | | (0.11 | ) |
| Net asset value, end of year | $ | 11.08 | | $ | 10.95 | | $ | 11.45 | | $ | 11.11 | |
| |
| Total returnf | | 2.93 | % | | (1.75 | )% | | 5.28 | % | | 12.19 | % |
| |
| Ratios to average net assetsg | | | | | | | | | | | | |
| Expenses before waiver and payments by affiliatesh | | 1.02 | % | | 1.17 | % | | 2.28 | % | | 20.77 | % |
| Expenses net of waiver and payments by affiliatesh | | 0.30 | % | | 0.32 | % | | 0.35 | % | | 0.23 | % |
| Net investment incomed | | 1.17 | % | | 1.55 | % | | 2.58 | % | | 2.72 | % |
| |
| Supplemental data | | | | | | | | | | | | |
| Net assets, end of year (000’s) | $ | 16,788 | | $ | 13,631 | | $ | 5,098 | | $ | 1,260 | |
| Portfolio turnover rate | | 81.66 | % | | 44.47 | % | | 81.33 | % | | 12.08 | % |
aFor the period July 1, 2013 (commencement of operations) 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 inwhichthe
Fund invests.
eAmount rounds to less than $0.01 per share.
fTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable, and 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 0.69% for the year ended December 31, 2016.
franklintempleton.com
The accompanying notes are an integral part of these financial statements. | Annual Report 79
| | | | | | | | | | | | |
| FRANKLIN FUND ALLOCATOR SERIES | | | | | | | | | | | | |
| FINANCIAL HIGHLIGHTS | | | | | | | | | | | | |
| |
| |
| Franklin LifeSmart 2030 Retirement Target Fund (continued) | | | | | | | | | | | | |
| | | | | | Year Ended December 31, | | | | |
| | | 2016 | | | 2015 | | | 2014 | | | 2013 | a |
| Class C | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | |
| (for a share outstanding throughout the year) | | | | | | | | | | | | |
| Net asset value, beginning of year | $ | 10.86 | | $ | 11.38 | | $ | 11.09 | | $ | 10.00 | |
| Income from investment operationsb: | | | | | | | | | | | | |
| Net investment incomec,d | | 0.05 | | | 0.11 | | | 0.24 | | | 0.13 | |
| Net realized and unrealized gains (losses) | | 0.17 | | | (0.38 | ) | | 0.26 | | | 1.05 | |
| Total from investment operations | | 0.22 | | | (0.27 | ) | | 0.50 | | | 1.18 | |
| Less distributions from: | | | | | | | | | | | | |
| Net investment income and short term gains received from Underlying Funds | | | | | | | | | | | | |
| and exchange traded funds | | (0.01 | ) | | (0.10 | ) | | (0.15 | ) | | (0.09 | ) |
| Net realized gains | | (0.10 | ) | | (0.15 | ) | | (0.06 | ) | | (—)e | |
| Total distributions | | (0.11 | ) | | (0.25 | ) | | (0.21 | ) | | (0.09 | ) |
| Net asset value, end of year | $ | 10.97 | | $ | 10.86 | | $ | 11.38 | | $ | 11.09 | |
| |
| Total returnf | | 2.08 | % | | (2.43 | )% | | 4.67 | % | | 11.73 | % |
| |
| Ratios to average net assetsg | | | | | | | | | | | | |
| Expenses before waiver and payments by affiliatesh | | 1.77 | % | | 1.90 | % | | 2.98 | % | | 21.59 | % |
| Expenses net of waiver and payments by affiliatesh | | 1.05 | % | | 1.05 | % | | 1.05 | % | | 1.05 | % |
| Net investment incomed | | 0.42 | % | | 0.82 | % | | 1.88 | % | | 1.90 | % |
| |
| Supplemental data | | | | | | | | | | | | |
| Net assets, end of year (000’s) | $ | 5,127 | | $ | 4,124 | | $ | 1,950 | | $ | 132 | |
| Portfolio turnover rate | | 81.66 | % | | 44.47 | % | | 81.33 | % | | 12.08 | % |
aFor the period July 1, 2013 (commencement of operations) 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 inwhichthe
Fund invests.
eAmount rounds to less than $0.01 per share.
fTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable, and 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 0.69% for the year ended December 31, 2016.
80 Annual Report | The accompanying notes are an integral part of these financial statements.
franklintempleton.com
| | | | | | | | | | | | |
| | | FRANKLIN FUND ALLOCATOR SERIES | |
| | | | | | FINANCIAL HIGHLIGHTS | |
| |
| |
| Franklin LifeSmart 2030 Retirement Target Fund (continued) | | | | | | | | | | | | |
| | | | | | Year Ended December 31, | | | | |
| | | 2016 | | | 2015 | | | 2014 | | | 2013 | a |
| Class R | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | |
| (for a share outstanding throughout the year) | | | | | | | | | | | | |
| Net asset value, beginning of year | $ | 10.94 | | $ | 11.44 | | $ | 11.10 | | $ | 10.00 | |
| Income from investment operationsb: | | | | | | | | | | | | |
| Net investment incomec,d | | 0.10 | | | 0.18 | | | 0.18 | | | 0.13 | |
| Net realized and unrealized gains (losses) | | 0.18 | | | (0.39 | ) | | 0.38 | | | 1.07 | |
| Total from investment operations | | 0.28 | | | (0.21 | ) | | 0.56 | | | 1.20 | |
| Less distributions from: | | | | | | | | | | | | |
| Net investment income and short term gains received from Underlying Funds | | | | | | | | | | | | |
| and exchange traded funds | | (0.06 | ) | | (0.14 | ) | | (0.16 | ) | | (0.10 | ) |
| Net realized gains | | (0.10 | ) | | (0.15 | ) | | (0.06 | ) | | (—)e | |
| Total distributions | | (0.16 | ) | | (0.29 | ) | | (0.22 | ) | | (0.10 | ) |
| Net asset value, end of year | $ | 11.06 | | $ | 10.94 | | $ | 11.44 | | $ | 11.10 | |
| |
| Total returnf | | 2.60 | % | | (1.89 | )% | | 5.07 | % | | 11.98 | % |
| |
| Ratios to average net assetsg | | | | | | | | | | | | |
| Expenses before waiver and payments by affiliatesh | | 1.27 | % | | 1.40 | % | | 2.48 | % | | 21.09 | % |
| Expenses net of waiver and payments by affiliatesh | | 0.55 | % | | 0.55 | % | | 0.55 | % | | 0.55 | % |
| Net investment incomed | | 0.92 | % | | 1.32 | % | | 2.38 | % | | 2.40 | % |
| |
| Supplemental data | | | | | | | | | | | | |
| Net assets, end of year (000’s) | $ | 1,398 | | $ | 870 | | $ | 48 | | $ | 47 | |
| Portfolio turnover rate | | 81.66 | % | | 44.47 | % | | 81.33 | % | | 12.08 | % |
aFor the period July 1, 2013 (commencement of operations) 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 inwhichthe
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 0.69% for the year ended December 31, 2016.
franklintempleton.com
The accompanying notes are an integral part of these financial statements. | Annual Report 81
| | | | | | | | | | | | |
| FRANKLIN FUND ALLOCATOR SERIES | | | | | | | | | | | | |
| FINANCIAL HIGHLIGHTS | | | | | | | | | | | | |
| |
| |
| Franklin LifeSmart 2030 Retirement Target Fund (continued) | | | | | | | | | | | | |
| | | | | | Year Ended December 31, | | | | |
| | | 2016 | | | 2015 | | | 2014 | | | 2013 | a |
| Class R6 | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | |
| (for a share outstanding throughout the year) | | | | | | | | | | | | |
| Net asset value, beginning of year | $ | 10.99 | | $ | 11.47 | | $ | 11.12 | | $ | 10.00 | |
| Income from investment operationsb: | | | | | | | | | | | | |
| Net investment incomec,d | | 0.16 | | | 0.20 | | | 0.36 | | | 0.11 | |
| Net realized and unrealized gains (losses) | | 0.19 | | | (0.35 | ) | | 0.26 | | | 1.12 | |
| Total from investment operations | | 0.35 | | | (0.15 | ) | | 0.62 | | | 1.23 | |
| Less distributions from: | | | | | | | | | | | | |
| Net investment income and short term gains received from Underlying Funds | | | | | | | | | | | | |
| and exchange traded funds | | (0.12 | ) | | (0.18 | ) | | (0.21 | ) | | (0.11 | ) |
| Net realized gains | | (0.10 | ) | | (0.15 | ) | | (0.06 | ) | | (—)e | |
| Total distributions | | (0.22 | ) | | (0.33 | ) | | (0.27 | ) | | (0.11 | ) |
| Net asset value, end of year | $ | 11.12 | | $ | 10.99 | | $ | 11.47 | | $ | 11.12 | |
| |
| Total returnf | | 3.20 | % | | (1.34 | )% | | 5.60 | % | | 12.34 | % |
| |
| Ratios to average net assetsg | | | | | | | | | | | | |
| Expenses before waiver and payments by affiliatesh | | 0.57 | % | | 0.68 | % | | 1.74 | % | | 21.00 | % |
| Expenses net of waiver and payments by affiliatesh | | —% | | | —% | | | —% | | | —% | |
| Net investment incomed | | 1.47 | % | | 1.87 | % | | 2.93 | % | | 2.95 | % |
| |
| Supplemental data | | | | | | | | | | | | |
| Net assets, end of year (000’s) | $ | 14,455 | | $ | 13,041 | | $ | 12,041 | | $ | 11 | |
| Portfolio turnover rate | | 81.66 | % | | 44.47 | % | | 81.33 | % | | 12.08 | % |
aFor the period July 1, 2013 (commencement of operations) 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 inwhichthe
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 0.69% for the year ended December 31, 2016.
82 Annual Report | The accompanying notes are an integral part of these financial statements.
franklintempleton.com
| | | | | | | | | | | | |
| | | FRANKLIN FUND ALLOCATOR SERIES | |
| | | | | | FINANCIAL HIGHLIGHTS | |
| |
| |
| Franklin LifeSmart 2030 Retirement Target Fund (continued) | | | | | | | | | | | | |
| | | | | | Year Ended December 31, | | | | |
| | | 2016 | | | 2015 | | | 2014 | | | 2013 | a |
| Advisor Class | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | |
| (for a share outstanding throughout the year) | | | | | | | | | | | | |
| Net asset value, beginning of year | $ | 10.98 | | $ | 11.47 | | $ | 11.12 | | $ | 10.00 | |
| Income from investment operationsb: | | | | | | | | | | | | |
| Net investment incomec,d | | 0.15 | | | 0.27 | | | 0.23 | | | 0.13 | |
| Net realized and unrealized gains (losses) | | 0.19 | | | (0.43 | ) | | 0.38 | | | 1.10 | |
| Total from investment operations | | 0.34 | | | (0.16 | ) | | 0.61 | | | 1.23 | |
| Less distributions from: | | | | | | | | | | | | |
| Net investment income and short term gains received from Underlying Funds | | | | | | | | | | | | |
| and exchange traded funds | | (0.11 | ) | | (0.18 | ) | | (0.20 | ) | | (0.11 | ) |
| Net realized gains | | (0.10 | ) | | (0.15 | ) | | (0.06 | ) | | (—)e | |
| Total distributions | | (0.21 | ) | | (0.33 | ) | | (0.26 | ) | | (0.11 | ) |
| Net asset value, end of year | $ | 11.11 | | $ | 10.98 | | $ | 11.47 | | $ | 11.12 | |
| |
| Total returnf | | 3.15 | % | | (1.46 | )% | | 5.56 | % | | 12.32 | % |
| |
| Ratios to average net assetsg | | | | | | | | | | | | |
| Expenses before waiver and payments by affiliatesh | | 0.77 | % | | 0.90 | % | | 1.98 | % | | 20.59 | % |
| Expenses net of waiver and payments by affiliatesh | | 0.05 | % | | 0.05 | % | | 0.05 | % | | 0.05 | % |
| Net investment incomed | | 1.42 | % | | 1.82 | % | | 2.88 | % | | 2.90 | % |
| |
| Supplemental data | | | | | | | | | | | | |
| Net assets, end of year (000’s) | $ | 332 | | $ | 303 | | $ | 101 | | $ | 82 | |
| Portfolio turnover rate | | 81.66 | % | | 44.47 | % | | 81.33 | % | | 12.08 | % |
aFor the period July 1, 2013 (commencement of operations) 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 inwhichthe
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 0.69% for the year ended December 31, 2016.
franklintempleton.com
The accompanying notes are an integral part of these financial statements. | Annual Report 83
| | | |
| FRANKLIN FUND ALLOCATOR SERIES | | | |
| |
| |
| |
| |
| Statement of Investments, December 31, 2016 | | | |
| |
| Franklin LifeSmart 2030 Retirement Target Fund | | | |
| |
| | Shares | | Value |
| |
| Investments in Underlying Funds and Exchange Traded Funds 99.0% | | | |
| Alternative Strategies 7.6% | | | |
| a Franklin K2 Alternative Strategies Fund, Class R6 | 99,662 | $ | 1,074,355 |
| a Franklin K2 Long Short Credit Fund, Class R6 | 109,077 | | 1,122,402 |
| a,b Franklin Pelagos Commodities Strategy Fund, Class R6 | 109,178 | | 720,573 |
| | | | 2,917,330 |
| Domestic Equity 44.3% | | | |
| Financial Select Sector SPDR ETF | 33,200 | �� | 771,900 |
| a,b Franklin Focused Core Equity Fund, Class R6 | 100,655 | | 1,472,585 |
| a Franklin Growth Fund, Class R6 | 72,816 | | 5,578,414 |
| a,b Franklin Growth Opportunities Fund, Class R6 | 66,763 | | 2,188,512 |
| a Franklin Rising Dividends Fund, Class R6 | 63,789 | | 3,352,755 |
| a,b Franklin Small Cap Growth Fund, Class R6 | 54,396 | | 1,082,481 |
| a Franklin Utilities Fund, Class R6 | 61,409 | | 1,091,232 |
| iShares S&P 500 Value ETF | 13,426 | | 1,361,128 |
| | | | 16,899,007 |
| Domestic Fixed Income 18.9% | | | |
| a Franklin Low Duration Total Return Fund, Class R6 | 270,854 | | 2,676,032 |
| a Franklin Strategic Income Fund, Class R6 | 95,407 | | 919,724 |
| a Franklin U.S. Government Securities Fund, Class R6 | 224,100 | | 1,393,904 |
| iShares Core U.S. Aggregate Bond ETF | 8,000 | | 864,480 |
| iShares iBoxx $ Investment Grade Corporate Bond ETF | 3,000 | | 351,540 |
| iShares TIPS Bond ETF | 8,682 | | 982,542 |
| | | | 7,188,222 |
| Foreign Equity 24.7% | | | |
| a,b Franklin India Growth Fund, Class R6 | 85,606 | | 1,061,516 |
| a Franklin International Small Cap Growth Fund, Class R6 | 134,599 | | 2,208,763 |
| a Franklin LibertyQ Emerging Markets ETF | 78,100 | | 2,078,241 |
| a Franklin Mutual International Fund, Class R6 | 88,600 | | 1,268,758 |
| iShares Global Infrastructure ETF | 19,394 | | 757,142 |
| iShares MSCI Japan ETF (Japan) | 16,025 | | 782,981 |
| a Templeton Foreign Fund, Class R6 | 181,114 | | 1,244,254 |
| | | | 9,401,655 |
| Foreign Fixed Income 3.5% | | | |
| a,b Templeton Global Total Return Fund, Class R6 | 109,721 | | 1,327,618 |
| Total Investments in Underlying Funds and Exchange Traded Funds | | | |
| before Short Term Investments (Cost $37,086,921) | | | 37,733,832 |
| |
| |
| Short Term Investments (Cost $61,193) 0.2% | | | |
| Money Market Funds 0.2% | | | |
| a,c Institutional Fiduciary Trust Money Market Portfolio, 0.09% | 61,193 | | 61,193 |
| Total Investments in Underlying Funds and Exchange Traded Funds | | | |
| (Cost $37,148,114) 99.2% | | | 37,795,025 |
| Other Assets, less Liabilities 0.8% | | | 304,505 |
| Net Assets 100.0% | | $ | 38,099,530 |
See Abbreviations on page 154.
aSee Note 3(f) regarding investments in FT Underlying Funds.
bNon-income producing.
cThe rate shown is the annualized seven-day yield at period end.
84 Annual Report | The accompanying notes are an integral part of these financial statements.
franklintempleton.com
| | | | | | | | | | | | | | | |
| | | | | | FRANKLIN FUND ALLOCATOR SERIES | |
| |
| |
| |
| Financial Highlights | | | | | | | | | | | | | | | |
| Franklin LifeSmart 2035 Retirement Target Fund | | | | | | | | | | | | | | | |
| | | | | | Year Ended December 31, | | | | |
| | | 2016 | | | 2015 | | | 2014 | | | 2013 | | | 2012 | |
| Class A | | | | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | | | | |
| (for a share outstanding throughout the year) | | | | | | | | | | | | | | | |
| Net asset value, beginning of year | $ | 11.78 | | $ | 12.67 | | $ | 12.85 | | $ | 11.01 | | $ | 10.13 | |
| Income from investment operationsa: | | | | | | | | | | | | | | | |
| Net investment incomeb,c | | 0.13 | | | 0.17 | | | 0.22 | | | 0.14 | | | 0.15 | |
| Net realized and unrealized gains (losses) | | 0.23 | | | (0.41 | ) | | 0.42 | | | 2.26 | | | 0.89 | |
| Total from investment operations | | 0.36 | | | (0.24 | ) | | 0.64 | | | 2.40 | | | 1.04 | |
| Less distributions from: | | | | | | | | | | | | | | | |
| Net investment income and short term gains received from | | | | | | | | | | | | | | | |
| Underlying Funds and exchange traded funds | | (0.10 | ) | | (0.18 | ) | | (0.24 | ) | | (0.15 | ) | | (0.16 | ) |
| Net realized gains | | (0.18 | ) | | (0.47 | ) | | (0.58 | ) | | (0.41 | ) | | (—)d | |
| Total distributions | | (0.28 | ) | | (0.65 | ) | | (0.82 | ) | | (0.56 | ) | | (0.16 | ) |
| Net asset value, end of year. | $ | 11.86 | | $ | 11.78 | | $ | 12.67 | | $ | 12.85 | | $ | 11.01 | |
| |
| Total returne | | 3.11 | % | | (2.00 | )% | | 4.96 | % | | 22.06 | % | | 10.33 | % |
| |
| Ratios to average net assets | | | | | | | | | | | | | | | |
| Expenses before waiver and payments by affiliatesf | | 0.82 | % | | 0.84 | % | | 0.91 | % | | 0.94 | % | | 0.83 | % |
| Expenses net of waiver and payments by affiliatesf | | 0.30 | % | | 0.33 | % | | 0.35 | % | | 0.38 | % | | 0.45 | % |
| Net investment incomec | | 1.15 | % | | 1.30 | % | | 1.76 | % | | 1.17 | % | | 1.45 | % |
| |
| Supplemental data | | | | | | | | | | | | | | | |
| Net assets, end of year (000’s) | $ | 56,650 | | $ | 53,701 | | $ | 50,264 | | $ | 42,510 | | $ | 32,095 | |
| Portfolio turnover rate | | 77.39 | % | | 33.86 | % | | 61.73 | % | | 49.84 | % | | 27.30 | % |
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 inwhichthe
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.
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 0.69% for the year ended December 31, 2016.
franklintempleton.com
The accompanying notes are an integral part of these financial statements. | Annual Report 85
| | | | | | | | | | | | | | | |
| FRANKLIN FUND ALLOCATOR SERIES | | | | | | | | | | | | | | | |
| FINANCIAL HIGHLIGHTS | | | | | | | | | | | | | | | |
| |
| |
| Franklin LifeSmart 2035 Retirement Target Fund (continued) | | | | | | | | | | | | | |
| | | | | | Year Ended December 31, | | | | |
| | | 2016 | | | 2015 | | | 2014 | | | 2013 | | | 2012 | |
| Class C | | | | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | | | | |
| (for a share outstanding throughout the year) | | | | | | | | | | | | | | | |
| Net asset value, beginning of year | $ | 11.54 | | $ | 12.43 | | $ | 12.63 | | $ | 10.85 | | $ | 9.98 | |
| Income from investment operationsa: | | | | | | | | | | | | | | | |
| Net investment incomeb,c | | 0.04 | | | 0.07 | | | 0.12 | | | 0.06 | | | 0.08 | |
| Net realized and unrealized gains (losses) | | 0.22 | | | (0.40 | ) | | 0.41 | | | 2.21 | | | 0.89 | |
| Total from investment operations | | 0.26 | | | (0.33 | ) | | 0.53 | | | 2.27 | | | 0.97 | |
| Less distributions from: | | | | | | | | | | | | | | | |
| Net investment income and short term gains received from | | | | | | | | | | | | | | | |
| Underlying Funds and exchange traded funds | | (0.01 | ) | | (0.09 | ) | | (0.15 | ) | | (0.08 | ) | | (0.10 | ) |
| Net realized gains | | (0.18 | ) | | (0.47 | ) | | (0.58 | ) | | (0.41 | ) | | (—)d | |
| Total distributions | | (0.19 | ) | | (0.56 | ) | | (0.73 | ) | | (0.49 | ) | | (0.10 | ) |
| Net asset value, end of year. | $ | 11.61 | | $ | 11.54 | | $ | 12.43 | | $ | 12.63 | | $ | 10.85 | |
| |
| Total returne | | 2.34 | % | | (2.76 | )% | | 4.23 | % | | 21.17 | % | | 9.72 | % |
| |
| Ratios to average net assets | | | | | | | | | | | | | | | |
| Expenses before waiver and payments by affiliatesf | | 1.57 | % | | 1.56 | % | | 1.61 | % | | 1.64 | % | | 1.53 | % |
| Expenses net of waiver and payments by affiliatesf | | 1.05 | % | | 1.05 | % | | 1.05 | % | | 1.08 | % | | 1.15 | % |
| Net investment incomec | | 0.40 | % | | 0.58 | % | | 1.06 | % | | 0.47 | % | | 0.75 | % |
| |
| Supplemental data | | | | | | | | | | | | | | | |
| Net assets, end of year (000’s) | $ | 18,781 | | $ | 19,953 | | $ | 19,965 | | $ | 16,873 | | $ | 11,124 | |
| Portfolio turnover rate | | 77.39 | % | | 33.86 | % | | 61.73 | % | | 49.84 | % | | 27.30 | % |
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 inwhichthe
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.
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 0.69% for the year ended December 31, 2016.
86 Annual Report | The accompanying notes are an integral part of these financial statements.
franklintempleton.com
| | | | | | | | | | | | | | | |
| | | | | | FRANKLIN FUND ALLOCATOR SERIES | |
| | | | | | | | | FINANCIAL HIGHLIGHTS | |
| |
| |
| Franklin LifeSmart 2035 Retirement Target Fund (continued) | | | | | | | | | | | | | |
| | | | | | Year Ended December 31, | | | | |
| | | 2016 | | | 2015 | | | 2014 | | | 2013 | | | 2012 | |
| Class R | | | | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | | | | |
| (for a share outstanding throughout the year) | | | | | | | | | | | | | | | |
| Net asset value, beginning of year | $ | 11.77 | | $ | 12.66 | | $ | 12.84 | | $ | 11.01 | | $ | 10.12 | |
| Income from investment operationsa: | | | | | | | | | | | | | | | |
| Net investment incomeb,c | | 0.12 | | | 0.13 | | | 0.19 | | | 0.11 | | | 0.14 | |
| Net realized and unrealized gains (losses) | | 0.21 | | | (0.40 | ) | | 0.42 | | | 2.26 | | | 0.89 | |
| Total from investment operations | | 0.33 | | | (0.27 | ) | | 0.61 | | | 2.37 | | | 1.03 | |
| Less distributions from: | | | | | | | | | | | | | | | |
| Net investment income and short term gains received from | | | | | | | | | | | | | | | |
| Underlying Funds and exchange traded funds | | (0.08 | ) | | (0.15 | ) | | (0.21 | ) | | (0.13 | ) | | (0.14 | ) |
| Net realized gains | | (0.18 | ) | | (0.47 | ) | | (0.58 | ) | | (0.41 | ) | | (—)d | |
| Total distributions | | (0.26 | ) | | (0.62 | ) | | (0.79 | ) | | (0.54 | ) | | (0.14 | ) |
| Net asset value, end of year. | $ | 11.84 | | $ | 11.77 | | $ | 12.66 | | $ | 12.84 | | $ | 11.01 | |
| |
| Total return | | 2.87 | % | | (2.25 | )% | | 4.75 | % | | 21.77 | % | | 10.24 | % |
| |
| Ratios to average net assets | | | | | | | | | | | | | | | |
| Expenses before waiver and payments by affiliatese | | 1.07 | % | | 1.06 | % | | 1.11 | % | | 1.14 | % | | 1.03 | % |
| Expenses net of waiver and payments by affiliatese | | 0.55 | % | | 0.55 | % | | 0.55 | % | | 0.58 | % | | 0.65 | % |
| Net investment incomec | | 0.90 | % | | 1.08 | % | | 1.56 | % | | 0.97 | % | | 1.25 | % |
| |
| Supplemental data | | | | | | | | | | | | | | | |
| Net assets, end of year (000’s) | $ | 6,080 | | $ | 4,688 | | $ | 4,577 | | $ | 4,093 | | $ | 3,035 | |
| Portfolio turnover rate | | 77.39 | % | | 33.86 | % | | 61.73 | % | | 49.84 | % | | 27.30 | % |
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 inwhichthe
Fund invests.
dAmount rounds to less than $0.01 per share.
eDoes 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 0.69% for the year ended December 31, 2016.
franklintempleton.com
The accompanying notes are an integral part of these financial statements. | Annual Report 87
| | | | | | | | | | | | |
| FRANKLIN FUND ALLOCATOR SERIES | | | | | | | | | | | | |
| FINANCIAL HIGHLIGHTS | | | | | | | | | | | | |
| |
| |
| Franklin LifeSmart 2035 Retirement Target Fund (continued) | | | | | | | | | | | | |
| | | | | | Year Ended December 31, | | | | |
| | | 2016 | | | 2015 | | | 2014 | | | 2013 | a |
| Class R6 | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | |
| (for a share outstanding throughout the year) | | | | | | | | | | | | |
| Net asset value, beginning of year | $ | 11.85 | | $ | 12.75 | | $ | 12.92 | | $ | 11.77 | |
| Income from investment operationsb: | | | | | | | | | | | | |
| Net investment incomec,d | | 0.17 | | | 0.22 | | | 0.36 | | | 0.58 | |
| Net realized and unrealized gains (losses) | | 0.23 | | | (0.43 | ) | | 0.33 | | | 1.17 | |
| Total from investment operations | | 0.40 | | | (0.21 | ) | | 0.69 | | | 1.75 | |
| Less distributions from: | | | | | | | | | | | | |
| Net investment income and short term gains received from Underlying Funds | | | | | | | | | | | | |
| and exchange traded funds | | (0.13 | ) | | (0.22 | ) | | (0.28 | ) | | (0.19 | ) |
| Net realized gains | | (0.18 | ) | | (0.47 | ) | | (0.58 | ) | | (0.41 | ) |
| Total distributions | | (0.31 | ) | | (0.69 | ) | | (0.86 | ) | | (0.60 | ) |
| Net asset value, end of year | $ | 11.94 | | $ | 11.85 | | $ | 12.75 | | $ | 12.92 | |
| |
| Total returne | | 3.48 | % | | (1.75 | )% | | 5.35 | % | | 15.09 | % |
| |
| Ratios to average net assetsf | | | | | | | | | | | | |
| Expenses before waiver and payments by affiliatesg | | 0.39 | % | | 0.38 | % | | 0.42 | % | | 0.49 | % |
| Expenses net of waiver and payments by affiliatesg | | —% | | | —% | | | —% | | | —% | |
| Net investment incomed | | 1.45 | % | | 1.63 | % | | 2.11 | % | | 1.55 | % |
| |
| Supplemental data | | | | | | | | | | | | |
| Net assets, end of year (000’s) | $ | 22,068 | | $ | 20,244 | | $ | 16,262 | | $ | 2,532 | |
| Portfolio turnover rate | | 77.39 | % | | 33.86 | % | | 61.73 | % | | 49.84 | % |
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 inwhichthe
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 0.69% for the year ended December 31, 2016.
88 Annual Report | The accompanying notes are an integral part of these financial statements.
franklintempleton.com
| | | | | | | | | | | | | | | |
| | | | | | FRANKLIN FUND ALLOCATOR SERIES | |
| | | | | | | | | FINANCIAL HIGHLIGHTS | |
| |
| |
| Franklin LifeSmart 2035 Retirement Target Fund (continued) | | | | | | | | | | | | | |
| | | | | | Year Ended December 31, | | | | |
| | | 2016 | | | 2015 | | | 2014 | | | 2013 | | | 2012 | |
| Advisor Class | | | | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | | | | |
| (for a share outstanding throughout the year) | | | | | | | | | | | | | | | |
| Net asset value, beginning of year | $ | 11.86 | | $ | 12.75 | | $ | 12.93 | | $ | 11.07 | | $ | 10.17 | |
| Income from investment operationsa: | | | | | | | | | | | | | | | |
| Net investment incomeb,c | | 0.16 | | | 0.16 | | | 0.26 | | | 0.18 | | | 0.18 | |
| Net realized and unrealized gains (losses) | | 0.23 | | | (0.37 | ) | | 0.41 | | | 2.28 | | | 0.91 | |
| Total from investment operations | | 0.39 | | | (0.21 | ) | | 0.67 | | | 2.46 | | | 1.09 | |
| Less distributions from: | | | | | | | | | | | | | | | |
| Net investment income and short term gains received from | | | | | | | | | | | | | | | |
| Underlying Funds and exchange traded funds | | (0.12 | ) | | (0.21 | ) | | (0.27 | ) | | (0.19 | ) | | (0.19 | ) |
| Net realized gains | | (0.18 | ) | | (0.47 | ) | | (0.58 | ) | | (0.41 | ) | | (—)d | |
| Total distributions | | (0.30 | ) | | (0.68 | ) | | (0.85 | ) | | (0.60 | ) | | (0.19 | ) |
| Net asset value, end of year. | $ | 11.95 | | $ | 11.86 | | $ | 12.75 | | $ | 12.93 | | $ | 11.07 | |
| |
| Total return | | 3.42 | % | | (1.76 | )% | | 5.22 | % | | 22.43 | % | | 10.79 | % |
| |
| Ratios to average net assets | | | | | | | | | | | | | | | |
| Expenses before waiver and payments by affiliatese | | 0.57 | % | | 0.56 | % | | 0.61 | % | | 0.64 | % | | 0.53 | % |
| Expenses net of waiver and payments by affiliatese | | 0.05 | % | | 0.05 | % | | 0.05 | % | | 0.08 | % | | 0.15 | % |
| Net investment incomec | | 1.40 | % | | 1.58 | % | | 2.06 | % | | 1.47 | % | | 1.75 | % |
| |
| Supplemental data | | | | | | | | | | | | | | | |
| Net assets, end of year (000’s) | $ | 1,451 | | $ | 1,722 | | $ | 2,182 | | $ | 1,815 | | $ | 1,077 | |
| Portfolio turnover rate | | 77.39 | % | | 33.86 | % | | 61.73 | % | | 49.84 | % | | 27.30 | % |
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 inwhichthe
Fund invests.
dAmount rounds to less than $0.01 per share.
eDoes 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 0.69% for the year ended December 31, 2016.
franklintempleton.com
The accompanying notes are an integral part of these financial statements. | Annual Report 89
| | | |
| FRANKLIN FUND ALLOCATOR SERIES | | | |
| |
| |
| |
| |
| Statement of Investments, December 31, 2016 | | | |
| |
| Franklin LifeSmart 2035 Retirement Target Fund | | | |
| |
| | Shares | | Value |
| |
| Investments in Underlying Funds and Exchange Traded Funds 99.5% | | | |
| Alternative Strategies 7.8% | | | |
| a Franklin K2 Alternative Strategies Fund, Class R6 | 276,640 | $ | 2,982,181 |
| a Franklin K2 Long Short Credit Fund, Class R6 | 299,300 | | 3,079,798 |
| a,b Franklin Pelagos Commodities Strategy Fund, Class R6 | 314,820 | | 2,077,809 |
| | | | 8,139,788 |
| Domestic Equity 46.7% | | | |
| Financial Select Sector SPDR ETF | 99,800 | | 2,320,350 |
| a,b Franklin Focused Core Equity Fund, Class R6 | 307,928 | | 4,504,987 |
| a Franklin Growth Fund, Class R6 | 216,137 | | 16,558,233 |
| a,b Franklin Growth Opportunities Fund, Class R6 | 218,186 | | 7,152,120 |
| a Franklin Rising Dividends Fund, Class R6 | 176,199 | | 9,261,023 |
| a,b Franklin Small Cap Growth Fund, Class R6 | 130,369 | | 2,594,348 |
| a Franklin Utilities Fund, Class R6 | 166,994 | | 2,967,483 |
| iShares S&P 500 Value ETF | 36,802 | | 3,730,987 |
| | | | 49,089,531 |
| Domestic Fixed Income 14.4% | | | |
| a Franklin Low Duration Total Return Fund, Class R6 | 548,374 | | 5,417,932 |
| a Franklin Strategic Income Fund, Class R6 | 184,001 | | 1,773,772 |
| a Franklin U.S. Government Securities Fund, Class R6 | 493,378 | | 3,068,811 |
| iShares Core U.S. Aggregate Bond ETF | 17,300 | | 1,869,438 |
| iShares iBoxx $ Investment Grade Corporate Bond ETF | 6,800 | | 796,824 |
| iShares TIPS Bond ETF | 19,830 | | 2,244,161 |
| | | | 15,170,938 |
| Foreign Equity 27.9% | | | |
| a,b Franklin India Growth Fund, Class R6 | 231,375 | | 2,869,047 |
| a Franklin International Small Cap Growth Fund, Class R6 | 421,648 | | 6,919,244 |
| a Franklin LibertyQ Emerging Markets ETF | 215,500 | | 5,734,455 |
| a Franklin Mutual International Fund, Class R6 | 301,451 | | 4,316,777 |
| iShares Global Infrastructure ETF | 70,836 | | 2,765,437 |
| iShares MSCI Japan ETF (Japan) | 48,675 | | 2,378,261 |
| a Templeton Foreign Fund, Class R6 | 622,852 | | 4,278,997 |
| | | | 29,262,218 |
| Foreign Fixed Income 2.7% | | | |
| a,b Templeton Global Total Return Fund, Class R6 | 233,322 | | 2,823,198 |
| Total Investments in Underlying Funds and Exchange Traded Funds | | | |
| before Short Term Investments (Cost $97,557,847) | | | 104,485,673 |
| |
| |
| Short Term Investments (Cost $376,115) 0.3% | | | |
| Money Market Funds 0.3% | | | |
| a,c Institutional Fiduciary Trust Money Market Portfolio, 0.09% | 376,115 | | 376,115 |
| Total Investments in Underlying Funds and Exchange Traded Funds | | | |
| (Cost $97,933,962) 99.8% | | | 104,861,788 |
| Other Assets, less Liabilities 0.2% | | | 168,192 |
| Net Assets 100.0% | | $ | 105,029,980 |
See Abbreviations on page 154.
aSee Note 3(f) regarding investments in FT Underlying Funds.
bNon-income producing.
cThe rate shown is the annualized seven-day yield at period end.
90 Annual Report | The accompanying notes are an integral part of these financial statements.
franklintempleton.com
| | | | | | | | | | | | |
| | | FRANKLIN FUND ALLOCATOR SERIES | |
| |
| |
| |
| Financial Highlights | | | | | | | | | | | | |
| Franklin LifeSmart 2040 Retirement Target Fund | | | | | | | | | | | | |
| | | | | | Year Ended December 31, | | | | |
| | | 2016 | | | 2015 | | | 2014 | | | 2013 | a |
| Class A | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | |
| (for a share outstanding throughout the year) | | | | | | | | | | | | |
| Net asset value, beginning of year | $ | 11.06 | | $ | 11.58 | | $ | 11.19 | | $ | 10.00 | |
| Income from investment operationsb: | | | | | | | | | | | | |
| Net investment incomec,d | | 0.14 | | | 0.18 | | | 0.24 | | | 0.11 | |
| Net realized and unrealized gains (losses) | | 0.17 | | | (0.40 | ) | | 0.39 | | | 1.18 | |
| Total from investment operations | | 0.31 | | | (0.22 | ) | | 0.63 | | | 1.29 | |
| Less distributions from: | | | | | | | | | | | | |
| Net investment income and short term gains received from Underlying Funds | | | | | | | | | | | | |
| and exchange traded funds | | (0.08 | ) | | (0.15 | ) | | (0.18 | ) | | (0.10 | ) |
| Net realized gains | | (0.09 | ) | | (0.15 | ) | | (0.06 | ) | | (—)e | |
| Total distributions | | (0.17 | ) | | (0.30 | ) | | (0.24 | ) | | (0.10 | ) |
| Net asset value, end of year | $ | 11.20 | | $ | 11.06 | | $ | 11.58 | | $ | 11.19 | |
| |
| Total returnf | | 2.91 | % | | (1.94 | )% | | 5.67 | % | | 12.91 | % |
| |
| Ratios to average net assetsg | | | | | | | | | | | | |
| Expenses before waiver and payments by affiliatesh | | 1.19 | % | | 1.40 | % | | 3.25 | % | | 33.48 | % |
| Expenses net of waiver and payments by affiliatesh | | 0.30 | % | | 0.32 | % | | 0.35 | % | | 0.25 | % |
| Net investment incomed | | 1.22 | % | | 1.41 | % | | 2.37 | % | | 1.98 | % |
| |
| Supplemental data | | | | | | | | | | | | |
| Net assets, end of year (000’s) | $ | 13,213 | | $ | 8,177 | | $ | 2,891 | | $ | 672 | |
| Portfolio turnover rate | | 72.22 | % | | 41.55 | % | | 92.38 | % | | 16.27 | % |
aFor the period July 1, 2013 (commencement of operations) 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 inwhichthe
Fund invests.
eAmount rounds to less than $0.01 per share.
fTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable, and 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 0.70% for the year ended December 31, 2016.
franklintempleton.com
The accompanying notes are an integral part of these financial statements. | Annual Report 91
| | | | | | | | | | | | |
| FRANKLIN FUND ALLOCATOR SERIES | | | | | | | | | | | | |
| FINANCIAL HIGHLIGHTS | | | | | | | | | | | | |
| |
| |
| Franklin LifeSmart 2040 Retirement Target Fund (continued) | | | | | | | | | | | | |
| | | | | | Year Ended December 31, | | | | |
| | | 2016 | | | 2015 | | | 2014 | | | 2013 | a |
| Class C | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | |
| (for a share outstanding throughout the year) | | | | | | | | | | | | |
| Net asset value, beginning of year | $ | 10.97 | | $ | 11.52 | | $ | 11.15 | | $ | 10.00 | |
| Income from investment operationsb: | | | | | | | | | | | | |
| Net investment incomec,d | | 0.05 | | | 0.11 | | | 0.17 | | | 0.08 | |
| Net realized and unrealized gains (losses) | | 0.18 | | | (0.41 | ) | | 0.39 | | | 1.16 | |
| Total from investment operations | | 0.23 | | | (0.30 | ) | | 0.56 | | | 1.24 | |
| Less distributions from: | | | | | | | | | | | | |
| Net investment income and short term gains received from Underlying Funds | | | | | | | | | | | | |
| and exchange traded funds | | (0.06 | ) | | (0.10 | ) | | (0.13 | ) | | (0.09 | ) |
| Net realized gains | | (0.09 | ) | | (0.15 | ) | | (0.06 | ) | | (—)e | |
| Total distributions | | (0.15 | ) | | (0.25 | ) | | (0.19 | ) | | (0.09 | ) |
| Net asset value, end of year | $ | 11.05 | | $ | 10.97 | | $ | 11.52 | | $ | 11.15 | |
| |
| Total returnf | | 2.17 | % | | (2.66 | )% | | 5.03 | % | | 12.46 | % |
| |
| Ratios to average net assetsg | | | | | | | | | | | | |
| Expenses before waiver and payments by affiliatesh | | 1.94 | % | | 2.13 | % | | 3.95 | % | | 34.28 | % |
| Expenses net of waiver and payments by affiliatesh | | 1.05 | % | | 1.05 | % | | 1.05 | % | | 1.05 | % |
| Net investment incomed | | 0.47 | % | | 0.68 | % | | 1.67 | % | | 1.18 | % |
| |
| Supplemental data | | | | | | | | | | | | |
| Net assets, end of year (000’s) | $ | 2,686 | | $ | 1,988 | | $ | 747 | | $ | 60 | |
| Portfolio turnover rate | | 72.22 | % | | 41.55 | % | | 92.38 | % | | 16.27 | % |
aFor the period July 1, 2013 (commencement of operations) 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 inwhichthe
Fund invests.
eAmount rounds to less than $0.01 per share.
fTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable, and 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 0.70% for the year ended December 31, 2016.
92 Annual Report | The accompanying notes are an integral part of these financial statements.
franklintempleton.com
| | | | | | | | | | | | |
| | | FRANKLIN FUND ALLOCATOR SERIES | |
| | | | | | FINANCIAL HIGHLIGHTS | |
| |
| |
| Franklin LifeSmart 2040 Retirement Target Fund (continued) | | | | | | | | | | | | |
| | | | | | Year Ended December 31, | | | | |
| | | 2016 | | | 2015 | | | 2014 | | | 2013 | a |
| Class R | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | |
| (for a share outstanding throughout the year) | | | | | | | | | | | | |
| Net asset value, beginning of year | $ | 11.05 | | $ | 11.58 | | $ | 11.19 | | $ | 10.00 | |
| Income from investment operationsb: | | | | | | | | | | | | |
| Net investment incomec,d | | 0.13 | | | 0.17 | | | 0.20 | | | 0.07 | |
| Net realized and unrealized gains (losses) | | 0.16 | | | (0.41 | ) | | 0.41 | | | 1.21 | |
| Total from investment operations | | 0.29 | | | (0.24 | ) | | 0.61 | | | 1.28 | |
| Less distributions from: | | | | | | | | | | | | |
| Net investment income and short term gains received from Underlying Funds | | | | | | | | | | | | |
| and exchange traded funds | | (0.08 | ) | | (0.14 | ) | | (0.16 | ) | | (0.09 | ) |
| Net realized gains | | (0.09 | ) | | (0.15 | ) | | (0.06 | ) | | (—)e | |
| Total distributions | | (0.17 | ) | | (0.29 | ) | | (0.22 | ) | | (0.09 | ) |
| Net asset value, end of year | $ | 11.17 | | $ | 11.05 | | $ | 11.58 | | $ | 11.19 | |
| |
| Total returnf | | 2.66 | % | | (2.14 | )% | | 5.48 | % | | 12.81 | % |
| |
| Ratios to average net assetsg | | | | | | | | | | | | |
| Expenses before waiver and payments by affiliatesh | | 1.43 | % | | 1.63 | % | | 3.45 | % | | 33.78 | % |
| Expenses net of waiver and payments by affiliatesh | | 0.54 | % | | 0.55 | % | | 0.55 | % | | 0.55 | % |
| Net investment incomed | | 0.98 | % | | 1.18 | % | | 2.17 | % | | 1.68 | % |
| |
| Supplemental data | | | | | | | | | | | | |
| Net assets, end of year (000’s) | $ | 2,188 | | $ | 1,009 | | $ | 37 | | $ | 11 | |
| Portfolio turnover rate | | 72.22 | % | | 41.55 | % | | 92.38 | % | | 16.27 | % |
aFor the period July 1, 2013 (commencement of operations) 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 inwhichthe
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 0.70% for the year ended December 31, 2016.
franklintempleton.com
The accompanying notes are an integral part of these financial statements. | Annual Report 93
| | | | | | | | | | | | |
| FRANKLIN FUND ALLOCATOR SERIES | | | | | | | | | | | | |
| FINANCIAL HIGHLIGHTS | | | | | | | | | | | | |
| |
| |
| Franklin LifeSmart 2040 Retirement Target Fund (continued) | | | | | | | | | | | | |
| | | | | | Year Ended December 31, | | | | |
| | | 2016 | | | 2015 | | | 2014 | | | 2013 | a |
| Class R6 | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | |
| (for a share outstanding throughout the year) | | | | | | | | | | | | |
| Net asset value, beginning of year | $ | 11.10 | | $ | 11.61 | | $ | 11.20 | | $ | 10.00 | |
| Income from investment operationsb: | | | | | | | | | | | | |
| Net investment incomec,d | | 0.16 | | | 0.19 | | | 0.33 | | | 0.10 | |
| Net realized and unrealized gains (losses) | | 0.18 | | | (0.37 | ) | | 0.35 | | | 1.20 | |
| Total from investment operations | | 0.34 | | | (0.18 | ) | | 0.68 | | | 1.30 | |
| Less distributions from: | | | | | | | | | | | | |
| Net investment income and short term gains received from Underlying Funds | | | | | | | | | | | | |
| and exchange traded funds | | (0.09 | ) | | (0.18 | ) | | (0.21 | ) | | (0.10 | ) |
| Net realized gains | | (0.09 | ) | | (0.15 | ) | | (0.06 | ) | | (—)e | |
| Total distributions | | (0.18 | ) | | (0.33 | ) | | (0.27 | ) | | (0.10 | ) |
| Net asset value, end of year | $ | 11.26 | | $ | 11.10 | | $ | 11.61 | | $ | 11.20 | |
| |
| Total returnf | | 3.16 | % | | (1.62 | )% | | 6.13 | % | | 13.07 | % |
| |
| Ratios to average net assetsg | | | | | | | | | | | | |
| Expenses before waiver and payments by affiliatesh | | 0.65 | % | | 0.82 | % | | 2.55 | % | | 33.68 | % |
| Expenses net of waiver and payments by affiliatesh | | —% | | | —% | | | —% | | | —% | |
| Net investment incomed | | 1.52 | % | | 1.73 | % | | 2.72 | % | | 2.23 | % |
| |
| Supplemental data | | | | | | | | | | | | |
| Net assets, end of year (000’s) | $ | 13,867 | | $ | 12,037 | | $ | 10,154 | | $ | 11 | |
| Portfolio turnover rate | | 72.22 | % | | 41.55 | % | | 92.38 | % | | 16.27 | % |
aFor the period July 1, 2013 (commencement of operations) 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 inwhichthe
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 0.70% for the year ended December 31, 2016.
94 Annual Report | The accompanying notes are an integral part of these financial statements.
franklintempleton.com
| | | | | | | | | | | | |
| | | FRANKLIN FUND ALLOCATOR SERIES | |
| | | | | | FINANCIAL HIGHLIGHTS | |
| |
| |
| Franklin LifeSmart 2040 Retirement Target Fund (continued) | | | | | | | | | | | | |
| | | | | | Year Ended December 31, | | | | |
| | | 2016 | | | 2015 | | | 2014 | | | 2013 | a |
| Advisor Class | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | |
| (for a share outstanding throughout the year) | | | | | | | | | | | | |
| Net asset value, beginning of year | $ | 11.09 | | $ | 11.61 | | $ | 11.20 | | $ | 10.00 | |
| Income from investment operationsb: | | | | | | | | | | | | |
| Net investment incomec,d | | 0.15 | | | 0.40 | | | 0.20 | | | 0.10 | |
| Net realized and unrealized gains (losses) | | 0.19 | | | (0.59 | ) | | 0.48 | | | 1.20 | |
| Total from investment operations | | 0.34 | | | (0.19 | ) | | 0.68 | | | 1.30 | |
| Less distributions from: | | | | | | | | | | | | |
| Net investment income and short term gains received from Underlying Funds | | | | | | | | | | | | |
| and exchange traded funds | | (0.09 | ) | | (0.18 | ) | | (0.21 | ) | | (0.10 | ) |
| Net realized gains | | (0.09 | ) | | (0.15 | ) | | (0.06 | ) | | (—)e | |
| Total distributions | | (0.18 | ) | | (0.33 | ) | | (0.27 | ) | | (0.10 | ) |
| Net asset value, end of year | $ | 11.25 | | $ | 11.09 | | $ | 11.61 | | $ | 11.20 | |
| |
| Total returnf | | 3.15 | % | | (1.72 | )% | | 6.08 | % | | 13.04 | % |
| |
| Ratios to average net assetsg | | | | | | | | | | | | |
| Expenses before waiver and payments by affiliatesh | | 0.94 | % | | 1.13 | % | | 2.95 | % | | 33.28 | % |
| Expenses net of waiver and payments by affiliatesh | | 0.05 | % | | 0.05 | % | | 0.05 | % | | 0.05 | % |
| Net investment incomed | | 1.47 | % | | 1.68 | % | | 2.67 | % | | 2.18 | % |
| |
| Supplemental data | | | | | | | | | | | | |
| Net assets, end of year (000’s) | $ | 141 | | $ | 121 | | $ | 23 | | $ | 23 | |
| Portfolio turnover rate | | 72.22 | % | | 41.55 | % | | 92.38 | % | | 16.27 | % |
aFor the period July 1, 2013 (commencement of operations) 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 inwhichthe
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 0.70% for the year ended December 31, 2016.
franklintempleton.com
The accompanying notes are an integral part of these financial statements. | Annual Report 95
| | | |
| FRANKLIN FUND ALLOCATOR SERIES | | | |
| |
| |
| |
| |
| Statement of Investments, December 31, 2016 | | | |
| |
| Franklin LifeSmart 2040 Retirement Target Fund | | | |
| |
| | Shares | | Value |
| |
| Investments in Underlying Funds and Exchange Traded Funds 99.1% | | | |
| Alternative Strategies 7.7% | | | |
| a Franklin K2 Alternative Strategies Fund, Class R6 | 84,269 | $ | 908,424 |
| a Franklin K2 Long Short Credit Fund, Class R6 | 92,199 | | 948,730 |
| a,b Franklin Pelagos Commodities Strategy Fund, Class R6 | 91,571 | | 604,368 |
| | | | 2,461,522 |
| Domestic Equity 48.3% | | | |
| Financial Select Sector SPDR ETF | 31,100 | | 723,075 |
| a,b Franklin Focused Core Equity Fund, Class R6 | 99,364 | | 1,453,689 |
| a Franklin Growth Fund, Class R6 | 67,717 | | 5,187,811 |
| a,b Franklin Growth Opportunities Fund, Class R6 | 70,803 | | 2,320,926 |
| a Franklin Rising Dividends Fund, Class R6 | 54,989 | | 2,890,228 |
| a,b Franklin Small Cap Growth Fund, Class R6 | 41,829 | | 832,396 |
| a Franklin Utilities Fund, Class R6 | 52,313 | | 929,595 |
| iShares S&P 500 Value ETF | 11,617 | | 1,177,732 |
| | | | 15,515,452 |
| Domestic Fixed Income 12.7% | | | |
| a Franklin Low Duration Total Return Fund, Class R6 | 146,850 | | 1,450,881 |
| a Franklin Strategic Income Fund, Class R6 | 50,488 | | 486,701 |
| a Franklin U.S. Government Securities Fund, Class R6 | 137,788 | | 857,040 |
| iShares Core U.S. Aggregate Bond ETF | 4,600 | | 497,076 |
| iShares iBoxx $ Investment Grade Corporate Bond ETF | 1,500 | | 175,770 |
| iShares TIPS Bond ETF | 5,457 | | 617,569 |
| | | | 4,085,037 |
| Foreign Equity 28.2% | | | |
| a,b Franklin India Growth Fund, Class R6 | 76,925 | | 953,871 |
| a Franklin International Small Cap Growth Fund, Class R6 | 134,099 | | 2,200,574 |
| a Franklin LibertyQ Emerging Markets ETF | 67,200 | | 1,788,192 |
| a Franklin Mutual International Fund, Class R6 | 95,684 | | 1,370,192 |
| iShares Global Infrastructure ETF | 18,842 | | 735,592 |
| iShares MSCI Japan ETF (Japan) | 15,200 | | 742,672 |
| a Templeton Foreign Fund, Class R6 | 184,504 | | 1,267,542 |
| | | | 9,058,635 |
| Foreign Fixed Income 2.2% | | | |
| a,b Templeton Global Total Return Fund, Class R6 | 56,988 | | 689,560 |
| Total Investments in Underlying Funds and Exchange Traded Funds | | | |
| before Short Term Investments (Cost $31,431,207) | | | 31,810,206 |
| |
| |
| Short Term Investments (Cost $183,134) 0.6% | | | |
| Money Market Funds 0.6% | | | |
| a,c Institutional Fiduciary Trust Money Market Portfolio, 0.09% | 183,134 | | 183,134 |
| Total Investments in Underlying Funds and Exchange Traded Funds | | | |
| (Cost $31,614,341) 99.7% | | | 31,993,340 |
| Other Assets, less Liabilities 0.3% | | | 102,210 |
| Net Assets 100.0% | | $ | 32,095,550 |
See Abbreviations on page 154.
aSee Note 3(f) regarding investments in FT Underlying Funds.
bNon-income producing.
cThe rate shown is the annualized seven-day yield at period end.
96 Annual Report | The accompanying notes are an integral part of these financial statements.
franklintempleton.com
| | | | | | | | | | | | | | | |
| | | | | | FRANKLIN FUND ALLOCATOR SERIES | |
| |
| |
| |
| Financial Highlights | | | | | | | | | | | | | | | |
| Franklin LifeSmart 2045 Retirement Target Fund | | | | | | | | | | | | | | | |
| | | | | | Year Ended December 31, | | | | |
| | | 2016 | | | 2015 | | | 2014 | | | 2013 | | | 2012 | |
| Class A | | | | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | | | | |
| (for a share outstanding throughout the year) | | | | | | | | | | | | | | | |
| Net asset value, beginning of year | $ | 11.75 | | $ | 12.70 | | $ | 12.88 | | $ | 10.92 | | $ | 10.01 | |
| Income from investment operationsa: | | | | | | | | | | | | | | | |
| Net investment incomeb,c | | 0.14 | | | 0.16 | | | 0.20 | | | 0.13 | | | 0.15 | |
| Net realized and unrealized gains (losses) | | 0.24 | | | (0.42 | ) | | 0.43 | | | 2.36 | | | 0.91 | |
| Total from investment operations | | 0.38 | | | (0.26 | ) | | 0.63 | | | 2.49 | | | 1.06 | |
| Less distributions from: | | | | | | | | | | | | | | | |
| Net investment income and short term gains received from | | | | | | | | | | | | | | | |
| Underlying Funds and exchange traded funds | | (0.10 | ) | | (0.17 | ) | | (0.22 | ) | | (0.15 | ) | | (0.15 | ) |
| Net realized gains | | (0.17 | ) | | (0.52 | ) | | (0.59 | ) | | (0.38 | ) | | — | |
| Total distributions | | (0.27 | ) | | (0.69 | ) | | (0.81 | ) | | (0.53 | ) | | (0.15 | ) |
| Net asset value, end of year. | $ | 11.86 | | $ | 11.75 | | $ | 12.70 | | $ | 12.88 | | $ | 10.92 | |
| |
| Total returnd | | 3.29 | % | | (2.17 | )% | | 4.94 | % | | 23.07 | % | | 10.61 | % |
| |
| Ratios to average net assets | | | | | | | | | | | | | | | |
| Expenses before waiver and payments by affiliatese | | 0.97 | % | | 1.01 | % | | 1.11 | % | | 1.16 | % | | 1.05 | % |
| Expenses net of waiver and payments by affiliatese | | 0.30 | % | | 0.33 | % | | 0.35 | % | | 0.38 | % | | 0.45 | % |
| Net investment incomec | | 1.15 | % | | 1.26 | % | | 1.57 | % | | 1.08 | % | | 1.41 | % |
| |
| Supplemental data | | | | | | | | | | | | | | | |
| Net assets, end of year (000’s) | $ | 44,521 | | $ | 38,444 | | $ | 34,259 | | $ | 27,991 | | $ | 20,765 | |
| Portfolio turnover rate | | 75.72 | % | | 34.07 | % | | 65.20 | % | | 44.44 | % | | 32.47 | % |
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 inwhichthe
Fund invests.
dTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable.
eDoes 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 0.71% for the year ended December 31, 2016.
franklintempleton.com
The accompanying notes are an integral part of these financial statements. | Annual Report 97
| | | | | | | | | | | | | | | |
| FRANKLIN FUND ALLOCATOR SERIES | | | | | | | | | | | | | | | |
| FINANCIAL HIGHLIGHTS | | | | | | | | | | | | | | | |
| |
| |
| Franklin LifeSmart 2045 Retirement Target Fund (continued) | | | | | | | | | | | | | |
| | | | | | Year Ended December 31, | | | | |
| | | 2016 | | | 2015 | | | 2014 | | | 2013 | | | 2012 | |
| Class C | | | | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | | | | |
| (for a share outstanding throughout the year) | | | | | | | | | | | | | | | |
| Net asset value, beginning of year | $ | 11.48 | | $ | 12.42 | | $ | 12.63 | | $ | 10.73 | | $ | 9.84 | |
| Income from investment operationsa: | | | | | | | | | | | | | | | |
| Net investment incomeb,c | | 0.04 | | | 0.07 | | | 0.11 | | | 0.04 | | | 0.07 | |
| Net realized and unrealized gains (losses) | | 0.23 | | | (0.40 | ) | | 0.41 | | | 2.31 | | | 0.90 | |
| Total from investment operations | | 0.27 | | | (0.33 | ) | | 0.52 | | | 2.35 | | | 0.97 | |
| Less distributions from: | | | | | | | | | | | | | | | |
| Net investment income and short term gains received from | | | | | | | | | | | | | | | |
| Underlying Funds and exchange traded funds | | (0.01 | ) | | (0.09 | ) | | (0.14 | ) | | (0.07 | ) | | (0.08 | ) |
| Net realized gains | | (0.17 | ) | | (0.52 | ) | | (0.59 | ) | | (0.38 | ) | | — | |
| Total distributions | | (0.18 | ) | | (0.61 | ) | | (0.73 | ) | | (0.45 | ) | | (0.08 | ) |
| Net asset value, end of year. | $ | 11.57 | | $ | 11.48 | | $ | 12.42 | | $ | 12.63 | | $ | 10.73 | |
| |
| Total returnd | | 2.43 | % | | (2.82 | )% | | 4.15 | % | | 22.20 | % | | 9.85 | % |
| |
| Ratios to average net assets | | | | | | | | | | | | | | | |
| Expenses before waiver and payments by affiliatese | | 1.72 | % | | 1.73 | % | | 1.81 | % | | 1.86 | % | | 1.74 | % |
| Expenses net of waiver and payments by affiliatese | | 1.05 | % | | 1.05 | % | | 1.05 | % | | 1.08 | % | | 1.14 | % |
| Net investment incomec | | 0.40 | % | | 0.54 | % | | 0.87 | % | | 0.38 | % | | 0.72 | % |
| |
| Supplemental data | | | | | | | | | | | | | | | |
| Net assets, end of year (000’s) | $ | 12,527 | | $ | 12,850 | | $ | 11,785 | | $ | 9,484 | | $ | 6,680 | |
| Portfolio turnover rate | | 75.72 | % | | 34.07 | % | | 65.20 | % | | 44.44 | % | | 32.47 | % |
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 inwhichthe
Fund invests.
dTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable.
eDoes 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 0.71% for the year ended December 31, 2016.
98 Annual Report | The accompanying notes are an integral part of these financial statements.
franklintempleton.com
| | | | | | | | | | | | | | | |
| | | | | | FRANKLIN FUND ALLOCATOR SERIES | |
| | | | | | | | | FINANCIAL HIGHLIGHTS | |
| |
| |
| Franklin LifeSmart 2045 Retirement Target Fund (continued) | | | | | | | | | | | | | |
| | | | | | Year Ended December 31, | | | | |
| | | 2016 | | | 2015 | | | 2014 | | | 2013 | | | 2012 | |
| Class R | | | | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | | | | |
| (for a share outstanding throughout the year) | | | | | | | | | | | | | | | |
| Net asset value, beginning of year | $ | 11.71 | | $ | 12.66 | | $ | 12.82 | | $ | 10.88 | | $ | 9.99 | |
| Income from investment operationsa: | | | | | | | | | | | | | | | |
| Net investment incomeb,c | | 0.11 | | | 0.14 | | | 0.14 | | | 0.10 | | | 0.16 | |
| Net realized and unrealized gains (losses) | | 0.23 | | | (0.42 | ) | | 0.47 | | | 2.35 | | | 0.87 | |
| Total from investment operations | | 0.34 | | | (0.28 | ) | | 0.61 | | | 2.45 | | | 1.03 | |
| Less distributions from: | | | | | | | | | | | | | | | |
| Net investment income and short term gains received from | | | | | | | | | | | | | | | |
| Underlying Funds and exchange traded funds | | (0.07 | ) | | (0.15 | ) | | (0.18 | ) | | (0.13 | ) | | (0.14 | ) |
| Net realized gains | | (0.17 | ) | | (0.52 | ) | | (0.59 | ) | | (0.38 | ) | | — | |
| Total distributions | | (0.24 | ) | | (0.67 | ) | | (0.77 | ) | | (0.51 | ) | | (0.14 | ) |
| Net asset value, end of year. | $ | 11.81 | | $ | 11.71 | | $ | 12.66 | | $ | 12.82 | | $ | 10.88 | |
| |
| Total return | | 2.99 | % | | (2.35 | )% | | 4.75 | % | | 22.76 | % | | 10.35 | % |
| |
| Ratios to average net assets | | | | | | | | | | | | | | | |
| Expenses before waiver and payments by affiliatesd | | 1.22 | % | | 1.23 | % | | 1.31 | % | | 1.36 | % | | 1.25 | % |
| Expenses net of waiver and payments by affiliatesd | | 0.55 | % | | 0.55 | % | | 0.55 | % | | 0.58 | % | | 0.65 | % |
| Net investment incomec | | 0.90 | % | | 1.04 | % | | 1.37 | % | | 0.88 | % | | 1.21 | % |
| |
| Supplemental data | | | | | | | | | | | | | | | |
| Net assets, end of year (000’s) | $ | 4,682 | | $ | 4,327 | | $ | 3,474 | | $ | 4,564 | | $ | 3,336 | |
| Portfolio turnover rate | | 75.72 | % | | 34.07 | % | | 65.20 | % | | 44.44 | % | | 32.47 | % |
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 inwhichthe
Fund invests.
dDoes 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 0.71% for the year ended December 31, 2016.
franklintempleton.com
The accompanying notes are an integral part of these financial statements. | Annual Report 99
| | | | | | | | | | | | |
| FRANKLIN FUND ALLOCATOR SERIES | | | | | | | | | | | | |
| FINANCIAL HIGHLIGHTS | | | | | | | | | | | | |
| |
| |
| Franklin LifeSmart 2045 Retirement Target Fund (continued) | | | | | | | | | | | | |
| | | | | | Year Ended December 31, | | | | |
| | | 2016 | | | 2015 | | | 2014 | | | 2013 | a |
| Class R6 | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | |
| (for a share outstanding throughout the year) | | | | | | | | | | | | |
| Net asset value, beginning of year | $ | 11.83 | | $ | 12.77 | | $ | 12.95 | | $ | 11.67 | |
| Income from investment operationsb: | | | | | | | | | | | | |
| Net investment incomec,d | | 0.17 | | | 0.21 | | | 0.33 | | | 0.60 | |
| Net realized and unrealized gains (losses) | | 0.24 | | | (0.42 | ) | | 0.35 | | | 1.24 | |
| Total from investment operations | | 0.41 | | | (0.21 | ) | | 0.68 | | | 1.84 | |
| Less distributions from: | | | | | | | | | | | | |
| Net investment income and short term gains received from Underlying Funds | | | | | | | | | | | | |
| and exchange traded funds | | (0.13 | ) | | (0.21 | ) | | (0.27 | ) | | (0.18 | ) |
| Net realized gains | | (0.17 | ) | | (0.52 | ) | | (0.59 | ) | | (0.38 | ) |
| Total distributions | | (0.30 | ) | | (0.73 | ) | | (0.86 | ) | | (0.56 | ) |
| Net asset value, end of year | $ | 11.94 | | $ | 11.83 | | $ | 12.77 | | $ | 12.95 | |
| |
| Total returne | | 3.55 | % | | (1.77 | )% | | 5.24 | % | | 16.08 | % |
| |
| Ratios to average net assetsf | | | | | | | | | | | | |
| Expenses before waiver and payments by affiliatesg | | 0.44 | % | | 0.45 | % | | 0.51 | % | | 0.60 | % |
| Expenses net of waiver and payments by affiliatesg | | —% | | | —% | | | —% | | | —% | |
| Net investment incomed | | 1.45 | % | | 1.59 | % | | 1.92 | % | | 1.46 | % |
| |
| Supplemental data | | | | | | | | | | | | |
| Net assets, end of year (000’s) | $ | 10,912 | | $ | 10,975 | | $ | 8,987 | | $ | 1,718 | |
| Portfolio turnover rate | | 75.72 | % | | 34.07 | % | | 65.20 | % | | 44.44 | % |
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 inwhichthe
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 0.71% for the year ended December 31, 2016.
100 Annual Report | The accompanying notes are an integral part of these financial statements.
franklintempleton.com
| | | | | | | | | | | | | | | |
| | | | | | FRANKLIN FUND ALLOCATOR SERIES | |
| | | | | | | | | FINANCIAL HIGHLIGHTS | |
| |
| |
| Franklin LifeSmart 2045 Retirement Target Fund (continued) | | | | | | | | | | | | | |
| | | | | | Year Ended December 31, | | | | |
| | | 2016 | | | 2015 | | | 2014 | | | 2013 | | | 2012 | |
| Advisor Class | | | | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | | | | |
| (for a share outstanding throughout the year) | | | | | | | | | | | | | | | |
| Net asset value, beginning of year | $ | 11.83 | | $ | 12.76 | | $ | 12.94 | | $ | 10.96 | | $ | 10.05 | |
| Income from investment operationsa: | | | | | | | | | | | | | | | |
| Net investment incomeb,c | | 0.15 | | | 0.13 | | | 0.24 | | | 0.17 | | | 0.16 | |
| Net realized and unrealized gains (losses) | | 0.25 | | | (0.34 | ) | | 0.43 | | | 2.37 | | | 0.93 | |
| Total from investment operations | | 0.40 | | | (0.21 | ) | | 0.67 | | | 2.54 | | | 1.09 | |
| Less distributions from: | | | | | | | | | | | | | | | |
| Net investment income and short term gains received from | | | | | | | | | | | | | | | |
| Underlying Funds and exchange traded funds | | (0.12 | ) | | (0.20 | ) | | (0.26 | ) | | (0.18 | ) | | (0.18 | ) |
| Net realized gains | | (0.17 | ) | | (0.52 | ) | | (0.59 | ) | | (0.38 | ) | | — | |
| Total distributions | | (0.29 | ) | | (0.72 | ) | | (0.85 | ) | | (0.56 | ) | | (0.18 | ) |
| Net asset value, end of year. | $ | 11.94 | | $ | 11.83 | | $ | 12.76 | | $ | 12.94 | | $ | 10.96 | |
| |
| Total return | | 3.49 | % | | (1.82 | )% | | 5.20 | % | | 23.48 | % | | 10.86 | % |
| |
| Ratios to average net assets | | | | | | | | | | | | | | | |
| Expenses before waiver and payments by affiliatesd | | 0.72 | % | | 0.73 | % | | 0.81 | % | | 0.86 | % | | 0.75 | % |
| Expenses net of waiver and payments by affiliatesd | | 0.05 | % | | 0.05 | % | | 0.05 | % | | 0.08 | % | | 0.15 | % |
| Net investment incomec | | 1.40 | % | | 1.54 | % | | 1.87 | % | | 1.38 | % | | 1.71 | % |
| |
| Supplemental data | | | | | | | | | | | | | | | |
| Net assets, end of year (000’s) | $ | 479 | | $ | 532 | | $ | 1,576 | | $ | 1,188 | | $ | 709 | |
| Portfolio turnover rate | | 75.72 | % | | 34.07 | % | | 65.20 | % | | 44.44 | % | | 32.47 | % |
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 inwhichthe
Fund invests.
dDoes 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 0.71% for the year ended December 31, 2016.
franklintempleton.com
The accompanying notes are an integral part of these financial statements. | Annual Report 101
| | | | |
| FRANKLIN FUND ALLOCATOR SERIES | | | | |
| |
| |
| |
| |
| Statement of Investments, December 31, 2016 | | | | |
| |
| Franklin LifeSmart 2045 Retirement Target Fund | | | | |
| |
| | Shares | | Value | |
| |
| Investments in Underlying Funds and Exchange Traded Funds 99.6% | | | | |
| Alternative Strategies 7.7% | | | | |
| a Franklin K2 Alternative Strategies Fund, Class R6 | 191,089 | $ | 2,059,939 | |
| a Franklin K2 Long Short Credit Fund, Class R6 | 205,705 | | 2,116,707 | |
| a,b Franklin Pelagos Commodities Strategy Fund, Class R6 | 224,286 | | 1,480,286 | |
| | | | 5,656,932 | |
| Domestic Equity 48.3% | | | | |
| Financial Select Sector SPDR ETF | 72,200 | | 1,678,650 | |
| a,b Franklin Focused Core Equity Fund, Class R6 | 226,425 | | 3,312,605 | |
| a Franklin Growth Fund, Class R6 | 153,668 | | 11,772,478 | |
| a,b Franklin Growth Opportunities Fund, Class R6 | 160,883 | | 5,273,737 | |
| a Franklin Rising Dividends Fund, Class R6 | 124,876 | | 6,563,495 | |
| a,b Franklin Small Cap Growth Fund, Class R6 | 97,302 | | 1,936,310 | |
| a Franklin Utilities Fund, Class R6 | 118,411 | | 2,104,157 | |
| iShares S&P 500 Value ETF | 26,155 | | 2,651,594 | |
| | | | 35,293,026 | |
| Domestic Fixed Income 11.9% | | | | |
| a Franklin Low Duration Total Return Fund, Class R6 | 302,710 | | 2,990,775 | |
| a Franklin Strategic Income Fund, Class R6 | 104,214 | | 1,004,619 | |
| a Franklin U.S. Government Securities Fund, Class R6 | 275,361 | | 1,712,746 | |
| iShares Core U.S. Aggregate Bond ETF | 12,700 | | 1,372,362 | |
| iShares iBoxx $ Investment Grade Corporate Bond ETF | 3,600 | | 421,848 | |
| iShares TIPS Bond ETF | 10,611 | | 1,200,847 | |
| | | | 8,703,197 | |
| Foreign Equity 29.5% | | | | |
| a,b Franklin India Growth Fund, Class R6 | 152,337 | | 1,888,975 | |
| a Franklin International Small Cap Growth Fund, Class R6 | 302,418 | | 4,962,681 | |
| a Franklin LibertyQ Emerging Markets ETF | 161,000 | | 4,284,210 | |
| a Franklin Mutual International Fund, Class R6 | 216,679 | | 3,102,848 | |
| iShares Global Infrastructure ETF | 51,875 | | 2,025,200 | |
| iShares MSCI Japan ETF (Japan) | 35,225 | | 1,721,094 | |
| a Templeton Foreign Fund, Class R6 | 521,744 | | 3,584,384 | |
| | | | 21,569,392 | |
| Foreign Fixed Income 2.2% | | | | |
| a,b Templeton Global Total Return Fund, Class R6 | 129,291 | | 1,564,425 | |
| Total Investments in Underlying Funds and Exchange Traded Funds | | | | |
| before Short Term Investments (Cost $68,098,420) | | | 72,786,972 | |
| |
| |
| Short Term Investments (Cost $468,586) 0.6% | | | | |
| Money Market Funds 0.6% | | | | |
| a,c Institutional Fiduciary Trust Money Market Portfolio, 0.09% | 468,586 | | 468,586 | |
| Total Investments in Underlying Funds and Exchange Traded Funds | | | | |
| (Cost $68,567,006) 100.2% | | | 73,255,558 | |
| Other Assets, less Liabilities (0.2)% | | | (135,007 | ) |
| Net Assets 100.0% | | $ | 73,120,551 | |
See Abbreviations on page 154.
aSee Note 3(f) regarding investments in FT Underlying Funds.
bNon-income producing.
cThe rate shown is the annualized seven-day yield at period end.
102 Annual Report | The accompanying notes are an integral part of these financial statements.
franklintempleton.com
| | | | | | | | | | | | |
| | | FRANKLIN FUND ALLOCATOR SERIES | |
| |
| |
| |
| Financial Highlights | | | | | | | | | | | | |
| Franklin LifeSmart 2050 Retirement Target Fund | | | | | | | | | | | | |
| | | | | | Year Ended December 31, | | | | |
| | | 2016 | | | 2015 | | | 2014 | | | 2013 | a |
| Class A | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | |
| (for a share outstanding throughout the year) | | | | | | | | | | | | |
| Net asset value, beginning of year | $ | 11.11 | | $ | 11.62 | | $ | 11.21 | | $ | 10.00 | |
| Income from investment operationsb: | | | | | | | | | | | | |
| Net investment incomec,d | | 0.14 | | | 0.22 | | | 0.22 | | | 0.10 | |
| Net realized and unrealized gains (losses) | | 0.23 | | | (0.41 | ) | | 0.43 | | | 1.21 | |
| Total from investment operations | | 0.37 | | | (0.19 | ) | | 0.65 | | | 1.31 | |
| Less distributions from: | | | | | | | | | | | | |
| Net investment income and short term gains received from Underlying Funds | | | | | | | | | | | | |
| and exchange traded funds | | (0.09 | ) | | (0.16 | ) | | (0.18 | ) | | (0.10 | ) |
| Net realized gains | | (0.10 | ) | | (0.16 | ) | | (0.06 | ) | | — | |
| Total distributions | | (0.19 | ) | | (0.32 | ) | | (0.24 | ) | | (0.10 | ) |
| Net asset value, end of year | $ | 11.29 | | $ | 11.11 | | $ | 11.62 | | $ | 11.21 | |
| |
| Total returne | | 3.32 | % | | (1.76 | )% | | 5.80 | % | | 13.14 | % |
| |
| Ratios to average net assetsf | | | | | | | | | | | | |
| Expenses before waiver and payments by affiliatesg | | 1.47 | % | | 1.82 | % | | 4.12 | % | | 34.22 | % |
| Expenses net of waiver and payments by affiliatesg | | 0.30 | % | | 0.32 | % | | 0.35 | % | | 0.23 | % |
| Net investment incomed | | 1.17 | % | | 1.47 | % | | 2.21 | % | | 1.88 | % |
| |
| Supplemental data | | | | | | | | | | | | |
| Net assets, end of year (000’s) | $ | 10,597 | | $ | 6,762 | | $ | 2,318 | | $ | 512 | |
| Portfolio turnover rate | | 89.82 | % | | 48.90 | % | | 100.08 | % | | 20.66 | % |
aFor the period July 1, 2013 (commencement of operations) 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 inwhichthe
Fund invests.
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 0.70% for the year ended December 31, 2016.
franklintempleton.com
The accompanying notes are an integral part of these financial statements. | Annual Report 103
| | | | | | | | | | | | |
| FRANKLIN FUND ALLOCATOR SERIES | | | | | | | | | | | | |
| FINANCIAL HIGHLIGHTS | | | | | | | | | | | | |
| |
| |
| Franklin LifeSmart 2050 Retirement Target Fund (continued) | | | | | | | | | | | | |
| | | | | | Year Ended December 31, | | | | |
| | | 2016 | | | 2015 | | | 2014 | | | 2013 | a |
| Class C | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | |
| (for a share outstanding throughout the year) | | | | | | | | | | | | |
| Net asset value, beginning of year | $ | 11.07 | | $ | 11.56 | | $ | 11.18 | | $ | 10.00 | |
| Income from investment operationsb: | | | | | | | | | | | | |
| Net investment incomec,d | | 0.05 | | | 0.07 | | | 0.15 | | | 0.09 | |
| Net realized and unrealized gains (losses) | | 0.23 | | | (0.33 | ) | | 0.42 | | | 1.18 | |
| Total from investment operations | | 0.28 | | | (0.26 | ) | | 0.57 | | | 1.27 | |
| Less distributions from: | | | | | | | | | | | | |
| Net investment income and short term gains received from Underlying Funds | | | | | | | | | | | | |
| and exchange traded funds | | (0.01 | ) | | (0.07 | ) | | (0.13 | ) | | (0.09 | ) |
| Net realized gains | | (0.10 | ) | | (0.16 | ) | | (0.06 | ) | | — | |
| Total distributions | | (0.11 | ) | | (0.23 | ) | | (0.19 | ) | | (0.09 | ) |
| Net asset value, end of year | $ | 11.24 | | $ | 11.07 | | $ | 11.56 | | $ | 11.18 | |
| |
| Total returne | | 2.56 | % | | (2.40 | )% | | 5.03 | % | | 12.82 | % |
| |
| Ratios to average net assetsf | | | | | | | | | | | | |
| Expenses before waiver and payments by affiliatesg | | 2.22 | % | | 2.55 | % | | 4.82 | % | | 35.04 | % |
| Expenses net of waiver and payments by affiliatesg | | 1.05 | % | | 1.05 | % | | 1.05 | % | | 1.05 | % |
| Net investment incomed | | 0.42 | % | | 0.74 | % | | 1.51 | % | | 1.06 | % |
| |
| Supplemental data | | | | | | | | | | | | |
| Net assets, end of year (000’s) | $ | 2,675 | | $ | 1,921 | | $ | 943 | | $ | 82 | |
| Portfolio turnover rate | | 89.82 | % | | 48.90 | % | | 100.08 | % | | 20.66 | % |
aFor the period July 1, 2013 (commencement of operations) 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 inwhichthe
Fund invests.
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 0.70% for the year ended December 31, 2016.
104 Annual Report | The accompanying notes are an integral part of these financial statements.
franklintempleton.com
| | | | | | | | | | | | |
| | | FRANKLIN FUND ALLOCATOR SERIES | |
| | | | | | FINANCIAL HIGHLIGHTS | |
| |
| |
| Franklin LifeSmart 2050 Retirement Target Fund (continued) | | | | | | | | | | | | |
| | | | | | Year Ended December 31, | | | | |
| | | 2016 | | | 2015 | | | 2014 | | | 2013 | a |
| Class R | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | |
| (for a share outstanding throughout the year) | | | | | | | | | | | | |
| Net asset value, beginning of year | $ | 11.12 | | $ | 11.63 | | $ | 11.21 | | $ | 10.00 | |
| Income from investment operationsb: | | | | | | | | | | | | |
| Net investment incomec,d | | 0.11 | | | 0.16 | | | 0.18 | | | 0.06 | |
| Net realized and unrealized gains (losses) | | 0.22 | | | (0.37 | ) | | 0.45 | | | 1.24 | |
| Total from investment operations | | 0.33 | | | (0.21 | ) | | 0.63 | | | 1.30 | |
| Less distributions from: | | | | | | | | | | | | |
| Net investment income and short term gains received from Underlying Funds | | | | | | | | | | | | |
| and exchange traded funds | | (0.06 | ) | | (0.14 | ) | | (0.15 | ) | | (0.09 | ) |
| Net realized gains | | (0.10 | ) | | (0.16 | ) | | (0.06 | ) | | — | |
| Total distributions | | (0.16 | ) | | (0.30 | ) | | (0.21 | ) | | (0.09 | ) |
| Net asset value, end of year | $ | 11.29 | | $ | 11.12 | | $ | 11.63 | | $ | 11.21 | |
| |
| Total returne | | 3.01 | % | | (1.98 | )% | | 5.67 | % | | 13.02 | % |
| |
| Ratios to average net assetsf | | | | | | | | | | | | |
| Expenses before waiver and payments by affiliatesg | | 1.71 | % | | 2.05 | % | | 4.32 | % | | 34.54 | % |
| Expenses net of waiver and payments by affiliatesg | | 0.54 | % | | 0.55 | % | | 0.55 | % | | 0.55 | % |
| Net investment incomed | | 0.93 | % | | 1.24 | % | | 2.01 | % | | 1.56 | % |
| |
| Supplemental data | | | | | | | | | | | | |
| Net assets, end of year (000’s) | $ | 1,219 | | $ | 747 | | $ | 33 | | $ | 11 | |
| Portfolio turnover rate | | 89.82 | % | | 48.90 | % | | 100.08 | % | | 20.66 | % |
aFor the period July 1, 2013 (commencement of operations) 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 inwhichthe
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 0.70% for the year ended December 31, 2016.
franklintempleton.com
The accompanying notes are an integral part of these financial statements. | Annual Report 105
| | | | | | | | | | | | |
| FRANKLIN FUND ALLOCATOR SERIES | | | | | | | | | | | | |
| FINANCIAL HIGHLIGHTS | | | | | | | | | | | | |
| |
| |
| Franklin LifeSmart 2050 Retirement Target Fund (continued) | | | | | | | | | | | | |
| | | | | | Year Ended December 31, | | | | |
| | | 2016 | | | 2015 | | | 2014 | | | 2013 | a |
| Class R6 | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | |
| (for a share outstanding throughout the year) | | | | | | | | | | | | |
| Net asset value, beginning of year | $ | 11.16 | | $ | 11.65 | | $ | 11.23 | | $ | 10.00 | |
| Income from investment operationsb: | | | | | | | | | | | | |
| Net investment incomec,d | | 0.15 | | | 0.19 | | | 0.32 | | | 0.09 | |
| Net realized and unrealized gains (losses) | | 0.24 | | | (0.34 | ) | | 0.37 | | | 1.25 | |
| Total from investment operations | | 0.39 | | | (0.15 | ) | | 0.69 | | | 1.34 | |
| Less distributions from: | | | | | | | | | | | | |
| Net investment income and short term gains received from Underlying Funds | | | | | | | | | | | | |
| and exchange traded funds | | (0.11 | ) | | (0.18 | ) | | (0.21 | ) | | (0.11 | ) |
| Net realized gains | | (0.10 | ) | | (0.16 | ) | | (0.06 | ) | | — | |
| Total distributions | | (0.21 | ) | | (0.34 | ) | | (0.27 | ) | | (0.11 | ) |
| Net asset value, end of year | $ | 11.34 | | $ | 11.16 | | $ | 11.65 | | $ | 11.23 | |
| |
| Total returne | | 3.55 | % | | (1.39 | )% | | 6.16 | % | | 13.39 | % |
| |
| Ratios to average net assetsf | | | | | | | | | | | | |
| Expenses before waiver and payments by affiliatesg | | 0.75 | % | | 1.01 | % | | 3.22 | % | | 34.36 | % |
| Expenses net of waiver and payments by affiliatesg | | —% | | | —% | | | —% | | | —% | |
| Net investment incomed | | 1.47 | % | | 1.79 | % | | 2.56 | % | | 2.11 | % |
| |
| Supplemental data | | | | | | | | | | | | |
| Net assets, end of year (000’s) | $ | 9,174 | | $ | 8,012 | | $ | 6,348 | | $ | 11 | |
| Portfolio turnover rate | | 89.82 | % | | 48.90 | % | | 100.08 | % | | 20.66 | % |
aFor the period July 1, 2013 (commencement of operations) 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 inwhichthe
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 0.70% for the year ended December 31, 2016.
106 Annual Report | The accompanying notes are an integral part of these financial statements.
franklintempleton.com
| | | | | | | | | | | | |
| | | FRANKLIN FUND ALLOCATOR SERIES | |
| | | | | | FINANCIAL HIGHLIGHTS | |
| |
| |
| Franklin LifeSmart 2050 Retirement Target Fund (continued) | | | | | | | | | | | | |
| | | | | | Year Ended December 31, | | | | |
| | | 2016 | | | 2015 | | | 2014 | | | 2013 | a |
| Advisor Class | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | |
| (for a share outstanding throughout the year) | | | | | | | | | | | | |
| Net asset value, beginning of year | $ | 11.16 | | $ | 11.65 | | $ | 11.22 | | $ | 10.00 | |
| Income from investment operationsb: | | | | | | | | | | | | |
| Net investment incomec,d | | 0.15 | | | 0.18 | | | 0.23 | | | 0.10 | |
| Net realized and unrealized gains (losses) | | 0.25 | | | (0.33 | ) | | 0.47 | | | 1.23 | |
| Total from investment operations | | 0.40 | | | (0.15 | ) | | 0.70 | | | 1.33 | |
| Less distributions from: | | | | | | | | | | | | |
| Net investment income and short term gains received from Underlying Funds | | | | | | | | | | | | |
| and exchange traded funds | | (0.11 | ) | | (0.18 | ) | | (0.21 | ) | | (0.11 | ) |
| Net realized gains | | (0.10 | ) | | (0.16 | ) | | (0.06 | ) | | — | |
| Total distributions | | (0.21 | ) | | (0.34 | ) | | (0.27 | ) | | (0.11 | ) |
| Net asset value, end of year | $ | 11.35 | | $ | 11.16 | | $ | 11.65 | | $ | 11.22 | |
| |
| Total returne | | 3.59 | % | | (1.43 | )% | | 6.22 | % | | 13.26 | % |
| |
| Ratios to average net assetsf | | | | | | | | | | | | |
| Expenses before waiver and payments by affiliatesg | | 1.22 | % | | 1.55 | % | | 3.82 | % | | 34.04 | % |
| Expenses net of waiver and payments by affiliatesg | | 0.05 | % | | 0.05 | % | | 0.05 | % | | 0.05 | % |
| Net investment incomed | | 1.42 | % | | 1.74 | % | | 2.51 | % | | 2.06 | % |
| |
| Supplemental data | | | | | | | | | | | | |
| Net assets, end of year (000’s) | $ | 395 | | $ | 394 | | $ | 327 | | $ | 75 | |
| Portfolio turnover rate | | 89.82 | % | | 48.90 | % | | 100.08 | % | | 20.66 | % |
aFor the period July 1, 2013 (commencement of operations) 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 inwhichthe
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 0.70% for the year ended December 31, 2016.
franklintempleton.com
The accompanying notes are an integral part of these financial statements. | Annual Report 107
| | | |
| FRANKLIN FUND ALLOCATOR SERIES | | | |
| |
| |
| |
| |
| Statement of Investments, December 31, 2016 | | | |
| |
| Franklin LifeSmart 2050 Retirement Target Fund | | | |
| |
| | Shares | | Value |
| |
| Investments in Underlying Funds and Exchange Traded Funds 98.9% | | | |
| Alternative Strategies 7.6% | | | |
| a Franklin K2 Alternative Strategies Fund, Class R6 | 62,928 | $ | 678,369 |
| a Franklin K2 Long Short Credit Fund, Class R6 | 67,452 | | 694,080 |
| a,b Franklin Pelagos Commodities Strategy Fund, Class R6 | 70,838 | | 467,531 |
| | | | 1,839,980 |
| Domestic Equity 48.7% | | | |
| Financial Select Sector SPDR ETF | 24,100 | | 560,325 |
| a,b Franklin Focused Core Equity Fund, Class R6 | 78,484 | | 1,148,222 |
| a Franklin Growth Fund, Class R6 | 51,909 | | 3,976,783 |
| a,b Franklin Growth Opportunities Fund, Class R6 | 53,630 | | 1,757,991 |
| a Franklin Rising Dividends Fund, Class R6 | 41,207 | | 2,165,846 |
| a,b Franklin Small Cap Growth Fund, Class R6 | 26,850 | | 534,306 |
| a Franklin Utilities Fund, Class R6 | 39,182 | | 696,255 |
| iShares S&P 500 Value ETF | 8,592 | | 871,057 |
| | | | 11,710,785 |
| Domestic Fixed Income 11.1% | | | |
| a Franklin Low Duration Total Return Fund, Class R6 | 97,303 | | 961,328 |
| a Franklin Strategic Income Fund, Class R6 | 33,073 | | 318,827 |
| a Franklin U.S. Government Securities Fund, Class R6 | 86,663 | | 539,041 |
| iShares Core U.S. Aggregate Bond ETF | 3,600 | | 389,016 |
| iShares iBoxx $ Investment Grade Corporate Bond ETF | 1,200 | | 140,616 |
| iShares TIPS Bond ETF | 2,915 | | 329,890 |
| | | | 2,678,718 |
| Foreign Equity 29.6% | | | |
| a,b Franklin India Growth Fund, Class R6 | 52,795 | | 654,653 |
| a Franklin International Small Cap Growth Fund, Class R6 | 100,058 | | 1,641,956 |
| a Franklin LibertyQ Emerging Markets ETF | 55,900 | | 1,487,499 |
| a Franklin Mutual International Fund, Class R6 | 71,811 | | 1,028,326 |
| iShares Global Infrastructure ETF | 13,443 | | 524,815 |
| iShares MSCI Japan ETF (Japan) | 11,525 | | 563,112 |
| a Templeton Foreign Fund, Class R6 | 176,382 | | 1,211,745 |
| | | | 7,112,106 |
| Foreign Fixed Income 1.9% | | | |
| a,b Templeton Global Total Return Fund, Class R6 | 38,236 | | 462,660 |
| Total Investments in Underlying Funds and Exchange Traded Funds | | | |
| before Short Term Investments (Cost $23,181,648) | | | 23,804,249 |
| |
| |
| Short Term Investments (Cost $181,567) 0.8% | | | |
| Money Market Funds 0.8% | | | |
| a,c Institutional Fiduciary Trust Money Market Portfolio, 0.09% | 181,567 | | 181,567 |
| Total Investments in Underlying Funds and Exchange Traded Funds | | | |
| (Cost $23,363,215) 99.7% | | | 23,985,816 |
| Other Assets, less Liabilities 0.3% | | | 74,022 |
| Net Assets 100.0% | | $ | 24,059,838 |
See Abbreviations on page 154.
aSee Note 3(f) regarding investments in FT Underlying Funds.
bNon-income producing.
cThe rate shown is the annualized seven-day yield at period end.
108 Annual Report | The accompanying notes are an integral part of these financial statements.
franklintempleton.com
FRANKLIN FUND ALLOCATOR SERIES
| | | | | | |
| Financial Highlights | | | | | | |
| Franklin LifeSmart 2055 Retirement Target Fund | | | | | | |
| | | Year Ended December 31, | |
| | | 2016 | | | 2015 | a |
| Class A | | | | | | |
| Per share operating performance | | | | | | |
| (for a share outstanding throughout the year) | | | | | | |
| Net asset value, beginning of year | $ | 9.34 | | $ | 10.00 | |
| Income from investment operationsb: | | | | | | |
| Net investment incomec,d | | 0.12 | | | 0.16 | |
| Net realized and unrealized gains (losses) | | 0.17 | | | (0.70 | ) |
| Total from investment operations | | 0.29 | | | (0.54 | ) |
| Less distributions from: | | | | | | |
| Net investment income and short term gains received from Underlying Funds and exchange traded | | | | | | |
| funds | | (0.10 | ) | | (0.12 | ) |
| Net realized gains | | (0.06 | ) | | — | |
| Total distributions | | (0.16 | ) | | (0.12 | ) |
| Net asset value, end of year. | $ | 9.47 | | $ | 9.34 | |
| |
| Total returne | | 3.13 | % | | (5.40 | )% |
| |
| Ratios to average net assetsf | | | | | | |
| Expenses before waiver and payments by affiliatesg | | 5.09 | % | | 9.66 | % |
| Expenses net of waiver and payments by affiliatesg | | 0.32 | % | | 0.19 | % |
| Net investment incomed | | 1.43 | % | | 2.62 | % |
| |
| Supplemental data | | | | | | |
| Net assets, end of year (000’s) | $ | 2,732 | | $ | 1,817 | |
| Portfolio turnover rate | | 93.35 | % | | 78.16 | % |
aFor the period May 1, 2015 (commencement of operations) to December 31, 2015.
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 inwhichthe
Fund invests.
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, except for non-recurring expenses, if any.
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 0.70% for the year ended December 31, 2016.
franklintempleton.com
The accompanying notes are an integral part of these financial statements. | Annual Report 109
| | | | | | |
| FRANKLIN FUND ALLOCATOR SERIES | | | | | | |
| FINANCIAL HIGHLIGHTS | | | | | | |
| |
| |
| Franklin LifeSmart 2055 Retirement Target Fund (continued) | | | | | | |
| | | Year Ended December 31, | |
| | | 2016 | | | 2015 | a |
| Class C | | | | | | |
| Per share operating performance | | | | | | |
| (for a share outstanding throughout the year) | | | | | | |
| Net asset value, beginning of year | $ | 9.30 | | $ | 10.00 | |
| Income from investment operationsb: | | | | | | |
| Net investment incomec,d | | 0.08 | | | 0.24 | |
| Net realized and unrealized gains (losses) | | 0.14 | | | (0.84 | ) |
| Total from investment operations | | 0.22 | | | (0.60 | ) |
| Less distributions from: | | | | | | |
| Net investment income and short term gains received from Underlying Funds and exchange traded | | | | | | |
| funds | | (0.07 | ) | | (0.10 | ) |
| Net realized gains | | (0.06 | ) | | — | |
| Total distributions | | (0.13 | ) | | (0.10 | ) |
| Net asset value, end of year. | $ | 9.39 | | $ | 9.30 | |
| |
| Total returne | | 2.36 | % | | (5.99 | )% |
| |
| Ratios to average net assetsf | | | | | | |
| Expenses before waiver and payments by affiliatesg | | 5.82 | % | | 10.52 | % |
| Expenses net of waiver and payments by affiliatesg | | 1.05 | % | | 1.05 | % |
| Net investment incomed | | 0.70 | % | | 1.76 | % |
| |
| Supplemental data | | | | | | |
| Net assets, end of year (000’s) | $ | 572 | | $ | 172 | |
| Portfolio turnover rate | | 93.35 | % | | 78.16 | % |
aFor the period May 1, 2015 (commencement of operations) to December 31, 2015.
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 inwhichthe
Fund invests.
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, except for non-recurring expenses, if any.
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 0.70% for the year ended December 31, 2016.
110 Annual Report | The accompanying notes are an integral part of these financial statements.
franklintempleton.com
| | | | | | |
| | | FRANKLIN FUND ALLOCATOR SERIES | |
| | | FINANCIAL HIGHLIGHTS | |
| |
| |
| Franklin LifeSmart 2055 Retirement Target Fund (continued) | | | | | | |
| | | Year Ended December 31, | |
| | | 2016 | | | 2015 | a |
| Class R | | | | | | |
| Per share operating performance | | | | | | |
| (for a share outstanding throughout the year) | | | | | | |
| Net asset value, beginning of year | $ | 9.33 | | $ | 10.00 | |
| Income from investment operationsb: | | | | | | |
| Net investment incomec,d | | 0.12 | | | 0.18 | |
| Net realized and unrealized gains (losses) | | 0.14 | | | (0.74 | ) |
| Total from investment operations | | 0.26 | | | (0.56 | ) |
| Less distributions from: | | | | | | |
| Net investment income and short term gains received from Underlying Funds and exchange traded | | | | |
| funds | | (0.09 | ) | | (0.11 | ) |
| Net realized gains | | (0.06 | ) | | — | |
| Total distributions | | (0.15 | ) | | (0.11 | ) |
| Net asset value, end of year. | $ | 9.44 | | $ | 9.33 | |
| |
| Total returne | | 2.84 | % | | (5.61 | )% |
| |
| Ratios to average net assetsf | | | | | | |
| Expenses before waiver and payments by affiliatesg | | 5.32 | % | | 9.98 | % |
| Expenses net of waiver and payments by affiliatesg | | 0.55 | % | | 0.51 | % |
| Net investment incomed | | 1.20 | % | | 2.30 | % |
| |
| Supplemental data | | | | | | |
| Net assets, end of year (000’s) | $ | 357 | | $ | 41 | |
| Portfolio turnover rate | | 93.35 | % | | 78.16 | % |
aFor the period May 1, 2015 (commencement of operations) to December 31, 2015.
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 inwhichthe
Fund invests.
eTotal return is not annualized for periods less than one year.
fRatios are annualized for periods less than one year, except for non-recurring expenses, if any.
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 0.70% for the year ended December 31, 2016.
franklintempleton.com
The accompanying notes are an integral part of these financial statements. | Annual Report 111
| | | | | | |
| FRANKLIN FUND ALLOCATOR SERIES | | | | | | |
| FINANCIAL HIGHLIGHTS | | | | | | |
| |
| |
| Franklin LifeSmart 2055 Retirement Target Fund (continued) | | | | | | |
| | | Year Ended December 31, | |
| | | 2016 | | | 2015 | a |
| Class R6 | | | | | | |
| Per share operating performance | | | | | | |
| (for a share outstanding throughout the year) | | | | | | |
| Net asset value, beginning of year | $ | 9.34 | | $ | 10.00 | |
| Income from investment operationsb: | | | | | | |
| Net investment incomec,d | | 0.21 | | | 0.32 | |
| Net realized and unrealized gains (losses) | | 0.11 | | | (0.85 | ) |
| Total from investment operations | | 0.32 | | | (0.53 | ) |
| Less distributions from: | | | | | | |
| Net investment income and short term gains received from Underlying Funds and exchange traded | | | | | | |
| funds | | (0.12 | ) | | (0.13 | ) |
| Net realized gains | | (0.06 | ) | | — | |
| Total distributions | | (0.18 | ) | | (0.13 | ) |
| Net asset value, end of year. | $ | 9.48 | | $ | 9.34 | |
| |
| Total returne | | 3.49 | % | | (5.33 | )% |
| |
| Ratios to average net assetsf | | | | | | |
| Expenses before waiver and payments by affiliatesg | | 4.21 | % | | 10.04 | % |
| Expenses net of waiver and payments by affiliatesg | | —% | | | —% | |
| Net investment incomed | | 1.75 | % | | 2.81 | % |
| |
| Supplemental data | | | | | | |
| Net assets, end of year (000’s) | $ | 1,618 | | $ | 92 | |
| Portfolio turnover rate | | 93.35 | % | | 78.16 | % |
aFor the period May 1, 2015 (commencement of operations) to December 31, 2015.
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 inwhichthe
Fund invests.
eTotal return is not annualized for periods less than one year.
fRatios are annualized for periods less than one year, except for non-recurring expenses, if any.
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 0.70% for the year ended December 31, 2016.
112 Annual Report | The accompanying notes are an integral part of these financial statements.
franklintempleton.com
| | | | | | |
| | | FRANKLIN FUND ALLOCATOR SERIES | |
| | | FINANCIAL HIGHLIGHTS | |
| |
| |
| Franklin LifeSmart 2055 Retirement Target Fund (continued) | | | | | | |
| | | Year Ended December 31, | |
| | | 2016 | | | 2015 | a |
| Advisor Class | | | | | | |
| Per share operating performance | | | | | | |
| (for a share outstanding throughout the year) | | | | | | |
| Net asset value, beginning of year | $ | 9.35 | | $ | 10.00 | |
| Income from investment operationsb: | | | | | | |
| Net investment incomec,d | | 0.13 | | | 0.10 | |
| Net realized and unrealized gains (losses) | | 0.18 | | | (0.63 | ) |
| Total from investment operations | | 0.31 | | | (0.53 | ) |
| Less distributions from: | | | | | | |
| Net investment income and short term gains received from Underlying Funds and exchange traded | | | | |
| funds | | (0.12 | ) | | (0.12 | ) |
| Net realized gains | | (0.06 | ) | | — | |
| Total distributions | | (0.18 | ) | | (0.12 | ) |
| Net asset value, end of year. | $ | 9.48 | | $ | 9.35 | |
| |
| Total returne | | 3.45 | % | | (5.37 | )% |
| |
| Ratios to average net assetsf | | | | | | |
| Expenses before waiver and payments by affiliatesg | | 4.82 | % | | 9.52 | % |
| Expenses net of waiver and payments by affiliatesg | | 0.05 | % | | 0.05 | % |
| Net investment incomed | | 1.70 | % | | 2.76 | % |
| |
| Supplemental data | | | | | | |
| Net assets, end of year (000’s) | $ | 13 | | $ | 11 | |
| Portfolio turnover rate | | 93.35 | % | | 78.16 | % |
aFor the period May 1, 2015 (commencement of operations) to December 31, 2015.
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 inwhichthe
Fund invests.
eTotal return is not annualized for periods less than one year.
fRatios are annualized for periods less than one year, except for non-recurring expenses, if any.
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 0.70% for the year ended December 31, 2016.
franklintempleton.com
The accompanying notes are an integral part of these financial statements. | Annual Report 113
| | | |
| FRANKLIN FUND ALLOCATOR SERIES | | | |
| |
| |
| |
| |
| Statement of Investments, December 31, 2016 | | | |
| |
| Franklin LifeSmart 2055 Retirement Target Fund | | | |
| |
| | Shares | | Value |
| |
| Investments in Underlying Funds and Exchange Traded Funds 97.7% | | | |
| Alternative Strategies 7.6% | | | |
| a Franklin K2 Alternative Strategies Fund, Class R6 | 13,497 | $ | 145,498 |
| a Franklin K2 Long Short Credit Fund, Class R6 | 14,523 | | 149,442 |
| a,b Franklin Pelagos Commodities Strategy Fund, Class R6 | 15,880 | | 104,807 |
| | | | 399,747 |
| Domestic Equity 49.0% | | | |
| Financial Select Sector SPDR ETF | 5,300 | | 123,225 |
| a,b Franklin Focused Core Equity Fund, Class R6 | 17,233 | | 252,116 |
| a Franklin Growth Fund, Class R6 | 11,630 | | 890,996 |
| a,b Franklin Growth Opportunities Fund, Class R6 | 11,687 | | 383,080 |
| a Franklin Rising Dividends Fund, Class R6 | 9,309 | | 489,290 |
| a,b Franklin Small Cap Growth Fund, Class R6 | 6,123 | | 121,855 |
| a Franklin Utilities Fund, Class R6 | 8,945 | | 158,959 |
| iShares S&P 500 Value ETF | 1,695 | | 171,839 |
| | | | 2,591,360 |
| Domestic Fixed Income 10.4% | | | |
| a Franklin Low Duration Total Return Fund, Class R6 | 19,590 | | 193,547 |
| a Franklin Strategic Income Fund, Class R6 | 6,730 | | 64,882 |
| a Franklin U.S. Government Securities Fund, Class R6 | 16,523 | | 102,772 |
| iShares Core U.S. Aggregate Bond ETF | 800 | | 86,448 |
| iShares iBoxx $ Investment Grade Corporate Bond ETF | 200 | | 23,436 |
| iShares TIPS Bond ETF | 685 | | 77,522 |
| | | | 548,607 |
| Foreign Equity 29.0% | | | |
| a,b Franklin India Growth Fund, Class R6 | 11,601 | | 143,849 |
| a Franklin International Small Cap Growth Fund, Class R6 | 22,604 | | 370,938 |
| a Franklin LibertyQ Emerging Markets ETF | 11,100 | | 295,371 |
| a Franklin Mutual International Fund, Class R6 | 16,099 | | 230,530 |
| iShares Global Infrastructure ETF | 2,497 | | 97,483 |
| iShares MSCI Japan ETF (Japan) | 2,350 | | 114,821 |
| a Templeton Foreign Fund, Class R6 | 41,260 | | 283,456 |
| | | | 1,536,448 |
| Foreign Fixed Income 1.7% | | | |
| a,b Templeton Global Total Return Fund, Class R6 | 7,573 | | 91,638 |
| Total Investments in Underlying Funds and Exchange Traded Funds | | | |
| before Short Term Investments (Cost $5,106,408) | | | 5,167,800 |
| |
| |
| Short Term Investments (Cost $83,312) 1.6% | | | |
| Money Market Funds 1.6% | | | |
| a,c Institutional Fiduciary Trust Money Market Portfolio, 0.09%. | 83,312 | | 83,312 |
| Total Investments in Underlying Funds and Exchange Traded Funds | | | |
| (Cost $5,189,720) 99.3% | | | 5,251,112 |
| Other Assets, less Liabilities 0.7%. | | | 39,520 |
| Net Assets 100.0% | | $ | 5,290,632 |
See Abbreviations on page 154.
aSee Note 3(f) regarding investments in FT Underlying Funds.
bNon-income producing.
cThe rate shown is the annualized seven-day yield at period end.
114 Annual 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 | | | | | | | | | | | |
| December 31, 2016 | | | | | | | | | | | |
| |
| | | Franklin | | | | Franklin | | | | Franklin | |
| | | LifeSmart | | | | LifeSmart | | | | LifeSmart | |
| | | Retirement | | | 2020 Retirement | | | 2025 Retirement | |
| | | Income Fund | | | Target Fund | | | Target Fund | |
| Assets: | | | | | | | | | | | |
| Investments in securities: | | | | | | | | | | | |
| Cost - Unaffiliated issuers | $ | 2,997,797 | | | $ | — | | | $ | — | |
| Cost - Non-controlled affiliates (Note 3f) | | 51,158,173 | | | | 27,779,227 | | | | 94,744,186 | |
| Cost - Unaffiliated Exchange traded funds | | 12,613,240 | | | | 6,126,895 | | | | 20,727,011 | |
| Total cost of investments | $ | 66,769,210 | | $ | 33,906,122 | | $ | 115,471,197 | |
| Value - Unaffiliated issuers | $ | 3,010,482 | | | $ | — | | | $ | — | |
| Value - Non-controlled affiliates (Note 3f) | | 52,407,050 | | | | 28,485,234 | | | | 103,200,252 | |
| Value - Unaffiliated Exchange traded funds | | 12,577,248 | | | | 6,131,922 | | | | 20,798,226 | |
| Total value of investments | | 67,994,780 | | | | 34,617,156 | | | | 123,998,478 | |
| Receivables: | | | | | | | | | | | |
| Investment securities sold | | 17,290 | | | | — | | | | — | |
| Capital shares sold | | 21,695 | | | | 89,905 | | | | 169,608 | |
| Interest. | | 1,356 | | | | — | | | | — | |
| Affiliates | | 16,779 | | | | 570 | | | | 13,135 | |
| Other assets. | | 5 | | | | 3 | | | | 11 | |
| Total assets | | 68,051,905 | | | | 34,707,634 | | | | 124,181,232 | |
| Liabilities: | | | | | | | | | | | |
| Payables: | | | | | | | | | | | |
| Investment securities purchased | | — | | | | 22,049 | | | | — | |
| Capital shares redeemed | | 48,356 | | | | 69,235 | | | | 164,668 | |
| Asset allocation fees | | — | | | | 311 | | | | — | |
| Distribution fees | | 50,261 | | | | 18,883 | | | | 80,811 | |
| Transfer agent fees | | 2,585 | | | | 6,522 | | | | 22,036 | |
| Reports to shareholders | | 8,708 | | | | 3,805 | | | | 14,121 | |
| Professional fees | | 67,191 | | | | 21,606 | | | | 21,979 | |
| Funds advanced by custodian. | | 43,204 | | | | — | | | | 313 | |
| Accrued expenses and other liabilities | | 3,000 | | | | 2,781 | | | | 3,038 | |
| Total liabilities | | 223,305 | | | | 145,192 | | | | 306,966 | |
| Net assets, at value | $ | 67,828,600 | | $ | 34,562,442 | | $ | 123,874,266 | |
| Net assets consist of: | | | | | | | | | | | |
| Paid-in capital | $ | 68,842,007 | | $ | 36,225,936 | | $ | 119,766,357 | |
| Undistributed net investment income | | — | | | | — | | | | 512,171 | |
| Net unrealized appreciation (depreciation) | | 1,225,570 | | | | 711,034 | | | | 8,527,281 | |
| Accumulated net realized gain (loss) | | (2,238,977 | ) | | | (2,374,528 | ) | | | (4,931,543 | ) |
| Net assets, at value | $ | 67,828,600 | | $ | 34,562,442 | | $ | 123,874,266 | |
franklintempleton.com
The accompanying notes are an integral part of these financial statements. | Annual Report 115
| | | | | | | | |
| FRANKLIN FUND ALLOCATOR SERIES | | | | | | | | |
| FINANCIAL STATEMENTS | | | | | | | | |
| |
| |
| Statements of Assets and Liabilities (continued) | | | | | | | | |
| December 31, 2016 | | | | | | | | |
| |
| | | | Franklin | | | Franklin | | Franklin |
| | | | LifeSmart | | | LifeSmart | | LifeSmart |
| | | | Retirement | | | 2020 Retirement | | 2025 Retirement |
| | | | Income Fund | | | Target Fund | | Target Fund |
| Class A: | | | | | | | | |
| Net assets, at value | $ | | 39,713,064 | $ | | 19,292,260 | $ | 74,745,551 |
| Shares outstanding | | | 3,623,222 | | | 1,806,565 | | 6,503,715 |
| Net asset value per sharea | | $ | 10.96 | | $ | 10.68 | $ | 11.49 |
| Maximum offering price per share (net asset value per share ÷ 94.25%) | | $ | 11.63 | | $ | 11.33 | $ | 12.19 |
| Class C: | | | | | | | | |
| Net assets, at value | $ | | 17,570,140 | $ | | 5,137,799 | $ | 26,400,564 |
| Shares outstanding | | | 1,622,112 | | | 483,782 | | 2,332,670 |
| Net asset value and maximum offering price per sharea | | $ | 10.83 | | $ | 10.62 | $ | 11.32 |
| Class R: | | | | | | | | |
| Net assets, at value | $ | | 4,919,741 | $ | | 3,145,284 | $ | 7,410,865 |
| Shares outstanding | | | 450,653 | | | 295,064 | | 647,729 |
| Net asset value and maximum offering price per share | | $ | 10.92 | | $ | 10.66 | $ | 11.44 |
| Class R6: | | | | | | | | |
| Net assets, at value | $ | | 3,930,117 | $ | | 6,669,794 | $ | 13,936,365 |
| Shares outstanding | | | 356,831 | | | 623,171 | | 1,209,285 |
| Net asset value and maximum offering price per share | | $ | 11.01 | | $ | 10.70 | $ | 11.52 |
| Advisor Class: | | | | | | | | |
| Net assets, at value | $ | | 1,695,538 | $ | | 317,305 | $ | 1,380,921 |
| Shares outstanding | | | 154,090 | | | 29,650 | | 119,931 |
| Net asset value and maximum offering price per share | | $ | 11.00 | | $ | 10.70 | $ | 11.51 |
aRedemption price is equal to net asset value less contingent deferred sales charges, if applicable.
116 Annual 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) | | | | | | | | | |
| December 31, 2016 | | | | | | | | | |
| |
| | | Franklin | | | Franklin | | | Franklin | |
| | | LifeSmart | | | LifeSmart | | | LifeSmart | |
| | | 2030 Retirement | | | 2035 Retirement | | | 2040 Retirement | |
| | | Target Fund | | | Target Fund | | | Target Fund | |
| Assets: | | | | | | | | | |
| Investments in securities: | | | | | | | | | |
| Cost - Non-controlled affiliates (Note 3f) | $ | 31,324,427 | | $ | 81,923,532 | | $ | 26,973,320 | |
| Cost - Unaffiliated Exchange traded funds | | 5,823,687 | | | 16,010,430 | | | 4,641,021 | |
| Total cost of investments | $ | 37,148,114 | | $ | 97,933,962 | | $ | 31,614,341 | |
| Value - Non-controlled affiliates (Note 3f) | $ | 31,923,312 | | $ | 88,756,330 | | $ | 27,323,854 | |
| Value - Unaffiliated Exchange traded funds | | 5,871,713 | | | 16,105,458 | | | 4,669,486 | |
| Total value of investments | | 37,795,025 | | | 104,861,788 | | | 31,993,340 | |
| Receivables: | | | | | | | | | |
| Capital shares sold | | 452,933 | | | 527,186 | | | 159,118 | |
| Affiliates | | 2,264 | | | 14,760 | | | 827 | |
| Other assets | | 4 | | | 7 | | | — | |
| Total assets | | 38,250,226 | | | 105,403,741 | | | 32,153,285 | |
| Liabilities: | | | | | | | | | |
| Payables: | | | | | | | | | |
| Investment securities purchased | | 77,821 | | | 111,141 | | | — | |
| Capital shares redeemed | | 23,174 | | | 147,468 | | | 14,285 | |
| Distribution fees | | 16,253 | | | 59,430 | | | 11,430 | |
| Transfer agent fees | | 4,704 | | | 18,192 | | | 6,748 | |
| Reports to shareholders | | 4,371 | | | 12,640 | | | 3,482 | |
| Professional fees | | 21,609 | | | 21,812 | | | 21,771 | |
| Funds advanced by custodian | | — | | | 122 | | | — | |
| Accrued expenses and other liabilities | | 2,764 | | | 2,956 | | | 19 | |
| Total liabilities. | | 150,696 | | | 373,761 | | | 57,735 | |
| Net assets, at value | $ | 38,099,530 | | $ | 105,029,980 | | $ | 32,095,550 | |
| Net assets consist of: | | | | | | | | | |
| Paid-in capital | $ | 39,180,696 | | $ | 100,693,060 | | $ | 32,757,492 | |
| Undistributed net investment income. | | 270,932 | | | 748,992 | | | 240,354 | |
| Net unrealized appreciation (depreciation) | | 646,911 | | | 6,927,826 | | | 378,999 | |
| Accumulated net realized gain (loss) | | (1,999,009 | ) | | (3,339,898 | ) | | (1,281,295 | ) |
| Net assets, at value | $ | 38,099,530 | | $ | 105,029,980 | | $ | 32,095,550 | |
franklintempleton.com
The accompanying notes are an integral part of these financial statements. | Annual Report 117
| | | | | | | | |
| FRANKLIN FUND ALLOCATOR SERIES | | | | | | | | |
| FINANCIAL STATEMENTS | | | | | | | | |
| |
| |
| Statements of Assets and Liabilities (continued) | | | | | | | | |
| December 31, 2016 | | | | | | | | |
| |
| | | | Franklin | | Franklin | | | Franklin |
| | | | LifeSmart | | LifeSmart | | | LifeSmart |
| | | | 2030 Retirement | | 2035 Retirement | | | 2040 Retirement |
| | | | Target Fund | | Target Fund | | | Target Fund |
| Class A: | | | | | | | | |
| Net assets, at value | $ | | 16,787,677 | $ | 56,650,083 | $ | | 13,212,664 |
| Shares outstanding. | | | 1,515,276 | | 4,775,880 | | | 1,179,682 |
| Net asset value per sharea | | $ | 11.08 | $ | 11.86 | | $ | 11.20 |
| Maximum offering price per share (net asset value per share ÷ 94.25%) | | $ | 11.76 | $ | 12.58 | | $ | 11.88 |
| Class C: | | | | | | | | |
| Net assets, at value | $ | | 5,126,842 | $ | 18,781,084 | $ | | 2,686,188 |
| Shares outstanding. | | | 467,184 | | 1,616,972 | | | 243,147 |
| Net asset value and maximum offering price per sharea | | $ | 10.97 | $ | 11.61 | | $ | 11.05 |
| Class R: | | | | | | | | |
| Net assets, at value | $ | | 1,398,300 | $ | 6,080,074 | $ | | 2,188,479 |
| Shares outstanding. | | | 126,455 | | 513,384 | | | 195,910 |
| Net asset value and maximum offering price per share | | $ | 11.06 | $ | 11.84 | | $ | 11.17 |
| Class R6: | | | | | | | | |
| Net assets, at value | $ | | 14,454,850 | $ | 22,068,080 | $ | | 13,867,443 |
| Shares outstanding. | | | 1,300,230 | | 1,848,351 | | | 1,231,412 |
| Net asset value and maximum offering price per share | | $ | 11.12 | $ | 11.94 | | $ | 11.26 |
| Advisor Class: | | | | | | | | |
| Net assets, at value | $ | | 331,861 | $ | 1,450,659 | $ | | 140,776 |
| Shares outstanding. | | | 29,878 | | 121,390 | | | 12,509 |
| Net asset value and maximum offering price per share | | $ | 11.11 | $ | 11.95 | | $ | 11.25 |
aRedemption price is equal to net asset value less contingent deferred sales charges, if applicable.
118 Annual 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) | | | | | | | | | |
| December 31, 2016 | | | | | | | | | |
| |
| | | Franklin | | | Franklin | | | Franklin | |
| | | LifeSmart | | | LifeSmart | | | LifeSmart | |
| | | 2045 Retirement | | | 2050 Retirement | | | 2055 Retirement | |
| | | Target Fund | | | Target Fund | | | Target Fund | |
| Assets: | | | | | | | | | |
| Investments in securities: | | | | | | | | | |
| Cost - Non-controlled affiliates (Note 3f) | $ | 57,553,031 | | $ | 20,018,112 | | $ | 4,494,964 | |
| Cost - Unaffiliated Exchange traded funds | | 11,013,975 | | | 3,345,103 | | | 694,756 | |
| Total cost of investments | $ | 68,567,006 | | $ | 23,363,215 | | $ | 5,189,720 | |
| Value - Non-controlled affiliates (Note 3f) | $ | 62,183,963 | | $ | 20,606,985 | | $ | 4,556,338 | |
| Value - Unaffiliated Exchange traded funds | | 11,071,595 | | | 3,378,831 | | | 694,774 | |
| Total value of investments | | 73,255,558 | | | 23,985,816 | | | 5,251,112 | |
| Receivables: | | | | | | | | | |
| Capital shares sold | | 214,008 | | | 153,902 | | | 56,961 | |
| Affiliates | | 4,771 | | | 2,599 | | | 10,268 | |
| Other assets | | 6 | | | — | | | 2 | |
| Total assets | | 73,474,343 | | | 24,142,317 | | | 5,318,343 | |
| Liabilities: | | | | | | | | | |
| Payables: | | | | | | | | | |
| Investment securities purchased | | 55,775 | | | 22,045 | | | 140 | |
| Capital shares redeemed | | 203,137 | | | 19,065 | | | 186 | |
| Distribution fees | | 43,098 | | | 9,610 | | | 1,777 | |
| Transfer agent fees | | 15,709 | | | 5,449 | | | 1,769 | |
| Reports to shareholders | | 10,786 | | | 4,603 | | | 2,320 | |
| Professional fees | | 21,993 | | | 21,703 | | | 21,496 | |
| Funds advanced by custodian | | 404 | | | — | | | — | |
| Accrued expenses and other liabilities | | 2,890 | | | 4 | | | 23 | |
| Total liabilities. | | 353,792 | | | 82,479 | | | 27,711 | |
| Net assets, at value | $ | 73,120,551 | | $ | 24,059,838 | | $ | 5,290,632 | |
| Net assets consist of: | | | | | | | | | |
| Paid-in capital | $ | 69,986,574 | | $ | 24,338,456 | | $ | 5,343,929 | |
| Undistributed net investment income. | | 515,400 | | | 181,312 | | | 18,072 | |
| Net unrealized appreciation (depreciation) | | 4,688,552 | | | 622,601 | | | 61,392 | |
| Accumulated net realized gain (loss) | | (2,069,975 | ) | | (1,082,531 | ) | | (132,761 | ) |
| Net assets, at value | $ | 73,120,551 | | $ | 24,059,838 | | $ | 5,290,632 | |
franklintempleton.com
The accompanying notes are an integral part of these financial statements. | Annual Report 119
| | | | | | | | |
| FRANKLIN FUND ALLOCATOR SERIES | | | | | | | | |
| FINANCIAL STATEMENTS | | | | | | | | |
| |
| |
| Statements of Assets and Liabilities (continued) | | | | | | | | |
| December 31, 2016 | | | | | | | | |
| |
| | | Franklin | | | Franklin | | | Franklin |
| | | LifeSmart | | | LifeSmart | | | LifeSmart |
| | | 2045 Retirement | | | 2050 Retirement | | | 2055 Retirement |
| | | Target Fund | | | Target Fund | | | Target Fund |
| Class A: | | | | | | | | |
| Net assets, at value | $ | 44,520,585 | $ | | 10,596,757 | $ | | 2,731,645 |
| Shares outstanding. | | 3,755,025 | | | 938,426 | | | 288,424 |
| Net asset value per sharea | $ | 11.86 | | $ | 11.29 | | $ | 9.47 |
| Maximum offering price per share (net asset value per share ÷ 94.25%) | $ | 12.58 | | $ | 11.98 | | $ | 10.05 |
| Class C: | | | | | | | | |
| Net assets, at value | $ | 12,526,749 | $ | | 2,675,003 | $ | | 571,741 |
| Shares outstanding. | | 1,082,376 | | | 238,061 | | | 60,888 |
| Net asset value and maximum offering price per sharea | $ | 11.57 | | $ | 11.24 | | $ | 9.39 |
| Class R: | | | | | | | | |
| Net assets, at value | $ | 4,682,139 | $ | | 1,218,890 | $ | | 356,856 |
| Shares outstanding. | | 396,539 | | | 107,931 | | | 37,786 |
| Net asset value and maximum offering price per share | $ | 11.81 | | $ | 11.29 | | $ | 9.44 |
| Class R6: | | | | | | | | |
| Net assets, at value | $ | 10,912,112 | $ | | 9,173,694 | $ | | 1,617,539 |
| Shares outstanding. | | 914,274 | | | 808,678 | | | 170,704 |
| Net asset value and maximum offering price per share | $ | 11.94 | | $ | 11.34 | | $ | 9.48 |
| Advisor Class: | | | | | | | | |
| Net assets, at value | $ | 478,966 | $ | | 395,494 | $ | | 12,851 |
| Shares outstanding. | | 40,120 | | | 34,858 | | | 1,356 |
| Net asset value and maximum offering price per share | $ | 11.94 | | $ | 11.35 | | $ | 9.48 |
aRedemption price is equal to net asset value less contingent deferred sales charges, if applicable.
120 Annual 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 year ended December 31, 2016 | | | | | | | | | |
| |
| | | Franklin | | | Franklin | | | Franklin | |
| | | LifeSmart | | | LifeSmart | | | LifeSmart | |
| | | Retirement | | 2020 Retirement | | | 2025 Retirement | |
| | | Income Fund | | Target Fund | | | Target Fund | |
| Investment income: | | | | | | | | | |
| Dividends: | | | | | | | | | |
| Non-controlled affiliates (Note 3f) | $ | 1,473,025 | | $ | 401,699 | | $ | 1,353,437 | |
| Unaffiliated Exchange traded funds | | 464,816 | | | 136,011 | | | 507,338 | |
| Interest | | 64,749 | | | — | | | — | |
| Total investment income | | 2,002,590 | | | 537,710 | | | 1,860,775 | |
| Expenses: | | | | | | | | | |
| Management and asset allocation fees (Note 3a) | | 178,712 | | | 86,717 | | | 313,585 | |
| Distribution fees: (Note 3c) | | | | | | | | | |
| Class A | | 104,171 | | | 47,179 | | | 183,812 | |
| Class C. | | 187,148 | | | 51,269 | | | 278,214 | |
| Class R. | | 23,204 | | | 17,336 | | | 33,173 | |
| Transfer agent fees: (Note 3e) | | | | | | | | | |
| Class A | | 64,636 | | | 29,539 | | | 103,319 | |
| Class C. | | 29,278 | | | 8,023 | | | 39,231 | |
| Class R. | | 7,199 | | | 5,425 | | | 9,323 | |
| Class R6 | | 2,746 | | | 183 | | | 346 | |
| Advisor Class | | 1,403 | | | 493 | | | 1,710 | |
| Custodian fees (Note 4) | | 393 | | | 168 | | | 373 | |
| Reports to shareholders | | 20,527 | | | 10,336 | | | 34,456 | |
| Registration and filing fees | | 75,438 | | | 65,756 | | | 72,444 | |
| Professional fees | | 70,266 | | | 26,381 | | | 27,283 | |
| Trustees’ fees and expenses | | 561 | | | — | | | 966 | |
| Other | | 8,245 | | | 6,803 | | | 7,836 | |
| Total expenses | | 773,927 | | | 355,608 | | | 1,106,071 | |
| Expenses waived/paid by affiliates (Note 3f and 3g) | | (426,319 | ) | | (226,506 | ) | | (556,289 | ) |
| Net expenses | | 347,608 | | | 129,102 | | | 549,782 | |
| Net investment income | | 1,654,982 | | | 408,608 | | | 1,310,993 | |
| Realized and unrealized gains (losses): | | | | | | | | | |
| Net realized gain (loss) from: | | | | | | | | | |
| Sale of investments: | | | | | | | | | |
| Unaffiliated issuers | | (2,281 | ) | | — | | | — | |
| Non-controlled affiliates (Note 3f) | | (1,176,089 | ) | | (1,714,664 | ) | | (3,724,138 | ) |
| Unaffiliated Exchange traded funds. | | (159,396 | ) | | (293,707 | ) | | (1,387,537 | ) |
| Realized gain distributions: | | | | | | | | | |
| Non-controlled affiliates (Note 3f) | | 28,153 | | | 289,506 | | | 1,337,912 | |
| Net realized gain (loss) | | (1,309,613 | ) | | (1,718,865 | ) | | (3,773,763 | ) |
| Net change in unrealized appreciation (depreciation) on investments | | 3,026,905 | | | 2,259,234 | | | 6,097,411 | |
| Net realized and unrealized gain (loss) | | 1,717,292 | | | 540,369 | | | 2,323,648 | |
| Net increase (decrease) in net assets resulting from operations | $ | 3,372,274 | | $ | 948,977 | | $ | 3,634,641 | |
franklintempleton.com
The accompanying notes are an integral part of these financial statements. | Annual Report 121
| | | | | | | | | |
| FRANKLIN FUND ALLOCATOR SERIES | | | | | | | | | |
| FINANCIAL STATEMENTS | | | | | | | | | |
| |
| |
| Statements of Operations (continued) | | | | | | | | | |
| for the year ended December 31, 2016 | | | | | | | | | |
| |
| | | Franklin | | | Franklin | | | Franklin | |
| | | LifeSmart | | | LifeSmart | | | LifeSmart | |
| | | 2030 Retirement | | | 2035 Retirement | | | 2040 Retirement | |
| | | Target Fund | | | Target Fund | | | Target Fund | |
| Investment income: | | | | | | | | | |
| Dividends: | | | | | | | | | |
| Non-controlled affiliates (Note 3f) | $ | 382,497 | | $ | 1,068,347 | | $ | 305,823 | |
| Unaffiliated Exchange traded funds | | 131,060 | | | 395,452 | | | 100,472 | |
| Total investment income | | 513,557 | | | 1,463,799 | | | 406,295 | |
| Expenses: | | | | | | | | | |
| Asset allocation fees (Note 3a) | | 87,208 | | | 252,620 | | | 66,920 | |
| Distribution fees: (Note 3c) | | | | | | | | | |
| Class A | | 38,179 | | | 138,138 | | | 25,182 | |
| Class C | | 46,900 | | | 187,099 | | | 22,972 | |
| Class R | | 6,423 | | | 25,026 | | | 7,370 | |
| Transfer agent fees: (Note 3e) | | | | | | | | | |
| Class A | | 31,246 | | | 101,363 | | | 29,508 | |
| Class C | | 9,597 | | | 34,323 | | | 6,730 | |
| Class R | | 2,639 | | | 9,182 | | | 4,386 | |
| Class R6 | | 233 | | | 292 | | | 240 | |
| Advisor Class | | 619 | | | 2,843 | | | 332 | |
| Custodian fees (Note 4) | | 109 | | | 395 | | | 96 | |
| Reports to shareholders. | | 11,367 | | | 30,721 | | | 9,568 | |
| Registration and filing fees | | 66,097 | | | 72,355 | | | 65,853 | |
| Professional fees | | 26,442 | | | 27,009 | | | 26,484 | |
| Trustees’ fees and expenses | | — | | | 772 | | | — | |
| Other | | 6,781 | | | 7,531 | | | 3,928 | |
| Total expenses | | 333,840 | | | 889,669 | | | 269,569 | |
| Expenses waived/paid by affiliates (Note 3f and 3g) | | (231,611 | ) | | (499,240 | ) | | (207,125 | ) |
| Net expenses | | 102,229 | | | 390,429 | | | 62,444 | |
| Net investment income | | 411,328 | | | 1,073,370 | | | 343,851 | |
| Realized and unrealized gains (losses): | | | | | | | | | |
| Net realized gain (loss) from: | | | | | | | | | |
| Sale of investments: | | | | | | | | | |
| Non-controlled affiliates (Note 3f) | | (1,800,666 | ) | | (2,840,175 | ) | | (1,193,626 | ) |
| Unaffiliated Exchange traded funds | | (310,895 | ) | | (1,228,102 | ) | | (255,486 | ) |
| Realized gain distributions: | | | | | | | | | |
| Non-controlled affiliates (Note 3f) | | 457,505 | | | 1,389,579 | | | 432,432 | |
| Net realized gain (loss) | | (1,654,056 | ) | | (2,678,698 | ) | | (1,016,680 | ) |
| Net change in unrealized appreciation (depreciation) on investments. | | 2,378,481 | | | 4,700,786 | | | 1,592,824 | |
| Net realized and unrealized gain (loss) | | 724,425 | | | 2,022,088 | | | 576,144 | |
| Net increase (decrease) in net assets resulting from operations | $ | 1,135,753 | | $ | 3,095,458 | | $ | 919,995 | |
122 Annual Report | The accompanying notes are an integral part of these financial statements.
franklintempleton.com
| | | | | | | | | |
| | | FRANKLIN FUND ALLOCATOR SERIES | |
| | | | | FINANCIAL STATEMENTS | |
| |
| |
| Statements of Operations (continued) | | | | | | | | | |
| for the year ended December 31, 2016 | | | | | | | | | |
| |
| | | Franklin | | | Franklin | | | Franklin | |
| | | LifeSmart | | LifeSmart | | | LifeSmart | |
| | | 2045 Retirement | | 2050 Retirement | | | 2055 Retirement | |
| | | Target Fund | | Target Fund | | | Target Fund | |
| Investment income: | | | | | | | | | |
| Dividends: | | | | | | | | | |
| Non-controlled affiliates (Note 3f) | $ | 735,988 | | $ | 236,865 | | $ | 46,682 | |
| Unaffiliated Exchange traded funds | | 267,655 | | | 81,268 | | | 11,654 | |
| Interest | | — | | | 13 | | | — | |
| Total investment income | | 1,003,643 | | | 318,146 | | | 58,336 | |
| Expenses: | | | | | | | | | |
| Asset allocation fees (Note 3a) | | 173,082 | | | 53,902 | | | 8,322 | |
| Distribution fees: (Note 3c) | | | | | | | | | |
| Class A | | 102,938 | | | 20,967 | | | 5,791 | |
| Class C | | 123,731 | | | 23,041 | | | 3,127 | |
| Class R | | 21,149 | | | 4,888 | | | 1,037 | |
| Transfer agent fees: (Note 3e) | | | | | | | | | |
| Class A | | 115,256 | | | 39,708 | | | 13,006 | |
| Class C | | 34,634 | | | 10,909 | | | 1,918 | |
| Class R | | 11,838 | | | 4,677 | | | 1,278 | |
| Class R6 | | 265 | | | 231 | | | 213 | |
| Advisor Class | | 1,621 | | | 1,845 | | | 71 | |
| Custodian fees (Note 4) | | 372 | | | 307 | | | 31 | |
| Reports to shareholders. | | 27,414 | | | 12,077 | | | 5,377 | |
| Registration and filing fees | | 69,897 | | | 66,100 | | | 66,358 | |
| Professional fees | | 27,070 | | | 26,422 | | | 23,940 | |
| Trustees’ fees and expenses | | 523 | | | — | | | — | |
| Amortization of offering costs (Note 1e) | | — | | | — | | | 35,217 | |
| Other | | 7,260 | | | 3,916 | | | 1,133 | |
| Total expenses | | 717,050 | | | 268,990 | | | 166,819 | |
| Expenses waived/paid by affiliates (Note 3f and 3g) | | (440,137 | ) | | (214,126 | ) | | (155,617 | ) |
| Net expenses | | 276,913 | | | 54,864 | | | 11,202 | |
| Net investment income | | 726,730 | | | 263,282 | | | 47,134 | |
| Realized and unrealized gains (losses): | | | | | | | | | |
| Net realized gain (loss) from: | | | | | | | | | |
| Sale of investments: | | | | | | | | | |
| Non-controlled affiliates (Note 3f) | | (1,841,574 | ) | | (882,405 | ) | | (107,052 | ) |
| Unaffiliated Exchange traded funds | | (767,250 | ) | | (157,604 | ) | | (18,551 | ) |
| Realized gain distributions: | | | | | | | | | |
| Non-controlled affiliates (Note 3f) | | 994,820 | | | 327,694 | | | 71,086 | |
| Net realized gain (loss) | | (1,614,004 | ) | | (712,315 | ) | | (54,517 | ) |
| Net change in unrealized appreciation (depreciation) on investments. | | 3,133,971 | | | 1,368,939 | | | 129,837 | |
| Net realized and unrealized gain (loss) | | 1,519,967 | | | 656,624 | | | 75,320 | |
| Net increase (decrease) in net assets resulting from operations | $ | 2,246,697 | | $ | 919,906 | | $ | 122,454 | |
franklintempleton.com
The accompanying notes are an integral part of these financial statements. | Annual Report 123
| | | | | | | | | | | | |
| FRANKLIN FUND ALLOCATOR SERIES | | | | | | | | | | | | |
| FINANCIAL STATEMENTS | | | | | | | | | | | | |
| |
| |
| Statements of Changes in Net Assets | | | | | | | | | | | | |
| |
| | | Franklin LifeSmart Retirement | | | Franklin LifeSmart 2020 | |
| | | Income Fund | | | Retirement Target Fund | |
| | | Year Ended December 31, | | | Year Ended December 31, | |
| | | 2016 | | | 2015 | | | 2016 | | | 2015 | |
| Increase (decrease) in net assets: | | | | | | | | | | | | |
| Operations: | | | | | | | | | | | | |
| Net investment income | $ | 1,654,982 | | $ | 1,691,362 | | $ | 408,608 | | $ | 531,484 | |
| Net realized gain (loss) | | (1,309,613 | ) | | 939,007 | | | (1,718,865 | ) | | (215,540 | ) |
| Net change in unrealized appreciation (depreciation) | | 3,026,905 | | | (4,926,874 | ) | | 2,259,234 | | | (1,337,865 | ) |
| Net increase (decrease) in net assets resulting from | | | | | | | | | | | | |
| operations. | | 3,372,274 | | | (2,296,505 | ) | | 948,977 | | | (1,021,921 | ) |
| Distributions to shareholders from: | | | | | | | | | | | | |
| Net investment income: | | | | | | | | | | | | |
| Class A | | (1,067,178 | ) | | (1,088,067 | ) | | (295,979 | ) | | (308,653 | ) |
| Class C | | (373,226 | ) | | (354,116 | ) | | (42,176 | ) | | (56,340 | ) |
| Class R | | (115,568 | ) | | (84,165 | ) | | (41,080 | ) | | (35,792 | ) |
| Class R6 | | (143,332 | ) | | (165,835 | ) | | (128,117 | ) | | (142,677 | ) |
| Advisor Class. | | (28,206 | ) | | (51,057 | ) | | (5,734 | ) | | (5,439 | ) |
| Net realized gains: | | | | | | | | | | | | |
| Class A | | (207,339 | ) | | (1,353,620 | ) | | (147,075 | ) | | (126,473 | ) |
| Class C | | (93,502 | ) | | (628,392 | ) | | (38,213 | ) | | (40,392 | ) |
| Class R | | (23,580 | ) | | (115,856 | ) | | (23,056 | ) | | (5,233 | ) |
| Class R6 | | (22,885 | ) | | (182,595 | ) | | (50,620 | ) | | (66,359 | ) |
| Advisor Class. | | (2,809 | ) | | (53,460 | ) | | (2,386 | ) | | (2,113 | ) |
| Tax return of capital: | | | | | | | | | | | | |
| Class A | | (154,983 | ) | | — | | | — | | | — | |
| Class C | | (55,963 | ) | | — | | | — | | | — | |
| Class R | | (17,001 | ) | | — | | | — | | | — | |
| Class R6 | | (20,450 | ) | | — | | | — | | | — | |
| Advisor Class. | | (4,180 | ) | | — | | | — | | | — | |
| Total distributions to shareholders | | (2,330,202 | ) | | (4,077,163 | ) | | (774,436 | ) | | (789,471 | ) |
| Capital share transactions: (Note 2) | | | | | | | | | | | | |
| Class A | | (5,766,509 | ) | | 385,147 | | | (678,470 | ) | | 13,683,152 | |
| Class C | | (3,530,632 | ) | | 1,382,661 | | | (126,761 | ) | | 2,900,298 | |
| Class R | | 701,188 | | | 1,629,413 | | | (59,597 | ) | | 3,204,773 | |
| Class R6 | | (2,957,601 | ) | | 601,890 | | | (117,450 | ) | | (295,625 | ) |
| Advisor Class. | | 821,012 | | | (1,147,815 | ) | | 24,559 | | | 206,408 | |
| Total capital share transactions | | (10,732,542 | ) | | 2,851,296 | | | (957,719 | ) | | 19,699,006 | |
| Net increase (decrease) in net assets | | (9,690,470 | ) | | (3,522,372 | ) | | (783,178 | ) | | 17,887,614 | |
| Net assets: | | | | | | | | | | | | |
| Beginning of year | | 77,519,070 | | | 81,041,442 | | | 35,345,620 | | | 17,458,006 | |
| End of year | $ | 67,828,600 | | $ | 77,519,070 | | $ | 34,562,442 | | $ | 35,345,620 | |
| Undistributed net investment income included in net assets: | | | | | | | | | | | | |
| End of year | $ | — | | $ | 72,590 | | $ | — | | $ | 24,099 | |
124 Annual 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 (continued) | | | | | | | | | | | | |
| |
| | | Franklin LifeSmart 2025 | | | Franklin LifeSmart 2030 | |
| | | Retirement Target Fund | | | Retirement Target Fund | |
| | | Year Ended December 31, | | | Year Ended December 31, | |
| | | 2016 | | | 2015 | | | 2016 | | | 2015 | |
| Increase (decrease) in net assets: | | | | | | | | | | | | |
| Operations: | | | | | | | | | | | | |
| Net investment income. | $ | 1,310,993 | | $ | 1,741,244 | | $ | 411,328 | | $ | 422,990 | |
| Net realized gain (loss) | | (3,773,763 | ) | | 4,197,160 | | | (1,654,056 | ) | | 240,124 | |
| Net change in unrealized appreciation (depreciation) | | 6,097,411 | | | (8,838,517 | ) | | 2,378,481 | | | (1,488,443 | ) |
| Net increase (decrease) in net assets resulting from | | | | | | | | | | | | |
| operations | | 3,634,641 | | | (2,900,113 | ) | | 1,135,753 | | | (825,329 | ) |
| Distributions to shareholders from: | | | | | | | | | | | | |
| Net investment income and short term gains received from | | | | | | | | | | | | |
| Underlying Funds and exchange traded funds: | | | | | | | | | | | | |
| Class A | | (878,508 | ) | | (1,146,660 | ) | | (126,582 | ) | | (190,865 | ) |
| Class C | | (110,040 | ) | | (262,640 | ) | | (4,373 | ) | | (37,061 | ) |
| Class R | | (65,898 | ) | | (84,102 | ) | | (7,457 | ) | | (10,882 | ) |
| Class R6 | | (221,187 | ) | | (304,913 | ) | | (147,921 | ) | | (213,369 | ) |
| Advisor Class | | (18,598 | ) | | (43,678 | ) | | (3,285 | ) | | (4,843 | ) |
| Net realized gains: | | | | | | | | | | | | |
| Class A | | (950,733 | ) | | (2,902,737 | ) | | (142,848 | ) | | (128,435 | ) |
| Class C | | (371,035 | ) | | (1,205,749 | ) | | (44,370 | ) | | (38,391 | ) |
| Class R | | (89,222 | ) | | (238,635 | ) | | (13,218 | ) | | (10,438 | ) |
| Class R6 | | (198,247 | ) | | (643,001 | ) | | (116,284 | ) | | (164,477 | ) |
| Advisor Class | | (15,098 | ) | | (93,048 | ) | | (2,570 | ) | | (1,397 | ) |
| Total distributions to shareholders. | | (2,918,566 | ) | | (6,925,163 | ) | | (608,908 | ) | | (800,158 | ) |
| Capital share transactions: (Note 2) | | | | | | | | | | | | |
| Class A | | 1,701,071 | | | 10,373,548 | | | 2,929,403 | | | 9,308,260 | |
| Class C | | (3,132,785 | ) | | 3,020,435 | | | 912,677 | | | 2,381,848 | |
| Class R | | 1,274,985 | | | 1,179,900 | | | 492,452 | | | 890,825 | |
| Class R6 | | (3,302,638 | ) | | 4,346,437 | | | 1,247,649 | | | 1,563,335 | |
| Advisor Class | | 183,035 | | | (1,412,243 | ) | | 20,840 | | | 212,537 | |
| Total capital share transactions | | (3,276,332 | ) | | 17,508,077 | | | 5,603,021 | | | 14,356,805 | |
| Net increase (decrease) in net assets | | (2,560,257 | ) | | 7,682,801 | | | 6,129,866 | | | 12,731,318 | |
| Net assets: | | | | | | | | | | | | |
| Beginning of year | | 126,434,523 | | | 118,751,722 | | | 31,969,664 | | | 19,238,346 | |
| End of year | $ | 123,874,266 | | $ | 126,434,523 | | $ | 38,099,530 | | $ | 31,969,664 | |
| Undistributed net investment income included in net assets: | | | | | | | | | | | | |
| End of year | $ | 512,171 | | $ | 151,955 | | $ | 270,932 | | $ | 19,060 | |
franklintempleton.com
The accompanying notes are an integral part of these financial statements. | Annual Report 125
| | | | | | | | | | | | |
| FRANKLIN FUND ALLOCATOR SERIES | | | | | | | | | | | | |
| FINANCIAL STATEMENTS | | | | | | | | | | | | |
| |
| |
| Statements of Changes in Net Assets (continued) | | | | | | | | | | | | |
| |
| | | Franklin LifeSmart 2035 | | | Franklin LifeSmart 2040 | |
| | | Retirement Target Fund | | | Retirement Target Fund | |
| | | Year Ended December 31, | | | Year Ended December 31, | |
| | | 2016 | | | 2015 | | | 2016 | | | 2015 | |
| Increase (decrease) in net assets: | | | | | | | | | | | | |
| Operations: | | | | | | | | | | | | |
| Net investment income. | $ | 1,073,370 | | $ | 1,219,168 | | $ | 343,851 | | $ | 297,189 | |
| Net realized gain (loss) | | (2,678,698 | ) | | 3,777,155 | | | (1,016,680 | ) | | 157,822 | |
| Net change in unrealized appreciation (depreciation) | | 4,700,786 | | | (7,340,573 | ) | | 1,592,824 | | | (1,035,503 | ) |
| Net increase (decrease) in net assets resulting from | | | | | | | | | | | | |
| operations | | 3,095,458 | | | (2,344,250 | ) | | 919,995 | | | (580,492 | ) |
| Distributions to shareholders from: | | | | | | | | | | | | |
| Net investment income and short term gains received from | | | | | | | | | | | | |
| Underlying Funds and exchange traded funds: | | | | | | | | | | | | |
| Class A | | (456,196 | ) | | (798,331 | ) | | (96,332 | ) | | (108,840 | ) |
| Class C | | (16,809 | ) | | (154,515 | ) | | (14,559 | ) | | (17,560 | ) |
| Class R | | (38,744 | ) | | (58,053 | ) | | (14,619 | ) | | (12,373 | ) |
| Class R6 | | (239,563 | ) | | (362,034 | ) | | (113,150 | ) | | (188,924 | ) |
| Advisor Class | | (15,115 | ) | | (30,069 | ) | | (933 | ) | | (1,878 | ) |
| Net realized gains: | | | | | | | | | | | | |
| Class A | | (866,788 | ) | | (2,031,863 | ) | | (81,000 | ) | | (82,422 | ) |
| Class C | | (294,076 | ) | | (785,148 | ) | | (19,378 | ) | | (16,073 | ) |
| Class R | | (76,428 | ) | | (184,958 | ) | | (9,693 | ) | | (8,186 | ) |
| Class R6 | | (286,348 | ) | | (713,641 | ) | | (105,785 | ) | | (146,303 | ) |
| Advisor Class | | (25,258 | ) | | (99,950 | ) | | (865 | ) | | (328 | ) |
| Total distributions to shareholders. | | (2,315,325 | ) | | (5,218,562 | ) | | (456,314 | ) | | (582,887 | ) |
| Capital share transactions: (Note 2) | | | | | | | | | | | | |
| Class A | | 2,414,240 | | | 7,462,279 | | | 4,880,830 | | | 5,731,645 | |
| Class C | | (1,236,171 | ) | | 1,490,589 | | | 664,099 | | | 1,337,877 | |
| Class R | | 1,387,939 | | | 438,177 | | | 1,132,018 | | | 1,013,215 | |
| Class R6 | | 1,659,173 | | | 5,456,474 | | | 1,603,590 | | | 2,459,595 | |
| Advisor Class | | (282,775 | ) | | (226,869 | ) | | 18,185 | | | 102,036 | |
| Total capital share transactions | | 3,942,406 | | | 14,620,650 | | | 8,298,722 | | | 10,644,368 | |
| Net increase (decrease) in net assets | | 4,722,539 | | | 7,057,838 | | | 8,762,403 | | | 9,480,989 | |
| Net assets: | | | | | | | | | | | | |
| Beginning of year | | 100,307,441 | | | 93,249,603 | | | 23,333,147 | | | 13,852,158 | |
| End of year | $ | 105,029,980 | | $ | 100,307,441 | | $ | 32,095,550 | | $ | 23,333,147 | |
| Undistributed net investment income included in net assets: | | | | | | | | | | | | |
| End of year | $ | 748,992 | | $ | 35,154 | | $ | 240,354 | | $ | 7,408 | |
126 Annual 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 (continued) | | | | | | | | | | | | |
| |
| | | Franklin LifeSmart 2045 | | | Franklin LifeSmart 2050 | |
| | | Retirement Target Fund | | | Retirement Target Fund | |
| | | Year Ended December 31, | | | Year Ended December 31, | |
| | | 2016 | | | 2015 | | | 2016 | | | 2015 | |
| Increase (decrease) in net assets: | | | | | | | | | | | | |
| Operations: | | | | | | | | | | | | |
| Net investment income | $ | 726,730 | | $ | 765,045 | | $ | 263,282 | | $ | 224,184 | |
| Net realized gain (loss) | | (1,614,004 | ) | | 2,674,606 | | | (712,315 | ) | | 13,141 | |
| Net change in unrealized appreciation (depreciation) | | 3,133,971 | | | (5,121,273 | ) | | 1,368,939 | | | (685,003 | ) |
| Net increase (decrease) in net assets resulting from operations . | | 2,246,697 | | | (1,681,622 | ) | | 919,906 | | | (447,678 | ) |
| Distributions to shareholders from: | | | | | | | | | | | | |
| Net investment income and short term gains received from | | | | | | | | | | | | |
| Underlying Funds and exchange traded funds: | | | | | | | | | | | | |
| Class A | | (360,611 | ) | | (544,273 | ) | | (79,243 | ) | | (95,084 | ) |
| Class C | | (11,455 | ) | | (96,180 | ) | | (2,729 | ) | | (11,718 | ) |
| Class R | | (27,720 | ) | | (53,546 | ) | | (6,596 | ) | | (8,954 | ) |
| Class R6 | | (117,669 | ) | | (187,956 | ) | | (90,757 | ) | | (129,036 | ) |
| Advisor Class | | (4,985 | ) | | (9,105 | ) | | (3,716 | ) | | (6,199 | ) |
| Net realized gains: | | | | | | | | | | | | |
| Class A | | (593,026 | ) | | (1,584,955 | ) | | (72,692 | ) | | (55,180 | ) |
| Class C | | (180,569 | ) | | (547,282 | ) | | (20,602 | ) | | (23,832 | ) |
| Class R | | (60,988 | ) | | (171,688 | ) | | (8,463 | ) | | (8,578 | ) |
| Class R6 | | (145,665 | ) | | (432,871 | ) | | (94,425 | ) | | (97,907 | ) |
| Advisor Class | | (8,268 | ) | | (42,264 | ) | | (3,495 | ) | | (5,059 | ) |
| Total distributions to shareholders | | (1,510,956 | ) | | (3,670,120 | ) | | (382,718 | ) | | (441,547 | ) |
| Capital share transactions: (Note 2) | | | | | | | | | | | | |
| Class A | | 5,592,714 | | | 7,216,077 | | | 3,681,070 | | | 4,788,596 | |
| Class C | | (406,063 | ) | | 2,112,034 | | | 700,198 | | | 1,084,549 | |
| Class R | | 355,637 | | | 1,195,580 | | | 447,082 | | | 764,197 | |
| Class R6 | | (218,042 | ) | | 2,844,341 | | | 863,376 | | | 2,034,275 | |
| Advisor Class | | (67,298 | ) | | (969,173 | ) | | (6,134 | ) | | 84,988 | |
| Total capital share transactions | | 5,256,948 | | | 12,398,859 | | | 5,685,592 | | | 8,756,605 | |
| Net increase (decrease) in net assets | | 5,992,689 | | | 7,047,117 | | | 6,222,780 | | | 7,867,380 | |
| Net assets: | | | | | | | | | | | | |
| Beginning of year. | | 67,127,862 | | | 60,080,745 | | | 17,837,058 | | | 9,969,678 | |
| End of year | $ | 73,120,551 | | $ | 67,127,862 | | $ | 24,059,838 | | $ | 17,837,058 | |
| Undistributed net investment income included in net assets: | | | | | | | | | | | | |
| End of year | $ | 515,400 | | $ | 21,338 | | $ | 181,312 | | $ | 5,526 | |
franklintempleton.com
The accompanying notes are an integral part of these financial statements. | Annual Report 127
| | | | | | |
| FRANKLIN FUND ALLOCATOR SERIES | | | | | | |
| FINANCIAL STATEMENTS | | | | | | |
| |
| |
| Statements of Changes in Net Assets (continued) | | | | | | |
| |
| | | Franklin LifeSmart 2055 | |
| | | Retirement Target Fund | |
| | | Year Ended December 31, | |
| | | 2016 | | | 2015 | a |
| Increase (decrease) in net assets: | | | | | | |
| Operations: | | | | | | |
| Net investment income | $ | 47,134 | | $ | 24,142 | |
| Net realized gain (loss) | | (54,517 | ) | | (36,390 | ) |
| Net change in unrealized appreciation (depreciation) | | 129,837 | | | (68,445 | ) |
| Net increase (decrease) in net assets resulting from operations | | 122,454 | | | (80,693 | ) |
| Distributions to shareholders from: | | | | | | |
| Net investment income and short term gains received from Underlying Funds and exchange traded funds: | | | | | | |
| Class A | | (27,206 | ) | | (22,241 | ) |
| Class C | | (3,443 | ) | | (1,725 | ) |
| Class R | | (3,039 | ) | | (430 | ) |
| Class R6 | | (18,759 | ) | | (1,096 | ) |
| Advisor Class | | (158 | ) | | (188 | ) |
| Net realized gains: | | | | | | |
| Class A | | (13,471 | ) | | — | |
| Class C | | (1,934 | ) | | — | |
| Class R | | (1,284 | ) | | — | |
| Class R6 | | (878 | ) | | — | |
| Advisor Class | | (74 | ) | | — | |
| Total distributions to shareholders | | (70,246 | ) | | (25,680 | ) |
| Capital share transactions: (Note 2) | | | | | | |
| Class A | | 878,999 | | | 1,916,233 | |
| Class C | | 396,100 | | | 175,801 | |
| Class R | | 308,455 | | | 41,177 | |
| Class R6 | | 1,520,706 | | | 94,760 | |
| Advisor Class | | 1,808 | | | 10,758 | |
| Total capital share transactions | | 3,106,068 | | | 2,238,729 | |
| Net increase (decrease) in net assets | | 3,158,276 | | | 2,132,356 | |
| Net assets: | | | | | | |
| Beginning of year | | 2,132,356 | | | — | |
| End of year. | $ | 5,290,632 | | $ | 2,132,356 | |
| Undistributed net investment income included in net assets: | | | | | | |
| End of year. | $ | 18,072 | | $ | 2,615 | |
aFor the period May 1, 2015 (commencement of operations) to December 31, 2015.
128 Annual Report | The accompanying notes are an integral part of these financial statements.
franklintempleton.com
FRANKLIN FUND ALLOCATOR SERIES
Notes to Financial Statements
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-four separate funds, nine 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 mutual funds (Underlying Funds) and exchange traded funds (ETFs), including affiliated funds managed by Franklin Templeton (FT 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.
Effective May 1, 2016, Franklin LifeSmart 2015 Retirement Target Fund was renamed Franklin LifeSmart Retirement Income Fund and implemented changes to the investment goals and strategies.
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 as of 4 p.m. Eastern time each day the New York Stock Exchange (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 Committee (VC). The VC provides administration and oversight of the Fund’s valuation policies and procedures, which are approved annually by the Board. Among other things, these procedures allow the Funds to utilize independent pricing services, quotations from securities and financial instrument dealers, and other market sources to determine fair value. Investments in the Underlying Funds are valued at their closing NAV each trading day. 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.
Debt securities generally trade in the over-the-counter market rather than on a securities exchange. The Funds’ pricing services use multiple valuation techniques to determine fair value. In instances where sufficient market activity exists, the pricing services may utilize a market-based approach through which quotes from market makers are used to determine fair value. In instances where sufficient market activity may not exist or is limited, the pricing services also utilize proprietary valuation models which may consider market characteristics such as benchmark yield curves, credit spreads, estimated default rates, anticipated market interest rate volatility, coupon rates, anticipated timing of principal repayments, underlying collateral, and other unique security features in order to estimate the relevant cash flows, which are then discounted to calculate the fair value.
The Funds have procedures to determine the fair value of financial instruments for which market prices are not reliable or readily available. Under these procedures, the VC convenes on a regular basis to review such financial instruments and considers a number of factors, including significant unobservable valuation inputs, when arriving at fair value. The VC primarily employs a market-based approach which may use related or comparable assets or liabilities, recent transactions, market multiples, book values, and other relevant information for the investment to determine the fair value of the investment. An income-based valuation approach may also be used in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Due to the inherent uncertainty of valuations of such investments, the fair values may differ significantly from the values that would have been used had an active market existed. The VC employs various methods for calibrating these valuation approaches including a regular
franklintempleton.com
Annual Report
129
FRANKLIN FUND ALLOCATOR SERIES
NOTES TO FINANCIAL STATEMENTS
1. Organization and Significant Accounting
Policies (continued)
a. Financial Instrument Valuation (continued)
review of key inputs and assumptions, transactional back-testing or disposition analysis, and reviews of any related market activity.
b. Index-Linked Notes
The Fund purchases index-linked notes. Index-linked notes are senior, unsecured, subordinated debt securities issued by a financial institution whose value is based on the price movements of the underlying index. Index-linked notes are designed to provide investors access to the returns of various market benchmarks and intended to replicate the economic effects that would apply had the Fund directly purchased the underlying referenced asset or basket of assets. The risks of investing in index-linked notes include unfavorable price movements in the underlying index and the credit risk of the issuing financial institution.
c. 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 may recognize an income tax liability related to its uncertain tax positions under U.S. GAAP when the uncertain tax position has a less than 50% probability that it will be sustained upon examination by the tax authorities based on its technical merits. As of December 31, 2016, each Fund has determined that no tax liability is required in its financial statements related to uncertain tax positions for any open tax years (or expected to be taken in future tax years). Open tax years are those that remain subject to examination and are based on each tax jurisdiction’s statute of limitation.
d. 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 are recorded on the ex-dividend date. Distributions to shareholders are recorded on the ex-dividend date. The Franklin LifeSmart Retirement Income Fund employs a managed distribution policy. Under this policy, the fund will distribute level monthly distributions in any given year regardless of the performance of the fund; however, the twelfth monthly payment may be greater than the initially anticipated amount if additional income or capital gains are required to be distributed. These distributions may include income and capital gains generated by the Underlying Funds, as well as a possible return on capital component, if necessary, to meet the annual distribution rate. The annual payout rate may be adjusted higher or lower from year to year in response to market conditions. Distributable earnings are determined according to income tax regulations (tax basis) and 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.
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.
e. Offering Costs
Offering costs are amortized on a straight line basis over twelve months.
130 Annual Report
franklintempleton.com
FRANKLIN FUND ALLOCATOR SERIES
NOTES TO FINANCIAL STATEMENTS
f. 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.
g. 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.
2. Shares of Beneficial Interest
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 December 31, 2016, there were an unlimited number of shares authorized (without par value). Transactions in the Funds’ shares were as follows:
| | | | | | | | | | | |
| | Franklin LifeSmart Retirement | | Franklin LifeSmart 2020 | |
| | Income Fund | | Retirement Target Fund | |
| | Shares | | | | Amount | | Shares | | | Amount | |
| Class A Shares: | | | | | | | | | | | |
| Year ended December 31, 2016 | | | | | | | | | | | |
| Shares sold | 695,856 | | | $ | 7,455,570 | | 617,122 | | $ | 6,540,723 | |
| Shares issued in reinvestment of distributions | 131,058 | | | | 1,418,310 | | 42,020 | | | 441,853 | |
| Shares redeemed | (1,363,440 | ) | | (14,640,389 | ) | (727,268 | ) | | (7,661,046 | ) |
| Net increase (decrease) | (536,526 | ) | | $ | (5,766,509 | ) | (68,126 | ) | $ | (678,470 | ) |
| Year ended December 31, 2015 | | | | | | | | | | | |
| Shares sold | 973,153 | | $ | 11,205,849 | | 1,392,607 | | $ | 15,612,200 | |
| Shares issued in reinvestment of distributions | 214,383 | | | | 2,395,400 | | 39,788 | | | 434,025 | |
| Shares redeemed | (1,151,060 | ) | | (13,216,102 | ) | (213,489 | ) | | (2,363,073 | ) |
| Net increase (decrease) | 36,476 | | | $ | 385,147 | | 1,218,906 | | $ | 13,683,152 | |
| Class C Shares: | | | | | | | | | | | |
| Year ended December 31, 2016 | | | | | | | | | | | |
| Shares sold | 302,723 | | | $ | 3,199,411 | | 221,499 | | $ | 2,302,903 | |
| Shares issued in reinvestment of distributions | 45,783 | | | | 489,755 | | 7,681 | | | 80,216 | |
| Shares redeemed | (683,166 | ) | | | (7,219,798 | ) | (240,026 | ) | | (2,509,880 | ) |
| Net increase (decrease) | (334,660 | ) | | $ | (3,530,632 | ) | (10,846 | ) | $ | (126,761 | ) |
| Year ended December 31, 2015 | | | | | | | | | | | |
| Shares sold | 592,001 | | | $ | 6,765,028 | | 298,398 | | $ | 3,335,955 | |
| Shares issued in reinvestment of distributions | 80,147 | | | | 885,056 | | 8,855 | | | 96,732 | |
| Shares redeemed | (549,866 | ) | | | (6,267,423 | ) | (48,748 | ) | | (532,389 | ) |
| Net increase (decrease) | 122,282 | | | $ | 1,382,661 | | 258,505 | | $ | 2,900,298 | |
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Annual Report
131
FRANKLIN FUND ALLOCATOR SERIES
NOTES TO FINANCIAL STATEMENTS
| | | | | | | | | | |
| 2. Shares of Beneficial Interest (continued) | | | | | | | | | | |
| |
| | Franklin LifeSmart Retirement | | Franklin LifeSmart 2020 | |
| | Income Fund | | Retirement Target Fund | |
| | Shares | | | Amount | | Shares | | | Amount | |
| Class R Shares: | | | | | | | | | | |
| Year ended December 31, 2016 | | | | | | | | | | |
| Shares sold | 200,171 | | $ | 2,125,002 | | 193,372 | | $ | 2,029,744 | |
| Shares issued in reinvestment of distributions | 11,598 | | | 125,084 | | 6,110 | | | 64,137 | |
| Shares redeemed | (145,721 | ) | | (1,548,898 | ) | (205,538 | ) | | (2,153,478 | ) |
| Net increase (decrease) | 66,048 | | $ | 701,188 | | (6,056 | ) | $ | (59,597 | ) |
| Year ended December 31, 2015 | | | | | | | | | | |
| Shares sold | 195,376 | | $ | 2,265,532 | | 463,394 | | $ | 5,051,664 | |
| Shares issued in reinvestment of distributions | 14,948 | | | 165,845 | | 3,795 | | | 40,748 | |
| Shares redeemed | (68,746 | ) | | (801,964 | ) | (173,248 | ) | | (1,887,639 | ) |
| Net increase (decrease) | 141,578 | | $ | 1,629,413 | | 293,941 | | $ | 3,204,773 | |
| Class R6 Shares: | | | | | | | | | | |
| Year ended December 31, 2016 | | | | | | | | | | |
| Shares sold | 134,808 | | $ | 1,473,919 | | 196,499 | | $ | 2,090,521 | |
| Shares issued in reinvestment of distributions | 8,589 | | | 93,485 | | 433 | | | 4,655 | |
| Shares redeemed | (417,505 | ) | | (4,525,005 | ) | (208,572 | ) | | (2,212,626 | ) |
| Net increase (decrease) | (274,108 | ) | $ | (2,957,601 | ) | (11,640 | ) | $ | (117,450 | ) |
| Year ended December 31, 2015 | | | | | | | | | | |
| Shares sold | 235,799 | | $ | 2,670,433 | | 178,632 | | $ | 1,986,882 | |
| Shares issued in reinvestment of distributions | 9,057 | | | 100,098 | | 45 | | | 498 | |
| Shares redeemed | (186,483 | ) | | (2,168,641 | ) | (203,836 | ) | | (2,283,005 | ) |
| Net increase (decrease) | 58,373 | | $ | 601,890 | | (25,159 | ) | $ | (295,625 | ) |
| Advisor Class Shares: | | | | | | | | | | |
| Year ended December 31, 2016 | | | | | | | | | | |
| Shares sold | 164,439 | | $ | 1,779,545 | | 7,866 | | $ | 82,109 | |
| Shares issued in reinvestment of distributions | 2,865 | | | 31,253 | | 770 | | | 8,120 | |
| Shares redeemed | (94,632 | ) | | (989,786 | ) | (6,224 | ) | | (65,670 | ) |
| Net increase (decrease) | 72,672 | | $ | 821,012 | | 2,412 | | $ | 24,559 | |
| Year ended December 31, 2015 | | | | | | | | | | |
| Shares sold | 88,654 | | $ | 1,049,107 | | 17,899 | | $ | 200,490 | |
| Shares issued in reinvestment of distributions | 8,792 | | | 100,183 | | 660 | | | 7,230 | |
| Shares redeemed | (203,369 | ) | | (2,297,105 | ) | (120 | ) | | (1,312 | ) |
| Net increase (decrease) | (105,923 | ) | $ | (1,147,815 | ) | 18,439 | | $ | 206,408 | |
132 Annual Report
franklintempleton.com
| | | | | | | | | | | |
| | | | | FRANKLIN FUND ALLOCATOR SERIES | |
| | | | | NOTES TO FINANCIAL STATEMENTS | |
| |
| |
| |
| |
| | Franklin LifeSmart 2025 | | Franklin LifeSmart 2030 | |
| | Retirement Target Fund | | Retirement Target Fund | |
| | Shares | | | | Amount | | Shares | | | Amount | |
| Class A Shares: | | | | | | | | | | | |
| Year ended December 31, 2016 | | | | | | | | | | | |
| Shares sold | 1,527,835 | | $ | 17,243,185 | | 775,851 | | $ | 8,429,666 | |
| Shares issued in reinvestment of distributions | 159,079 | | | | 1,789,340 | | 24,988 | | | 269,391 | |
| Shares redeemed | (1,528,993 | ) | | | (17,331,454 | ) | (530,055 | ) | | (5,769,654 | ) |
| Net increase (decrease) | 157,921 | | | $ | 1,701,071 | | 270,784 | | $ | 2,929,403 | |
| Year ended December 31, 2015 | | | | | | | | | | | |
| Shares sold | 1,528,081 | | $ | 18,880,592 | | 932,809 | | $ | 10,837,370 | |
| Shares issued in reinvestment of distributions | 335,147 | | | | 3,961,975 | | 28,188 | | | 319,300 | |
| Shares redeemed | (1,006,678 | ) | | | (12,469,019 | ) | (161,801 | ) | | (1,848,410 | ) |
| Net increase (decrease) | 856,550 | | $ | 10,373,548 | | 799,196 | | $ | 9,308,260 | |
| Class C Shares: | | | | | | | | | | | |
| Year ended December 31, 2016 | | | | | | | | | | | |
| Shares sold | 478,332 | | | $ | 5,300,604 | | 182,868 | | $ | 1,944,397 | |
| Shares issued in reinvestment of distributions | 40,222 | | | | 438,767 | | 4,667 | | | 48,734 | |
| Shares redeemed | (796,509 | ) | | | (8,872,156 | ) | (100,159 | ) | | (1,080,454 | ) |
| Net increase (decrease) | (277,955 | ) | | $ | (3,132,785 | ) | 87,376 | | $ | 912,677 | |
| Year ended December 31, 2015 | | | | | | | | | | | |
| Shares sold | 602,003 | | | $ | 7,312,275 | | 233,042 | | $ | 2,659,877 | |
| Shares issued in reinvestment of distributions | 111,479 | | | | 1,303,507 | | 6,671 | | | 75,452 | |
| Shares redeemed | (459,633 | ) | | | (5,595,347 | ) | (31,328 | ) | | (353,481 | ) |
| Net increase (decrease) | 253,849 | | | $ | 3,020,435 | | 208,385 | | $ | 2,381,848 | |
| Class R Shares: | | | | | | | | | | | |
| Year ended December 31, 2016 | | | | | | | | | | | |
| Shares sold | 279,412 | | | $ | 3,125,853 | | 111,812 | | $ | 1,210,333 | |
| Shares issued in reinvestment of distributions | 10,939 | | | | 122,196 | | 1,933 | | | 20,674 | |
| Shares redeemed | (174,531 | ) | | | (1,973,064 | ) | (66,882 | ) | | (738,555 | ) |
| Net increase (decrease) | 115,820 | | | $ | 1,274,985 | | 46,863 | | $ | 492,452 | |
| Year ended December 31, 2015 | | | | | | | | | | | |
| Shares sold | 220,123 | | | $ | 2,709,282 | | 91,080 | | $ | 1,064,956 | |
| Shares issued in reinvestment of distributions | 22,236 | | | | 261,497 | | 1,874 | | | 21,320 | |
| Shares redeemed | (145,782 | ) | | | (1,790,879 | ) | (17,524 | ) | | (195,451 | ) |
| Net increase (decrease) | 96,577 | | | $ | 1,179,900 | | 75,430 | | $ | 890,825 | |
| Class R6 Shares: | | | | | | | | | | | |
| Year ended December 31, 2016 | | | | | | | | | | | |
| Shares sold | 325,212 | | | $ | 3,663,572 | | 302,640 | | $ | 3,302,312 | |
| Shares issued in reinvestment of distributions | 11,223 | | | | 126,825 | | 108 | | | 1,199 | |
| Shares redeemed | (620,112 | ) | | | (7,093,035 | ) | (189,407 | ) | | (2,055,862 | ) |
| Net increase (decrease) | (283,677 | ) | | $ | (3,302,638 | ) | 113,341 | | $ | 1,247,649 | |
| Year ended December 31, 2015 | | | | | | | | | | | |
| Shares sold | 513,098 | | | $ | 6,235,994 | | 283,129 | | $ | 3,266,625 | |
| Shares issued in reinvestment of distributions | 28,125 | | | | 330,182 | | 16 | | | 177 | |
| Shares redeemed | (178,920 | ) | | | (2,219,739 | ) | (145,942 | ) | | (1,703,467 | ) |
| Net increase (decrease) | 362,303 | | | $ | 4,346,437 | | 137,203 | | $ | 1,563,335 | |
franklintempleton.com
Annual Report
133
| | | | | | | | | | | | |
| FRANKLIN FUND ALLOCATOR SERIES | | | | | | | | | | | | |
| NOTES TO FINANCIAL STATEMENTS | | | | | | | | | | | | |
| |
| |
| |
| |
| 2. Shares of Beneficial Interest (continued) | | | | | | | | | | | | |
| |
| | Franklin LifeSmart 2025 | | Franklin LifeSmart 2030 | |
| | Retirement Target Fund | | Retirement Target Fund | |
| | Shares | | | | Amount | | Shares | | | | Amount | |
| Advisor Class Shares: | | | | | | | | | | | | |
| Year ended December 31, 2016 | | | | | | | | | | | | |
| Shares sold | 42,218 | | | $ | 483,916 | | 10,128 | | | $ | 106,086 | |
| Shares issued in reinvestment of distributions | 2,413 | | | | 27,297 | | 539 | | | | 5,855 | |
| Shares redeemed | (28,829 | ) | | | (328,178 | ) | (8,430 | ) | | | (91,101 | ) |
| Net increase (decrease) | 15,802 | | | $ | 183,035 | | 2,237 | | | $ | 20,840 | |
| Year ended December 31, 2015 | | | | | | | | | | | | |
| Shares sold | 209,451 | | | $ | 2,626,182 | | 18,319 | | | $ | 206,738 | |
| Shares issued in reinvestment of distributions | 10,201 | | | | 123,266 | | 557 | | | | 6,239 | |
| Shares redeemed | (342,773 | ) | | | (4,161,691 | ) | (40 | ) | | | (440 | ) |
| Net increase (decrease) | (123,121 | ) | $ | (1,412,243 | ) | 18,836 | | | $ | 212,537 | |
| |
| | Franklin LifeSmart 2035 | | Franklin LifeSmart 2040 | |
| | Retirement Target Fund | | Retirement Target Fund | |
| | Shares | | | | Amount | | Shares | | | | Amount | |
| Class A Shares: | | | | | | | | | | | | |
| Year ended December 31, 2016 | | | | | | | | | | | | |
| Shares sold | 1,227,250 | | $ | 14,276,281 | | 685,758 | | $ | 7,556,809 | |
| Shares issued in reinvestment of distributions | 112,551 | | | | 1,289,236 | | 16,243 | | | | 177,333 | |
| Shares redeemed | (1,122,898 | ) | | | (13,151,277 | ) | (261,414 | ) | | | (2,853,312 | ) |
| Net increase (decrease) | 216,903 | | | $ | 2,414,240 | | 440,587 | | $ | 4,880,830 | |
| Year ended December 31, 2015 | | | | | | | | | | | | |
| Shares sold | 1,076,865 | | $ | 13,700,625 | | 562,549 | | $ | 6,582,647 | |
| Shares issued in reinvestment of distributions | 225,650 | | | | 2,759,202 | | 16,652 | | | | 191,262 | |
| Shares redeemed | (709,732 | ) | | | (8,997,548 | ) | (89,668 | ) | | | (1,042,264 | ) |
| Net increase (decrease) | 592,783 | | | $ | 7,462,279 | | 489,533 | | $ | 5,731,645 | |
| Class C Shares: | | | | | | | | | | | | |
| Year ended December 31, 2016 | | | | | | | | | | | | |
| Shares sold | 351,442 | | | $ | 3,984,942 | | 107,552 | | $ | 1,157,854 | |
| Shares issued in reinvestment of distributions | 25,834 | | | | 284,112 | | 3,167 | | | | 33,937 | |
| Shares redeemed | (489,008 | ) | | | (5,505,225 | ) | (48,818 | ) | | | (527,692 | ) |
| Net increase (decrease) | (111,732 | ) | $ | (1,236,171 | ) | 61,901 | | | $ | 664,099 | |
| Year ended December 31, 2015 | | | | | | | | | | | | |
| Shares sold | 443,414 | | | $ | 5,544,032 | | 124,228 | | $ | 1,426,858 | |
| Shares issued in reinvestment of distributions | 68,829 | | | | 828,272 | | 2,943 | | | | 33,633 | |
| Shares redeemed | (389,881 | ) | | | (4,881,715 | ) | (10,742 | ) | | | (122,614 | ) |
| Net increase (decrease) | 122,362 | | | $ | 1,490,589 | | 116,429 | | $ | 1,337,877 | |
134 Annual Report
franklintempleton.com
| | | | | | | | | | | |
| | | | FRANKLIN FUND ALLOCATOR SERIES | |
| | | | NOTES TO FINANCIAL STATEMENTS | |
| |
| |
| |
| |
| | Franklin LifeSmart 2035 | | Franklin LifeSmart 2040 | |
| | Retirement Target Fund | | Retirement Target Fund | |
| | Shares | | | Amount | | Shares | | | Amount | |
| Class R Shares: | | | | | | | | | | | |
| Year ended December 31, 2016 | | | | | | | | | | | |
| Shares sold | 256,085 | | $ | 2,976,063 | | 171,432 | | $ | 1,876,713 | |
| Shares issued in reinvestment of distributions | 8,810 | | | 100,647 | | 2,225 | | | | 24,311 | |
| Shares redeemed | (149,803 | ) | | (1,688,771 | ) | (69,062 | ) | | | (769,006 | ) |
| Net increase (decrease) | 115,092 | | $ | 1,387,939 | | 104,595 | | $ | 1,132,018 | |
| Year ended December 31, 2015 | | | | | | | | | | | |
| Shares sold | 235,763 | | $ | 2,977,376 | | 90,481 | | $ | 1,040,148 | |
| Shares issued in reinvestment of distributions | 16,450 | | | 201,269 | | 1,771 | | | | 20,266 | |
| Shares redeemed | (215,445 | ) | | (2,740,468 | ) | (4,154 | ) | | | (47,199 | ) |
| Net increase (decrease) | 36,768 | | $ | 438,177 | | 88,098 | | $ | 1,013,215 | |
| Class R6 Shares: | | | | | | | | | | | |
| Year ended December 31, 2016 | | | | | | | | | | | |
| Shares sold | 578,628 | | $ | 6,817,030 | | 298,115 | | $ | 3,268,049 | |
| Shares issued in reinvestment of distributions | 5,645 | | | 65,547 | | 280 | | | | 3,113 | |
| Shares redeemed | (443,829 | ) | | (5,223,404 | ) | (151,648 | ) | | (1,667,572 | ) |
| Net increase (decrease) | 140,444 | | $ | 1,659,173 | | 146,747 | | $ | 1,603,590 | |
| Year ended December 31, 2015 | | | | | | | | | | | |
| Shares sold | 602,113 | | $ | 7,663,347 | | 300,914 | | $ | 3,530,413 | |
| Shares issued in reinvestment of distributions | 16,122 | | | 195,564 | | 156 | | | | 1,771 | |
| Shares redeemed | (186,031 | ) | | (2,402,437 | ) | (91,277 | ) | | (1,072,589 | ) |
| Net increase (decrease) | 432,204 | | $ | 5,456,474 | | 209,793 | | $ | 2,459,595 | |
| Advisor Class Shares: | | | | | | | | | | | |
| Year ended December 31, 2016 | | | | | | | | | | | |
| Shares sold | 33,208 | | $ | 388,986 | | 4,243 | | | $ | 47,068 | |
| Shares issued in reinvestment of distributions | 3,477 | | | 40,189 | | 164 | | | | 1,798 | |
| Shares redeemed | (60,441 | ) | | (711,950 | ) | (2,830 | ) | | | (30,681 | ) |
| Net increase (decrease) | (23,756 | ) | $ | (282,775 | ) | 1,577 | | | $ | 18,185 | |
| Year ended December 31, 2015 | | | | | | | | | | | |
| Shares sold | 134,090 | | $ | 1,764,715 | | 8,985 | | | $ | 102,847 | |
| Shares issued in reinvestment of distributions | 10,290 | | | 128,983 | | 167 | | | | 1,875 | |
| Shares redeemed | (170,297 | ) | | (2,120,567 | ) | (225 | ) | | | (2,686 | ) |
| Net increase (decrease) | (25,917 | ) | $ | (226,869 | ) | 8,927 | | | $ | 102,036 | |
franklintempleton.com
Annual Report
135
FRANKLIN FUND ALLOCATOR SERIES
NOTES TO FINANCIAL STATEMENTS
| | | | | | | | | | |
| 2. Shares of Beneficial Interest (continued) | | | | | | | | | | |
| |
| | Franklin LifeSmart 2045 | | Franklin LifeSmart 2050 | |
| | Retirement Target Fund | | Retirement Target Fund | |
| | Shares | | | Amount | | Shares | | | Amount | |
| Class A Shares: | | | | | | | | | | |
| Year ended December 31, 2016 | | | | | | | | | | |
| Shares sold. | 1,047,274 | | $ | 12,170,415 | | 551,064 | | $ | 6,086,355 | |
| Shares issued in reinvestment of distributions | 80,144 | | | 917,854 | | 13,818 | | | 151,925 | |
| Shares redeemed | (643,017 | ) | | (7,495,555 | ) | (234,873 | ) | | (2,557,210 | ) |
| Net increase (decrease) | 484,401 | | $ | 5,592,714 | | 330,009 | | $ | 3,681,070 | |
| Year ended December 31, 2015 | | | | | | | | | | |
| Shares sold. | 883,349 | | $ | 11,288,810 | | 554,153 | | $ | 6,452,878 | |
| Shares issued in reinvestment of distributions | 167,732 | | | 2,049,189 | | 13,085 | | | 150,263 | |
| Shares redeemed | (478,747 | ) | | (6,121,922 | ) | (158,400 | ) | | (1,814,545 | ) |
| Net increase (decrease) | 572,334 | | $ | 7,216,077 | | 408,838 | | $ | 4,788,596 | |
| Class C Shares: | | | | | | | | | | |
| Year ended December 31, 2016 | | | | | | | | | | |
| Shares sold. | 318,196 | | $ | 3,589,892 | | 116,007 | | $ | 1,268,037 | |
| Shares issued in reinvestment of distributions | 15,898 | | | 173,952 | | 2,187 | | | 23,313 | |
| Shares redeemed | (370,873 | ) | | (4,169,907 | ) | (53,715 | ) | | (591,152 | ) |
| Net increase (decrease) | (36,779 | ) | $ | (406,063 | ) | 64,479 | | $ | 700,198 | |
| Year ended December 31, 2015 | | | | | | | | | | |
| Shares sold. | 325,360 | | $ | 4,061,846 | | 194,129 | | $ | 2,242,175 | |
| Shares issued in reinvestment of distributions | 45,707 | | | 547,376 | | 3,048 | | | 35,550 | |
| Shares redeemed | (200,707 | ) | | (2,497,188 | ) | (105,118 | ) | | (1,193,176 | ) |
| Net increase (decrease) | 170,360 | | $ | 2,112,034 | | 92,059 | | $ | 1,084,549 | |
| Class R Shares: | | | | | | | | | | |
| Year ended December 31, 2016 | | | | | | | | | | |
| Shares sold. | 152,373 | | $ | 1,746,860 | | 55,187 | | $ | 609,289 | |
| Shares issued in reinvestment of distributions | 6,979 | | | 79,240 | | 1,378 | | | 15,064 | |
| Shares redeemed | (132,301 | ) | | (1,470,463 | ) | (15,822 | ) | | (177,271 | ) |
| Net increase (decrease) | 27,051 | | $ | 355,637 | | 40,743 | | $ | 447,082 | |
| Year ended December 31, 2015 | | | | | | | | | | |
| Shares sold. | 176,848 | | $ | 2,243,687 | | 67,880 | | $ | 803,789 | |
| Shares issued in reinvestment of distributions | 15,550 | | | 189,048 | | 1,488 | | | 17,241 | |
| Shares redeemed | (97,349 | ) | | (1,237,155 | ) | (5,020 | ) | | (56,833 | ) |
| Net increase (decrease) | 95,049 | | $ | 1,195,580 | | 64,348 | | $ | 764,197 | |
| Class R6 Shares: | | | | | | | | | | |
| Year ended December 31, 2016 | | | | | | | | | | |
| Shares sold. | 264,518 | | $ | 3,069,422 | | 502,692 | | $ | 5,535,624 | |
| Shares issued in reinvestment of distributions | 3,207 | | | 37,169 | | 200 | | | 2,226 | |
| Shares redeemed | (281,389 | ) | | (3,324,633 | ) | (412,376 | ) | | (4,674,474 | ) |
| Net increase (decrease) | (13,664 | ) | $ | (218,042 | ) | 90,516 | | $ | 863,376 | |
| Year ended December 31, 2015 | | | | | | | | | | |
| Shares sold. | 344,636 | | $ | 4,380,137 | | 291,568 | | $ | 3,426,061 | |
| Shares issued in reinvestment of distributions | 12,066 | | | 146,695 | | 62 | | | 716 | |
| Shares redeemed | (132,611 | ) | | (1,682,491 | ) | (118,419 | ) | | (1,392,502 | ) |
| Net increase (decrease) | 224,091 | | $ | 2,844,341 | | 173,211 | | $ | 2,034,275 | |
136 Annual Report
franklintempleton.com
| | | | | | | | | | | | | |
| | | | | | | FRANKLIN FUND ALLOCATOR SERIES | |
| | | | | | | NOTES TO FINANCIAL STATEMENTS | |
| |
| |
| |
| |
| | Franklin LifeSmart 2045 | | Franklin LifeSmart 2050 | |
| | Retirement Target Fund | | Retirement Target Fund | |
| | Shares | | | Amount | | Shares | | Amount | |
| Advisor Class Shares: | | | | | | | | | | | | | |
| Year ended December 31, 2016 | | | | | | | | | | | | | |
| Shares sold. | 21,630 | | $ | 248,772 | | 4,060 | | $ | 45,309 | |
| Shares issued in reinvestment of distributions | | | | 1,148 | | | 13,243 | | 653 | | | 7,211 | |
| Shares redeemed | (27,642 | ) | | (329,313 | ) | (5,181 | ) | | (58,654 | ) |
| Net increase (decrease) | | | | (4,864 | ) | $ | (67,298 | ) | (468 | ) | $ | (6,134 | ) |
| Year ended December 31, 2015 | | | | | | | | | | | | | |
| Shares sold. | 43,019 | | $ | 559,430 | | 7,432 | | $ | 87,275 | |
| Shares issued in reinvestment of distributions | | | | 4,069 | | | 51,369 | | 971 | | | 11,258 | |
| Shares redeemed | (125,572 | ) | | (1,579,972 | ) | (1,173 | ) | | (13,545 | ) |
| Net increase (decrease) | (78,484 | ) | $ | (969,173 | ) | 7,230 | | $ | 84,988 | |
| |
| | Franklin LifeSmart 2055 | | | | | | |
| | Retirement Target Fund | | | | | | |
| | Shares | | | Amount | | | | | | |
| Class A Shares: | | | | | | | | | | | | | |
| Year ended December 31, 2016 | | | | | | | | | | | | | |
| Shares sold. | 167,691 | | $ | 1,569,365 | | | | | | |
| Shares issued in reinvestment of distributions | 2,970 | | | | | 27,647 | | | | | | |
| Shares redeemed | (76,729 | ) | | (718,013 | ) | | | | | |
| Net increase (decrease) | 93,932 | | | $ | | 878,999 | | | | | | |
| Year ended December 31, 2015a | | | | | | | | | | | | | |
| Shares sold. | 239,222 | | $ | 2,334,995 | | | | | | |
| Shares issued in reinvestment of distributions | 1,127 | | | | | 10,572 | | | | | | |
| Shares redeemed | (45,857 | ) | | (429,334 | ) | | | | | |
| Net increase (decrease) | 194,492 | | $ | 1,916,233 | | | | | | |
| Class C Shares: | | | | | | | | | | | | | |
| Year ended December 31, 2016 | | | | | | | | | | | | | |
| Shares sold. | 56,005 | | | $ | | 514,754 | | | | | | |
| Shares issued in reinvestment of distributions | 585 | | | | | 5,377 | | | | | | |
| Shares redeemed | (14,194 | ) | | (124,031 | ) | | | | | |
| Net increase (decrease) | 42,396 | | | $ | | 396,100 | | | | | | |
| Year ended December 31, 2015a | | | | | | | | | | | | | |
| Shares sold. | 18,474 | | | $ | | 175,668 | | | | | | |
| Shares issued in reinvestment of distributions | 174 | | | | | 1,624 | | | | | | |
| Shares redeemed | (156 | ) | | | | (1,491 | ) | | | | | |
| Net increase (decrease) | 18,492 | | | $ | | 175,801 | | | | | | |
franklintempleton.com
Annual Report
137
FRANKLIN FUND ALLOCATOR SERIES
NOTES TO FINANCIAL STATEMENTS
| | | | | | |
| 2. Shares of Beneficial Interest (continued) | | | | | | |
| |
| | Franklin LifeSmart 2055 | |
| | Retirement Target Fund | |
| | Shares | | | | Amount | |
| Class R Shares: | | | | | | |
| Year ended December 31, 2016 | | | | | | |
| Shares sold. | 35,820 | | | $ | 330,982 | |
| Shares issued in reinvestment of distributions | 457 | | | | 4,253 | |
| Shares redeemed | (2,833 | ) | | | (26,780 | ) |
| Net increase (decrease) | 33,444 | | | $ | 308,455 | |
| Year ended December 31, 2015a | | | | | | |
| Shares sold. | 4,310 | | | $ | 40,876 | |
| Shares issued in reinvestment of distributions | 34 | | | | 321 | |
| Shares redeemed | (2 | ) | | | (20 | ) |
| Net increase (decrease) | 4,342 | | | $ | 41,177 | |
| Class R6 Shares: | | | | | | |
| Year ended December 31, 2016 | | | | | | |
| Shares sold. | 185,229 | | $ | 1,752,259 | |
| Shares issued in reinvestment of distributions | 340 | | | | 3,178 | |
| Shares redeemed | (24,754 | ) | | | (234,731 | ) |
| Net increase (decrease) | 160,815 | | $ | 1,520,706 | |
| Year ended December 31, 2015a | | | | | | |
| Shares sold. | 10,115 | | | $ | 96,879 | |
| Shares issued in reinvestment of distributions | 103 | | | | 969 | |
| Shares redeemed | (329 | ) | | | (3,088 | ) |
| Net increase (decrease) | 9,889 | | | $ | 94,760 | |
| Advisor Class Shares: | | | | | | |
| Year ended December 31, 2016 | | | | | | |
| Shares sold. | 236 | | | $ | 2,172 | |
| Shares issued in reinvestment of distributions | 6 | | | | 55 | |
| Shares redeemed | (45 | ) | | | (419 | ) |
| Net increase (decrease) | 197 | | | $ | 1,808 | |
| Year ended December 31, 2015a | | | | | | |
| Shares sold. | 4,734 | | | $ | 44,866 | |
| Shares issued in reinvestment of distributions | 7 | | | | 64 | |
| Shares redeemed | (3,582 | ) | | | (34,172 | ) |
| Net increase (decrease) | 1,159 | | | $ | 10,758 | |
| |
| aFor the period May 1, 2015 (commencement of operations) to December 31, 2015. | | | | | | |
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NOTES TO FINANCIAL STATEMENTS
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 FT 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. Management and 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 Underlying Funds and ETFs.
Effective May 1, 2016, Franklin LifeSmart Retirement Income Fund pays an investment management fee to Advisers of 0.25% per year of the average daily net assets of the fund. Prior to May 1, 2016, the fund paid an asset allocation fee.
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. 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.
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 | % |
The Board has set the current rate at 0.25% per year for Class A shares until further notice and approval by the Board.
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FRANKLIN FUND ALLOCATOR SERIES
NOTES TO FINANCIAL STATEMENTS
| 3. | Transactions with Affiliates (continued) |
| 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 year:
| | | | | | |
| | | Franklin | | Franklin | | Franklin |
| | | LifeSmart | | LifeSmart | | LifeSmart |
| | | Retirement | | 2020 Retirement | | 2025 Retirement |
| | | Income Fund | | Target Fund | | Target Fund |
| |
| Sales charges retained net of commissions paid to | | | | | | |
| unaffiliated brokers/dealers | $ | 14,315 | $ | 11,964 | $ | 50,335 |
| CDSC retained | $ | 1,770 | $ | 600 | $ | 2,665 |
| |
| | | Franklin | | Franklin | | Franklin |
| | | LifeSmart | | LifeSmart | | LifeSmart |
| | | 2030 Retirement | | 2035 Retirement | | 2040 Retirement |
| | | Target Fund | | Target Fund | | Target Fund |
| |
| Sales charges retained net of commissions paid to | | | | | | |
| unaffiliated brokers/dealers | $ | 19,494 | $ | 49,095 | $ | 20,150 |
| CDSC retained | $ | 726 | $ | 3,267 | $ | 1,304 |
| |
| | | Franklin | | Franklin | | Franklin |
| | | LifeSmart | | LifeSmart | | LifeSmart |
| | | 2045 Retirement | | 2050 Retirement | | 2055 Retirement |
| | | Target Fund | | Target Fund | | Target Fund |
| |
| Sales charges retained net of commissions paid to | | | | | | |
| unaffiliated brokers/dealers | $ | 42,248 | $ | 18,976 | $ | 7,388 |
| CDSC retained | $ | 5,154 | $ | 1,315 | $ | 185 |
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 shareholder 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 year ended December 31, 2016, 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 |
| | | LifeSmart | | LifeSmart | | LifeSmart |
| | | Retirement | | 2020 Retirement | | 2025 Retirement |
| | | Income Fund | | Target Fund | | Target Fund |
| |
| Transfer agent fees | $ | 46,385 | $ | 21,319 | $ | 90,516 |
| |
| | | Franklin | | Franklin | | Franklin |
| | | LifeSmart | | LifeSmart | | LifeSmart |
| | | 2030 Retirement | | 2035 Retirement | | 2040 Retirement |
| | | Target Fund | | Target Fund | | Target Fund |
| |
| Transfer agent fees | $ | 26,821 | $ | 92,115 | $ | 26,408 |
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FRANKLIN FUND ALLOCATOR SERIES
NOTES TO FINANCIAL STATEMENTS
| | | | | | |
| | | Franklin | | Franklin | | Franklin |
| | | LifeSmart | | LifeSmart | | LifeSmart |
| | | 2045 Retirement | | 2050 Retirement | | 2055 Retirement |
| | | Target Fund | | Target Fund | | Target Fund |
| |
| Transfer agent fees | $ | 105,984 | $ | 40,337 | $ | 12,416 |
| |
| f. Investments in FT Underlying Funds | | | | | | |
The Funds invest in FT Underlying Funds which are managed by Advisers (or an affiliate of Advisers). The Funds do not invest in FT Underlying Funds for the purpose of exercising a controlling influence over the management or policies. Management and 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 FT Underlying Funds for the year ended December 31, 2016, were as follows: | | | | | | | |
| |
| | | | | | | | | | | | | | % of | |
| | | | | | | | | | | | | | FT Underlying | |
| | Number of | | | | Number of | | | | | | | | Fund Shares | |
| | Shares Held | | | | Shares | | Value | | | | | | Outstanding | |
| | at Beginning | Gross | Gross Held at End | | at End | | Investment | | Realized | | Held at End | |
| FT Underlying Funds | of Year | Additions | Reductions | | of Year | | of Year | | Income | | Gain (Loss) | | of Year | |
| |
| Franklin LifeSmart Retirement Income Fund | | | | | | | | | | | | | | |
| Non-Controlled Affiliates | | | | | | | | | | | | | | |
| Franklin DynaTech Fund, Class R6 | 51,579 | – | (51,579 | ) | – | $ | –a | $ | – | $ | 506,433 | | – | |
| Franklin Emerging Market Debt Opportunities | | | | | | | | | | | | | | |
| Fund | 261,704 | – | (261,704 | ) | – | | –a | | – | | (409,453 | ) | – | |
| Franklin Floating Rate Daily Access Fund, | | | | | | | | | | | | | | |
| ClassR6 | – | 2,091,639 | (206,975 | ) | 1,884,664 | | 16,754,661 | | 400,675 | | 8,412 | | 0.5 | % |
| Franklin Focused Core Equity Fund, Class R6 | 197,870 | 2,197 | (200,067 | ) | – | | –a | | – | | (309,363 | ) | – | |
| Franklin Growth Fund, Class R6 | 37,001 | 4,325 | (41,326 | ) | – | | –a | | – | | 847,465 | | – | |
| Franklin Growth Opportunities Fund, Class R6 | 42,630 | 71,693 | (114,323 | ) | – | | –a | | – | | 566,955 | | – | |
| Franklin Income Fund, Class R6 | – | 6,998,222 | (1,831,348 | ) | 5,166,874 | | 11,832,142 | | 371,785 | | 105,869 | | –b | |
| Franklin India Growth Fund, Class R6 | 72,983 | 8,407 | (81,390 | ) | – | | –a | | – | | (57,878 | ) | – | |
| Franklin International Growth Fund, Class R6 | 61,574 | – | (61,574 | ) | – | | –a | | – | | (90,843 | ) | – | |
| Franklin International Small Cap Growth Fund, | | | | | | | | | | | | | | |
| ClassR6 | 120,440 | 49,823 | (170,263 | ) | – | | –a | | – | | 411,961 | | – | |
| Franklin K2 Alternative Strategies Fund, | | | | | | | | | | | | | | |
| ClassR6 | 451,280 | – | (451,280 | ) | – | | –a | | – | | (144,756 | ) | – | |
| Franklin K2 Long Short Credit Fund, Class R6 | – | 222,936 | (222,936 | ) | – | | –a | | – | | 49,046 | | – | |
| Franklin Liberty Short Duration U.S. Government | | | | | | | | | | | | | | |
| ETFc | 11,574 | – | (11,574 | ) | – | | –a | | 929 | | (12,798 | ) | – | |
| Franklin Low Duration Total Return Fund, | | | | | | | | | | | | | | |
| ClassR6 | 1,452,606 | 249,496 | (1,702,102 | ) | – | | –a | | 74,672 | | (380,251 | ) | – | |
| Franklin Mutual European Fund, Class R6 | – | 119,651 | (119,651 | ) | – | | –a | | 2,199 | | (9,957 | )d | – | |
| Franklin Mutual International Fund, Class R6 | 123,582 | 8,088 | (131,670 | ) | – | | –a | | – | | (290,865 | ) | – | |
| Franklin Pelagos Commodities Strategy Fund, | | | | | | | | | | | | | | |
| ClassR6 | 258,301 | 119,650 | (377,951 | ) | – | | –a | | – | | (187,329 | ) | – | |
| Franklin Real Estate Securities Fund, Class R6 . | 15,107 | 62 | (15,169 | ) | – | | –a | | 1,416 | | 97,163 | | – | |
| Franklin Rising Dividends Fund, Class R6 | 23,500 | 8,280 | (31,780 | ) | – | | –a | | 4,420 | | 404,230 | | – | |
| Franklin Small Cap Growth Fund, Class R6 | 36,569 | 408 | (36,977 | ) | – | | –a | | – | | 76,227 | | – | |
| Franklin Strategic Income Fund, Class R6 | 529,280 | 996,157 | (902,993 | ) | 622,444 | | 6,000,366 | | 241,381 | | (282,591 | ) | 0.1 | % |
| Franklin U.S. Government Securities Fund, | | | | | | | | | | | | | | |
| ClassR6 | – | 3,544,754 | (1,146,188 | ) | 2,398,566 | | 14,919,080 | | 338,368 | | (10,450 | ) | 0.2 | % |
| Franklin Utilities Fund, Class R6 | 29,331 | 238,519 | (267,850 | ) | – | | –a | | 37,165 | | 371,488 | | – | |
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FRANKLIN FUND ALLOCATOR SERIES
NOTES TO FINANCIAL STATEMENTS
| 3. | Transactions with Affiliates (continued) |
| f. | Investments in FT Underlying Funds (continued) |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | % of | |
| | | | | | | | | | | | | | FT Underlying | |
| | Number of | | | | Number of | | | | | | | | Fund Shares | |
| | Shares Held | | | | Shares | | Value | | | | | | Outstanding | |
| | at Beginning | Gross | Gross Held at End | | at End | | Investment | | Realized | | Held at End | |
| FT Underlying Funds | of Year | Additions | Reductions | | of Year | | of Year | | Income | | Gain (Loss) | | of Year | |
| |
| Franklin LifeSmart Retirement Income Fund (continued) | | | | | | | | | | | | | |
| Non-Controlled Affiliates (continued) | | | | | | | | | | | | | | |
| Institutional Fiduciary Trust Money Market | | | | | | | | | | | | | | |
| Portfolio, 0.09% | 1,579,144 | 34,917,333 | (36,496,462 | ) | 15 | $ | 15 | $ | 15 | | $ – | | –b | |
| Templeton Foreign Fund, Class R6 | 124,079 | 71,231 | (195,310 | ) | – | | –a | | – | | 221,128 | | – | |
| Templeton Frontier Markets Fund, Class R6 | 54,682 | – | (54,682 | ) | – | | –a | | – | | (202,444 | ) | – | |
| Templeton Global Total Return Fund, Class R6 | 1,571,674 | 158,500 | (1,490,439 | ) | 239,735 | | 2,900,786 | | – | | (2,425,335 | ) | 0.1 | % |
| Total | | | | | | $ | 52,407,050 | $ | 1,473,025 | $ | (1,147,936 | ) | | |
| |
| Franklin LifeSmart 2020 Retirement Target Fund | | | | | | | | | | | | | | |
| Non-Controlled Affiliates | | | | | | | | | | | | | | |
| Franklin DynaTech Fund, Class R6 | 34,518 | 993 | (35,511 | ) | – | | $ –a | $ | – | $ | (30,420 | ) | – | |
| Franklin Emerging Market Debt Opportunities | | | | | | | | | | | | | | |
| Fund | 58,959 | – | (58,959 | ) | – | | –a | | – | | (76,330 | ) | – | |
| Franklin Focused Core Equity Fund, Class R6 | 156,985 | 25,612 | (111,147 | ) | 71,450 | | 1,045,317 | | – | | (187,842 | ) | 0.7 | % |
| Franklin Growth Fund, Class R6 | 30,205 | 35,370 | (16,769 | ) | 48,806 | | 3,739,052 | | 33,978 | | 94,071 | d | –b | |
| Franklin Growth Opportunities Fund, Class R6 | 34,167 | 76,705 | (66,945 | ) | 43,927 | | 1,439,918 | | – | | (26,432 | )d | –b | |
| Franklin India Growth Fund, Class R6 | 48,442 | 19,120 | (17,156 | ) | 50,406 | | 625,028 | | – | | (21,970 | ) | 0.6 | % |
| Franklin International Growth Fund, Class R6 | 46,292 | 1,318 | (47,610 | ) | – | | –a | | – | | (53,335 | ) | – | |
| Franklin International Small Cap Growth Fund, | | | | | | | | | | | | | | |
| ClassR6 | 97,668 | 71,131 | (94,899 | ) | 73,900 | | 1,212,698 | | 17,277 | | (151,136 | )d | 0.1 | % |
| Franklin K2 Alternative Strategies Fund, | | | | | | | | | | | | | | |
| ClassR6 | 199,403 | 13,953 | (122,956 | ) | 90,400 | | 974,509 | | 8,424 | | (89,097 | ) | 0.1 | % |
| Franklin K2 Long Short Credit Fund, Class R6 | – | 110,293 | (12,720 | ) | 97,573 | | 1,004,031 | | 30,063 | | 14,403 | d | 1.3 | % |
| Franklin Liberty Short Duration U.S. Government | | | | | | | | | | | | | | |
| ETFc | 2,100 | – | (2,100 | ) | – | | –a | | 169 | | (2,300 | ) | – | |
| FranklinLibertyQEmergingMarketsETF | – | 50,300 | (4,100 | ) | 46,200 | | 1,229,382 | | 4,157 | | (2,196 | ) | 0.5 | % |
| Franklin Low Duration Total Return Fund, | | | | | | | | | | | | | | |
| ClassR6 | 457,082 | 154,224 | (129,172 | ) | 482,134 | | 4,763,482 | | 93,973 | | (31,954 | ) | 0.2 | % |
| Franklin Mutual International Fund, Class R6 | 91,459 | 22,132 | (56,908 | ) | 56,683 | | 811,703 | | 16,114 | | (140,109 | )d | 0.5 | % |
| Franklin Pelagos Commodities Strategy Fund, | | | | | | | | | | | | | | |
| ClassR6 | 115,351 | 69,832 | (80,407 | ) | 104,776 | | 691,521 | | – | | (80,135 | ) | 0.5 | % |
| Franklin Real Estate Securities Fund, Class R6 . | 10,741 | 354 | (11,095 | ) | – | | –a | | 1,048 | | 33,971 | | – | |
| Franklin Rising Dividends Fund, Class R6 | 19,451 | 42,275 | (20,705 | ) | 41,021 | | 2,156,085 | | 39,073 | | 64,991 | d | –b | |
| Franklin Small Cap Growth Fund, Class R6 | 27,744 | 6,455 | (8,814 | ) | 25,385 | | 505,155 | | – | | (18,990 | ) | –b | |
| Franklin Strategic Income Fund, Class R6 | 173,044 | 55,374 | (54,817 | ) | 173,601 | | 1,673,513 | | 49,383 | | (50,249 | ) | –b | |
| Franklin U.S. Government Securities Fund, | | | | | | | | | | | | | | |
| ClassR6 | – | 442,835 | (61,686 | ) | 381,149 | | 2,370,751 | | 59,466 | | (3,187 | ) | –b | |
| Franklin Utilities Fund, Class R6 | 23,934 | 105,114 | (90,791 | ) | 38,257 | | 679,819 | | 25,254 | | (16,543 | )d | –b | |
| Institutional Fiduciary Trust Money Market | | | | | | | | | | | | | | |
| Portfolio, 0.09% | 651,183 | 17,424,330 | (17,885,096 | ) | 190,417 | | 190,417 | | 24 | | – | | –b | |
| Templeton Foreign Fund, Class R6 | 99,587 | 134,715 | (88,216 | ) | 146,086 | | 1,003,612 | | 23,296 | | (71,946 | ) | –b | |
| Templeton Frontier Markets Fund, Class R6 | 41,691 | 1,188 | (42,879 | ) | – | | –a | | – | | (184,171 | ) | – | |
| Templeton Global Total Return Fund, Class R6 | 496,054 | 112,258 | (412,507 | ) | 195,805 | | 2,369,241 | | – | | (394,252 | ) | –b | |
| Total | | | | | | $ | 28,485,234 | $ | 401,699 | $ | (1,425,158 | ) | | |
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FRANKLIN FUND ALLOCATOR SERIES
NOTES TO FINANCIAL STATEMENTS
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | % of | |
| | | | | | | | | | | | | | FT Underlying | |
| | Number of | | | | Number of | | | | | | | | Fund Shares | |
| | Shares Held | | | | Shares | | Value | | | | | | Outstanding | |
| | at Beginning | Gross | Gross Held at End | | at End | | Investment | | Realized | | Held at End | |
| FT Underlying Funds | of Year | Additions | Reductions | | of Year | | of Year | | Income | | Gain (Loss) | | of Year | |
| |
| Franklin LifeSmart 2025 Retirement Target Fund | | | | | | | | | | | | | | |
| Non-Controlled Affiliates | | | | | | | | | | | | | | |
| Franklin DynaTech Fund, Class R6 | 152,651 | 2,600 | (155,251 | ) | – | | $ –a | $ | – | $ | 1,766,728 | | – | |
| Franklin Emerging Market Debt Opportunities | | | | | | | | | | | | | | |
| Fund | 177,862 | – | (177,862 | ) | – | | –a | | – | | (284,310 | ) | – | |
| Franklin Focused Core Equity Fund, Class R6 | 675,621 | 56,232 | (421,267 | ) | 310,586 | | 4,543,867 | | – | | (648,702 | ) | 3.2 | % |
| Franklin Growth Fund, Class R6 | 114,159 | 165,922 | (57,819 | ) | 222,262 | | 17,027,529 | | 157,730 | | 549,312 | d | 0.1 | % |
| Franklin Growth Opportunities Fund, Class R6 | 138,933 | 310,538 | (253,136 | ) | 196,335 | | 6,435,875 | | – | | 47,268 | d | 0.2 | % |
| Franklin India Growth Fund, Class R6 | 231,127 | 57,226 | (51,892 | ) | 236,461 | | 2,932,119 | | – | | (30,471 | ) | 2.9 | % |
| Franklin International Growth Fund, Class R6 | 255,533 | 4,311 | (259,844 | ) | – | | –a | | – | | (357,709 | ) | – | |
| Franklin International Small Cap Growth Fund, | | | | | | | | | | | | | | |
| ClassR6 | 418,599 | 249,289 | (326,453 | ) | 341,435 | | 5,602,941 | | 80,722 | | 112,856 | d | 0.5 | % |
| Franklin K2 Alternative Strategies Fund, | | | | | | | | | | | | | | |
| ClassR6 | 705,761 | 23,762 | (406,741 | ) | 322,782 | | 3,479,586 | | 30,079 | | (248,988 | ) | 0.3 | % |
| Franklin K2 Long Short Credit Fund, Class R6 | – | 411,746 | (64,260 | ) | 347,486 | | 3,575,632 | | 107,062 | | 62,268 | d | 4.7 | % |
| Franklin Liberty Short Duration U.S. Government | | | | | | | | | | | | | | |
| ETFc | 7,089 | – | (7,089 | ) | – | | –a | | 569 | | (7,842 | ) | – | |
| FranklinLibertyQEmergingMarketsETF | – | 244,200 | (14,100 | ) | 230,100 | | 6,122,961 | | 20,885 | | (5,601 | ) | 2.4 | % |
| Franklin Low Duration Total Return Fund, | | | | | | | | | | | | | | |
| ClassR6 | 993,226 | 361,420 | (219,639 | ) | 1,135,007 | | 11,213,874 | | 219,567 | | (61,256 | ) | 0.4 | % |
| Franklin Mutual International Fund, Class R6 | 420,030 | 59,487 | (221,927 | ) | 257,590 | | 3,688,680 | | 73,710 | | (586,956 | )d | 2.2 | % |
| Franklin Pelagos Commodities Strategy Fund, | | | | | | | | | | | | | | |
| ClassR6 | 414,644 | 220,746 | (250,596 | ) | 384,794 | | 2,539,643 | | – | | (546,207 | ) | 1.9 | % |
| Franklin Real Estate Securities Fund, Class R6 . | 49,228 | 1,041 | (50,269 | ) | – | | –a | | 4,890 | | 312,183 | | – | |
| Franklin Rising Dividends Fund, Class R6 | 106,856 | 142,537 | (58,112 | ) | 191,281 | | 10,053,709 | | 183,228 | | 263,023 | d | 0.1 | % |
| Franklin Small Cap Growth Fund, Class R6 | 150,442 | 19,028 | (30,407 | ) | 139,063 | | 2,767,348 | | – | | 7,180 | | 0.1 | % |
| Franklin Strategic Income Fund, Class R6 | 362,116 | 103,537 | (75,543 | ) | 390,110 | | 3,760,658 | | 109,990 | | (75,721 | ) | 0.1 | % |
| Franklin U.S. Government Securities Fund, | | | | | | | | | | | | | | |
| ClassR6 | – | 1,058,988 | (127,647 | ) | 931,341 | | 5,792,941 | | 149,498 | | (5,588 | ) | 0.1 | % |
| Franklin Utilities Fund, Class R6 | 103,559 | 397,428 | (325,799 | ) | 175,188 | | 3,113,092 | | 116,672 | | (89,085 | )d | 0.1 | % |
| Institutional Fiduciary Trust Money Market | | | | | | | | | | | | | | |
| Portfolio, 0.09% | 2,105,947 | 45,115,484 | (46,498,445 | ) | 722,986 | | 722,986 | | 91 | | – | | –b | |
| Templeton Foreign Fund, Class R6 | 385,762 | 554,326 | (323,600 | ) | 616,488 | | 4,235,275 | | 98,744 | | (37,803 | ) | 0.1 | % |
| Templeton Frontier Markets Fund, Class R6 | 178,644 | 3,079 | (181,723 | ) | – | | –a | | – | | (741,856 | ) | – | |
| Templeton Global Total Return Fund, Class R6 | 1,145,644 | 283,870 | (967,404 | ) | 462,110 | | 5,591,536 | | – | | (1,778,949 | ) | 0.1 | % |
| Total | | | | | | $ | 103,200,252 | $ | 1,353,437 | $ | (2,386,226 | ) | | |
| |
| Franklin LifeSmart 2030 Retirement Target Fund | | | | | | | | | | | | | | |
| Non-Controlled Affiliates | | | | | | | | | | | | | | |
| Franklin DynaTech Fund, Class R6 | 46,965 | 1,524 | (48,489 | ) | – | | $ –a | $ | – | $ | (62,027 | ) | – | |
| Franklin Emerging Market Debt Opportunities | | | | | | | | | | | | | | |
| Fund | 30,301 | – | (30,301 | ) | – | | –a | | – | | (50,185 | ) | – | |
| Franklin Focused Core Equity Fund, Class R6 | 189,612 | 34,809 | (123,766 | ) | 100,655 | | 1,472,585 | | – | | (229,319 | ) | 1.0 | % |
| Franklin Growth Fund, Class R6 | 37,412 | 51,124 | (15,720 | ) | 72,816 | | 5,578,414 | | 50,290 | | 163,084 | d | –b | |
| Franklin Growth Opportunities Fund, Class R6 | 42,587 | 88,964 | (64,788 | ) | 66,763 | | 2,188,512 | | – | | (10,858 | )d | 0.1 | % |
| Franklin India Growth Fund, Class R6 | 71,745 | 30,960 | (17,099 | ) | 85,606 | | 1,061,516 | | – | | (7,049 | ) | 1.0 | % |
| Franklin International Growth Fund, Class R6 | 75,990 | 2,438 | (78,428 | ) | – | | –a | | – | | (99,446 | ) | – | |
| Franklin International Small Cap Growth Fund, | | | | | | | | | | | | | | |
| ClassR6 | 129,080 | 91,690 | (86,171 | ) | 134,599 | | 2,208,763 | | 31,256 | | (148,568 | )d | 0.2 | % |
| Franklin K2 Alternative Strategies Fund, | | | | | | | | | | | | | | |
| ClassR6 | 181,672 | 19,553 | (101,563 | ) | 99,662 | | 1,074,355 | | 9,223 | | (75,209 | ) | 0.1 | % |
| Franklin K2 Long Short Credit Fund, Class R6 | – | 116,174 | (7,097 | ) | 109,077 | | 1,122,402 | | 33,373 | | 11,601 | d | 1.5 | % |
franklintempleton.com
Annual Report
143
FRANKLIN FUND ALLOCATOR SERIES
NOTES TO FINANCIAL STATEMENTS
| 3. | Transactions with Affiliates (continued) |
| f. | Investments in FT Underlying Funds (continued) |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | % of | |
| | | | | | | | | | | | | | FT Underlying | |
| | Number of | | | | Number of | | | | | | | | Fund Shares | |
| | Shares Held | | | | Shares | | Value | | | | | | Outstanding | |
| | at Beginning | Gross | Gross Held at End | | at End | | Investment | | Realized | | Held at End | |
| FT Underlying Funds | of Year | Additions | Reductions | | of Year | | of Year | | Income | | Gain (Loss) | | of Year | |
| |
| Franklin LifeSmart 2030 Retirement Target Fund (continued) | | | | | | | | | | | | | |
| Non-Controlled Affiliates (continued) | | | | | | | | | | | | | | |
| Franklin Liberty Short Duration U.S. Government | | | | | | | | | | | | | | |
| ETFc | 1,063 | – | (1,063 | ) | – | | $ –a | $ | 85 | $ | (1,171 | ) | – | |
| FranklinLibertyQEmergingMarketsETF | – | 83,400 | (5,300 | ) | 78,100 | | 2,078,241 | | 7,055 | | (4,366 | ) | 0.8 | % |
| Franklin Low Duration Total Return Fund, | | | | | | | | | | | | | | |
| ClassR6 | 162,759 | 158,989 | (50,894 | ) | 270,854 | | 2,676,032 | | 46,439 | | (12,447 | ) | 0.1 | % |
| Franklin Mutual International Fund, Class R6 | 118,633 | 33,128 | (63,161 | ) | 88,600 | | 1,268,758 | | 25,474 | | (166,442 | )d | 0.8 | % |
| Franklin Pelagos Commodities Strategy Fund, | | | | | | | | | | | | | | |
| ClassR6 | 102,100 | 72,283 | (65,205 | ) | 109,178 | | 720,573 | | – | | (88,446 | ) | 0.5 | % |
| Franklin Real Estate Securities Fund, Class R6 . | 15,114 | 554 | (15,668 | ) | – | | –a | | 1,524 | | 40,699 | | – | |
| Franklin Rising Dividends Fund, Class R6 | 29,581 | 46,016 | (11,808 | ) | 63,789 | | 3,352,755 | | 56,119 | | 66,232 | d | –b | |
| Franklin Small Cap Growth Fund, Class R6 | 50,843 | 14,398 | (10,845 | ) | 54,396 | | 1,082,481 | | – | | (12,410 | ) | –b | |
| Franklin Strategic Income Fund, Class R6 | 62,042 | 51,244 | (17,879 | ) | 95,407 | | 919,724 | | 23,071 | | (19,956 | ) | –b | |
| Franklin U.S. Government Securities Fund, | | | | | | | | | | | | | | |
| ClassR6 | – | 250,926 | (26,826 | ) | 224,100 | | 1,393,904 | | 32,819 | | (913 | ) | –b | |
| Franklin Utilities Fund, Class R6 | 30,936 | 119,077 | (88,604 | ) | 61,409 | | 1,091,232 | | 36,642 | | (30,697 | )d | –b | |
| Institutional Fiduciary Trust Money Market | | | | | | | | | | | | | | |
| Portfolio, 0.09% | 636,750 | 19,382,296 | (19,957,853 | ) | 61,193 | | 61,193 | | 31 | | – | | –b | |
| Templeton Foreign Fund, Class R6 | 122,709 | 158,369 | (99,964 | ) | 181,114 | | 1,244,254 | | 29,096 | | (90,920 | ) | –b | |
| Templeton Frontier Markets Fund, Class R6 | 57,456 | 1,842 | (59,298 | ) | – | | –a | | – | | (293,902 | ) | – | |
| Templeton Global Total Return Fund, Class R6 | 177,412 | 130,123 | (197,814 | ) | 109,721 | | 1,327,618 | | – | | (220,446 | ) | –b | |
| Total | | | | | | $ | 31,923,312 | $ | 382,497 | $ | (1,343,161 | ) | | |
| |
| Franklin LifeSmart 2035 Retirement Target Fund | | | | | | | | | | | | | | |
| Non-Controlled Affiliates | | | | | | | | | | | | | | |
| Franklin DynaTech Fund, Class R6 | 155,968 | – | (155,968 | ) | – | | $ –a | $ | – | $ | 1,302,104 | | – | |
| Franklin Emerging Market Debt Opportunities | | | | | | | | | | | | | | |
| Fund | 61,982 | – | (61,982 | ) | – | | –a | | – | | (128,500 | ) | – | |
| Franklin Focused Core Equity Fund, Class R6 | 648,925 | 38,672 | (379,669 | ) | 307,928 | | 4,504,987 | | – | | (708,004 | ) | 3.2 | % |
| Franklin Growth Fund, Class R6 | 111,676 | 130,364 | (25,903 | ) | 216,137 | | 16,558,233 | | 149,826 | | 489,168 | d | 0.1 | % |
| Franklin Growth Opportunities Fund, Class R6 | 132,013 | 254,721 | (168,548 | ) | 218,186 | | 7,152,120 | | – | | 129,335 | d | 0.2 | % |
| Franklin India Growth Fund, Class R6 | 217,777 | 48,685 | (35,087 | ) | 231,375 | | 2,869,047 | | – | | (24,431 | ) | 2.8 | % |
| Franklin International Growth Fund, Class R6 | 232,448 | – | (232,448 | ) | – | | –a | | – | | (345,348 | ) | – | |
| Franklin International Small Cap Growth Fund, | | | | | | | | | | | | | | |
| ClassR6 | 394,471 | 216,278 | (189,101 | ) | 421,648 | | 6,919,244 | | 98,811 | | 189,680 | d | 0.6 | % |
| Franklin K2 Alternative Strategies Fund, | | | | | | | | | | | | | | |
| ClassR6 | 574,628 | 16,782 | (314,770 | ) | 276,640 | | 2,982,181 | | 25,780 | | (213,388 | ) | 0.3 | % |
| Franklin K2 Long Short Credit Fund, Class R6 | – | 317,064 | (17,764 | ) | 299,300 | | 3,079,798 | | 92,216 | | 36,139 | d | 4.1 | % |
| Franklin Liberty Short Duration U.S. Government | | | | | | | | | | | | | | |
| ETFc | 3,435 | – | (3,435 | ) | – | | –a | | 276 | | (3,801 | ) | – | |
| FranklinLibertyQEmergingMarketsETF | – | 222,000 | (6,500 | ) | 215,500 | | 5,734,455 | | 19,664 | | (2,093 | ) | 2.3 | % |
| Franklin Low Duration Total Return Fund, | | | | | | | | | | | | | | |
| ClassR6 | 325,304 | 338,543 | (115,473 | ) | 548,374 | | 5,417,932 | | 98,476 | | (31,503 | ) | 0.2 | % |
| Franklin Mutual International Fund, Class R6 | 392,077 | 61,726 | (152,352 | ) | 301,451 | | 4,316,777 | | 86,720 | | (404,714 | )d | 2.6 | % |
| Franklin Pelagos Commodities Strategy Fund, | | | | | | | | | | | | | | |
| ClassR6 | 328,621 | 165,956 | (179,757 | ) | 314,820 | | 2,077,809 | | – | | (387,524 | ) | 1.5 | % |
| Franklin Real Estate Securities Fund, Class R6 . | 48,100 | 205 | (48,305 | ) | – | | –a | | 4,646 | | 292,152 | | – | |
| Franklin Rising Dividends Fund, Class R6 | 108,670 | 89,709 | (22,180 | ) | 176,199 | | 9,261,023 | | 162,123 | | 187,001 | d | 0.1 | % |
144 Annual Report
franklintempleton.com
FRANKLIN FUND ALLOCATOR SERIES
NOTES TO FINANCIAL STATEMENTS
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | % of | |
| | | | | | | | | | | | | | FT Underlying | |
| | Number of | | | | Number of | | | | | | | | Fund Shares | |
| | Shares Held | | | | Shares | | Value | | | | | | Outstanding | |
| | at Beginning | Gross | Gross Held at End | | at End | | Investment | | Realized | | Held at End | |
| FT Underlying Funds | of Year | Additions | Reductions | | of Year | | of Year | | Income | | Gain (Loss) | | of Year | |
| |
| Franklin LifeSmart 2035 Retirement Target Fund (continued) | | | | | | | | | | | | | |
| Non-Controlled Affiliates (continued) | | | | | | | | | | | | | | |
| Franklin Small Cap Growth Fund, Class R6 | 136,610 | 13,557 | (19,798 | ) | 130,369 | $ | 2,594,348 | $ | – | $ | (29,040 | ) | 0.1 | % |
| Franklin Strategic Income Fund, Class R6 | 118,070 | 104,570 | (38,639 | ) | 184,001 | | 1,773,772 | | 47,270 | | (35,569 | ) | –b | |
| Franklin U.S. Government Securities Fund, | | | | | | | | | | | | | | |
| ClassR6 | – | 548,952 | (55,574 | ) | 493,378 | | 3,068,811 | | 74,311 | | (2,226 | ) | –b | |
| Franklin Utilities Fund, Class R6 | 106,113 | 291,781 | (230,900 | ) | 166,994 | | 2,967,483 | | 107,740 | | (19,605 | )d | –b | |
| Institutional Fiduciary Trust Money Market | | | | | | | | | | | | | | |
| Portfolio, 0.09% | 1,797,437 | 38,932,959 | (40,354,281 | ) | 376,115 | | 376,115 | | 80 | | – | | –b | |
| Templeton Foreign Fund, Class R6 | 393,283 | 507,975 | (278,406 | ) | 622,852 | | 4,278,997 | | 100,408 | | (160,579 | ) | 0.1 | % |
| Templeton Frontier Markets Fund, Class R6 | 175,264 | – | (175,264 | ) | – | | –a | | – | | (900,645 | ) | – | |
| Templeton Global Total Return Fund, Class R6 | 365,436 | 335,362 | (467,476 | ) | 233,322 | | 2,823,198 | | – | | (679,205 | ) | 0.1 | % |
| Total | | | | | | $ | 88,756,330 | $ | 1,068,347 | $ | (1,450,596 | ) | | |
| |
| Franklin LifeSmart 2040 Retirement Target Fund | | | | | | | | | | | | | | |
| Non-Controlled Affiliates | | | | | | | | | | | | | | |
| Franklin DynaTech Fund, Class R6 | 38,175 | 496 | (38,671 | ) | – | | $ –a | $ | – | $ | (49,903 | ) | – | |
| Franklin Emerging Market Debt Opportunities | | | | | | | | | | | | | | |
| Fund | 11,720 | – | (11,720 | ) | – | | –a | | – | | (11,601 | ) | – | |
| Franklin Focused Core Equity Fund, Class R6 | 159,881 | 37,001 | (97,518 | ) | 99,364 | | 1,453,689 | | – | | (182,052 | ) | 1.0 | % |
| Franklin Growth Fund, Class R6 | 29,956 | 42,707 | (4,946 | ) | 67,717 | | 5,187,811 | | 45,810 | | 156,244 | d | –b | |
| Franklin Growth Opportunities Fund, Class R6 | 33,112 | 80,994 | (43,303 | ) | 70,803 | | 2,320,926 | | – | | 733 | d | 0.1 | % |
| Franklin India Growth Fund, Class R6 | 55,065 | 27,894 | (6,034 | ) | 76,925 | | 953,871 | | – | | (4,048 | ) | 0.9 | % |
| Franklin International Growth Fund, Class R6 | 56,072 | – | (56,072 | ) | – | | –a | | – | | (73,565 | ) | – | |
| Franklin International Small Cap Growth Fund, | | | | | | | | | | | | | | |
| ClassR6 | 99,132 | 83,735 | (48,768 | ) | 134,099 | | 2,200,574 | | 31,335 | | (78,816 | )d | 0.2 | % |
| Franklin K2 Alternative Strategies Fund, | | | | | | | | | | | | | | |
| ClassR6 | 132,349 | 24,153 | (72,233 | ) | 84,269 | | 908,424 | | 7,853 | | (54,647 | ) | 0.1 | % |
| Franklin K2 Long Short Credit Fund, Class R6 | – | 94,357 | (2,158 | ) | 92,199 | | 948,730 | | 28,407 | | 9,152 | d | 1.3 | % |
| Franklin Liberty Short Duration U.S. Government | | | | | | | | | | | | | | |
| ETFc | 391 | – | (391 | ) | – | | –a | | 31 | | (428 | ) | – | |
| FranklinLibertyQEmergingMarketsETF | – | 69,400 | (2,200 | ) | 67,200 | | 1,788,192 | | 6,104 | | (1,642 | ) | 0.7 | % |
| Franklin Low Duration Total Return Fund, | | | | | | | | | | | | | | |
| ClassR6 | 64,464 | 118,835 | (36,449 | ) | 146,850 | | 1,450,881 | | 24,054 | | (4,543 | ) | 0.1 | % |
| Franklin Mutual International Fund, Class R6 | 100,048 | 35,963 | (40,327 | ) | 95,684 | | 1,370,192 | | 27,284 | | (107,722 | )d | 0.8 | % |
| Franklin Pelagos Commodities Strategy Fund, | | | | | | | | | | | | | | |
| ClassR6 | 71,199 | 62,193 | (41,821 | ) | 91,571 | | 604,368 | | – | | (59,430 | ) | 0.4 | % |
| Franklin Real Estate Securities Fund, Class R6 . | 10,950 | 285 | (11,235 | ) | – | | –a | | 1,093 | | 27,809 | | – | |
| Franklin Rising Dividends Fund, Class R6 | 20,858 | 38,098 | (3,967 | ) | 54,989 | | 2,890,228 | | 44,471 | | 57,510 | d | –b | |
| Franklin Small Cap Growth Fund, Class R6 | 33,319 | 11,715 | (3,205 | ) | 41,829 | | 832,396 | | – | | (4,365 | ) | –b | |
| Franklin Strategic Income Fund, Class R6 | 23,405 | 38,711 | (11,628 | ) | 50,488 | | 486,701 | | 11,153 | | (4,146 | ) | –b | |
| Franklin U.S. Government Securities Fund, | | | | | | | | | | | | | | |
| ClassR6 | – | 156,131 | (18,343 | ) | 137,788 | | 857,040 | | 18,984 | | (577 | ) | –b | |
| Franklin Utilities Fund, Class R6 | 25,517 | 88,036 | (61,240 | ) | 52,313 | | 929,595 | | 29,444 | | (19,940 | )d | –b | |
| Institutional Fiduciary Trust Money Market | | | | | | | | | | | | | | |
| Portfolio, 0.09% | 421,022 | 15,161,701 | (15,399,589 | ) | 183,134 | | 183,134 | | 25 | | – | | –b | |
| Templeton Foreign Fund, Class R6 | 98,787 | 156,205 | (70,488 | ) | 184,504 | | 1,267,542 | | 29,775 | | (79,399 | ) | –b | |
| Templeton Frontier Markets Fund, Class R6 | 45,472 | – | (45,472 | ) | – | | –a | | – | | (253,757 | ) | – | |
| Templeton Global Total Return Fund, Class R6 | 71,403 | 99,685 | (114,100 | ) | 56,988 | | 689,560 | | – | | (22,061 | ) | –b | |
| Total | | | | | | $ | 27,323,854 | $ | 305,823 | $ | (761,194 | ) | | |
franklintempleton.com
Annual Report
145
FRANKLIN FUND ALLOCATOR SERIES
NOTES TO FINANCIAL STATEMENTS
| 3. | Transactions with Affiliates (continued) |
| f. | Investments in FT Underlying Funds (continued) |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | % of | |
| | | | | | | | | | | | | | FT Underlying | |
| | Number of | | | | Number of | | | | | | | | Fund Shares | |
| | Shares Held | | | | Shares | | Value | | | | | | Outstanding | |
| | at Beginning | Gross | Gross Held at End | | at End | | Investment | | Realized | | Held at End | |
| FT Underlying Funds | of Year | Additions | Reductions | | of Year | | of Year | | Income | | Gain (Loss) | | of Year | |
| |
| Franklin LifeSmart 2045 Retirement Target Fund | | | | | | | | | | | | | | |
| Non-Controlled Affiliates | | | | | | | | | | | | | | |
| Franklin DynaTech Fund, Class R6 | 107,343 | – | (107,343 | ) | – | | $ –a | $ | – | $ | 933,111 | | – | |
| Franklin Emerging Market Debt Opportunities | | | | | | | | | | | | | | |
| Fund | 26,493 | – | (26,493 | ) | – | | –a | | – | | (58,758 | ) | – | |
| Franklin Focused Core Equity Fund, Class R6 | 452,173 | 25,580 | (251,328 | ) | 226,425 | | 3,312,605 | | – | | (479,596 | ) | 2.3 | % |
| Franklin Growth Fund, Class R6 | 83,938 | 80,672 | (10,942 | ) | 153,668 | | 11,772,478 | | 106,954 | | 353,675 | d | 0.1 | % |
| Franklin Growth Opportunities Fund, Class R6 | 75,558 | 176,198 | (90,873 | ) | 160,883 | | 5,273,737 | | – | | 82,231 | d | 0.1 | % |
| Franklin India Growth Fund, Class R6 | 163,417 | 32,142 | (43,222 | ) | 152,337 | | 1,888,975 | | – | | (44,327 | ) | 1.9 | % |
| Franklin International Growth Fund, Class R6 | 164,614 | – | (164,614 | ) | – | | –a | | – | | (235,011 | ) | – | |
| Franklin International Small Cap Growth Fund, | | | | | | | | | | | | | | |
| ClassR6 | 283,445 | 151,930 | (132,957 | ) | 302,418 | | 4,962,681 | | 70,798 | | 109,329 | d | 0.4 | % |
| Franklin K2 Alternative Strategies Fund, | | | | | | | | | | | | | | |
| ClassR6 | 380,208 | 20,316 | (209,435 | ) | 191,089 | | 2,059,939 | | 17,807 | | (142,251 | ) | 0.2 | % |
| Franklin K2 Long Short Credit Fund, Class R6 | – | 223,888 | (18,183 | ) | 205,705 | | 2,116,707 | | 63,379 | | 25,485 | d | 2.8 | % |
| Franklin Liberty Short Duration U.S. Government | | | | | | | | | | | | | | |
| ETFc | 1,539 | – | (1,539 | ) | – | | –a | | 124 | | (1,689 | ) | – | |
| FranklinLibertyQEmergingMarketsETF | – | 166,600 | (5,600 | ) | 161,000 | | 4,284,210 | | 14,669 | | (1,986 | ) | 1.7 | % |
| Franklin Low Duration Total Return Fund, | | | | | | | | | | | | | | |
| ClassR6 | 147,850 | 274,388 | (119,528 | ) | 302,710 | | 2,990,775 | | 54,275 | | (33,485 | ) | 0.1 | % |
| Franklin Mutual International Fund, Class R6 | 283,581 | 42,101 | (109,003 | ) | 216,679 | | 3,102,848 | | 62,114 | | (291,116 | )d | 1.9 | % |
| Franklin Pelagos Commodities Strategy Fund, | | | | | | | | | | | | | | |
| ClassR6 | 218,352 | 122,970 | (117,036 | ) | 224,286 | | 1,480,286 | | – | | (243,789 | ) | 1.1 | % |
| Franklin Real Estate Securities Fund, Class R6 . | 27,146 | 117 | (27,263 | ) | – | | –a | | 2,652 | | 156,129 | | – | |
| Franklin Rising Dividends Fund, Class R6 | 74,450 | 59,510 | (9,084 | ) | 124,876 | | 6,563,495 | | 113,204 | | 135,225 | d | –b | |
| Franklin Small Cap Growth Fund, Class R6 | 96,796 | 9,261 | (8,755 | ) | 97,302 | | 1,936,310 | | – | | (17,728 | ) | 0.1 | % |
| Franklin Strategic Income Fund, Class R6 | 50,839 | 109,299 | (55,924 | ) | 104,214 | | 1,004,619 | | 25,439 | | (50,909 | ) | –b | |
| Franklin U.S. Government Securities Fund, | | | | | | | | | | | | | | |
| ClassR6 | – | 419,652 | (144,291 | ) | 275,361 | | 1,712,746 | | 42,808 | | (2,217 | ) | –b | |
| Franklin Utilities Fund, Class R6 | 77,662 | 210,460 | (169,711 | ) | 118,411 | | 2,104,157 | | 77,660 | | (7,578 | )d | –b | |
| Institutional Fiduciary Trust Money Market | | | | | | | | | | | | | | |
| Portfolio, 0.09% | 1,463,464 | 26,995,227 | (27,990,105 | ) | 468,586 | | 468,586 | | 56 | | – | | –b | |
| Templeton Foreign Fund, Class R6 | 342,585 | 358,654 | (179,495 | ) | 521,744 | | 3,584,384 | | 84,049 | | (119,123 | ) | 0.1 | % |
| Templeton Frontier Markets Fund, Class R6 | 123,389 | – | (123,389 | ) | – | | –a | | – | | (630,921 | ) | – | |
| Templeton Global Total Return Fund, Class R6 | 160,673 | 283,396 | (314,778 | ) | 129,291 | | 1,564,425 | | – | | (281,455 | ) | –b | |
| Total | | | | | | $ | 62,183,963 | $ | 735,988 | $ | (846,754 | ) | | |
| |
| Franklin LifeSmart 2050 Retirement Target Fund | | | | | | | | | | | | | | |
| Non-Controlled Affiliates | | | | | | | | | | | | | | |
| Franklin DynaTech Fund, Class R6 | 31,167 | 2,799 | (33,966 | ) | – | | $ –a | $ | – | $ | (34,588 | ) | – | |
| Franklin Emerging Market Debt Opportunities | | | | | | | | | | | | | | |
| Fund | 5,743 | – | (5,743 | ) | – | | –a | | – | | (5,383 | ) | – | |
| Franklin Focused Core Equity Fund, Class R6 | 131,416 | 49,929 | (102,861 | ) | 78,484 | | 1,148,222 | | – | | (161,217 | ) | 0.8 | % |
| Franklin Growth Fund, Class R6 | 24,141 | 38,147 | (10,379 | ) | 51,909 | | 3,976,783 | | 35,536 | | 114,461 | d | –b | |
| Franklin Growth Opportunities Fund, Class R6 | 21,940 | 73,420 | (41,730 | ) | 53,630 | | 1,757,991 | | – | | 20,877 | d | –b | |
| Franklin India Growth Fund, Class R6 | 39,057 | 25,832 | (12,094 | ) | 52,795 | | 654,653 | | – | | (5,364 | ) | 0.6 | % |
| Franklin International Growth Fund, Class R6 | 36,159 | 3,218 | (39,377 | ) | – | | –a | | – | | (41,563 | ) | – | |
| Franklin International Small Cap Growth Fund, | | | | | | | | | | | | | | |
| ClassR6 | 80,852 | 74,237 | (55,031 | ) | 100,058 | | 1,641,956 | | 23,268 | | (61,418 | )d | 0.1 | % |
146 Annual Report
franklintempleton.com
FRANKLIN FUND ALLOCATOR SERIES
NOTES TO FINANCIAL STATEMENTS
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | % of | |
| | | | | | | | | | | | | | FT Underlying | |
| | Number of | | | | Number of | | | | | | | | Fund Shares | |
| | Shares Held | | | | Shares | | Value | | | | | | Outstanding | |
| | at Beginning | Gross | Gross Held at End | | at End | | Investment | | Realized | | Held at End | |
| FT Underlying Funds | of Year | Additions | Reductions | | of Year | | of Year | | Income | | Gain (Loss) | | of Year | |
| |
| Franklin LifeSmart 2050 Retirement Target Fund (continued) | | | | | | | | | | | | | |
| Non-Controlled Affiliates (continued) | | | | | | | | | | | | | | |
| Franklin K2 Alternative Strategies Fund, | | | | | | | | | | | | | | |
| ClassR6 | 102,765 | 20,434 | (60,271 | ) | 62,928 | $ | 678,369 | $ | 5,852 | $ | (41,032 | ) | 0.1 | % |
| Franklin K2 Long Short Credit Fund, Class R6 | – | 75,661 | (8,209 | ) | 67,452 | | 694,080 | | 20,739 | | 9,061 | d | 0.9 | % |
| Franklin Liberty Short Duration U.S. Government | | | | | | | | | | | | | | |
| ETFc | 272 | – | (272 | ) | – | | –a | | 22 | | (297 | ) | – | |
| FranklinLibertyQEmergingMarketsETF | – | 57,800 | (1,900 | ) | 55,900 | | 1,487,499 | | 5,060 | | (1,143 | ) | 0.6 | % |
| Franklin Low Duration Total Return Fund, | | | | | | | | | | | | | | |
| ClassR6 | 34,168 | 112,231 | (49,096 | ) | 97,303 | | 961,328 | | 16,263 | | (316 | ) | –b | |
| Franklin Mutual International Fund, Class R6 | 81,652 | 41,083 | (50,924 | ) | 71,811 | | 1,028,326 | | 20,368 | | (118,992 | )d | 0.6 | % |
| Franklin Pelagos Commodities Strategy Fund, | | | | | | | | | | | | | | |
| ClassR6 | 59,183 | 50,306 | (38,651 | ) | 70,838 | | 467,531 | | – | | (45,873 | ) | 0.3 | % |
| Franklin Real Estate Securities Fund, Class R6 . | 7,357 | 683 | (8,040 | ) | – | | –a | | 760 | | 21,437 | | – | |
| Franklin Rising Dividends Fund, Class R6 | 18,488 | 31,036 | (8,317 | ) | 41,207 | | 2,165,846 | | 36,007 | | 40,712 | d | –b | |
| Franklin Small Cap Growth Fund, Class R6 | 21,573 | 11,338 | (6,061 | ) | 26,850 | | 534,306 | | – | | (8,571 | ) | –b | |
| Franklin Strategic Income Fund, Class R6 | 12,467 | 36,888 | (16,282 | ) | 33,073 | | 318,827 | | 7,567 | | 191 | | –b | |
| Franklin U.S. Government Securities Fund, | | | | | | | | | | | | | | |
| ClassR6 | – | 133,536 | (46,873 | ) | 86,663 | | 539,041 | | 12,834 | | (1,589 | ) | –b | |
| Franklin Utilities Fund, Class R6 | 21,212 | 74,208 | (56,238 | ) | 39,182 | | 696,255 | | 24,241 | | (599 | )d | –b | |
| Institutional Fiduciary Trust Money Market | | | | | | | | | | | | | | |
| Portfolio, 0.09% | 310,796 | 13,152,069 | (13,281,298 | ) | 181,567 | | 181,567 | | 20 | | – | | –b | |
| Templeton Foreign Fund, Class R6 | 100,954 | 160,595 | (85,167 | ) | 176,382 | | 1,211,745 | | 28,328 | | (68,533 | ) | –b | |
| Templeton Frontier Markets Fund, Class R6 | 34,892 | 2,804 | (37,696 | ) | – | | –a | | – | | (164,387 | ) | – | |
| Templeton Global Total Return Fund, Class R6 | 36,550 | 111,122 | (109,436 | ) | 38,236 | | 462,660 | | – | | (585 | ) | –b | |
| Total | | | | | | $ | 20,606,985 | $ | 236,865 | $ | (554,711 | ) | | |
| |
| Franklin LifeSmart 2055 Retirement Target Fund | | | | | | | | | | | | | | |
| Non-Controlled Affiliates | | | | | | | | | | | | | | |
| Franklin DynaTech Fund, Class R6 | 3,991 | 383 | (4,374 | ) | – | | $ –a | | $ – | $ | (16,681 | ) | – | |
| Franklin Emerging Market Debt Opportunities | | | | | | | | | | | | | | |
| Fund | 563 | – | (563 | ) | – | | –a | | – | | (620 | ) | – | |
| Franklin Focused Core Equity Fund, Class R6 | 15,642 | 16,565 | (14,974 | ) | 17,233 | | 252,116 | | – | | (17,663 | ) | 0.2 | % |
| Franklin Growth Fund, Class R6 | 3,057 | 10,543 | (1,970 | ) | 11,630 | | 890,996 | | 7,709 | | 21,784 | d | –b | |
| Franklin Growth Opportunities Fund, Class R6 | 2,804 | 16,486 | (7,603 | ) | 11,687 | | 383,080 | | – | | (2,881 | )d | –b | |
| Franklin India Growth Fund, Class R6 | 4,630 | 9,397 | (2,426 | ) | 11,601 | | 143,849 | | – | | (1,469 | ) | 0.1 | % |
| Franklin International Growth Fund, Class R6 | 4,533 | 433 | (4,966 | ) | – | | –a | | – | | (3,095 | ) | – | |
| Franklin International Small Cap Growth Fund, | | | | | | | | | | | | | | |
| ClassR6 | 10,517 | 22,668 | (10,581 | ) | 22,604 | | 370,938 | | 5,084 | | 8,294 | d | –b | |
| Franklin K2 Alternative Strategies Fund, | | | | | | | | | | | | | | |
| ClassR6 | 12,896 | 8,700 | (8,099 | ) | 13,497 | | 145,498 | | 1,258 | | (5,293 | ) | –b | |
| Franklin K2 Long Short Credit Fund, Class R6 | – | 15,506 | (983 | ) | 14,523 | | 149,442 | | 4,475 | | 1,487 | d | 0.2 | % |
| Franklin Liberty Short Duration U.S. Government | | | | | | | | | | | | | | |
| ETFc | 20 | – | (20 | ) | – | | –a | | 2 | | (21 | ) | – | |
| FranklinLibertyQEmergingMarketsETF | – | 11,400 | (300 | ) | 11,100 | | 295,371 | | 969 | | (193 | ) | 0.1 | % |
| Franklin Low Duration Total Return Fund, | | | | | | | | | | | | | | |
| ClassR6 | 3,475 | 27,695 | (11,580 | ) | 19,590 | | 193,547 | | 2,567 | | (282 | ) | –b | |
| Franklin Mutual International Fund, Class R6 | 8,791 | 13,485 | (6,177 | ) | 16,099 | | 230,530 | | 4,533 | | (7,121 | )d | 0.1 | % |
| Franklin Pelagos Commodities Strategy Fund, | | | | | | | | | | | | | | |
| ClassR6 | 7,205 | 13,288 | (4,613 | ) | 15,880 | | 104,807 | | – | | (1,500 | ) | 0.1 | % |
| Franklin Real Estate Securities Fund, Class R6 . | 988 | 98 | (1,086 | ) | – | | –a | | 96 | | 1,107 | | – | |
| Franklin Rising Dividends Fund, Class R6 | 2,377 | 8,490 | (1,558 | ) | 9,309 | | 489,290 | | 6,435 | | 7,316 | d | –b | |
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| 3. | Transactions with Affiliates (continued) |
| f. | Investments in FT Underlying Funds (continued) |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | % of |
| | | | | | | | | | | | | | FT Underlying |
| | Number of | | | | Number of | | | | | | | | Fund Shares |
| | Shares Held | | | | Shares | | Value | | | | | | Outstanding |
| | at Beginning | Gross | Gross | | Held at End | | at End | | Investment | | Realized | | Held at End |
| FT Underlying Funds | of Year | Additions | Reductions | | of Year | | of Year | | Income | | Gain (Loss) | | of Year |
| |
| Franklin LifeSmart 2055 Retirement Target Fund (continued) | | | | | | | | | | | | |
| Non-Controlled Affiliates (continued) | | | | | | | | | | | | | |
| Franklin Small Cap Growth Fund, Class R6 | 2,768 | 4,696 | (1,341 | ) | 6,123 | $ | 121,855 | $ | – | $ | (1,877 | ) | –b |
| Franklin Strategic Income Fund, Class R6 | 1,454 | 9,777 | (4,501 | ) | 6,730 | | 64,882 | | 1,019 | | (160 | ) | –b |
| Franklin U.S. Government Securities Fund, | | | | | | | | | | | | | |
| ClassR6 | – | 27,856 | (11,333 | ) | 16,523 | | 102,772 | | 1,916 | | (347 | ) | –b |
| Franklin Utilities Fund, Class R6 | 2,725 | 16,885 | (10,665 | ) | 8,945 | | 158,959 | | 3,956 | | (5,717 | )d | –b |
| Institutional Fiduciary Trust Money Market | | | | | | | | | | | | | |
| Portfolio, 0.09% | 32,449 | 3,319,630 | (3,268,767 | ) | 83,312 | | 83,312 | | 4 | | – | | –b |
| Templeton Foreign Fund, Class R6 | 13,160 | 45,242 | (17,142 | ) | 41,260 | | 283,456 | | 6,659 | | (3,235 | ) | –b |
| Templeton Frontier Markets Fund, Class R6 | 4,280 | 267 | (4,547 | ) | – | | –a | | – | | (7,130 | ) | – |
| Templeton Global Total Return Fund, Class R6 | 3,855 | 18,884 | (15,166 | ) | 7,573 | | 91,638 | | – | | (669 | ) | –b |
| Total | | | | | | $ | 4,556,338 | $ | 46,682 | $ | (35,966 | ) | |
aAs of December 31, 2016, no longer held by the fund.
bRounds to less than 0.1%
cEffective June 1, 2016, Franklin Short Duration U.S. Government ETF was renamed Franklin Liberty Short Duration U.S. Government ETF.
dIncludes realized gain distributions received.
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 Class A, Class C, Class R and Advisor Class of the Funds do not exceed 0.05%, and Class R6 does not exceed 0.00% 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, 2017. Total expenses waived or paid are not subject to recapture subsequent to the Funds’ fiscal year end.
h. Other Affiliated Transactions
At December 31, 2016, Franklin Advisers, Inc. owned 12.9% of Franklin LifeSmart 2055 Retirement Target Fund’s outstanding shares.
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 year ended December 31, 2016, there were no credits earned.
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5. Income Taxes
For tax purposes, capital losses may be carried over to offset future capital gains, if any. At December 31, 2016, the capital loss carryforwards were as follows:
| | | | | | |
| | | Franklin | | Franklin | | Franklin |
| | | LifeSmart | | LifeSmart | | LifeSmart |
| | | Retirement | | 2020 Retirement | | 2025 Retirement |
| | | Income Fund | | Target Fund | | Target Fund |
| Capital loss carryforwards not subject to expiration: | | | | | | |
| Short term | $ | 282,659 | $ | 894,442 | $ | 2,302,218 |
| Long term | | 1,167,078 | | 549,093 | | 35,479 |
| Total capital loss carryforwards | $ | 1,449,737 | $ | 1,443,535 | $ | 2,337,697 |
| |
| | | Franklin | | Franklin | | Franklin |
| | | LifeSmart | | LifeSmart | | LifeSmart |
| | | 2030 Retirement | | 2035 Retirement | | 2040 Retirement |
| | | Target Fund | | Target Fund | | Target Fund |
| Capital loss carryforwards not subject to expiration: | | | | | | |
| Short term | $ | 717,247 | $ | 1,974,221 | $ | 564,383 |
| Long term | | 647,900 | | 112,031 | | 256,422 |
| Total capital loss carryforwards | $ | 1,365,147 | $ | 2,086,252 | $ | 820,805 |
| |
| | | Franklin | | Franklin | | Franklin |
| | | LifeSmart | | LifeSmart | | LifeSmart |
| | | 2045 Retirement | | 2050 Retirement | | 2055 Retirement |
| | | Target Fund | | Target Fund | | Target Fund |
| Capital loss carryforwards not subject to expiration: | | | | | | |
| Short term | $ | 1,321,191 | $ | 371,048 | $ | 28,425 |
| Long term | | — | | 289,997 | | — |
| Total capital loss carryforwards | $ | 1,321,191 | $ | 661,045 | $ | 28,425 |
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5. Income Taxes (continued)
The tax character of distributions paid during the years ended December 31, 2016 and 2015, was as follows:
| | | | | | | | | | | | |
| | | Franklin LifeSmart Retirement | | Franklin LifeSmart 2020 | | Franklin LifeSmart 2025 |
| | | Income Fund | | Retirement Target Fund | | Retirement Target Fund |
| | | 2016 | | 2015 | | 2016 | | 2015 | | 2016 | | 2015 |
| Distributions paid from: | | | | | | | | | | | | |
| Ordinary income | $ | 1,727,570 | $ | 1,743,240 | $ | 508,617 | $ | 556,860 | $ | 1,596,928 | $ | 1,951,008 |
| Long term capital gain | | 350,055 | | 2,333,923 | | 261,345 | | 232,611 | | 1,321,638 | | 4,974,155 |
| | $ | 2,077,625 | $ | 4,077,163 | $ | 769,962 | $ | 789,471 | $ | 2,918,566 | $ | 6,925,163 |
| Return of capital | | 252,577 | | — | | — | | — | | — | | — |
| | $ | 2,330,202 | $ | 4,077,163 | $ | 769,962 | $ | 789,471 | $ | 2,918,566 | $ | 6,925,163 |
| |
| | | Franklin LifeSmart 2030 | | Franklin LifeSmart 2035 | | Franklin LifeSmart 2040 |
| | | Retirement Target Fund | | Retirement Target Fund | | Retirement Target Fund |
| | | 2016 | | 2015 | | 2016 | | 2015 | | 2016 | | 2015 |
| Distributions paid from: | | | | | | | | | | | | |
| Ordinary income | $ | 289,801 | $ | 465,702 | $ | 1,001,102 | $ | 1,524,783 | $ | 239,712 | $ | 340,288 |
| Long term capital gain | | 319,107 | | 334,456 | | 1,314,223 | | 3,693,779 | | 216,602 | | 242,599 |
| | $ | 608,908 | $ | 800,158 | $ | 2,315,325 | $ | 5,218,562 | $ | 456,314 | $ | 582,887 |
| |
| | | Franklin LifeSmart 2045 | | Franklin LifeSmart 2050 | | Franklin LifeSmart 2055 |
| | | Retirement Target Fund | | Retirement Target Fund | | Retirement Target Fund |
| | | 2016 | | 2015 | | 2016 | | 2015 | | 2016 | | 2015 |
| Distributions paid from: | | | | | | | | | | | | |
| Ordinary income | $ | 685,135 | $ | 960,192 | $ | 183,051 | $ | 257,264 | $ | 52,618 | $ | 25,680 |
| Long term capital gain | | 825,821 | | 2,709,928 | | 199,667 | | 184,283 | | 17,628 | | — |
| | $ | 1,510,956 | $ | 3,670,120 | $ | 382,718 | $ | 441,547 | $ | 70,246 | $ | 25,680 |
At December 31, 2016, the cost of investments, net unrealized appreciation (depreciation) and undistributed ordinary income for income tax purposes were as follows:
| | | | | | | | | |
| | | Franklin | | | Franklin | | | Franklin | |
| | | LifeSmart | | | LifeSmart | | | LifeSmart | |
| | | Retirement | | | 2020 Retirement | | | 2025 Retirement | |
| | | Income Fund | | | Target Fund | | | Target Fund | |
| |
| Cost of investments | $ | 67,558,461 | | $ | 34,837,112 | | $ | 118,065,057 | |
| |
| Unrealized appreciation | $ | 1,877,944 | | $ | 1,007,483 | | $ | 9,529,274 | |
| Unrealized depreciation | | (1,441,625 | ) | | (1,227,439 | ) | | (3,595,853 | ) |
| Net unrealized appreciation (depreciation) | $ | 436,319 | | $ | (219,956 | ) | $ | 5,933,421 | |
| Distributable earnings - undistributed ordinary income . | $ | — | | $ | — | | $ | 512,171 | |
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| | | | | | | | | |
| | | Franklin | | | Franklin | | | Franklin | |
| | | LifeSmart | | | LifeSmart | | | LifeSmart | |
| | | 2030 Retirement | | | 2035 Retirement | | | 2040 Retirement | |
| | | Target Fund | | | Target Fund | | | Target Fund | |
| |
| Cost of investments | $ | 37,781,974 | | $ | 99,187,599 | | $ | 32,074,836 | |
| |
| Unrealized appreciation | $ | 1,035,010 | | $ | 7,966,638 | | $ | 754,570 | |
| Unrealized depreciation | | (1,021,959 | ) | | (2,292,449 | ) | | (836,066 | ) |
| Net unrealized appreciation (depreciation) | $ | 13,051 | | $ | 5,674,189 | | $ | (81,496 | ) |
| Distributable earnings - undistributed ordinary | | | | | | | | | |
| income. | $ | 270,932 | | $ | 748,992 | | $ | 240,354 | |
| |
| | | Franklin | | | Franklin | | | Franklin | |
| | | LifeSmart | | | LifeSmart | | | LifeSmart | |
| | | 2045 Retirement | | | 2050 Retirement | | | 2055 Retirement | |
| | | Target Fund | | | Target Fund | | | Target Fund | |
| |
| Cost of investments | $ | 69,315,791 | | $ | 23,784,702 | | $ | 5,294,056 | |
| |
| Unrealized appreciation | $ | 5,383,208 | | $ | 843,223 | | $ | 106,530 | |
| Unrealized depreciation | | (1,443,441 | ) | | (642,109 | ) | | (149,474 | ) |
| Net unrealized appreciation (depreciation) | $ | 3,939,767 | | $ | 201,114 | | $ | (42,944 | ) |
| Distributable earnings - undistributed ordinary | | | | | | | | | |
| income. | $ | 515,400 | | $ | 181,312 | | $ | 18,072 | |
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 year ended December 31, 2016, were as follows:
| | | | | | |
| | | Franklin | | Franklin | | Franklin |
| | | LifeSmart | | LifeSmart | | LifeSmart |
| | | Retirement | | 2020 Retirement | | 2025 Retirement |
| | | Income Fund | | Target Fund | | Target Fund |
| |
| Purchases | $ | 106,256,063 | $ | 29,917,454 | $ | 103,514,000 |
| Sales. | $ | 117,877,723 | $ | 31,202,241 | $ | 108,072,626 |
| |
| | | Franklin | | Franklin | | Franklin |
| | | LifeSmart | | LifeSmart | | LifeSmart |
| | | 2030 Retirement | | 2035 Retirement | | 2040 Retirement |
| | | Target Fund | | Target Fund | | Target Fund |
| |
| Purchases. | $ | 33,608,651 | $ | 80,784,548 | $ | 27,344,525 |
| Sales | $ | 28,087,176 | $ | 77,263,298 | $ | 19,068,040 |
| |
| | | Franklin | | Franklin | | Franklin |
| | | LifeSmart | | LifeSmart | | LifeSmart |
| | | 2045 Retirement | | 2050 Retirement | | 2055 Retirement |
| | | Target Fund | | Target Fund | | Target Fund |
| |
| Purchases. | $ | 56,889,717 | $ | 24,530,589 | $ | 5,954,478 |
| Sales | $ | 51,675,033 | $ | 19,020,624 | $ | 2,976,102 |
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7. Credit Facility
Certain or all 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 matured on February 10, 2017. 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. Franklin LifeSmart 2055 Retirement Target Fund began participating in the Global Credit Facility on February 12, 2016. Effective February 10, 2017, the Borrowers renewed the Global Credit Facility for a one year term, maturing February 9, 2018, for a total of $2 billion.
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 0.15% based upon the unused portion of the Global Credit Facility. These fees are reflected in other expenses in the Statements of Operations. During the year ended December 31, 2016, 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.
A summary of inputs used as of December 31, 2016, in valuing the Funds’ assets carried at fair value, is as follows:
| | | | | | | | |
| | | Level 1 | | Level 2 | | Level 3 | | Total |
| Franklin LifeSmart Retirement Income Fund | | | | | | | | |
| Assets: | | | | | | | | |
| Investments in Securities: | | | | | | | | |
| Underlying Funds and Exchange Traded Funds . | $ | 64,984,283 | $ | — | $ | — | $ | 64,984,283 |
| Index-Linked Notes | | — | | 3,010,482 | | — | | 3,010,482 |
| Short Term Investments | | 15 | | — | | — | | 15 |
| Total Investments in Securities | $ | 64,984,298 | $ | 3,010,482 | $ | — | $ | 67,994,780 |
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| | | | | | | | | |
| | | | | FRANKLIN FUND ALLOCATOR SERIES |
| | | | | NOTES TO FINANCIAL STATEMENTS |
| |
| |
| |
| |
| | | Level 1 | | Level 2 | | Level 3 | | | Total |
| Franklin LifeSmart 2020 Retirement Target Fund | | | | | | | | | |
| Assets: | | | | | | | | | |
| Investments in Securities: | | | | | | | | | |
| Underlying Funds and Exchange Traded Funds . | $ | 34,426,739 | $ | — | $ | — | $ | 34,426,739 |
| Short Term Investments | | 190,417 | | — | | — | | | 190,417 |
| Total Investments in Securities | $ | 34,617,156 | $ | — | $ | — | $ | 34,617,156 |
| |
| Franklin LifeSmart 2025 Retirement Target Fund | | | | | | | | | |
| Assets: | | | | | | | | | |
| Investments in Securities: | | | | | | | | | |
| Underlying Funds and Exchange Traded Funds . | $ | 123,275,492 | $ | — | $ | — | $ | 123,275,492 |
| Short Term Investments | | 722,986 | | — | | — | | | 722,986 |
| Total Investments in Securities | $ | 123,998,478 | $ | — | $ | — | $ | 123,998,478 |
| |
| Franklin LifeSmart 2030 Retirement Target Fund | | | | | | | | | |
| Assets: | | | | | | | | | |
| Investments in Securities: | | | | | | | | | |
| Underlying Funds and Exchange Traded Funds . | $ | 37,733,832 | $ | — | $ | — | $ | 37,733,832 |
| Short Term Investments | | 61,193 | | — | | — | | | 61,193 |
| Total Investments in Securities | $ | 37,795,025 | $ | — | $ | — | $ | 37,795,025 |
| |
| Franklin LifeSmart 2035 Retirement Target Fund | | | | | | | | | |
| Assets: | | | | | | | | | |
| Investments in Securities: | | | | | | | | | |
| Underlying Funds and Exchange Traded Funds . | $ | 104,485,673 | $ | — | $ | — | $ | 104,485,673 |
| Short Term Investments | | 376,115 | | — | | — | | | 376,115 |
| Total Investments in Securities | $ | 104,861,788 | $ | — | $ | — | $ | 104,861,788 |
| |
| Franklin LifeSmart 2040 Retirement Target Fund | | | | | | | | | |
| Assets: | | | | | | | | | |
| Investments in Securities: | | | | | | | | | |
| Underlying Funds and Exchange Traded Funds . | $ | 31,810,206 | $ | — | $ | — | $ | 31,810,206 |
| Short Term Investments | | 183,134 | | — | | — | | | 183,134 |
| Total Investments in Securities | $ | 31,993,340 | $ | — | $ | — | $ | 31,993,340 |
| |
| Franklin LifeSmart 2045 Retirement Target Fund | | | | | | | | | |
| Assets: | | | | | | | | | |
| Investments in Securities: | | | | | | | | | |
| Underlying Funds and Exchange Traded Funds . | $ | 72,786,972 | $ | — | $ | — | $ | 72,786,972 |
| Short Term Investments | | 468,586 | | — | | — | | | 468,586 |
| Total Investments in Securities | $ | 73,255,558 | $ | — | $ | — | $ | 73,255,558 |
| |
| Franklin LifeSmart 2050 Retirement Target Fund | | | | | | | | | |
| Assets: | | | | | | | | | |
| Investments in Securities: | | | | | | | | | |
| Underlying Funds and Exchange Traded Funds . | $ | 23,804,249 | $ | — | $ | — | $ | 23,804,249 |
| Short Term Investments | | 181,567 | | — | | — | | | 181,567 |
| Total Investments in Securities | $ | 23,985,816 | $ | — | $ | — | $ | 23,985,816 |
| |
| Franklin LifeSmart 2055 Retirement Target Fund | | | | | | | | | |
| Assets: | | | | | | | | | |
| Investments in Securities: | | | | | | | | | |
| Underlying Funds and Exchange Traded Funds . | $ | 5,167,800 | $ | — | $ | — | | $ | 5,167,800 |
| Short Term Investments | | 83,312 | | — | | — | | | 83,312 |
| Total Investments in Securities | $ | 5,251,112 | $ | — | $ | — | | $ | 5,251,112 |
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NOTES TO FINANCIAL STATEMENTS
9. Investment Company Reporting Modernization
In October 2016, the U.S. Securities and Exchange Commission adopted new rules and amended existing rules (together, final rules) intended to modernize the reporting and disclosure of information by registered investment companies. In part, the final rules amend Regulation S-X and require standardized, enhanced disclosures about derivatives in investment company financial statements, as well as other amendments. The compliance date for the amendments to Regulation S-X is August 1, 2017. Management is currently evaluating the impact that the adoption of the amendments to Regulation S-X will have on the Funds’ financial statements and related disclosures.
10. 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.
| |
| Abbreviations |
| |
| Selected Portfolio |
| ETF | Exchange Traded Fund |
| SPDR | S&P Depository Receipt |
| SPX B | S&P 500 Index Buy-Write |
| SPX B DT | S&P 500 Index Buy-Write Distribution |
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Report of Independent Registered Public Accounting Firm
To the Board of Trustees and Shareholders of Franklin Fund Allocator Series
In our opinion, the accompanying statements of assets and liabilities, including the statements of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Franklin LifeSmart Retirement Income Fund (formerly Franklin LifeSmart 2015 Retirement Target Fund), Franklin LifeSmart 2020 Retirement Target Fund, Franklin LifeSmart 2025 Retirement Target Fund, Franklin LifeSmart 2030 Retirement Target Fund, Franklin LifeSmart 2035 Retirement Target Fund, Franklin LifeSmart 2040 Retirement Target Fund, Franklin LifeSmart 2045 Retirement Target Fund, Franklin LifeSmart 2050 Retirement Target Fund and Franklin LifeSmart 2055 Retirement Target Fund (separate portfolios of Franklin Fund Allocator Series, hereafter referred to as the "Fund") as of December 31, 2016, the results of each of their operations for the year then ended, the changes in each of their net assets for each of the two years in the period then ended and the financial highlights for each of the periods presented, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities as of December 31, 2016 by correspondence with the custodian and transfer agent, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
February 15, 2017
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Tax Information (unaudited)
Under Section 852(b)(3)(C) of the Internal Revenue Code (Code), the Funds hereby report the maximum amount allowable but no less than the following amounts as long term capital gain dividends for the fiscal year ended December 31, 2016:
| | | | | | | |
| | Franklin | | Franklin | | Franklin | | Franklin |
| | LifeSmart | | LifeSmart | | LifeSmart | | LifeSmart |
| | Retirement | | 2020 Retirement | | 2025 Retirement | | 2030 Retirement |
| | Income Fund | | Target Fund | | Target Fund | | Target Fund |
| |
| $ | 350,055 | $ | 261,345 | $ | 1,321,638 | $ | 319,107 |
| |
| |
| | Franklin | | Franklin | | Franklin | | Franklin |
| | LifeSmart | | LifeSmart | | LifeSmart | | LifeSmart |
| | 2035 Retirement | | 2040 Retirement | | 2045 Retirement | | 2050 Retirement |
| | Target Fund | | Target Fund | | Target Fund | | Target Fund |
| |
| $ | 1,314,223 | $ | 216,602 | $ | 825,821 | $ | 199,667 |
| |
| |
| | Franklin | | | | | | |
| | LifeSmart | | | | | | |
| | 2055 Retirement | | | | | | |
| | Target Fund | | | | | | |
| |
| $ | 17,628 | | | | | | |
Under Section 871(k)(2)(C) of the Code, the Funds hereby report the maximum amount allowable but no less than the following amounts as short term capital gain dividends for purposes of the tax imposed under Section 871(a)(1)(A) of the Code for the fiscal year ended December 31, 2016:
| | | | | |
| | Franklin | | Franklin | | Franklin |
| | LifeSmart | | LifeSmart | | LifeSmart |
| | 2025 Retirement | | 2035 Retirement | | 2045 Retirement |
| | Target Fund | | Target Fund | | Target Fund |
| |
| $ | 302,156 | $ | 234,382 | $ | 161,604 |
Under Section 854(b)(1)(A) of the Code, the Funds hereby report the following percentage amounts of the ordinary income dividends as income qualifying for the dividends received deduction for the fiscal year ended December 31, 2016:
| | | | | | | |
| Franklin | | Franklin | | Franklin | | Franklin | |
| LifeSmart | | LifeSmart | | LifeSmart | | LifeSmart | |
| Retirement | | 2020 Retirement | | 2025 Retirement | | 2030 Retirement | |
| Income Fund | | Target Fund | | Target Fund | | Target Fund | |
| |
| 6.30 | % | 19.36 | % | 28.89 | % | 49.77 | % |
| |
| |
| Franklin | | Franklin | | Franklin | | Franklin | |
| LifeSmart | | LifeSmart | | LifeSmart | | LifeSmart | |
| 2035 Retirement | | 2040 Retirement | | 2045 Retirement | | 2050 Retirement | |
| Target Fund | | Target Fund | | Target Fund | | Target Fund | |
| |
| 42.24 | % | 50.36 | % | 43.82 | % | 52.71 | % |
| |
| |
| Franklin | | | | | | | |
| LifeSmart | | | | | | | |
| 2055 Retirement | | | | | | | |
| Target Fund | | | | | | | |
| |
| 34.69 | % | | | | | | |
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TAX INFORMATION (UNAUDITED)
Under Section 854(b)(1)(B) of the Code, the Funds hereby report the maximum amount allowable but no less than the following amounts as qualified dividends for purposes of the maximum rate under Section 1(h)(11) of the Code for the fiscal year ended December 31, 2016:
| | | | | | | |
| | Franklin | | Franklin | | Franklin | | Franklin |
| | LifeSmart | | LifeSmart | | LifeSmart | | LifeSmart |
| | Retirement | | 2020 Retirement | | 2025 Retirement | | 2030 Retirement |
| | Income Fund | | Target Fund | | Target Fund | | Target Fund |
| |
| $ | 367,472 | $ | 230,743 | $ | 1,067,619 | $ | 336,589 |
| |
| |
| | Franklin | | Franklin | | Franklin | | Franklin |
| | LifeSmart | | LifeSmart | | LifeSmart | | LifeSmart |
| | 2035 Retirement | | 2040 Retirement | | 2045 Retirement | | 2050 Retirement |
| | Target Fund | | Target Fund | | Target Fund | | Target Fund |
| |
| $ | 1,036,836 | $ | 303,493 | $ | 757,853 | $ | 242,765 |
| |
| |
| | Franklin | | | | | | |
| | LifeSmart | | | | | | |
| | 2055 Retirement | | | | | | |
| | Target Fund | | | | | | |
| |
| $ | 47,137 | | | | | | |
Distributions, including qualified dividend income, paid during calendar year 2016 will be reported to shareholders on Form 1099-DIV by mid-February 2017. Shareholders are advised to check with their tax advisors for information on the treatment of these amounts on their individual income tax returns.
During the fiscal year ended December 31, 2016, the Funds, a qualified fund of funds under Section 852(g)(2) of Code, received an allocation of foreign taxes paid from one or more of its underlying funds. As shown in the table below, the Fund hereby reports to shareholders the foreign source income and foreign taxes paid by underlying funds, pursuant to Section 853 of the Code. This written statement will allow shareholders of record on December 28, 2016, to treat their proportionate share of foreign taxes paid by the underlying funds as having been paid directly by them. The shareholder shall consider these amounts as foreign taxes paid in the tax year in which they receive the Fund distribution.
The following tables provide a detailed analysis of foreign tax paid, foreign source income, and foreign source qualified dividends as reported by the Funds, to Class A, Class C, Class R, Class R6 and Advisor Class shareholders of record.
| | | | | | |
| | | Foreign Tax Paid | | Foreign Source | | Foreign Source Qualified |
| Class | | Per Share | | Income Per Share | | Dividends Per Share |
| |
| Franklin LifeSmart 2020 Retirement Target Fund | | | | | | |
| Class A | $ | 0.0027 | $ | 0.0771 | $ | 0.0178 |
| Class C | $ | 0.0027 | $ | 0.0771 | $ | 0.0178 |
| Class R | $ | 0.0027 | $ | 0.0771 | $ | 0.0178 |
| Class R6 | $ | 0.0027 | $ | 0.0771 | $ | 0.0178 |
| Advisor Class | $ | 0.0027 | $ | 0.0771 | $ | 0.0178 |
| |
| Franklin LifeSmart 2025 Retirement Target Fund | | | | | | |
| Class A | $ | 0.0030 | $ | 0.0726 | $ | 0.0241 |
| Class C | $ | 0.0030 | $ | 0.0726 | $ | 0.0241 |
| Class R | $ | 0.0030 | $ | 0.0726 | $ | 0.0241 |
| Class R6 | $ | 0.0030 | $ | 0.0726 | $ | 0.0241 |
| Advisor Class | $ | 0.0030 | $ | 0.0726 | $ | 0.0241 |
| Franklin LifeSmart 2030 Retirement Target Fund | | | | | | |
| Class A | $ | 0.0029 | $ | 0.0648 | $ | 0.0269 |
| Class C | $ | 0.0029 | $ | 0.0648 | $ | 0.0269 |
| Class R | $ | 0.0029 | $ | 0.0648 | $ | 0.0269 |
| Class R6 | $ | 0.0029 | $ | 0.0648 | $ | 0.0269 |
| Advisor Class | $ | 0.0029 | $ | 0.0648 | $ | 0.0269 |
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| | | | | | |
| FRANKLIN FUND ALLOCATOR SERIES | | | | | | |
| TAX INFORMATION (UNAUDITED) | | | | | | |
| |
| |
| |
| | | Foreign Tax Paid | | Foreign Source | | Foreign Source Qualified |
| Class | | Per Share | | Income Per Share | | Dividends Per Share |
| |
| Franklin LifeSmart 2035 Retirement Target Fund | | | | | | |
| Class A | $ | 0.0034 | $ | 0.0709 | $ | 0.0342 |
| Class C | $ | 0.0034 | $ | 0.0709 | $ | 0.0342 |
| Class R | $ | 0.0034 | $ | 0.0709 | $ | 0.0342 |
| Class R6 | $ | 0.0034 | $ | 0.0709 | $ | 0.0342 |
| Advisor Class | $ | 0.0034 | $ | 0.0709 | $ | 0.0342 |
| |
| Franklin LifeSmart 2040 Retirement Target Fund | | | | | | |
| Class A | $ | 0.0032 | $ | 0.0634 | $ | 0.0332 |
| Class C | $ | 0.0032 | $ | 0.0634 | $ | 0.0332 |
| Class R | $ | 0.0032 | $ | 0.0634 | $ | 0.0332 |
| Class R6 | $ | 0.0032 | $ | 0.0634 | $ | 0.0332 |
| Advisor Class | $ | 0.0032 | $ | 0.0634 | $ | 0.0332 |
| |
| Franklin LifeSmart 2045 Retirement Target Fund | | | | | | |
| Class A | $ | 0.0035 | $ | 0.0705 | $ | 0.0364 |
| Class C | $ | 0.0035 | $ | 0.0705 | $ | 0.0364 |
| Class R | $ | 0.0035 | $ | 0.0705 | $ | 0.0364 |
| Class R6 | $ | 0.0035 | $ | 0.0705 | $ | 0.0364 |
| Advisor Class | $ | 0.0035 | $ | 0.0705 | $ | 0.0364 |
| |
| Franklin LifeSmart 2050 Retirement Target Fund | | | | | | |
| Class A | $ | 0.0034 | $ | 0.0658 | $ | 0.0352 |
| Class C | $ | 0.0034 | $ | 0.0658 | $ | 0.0352 |
| Class R | $ | 0.0034 | $ | 0.0658 | $ | 0.0352 |
| Class R6 | $ | 0.0034 | $ | 0.0658 | $ | 0.0352 |
| Advisor Class | $ | 0.0034 | $ | 0.0658 | $ | 0.0352 |
| |
| Franklin LifeSmart 2055 Retirement Target Fund | | | | | | |
| Class A | $ | 0.0029 | $ | 0.0537 | $ | 0.0303 |
| Class C | $ | 0.0029 | $ | 0.0537 | $ | 0.0303 |
| Class R | $ | 0.0029 | $ | 0.0537 | $ | 0.0303 |
| Class R6 | $ | 0.0029 | $ | 0.0537 | $ | 0.0303 |
| Advisor Class | $ | 0.0029 | $ | 0.0537 | $ | 0.0303 |
Foreign Tax Paid Per Share (Column 1) is the amount per share available to you, as a tax credit (assuming you held your shares in
the Fund for a minimum of 16 days during the 31-day period beginning 15 days before the ex-dividend date of the Fund’s
distribution to which the foreign taxes relate), or, as a tax deduction.
Foreign Source Income Per Share (Column 2) is the amount per share of income dividends attributable to foreign securities held by
the underlying funds, plus any foreign taxes withheld on these dividends. The amounts reported include foreign source qualified
dividends that have not been adjusted for the rate differential applicable to such dividend income.1
Foreign Source Qualified Dividends Per Share (Column 3) is the amount per share of foreign source qualified dividends, plus any
foreign taxes withheld on these dividends. These amounts represent the portion of the Foreign Source Income reported to you in
column 2 that were derived from qualified foreign securities held by the underlying funds.1
By mid-February 2017, shareholders will receive Form 1099-DIV which will include their share of taxes paid and foreign source
income distributed during the calendar year 2016. The Foreign Source Income reported on Form 1099-DIV has not been adjusted
for the rate differential on foreign source qualified dividend income. Shareholders are advised to check with their tax advisors for
information on the treatment of these amounts on their 2016 individual income tax returns.
1Qualified dividends are taxed at reduced long term capital gains tax rates. In determining the amount of foreign tax credit that may be applied against the U.S. tax liability of
individuals receiving foreign source qualified dividends, adjustments may be required to the foreign tax credit limitation calculation to reflect the rate differential applicable to
such dividend income. The rules however permit certain individuals to elect not to apply the rate differential adjustments for capital gains and/or dividends for any taxable
year. Please consult your tax advisor and the instructions to Form 1116 for more information.
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Board Members and Officers
The name, year of birth and address of the officers and board members, as well as their affiliations, positions held with the Trust, principal occupations during at least the past five years and number of U.S. registered portfolios overseen in the Franklin Templeton Investments fund complex, are shown below. Generally, each board member serves until that person’s successor is elected and qualified.
| | | | |
| Independent Board Members | | | |
| |
| | | | Number of Portfolios in | |
| Name, Year of Birth | | Length of | Fund Complex Overseen | Other Directorships Held |
| and Address | Position | Time Served | by Board Member* | During at Least the Past 5 Years |
| |
| Harris J. Ashton (1932) | Trustee | Since 1995 | 142 | Bar-S Foods (meat packing company) |
| One Franklin Parkway | | | | (1981-2010). |
| San Mateo, CA 94403-1906 | | | | |
| Principal Occupation During at Least the Past 5 Years: | | |
| Director of various companies; and formerly, Director, RBC Holdings, Inc. (bank holding company) (until 2002); and President, Chief Executive |
| Officer and Chairman of the Board, General Host Corporation (nursery and craft centers) (until 1998). | |
| |
| Mary C. Choksi (1950) | Trustee | Since 2014 | 136 | Avis Budget Group Inc. (car rental) |
| One Franklin Parkway | | | | (2007-present), Omnicom Group Inc. |
| San Mateo, CA 94403-1906 | | | | (advertising and marketing |
| | | | | communications services) |
| | | | | (2011-present) and H.J. Heinz |
| | | | | Company (processed foods and allied |
| | | | | products) (1998-2006). |
| Principal Occupation During at Least the Past 5 Years: | | |
| Senior Advisor, Strategic Investment Group (investment management group) (2015-present); director of various companies; and formerly, |
| Founding Partner and Senior Managing Director, Strategic Investment Group (1987–2015); Founding Partner and Managing Director, Emerging |
| Markets Management LLC (investment management firm) (1987-2011); and Loan Officer/Senior Loan Officer/Senior Pension Investment |
| Officer, World Bank Group (international financial institution) (1977-1987). | |
| |
| Edith E. Holiday (1952) | Trustee | Since 1998 | 142 | Hess Corporation (exploration and |
| One Franklin Parkway | | | | refining of oil and gas) (1993-present), |
| San Mateo, CA 94403-1906 | | | | Canadian National Railway (railroad) |
| | | | | (2001-present), White Mountains |
| | | | | Insurance Group, Ltd. (holding |
| | | | | company) (2004-present), Santander |
| | | | | Consumer USA Holdings, Inc. |
| | | | | (consumer finance) (November 2016), |
| | | | | RTI International Metals, Inc. |
| | | | | (manufacture and distribution of |
| | | | | titanium) (1999-2015) and H.J. Heinz |
| | | | | Company (processed foods and allied |
| | | | | products) (1994-2013). |
| Principal Occupation During at Least the Past 5 Years: | | |
| Director or Trustee of various companies and trusts; and formerly, Assistant to the President of the United States and Secretary of the |
| Cabinet (1990-1993); General Counsel to the United States Treasury Department (1989-1990); and Counselor to the Secretary and Assistant |
| Secretary for Public Affairs and Public Liaison – United States Treasury Department (1988-1989). | |
| |
| J. Michael Luttig (1954) | Trustee | Since 2009 | 142 | Boeing Capital Corporation (aircraft |
| One Franklin Parkway | | | | financing) (2006-2013). |
| San Mateo, CA 94403-1906 | | | | |
| Principal Occupation During at Least the Past 5 Years: | | |
| Executive Vice President, General Counsel and member of the Executive Council, The Boeing Company (aerospace company) (2006-present); |
| and formerly, Federal Appeals Court Judge, U.S. Court of Appeals for the Fourth Circuit (1991-2006). | |
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| | | | |
| Independent Board Members (continued) | | |
| |
| |
| |
| | | | Number of Portfolios in | |
| Name, Year of Birth | | Length of | Fund Complex Overseen | Other Directorships Held |
| and Address | Position | Time Served | by Board Member* | During at Least the Past 5 Years |
| |
| Larry D. Thompson (1945) | Trustee | Since 2007 | 142 | The Southern Company (energy |
| One Franklin Parkway | | | | company) (2014-present; previously |
| San Mateo, CA 94403-1906 | | | | 2010-2012), Graham Holdings |
| | | | | Company (education and media |
| | | | | organization) (2011-present) and |
| | | | | Cbeyond, Inc. (business |
| | | | | communications provider) |
| | | | | (2010-2012). |
| Principal Occupation During at Least the Past 5 Years: | | |
| Director of various companies; John A. Sibley Professor of Corporate and Business Law, University of Georgia School of Law (January 2015; |
| previously 2011-2012); and formerly, Executive Vice President – Government Affairs, General Counsel and Corporate Secretary, PepsiCo, |
| Inc. (consumer products) (2012-2014); Senior Vice President – Government Affairs, General Counsel and Secretary, PepsiCo, Inc. |
| (2004-2011); Senior Fellow of The Brookings Institution (2003-2004); Visiting Professor, (2003-2004); Visiting Professor, University of Georgia |
| School of Law (2004); and Deputy Attorney General, U.S. Department of Justice (2001-2003). | |
| |
| John B. Wilson (1959) | Lead | Trustee since | 116 | None |
| One Franklin Parkway | Independent | 2006 and Lead | | |
| San Mateo, CA 94403-1906 | Trustee | Independent | | |
| | | Trustee since 2008 | | |
| Principal Occupation During at Least the Past 5 Years: | | |
| President, Staples Europe (office supplies) (2012-present); President and Founder, Hyannis Port Capital, Inc. (real estate and private equity |
| investing); serves on private and non-profit boards; and formerly, Chief Operating Officer and Executive Vice President, Gap, Inc. (retail) |
| (1996-2000); Chief Financial Officer and Executive Vice President – Finance and Strategy, Staples, Inc. (1992-1996); Senior Vice President – |
| Corporate Planning, Northwest Airlines, Inc. (airlines) (1990-1992); and Vice President and Partner, Bain & Company (consulting firm) |
| (1986-1990). | | | | |
| |
| |
| Interested Board Members and Officers | | |
| |
| | | | Number of Portfolios in | |
| Name, Year of Birth | | Length of | Fund Complex Overseen | Other Directorships Held |
| and Address | Position | Time Served | by Board Member* | During at Least the Past 5 Years |
| |
| **Gregory E. Johnson (1961) | Trustee | Since 2007 | 158 | None |
| One Franklin Parkway | | | | |
| San Mateo, CA 94403-1906 | | | | |
| Principal Occupation During at Least the Past 5 Years: | | |
| Chairman of the Board, Member – Office of the Chairman, Director and Chief Executive Officer, Franklin Resources, Inc.; officer and/or |
| director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 44 of the investment companies in |
| Franklin Templeton Investments; Vice Chairman, Investment Company Institute; and formerly, President, Franklin Resources, Inc. |
| (1994-2015). | | | | |
| |
| **Rupert H. Johnson, Jr. (1940) | Chairman of | Chairman of the | 142 | None |
| One Franklin Parkway | the Board | Board and Trustee | | |
| San Mateo, CA 94403-1906 | and Trustee | since 2013 | | |
| Principal Occupation During at Least the Past 5 Years: | | |
| Vice Chairman, Member – Office of the Chairman and Director, Franklin Resources, Inc.; Director, Franklin Advisers, Inc.; Senior Vice |
| President, Franklin Advisory Services, LLC; and officer and/or director or trustee, as the case may be, of some of the other subsidiaries of |
| Franklin Resources, Inc. and of 42 of the investment companies in Franklin Templeton Investments. | |
| |
| Alison E. Baur (1964) | Vice President | Since 2012 | Not Applicable | Not Applicable |
| One Franklin Parkway | | | | |
| San Mateo, CA 94403-1906 | | | | |
| Principal Occupation During at Least the Past 5 Years: | | |
| Deputy General Counsel, Franklin Templeton Investments; and officer of some of the other subsidiaries of Franklin Resources, Inc. and of 45 |
| of the investment companies in Franklin Templeton Investments. | | |
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| | | | |
| Interested Board Members and Officers (continued) | |
| |
| |
| |
| | | | Number of Portfolios in | |
| Name, Year of Birth | | Length of | Fund Complex Overseen | Other Directorships Held |
| and Address | Position | Time Served | by Board Member* | During at Least the Past 5 Years |
| |
| Laura F. Fergerson (1962) | Chief Executive Since 2009 | Not Applicable | Not Applicable |
| One Franklin Parkway | Officer – | | | |
| San Mateo, CA 94403-1906 | Finance and | | |
| | Administration | | |
| Principal Occupation During at Least the Past 5 Years: | | |
| Senior Vice President, Franklin Templeton Services, LLC; Vice President, Franklin Advisers, Inc. and Franklin Templeton Institutional, LLC; and |
| officer of 45 of the investment companies in Franklin Templeton Investments. | |
| |
| Gaston Gardey (1967) | Treasurer, | Since 2009 | Not Applicable | Not Applicable |
| One Franklin Parkway | Chief Financial | | |
| San Mateo, CA 94403-1906 | Officer and | | | |
| | Chief | | | |
| | Accounting | | | |
| | Officer | | | |
| Principal Occupation During at Least the Past 5 Years: | | |
| Treasurer, U.S. Fund Administration & Reporting, Franklin Templeton Investments; and officer of 27 of the investment companies in Franklin |
| Templeton Investments. | | | | |
| |
| Aliya S. Gordon (1973) | Vice President Since 2009 | Not Applicable | Not Applicable |
| One Franklin Parkway | | | | |
| San Mateo, CA 94403-1906 | | | | |
| Principal Occupation During at Least the Past 5 Years: | | |
| Senior Associate General Counsel, Franklin Templeton Investments; and officer of 45 of the investment companies in Franklin Templeton |
| Investments. | | | | |
| |
| Steven J. Gray (1955) | Vice President Since 2009 | Not Applicable | Not Applicable |
| One Franklin Parkway | | | | |
| San Mateo, CA 94403-1906 | | | | |
| Principal Occupation During at Least the Past 5 Years: | | |
| Senior Associate General Counsel, Franklin Templeton Investments; Vice President, Franklin Templeton Distributors, Inc. and Franklin |
| Alternative Strategies Advisers, LLC; and officer of 45 of the investment companies in Franklin Templeton Investments. |
| |
| Edward B. Jamieson (1948) | President and Since 2010 | Not Applicable | Not Applicable |
| One Franklin Parkway | Chief Executive | | |
| San Mateo, CA 94403-1906 | Officer – | | | |
| | Investment | | | |
| | Management | | |
| Principal Occupation During at Least the Past 5 Years: | | |
| President, Chief Investment Officer and Director, Franklin Advisers, Inc.; Executive Vice President, Franklin Templeton Institutional, LLC; and |
| officer and/or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 10 of the investment |
| companies in Franklin Templeton Investments. | | | |
| |
| Robert Lim (1948) | Vice President Since May 2016 | Not Applicable | Not Applicable |
| One Franklin Parkway | –AML | | | |
| San Mateo, CA 94403-1906 | Compliance | | | |
| Principal Occupation During at Least the Past 5 Years: | | |
| Vice President, Franklin Templeton Companies, LLC; Chief Compliance Officer, Franklin Templeton Distributors, Inc. and Franklin Templeton |
| Investor Services, LLC; and officer of 45 of the investment companies in Franklin Templeton Investments. |
| |
| Kimberly H. Novotny (1972) | Vice President Since 2013 | Not Applicable | Not Applicable |
| 300 S.E. 2nd Street | | | | |
| Fort Lauderdale, FL 33301-1923 | | | | |
| Principal Occupation During at Least the Past 5 Years: | | |
| Associate General Counsel, Franklin Templeton Investments; Vice President and Corporate Secretary, Fiduciary Trust International of the |
| South; Vice President, Templeton Investment Counsel, LLC; Assistant Secretary, Franklin Resources, Inc.; and officer of 45 of the investment |
| companies in Franklin Templeton Investments. | | | |
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| | | | |
| Interested Board Members and Officers (continued) | |
| |
| |
| |
| | | | Number of Portfolios in | |
| Name, Year of Birth | | Length of | Fund Complex Overseen | Other Directorships Held |
| and Address | Position | Time Served | by Board Member* | During at Least the Past 5 Years |
| |
| Robert C. Rosselot (1960) | Chief | Since 2013 | Not Applicable | Not Applicable |
| 300 S.E. 2nd Street | Compliance | | | |
| Fort Lauderdale, FL 33301-1923 | Officer | | | |
| Principal Occupation During at Least the Past 5 Years: | | |
| Director, Global Compliance, Franklin Templeton Investments; Vice President, Franklin Templeton Companies, LLC; officer of 45 of the |
| investment companies in Franklin Templeton Investments; and formerly, Senior Associate General Counsel, Franklin Templeton Investments |
| (2007-2013); and Secretary and Vice President, Templeton Group of Funds (2004-2013). | |
| |
| Karen L. Skidmore (1952) | Vice President | Since 2006 | Not Applicable | Not Applicable |
| One Franklin Parkway | and Secretary | | | |
| San Mateo, CA 94403-1906 | | | | |
| Principal Occupation During at Least the Past 5 Years: | | |
| Senior Associate General Counsel, Franklin Templeton Investments; and officer of 45 of the investment companies in Franklin Templeton |
| Investments. | | | | |
| |
| Navid J. Tofigh (1972) | Vice President | Since 2015 | Not Applicable | Not Applicable |
| One Franklin Parkway | | | | |
| San Mateo, CA 94403-1906 | | | | |
| Principal Occupation During at Least the Past 5 Years: | | |
| Associate General Counsel, Franklin Templeton Investments; and officer of 45 of the investment companies in Franklin Templeton Investments. |
| |
| Craig S. Tyle (1960) | Vice President | Since 2005 | Not Applicable | Not Applicable |
| One Franklin Parkway | | | | |
| San Mateo, CA 94403-1906 | | | | |
| Principal Occupation During at Least the Past 5 Years: | | |
| General Counsel and Executive Vice President, Franklin Resources, Inc.; and officer of some of the other subsidiaries of Franklin Resources, |
| Inc. and of 45 of the investment companies in Franklin Templeton Investments. | |
| |
| Lori A. Weber (1964) | Vice President | Since 2011 | Not Applicable | Not Applicable |
| 300 S.E. 2nd Street | | | | |
| Fort Lauderdale, FL 33301-1923 | | | | |
| Principal Occupation During at Least the Past 5 Years: | | |
| Senior Associate General Counsel, Franklin Templeton Investments; Assistant Secretary, Franklin Resources, Inc.; Vice President and |
| Secretary, Templeton Investment Counsel, LLC; and officer of 45 of the investment companies in Franklin Templeton Investments. |
*We base the number of portfolios on each separate series of the U.S. registered investment companies within the Franklin Templeton Investments fund complex. These
portfolios have a common investment manager or affiliated investment managers.
**Gregory E. Johnson is considered to be an interested person of the Fund under the federal securities laws due to his position as an officer and director ofFranklin
Resources, Inc. (Resources), which is the parent company of the Fund’s investment manager and distributor. Rupert H. Johnson, Jr. is considered to be an interested person
of the Fund under the federal securities laws due to his position as officer and director and major shareholder of Resources.
Note 1: Rupert H. Johnson, Jr. is the uncle of Gregory E. Johnson.
Note 2: Officer information is current as of the date of this report. It is possible that after this date, information about officers may change.
Note 3: Effective November 1, 2016, Frank Olson ceased to be a trustee of the Trust.
The Sarbanes-Oxley Act of 2002 and Rules adopted by the Securities and Exchange Commission require the Fund to disclose whether the Fund’s Audit
Committee includes at least one member who is an audit committee financial expert within the meaning of such Act and Rules. The Fund’s Board has determined
that there is at least one such financial expert on the Audit Committee and has designated John B. Wilson as its audit committee financial expert. The Board
believes that Mr. Wilson qualifies as such an expert in view of his extensive business background and experience, including service as chief financial officer of
Staples, Inc. from 1992 to 1996. Mr. Wilson has been a Member and Chairman of the Fund’s Audit Committee since 2006. As a result of such background and
experience, the Board believes that Mr. Wilson has acquired an understanding of generally accepted accounting principles and financial statements, the general
application of such principles in connection with the accounting estimates, accruals and reserves, and analyzing and evaluating financial statements that
present a breadth and level of complexity of accounting issues generally comparable to those of the Fund, as well as an understanding of internal controls and
procedures for financial reporting and an understanding of audit committee functions. Mr. Wilson is an independent Board member as that term is defined under
the relevant Securities and Exchange Commission Rules and Releases.
The Statement of Additional Information (SAI) includes additional information about the board members and is available, without charge, upon request.
Shareholders may call (800) DIAL BEN/342-5236 to request the SAI.
162 Annual Report
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FRANKLIN FUND ALLOCATOR SERIES
Shareholder Information
Proxy Voting Policies and Procedures
The Trust’s investment manager has established Proxy Voting Policies and Procedures (Policies) that the Trust uses to determine how to vote proxies relating to portfolio securities. Shareholders may view the Trust’s complete Policies online at franklintempleton.com. Alternatively, shareholders may request copies of the Policies free of charge by calling the Proxy Group collect at (954) 527-7678 or by sending a written request to: Franklin Templeton Companies, LLC, 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.
Householding of Reports and Prospectuses
You will receive each Fund’s financial reports every six months as well as an annual updated summary prospectus (prospectus available upon request). To reduce Fund expenses, we try to identify related shareholders in a household and send only one copy of the financial reports and summary prospectus. This process, called “householding,” will continue indefinitely unless you instruct us otherwise. If you prefer not to have these documents householded, please call us at (800) 632-2301. At any time you may view current prospectuses/summary prospectuses and financial reports on our website. If you choose, you may receive these documents through electronic delivery.
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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.
(a) Audit Fees
The aggregate fees paid to the principal accountant for professional services rendered by the principal accountant for the audit of the registrant’s annual financial statements or for services that are normally provided by the principal accountant in connection with statutory and regulatory filings or engagements were $339,471 for the fiscal year ended December 31, 2016 and $337,392 for the fiscal year ended December 31, 2015.
(b) Audit-Related Fees
There were no fees paid to the principal accountant for assurance and related services rendered by the principal accountant to the registrant that are reasonably related to the performance of the audit of the registrant's financial statements and are not reported under paragraph (a) of Item 4.
There were no fees paid to the principal accountant for assurance and related services rendered by the principal accountant to the registrant's investment adviser and any entity controlling, controlled by or under common control with the investment adviser that provides ongoing services to the registrant that are reasonably related to the performance of the audit of their financial statements.
(c) Tax Fees
There were no fees paid to the principal accountant for professional services rendered by the principal accountant to the registrant for tax compliance, tax advice and tax planning.
There were no fees paid to the principal accountant for professional services rendered by the principal accountant to the registrant’s investment adviser and any entity controlling, controlled by or under common control with the investment adviser that provides ongoing services to the registrant for tax compliance, tax advice and tax planning.
(d) All Other Fees
The aggregate fees paid to the principal accountant for products and services rendered by the principal accountant to the registrant not reported in paragraphs (a)-(c) of Item 4 were $0 for the fiscal year ended December 31, 2016 and $4,013 for the fiscal year ended December 31, 2015. The services for which these fees were paid included review of materials provided to the fund Board in connection with the investment management contract renewal process.
The aggregate fees paid to the principal accountant for products and services rendered by the principal accountant to the registrant’s investment adviser and any entity controlling, controlled by or under common control with the investment adviser that provides ongoing services to the registrant other than services reported in paragraphs (a)-(c) of Item 4 were $345,590 for the fiscal year ended December 31, 2016 and $581,561 for the fiscal year ended December 31, 2015. The services for which these fees were paid included review of materials provided to the fund Board in connection with the investment management contract renewal process and derivatives assessments, and review of system processes related to fixed income securities.
(e) (1) The registrant’s audit committee is directly responsible for approving the services to be provided by the auditors, including:
(i) pre-approval of all audit and audit related services;
(ii) pre-approval of all non-audit related services to be provided to the Fund by the auditors;
(iii) pre-approval of all non-audit related services to be provided to the registrant by the auditors to the registrant’s investment adviser or to any entity that controls, is controlled by or is under common control with the registrant’s investment adviser and that provides ongoing services to the registrant where the non-audit services relate directly to the operations or financial reporting of the registrant; and
(iv) establishment by the audit committee, if deemed necessary or appropriate, as an alternative to committee pre-approval of services to be provided by the auditors, as required by paragraphs (ii) and (iii) above, of policies and procedures to permit such services to be pre-approved by other means, such as through establishment of guidelines or by action of a designated member or members of the committee; provided the policies and procedures are detailed as to the particular service and the committee is informed of each service and such policies and procedures do not include delegation of audit committee responsibilities, as contemplated under the Securities Exchange Act of 1934, to management; subject, in the case of (ii) through (iv), to any waivers, exceptions or exemptions that may be available under applicable law or rules.
(e) (2) None of the services provided to the registrant described in paragraphs (b)-(d) of Item 4 were approved by the audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of regulation S-X.
(f) No disclosures are required by this Item 4(f).
(g) The aggregate non-audit fees paid to the principal accountant for services rendered by the principal accountant to the registrant and the registrant’s investment adviser and any entity controlling, controlled by or under common control with the investment adviser that provides ongoing services to the registrant were $345,590 for the fiscal year ended December 31, 2016 and $585,574 for the fiscal year ended December 31, 2015.
(h) The registrant’s audit committee of the board has considered whether the provision of non-audit services that were rendered to the registrant’s investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal accountant’s independence.
Item 5. Audit Committee of Listed Registrants. N/A
Item 6. Schedule of Investments. N/A
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. N/A
Item 8. Portfolio Managers of Closed-End Management Investment Companies. N/A
Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers. N/A
Item 10. Submission of Matters to a Vote of Security Holders.
There have been no changes to the procedures by which shareholders may recommend nominees to the Registrant's Board of Trustees that would require disclosure herein.
Item 11. Controls and Procedures.
(a) Evaluation of Disclosure Controls and Procedures. The Registrant maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Registrant’s filings under the Securities Exchange Act of 1934 and the Investment Company Act of 1940 is recorded, processed, summarized and reported within the periods specified in the rules and forms of the Securities and Exchange Commission. Such information is accumulated and communicated to the Registrant’s management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. The Registrant’s management, including the principal executive officer and the principal financial officer, recognizes that any set of controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
Within 90 days prior to the filing date of this Shareholder Report on Form N-CSR, the Registrant had carried out an evaluation, under the supervision and with the participation of the Registrant’s management, including the Registrant’s principal executive officer and the Registrant’s principal financial officer, of the effectiveness of the design and operation of the Registrant’s disclosure controls and procedures. Based on such evaluation, the Registrant’s principal executive officer and principal financial officer concluded that the Registrant’s disclosure controls and procedures are effective.
(b) Changes in Internal Controls. There have been no 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 February 24, 2017
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 February 24, 2017
By /s/Gaston Gardey
Gaston Gardey
Chief Financial Officer and Chief Accounting Officer
Date February 24, 2017
