N-CSR 1 d543286dncsr.htm FRANKLIN FUND ALLOCATOR SERIES FRANKLIN FUND ALLOCATOR SERIES

 

 

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: 12/31/17

 

 

 

Item 1. Reports to Stockholders.

 

LOGO

Annual Report
and Shareholder Letter
December 31, 2017
Franklin Conservative Allocation Fund
Franklin Moderate Allocation Fund
Franklin Growth Allocation Fund
Sign up for electronic delivery at franklintempleton.com/edelivery

Franklin Templeton Investments

Gain From Our Perspective®

 

At Franklin Templeton Investments, we’re dedicated to one goal: delivering exceptional asset management for our clients. By bringing together multiple, world-class investment teams in a single firm, we’re able to offer specialized expertise across styles and asset classes, all supported by the strength and resources of one of the world’s largest asset managers. This has helped us to become a trusted partner to individual and institutional investors across the globe.

 

 

 

Dear Shareholder:

 

During the 12 months ended December 31, 2017, mostly upbeat economic data, improved corporate earnings and supportive monetary policies were positives for US securities markets. After two rate increases earlier in 2017, at its December meeting the US Federal Reserve (Fed) raised the target range for its benchmark federal funds rate 0.25% to 1.25%–1.50% amid ongoing labor market strength, rising economic activity and low inflation in the US. The Fed also announced a gradual monthly reduction in its balance sheet starting in January of 2018 as part of its ongoing plan to normalize monetary policy.

In this environment, US stocks, as measured by the Standard & Poor’s® 500 Index, ended the period with a +21.83% total return.1 Stocks in global developed markets, as measured by the MSCI World Index, returned +23.07% for the same period.1 Investment-grade bonds, as measured by the Bloomberg Barclays US Aggregate Bond Index, posted a +3.54% 12-month total return.1

We are committed to our long-term perspective and disciplined investment approach as we conduct a rigorous, fundamental analysis of securities with a regular emphasis on investment risk management.

We believe active, professional investment management serves investors well. We also recognize the important role of financial advisors in today’s markets and encourage investors to continue to seek their advice. Amid changing markets and economic conditions, we are confident investors with a

well-diversified portfolio and a patient, long-term outlook should be well positioned for the years ahead.

In addition, Franklin Fund Allocator Series’ annual report includes more detail about prevailing conditions and a discussion about investment decisions during the period. Please remember all securities markets fluctuate, as do mutual fund share prices.

We thank you for investing with Franklin Templeton, welcome your questions and comments, and look forward to serving your future investment needs.

Sincerely,

 

LOGO

Rupert H. Johnson, Jr.

Chairman

Franklin Fund Allocator Series

This letter reflects our analysis and opinions as of December 31, 2017, unless otherwise indicated. The information is not a complete analysis of every aspect of any market, country, industry, security or fund. Statements of fact are from sources considered reliable.

 

1. Source: Morningstar.

See www.franklintempletondatasources.com for additional data provider information.

 

Not FDIC Insured   |   May Lose Value   |   No Bank Guarantee

 

 

franklintempleton.com

   Not part of the annual report          1  

 

 

Contents

Annual Report

 

Economic and Market Overview      3  
Franklin Conservative Allocation Fund      4  
Franklin Moderate Allocation Fund      10  
Franklin Growth Allocation Fund      16  
Financial Highlights and Statements of Investments      22  
Financial Statements      43  
Notes to Financial Statements      48  
Report of Independent Registered Public Accounting Firm      60  
Tax Information      62  
Special Meeting of Shareholders      64  
Board Members and Officers      67  

Shareholder Information

 

     

 

 71

 

  

 

Visit franklintempleton.com for fund updates, to access your account, or to find helpful financial planning tools.

 

 

  2          Annual Report  

 

franklintempleton.com

Annual Report

Economic and Market Overview

 

The global economy grew moderately during the 12-month period under review. In this environment, global developed and emerging market stocks generated a +24.62% total return, as measured by the MSCI All Country World Index.1 Global markets were aided by price gains in oil and other commodities, generally upbeat economic data across regions, the European Central Bank’s (ECB’s) extension of its monetary easing program, and investor optimism about pro-growth and pro-business policies in the US. The prospect for reforms in the European Union (EU) with Emmanuel Macron’s election as France’s president, encouraging corporate earnings reports and the passage of the US tax reform bill also supported global stocks.

However, global markets reflected investor concerns about the terms of the UK’s exit from the EU, political uncertainty in the US and the EU, and geopolitical tensions in the Korean peninsula and other regions. Other concerns included the health of European banks, global oil oversupply despite a pact by major oil-producing countries to extend production cuts, and comments from key central bankers around the world about potentially raising interest rates.

After strengthening in 2017’s second and third quarters, the US economy moderated in the fourth quarter. The economy grew faster in 2017 than in 2016, however, largely due to growth in consumer spending, business investment and exports. The unemployment rate decreased from 4.7% in December 2016 to 4.1% at period-end.2 Annual inflation, as measured by the Consumer Price Index, was 2.1% in December 2016, and while it varied over the 12-month period, remained unchanged at period-end.2 The US Federal Reserve (Fed) raised its target range for the federal funds rate 0.25% three times during the period, amid signs of a growing US economy, strengthening labor market and improving business spending. At its December meeting, the Fed confirmed that the monthly balance sheet reduction would increase from US$10 billion to US$20 billion beginning in January 2018.

In Europe, the UK’s economic growth moderated in 2017 compared to 2016, largely due to slower growth in the services sector. In November, the Bank of England raised its key policy rate 0.25%, its first increase in a decade. The eurozone’s growth accelerated in 2017’s second and third quarters, but moderated in the fourth quarter. However, the eurozone’s 2017

1. Source: Morningstar.

2. Source: Bureau of Labor Statistics.

See www.franklintempletondatasources.com for additional data provider information.

economic growth rate was the fastest in a decade. The bloc’s annual inflation rate, while low, ended higher than in December 2016. The European Central Bank (ECB) kept its benchmark interest rate unchanged during the period. However, at its October meeting, the ECB extended the time frame for its massive bond-buying program from December 2017 to at least September 2018, while reducing the amount of monthly bond purchases in half beginning in January 2018.

In Asia, Japan’s quarterly gross domestic product (GDP) grew for the seventh consecutive quarter, although third-quarter 2017 growth was lower than the previous quarter. The Bank of Japan left its benchmark interest rate unchanged during the period and continued its monetary stimulus measures.

In emerging markets, Brazil’s quarterly GDP grew for the third consecutive quarter, although third-quarter 2017 growth slowed from the previous quarter. The country’s central bank cut its benchmark interest rate several times during the period to spur economic growth. Russia’s GDP grew in 2017’s first three quarters compared to the prior-year periods, amid the Bank of Russia’s continued policy support. China’s GDP grew faster in 2017 than in 2016, supported by solid growth in industrial production, services, fixed-asset investment, retail sales, and imports and exports. The People’s Bank of China left its benchmark interest rate unchanged during the period. Overall, emerging market stocks, as measured by the MSCI Emerging Markets Index, rose substantially during the period.

The foregoing information reflects our analysis and opinions as of December 31, 2017. 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.

 

 

 

 

franklintempleton.com

   Annual Report             3  

Franklin Conservative Allocation Fund

 

This annual report for Franklin Conservative Allocation Fund covers the fiscal year ended December 31, 2017.

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

Asset Allocation*

Based on Total Net Assets as of 12/31/17

 

LOGO

*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 +10.58% 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 +24.62% 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 +7.69% total return.2 You can find the Fund’s long-term performance data in the Performance Summary beginning on page 6.

Performance data represent past performance, which does not guarantee future results. Investment return and principal value will fluctuate, and you may have a gain or loss when you sell

your shares. Current performance may differ from figures shown. 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

12/31/17

     % of Total
Net Assets		  

Franklin Low Duration Total Return Fund – Class R6

     17.0%  

Franklin U.S. Government Securities Fund – Class R6

     10.7%  

Templeton Global Total Return Fund – Class R6

     9.7%  

Franklin Strategic Income Fund – Class R6

     9.3%  

Franklin Growth Fund – Class R6

     9.0%  

Franklin DynaTech Fund – Class R6

     6.1%  

Franklin Rising Dividends Fund – Class R6

     4.7%  

Franklin LibertyQ Emerging Markets ETF

     3.9%  

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 51.8% of total net assets to fixed income, 41.6% 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 27.

 

4       

 

Annual Report

   franklintempleton.com

FRANKLIN CONSERVATIVE ALLOCATION FUND

 

equity and 4.9% to alternative strategies. Domestic fixed income exposure was 81.3% of the total fixed income weighting, with the balance represented by foreign fixed income. Franklin Low Duration Total Return Fund – Class R6, representing 17.0% of the Fund’s total net assets, was our largest fixed income fund weighting at period-end. On the equity side, domestic exposure was 65.4% 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, 2017, we held shares in large-, mid- and small-capitalization equity funds, representing both growth and value styles. Franklin Growth Fund – Class R6 was our largest equity fund weighting at 9.0% of total net assets.

During the 12-month reporting period, our largest domestic growth fund holding, Franklin Growth Fund – Class R6, and our largest foreign equity fund holding, Franklin LibertyQ Emerging Markets ETF, outperformed the MSCI ACWI. Our largest domestic value fund holding, Franklin Rising Dividends Fund – Class R6, underperformed the MSCI ACWI. On the fixed income side, Franklin Low Duration Total Return Fund –Class R6 and Templeton Global Total Return Fund – Class R6 underperformed 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.

 

LOGO   

LOGO

T. Anthony Coffey, CFA

 

LOGO   

LOGO

 

Thomas A. Nelson, CFA

  

 

Portfolio Management Team

CFA® is a trademark owned by CFA Institute.

The foregoing information reflects our analysis, opinions and portfolio holdings as of December 31, 2017, the end of the reporting period. The way we implement our main investment strategies and the resulting portfolio holdings may change depending on factors such as market and economic conditions. These opinions may not be relied upon as investment advice or an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but the investment manager makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.

 

 

     
franklintempleton.com   Annual Report             5  

FRANKLIN CONSERVATIVE ALLOCATION FUND

 

Performance Summary as of December 31, 2017

 

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. Your dividend income will vary depending on dividends or interest paid by securities in the Fund’s portfolio, adjusted for operating expenses of each class. Capital gain distributions are net profits realized from the sale of portfolio securities.

Performance as of 12/31/171

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.

 

Share Class      Cumulative
Total Return2		        Average Annual
Total Return3		  
A          

1-Year

        +10.58%          +4.21%  

5-Year

        +28.72%          +3.94%  

10-Year

        +53.68%          +3.77%  
Advisor          

1-Year

        +10.88%          +10.88%  

5-Year

        +30.42%          +5.46%  

10-Year

        +57.74%          +4.66%  

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 8 for Performance Summary footnotes.

 

     
6        Annual Report   franklintempleton.com

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.

 

LOGO

See page 8 for Performance Summary footnotes.

 

 

     
franklintempleton.com   Annual Report              7  

FRANKLIN CONSERVATIVE ALLOCATION FUND

PERFORMANCE SUMMARY

 

Distributions (1/1/17–12/31/17)

 

Share Class      Net Investment
Income		        Long-Term
Capital Gain		        Total  

A

        $0.2364          $0.0923          $0.3287  

C

        $0.1261          $0.0923          $0.2184  

R

        $0.1975          $0.0923          $0.2898  

R6

        $0.2891          $0.0923          $0.3814  

Advisor

        $0.2763          $0.0923          $0.3686  

Total Annual Operating Expenses5

Share Class    With Waiver      Without Waiver  

A

      1.24%        1.24%  

Advisor

      0.99%        0.99%  

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 this Fund invests in underlying funds, it is subject to the same risks, and indirectly bears the fees and expenses, of the underlying funds. 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 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 which are heightened in developing countries. 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 and risk tolerance. The Fund’s prospectus also includes a description of the main investment risks.

1. 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, 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 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. 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.

 

     
8        Annual Report   franklintempleton.com

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
(actual return after expenses)		      Hypothetical
(5% annual return before expenses)		     
Share
Class		    Beginning
Account
Value 7/1/17		      Ending
Account
Value 12/31/17		      Expenses
Paid During
Period
7/1/17–12/31/171,2		      Ending
Account
Value 12/31/17		      Expenses
Paid During
Period
7/1/17–12/31/171,2		    Net
Annualized
Expense
Ratio2

 

     

 

     

 

   

 

A

    $1,000      $1,044.80      $3.25      $1,022.03      $3.21    0.63%

C

    $1,000      $1,040.80      $7.10      $1,018.25      $7.02    1.38%

R

    $1,000      $1,043.40      $4.53      $1,020.77      $4.48    0.88%

R6

    $1,000      $1,046.20      $1.44      $1,023.79      $1.43    0.28%

Advisor

    $1,000      $1,046.30      $1.96      $1,023.29      $1.94    0.38%

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 184/365 to reflect the one-half year period.

2. Reflects expenses after fee waivers and expense reimbursements. Does not include acquired fund fees and expenses.

 

     
franklintempleton.com   Annual Report              9  

Franklin Moderate Allocation Fund

 

 

This annual report for Franklin Moderate Allocation Fund covers the fiscal year ended December 31, 2017.

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

Asset Allocation*

Based on Total Net Assets as of 12/31/17

LOGO

*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 +14.98% 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 +24.62% 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 +7.69% total return.2 You can find the Fund’s long-term performance data in the Performance Summary beginning on page 12.

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       

12/31/17

       
      % of Total
Net Assets		  

Franklin Growth Fund – Class R6

      13.8%  

Franklin Low Duration Total Return Fund – Class R6

      10.7%  

Franklin DynaTech Fund – Class R6

      8.5%  

Franklin Rising Dividends Fund – Class R6

      7.0%  

Franklin U.S. Government Securities Fund – Class R6

      6.5%  

Templeton Global Total Return Fund – Class R6

      5.9%  

Franklin Strategic Income Fund – Class R6

      5.7%  

Franklin LibertyQ Emerging Markets ETF

      5.7%  

Franklin International Small Cap Growth Fund – Class R6

      5.3%  

Franklin Mutual European Fund – Class R6

      5.0%  

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 61.8% of total net assets to equity, 31.9% 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.

 

     
10        Annual Report   franklintempleton.com

FRANKLIN MODERATE ALLOCATION FUND

 

 

 

4.9% to alternative strategies. Domestic equity exposure was 64.9% 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, 2017, 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 13.8% of total net assets. On the fixed income side, domestic exposure was 81.5% 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 10.7% of total net assets.

During the 12-month reporting period, our largest domestic growth fund holding, Franklin Growth Fund – Class R6, and our largest foreign equity fund holding, Franklin LibertyQ Emerging Markets ETF, outperformed the MSCI ACWI. Our largest domestic value fund holding, Franklin Rising Dividends Fund – Class R6, underperformed the MSCI ACWI. On the fixed income side, Franklin Low Duration Total Return Fund – Class R6 and Templeton Global Total Return Fund – Class R6 underperformed 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.

 

LOGO   

LOGO

T. Anthony Coffey, CFA

 

LOGO   

LOGO

 

Thomas A. Nelson, CFA

  

 

Portfolio Management Team

 

The foregoing information reflects our analysis, opinions and portfolio holdings as of December 31, 2017, the end of the reporting period. The way we implement our main investment strategies and the resulting portfolio holdings may change depending on factors such as market and economic conditions. These opinions may not be relied upon as investment advice or an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but the investment manager makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.

 

 

     
franklintempleton.com       Annual Report             11  

FRANKLIN MODERATE ALLOCATION FUND

 

Performance Summary as of December 31, 2017

 

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. Your dividend income will vary depending on dividends or interest paid by securities in the Fund’s portfolio, adjusted for operating expenses of each class. Capital gain distributions are net profits realized from the sale of portfolio securities.

Performance as of 12/31/171

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.

 

Share Class    Cumulative
Total Return2		     Average Annual
Total Return3		  
A     

1-Year

      +14.98 %       +8.35 %  

5-Year

      +40.89 %       +5.84 %  

10-Year

      +66.90 %       +4.63 %  
Advisor     

1-Year

      +15.20 %       +15.20 %  

5-Year

      +42.61 %       +7.36 %  

10-Year

      +71.13 %       +5.52 %  

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 14 for Performance Summary footnotes.

 

     
12        Annual Report   franklintempleton.com

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.

LOGO

 

See page 14 for Performance Summary footnotes.

 

     
franklintempleton.com       Annual Report             13  

FRANKLIN MODERATE ALLOCATION FUND

PERFORMANCE SUMMARY

 

Distributions (1/1/17–12/31/17)

 

Share Class  

Net Investment

Income

  

Short-Term

Capital Gain

  

Long-Term

Capital Gain

   Total

A

   $0.2887   $0.0698   $0.6026   $0.9611

C

   $0.1648   $0.0698   $0.6026   $0.8372

R

   $0.2295   $0.0698   $0.6026   $0.9019

R6

   $0.3498   $0.0698   $0.6026   $1.0222

Advisor

   $0.3333   $0.0698   $0.6026   $1.0057

 

Total Annual Operating Expenses5

  

Share Class

 

        

A

 

      1.27%  

Advisor

 

      1.02%  

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 this Fund invests in underlying funds, it is subject to the same risks, and indirectly bears the fees and expenses, of the underlying funds. 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 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 which are heightened in developing countries. 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 and risk tolerance. The Fund’s prospectus also includes a description of the main investment risks.

1. 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, 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 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. 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.

 

     
14        Annual Report   franklintempleton.com

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
(actual return after expenses)		      Hypothetical
(5% annual return before expenses)		     
Share
Class		    Beginning
Account
Value 7/1/17		      Ending
Account
Value 12/31/17		      Expenses
Paid During
Period
7/1/17–12/31/171,2		      Ending
Account
Value 12/31/17		      Expenses
Paid During
Period
7/1/17–12/31/171,2		    Net
Annualized
Expense
Ratio2

 

     

 

     

 

   

 

A

    $1,000      $1,064.10      $3.38      $1,021.93      $3.31    0.65%

C

    $1,000      $1,060.60      $7.27      $1,018.15      $7.12    1.40%

R

    $1,000      $1,063.20      $4.68      $1,020.67      $4.58    0.90%

R6

    $1,000      $1,065.90      $1.46      $1,023.79      $1.43    0.28%

Advisor

    $1,000      $1,065.50      $2.08      $1,023.19      $2.04    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 184/365 to reflect the one-half year period.

2. Reflects expenses after fee waivers and expense reimbursements. Does not include acquired fund fees and expenses.

 

     
franklintempleton.com   Annual Report              15  

Franklin Growth Allocation Fund

 

This annual report for Franklin Growth Allocation Fund covers the fiscal year ended December 31, 2017.

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

Asset Allocation*

Based on Total Net Assets as of 12/31/17

 

LOGO

*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 +19.45% 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 +24.62% 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 +7.69% total return.2 You can find the Fund’s long-term performance data in the Performance Summary beginning on page 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.

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       
12/31/17       
      % of Total
Net Assets		  

Franklin Growth Fund – Class R6

      17.3%  

Franklin DynaTech Fund – Class R6

      11.3%  

Franklin Rising Dividends Fund – Class R6

      9.2%  

Franklin LibertyQ Emerging Markets ETF

      7.9%  
Franklin International Small Cap Growth Fund – Class R6      7.4%  

Franklin Mutual European Fund – Class R6

      6.6%  

Templeton Foreign Fund – Class R6

      5.8%  
Franklin Low Duration Total Return Fund – Class R6      4.0%  

Financial Select Sector SPDR ETF

      3.9%  

Franklin Utilities 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 81.9% of total net assets to equity, 11.7% 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 41.

 

 

16        Annual Report   franklintempleton.com

FRANKLIN GROWTH ALLOCATION FUND

 

4.9% to alternative strategies. Domestic equity exposure was 63.6% 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, 2017, 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 17.3% of total net assets. On the fixed income side, domestic exposure was 82.1% 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 4.0% of total net assets.

During the 12-month reporting period, our largest domestic growth fund holding, Franklin Growth Fund – Class R6, and our largest foreign equity fund holding, Franklin LibertyQ Emerging Markets ETF, outperformed the MSCI ACWI. Our largest domestic value fund holding, Franklin Rising Dividends Fund – Class R6, underperformed the MSCI ACWI. On the fixed income side, Franklin Low Duration Total Return Fund –Class R6 and Templeton Global Total Return Fund – Class R6 underperformed 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.

 

LOGO   

LOGO

T. Anthony Coffey, CFA

 

LOGO   

LOGO

 

Thomas A. Nelson, CFA

  

 

Portfolio Management Team

The foregoing information reflects our analysis, opinions and portfolio holdings as of December 31, 2017, the end of the reporting period. The way we implement our main investment strategies and the resulting portfolio holdings may change depending on factors such as market and economic conditions. These opinions may not be relied upon as investment advice or an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but the investment manager makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.

 

 

     
franklintempleton.com   Annual Report              17  

FRANKLIN GROWTH ALLOCATION FUND

 

Performance Summary as of December 31, 2017

 

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. Your dividend income will vary depending on dividends or interest paid by securities in the Fund’s portfolio, adjusted for operating expenses of each class. Capital gain distributions are net profits realized from the sale of portfolio securities.

Performance as of 12/31/171

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.

 

Share Class    Cumulative 
Total Return2		      Average Annual
Total Return3		  
A      

1-Year

      +19.45%         +12.60%  

5-Year

      +57.15%         +8.18%  

10-Year

      +74.54%         +5.10%  
Advisor      

1-Year

      +19.77%         +19.77%  

5-Year

      +59.12%         +9.73%  

10-Year

      +79.11%         +6.00%  
 

 

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 20 for Performance Summary footnotes.

 

     
18        Annual Report   franklintempleton.com

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.

 

LOGO

 

See page 20 for Performance Summary footnotes.

 

     
franklintempleton.com           Annual Report             19  

FRANKLIN GROWTH ALLOCATION FUND

PERFORMANCE SUMMARY

 

Distributions (1/1/17–12/31/17)

 

Share Class

 

  

Net Investment Income

 

  

Short-Term Capital Gain

 

  

Long-Term Capital Gain

 

  

Total

 

A

   $0.3246   $0.0818   $1.0289   $1.4353

C

   $0.1798   $0.0818   $1.0289   $1.2905

R

   $0.2660   $0.0818   $1.0289   $1.3767

R6

   $0.4020   $0.0818   $1.0289   $1.5127

Advisor

   $0.3713   $0.0818   $1.0289   $1.4820

Total Annual Operating Expenses5

 

Share Class    With Waiver      Without Waiver  

A

      1.32%        1.36%  

Advisor

      1.07%        1.11%  

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 this Fund invests in underlying funds, it is subject to the same risks, and indirectly bears the fees and expenses, of the underlying funds. 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 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 which are heightened in developing countries. 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 and risk tolerance. The Fund’s prospectus also includes a description of the main investment risks.

1. The Fund has an expense reduction contractually guaranteed through 4/30/18. Fund investment results reflect the expense reduction; without this reduction, 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, 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 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. 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.

 

     
20        Annual Report   franklintempleton.com

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
(actual return after expenses)		      Hypothetical
(5% annual return before expenses)		       
Share
Class		    Beginning
Account
Value 7/1/17		      Ending
Account
Value 12/31/17		      Expenses
Paid During
Period
7/1/17–12/31/171,2		      Ending
Account
Value 12/31/17		      Expenses
Paid During
Period
7/1/17–12/31/171,2		      Net
Annualized
Expense
Ratio2

 

     

 

     

 

     

 

A

    $1,000      $1,083.30      $3.41      $1,021.93      $3.31      0.65%

C

    $1,000      $1,079.50      $7.34      $1,018.15      $7.12      1.40%

R

    $1,000      $1,082.40      $4.72      $1,020.67      $4.58      0.90%

R6

    $1,000      $1,085.40      $1.37      $1,023.89      $1.33      0.26%

Advisor

    $1,000      $1,084.80      $2.10      $1,023.19      $2.04      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 184/365 to reflect the one-half year period.

2. Reflects expenses after fee waivers and expense reimbursements. Does not include acquired fund fees and expenses.

 

     
franklintempleton.com   Annual Report              21  

FRANKLIN FUND ALLOCATOR SERIES

 

Financial Highlights

Franklin Conservative Allocation Fund

 

     Year Ended December 31,  
            2017      2016      2015      2014      2013    

 

  
Class A                  
Per share operating performance
(for a share outstanding throughout the year)		                  

Net asset value, beginning of year

         $13.74        $13.40        $14.53        $14.65        $14.06    
  

 

 

  
Income from investment operationsa:                  

Net investment incomeb,c

         0.20        0.14        0.28        0.40        0.31    

Net realized and unrealized gains (losses)

         1.25        0.45        (0.60)        0.09        1.12    
  

 

 

  

Total from investment operations

         1.45        0.59        (0.32)        0.49        1.43    
  

 

 

  
Less distributions from:                  

Net investment income and short term gains received from Underlying Funds and exchange traded funds

         (0.24)        (0.15)        (0.28)        (0.42)        (0.32)   

Net realized gains

         (0.09)        (0.10)        (0.53)        (0.19)        (0.52)   
  

 

 

  

Total distributions

         (0.33)        (0.25)        (0.81)        (0.61)        (0.84)   
  

 

 

  

Net asset value, end of year

         $14.86        $13.74        $13.40        $14.53        $14.65    
  

 

 

  

Total returnd

         10.58%        4.39%        (2.26)%        3.35%        10.39%  
Ratios to average net assets                  

Expenses before waiver and payments by affiliatese

         0.63%        0.63%        0.62%        0.63%        0.60%  

Expenses net of waiver and payments by affiliatese

         0.63%f        0.63%f        0.62%f        0.63%f        0.59%  

Net investment incomec

         1.37%        1.01%        1.97%        2.67%        2.11%  
Supplemental data                  

Net assets, end of year (000’s)

         $800,141        $809,039        $905,537        $910,523        $871,541  

Portfolio turnover rate

         17.99%        34.83%        17.69%        16.67%        57.59%  

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 and exchange traded 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 and exchange traded funds in which the Fund invests. The weighted average indirect expenses of the Underlying Funds and exchange traded funds was 0.58% for the year ended December 31, 2017.

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 Conservative Allocation Fund (continued)

 

     Year Ended December 31,  
            2017      2016      2015      2014      2013    

 

  
Class C                  
Per share operating performance                  

(for a share outstanding throughout the year)

                  

Net asset value, beginning of year

         $13.47        $13.15        $14.27        $14.40        $13.83    
  

 

 

  
Income from investment operationsa:                  

Net investment incomeb,c

         0.09        0.04        0.17        0.28        0.20    

Net realized and unrealized gains (losses)

         1.23        0.43        (0.58)        0.09        1.11    
  

 

 

  

Total from investment operations

         1.32        0.47        (0.41)        0.37        1.31    
  

 

 

  

Less distributions from:

                  

Net investment income and short term gains received from Underlying Funds and exchange traded funds

         (0.13)        (0.05)        (0.18)        (0.31)        (0.22)   

Net realized gains

         (0.09)        (0.10)        (0.53)        (0.19)        (0.52)   
  

 

 

  

Total distributions

         (0.22)        (0.15)        (0.71)        (0.50)        (0.74)   
  

 

 

  

Net asset value, end of year

         $14.57        $13.47        $13.15        $14.27        $14.40    
  

 

 

  

Total returnd

         9.80%        3.55%        (2.96)%        2.58%        9.61%  
Ratios to average net assets                  

Expenses before waiver and payments by affiliatese

         1.38%        1.37%        1.37%        1.38%        1.35%  

Expenses net of waiver and payments by affiliatese

         1.38% f       1.37%f        1.37% f       1.38% f       1.34%  

Net investment incomec

         0.62%        0.27%        1.22%        1.92%        1.36%  
Supplemental data                  

Net assets, end of year (000’s)

         $423,890        $470,582        $536,548        $549,222        $524,756    

Portfolio turnover rate

         17.99%        34.83%        17.69%        16.67%        57.59%  

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 and exchange traded 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 and exchange traded funds in which the Fund invests. The weighted average indirect expenses of the Underlying Funds and exchange traded funds was 0.58% for the year ended December 31, 2017.

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,  
            2017      2016      2015      2014      2013    

 

  
Class R                  
Per share operating performance                  

(for a share outstanding throughout the year)

                  

Net asset value, beginning of year

         $13.69        $13.35        $14.48        $14.60        $14.01    
  

 

 

  
Income from investment operationsa:                  

Net investment incomeb,c

         0.16        0.10        0.24        0.35        0.26    

Net realized and unrealized gains (losses)

         1.24        0.45        (0.59)        0.10        1.14    
  

 

 

  

Total from investment operations

         1.40        0.55        (0.35)        0.45        1.40    
  

 

 

  

Less distributions from:

                  

Net investment income and short term gains received from Underlying Funds and exchange traded funds

         (0.20)        (0.11)        (0.25)        (0.38)        (0.29)  

Net realized gains

         (0.09)        (0.10)        (0.53)        (0.19)        (0.52)  
  

 

 

  

Total distributions

         (0.29)        (0.21)        (0.78)        (0.57)        (0.81)  
  

 

 

  

Net asset value, end of year

         $14.80        $13.69        $13.35        $14.48        $14.60    
  

 

 

  

Total return

         10.25%        4.15%        (2.52)%        3.10%        10.14%  
Ratios to average net assets                  

Expenses before waiver and payments by affiliatesd

         0.88%        0.88%        0.87%        0.88%        0.85%  

Expenses net of waiver and payments by affiliatesd

         0.88% e       0.88% e       0.87% e       0.88% e       0.84%  

Net investment incomec

         1.12%        0.76%        1.72%        2.42%        1.86%  
Supplemental data                  

Net assets, end of year (000’s)

         $103,629        $124,018        $139,592        $159,897        $166,927    

Portfolio turnover rate

         17.99%        34.83%        17.69%        16.67%        57.59%  

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 and exchange traded funds in which the 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 0.58% for the year ended December 31, 2017.

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 Conservative Allocation Fund (continued)

 

     Year Ended December 31,  
            2017      2016      2015      2014      2013a    

 

  
Class R6                  
Per share operating performance                  

(for a share outstanding throughout the year)

                  

Net asset value, beginning of year

         $13.72        $13.39        $14.52        $14.63        $14.62    
  

 

 

  
Income from investment operationsb:                  

Net investment incomec,d

         0.25        0.18        0.36        0.33        0.54    

Net realized and unrealized gains (losses)

         1.25        0.44        (0.63)        0.22        0.32    
  

 

 

  

Total from investment operations

         1.50        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

         (0.29)        (0.19)        (0.33)        (0.47)        (0.33)  

Net realized gains

         (0.09)        (0.10)        (0.53)        (0.19)        (0.52)  
  

 

 

  

Total distributions

         (0.38)        (0.29)        (0.86)        (0.66)        (0.85)  
  

 

 

  

Net asset value, end of year

         $14.84        $13.72        $13.39        $14.52        $14.63    
  

 

 

  

Total returne

         10.99%        4.69%        (1.93)%        3.79%        6.06%  
Ratios to average net assetsf                  

Expenses before waiver and payments by affiliatesg

         0.32%        0.30%        0.29%        0.28%        1.06%  

Expenses net of waiver and payments by affiliatesg

         0.28%        0.28%        0.28%        0.28%h        0.28%  

Net investment incomed

         1.72%        1.36%        2.31%        3.02%        2.44%  
Supplemental data                  

Net assets, end of year (000’s)

         $2,149        $2,197        $2,282        $1,654        $37  

Portfolio turnover rate

         17.99%        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 in which the Fund invests.

eTotal return is not annualized for periods less than one year.

fRatios are annualized for periods less than one year.

gDoes not include expenses of the Underlying Funds and exchange traded funds in which the Fund invests. The weighted average indirect expenses of the Underlying Funds and exchange traded funds was 0.58% for the year ended December 31, 2017.

hBenefit of waiver and payments by affiliates rounds to less than 0.01%.

 

     
franklintempleton.com   The accompanying notes are an integral part of these financial statements.    |    Annual Report             25  

FRANKLIN FUND ALLOCATOR SERIES

FINANCIAL HIGHLIGHTS

 

Franklin Conservative Allocation Fund (continued)

 

     Year Ended December 31,  
            2017      2016      2015      2014      2013    

 

  
Advisor Class                  
Per share operating performance                  

(for a share outstanding throughout the year)

                  

Net asset value, beginning of year

         $13.74        $13.39        $14.52        $14.64        $14.05    
  

 

 

  
Income from investment operationsa:                  

Net investment incomeb,c

         0.25        0.17        0.32        0.41        0.35    

Net realized and unrealized gains (losses)

         1.24        0.45        (0.60)        0.11        1.12    
  

 

 

  

Total from investment operations

         1.49        0.62        (0.28)        0.52        1.47    
  

 

 

  

Less distributions from:

                  

Net investment income and short term gains received from Underlying Funds and exchange traded funds

         (0.28)        (0.17)        (0.32)        (0.45)        (0.36)  

Net realized gains

         (0.09)        (0.10)        (0.53)        (0.19)        (0.52)  
  

 

 

  

Total distributions

         (0.37)        (0.27)        (0.85)        (0.64)        (0.88)  
  

 

 

  

Net asset value, end of year

         $14.86        $13.74        $13.39        $14.52        $14.64    
  

 

 

  

Total return

         10.88%        4.69%        (2.02)%        3.61%        10.67%  
Ratios to average net assets                  

Expenses before waiver and payments by affiliatesd

         0.38%        0.38%        0.37%        0.38%        0.35%  

Expenses net of waiver and payments by affiliatesd

         0.38% e       0.38% e       0.37% e       0.38% e       0.34%  

Net investment incomec

         1.62%        1.26%        2.22%        2.92%        2.36%  
Supplemental data                  

Net assets, end of year (000’s)

         $38,934        $27,578        $82,234        $90,263        $105,657    

Portfolio turnover rate

         17.99%        34.83%        17.69%        16.67%        57.59%  

 

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 and exchange traded funds in which the 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 0.58% for the year ended December 31, 2017.

eBenefit 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

 

Statement of Investments, December 31, 2017

Franklin Conservative Allocation Fund                
             Shares        Value  
 

 

Investments in Underlying Funds and Exchange Traded Funds 98.3%

        
 

Alternative Strategies 4.9%

        
  a    

Franklin K2 Alternative Strategies Fund, Class R6

      3,062,011        $ 34,692,578  
  a    

Franklin Pelagos Commodities Strategy Fund, Class R6

      4,757,464          31,779,860  
         

 

 

  
         

 

 

 

66,472,438

 

 

         

 

 

  
 

Domestic Equity 27.2%

        
 

Financial Select Sector SPDR ETF

      973,600          27,173,176  
  a,b    

Franklin DynaTech Fund, Class R6

      1,227,952          83,193,742  
  a    

Franklin Growth Fund, Class R6

      1,306,742          123,539,374  
  a    

Franklin LibertyQ U.S. Equity ETF

      632,000          18,271,057  
  a    

Franklin Rising Dividends Fund, Class R6

      1,062,619          64,915,393  
  a,b    

Franklin Small Cap Growth Fund, Class R6

      360,599          8,567,841  
  a    

Franklin Utilities Fund, Class R6

      1,330,449          25,065,660  
 

iShares S&P 500 Value ETF

      193,555          22,111,723  
         

 

 

  
         

 

 

 

372,837,966

 

 

         

 

 

  
 

Domestic Fixed Income 42.1%

        
  a    

Franklin Floating Rate Daily Access Fund, Class R6

      4,775,895          41,884,603  
  a    

Franklin Low Duration Total Return Fund, Class R6

      23,643,338          232,177,580  
  a    

Franklin Strategic Income Fund, Class R6

      12,986,969          127,921,643  
  a    

Franklin U.S. Government Securities Fund, Class R6

      24,011,063          145,987,262  
 

iShares iBoxx $ Investment Grade Corporate Bond ETF

      235,000          28,566,600  
         

 

 

  
         

 

 

 

576,537,688

 

 

         

 

 

  
 

Foreign Equity 14.4%

        
  a    

Franklin FTSE Europe ETF

      563,900          14,382,270  
  a    

Franklin International Small Cap Growth Fund, Class R6

      2,321,149          46,771,155  
  a    

Franklin LibertyQ Emerging Markets ETF

      1,606,500          53,086,792  
  a    

Franklin Mutual European Fund, Class R6

      2,146,356          44,880,300  
  a    

Templeton Foreign Fund, Class R6

      4,705,606          37,362,514  
         

 

 

  
         

 

 

 

196,483,031

 

 

         

 

 

  
 

Foreign Fixed Income 9.7%

        
  a    

Templeton Global Total Return Fund, Class R6

      11,050,252          133,155,536  
         

 

 

  
  Total Investments in Underlying Funds and Exchange Traded Funds
  before Short Term Investments (Cost $1,142,599,906)		           1,345,486,659  
         

 

 

  
 

Short Term Investments 2.0%

        
 

Money Market Funds (Cost $11,221,101) 0.8%

        
  a,c    

Institutional Fiduciary Trust Money Market Portfolio, 0.89%

      11,221,101          11,221,101  
         

 

 

  

 

 

franklintempleton.com   Annual Report         27  

FRANKLIN FUND ALLOCATOR SERIES

STATEMENT OF INVESTMENTS

 

Franklin Conservative Allocation Fund (continued)

                
           Principal
Amount		        Value  
   

 

Repurchase Agreements (Cost $15,905,783) 1.2%

                
d  

Joint Repurchase Agreement, 1.377%, 1/02/18 (Maturity Value $15,908,217)

        
 

BNP Paribas Securities Corp. (Maturity Value $2,593,198)

        
 

Deutsche Bank Securities Inc. (Maturity Value $2,890,364)

        
 

HSBC Securities (USA) Inc. (Maturity Value $10,372,794)

        
 

Merrill Lynch, Pierce, Fenner & Smith Inc. (Maturity Value $51,861)

        
 

Collateralized by U.S. Government Agency Securities, 0.00% - 1.98%, 7/27/18 - 11/22/21;
U.S. Treasury Note, 1.25% - 2.00%, 12/31/18 - 4/30/22; and U.S. Treasury Note, Index Linked, 0.125%, 4/15/18 (valued at $16,225,144)

    $ 15,905,783        $ 15,905,783  
         

 

 

  
    Total Investments (Cost $1,169,726,790) 100.3%            

 

1,372,613,543

  
    Other Assets, less Liabilities (0.3)%             (3,871,049)  
         

 

 

  
 

Net Assets 100.0%

        

 

$

 

1,368,742,494

 

 

         

 

 

  

See Abbreviations on page 60.

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.

dSee Note 1(b) regarding joint repurchase agreement.

 

 

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,  
            2017      2016      2015      2014      2013    

 

  
Class A                  
Per share operating performance
(for a share outstanding throughout the year)		                  

Net asset value, beginning of year

         $14.86        $14.49        $15.71        $15.78        $14.59    
  

 

 

  
Income from investment operationsa:                  

Net investment incomeb,c

         0.20        0.14        0.24        0.34        0.27    

Net realized and unrealized gains (losses)

         2.01        0.56        (0.51)        0.32        1.78    
  

 

 

  

Total from investment operations

         2.21        0.70        (0.27)        0.66        2.05    
  

 

 

  
Less distributions from:                  

Net investment income and short term gains received from Underlying Funds and exchange traded funds

         (0.29)        (0.12)        (0.25)        (0.37)        (0.30)  

Net realized gains

         (0.67)        (0.21)        (0.70)        (0.36)        (0.56)  
  

 

 

  

Total distributions

         (0.96)        (0.33)        (0.95)        (0.73)        (0.86)  
  

 

 

  

Net asset value, end of year

         $16.11        $14.86        $14.49        $15.71        $15.78   
  

 

 

  

Total returnd

         14.98%        4.94%        (1.89)%        4.07%        14.35%    
Ratios to average net assets                  

Expenses before waiver and payments by affiliatese

         0.66%        0.63%        0.63%        0.65%        0.61%    

Expenses net of waiver and payments by affiliatese

         0.65%        0.63% f       0.63% f       0.65% f       0.59%    

Net investment incomec

         1.23%        0.93%        1.52%        2.08%        1.74%    
Supplemental data                  

Net assets, end of year (000’s)

         $1,407,956        $1,416,532        $1,594,882        $1,667,201        $1,636,122    

Portfolio turnover rate

         16.86%        29.22%        22.08%        17.95%        46.14%    

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 and exchange traded 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 and exchange traded funds in which the Fund invests. The weighted average indirect expenses of the Underlying Funds and exchange traded funds was 0.60% for the year ended December 31, 2017.

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,  
            2017      2016      2015      2014      2013    

 

  
Class C                  
Per share operating performance
(for a share outstanding throughout the year)		                  

Net asset value, beginning of year

         $14.48        $14.12        $15.33        $15.42        $14.28    
  

 

 

  
Income from investment operationsa:                  

Net investment incomeb,c

         0.07        0.03        0.12        0.21        0.15    

Net realized and unrealized gains (losses)

         1.94        0.55        (0.49)        0.31        1.74    
  

 

 

  

Total from investment operations

         2.01        0.58        (0.37)        0.52        1.89    
  

 

 

  
Less distributions from:                  

Net investment income and short term gains received from Underlying Funds and exchange traded funds

         (0.16)        (0.01)        (0.14)        (0.25)        (0.19)  

Net realized gains

         (0.67)        (0.21)        (0.70)        (0.36)        (0.56)  
  

 

 

  

Total distributions

         (0.83)        (0.22)        (0.84)        (0.61)        (0.75)  
  

 

 

  

Net asset value, end of year

         $15.66        $14.48        $14.12        $15.33        $15.42   
  

 

 

  

Total returnd

         14.10%        4.25%        (2.68)%        3.35%        13.41%  
Ratios to average net assets                  

Expenses before waiver and payments by affiliatese

         1.41%        1.37%        1.38%        1.40%        1.36%  

Expenses net of waiver and payments by affiliatese

         1.40%        1.37%f        1.38%f        1.40%f        1.34%  

Net investment incomec

         0.48%        0.19%        0.77%        1.33%        0.99%  
Supplemental data                  

Net assets, end of year (000’s)

         $568,280        $595,911        $692,872        $716,712        $701,224    

Portfolio turnover rate

         16.86%        29.22%        22.08%        17.95%        46.14%  

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 and exchange traded 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 and exchange traded funds in which the Fund invests. The weighted average indirect expenses of the Underlying Funds and exchange traded funds was 0.60% for the year ended December 31, 2017.

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,  
            2017      2016      2015      2014      2013    

 

  
Class R                  
Per share operating performance
(for a share outstanding throughout the year)		                  

Net asset value, beginning of year

         $14.82        $14.44        $15.66        $15.73        $14.55    
  

 

 

  
Income from investment operationsa:                  

Net investment incomeb,c

         0.14        0.10        0.19        0.28        0.22    

Net realized and unrealized gains (losses)

         2.02        0.57        (0.51)        0.34        1.78    
  

 

 

  

Total from investment operations

         2.16        0.67        (0.32)        0.62        2.00    
  

 

 

  
Less distributions from:                  

Net investment income and short term gains received from Underlying Funds and exchange traded funds

         (0.23)        (0.08)        (0.20)        (0.33)        (0.26)  

Net realized gains

         (0.67)        (0.21)        (0.70)        (0.36)        (0.56)  
  

 

 

  

Total distributions

         (0.90)        (0.29)        (0.90)        (0.69)        (0.82)  
  

 

 

  

Net asset value, end of year

         $16.08        $14.82        $14.44        $15.66        $15.73   
  

 

 

  

Total return

         14.69%        4.71%        (2.18)%        3.89%        13.97%  
Ratios to average net assets                  

Expenses before waiver and payments by affiliatesd

         0.91%        0.88%        0.88%        0.90%        0.86%  

Expenses net of waiver and payments by affiliatesd

         0.90%        0.88% e       0.88% e       0.90% e       0.84%  

Net investment incomec

         0.98%        0.68%        1.27%        1.83%        1.49%  
Supplemental data                  

Net assets, end of year (000’s)

         $119,920        $158,192        $202,854        $263,864        $286,688    

Portfolio turnover rate

         16.86%        29.22%        22.08%        17.95%        46.14%  

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 and exchange traded funds in which the 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 0.60% for the year ended December 31, 2017.

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,  
    2017     2016     2015     2014     2013a    
Class R6                                        
Per share operating performance
(for a share outstanding throughout the year)		          

Net asset value, beginning of year

     $14.86       $14.49       $15.72       $15.79       $15.33    
 

 

 

  
Income from investment operationsb:          

Net investment incomec,d

     0.26       0.19       0.31       0.25       0.77    

Net realized and unrealized gains (losses)

     2.01       0.57       (0.54 )      0.47       0.56    
 

 

 

  

Total from investment operations

     2.27       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

     (0.35 )      (0.18 )      (0.30 )      (0.43 )      (0.31)  

Net realized gains

     (0.67 )      (0.21 )      (0.70 )      (0.36 )      (0.56)  
 

 

 

  

Total distributions

     (1.02 )      (0.39 )      (1.00 )      (0.79 )      (0.87)  
 

 

 

  

Net asset value, end of year

                 $16.11       $14.86       $14.49       $15.72       $15.79    
 

 

 

  

Total returne

     15.40%       5.34%       (1.59)%       4.52%       8.93%  
Ratios to average net assetsf          

Expenses before waiver and payments by affiliatesg

     0.30%       0.28%       0.28%       0.27%       0.45%  

Expenses net of waiver and payments by affiliatesg

     0.28%       0.28% h      0.28% h      0.27% h      0.26%  

Net investment incomed

     1.60%       1.28%       1.87%       2.46%       2.07%  
Supplemental data          

Net assets, end of year (000’s)

     $4,492       $5,106       $4,779       $4,205       $253    

Portfolio turnover rate

     16.86%       29.22%       22.08%       17.95%       46.14%  

aFor the period May 1, 2013 (effective date) to December 31, 2013.

bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.

cBased on average daily shares outstanding.

dRecognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds and exchange traded funds in which the Fund invests.

eTotal return is not annualized for periods less than one year.

fRatios are annualized for periods less than one year.

gDoes not include expenses of the Underlying Funds and exchange traded funds in which the Fund invests. The weighted average indirect expenses of the Underlying Funds and exchange traded funds was 0.60% for the year ended December 31, 2017.

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,  
     2017     2016     2015     2014     2013    
Advisor Class                                         
Per share operating performance
(for a share outstanding throughout the year)		           

Net asset value, beginning of year

      $14.88       $14.50       $15.72       $15.79       $14.60    
  

 

 

  
Income from investment operationsa:           

Net investment incomeb,c

      0.26       0.17       0.25       0.33       0.32    

Net realized and unrealized gains (losses)

      1.98       0.58       (0.49 )      0.37       1.76    
  

 

 

  

Total from investment operations

      2.24       0.75       (0.24 )      0.70       2.08    
  

 

 

  
Less distributions from:           

Net investment income and short term gains received from

           

Underlying Funds and exchange traded funds

      (0.33 )      (0.16 )      (0.28 )      (0.41 )      (0.33)  

Net realized gains

      (0.67 )      (0.21 )      (0.70 )      (0.36 )      (0.56)  
  

 

 

  

Total distributions

      (1.00 )      (0.37 )      (0.98 )      (0.77 )      (0.89)  
  

 

 

  

Net asset value, end of year

                  $16.12       $14.88       $14.50       $15.72       $15.79    
  

 

 

  

Total return

      15.20%       5.26%       (1.66)%       4.39%       14.56%  
Ratios to average net assets           

Expenses before waiver and payments by affiliatesd

      0.41%       0.38%       0.38%       0.40%       0.36%  

Expenses net of waiver and payments by affiliatesd

      0.40%       0.38% e      0.38% e      0.40% e      0.34%  

Net investment incomec

      1.48%       1.18%       1.77%       2.33%       1.99%  
Supplemental data           

Net assets, end of year (000’s)

      $52,575       $39,052       $52,975       $87,612       $159,303    

Portfolio turnover rate

      16.86%       29.22%       22.08%       17.95%       46.14%  

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 and exchange traded funds in which the 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 0.60% for the year ended December 31, 2017.

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, 2017

Franklin Moderate Allocation Fund

 

           Shares      Value  
 

Investments in Underlying Funds and Exchange Traded Funds 98.6%

      
 

Alternative Strategies 4.9%

      
     a Franklin K2 Alternative Strategies Fund, Class R6      4,819,654      $ 54,606,680  
     a Franklin Pelagos Commodities Strategy Fund, Class R6      7,495,307        50,068,653  
       

 

 

  
       

 

 

 

104,675,333

 

 

       

 

 

  
 

Domestic Equity 40.1%

      

       Financial Select Sector SPDR ETF

      2,285,000        63,774,350  
   a,b Franklin DynaTech Fund, Class R6      2,697,370        182,746,832  
     a Franklin Growth Fund, Class R6      3,137,923        296,659,253  
     a Franklin LibertyQ U.S. Equity ETF      1,491,600        43,122,007  
     a Franklin Rising Dividends Fund, Class R6      2,481,720        151,608,304  
   a,b Franklin Small Cap Growth Fund, Class R6      898,062        21,337,942  
     a Franklin Utilities Fund, Class R6      3,257,195        61,365,547  
 

iShares S&P 500 Value ETF

      376,769        43,042,091  
       

 

 

  
     

 

 

 

863,656,326

 

 

       

 

 

  
 

Domestic Fixed Income 26.0%

      
     a Franklin Floating Rate Daily Access Fund, Class R6      4,554,612        39,943,948  
     a Franklin Low Duration Total Return Fund, Class R6      23,485,173        230,624,402  
     a Franklin Strategic Income Fund, Class R6      12,546,900        123,586,961  
     a Franklin U.S. Government Securities Fund, Class R6      22,962,139        139,609,805  
 

iShares iBoxx $Investment Grade Corporate Bond ETF

      216,700        26,342,052  
       

 

 

  
     

 

 

 

560,107,168

 

 

       

 

 

  
 

Foreign Equity 21.7%

      
     a Franklin FTSE Europe ETF      1,355,700        34,577,129  
     a Franklin International Small Cap Growth Fund, Class R6      5,695,077        114,755,802  
     a Franklin LibertyQ Emerging Markets ETF      3,701,700        122,322,676  
     a Franklin Mutual European Fund, Class R6      5,109,534        106,840,346  
     a Templeton Foreign Fund, Class R6      11,216,882        89,062,047  
       

 

 

  
     

 

 

 

467,558,000

 

 

       

 

 

  
 

Foreign Fixed Income 5.9%

      
     a Templeton Global Total Return Fund, Class R6      10,484,568        126,339,039  
       

 

 

  
 

Total Investments in Underlying Funds and Exchange Traded Funds

      
 

before Short Term Investments (Cost $1,656,402,226)

         2,122,335,866  
       

 

 

  
       
 

Short Term Investments 1.8%

      
 

Money Market Funds (Cost $25,309) 0.0%†

      
   a,c Institutional Fiduciary Trust Money Market Portfolio, 0.89%      25,309        25,309  
       

 

 

  

 

 

     
34        Annual Report    |       franklintempleton.com

FRANKLIN FUND ALLOCATOR SERIES

STATEMENT OF INVESTMENTS

 

Franklin Moderate Allocation Fund (continued)

 

           Principal
Amount		      Value  
 

Repurchase Agreements (Cost $38,626,674) 1.8%

      

     dJoint Repurchase Agreement, 1.377%, 1/02/18 (Maturity Value $38,632,582)

      
 

BNP Paribas Securities Corp. (Maturity Value $6,297,497)

      
 

Deutsche Bank Securities Inc. (Maturity Value $7,019,154)

      
 

HSBC Securities (USA) Inc. (Maturity Value $25,189,989)

      
 

Merrill Lynch, Pierce, Fenner & Smith Inc. (Maturity Value $125,942)

      
 

Collateralized by U.S. Government Agency Securities, 0.00% - 1.98%, 7/27/18 - 11/22/21; U.S.

      
 

  Treasury Note, 1.25% - 2.00%, 12/31/18 - 4/30/22; and U.S. Treasury Note, Index Linked, 0.125%, 4/15/18 (valued at $39,402,230)

    $ 38,626,674      $ 38,626,674  
       

 

 

  
 

Total Investments (Cost $1,695,054,209) 100.4%

         2,160,987,849  
 

Other Assets, less Liabilities (0.4)%

         (7,764,092 ) 
       

 

 

  
 

Net Assets 100.0%

       $ 2,153,223,757  
       

 

 

  

 

 

See Abbreviations on page 60.

†Rounds to less than 0.1% of net assets.

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.

dSee Note 1(b) regarding joint repurchase agreement.

 

     
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

 

     Year Ended December 31,  
      2017      2016      2015      2014      2013    
Class A                                             

Per share operating performance

(for a share outstanding throughout the year)

               

Net asset value, beginning of year

      $17.43        $17.01        $18.57        $18.40        $15.81    
  

 

 

  
Income from investment operationsa:               

Net investment incomeb,c

      0.22        0.14        0.21        0.24        0.19    

Net realized and unrealized gains (losses)

      3.12        0.75        (0.48)        0.67        3.09    
  

 

 

  
Total from investment operations      3.34        0.89        (0.27)        0.91        3.28    
  

 

 

  
Less distributions from:               

Net investment income and short term gains received from Underlying Funds and exchange traded funds

      (0.32)        (0.14)        (0.21)        (0.29)        (0.25)  

Net realized gains

      (1.11)        (0.33)        (1.08)        (0.45)        (0.44)  
  

 

 

  
Total distributions      (1.43)        (0.47)        (1.29)        (0.74)        (0.69)  
  

 

 

  
Net asset value, end of year      $19.34        $17.43        $17.01        $18.57        $18.40    
  

 

 

  
Total returnd                  19.45%        5.36%        (1.66)%        4.95%        20.98%  
Ratios to average net assets               
Expenses before waiver and payments by affiliatese      0.70%        0.69%        0.67%        0.68%        0.65%  
Expenses net of waiver and payments by affiliatese      0.65%f        0.65%        0.65%        0.63%        0.59%  
Net investment incomec      1.14%        0.83%        1.10%        1.25%        1.10%  
Supplemental data               
Net assets, end of year (000’s)      $873,011        $822,833        $888,096        $887,856        $814,901    
Portfolio turnover rate      16.90%        30.19%        20.40%        17.55%        30.45%  

aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.

bBased on average daily shares outstanding.

cRecognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds and exchange traded funds in which the Fund invests.

dTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable.

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, 2017.

fBenefit of expense reduction rounds to less than 0.01%.

 

 

     
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,  
      2017      2016      2015      2014      2013    
           
Class C               

Per share operating performance

(for a share outstanding throughout the year)

               
Net asset value, beginning of year      $16.99        $16.59        $18.15        $18.00        $15.50  
  

 

 

  
Income from investment operationsa:               

Net investment incomeb,c

      0.07        0.02        0.07        0.09        0.06  

Net realized and unrealized gains (losses)

      3.04        0.72        (0.47)        0.67        3.01  
  

 

 

  
Total from investment operations      3.11        0.74        (0.40)        0.76        3.07  
  

 

 

  
Less distributions from:               

Net investment income and short term gains received from Underlying Funds and exchange traded funds

      (0.18)        (0.01)        (0.08)        (0.16)        (0.13)  

Net realized gains

      (1.11)        (0.33)        (1.08)        (0.45)        (0.44)  
  

 

 

  
Total distributions      (1.29)        (0.34)        (1.16)        (0.61)        (0.57)  
  

 

 

  
Net asset value, end of year      $18.81        $16.99        $16.59        $18.15        $18.00  
  

 

 

  
Total returnd                  18.56%        4.59%        (2.41)%        4.21%        20.04%  
Ratios to average net assets               
Expenses before waiver and payments by affiliatese      1.45%        1.43%        1.42%        1.43%        1.40%  
Expenses net of waiver and payments by affiliatese      1.40%f        1.39%        1.40%        1.38%        1.34%  
Net investment incomec      0.39%        0.09%        0.35%        0.50%        0.35%  
Supplemental data               
Net assets, end of year (000’s)      $311,640        $308,736        $336,557        $336,213        $309,869  
Portfolio turnover rate      16.90%        30.19%        20.40%        17.55%        30.45%  

aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.

bBased on average daily shares outstanding.

cRecognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds and exchange traded funds in which the Fund invests.

dTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable.

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, 2017.

fBenefit of expense reduction rounds to less than 0.01%.

 

 

     
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,  
      2017      2016      2015      2014      2013    

 

Class R

                                             

Per share operating performance

(for a share outstanding throughout the year)

               

Net asset value, beginning of year

      $17.22        $16.80        $18.34        $18.18        $15.63    
  

 

 

  

Income from investment operationsa:

               

Net investment incomeb,c

      0.15        0.09        0.14        0.17        0.14    

Net realized and unrealized gains (losses)

      3.11        0.75        (0.44)        0.68        3.05    
  

 

 

  

Total from investment operations

      3.26        0.84        (0.30)        0.85        3.19    
  

 

 

  

Less distributions from:

               

Net investment income and short term gains received from Underlying Funds and exchange traded funds

      (0.27)        (0.09)        (0.16)        (0.24)        (0.20)  

Net realized gains

      (1.11)        (0.33)        (1.08)        (0.45)        (0.44)  
  

 

 

  

Total distributions

      (1.38)        (0.42)        (1.24)        (0.69)        (0.64)  
  

 

 

  

Net asset value, end of year

      $19.10        $17.22        $16.80        $18.34        $18.18    
  

 

 

  

Total return

                  19.17%        5.12%        (1.93)%        4.72%        20.67%  
Ratios to average net assets               

Expenses before waiver and payments by affiliatesd

      0.95%        0.94%        0.92%        0.93%        0.90%  

Expenses net of waiver and payments by affiliatesd

      0.90%e        0.90%        0.90%        0.88%        0.84%  

Net investment incomec

      0.89%        0.58%        0.85%        1.00%        0.85%  
Supplemental data               

Net assets, end of year (000’s)

      $100,258        $112,272        $147,426        $182,211        $192,361    

Portfolio turnover rate

      16.90%        30.19%        20.40%        17.55%        30.45%  

aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.

bBased on average daily shares outstanding.

cRecognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds and exchange traded funds in which the Fund invests.

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, 2017.

eBenefit of expense reduction rounds to less than 0.01%.

 

 

     
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,  
      2017      2016      2015      2014      2013a    

 

Class R6

                                             

Per share operating performance

(for a share outstanding throughout the year)

               

Net asset value, beginning of year

      $17.48        $17.06        $18.61        $18.44        $16.88    
  

 

 

  

Income from investment operationsb:

               

Net investment incomec,d

      0.31        0.22        0.32        0.15        0.62    

Net realized and unrealized gains (losses)

      3.12        0.74        (0.51)        0.83        1.68    
  

 

 

  

Total from investment operations

      3.43        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

      (0.40)        (0.21)        (0.28)        (0.36)        (0.30)  

Net realized gains

      (1.11)        (0.33)        (1.08)        (0.45)        (0.44)  
  

 

 

  

Total distributions

      (1.51)        (0.54)        (1.36)        (0.81)        (0.74)  
  

 

 

  

Net asset value, end of year

                  $19.40        $17.48        $17.06        $18.61        $18.44    
  

 

 

  

Total returne

      19.90%        5.77%        (1.27)%        5.38%        13.88%  
Ratios to average net assetsf               

Expenses before waiver and payments by affiliatesg

      0.31%        0.30%        0.29%        0.28%        0.95%  

Expenses net of waiver and payments by affiliatesg

      0.25%h        0.26%        0.26%        0.23%        0.22%  

Net investment incomed

      1.54%        1.22%        1.49%        1.65%        1.47%  
Supplemental data               

Net assets, end of year (000’s)

      $3,364        $2,822        $2,549        $1,755        $42    

Portfolio turnover rate

      16.90%        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 in which the Fund invests.

eTotal return is not annualized for periods less than one year.

fRatios are annualized for periods less than one year.

gDoes not include expenses of the Underlying Funds and exchange traded funds in which the Fund invests. The weighted average indirect expenses of the Underlying Funds and exchange traded funds was 0.61% for the year ended December 31, 2017.

hBenefit of expense reduction rounds to less than 0.01%.

 

 

     
franklintempleton.com   The accompanying notes are an integral part of these financial statements.    |    Annual Report             39  

FRANKLIN FUND ALLOCATOR SERIES

FINANCIAL HIGHLIGHTS

 

Franklin Growth Allocation Fund (continued)

 

     Year Ended December 31,  
      2017      2016      2015      2014      2013    

 

Advisor Class

                                             

Per share operating performance

(for a share outstanding throughout the year)

               

Net asset value, beginning of year

      $17.49         $17.06        $18.62        $18.45        $15.85    
  

 

 

  

Income from investment operationsa:

               

Net investment incomeb,c

      0.26         0.18        0.25        0.27        0.24    

Net realized and unrealized gains (losses)

      3.15         0.76        (0.47)        0.68        3.09    
  

 

 

  

Total from investment operations

      3.41         0.94        (0.22)        0.95        3.33    
  

 

 

  

Less distributions from:

               

Net investment income and short term gains received from

Underlying Funds and exchange traded funds

      (0.37)        (0.18)        (0.26)        (0.33)        (0.29)  

Net realized gains

      (1.11)        (0.33)        (1.08)        (0.45)        (0.44)  
  

 

 

  

Total distributions

      (1.48)        (0.51)        (1.34)        (0.78)        (0.73)  
  

 

 

  

Net asset value, end of year

      $19.42         $17.49        $17.06        $18.62        $18.45    
  

 

 

  

Total return

                  19.77%        5.60%        (1.41)%        5.23%        21.26%  
Ratios to average net assets               

Expenses before waiver and payments by affiliatesd

      0.45%         0.44%        0.42%        0.43%        0.40%  

Expenses net of waiver and payments by affiliatesd

      0.40%e        0.40%        0.40%        0.38%        0.34%  

Net investment incomec

      1.39%         1.08%        1.35%        1.50%        1.35%  
Supplemental data               

Net assets, end of year (000’s)

      $38,912         $39,211        $49,634        $52,250        $74,808    

Portfolio turnover rate

      16.90%         30.19%        20.40%        17.55%        30.45%  

aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund

bBased on average daily shares outstanding.

cRecognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds and exchange traded funds in which the Fund invests.

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, 2017.

eBenefit of expense reduction rounds to less than 0.01%.

 

     
40        Annual Report    |    The accompanying notes are an integral part of these financial statements.   franklintempleton.com

FRANKLIN FUND ALLOCATOR SERIES

 

Statement of Investments, December 31, 2017

Franklin Growth Allocation Fund

             Shares      Value  
 

 

Investments in Underlying Funds and Exchange Traded Funds 98.5%

 

 

Alternative Strategies 4.9%

      
  a    

Franklin K2 Alternative Strategies Fund, Class R6

      2,959,095      $ 33,526,546  
  a    

Franklin Pelagos Commodities Strategy Fund, Class R6

      4,606,601        30,772,095  
       

 

 

  
          64,298,641  
       

 

 

  
 

Domestic Equity 52.1%

      
 

Financial Select Sector SPDR ETF

      1,861,300        51,948,883  
  a,b    

Franklin DynaTech Fund, Class R6

      2,218,583        150,309,019  
  a    

Franklin Growth Fund, Class R6

      2,425,586        229,314,863  
  a    

Franklin LibertyQ U.S. Equity ETF

      1,150,500        33,260,840  
  a    

Franklin Rising Dividends Fund, Class R6

      2,009,236        122,744,256  
  a,b    

Franklin Small Cap Growth Fund, Class R6

      683,285        16,234,862  
  a    

Franklin Utilities Fund, Class R6

      2,579,038        48,589,081  
 

iShares S&P 500 Value ETF

      337,557        38,562,512  
       

 

 

  
          690,964,316  
       

 

 

  
 

Domestic Fixed Income 9.6%

      
  a    

Franklin Floating Rate Daily Access Fund, Class R6

      1,026,096        8,998,861  
  a    

Franklin Low Duration Total Return Fund, Class R6

      5,442,537        53,445,711  
  a    

Franklin Strategic Income Fund, Class R6

      2,803,671        27,616,156  
  a    

Franklin U.S. Government Securities Fund, Class R6

      5,183,303        31,514,482  
 

iShares iBoxx $ Investment Grade Corporate Bond ETF

      51,200        6,223,872  
       

 

 

  
          127,799,082  
       

 

 

  
 

Foreign Equity 29.8%

      
  a    

Franklin FTSE Europe ETF

      1,133,400        28,907,367  
  a    

Franklin International Small Cap Growth Fund, Class R6

      4,891,350        98,560,698  
  a    

Franklin LibertyQ Emerging Markets ETF

      3,164,100        104,557,685  
  a    

Franklin Mutual European Fund, Class R6

      4,178,804        87,378,781  
  a    

Templeton Foreign Fund, Class R6

      9,628,322        76,448,880  
       

 

 

  
          395,853,411  
       

 

 

  
 

Foreign Fixed Income 2.1%

      
  a    

Templeton Global Total Return Fund, Class R6

      2,326,168        28,030,329  
       

 

 

  
 

Total Investments in Underlying Funds and Exchange Traded Funds
before Short Term Investments (Cost $937,154,520)

         1,306,945,779  
       

 

 

  
 

Short Term Investments 1.9%

      
 

Money Market Funds (Cost $15,843) 0.0%†

      
  a,c    

Institutional Fiduciary Trust Money Market Portfolio, 0.89%

      15,843        15,843  
       

 

 

  

 

     
franklintempleton.com   Annual Report             41  

FRANKLIN FUND ALLOCATOR SERIES

STATEMENT OF INVESTMENTS

 

Franklin Growth Allocation Fund (continued)

 

           Principal
Amount		      Value  
 

 

Repurchase Agreements (Cost $25,007,591) 1.9%

      

d

   Joint Repurchase Agreement, 1.377%, 1/02/18 (Maturity Value $25,011,416)      
 

BNP Paribas Securities Corp. (Maturity Value $4,077,111)

      
 

Deutsche Bank Securities Inc. (Maturity Value $4,544,324)

      
 

HSBC Securities (USA) Inc. (Maturity Value $16,308,444)

      
 

Merrill Lynch, Pierce, Fenner & Smith Inc. (Maturity Value $81,537)

      
 

Collateralized by U.S. Government Agency Securities, 0.00% - 1.98%, 7/27/18 - 11/22/21; U.S.

      
            Treasury Note, 1.25% - 2.00%, 12/31/18 - 4/30/22; and U.S. Treasury Note, Index Linked, 0.125%,           4/15/18 (valued at $25,509,700)    $ 25,007,591      $ 25,007,591  
       

 

 

  
 

Total Investments (Cost $962,177,954) 100.4%

         1,331,969,213  
 

Other Assets, less Liabilities (0.4)%

         (4,783,401 ) 
       

 

 

  
 

Net Assets 100.0%

       $ 1,327,185,812  
       

 

 

  

See Abbreviations on page 60.

 

†Rounds to less than 0.1% of net assets.

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.

dSee Note 1(b) regarding joint repurchase agreement.

 

     
42        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, 2017

 

      Franklin
Conservative
Allocation Fund		    Franklin
Moderate
Allocation Fund		    Franklin
Growth
Allocation Fund

 

Assets:

               

Investments in securities:

               

Cost - Unaffiliated issuers

          $ 69,044,992      $ 114,169,695      $ 80,838,632

Cost - Controlled affiliates (Note 3f)

        —        230,291,467        146,068,427

Cost - Non-controlled affiliates (Note 3f)

            1,084,776,015        1,311,966,373        710,263,304

Cost - Unaffiliated repurchase agreements

        15,905,783        38,626,674        25,007,591
    

 

 

  

Value - Unaffiliated issuers

          $ 77,851,499      $ 133,158,493      $ 96,735,267

Value - Controlled affiliates (Note 3f)

        —        250,090,465        166,725,892

Value - Non-controlled affiliates (Note 3f)

        1,278,856,261        1,739,112,217        1,043,500,463

Value - Unaffiliated repurchase agreements

        15,905,783        38,626,674        25,007,591

Receivables:

               

Investment securities sold

        251,348        443,898        —

Capital shares sold

        1,817,403        2,958,347        1,827,788

Dividends

        269        648        541

Other assets

        167        255        151
    

 

 

  

Total assets

        1,374,682,730        2,164,390,997        1,333,797,693
    

 

 

  

Liabilities:

               

Payables:

               

Capital shares redeemed

        4,133,424        8,380,988        4,920,903

Asset allocation fees

        285,839        449,051        265,936

Distribution fees

        1,132,715        1,634,217        961,414

Transfer agent fees

        321,183        592,028        376,568

Accrued expenses and other liabilities

        67,075        110,956        87,060
    

 

 

  

Total liabilities

        5,940,236        11,167,240        6,611,881
    

 

 

  

Net assets, at value

          $ 1,368,742,494      $ 2,153,223,757      $ 1,327,185,812
    

 

 

  

Net assets consist of:

               

Paid-in capital

          $ 1,164,670,895      $ 1,673,367,555      $ 942,129,496

Undistributed net investment income

        —        354,180        274,398

Net unrealized appreciation (depreciation)

        202,886,753        465,933,640        369,791,259

Accumulated net realized gain (loss)

        1,184,846        13,568,382        14,990,659
    

 

 

  

Net assets, at value

          $ 1,368,742,494      $ 2,153,223,757      $ 1,327,185,812
    

 

 

  

 

     
franklintempleton.com   The accompanying notes are an integral part of these financial statements.    |    Annual Report             43  

FRANKLIN FUND ALLOCATOR SERIES

FINANCIAL STATEMENTS

 

Statements of Assets and Liabilities (continued)

December 31, 2017

 

      Franklin
Conservative
Allocation Fund		    Franklin
Moderate
Allocation Fund		    Franklin
Growth
Allocation Fund
Class A:               

Net assets, at value

          $ 800,140,771      $ 1,407,956,158      $ 873,011,286
    

 

 

  

Shares outstanding

            53,849,468        87,405,387        45,134,140
    

 

 

  

Net asset value per sharea

        $14.86        $16.11        $19.34
    

 

 

  

Maximum offering price per share (net asset value per share ÷ 94.25%)

        $15.77        $17.09        $20.52
    

 

 

  
Class C:               

Net assets, at value

          $ 423,890,457      $ 568,280,106      $ 311,639,637
    

 

 

  

Shares outstanding

        29,095,618        36,280,343        16,563,400
    

 

 

  

Net asset value and maximum offering price per sharea

        $14.57        $15.66        $18.81
    

 

 

  
Class R:               

Net assets, at value

          $ 103,628,616      $ 119,919,901      $ 100,258,414
    

 

 

  

Shares outstanding

        7,001,367        7,459,966        5,249,200
    

 

 

  

Net asset value and maximum offering price per share

        $14.80        $16.08        $19.10
    

 

 

  
Class R6:               

Net assets, at value

          $ 2,148,551      $ 4,492,264      $ 3,364,482
    

 

 

  

Shares outstanding

        144,768        278,925        173,393
    

 

 

  

Net asset value and maximum offering price per share

        $14.84        $16.11        $19.40
    

 

 

  
Advisor Class:               

Net assets, at value

          $ 38,934,099      $ 52,575,328      $ 38,911,993
    

 

 

  

Shares outstanding

        2,620,233        3,261,315        2,003,611
    

 

 

  

Net asset value and maximum offering price per share

        $14.86        $16.12        $19.42
    

 

 

  

 

aRedemption price is equal to net asset value less contingent deferred sales charges, if applicable.

 

     
44        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, 2017

 

      Franklin
Conservative
Allocation Fund		    Franklin
Moderate
Allocation Fund		    Franklin
Growth
Allocation Fund

 

Investment income:

               

Dividends:

               

Unaffiliated issuers

          $ 1,929,026          $ 2,893,492          $ 1,888,475

Controlled affiliates (Note 3f)

        —        3,670,018        3,000,436

Non-controlled affiliates (Note 3f)

            26,169,941        34,403,382        18,548,198

Interest:

               

Unaffiliated issuers

        4,617        6,335        4,477
    

 

 

  

Total investment income

        28,103,584            40,973,227            23,441,586
    

 

 

  

Expenses:

               

Asset allocation fees (Note 3a)

        3,510,730        5,455,254        3,264,548

Distribution fees: (Note 3c)

               

Class A

        1,999,192        3,515,350        2,108,911

Class C

        4,450,626        5,802,281        3,094,880

Class R

        606,010        702,753        529,429

Transfer agent fees: (Note 3e)

               

Class A

        902,416        1,935,664        1,485,703

Class C

        503,347        800,432        546,790

Class R

        136,868        193,630        186,694

Class R6

        1,171        1,536        1,285

Advisor Class

        39,045        67,692        75,680

Custodian fees (Note 4)

        9,318        9,974        5,061

Reports to shareholders

        83,982        149,050        118,088

Registration and filing fees

        106,720        119,724        107,423

Professional fees

        49,725        65,424        53,016

Trustees’ fees and expenses

        9,963        15,418        9,106

Other

        28,115        33,819        23,481
    

 

 

  

Total expenses

        12,437,228        18,868,001        11,610,095

Expense reductions (Note 4)

        —        —        (10 )

Expenses waived/paid by affiliates (Note 3f and 3g)

        (32,370 )        (181,541 )        (641,472 )
    

 

 

  

Net expenses

        12,404,858        18,686,460        10,968,613
    

 

 

  

Net investment income

        15,698,726        22,286,767        12,472,973
    

 

 

  

Realized and unrealized gains (losses):

               

Net realized gain (loss) from:

               

Sale of investments:

               

Unaffiliated issuers

        2,271,628        2,444,748        1,038,439

Controlled affiliates (Note 3f)

        —          (1,166,007 )        809,153

Non-controlled affiliates (Note 3f)

        35,232,353        84,093,771        54,706,579

Capital gain distributions from Underlying Funds:

               

Non-controlled affiliates (Note 3f)

        7,690,203        18,157,647        14,574,096
    

 

 

  

Net realized gain (loss)

        45,194,184        103,530,159        71,128,267
    

 

 

  

Net change in unrealized appreciation (depreciation) on:

               

Investments:

               

Unaffiliated issuers

        8,679,850        20,690,909        17,571,486

Controlled affiliates (Note 3f)

        —          29,306,803        21,577,569

Non-controlled affiliates (Note 3f)

        68,825,316        124,307,009        106,883,052
    

 

 

  

Net change in unrealized appreciation (depreciation)

        77,505,166        174,304,721        146,032,107
    

 

 

  

Net realized and unrealized gain (loss)

        122,699,350        277,834,880        217,160,374
    

 

 

  

Net increase (decrease) in net assets resulting from operations

          $ 138,398,076          $ 300,121,647          $ 229,633,347
    

 

 

  

 

     
franklintempleton.com   The accompanying notes are an integral part of these financial statements.    |    Annual Report             45  

FRANKLIN FUND ALLOCATOR SERIES

FINANCIAL STATEMENTS

 

Statements of Changes in Net Assets

 

     Franklin Conservative
Allocation Fund		      Franklin Moderate
Allocation Fund		  
    

 

Year Ended December 31,

      Year Ended December 31,  
     

 

2017

      2016      2017      2016  

 

Increase (decrease) in net assets:

            

Operations:

            

Net investment income

      $     15,698,726      $ 11,895,862      $ 22,286,767      $ 17,042,235  

Net realized gain (loss)

      45,194,184        (26,521,247 )       103,530,159        28,421,824  

Net change in unrealized appreciation (depreciation)

      77,505,166        77,528,235        174,304,721        62,881,574  
  

 

 

  

Net increase (decrease) in net assets resulting from operations

          138,398,076        62,902,850        300,121,647        108,345,633  
  

 

 

  

Distributions to shareholders from:

            

Net investment income and short term gains received from Underlying Funds and exchange traded funds:

            

Class A

      (12,756,455 )       (9,117,348 )       (24,708,896 )       (11,651,361 ) 

Class C

      (3,785,648 )       (1,751,300 )       (6,075,828 )       (334,512 ) 

Class R

      (1,547,935 )       (1,067,714 )       (1,863,421 )       (838,073 ) 

Class R6

      (44,500 )       (33,339 )       (92,980 )       (60,719 ) 

Advisor Class

      (709,610 )       (683,806 )       (1,060,074 )       (419,576 ) 

Net realized gains:

            

Class A

      (4,913,982 )       (6,125,410 )       (56,816,385 )       (21,972,875 ) 

Class C

      (2,658,955 )       (3,686,002 )       (23,816,217 )       (9,651,391 ) 

Class R

      (639,646 )       (920,983 )       (5,115,822 )       (2,588,815 ) 

Class R6

      (13,152 )       (16,730 )       (179,277 )       (85,228 ) 

Advisor Class

      (247,411 )       (598,184 )       (2,207,406 )       (742,391 ) 
  

 

 

  

Total distributions to shareholders

      (27,317,294 )       (24,000,816 )       (121,936,306 )       (48,344,941 ) 
  

 

 

  

Capital share transactions: (Note 2)

            

Class A

      (71,791,134 )       (117,603,198 )       (123,043,103 )       (216,989,710 ) 

Class C

      (82,306,077 )       (78,239,119 )       (74,760,104 )       (112,586,337 ) 

Class R

      (30,282,438 )       (18,669,848 )       (51,012,663 )       (48,961,723 ) 

Class R6

      (233,082 )       (140,699 )       (986,002 )       200,603  

Advisor Class

      8,859,036        (57,027,314 )       10,047,532        (15,232,178 ) 
  

 

 

  

Total capital share transactions

      (175,753,695 )       (271,680,178 )       (239,754,340 )       (393,569,345 ) 
  

 

 

  

Net increase (decrease) in net assets

      (64,672,913 )       (232,778,144 )       (61,568,999 )       (333,568,653 ) 

Net assets:

            

Beginning of year

      1,433,415,407        1,666,193,551        2,214,792,756        2,548,361,409  
  

 

 

  

End of year

          $1,368,742,494      $ 1,433,415,407      $ 2,153,223,757      $ 2,214,792,756  
  

 

 

  

Undistributed net investment income included in net assets:

            

End of year

      $                    —      $ 2,712,464      $ 354,180      $ 11,024,417  
  

 

 

  

 

 

 

 

 

     
46        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,

  
     

 

2017

     2016  

 

Increase (decrease) in net assets:

     

  Operations:

     

Net investment income

        $ 12,472,973     $ 8,745,660  

Net realized gain (loss)

      71,128,267       39,370,486  

Net change in unrealized appreciation (depreciation)

      146,032,107       20,368,376  
  

 

 

  

Net increase (decrease) in net assets resulting from operations

   

 

 

 

229,633,347

 

 

  

 

 

 

68,484,522

 

 

  

 

 

  

Distributions to shareholders from:

     

  Net investment income and short term gains received from Underlying Funds and exchange
 traded funds:

     

Class A

      (14,178,320 )      (6,622,325 ) 

Class C

      (2,995,168 )      (199,946 ) 

Class R

      (1,449,291 )      (583,535 ) 

Class R6

      (64,322 )      (33,831 ) 

Advisor Class

      (784,774 )      (409,994 ) 

Net realized gains:

     

Class A

      (48,153,916 )      (16,777,167 ) 

Class C

      (17,939,263 )      (6,455,785 ) 

Class R

      (5,840,979 )      (2,416,571 ) 

Class R6

      (173,965 )      (56,473 ) 

Advisor Class

      (2,364,422 )      (988,239 ) 
  

 

 

  

Total distributions to shareholders

   

 

 

 

(93,944,420

 

) 

  

 

 

 

(34,543,866

 

) 

  

 

 

  

Capital share transactions: (Note 2)

     

Class A

      (37,113,455 )      (87,336,666 ) 

Class C

      (29,152,612 )      (35,825,451 ) 

Class R

      (23,500,251 )      (37,642,928 ) 

Class R6

      247,378       185,119  

Advisor Class

      (4,858,912 )      (11,707,981 ) 
  

 

 

  

Total capital share transactions

   

 

 

 

(94,377,852

 

) 

  

 

 

 

(172,327,907

 

) 

  

 

 

  

Net increase (decrease) in net assets

      41,311,075       (138,387,251 ) 

Net assets:

     

  Beginning of year

      1,285,874,737       1,424,261,988  
  

 

 

  

  End of year

   

 

    $

 

1,327,185,812

 

 

  

 

$

 

1,285,874,737

 

 

  

 

 

  

Undistributed net investment income included in net assets:

     

  End of year

        $ 274,398     $ 6,559,625  
  

 

 

  

 

     
franklintempleton.com   The accompanying notes are an integral part of these financial statements.    |    Annual Report             47  

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-three 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 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 may differ by its initial sales load, contingent deferred sales charges, voting rights on matters affecting a single class, its exchange privilege and fees 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.

Investments in repurchase agreements are valued at cost, which approximates fair value.

b.  Joint Repurchase Agreement

Certain or all Funds enter into a joint repurchase agreement whereby their uninvested cash balance is deposited into a joint cash account with other funds managed by the investment manager or an affiliate of the investment manager and is used to invest in one or more repurchase agreements. The value and face amount of the joint repurchase agreement are allocated to the funds based on their pro-rata interest. A repurchase agreement is accounted for as a loan by the Fund to the seller, collateralized by securities which are delivered to the Funds’ custodian. The fair value, including accrued interest, of the initial collateralization is required to be at least 102% of the dollar amount invested by the funds, with the value of the underlying securities marked to market daily to maintain coverage of at least 100%. Repurchase agreements are subject to the terms of Master Repurchase Agreements (MRAs) with approved counterparties (sellers). The MRAs contain various provisions, including but not limited to events of default and maintenance of collateral for repurchase agreements. In the event of default by either the seller or the Funds, certain MRAs may permit the non-defaulting party to net and close-out all transactions, if any, traded under such agreements. The Funds may sell securities it holds as collateral and apply the proceeds towards the repurchase price and any other amounts owed by the seller to the Funds in the event of default by the seller. This could involve costs or delays in addition to a loss on the securities if their value falls below the repurchase price owed by the seller. The joint repurchase agreement held by the Funds at year end, as indicated in the Statements of Investments, had been entered into on December 29, 2017.

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.

 

 

     
48        Annual Report   franklintempleton.com

FRANKLIN FUND ALLOCATOR SERIES

NOTES TO FINANCIAL STATEMENTS

 

 

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, 2017, 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 the statute of limitations in each jurisdiction in which the Fund invests.

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 by Underlying Funds and ETFs are recorded on the ex-dividend date. Distributions to shareholders are recorded on the ex-dividend date. 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, excluding 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.  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.

f.  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.

 

 

     
franklintempleton.com   Annual Report             49  

FRANKLIN FUND ALLOCATOR SERIES

NOTES TO FINANCIAL STATEMENTS

 

 

2.  Shares of Beneficial Interest

 

At December 31, 2017, there were an unlimited number of shares authorized (without par value). Transactions in the Funds’ shares were as follows:

 

    

Franklin Conservative

Allocation Fund

           

Franklin Moderate

Allocation Fund

  
  

 

 

  
      Shares      Amount             Shares      Amount  
Class A Shares:              

Year ended December 31, 2017

              

Shares sold

      9,004,604      $ 131,248,585          9,324,783      $ 148,888,926  

Shares issued in reinvestment of distributions

      1,169,393        17,226,035          4,989,594        80,015,625  

Shares redeemed

      (15,211,092 )       (220,265,754 )         (22,206,405 )       (351,947,654 ) 
  

 

 

  

 

Net increase (decrease)

      (5,037,095 )     $ (71,791,134 )         (7,892,028 )     $ (123,043,103 ) 
  

 

 

  

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 ) 
  

 

 

  
Class C Shares:              

Year ended December 31, 2017

              

Shares sold

      3,062,213      $ 43,601,492          4,174,263      $ 64,540,565  

Shares issued in reinvestment of distributions

      432,601        6,258,410          1,882,828        29,326,462  

Shares redeemed

      (9,322,532 )       (132,165,979 )         (10,941,215 )       (168,627,131 ) 
  

 

 

  

 

Net increase (decrease)

      (5,827,718 )     $ (82,306,077 )         (4,884,124 )     $ (74,760,104 ) 
  

 

 

  

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 ) 
  

 

 

  
Class R Shares:              

Year ended December 31, 2017

              

Shares sold

      1,259,015      $ 18,065,627          1,111,557      $ 17,491,234  

Shares issued in reinvestment of distributions

      143,453        2,103,267          428,561        6,845,638  

Shares redeemed

      (3,463,117 )       (50,451,332 )         (4,754,116 )       (75,349,535 ) 
  

 

 

  

 

Net increase (decrease)

      (2,060,649 )     $ (30,282,438 )         (3,213,998 )     $ (51,012,663 ) 
  

 

 

  

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 ) 
  

 

 

  

 

     
50        Annual Report   franklintempleton.com

FRANKLIN FUND ALLOCATOR SERIES

NOTES TO FINANCIAL STATEMENTS

 

 

 

 

     Franklin Conservative            Franklin Moderate  
     Allocation Fund             Allocation Fund  
      Shares      Amount             Shares      Amount  
Class R6 Shares:              

Year ended December 31, 2017

              

Shares sold

      34,784      $ 497,692          47,563      $ 762,713  

Shares issued in reinvestment of distributions

      3,921        57,652          16,964        272,257  

Shares redeemed

      (54,047 )       (788,426 )         (129,149 )       (2,020,972 ) 
  

 

 

  

 

Net increase (decrease)

      (15,342 )     $ (233,082 )         (64,622 )     $ (986,002 ) 
  

 

 

  

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  
  

 

 

  
Advisor Class Shares:              

Year ended December 31, 2017

              

Shares sold

      1,635,857      $ 23,801,332          2,049,885      $     32,751,736  

Shares issued in reinvestment of distributions

      55,464        817,655          180,985        2,907,174  

Shares redeemed

      (1,078,035 )       (15,759,951 )         (1,594,562 )       (25,611,378 ) 
  

 

 

  

 

Net increase (decrease)

      613,286      $ 8,859,036          636,308      $ 10,047,532  
  

 

 

  

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 ) 
  

 

 

  
    

Franklin Growth

Allocation Fund

               
  

 

 

          
     Shares      Amount                      

 

          
Class A Shares:              

Year ended December 31, 2017

              

Shares sold

      5,937,072      $ 112,664,399          

Shares issued in reinvestment of distributions

      3,212,584        61,420,478          

Shares redeemed

      (11,228,658 )       (211,198,332 )         
  

 

 

          

 

Net increase (decrease)

      (2,079,002 )     $ (37,113,455 )         
  

 

 

          

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 )         
  

 

 

          

 

     
franklintempleton.com   Annual Report             51  

FRANKLIN FUND ALLOCATOR SERIES

NOTES TO FINANCIAL STATEMENTS

 

2.  Shares of Beneficial Interest (continued)

 

     Franklin Growth
Allocation Fund		  
      Shares      Amount  
Class C Shares:      
Year ended December 31, 2017      
Shares sold          2,429,258      $ 44,514,353  
Shares issued in reinvestment of distributions      1,114,303        20,670,947  
Shares redeemed      (5,152,432 )       (94,337,912 ) 
  

 

 

  

 

Net increase (decrease)

      (1,608,871 )     $ (29,152,612 ) 
  

 

 

  
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 ) 
  

 

 

  
Class R Shares:      
Year ended December 31, 2017      
Shares sold      526,041      $ 9,819,531  
Shares issued in reinvestment of distributions      378,557        7,130,932  
Shares redeemed      (2,175,939 )       (40,450,714 ) 
  

 

 

  

 

Net increase (decrease)

      (1,271,341 )     $ (23,500,251 ) 
  

 

 

  
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 ) 
  

 

 

  
Class R6 Shares:      
Year ended December 31, 2017      
Shares sold      31,333      $ 599,216  
Shares issued in reinvestment of distributions      12,398        238,287  
Shares redeemed      (31,823 )       (590,125 ) 
  

 

 

  

 

Net increase (decrease)

      11,908      $ 247,378  
  

 

 

  
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  
  

 

 

  

 

     
52        Annual Report   franklintempleton.com

FRANKLIN FUND ALLOCATOR SERIES

NOTES TO FINANCIAL STATEMENTS

 

 

     Franklin Growth
Allocation Fund		  
      Shares     Amount  
Advisor Class Shares:     
Year ended December 31, 2017     
Shares sold      777,973     $     14,725,195  
Shares issued in reinvestment of distributions              140,404       2,693,652  
Shares redeemed      (1,156,752 )      (22,277,759 ) 
  

 

 

  

 

Net increase (decrease)

      (238,375 )    $ (4,858,912 ) 
  

 

 

  
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 ) 
  

 

 

  

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 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.

 

 

 

     
franklintempleton.com   Annual Report             53  

FRANKLIN FUND ALLOCATOR SERIES

NOTES TO FINANCIAL STATEMENTS

 

3.   Transactions with Affiliates (continued)

c.   Distribution Fees (continued)

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
Conservative
Allocation Fund		      Franklin
Moderate
Allocation Fund		      Franklin
Growth
Allocation Fund		  

 

  

 

Sales charges retained net of commissions paid to unaffiliated brokers/dealers

      $246,935        $391,130        $359,758  

CDSC retained

      $  31,207        $  40,959        $  38,844  

e.   Transfer Agent Fees

Each class of shares pays transfer agent fees to Investor Services for its performance of shareholder servicing obligations. Effective November 1, 2017, the fees are based on an annualized asset based fee of 0.02% plus a transaction based fee. Prior to November 1, 2017, the fees were account based fees that varied based on fund or account type. In addition, each class reimburses Investor Services for out of pocket expenses incurred and, except for Class R6, reimburses 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, 2017, the Funds paid transfer agent fees as noted in the Statements of Operations of which the following amounts were retained by Investor Services:

 

     Franklin
Conservative
Allocation Fund		      Franklin
Moderate
Allocation Fund		      Franklin
Growth
Allocation Fund		  

 

  

 

Transfer agent fees

      $583,601        $1,033,951        $873,903  

f.   Investments in FT Underlying Funds

The Funds invest primarily 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.

 

     
54        Annual Report   franklintempleton.com

FRANKLIN FUND ALLOCATOR SERIES

NOTES TO FINANCIAL STATEMENTS

 

 

Investments in FT Underlying Funds for the year ended December 31, 2017, were as follows:

 

FT Underlying Funds    Number of
Shares Held
at Beginning
of Year		      Gross
Additions		      Gross
Reductions		     Number of
Shares
Held at End
of Year		      Value
at End
of Year		      Dividend
Income		      Realized
Gain (Loss)		     Net Change in
Unrealized
Appreciation
(Depreciation)		  

 

  

 

Franklin Conservative Allocation Fund

 

                

Non-Controlled Affiliates

 

                

Franklin DynaTech Fund, Class R6

      1,322,480        239,546        (334,074 )      1,227,952      $ 83,193,742      $ —      $ 4,590,980a       $21,978,061  

Franklin Floating Rate Daily Access Fund, Class R6

      —        5,198,398        (422,503 )      4,775,895        41,884,603        1,335,317        (20,846 )      (576,436 ) 

Franklin FTSE Europe ETF

      —        567,500        (3,600 )      563,900        14,382,270        3,236        (739 )      43,703  

Franklin Growth Fund, Class R6

      1,878,039        51,797        (623,094 )      1,306,742        123,539,374        943,747        22,922,379a       8,948,215  

Franklin International Small Cap Growth

                      

Fund, Class R6

      2,996,940        245,141        (920,932 )      2,321,149        46,771,155        3,091,017        2,827,544a       9,641,057  

Franklin K2 Alternative Strategies Fund, Class R6

      5,855,419        49,544        (2,842,952 )      3,062,011        34,692,578        561,825        1,835,589       1,020,761  

Franklin LibertyQ Emerging Markets ETF

     1,238,500        711,200        (343,200 )      1,606,500        53,086,792        1,330,443        570,626       9,369,099  

Franklin LibertyQ U.S. Equity ETF

      —        728,900        (96,900 )      632,000        18,271,057        229,856        74,927       1,979,677  

Franklin Low Duration Total Return Fund, Class R6

      21,122,177        5,504,340        (2,983,179 )      23,643,338        232,177,580        4,815,396        (877,284 )      (667,348 ) 

Franklin Mutual European Fund, Class R6 .

      2,492,970        517,493        (864,107 )      2,146,356        44,880,300        681,357        429,312       4,114,330  

Franklin Pelagos Commodities Strategy Fund, Class R6

      5,230,884        5,939        (479,359 )      4,757,464        31,779,860        39,438        (1,298,952 )      1,607,521  

Franklin Rising Dividends Fund, Class R6 .

      1,745,373        52,285        (735,039 )      1,062,619        64,915,393        1,028,307        14,790,198a       (2,227,718 ) 

Franklin Small Cap Growth Fund,

                      

Class R6

      451,035        9,022        (99,458 )      360,599        8,567,841        —        376,989a       1,298,584  

Franklin Strategic Income Fund, Class R6 .

      18,464,604        922,655        (6,400,290 )      12,986,969        127,921,643        3,562,693        (3,858,586 )      7,248,733  

Franklin U.S. Government Securities Fund, Class R6

      33,205,449        1,860,304        (11,054,690 )      24,011,063        145,987,262        5,070,276        (3,329,985 )      34,328  

Franklin Utilities Fund, Class R6

      1,622,554        72,426        (364,531 )      1,330,449        25,065,660        829,815        2,524,045a       (298,264 ) 

Institutional Fiduciary Trust Money Market Portfolio, 0.89%

      6,351,087        229,110,983        (224,240,969 )      11,221,101        11,221,101        78,720        —       —  

Templeton Foreign Fund, Class R6

      6,554,098        128,664        (1,977,156 )      4,705,606        37,362,514        709,294        3,071,262       3,524,419  

Templeton Frontier Markets Fund, Class R6

      769,014        —        (769,014 )      —        —b        —        (1,343,170 )      —b  

Templeton Global Total Return Fund, Class R6

      7,785,702        4,634,051        (1,369,501 )      11,050,252        133,155,536        1,859,204        (361,733 )      1,786,594  
             

 

 

  

Total Affiliated Securities

               $ 1,278,856,261      $ 26,169,941      $ 42,922,556       $68,825,316  
             

 

 

  

Franklin Moderate Allocation Fund

                      

Controlled Affiliates

                      

Franklin FTSE Europe ETF

      —        1,363,300        (7,600 )      1,355,700      $ 34,577,129      $ 7,777      $ (1,590 )      $     105,067  

Franklin LibertyQ Emerging Markets ETF .

      2,781,600        1,691,600        (771,500 )      3,701,700        122,322,676        3,060,406        1,242,926       21,460,136  

Franklin LibertyQ U.S. Equity ETF

      —        1,718,000        (226,400 )      1,491,600        43,122,007        539,702        152,660       4,672,288  

Franklin Pelagos Commodities Strategy Fund, Class R6

      8,105,013        9,357        (619,063 )      7,495,307        50,068,653        62,133        (2,560,003 )      3,069,312  
             

 

 

  

Total Controlled Affiliates

               $ 250,090,465      $ 3,670,018      $ (1,166,007 )      $29,306,803  
             

 

 

  

Non-Controlled Affiliates

                      

Franklin DynaTech Fund, Class R6

      2,850,304        533,932        (686,866 )      2,697,370      $ 182,746,832      $ —      $ 8,041,458a       $49,187,324  

Franklin Floating Rate Daily Access Fund, Class R6

      —        4,922,572        (367,960 )      4,554,612        39,943,948        1,251,825        (16,825 )      (545,468 ) 

Franklin Growth Fund, Class R6

      4,467,176        105,180        (1,434,433 )      3,137,923        296,659,253        2,262,722        51,032,707a       24,329,904  

Franklin International Small Cap Growth Fund, Class R6

      7,274,151        569,168        (2,148,242 )      5,695,077        114,755,802        7,573,027        6,399,282a       23,532,196  

Franklin K2 Alternative Strategies Fund, Class R6

      9,060,708        77,983        (4,319,037 )      4,819,654        54,606,680        884,322        2,783,455       1,639,765  

 

     
franklintempleton.com   Annual Report             55  

FRANKLIN FUND ALLOCATOR SERIES

NOTES TO FINANCIAL STATEMENTS

 

3.   Transactions with Affiliates (continued)

f.   Investments in FT Underlying Funds (continued)

 

FT Underlying Funds    Number of
Shares Held
at Beginning
of Year		      Gross
Additions		      Gross
Reductions		     Number of
Shares
Held at End
of Year		      Value
at End
of Year		      Dividend
Income		      Realized
Gain (Loss)		     Net Change in
Unrealized
Appreciation
(Depreciation)		  

 

  

 

Franklin Moderate Allocation Fund (continued)

 

             

Non-Controlled Affiliates (continued)

 

                

Franklin Low Duration Total Return Fund, Class R6

      21,415,937        5,262,142        (3,192,906 )      23,485,173      $ 230,624,402      $ 4,751,909      $ (932,643 )      $      (570,218 ) 

Franklin Mutual European Fund, Class R6 .

      5,897,464        1,159,082        (1,947,012 )      5,109,534        106,840,346        1,610,569        529,829       10,123,339  

Franklin Rising Dividends Fund, Class R6 .

      4,023,486        103,866        (1,645,632 )      2,481,720        151,608,304        2,364,721        32,384,639a       (3,513,463 ) 

Franklin Small Cap Growth Fund, Class R6

      1,113,321        17,545        (232,804 )      898,062        21,337,942        —        806,010a       3,309,235  

Franklin Strategic Income Fund, Class R6 .

      17,639,031        1,131,056        (6,223,187 )      12,546,900        123,586,961        3,386,998        (3,763,877 )      6,984,284  

Franklin U.S. Government Securities Fund, Class R6

      31,405,709        2,214,601        (10,658,171 )      22,962,139        139,609,805        4,766,483        (2,742,106 )      (350,339 ) 

Franklin Utilities Fund, Class R6

      3,933,350        158,773        (834,928 )      3,257,195        61,365,547        2,007,056        5,912,800a       (604,842 ) 

Institutional Fiduciary Trust Money Market Portfolio

      10,056,485        377,853,062        (387,884,238 )      25,309        25,309        122,605        —       —  

Templeton Foreign Fund, Class R6

      15,425,155        239,076        (4,447,349 )      11,216,882        89,062,047        1,690,113        5,928,582       9,498,243  

Templeton Frontier Markets Fund, Class R6

      2,032,287        —        (2,032,287 )      —        —b        —        (4,132,104 )      —b  

Templeton Global Total Return Fund, Class R6

      7,326,265        4,510,295        (1,351,992 )      10,484,568        126,339,039        1,731,032        20,211       1,287,049  
             

 

 

  

Total Non-Controlled Affiliates

               $ 1,739,112,217      $ 34,403,382      $ 102,251,418       $124,307,009  
             

 

 

  

Total Affiliated Securities

               $ 1,989,202,682      $ 38,073,400      $ 101,085,411       $153,613,812  
             

 

 

  

Franklin Growth Allocation Fund

                      

Controlled Affiliates

                      

Franklin FTSE Europe ETF

      —        1,135,400        (2,000 )      1,133,400      $ 28,907,367      $ 6,478      $ (571 )      $         87,839  

Franklin LibertyQ Emerging Markets ETF .

      2,181,500        1,460,000        (477,400 )      3,164,100        104,557,685        2,582,575        738,778       17,885,904  

Franklin LibertyQ U.S. Equity ETF

      —        1,277,400        (126,900 )      1,150,500        33,260,840        411,383        70,946       3,603,826  
             

 

 

  

Total Controlled Affiliates

               $ 166,725,892      $ 3,000,436      $ 809,153       $  21,577,569  
             

 

 

  

Non-Controlled Affiliates

                      

Franklin DynaTech Fund, Class R6

      2,234,676        416,019        (432,112 )      2,218,583      $ 150,309,019      $ —      $ 4,827,111a       $  40,593,270  

Franklin Floating Rate Daily Access Fund, Class R6

      —        1,161,538        (135,442 )      1,026,096        8,998,861        273,667        (7,672 )      (116,258 ) 

Franklin Growth Fund, Class R6

      3,289,099        77,692        (941,205 )      2,425,586        229,314,863        1,743,583        33,486,077a       22,961,032  

Franklin International Small Cap Growth Fund, Class R6

      5,945,325        482,132        (1,536,107 )      4,891,350        98,560,698        6,490,810        4,693,947a       19,857,649  

Franklin K2 Alternative Strategies Fund, Class R6

      5,290,255        136,766        (2,467,926 )      2,959,095        33,526,546        542,942        1,429,287       1,183,017  

Franklin Low Duration Total Return Fund, Class R6

      4,800,161        1,893,797        (1,251,421 )      5,442,537        53,445,711        1,061,367        (340,970 )      (10,630 ) 

Franklin Mutual European Fund, Class R6 .

      4,585,247        906,119        (1,312,562 )      4,178,804        87,378,781        1,307,873        202,402       8,104,199  

Franklin Pelagos Commodities Strategy Fund, Class R6

      4,669,018        84,426        (146,843 )      4,606,601        30,772,095        38,187        (614,894 )      979,665  

Franklin Rising Dividends Fund, Class R6 .

      3,098,631        79,706        (1,169,101 )      2,009,236        122,744,256        1,871,181        22,675,597a       13,510  

Franklin Small Cap Growth Fund, Class R6

      805,297        12,457        (134,469 )      683,285        16,234,862        —        521,069a       2,535,582  

Franklin Strategic Income Fund, Class R6 .

      3,881,188        582,705        (1,660,222 )      2,803,671        27,616,156        733,539        (257,026 )      948,046  

Franklin U.S. Government Securities Fund, Class R6

      6,947,140        1,107,897        (2,871,734 )      5,183,303        31,514,482        1,037,903        (526,808 )      (145,746 ) 

Franklin Utilities Fund, Class R6

      2,962,629        120,711        (504,302 )      2,579,038        48,589,081        1,549,709        3,489,534a       485,804  

 

     
56        Annual Report   franklintempleton.com

FRANKLIN FUND ALLOCATOR SERIES

NOTES TO FINANCIAL STATEMENTS

 

 

FT Underlying Funds    Number of
Shares Held
at Beginning
of Year		      Gross
Additions		      Gross
Reductions		     Number of
Shares Held
at End of
Year		      Value
at End
of Year		      Dividend
Income		      Realized
Gain
(Loss)		     Net Change in
Unrealized
Appreciation
(Depreciation)		  

 

  

Franklin Growth Allocation Fund (continued)

 

             

Non-Controlled Affiliates (continued)

 

             

Institutional Fiduciary Trust Money Market Portfolio, 0.89%

      6,060,504        240,433,627        (246,478,288 )      15,843        $ 15,843      $ 76,862      $ —       $                —  

Templeton Foreign Fund, Class R6

      12,583,040        192,885        (3,147,603 )      9,628,322        76,448,880        1,448,676        3,360,071       9,328,195  

Templeton Frontier Markets Fund, Class R6

      1,841,002        —        (1,841,002 )      —        —b        —        (3,753,978 )      —b  

Templeton Global Total Return Fund, Class R6

      1,604,547        1,221,952        (500,331 )      2,326,168        28,030,329        371,899        96,928       165,717  
             

 

 

  

Total Non-Controlled Affiliates

                 $ 1,043,500,463      $ 18,548,198      $ 69,280,675       $106,883,052  
             

 

 

  

Total Affiliated Securities

                 $ 1,210,226,355      $ 21,548,634      $ 70,089,828       $128,460,621  
             

 

 

  

aIncludes realized gain distributions received.

bAs of December 31, 2017, no longer held by the fund.

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, 2018. Total expenses waived or paid are not subject to recapture subsequent to the Funds’ fiscal year end.

 

     Franklin
Conservative
Fund		      Franklin
Moderate
Allocation Fund		      Franklin
Growth Allocation
Fund		  

 

  

Class A, Class C, Class R & Advisor Class

      0.40%        0.40%        0.40%  

Class R6

      0.28%        0.28%        0.25%  

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, 2017, the custodian fees were reduced as noted in the Statements of Operations.

5.   Income Taxes

During the year ended December 31, 2017, the Franklin Conservative Allocation Fund utilized $23,750,205 of capital loss carryforwards.

The tax character of distributions paid during the years ended December 31, 2017 and 2016, was as follows:

 

     Franklin Conservative
Allocation Fund		      Franklin Moderate
Allocation Fund		      Franklin Growth
Allocation Fund		  
     2017      2016      2017      2016      2017      2016  

 

  

Distributions paid from:

                  

Ordinary income

    $ 18,844,148      $ 12,655,818      $ 42,845,027      $ 13,304,241      $ 24,903,773      $ 8,101,004  

 

     
franklintempleton.com   Annual Report             57  

FRANKLIN FUND ALLOCATOR SERIES

NOTES TO FINANCIAL STATEMENTS

 

 

5.   Income Taxes (continued)

 

     Franklin Conservative
Allocation Fund		      Franklin Moderate
Allocation Fund		      Franklin Growth
Allocation Fund		  
     2017      2016      2017      2016      2017      2016  

 

  

Long term capital gain

      8,473,146        11,344,998        79,091,279        35,040,700        69,040,647        26,442,862  
  

 

 

  
     $27,317,294      $24,000,816      $121,936,306      $48,344,941      $93,944,420      $34,543,866  
  

 

 

  

At December 31, 2017, 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
Conservative
Allocation Fund		     Franklin
Moderate
Allocation Fund		     Franklin
Growth
Allocation Fund		  

 

  

Cost of investments

    $ 1,179,918,053     $ 1,704,317,679     $ 965,756,122  
  

 

 

  

Unrealized appreciation

    $ 216,785,728     $ 483,304,314     $ 374,899,097  

Unrealized depreciation

      (24,090,238 )      (26,634,144 )      (8,686,006 ) 
  

 

 

  

 

Net unrealized appreciation (depreciation)

    $ 192,695,490     $ 456,670,170     $ 366,213,091  
  

 

 

  

Undistributed ordinary income

    $ 34,167     $ 2,473,318     $ 1,436,264  

Undistributed long term capital gains

      11,341,935       20,712,722       17,406,964  
  

 

 

  

 

Distributable earnings

    $ 11,376,102     $ 23,186,040     $ 18,843,228  
  

 

 

  

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.

The Funds utilized a tax accounting practice to treat a portion of the proceeds from capital shares redeemed as a distribution from realized capital gains.

6.   Investment Transactions

Purchases and sales of Underlying Funds and ETFs (excluding short term securities) for the year ended December 31, 2017, were as follows:

 

     Franklin
Conservative
Allocation Fund		      Franklin
Moderate
Allocation Fund		      Franklin
Growth
Allocation Fund		  

 

  

Purchases

      $250,157,932        $364,654,997        $218,684,632  

Sales

      $486,007,519        $768,821,687        $432,453,215  

7.   Credit Facility

The Funds, together with other U.S. registered and foreign investment funds (collectively, Borrowers), managed by Franklin Templeton Investments, are borrowers in a joint syndicated senior unsecured credit facility totaling $2 billion (Global Credit Facility) which matured on February 9, 2018. 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 9, 2018, the Borrowers renewed the Global Credit Facility for a one year term, maturing February 8, 2019, for a total of $2 billion.

 

     
58        Annual Report   franklintempleton.com

FRANKLIN FUND ALLOCATOR SERIES

NOTES TO FINANCIAL STATEMENTS

 

 

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, 2017, 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, 2017, in valuing the Fund’s assets carried at fair value, is as follows:

 

      Level 1      Level 2      Level 3      Total  

Franklin Conservative Allocation Fund

            

Assets:

            

 Investments in Securities:a

            

Underlying Funds and Exchange Traded Funds

      $ 1,345,486,659      $ —      $ —      $ 1,345,486,659  

Short Term Investments

      11,221,101        15,905,783        —        27,126,884  
  

 

 

  

Total Investments in Securities

      $ 1,356,707,760      $ 15,905,783      $ —      $ 1,372,613,543  
  

 

 

  

Franklin Moderate Allocation Fund

            

Assets:

            

 Investments in Securities:a

            

Underlying Funds and Exchange Traded Funds

      $ 2,122,335,866      $ —      $ —      $ 2,122,335,866  

Short Term Investments

      25,309        38,626,674        —        38,651,983  
  

 

 

  

Total Investments in Securities

      $ 2,122,361,175      $ 38,626,674      $ —      $ 2,160,987,849  
  

 

 

  

Franklin Growth Allocation Fund

            

Assets:

            

 Investments in Securities:a

            

Underlying Funds and Exchange Traded Funds

      $ 1,306,945,779      $ —      $ —      $ 1,306,945,779  

Short Term Investments

      15,843        25,007,591        —        25,023,434  
  

 

 

  

Total Investments in Securities

      $     1,306,961,622      $     25,007,591      $                 —      $   1,331,969,213  
  

 

 

  

aFor detailed Underlying Fund and ETF categories, see the accompanying Statement of Investments.

 

     
franklintempleton.com   Annual Report             59  

FRANKLIN FUND ALLOCATOR SERIES

NOTES TO FINANCIAL STATEMENTS

 

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.

Abbreviations

 

Selected Portfolio

 

ETF

      Exchange Traded Fund
FTSE      Financial Times Stock Exchange
SPDR      S&P Depositary Receipt

 

     
60        Annual Report   franklintempleton.com

FRANKLIN FUND ALLOCATOR SERIES

 

Report of Independent Registered Public Accounting Firm

To the Board of Trustees of Franklin Fund Allocator Series and Shareholders of Franklin Conservative Allocation Fund, Franklin Moderate Allocation Fund, and Franklin Growth Allocation Fund

Opinions on the Financial Statements

We have audited the accompanying statements of assets and liabilities, including the statements of investments, of Franklin Conservative Allocation Fund, Franklin Moderate Allocation Fund, and Franklin Growth Allocation Fund (the “Funds”) as of December 31, 2017, the related statements of operations for the year ended December 31, 2017, the statements of changes in net assets for each of the two years in the period ended December 31, 2017, including the related notes, and the financial highlights for each of the periods indicated therein (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of each of the Funds as of December 31, 2017, 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 ended December 31, 2017, and each of the financial highlights for each of the periods indicated therein, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinions

These financial statements are the responsibility of the Funds’ management. Our responsibility is to express an opinion on the Funds’ financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Funds in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits of these financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our procedures included confirmation of securities owned as of December 31, 2017 by correspondence with the custodian, transfer agent, and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinions.

PricewaterhouseCoopers LLP

San Francisco, California

February 15, 2018

We have served as the auditor of one or more investment companies in the Franklin Templeton Group of Funds since 1948.

 

     
franklintempleton.com   Annual Report             61  

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, 2017:

 

   

Franklin

Conservative

Allocation Fund

   

Franklin

Moderate

            Allocation Fund

   

Franklin

Growth

            Allocation Fund

     
 

 

   
 

$10,282,766

    $90,043,941    $75,985,340   

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, 2017:

 

   

Franklin

Conservative

Allocation Fund

   

Franklin

Moderate

            Allocation Fund

   

Franklin

Growth

            Allocation Fund

     
 

 

   
 

$84,290

    $9,043,828    $5,431,898   

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, 2017:

 

   

Franklin

Conservative

Allocation Fund

   

Franklin

Moderate

            Allocation Fund

   

Franklin

Growth

            Allocation Fund

     
 

 

   
 

$18.91%

    $18.74%    $25.25%   

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, 2017:

 

   

Franklin

Conservative

Allocation Fund

   

Franklin

Moderate

            Allocation Fund

   

Franklin

Growth

            Allocation Fund

     
 

 

   
 

$7,124,930

    $16,497,203    $13,395,422   

Distributions, including qualified dividend income, paid during calendar year 2017 will be reported to shareholders on Form 1099-DIV by mid-February 2018. 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, 2017, 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 27, 2017, 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.

 

     
62        Annual Report       franklintempleton.com

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.

 

Class

 

   

Foreign Tax Paid
Per Share

 

     

Foreign Source
Income Per Share

 

     

Foreign Source Qualified
Dividends Per Share

 

  
Franklin Conservative Allocation Fund     

Class A

      $0.0037        $0.0468        $0.0247  

Class C

      $0.0037        $0.0468        $0.0247  

Class R

      $0.0037        $0.0468        $0.0247  

Class R6

      $0.0037        $0.0468        $0.0247  

Advisor Class

      $0.0037        $0.0468        $0.0247  
Franklin Moderate Allocation Fund     

Class A

      $0.0057        $0.0653        $0.0418  

Class C

      $0.0057        $0.0653        $0.0418  

Class R

      $0.0057        $0.0653        $0.0418  

Class R6

      $0.0057        $0.0653        $0.0418  

Advisor Class

      $0.0057        $0.0653        $0.0418  
Franklin Growth Allocation Fund     

Class A

      $0.0088        $0.0961        $0.0684  

Class C

      $0.0088        $0.0961        $0.0684  

Class R

      $0.0088        $0.0961        $0.0684  

Class R6

      $0.0088        $0.0961        $0.0684  

Advisor Class

      $0.0088        $0.0961        $0.0684  

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 2018, shareholders will receive Form 1099-DIV which will include their share of taxes paid and foreign source income distributed during the calendar year 2017. 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 2017 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.

 

     
franklintempleton.com   Annual Report             63  

FRANKLIN FUND ALLOCATOR SERIES

 

Special Meeting of Shareholders

MEETING OF SHAREHOLDERS: OCTOBER 30, 2017 AND RECONVENED ON DECEMBER 15, 2017 AND DECEMBER 29, 2017

(UNAUDITED)

A Special Meeting of Shareholders of Franklin Fund Allocator Series was held at the offices of Franklin Templeton Investments, One Franklin Parkway, San Mateo, California on October 30, 2017 and reconvened on December 15, 2017 and December 29, 2017. The purpose of the meeting was to elect Trustees of Franklin Fund Allocator Series and to vote on the following proposals: for each of the Funds, to approve the use of a “manager of managers” structure whereby the Fund’s investment manager would be able to hire and replace subadvisers without shareholder approval; and, for each of the Funds, to approve an amended fundamental investment restriction regarding investments in commodities. At the meeting, (i) the following persons were elected by the shareholders to serve as Trustees of Franklin Fund Allocator Series: Harris J. Ashton, Terrence J. Checki, Mary C. Choksi, Edith E. Holiday, Gregory E. Johnson, Rupert H. Johnson, J. Michael Luttig, Larry D. Thompson, and John B. Wilson; (ii) the proposals to use a “manager of managers” structure and to approve the amended fundamental investment restriction regarding investments in commodities were approved by shareholders of Franklin Conservative Allocation Fund; and (iii) sufficient votes were not received to pass the proposals to use a “manager of managers” structure and to approve the amended fundamental investment restriction regarding investments in commodities for each of Franklin Moderate Allocation Fund and Franklin Growth Allocation Fund. No other business was transacted at the meeting.

The results of the voting at the meeting are as follows:

 

Proposal 1. To elect a Board of Trustees:

 

Name

 

   

For

 

     

Withheld

 

  

Harris J. Ashton

      390,516,091        13,444,532  

Terrence J. Checki

      390,358,474        13,602,149  

Mary C. Choksi

      390,976,557        12,983,067  

Edith E. Holiday

      390,925,009        13,035,612  

Gregory E. Johnson

      390,675,564        13,285,060  

Rupert H. Johnson, Jr.

      390,454,015        13,506,608  

J. Michael Luttig

      390,724,016        13,236,605  

Larry D. Thompson

      390,661,770        13,298,853  

John B. Wilson

      390,907,907        13,052,714  

Total Trust Shares Outstanding*: 723,360,102

* As of the record date.

 

     
64        Annual Report   franklintempleton.com

FRANKLIN FUND ALLOCATOR SERIES

SPECIAL MEETING OF SHAREHOLDERS

 

 

Proposal 2. To approve the use of a “manager of managers” structure whereby the Fund’s investment manager would be able to hire and replace subadvisers without shareholder approval:

 

Franklin Conservative Allocation Fund       
     

Shares

 

  

For

      34,299,075  

Against

      2,302,787  

Abstain

      1,825,891  

Broker Non-Votes

      11,774,882  

Total Fund Shares Voted

      50,202,638  

Total Fund Shares Outstanding*

      95,532,324  
Franklin Moderate Allocation Fund       
     

Shares

 

  

For

      46,933,010  

Against

      3,091,078  

Abstain

      2,393,543  

Broker Non-Votes

      19,264,218  

Total Fund Shares Voted

      71,681,848  

Total Fund Shares Outstanding*

      134,525,727  
Franklin Growth Allocation Fund       
     

Shares

 

  

For

      20,453,997  

Against

      1,605,249  

Abstain

      834,737  

Broker Non-Votes

      9,669,214  

Total Fund Shares Voted

      32,563,192  

Total Fund Shares Outstanding*

      68,334,723  

 

Proposal 3. To approve an amended fundamental investment restriction regarding investments in commodities:

 

Franklin Conservative Allocation Fund       
     

Shares

 

  

For

      34,582,320  

Against

      1,346,751  

Abstain

      2,498,685  

Broker Non-Votes

      11,774,882  

Total Fund Shares Voted

      50,202,638  

Total Fund Shares Outstanding*

      95,532,324  
Franklin Moderate Allocation Fund       
     

Shares

 

  

For

      47,320,264  

Against

      1,971,188  

Abstain

      3,126,178  

Broker Non-Votes

      19,264,218  

Total Fund Shares Voted

      71,681,848  

Total Fund Shares Outstanding*

      134,525,727  

 

     
franklintempleton.com   Annual Report             65  

FRANKLIN FUND ALLOCATOR SERIES

SPECIAL MEETING OF SHAREHOLDERS

 

 

Franklin Growth Allocation Fund       
     

Shares

 

  

For

      20,541,559  

Against

      1,229,018  

Abstain

      1,123,402  

Broker Non-Votes

      9,669,214  

Total Fund Shares Voted

      32,563,192  

Total Fund Shares Outstanding

      68,334,723  

 

     
66        Annual Report   franklintempleton.com

FRANKLIN FUND ALLOCATOR SERIES

 

Board Members and Officers

The name, year of birth and address of the officers and board members, as well as their affiliations, positions held with the Trust, principal occupations during at least the past five years and number of US 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

 

Name, Year of Birth

and Address

    Position     

Length of

Time Served

   

Number of Portfolios in

Fund Complex Overseen

by Board Member*

   

Other Directorships Held

During at Least the Past 5 Years

 

Harris J. Ashton (1932)

One Franklin Parkway

San Mateo, CA 94403-1906

    Trustee      Since 1995    139    Bar-S Foods (meat packing company) (1981-2010).

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).

 

 

Terrence J. Checki (1945)

One Franklin Parkway

San Mateo, CA 94403-1906

    Trustee      Since December 2017    113    Hess Corporation (exploration of oil and gas) (2014-present).

Principal Occupation During at Least the Past 5 Years:

Member of the Council on Foreign Relations (1996-present); Member of the National Committee on U.S.-China Relations (1999-present); member of the Board of Trustees of the Economic Club of New York (2013 -present); member of the Board of Trustees of the Foreign Policy Association (2005-present) and member of various other boards of trustees and advisory boards; and formerly , Executive Vice President of the Federal Reserve Bank of New York and Head of its Emerging Markets and Internal Affairs Group and Member of Management Committee (1995-2014); and Visiting Fellow at the Council on Foreign Relations (2014).

 

 

Mary C. Choksi (1950)

One Franklin Parkway

San Mateo, CA 94403-1906

    Trustee      Since 2014    139    Avis Budget Group Inc. (car rental) (2007-present), Omnicom Group Inc. (advertising and marketing communications services) (2011-present) and White Mountains Insurance Group, Ltd. (holding company) (2017).

Principal Occupation During at Least the Past 5 Years:

Director of various companies; and formerly, Founder and Senior Advisor, Strategic Investment Group (investment management group) (2015-2017); 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)

One Franklin Parkway

San Mateo, CA 94403-1906

    Trustee      Since 1998    139    Hess Corporation (exploration and refining of oil and gas) (1993-present), Canadian National Railway (railroad) (2001-present), White Mountains Insurance Group, Ltd. (holding company) (2004-present), Santander Consumer USA Holdings, Inc. (consumer finance) (2016-Present), 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)

One Franklin Parkway

San Mateo, CA 94403-1906

    Trustee      Since 2009    139    Boeing Capital Corporation (aircraft financing) (2006-2013).

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).

 

 

 

franklintempleton.com   Annual Report         67  

FRANKLIN FUND ALLOCATOR SERIES

 

Independent Board Members (continued)

 

Name, Year of Birth

and Address

    Position     

Length of

Time Served

   

Number of Portfolios in

Fund Complex Overseen

by Board Member*

    Other Directorships Held
During at Least the Past 5 Years

 

Larry D. Thompson (1945)

One Franklin Parkway

San Mateo, CA 94403-1906

    Trustee      Since 2007    139    The Southern Company (energy company) (2014-present; previously 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; Counsel, Finch McCranie, LLP (law firm) (2015-present); Independent Compliance Monitor and Auditor, Volkswagen AG (manufacturer of automobiles and commercial vehicles) (2017); 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)

One Franklin Parkway

San Mateo, CA 94403-1906

    Lead Independent Trustee      Trustee since 2006 and Lead Independent Trustee since 2008    113    None

Principal Occupation During at Least the Past 5 Years:

President and Founder, Hyannis Port Capital, Inc. (real estate and private equity investing) (2002-present); serves on private and non-profit boards; and formerly, President, Staples International and Head of Global Transformation (office supplies) (2012-2016); 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

 

Name, Year of Birth

and Address

    Position     

Length of

Time Served

   

Number of Portfolios in

Fund Complex Overseen

by Board Member*

   

Other Directorships Held

During at Least the Past 5 Years

 

**Gregory E. Johnson (1961)

One Franklin Parkway

San Mateo, CA 94403-1906

    Trustee      Since 2007    153    None

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 43 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)

One Franklin Parkway

San Mateo, CA 94403-1906

   

Chairman of

the Board

and Trustee

      Since 2013    139    None

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 41 of the investment companies in Franklin Templeton Investments.

 

 

Alison E. Baur (1964)

One Franklin Parkway

San Mateo, CA 94403-1906

    Vice President      Since 2012    Not Applicable    Not Applicable

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.

 

 

 

68        Annual Report   franklintempleton.com

FRANKLIN FUND ALLOCATOR SERIES

 

Interested Board Members and Officers (continued)

 

Name, Year of Birth

and Address

    Position     

Length of

Time Served

   

Number of Portfolios in

Fund Complex Overseen

by Board Member*

   

Other Directorships Held

During at Least the Past 5 Years

 

Gaston Gardey (1967)

One Franklin Parkway

San Mateo, CA 94403-1906

   

Chief Financial Officer,

Chief

Accounting

Officer and Treasurer

      Since 2009    Not Applicable    Not Applicable

Principal Occupation During at Least the Past 5 Years:

Treasurer, U.S. Fund Administration & Reporting, Franklin Templeton Investments; and officer of 28 of the investment companies in Franklin Templeton Investments.

 

 

Aliya S. Gordon (1973)

One Franklin Parkway

San Mateo, CA 94403-1906

    Vice President      Since 2009    Not Applicable    Not Applicable

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)

One Franklin Parkway

San Mateo, CA 94403-1906

    Vice President      Since 2009    Not Applicable    Not Applicable

Principal Occupation During at Least the Past 5 Years:

Senior Associate General Counsel, Franklin Templeton Investments; Vice President, Franklin Templeton Distributors, Inc. and FASA, LLC; and officer of 45 of the investment companies in Franklin Templeton Investments.

 

 

Matthew T. Hinkle (1971)

One Franklin Parkway

San Mateo, CA 94403-1906

    Chief Executive Officer – Finance and Administration     

Since

June 2017

    Not Applicable    Not Applicable

Principal Occupation During at Least the Past 5 Years:

Senior Vice President, Franklin Templeton Services, LLC; officer of 45 of the investment companies in Franklin Templeton Investments; and formerly, Vice President, Global Tax (2012-April 2017) and Treasurer/Assistant Treasurer, Franklin Templeton Investments (2009-2017).

 

 

Edward B. Jamieson (1948)

One Franklin Parkway

San Mateo, CA 94403-1906

   

President and

Chief Executive Officer –

Investment Management

      Since 2010    Not Applicable    Not Applicable

Principal Occupation During at Least the Past 5 Years:

President 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)

One Franklin Parkway

San Mateo, CA 94403-1906

   

Vice President

–AML

Compliance

      Since 2016    Not Applicable    Not Applicable

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)

300 S.E. 2nd Street

Fort Lauderdale, FL 33301-1923

    Vice President      Since 2013    Not Applicable    Not Applicable

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.

 

 

 

franklintempleton.com   Annual Report         69  

FRANKLIN FUND ALLOCATOR SERIES

 

Interested Board Members and Officers (continued)

 

Name, Year of Birth

and Address

    Position     

Length of

Time Served

   

Number of Portfolios in

Fund Complex Overseen

by Board Member*

   

Other Directorships Held

During at Least the Past 5 Years

 

Robert C. Rosselot (1960)

300 S.E. 2nd Street

Fort Lauderdale, FL 33301-1923

   

Chief

Compliance Officer

      Since 2013    Not Applicable    Not Applicable

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)

One Franklin Parkway

San Mateo, CA 94403-1906

   

Vice President

and Secretary

      Since 2006    Not Applicable    Not Applicable

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)

One Franklin Parkway

San Mateo, CA 94403-1906

    Vice President      Since 2015    Not Applicable    Not Applicable

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)

One Franklin Parkway

San Mateo, CA 94403-1906

    Vice President      Since 2005    Not Applicable    Not Applicable

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)

300 S.E. 2nd Street

Fort Lauderdale, FL 33301-1923

    Vice President      Since 2011    Not Applicable    Not Applicable

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 US 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 of Franklin 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.

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.

 

 
 70    
  
    Annual Report   franklintempleton.com

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 US 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.

 

 

franklintempleton.com   Annual Report         71  

This page intentionally left blank.

 

 

 

 

 

 

 

 

LOGO

Annual Report and Shareholder Letter

Franklin Fund Allocator Series

Investment Manager

Franklin Advisers, Inc.

Distributor

Franklin Templeton Distributors, Inc.

(800) DIAL BEN® / 342-5236

franklintempleton.com

Shareholder Services

(800) 632-2301

 

 

Authorized for distribution only when accompanied or preceded by a summary prospectus and/or prospectus. Investors should carefully consider a fund’s investment goals, risks, charges and expenses before investing. A prospectus contains this and other information; please read it carefully before investing.

To help ensure we provide you with quality service, all calls to and from our service areas are monitored and/or recorded.

 

© 2018 Franklin Templeton Investments. All rights reserved.    FAS A 02/18

LOGO

Annual Report and Shareholder Letter December 31, 2017 Franklin Fund Allocator Series Franklin Corefolio Allocation Fund Franklin Founding Funds Allocation Fund Sign up for electronic delivery at franklintempleton.com/edelivery

Franklin Templeton Investments

Gain From Our Perspective®

 

At Franklin Templeton Investments, we’re dedicated to one goal: delivering exceptional asset management for our clients. By bringing together multiple, world-class investment teams in a single firm, we’re able to offer specialized expertise across styles and asset classes, all supported by the strength and resources of one of the world’s largest asset managers. This has helped us to become a trusted partner to individual and institutional investors across the globe.

 

 

 

Dear Shareholder:

 

During the 12 months ended December 31, 2017, mostly upbeat economic data, improved corporate earnings and supportive monetary policies were positives for US securities markets. After two rate increases earlier in 2017, at its December meeting the US Federal Reserve (Fed) raised the target range for its benchmark federal funds rate 0.25% to 1.25%–1.50% amid ongoing labor market strength, rising economic activity and low inflation in the US. The Fed also announced a gradual monthly reduction in its balance sheet starting in January of 2018 as part of its ongoing plan to normalize monetary policy.

In this environment, US stocks, as measured by the Standard & Poor’s® 500 Index, ended the period with a +21.83% total return.1 Stocks in global developed markets, as measured by the MSCI World Index, returned +23.07% for the same period.1 Investment-grade bonds, as measured by the Bloomberg Barclays US Aggregate Bond Index, posted a +3.54% 12-month total return.1

We are committed to our long-term perspective and disciplined investment approach as we conduct a rigorous, fundamental analysis of securities with a regular emphasis on investment risk management.

We believe active, professional investment management serves investors well. We also recognize the important role of financial advisors in today’s markets and encourage investors to continue to seek their advice. Amid changing markets and economic conditions, we are confident investors with a

1. Source: Morningstar.

See www.franklintempletondatasources.com for additional data provider information.

well-diversified portfolio and a patient, long-term outlook should be well positioned for the years ahead.

In addition, Franklin Fund Allocator Series’ annual report includes more detail about prevailing conditions and a discussion about investment decisions during the period. Please remember all securities markets fluctuate, as do mutual fund share prices.

We thank you for investing with Franklin Templeton, welcome your questions and comments, and look forward to serving your future investment needs.

Sincerely,

 

LOGO

Rupert H. Johnson, Jr.

Chairman

Franklin Fund Allocator Series

This letter reflects our analysis and opinions as of December 31, 2017, unless otherwise indicated. 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.

 

 

Not FDIC Insured   |   May Lose Value   |   No Bank Guarantee
 

 

franklintempleton.com   Not part of the annual report          1  

 

 

Contents

Annual Report

 

Economic and Market Overview      3  

 

Franklin Corefolio Allocation Fund

      4  

 

Franklin Founding Funds Allocation Fund

      10  

 

Financial Highlights and Statements of Investments

      16  

 

Financial Statements

      28  

 

Notes to Financial Statements

      31  

 

Report of Independent Registered Public Accounting Firm

      39  

 

Tax Information

      40  

 

Special Meeting of Shareholders

      42  

 

Board Members and Officers

      44  

 

Shareholder Information

 

 

     

 

 48

 

  

 

Visit franklintempleton.com for fund updates, to access your account, or to find helpful financial planning tools.

 

 

  2          Annual Report   franklintempleton.com

Annual Report

Economic and Market Overview

 

The global economy grew moderately during the 12-month period under review. In this environment, global developed and emerging market stocks generated a +24.62% total return, as measured by the MSCI All Country World Index.1 Global markets were aided by price gains in oil and other commodities, generally upbeat economic data across regions, the European Central Bank’s (ECB’s) extension of its monetary easing program, and investor optimism about pro-growth and pro-business policies in the US. The prospect for reforms in the European Union (EU) with Emmanuel Macron’s election as France’s president, encouraging corporate earnings reports and the passage of the US tax reform bill also supported global stocks.

However, global markets reflected investor concerns about the terms of the UK’s exit from the EU, political uncertainty in the US and the EU, and geopolitical tensions in the Korean peninsula and other regions. Other concerns included the health of European banks, global oil oversupply despite a pact by major oil-producing countries to extend production cuts, and comments from key central bankers around the world about potentially raising interest rates.

After strengthening in 2017’s second and third quarters, the US economy moderated in the fourth quarter. The economy grew faster in 2017 than in 2016, however, largely due to growth in consumer spending, business investment and exports. The unemployment rate decreased from 4.7% in December 2016 to 4.1% at period-end.2 Annual inflation, as measured by the Consumer Price Index, was 2.1% in December 2016, and while it varied over the 12-month period, remained unchanged at period-end.2 The US Federal Reserve (Fed) raised its target range for the federal funds rate 0.25% three times during the period, amid signs of a growing US economy, strengthening labor market and improving business spending. At its December meeting, the Fed confirmed that the monthly balance sheet reduction would increase from US$10 billion to US$20 billion beginning in January 2018.

In Europe, the UK’s economic growth moderated in 2017 compared to 2016, largely due to slower growth in the services sector. In November, the Bank of England raised its key policy rate 0.25%, its first increase in a decade. The eurozone’s growth accelerated in 2017’s second and third quarters, but moderated in the third quarter. However, the eurozone’s 2017

economic growth rate was the fastest in a decade. The ECB kept its benchmark interest rate unchanged during the period. However, at its October meeting, the ECB extended the time frame for its massive bond-buying program from December 2017 to at least September 2018, while reducing the amount of monthly bond purchases in half beginning in January 2018.

In Asia, Japan’s quarterly gross domestic product (GDP) grew for the seventh consecutive quarter, although third-quarter 2017 growth was lower than the previous quarter. The Bank of Japan left its benchmark interest rate unchanged during the period and continued its monetary stimulus measures.

In emerging markets, Brazil’s quarterly GDP grew for the third consecutive quarter, although third-quarter 2017 growth slowed from the previous quarter. The country’s central bank cut its benchmark interest rate several times during the period to spur economic growth. Russia’s GDP grew in 2017’s first three quarters compared to the prior-year periods, amid the Bank of Russia’s continued policy support. China’s GDP grew faster in 2017 than in 2016, supported by solid growth in industrial production, services, fixed-asset investment, retail sales, and imports and exports. The People’s Bank of China left its benchmark interest rate unchanged during the period. Overall, emerging market stocks, as measured by the MSCI Emerging Markets Index, rose substantially during the period.

The foregoing information reflects our analysis and opinions as of December 31, 2017. The information is not a complete analysis of every aspect of any market, country, industry, security or fund. Statements of fact are from sources considered reliable.

 

 

1. Source: Morningstar.

2. Source: US Bureau of Labor Statistics.

See www.franklintempletondatasources.com for additional data provider information.

 

 

franklintempleton.com

   Annual Report             3  

Franklin Corefolio Allocation Fund

 

This annual report for Franklin Corefolio Allocation Fund covers the fiscal year ended December 31, 2017.

Your Fund’s Goal and Main Investments

The Fund seeks capital appreciation through investments in a combination of Franklin Growth Fund, Franklin Growth Opportunities Fund, Franklin Mutual Shares Fund and Templeton Growth Fund.

Asset Allocation*

Based on Total Net Assets as of 12/31/17

 

LOGO

*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 +20.07% 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 US stock performance, generated a +21.83% cumulative total return, and the MSCI World Index, which tracks equity performance in global developed markets, had a +23.07% total return.1 You can find the Fund’s long-term performance data in the Performance Summary beginning on page 6.

Performance data represent past performance, which does not guarantee future results. Investment return and principal value will fluctuate, and you may have a gain or loss when you sell your shares. Current performance may differ from figures shown. 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 Fund, Franklin Growth Opportunities Fund, Franklin Mutual Shares Fund and Templeton Growth Fund. These underlying funds, in turn, invest primarily in US 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 Growth Fund – Class R6 and Franklin Growth Opportunities Fund – Class R6 outperformed the S&P 500, while Franklin Mutual Shares Fund – Class R6 underperformed the index. Templeton Growth Fund – Class R6 underperformed 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.

 

     
4        Annual Report   franklintempleton.com

FRANKLIN COREFOLIO ALLOCATION FUND

 

Thank you for your continued participation in Franklin Corefolio Allocation Fund. We look forward to serving your future investment needs.

 

LOGO

  

LOGO

T. Anthony Coffey, CFA

Vice President of Franklin Advisers, Inc.

The foregoing information reflects our analysis, opinions and portfolio holdings as of December 31, 2017, 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.

 

 

 

franklintempleton.com

   Annual Report             5  

FRANKLIN COREFOLIO ALLOCATION FUND

 

Performance Summary as of December 31, 2017

 

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. Your dividend income will vary depending on dividends or interest paid by securities in the Fund’s portfolio, adjusted for operating expenses of each class. Capital gain distributions are net profits realized from the sale of portfolio securities.

Performance as of 12/31/17

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.

 

Share Class      Cumulative
Total Return1		     

Average Annual  

Total Return2

 

A

 

        

 

1-Year

 

     

 

 

 

 

+20.07% 

 

 

 

 

   

 

+13.17%

 

 

5-Year

 

     

 

 

 

 

+78.13% 

 

 

 

 

   

 

+10.92%

 

 

10-Year

 

     

 

 

 

 

+84.47% 

 

 

 

 

   

 

+5.69%

 

 

Advisor

 

        

 

1-Year

 

     

 

 

 

 

+20.40% 

 

 

 

 

   

 

+20.40%

 

 

5-Year

 

     

 

 

 

 

+80.52% 

 

 

 

 

   

 

+12.54%

 

 

10-Year

 

     

 

 

 

 

+89.63% 

 

 

 

 

   

 

+6.61%

 

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 8 for Performance Summary footnotes.

 

     
6        Annual Report   franklintempleton.com

FRANKLIN COREFOLIO ALLOCATION FUND

PERFORMANCE SUMMARY

 

Total Return Index Comparison for a Hypothetical $10,000 Investment

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.

LOGO

 

     
franklintempleton.com   Annual Report             7  

FRANKLIN COREFOLIO ALLOCATION FUND

PERFORMANCE SUMMARY

 

Distributions (1/1/17–12/31/17)

 

Share Class

 

     

Net Investment
Income

 

       

Short-Term
Capital Gain

 

       

Long-Term
Capital Gain

 

       

Total

 

  

A

 

       

 

 $0.1820

 

  

 

       

 

 $0.0192

 

  

 

       

 

 $0.5779

 

  

 

       

 

 $0.7791

 

  

 

C

 

       

 

 $0.0343

 

  

 

       

 

 $0.0192

 

  

 

       

 

 $0.5779

 

  

 

       

 

 $0.6314

 

  

 

R

 

       

 

 $0.1347

 

  

 

       

 

 $0.0192

 

  

 

       

 

 $0.5779

 

  

 

       

 

 $0.7318

 

  

 

R6 (8/1/17–12/31/17)

 

       

 

 $0.2469

 

  

 

       

 

 $0.0192

 

  

 

       

 

 $0.2292

 

  

 

       

 

 $0.4953

 

  

 

Advisor

 

       

 

 $0.2333

 

  

 

       

 

 $0.0192

 

  

 

       

 

 $0.5779

 

  

 

       

 

 $0.8304

 

  

 

 

Total Annual Operating Expenses4  

Share Class

 

        

A

 

     

 

 1.04%

 

  

 

Advisor

 

     

 

 0.79%

 

  

 

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. Cumulative total return represents the change in value of an investment over the periods indicated.

2. Average annual total return represents the average annual change in value of an investment over the periods indicated. Return for less than one year, if any, has not been annualized.

3. Source: Morningstar. The S&P 500 is a market capitalization-weighted index of 500 stocks designed to measure total US 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.

4. 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.franklintempletondatasources.com for additional data provider information.

 

     
8        Annual Report   franklintempleton.com

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
(actual return after expenses)		      Hypothetical
(5% annual return before expenses)		       
Share
Class		    Beginning
Account
Value1		      Ending
Account
Value 12/31/17		      Expenses
Paid During
Period2,3		      Ending
Account
Value 12/31/17		      Expenses
Paid During
Period
7/1/17–12/31/173		      Net
Annualized
Expense
Ratio

 

     

 

     

 

     

 

A

    $1,000      $1,078.70      $2.41      $1,022.89      $2.35      0.46%

C

    $1,000      $1,074.70      $6.33      $1,019.11      $6.16      1.21%

R

    $1,000      $1,077.30      $3.72      $1,021.63      $3.62      0.71%

R6

    $1,000      $1,052.80      $0.30      $1,020.67      $0.30      0.07%

Advisor

    $1,000      $1,080.10      $1.10      $1,024.15      $1.07      0.21%

1. For Classes A, C, R and Advisor, 7/1/17 for Actual and Hypothetical. For Class R6, 8/1/17 for Actual and 7/1/17 for Hypothetical.

2. For Classes A, C, R and Advisor, 7/1/17–12/31/17. For Class R6, 8/1/17–12/31/17.

3. 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 184/365 to reflect the one-half year period. The multiplier is 153/365 for Actual Class R6 expenses to reflect the number of days since inception.

 

     
franklintempleton.com   Annual Report          9  

Franklin Founding Funds Allocation Fund

 

This annual report for Franklin Founding Funds Allocation Fund covers the fiscal year ended December 31, 2017.

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.

Asset Allocation*

Based on Total Net Assets as of 12/31/17

 

LOGO

*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 +11.20% 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 US stock performance, generated a +21.83% total return and the MSCI World Index, which tracks equity performance in global developed markets, had a +23.07% total return.1 You can find the Fund’s long-term performance data in the Performance Summary beginning on page 12.

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 US and foreign equity securities and, to a lesser extent, fixed income and money market securities. As market conditions affect the underlying funds, we rebalance the Fund’s allocations to maintain the predetermined equal weightings of approximately 33 1⁄3% of total net assets in each underlying fund whenever the actual allocations exceed plus or minus 3% of the fixed allocation percentages.

Portfolio Review

The Fund’s performance can be attributed largely to maintaining a relatively static allocation among domestic and foreign equities, fixed income securities, and short-term investments and other net assets, and to the actual performance of the selected underlying funds.

During the period under review, Franklin Income Fund –Class R6 and Franklin Mutual Shares Fund – Class R6 underperformed the S&P 500. Templeton Growth Fund –Class R6 underperformed the MSCI World Index.

 

 

1. Source: Morningstar.

The indexes are unmanaged and include reinvested distributions. 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 27.

 

     
10        Annual Report   franklintempleton.com

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.

 

LOGO  

LOGO

 

T. Anthony Coffey, CFA

Vice President of Franklin Advisers, Inc.

The foregoing information reflects our analysis, opinions and portfolio holdings as of December 31, 2017, the end of the reporting period. The way we implement our main investment strategies and the resulting portfolio holdings may change depending on factors such as market and economic conditions. These opinions may not be relied upon as investment advice or an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but the investment manager makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.

 

 

     
franklintempleton.com   Annual Report         11  

FRANKLIN FOUNDING FUNDS ALLOCATION FUND

 

Performance Summary as of December 31, 2017

 

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. Your dividend income will vary depending on dividends or interest paid by securities in the Fund’s portfolio, adjusted for operating expenses of each class. Capital gain distributions are net profits realized from the sale of portfolio securities.

Performance as of 12/31/17

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.

 

Share Class    Cumulative 
Total Return1		      Average Annual 
Total Return2		  

A

 

      

 

1-Year

 

      +11.20%        +4.82%  

 

5-Year

      +50.71%        +7.27%  

 

10-Year

 

      +55.92%        +3.93%  

Advisor

 

      

 

1-Year

 

      +11.58%        +11.58%  

 

5-Year

 

      +52.66%        +8.83%  

 

10-Year

 

      +60.05%        +4.82%  
 

 

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 14 for Performance Summary footnotes.

 

     
12        Annual Report   franklintempleton.com

FRANKLIN FOUNDING FUNDS ALLOCATION FUND

PERFORMANCE SUMMARY

 

Total Return Index Comparison for a Hypothetical $10,000 Investment

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.

 

LOGO

 

     
franklintempleton.com   Annual Report          13  

FRANKLIN FOUNDING FUNDS ALLOCATION FUND

PERFORMANCE SUMMARY

 

Distributions (1/1/17–12/31/17)

 

Share Class            Net Investment
Income		  

A

 

              

 

 $0.4284

 

  

 

C

 

              

 

 $0.3167

 

  

 

R

 

              

 

 $0.3802

 

  

 

R6 (8/1/17–12/31/17)

 

              

 

 $0.2003

 

  

 

Advisor

 

              

 

 $0.4662

 

  

 

 

Total Annual Operating Expenses4
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. Cumulative total return represents the change in value of an investment over the periods indicated.

2. Average annual total return represents the average annual change in value of an investment over the periods indicated. Return for less than one year, if any, has not been annualized.

3. Source: Morningstar. The S&P 500 is a market capitalization-weighted index of 500 stocks designed to measure total US 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.

4. 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.

 

     
14        Annual Report   franklintempleton.com

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
(actual return after expenses)		      Hypothetical
(5% annual return before expenses)		       
Share
Class		       Beginning
Account
Value1		      Ending
Account
Value 12/31/17		      Expenses
Paid During
Period2,3		      Ending
Account
Value 12/31/17		      Expenses
Paid During
Period
7/1/17–12/31/173		      Net
Annualized
Expense
Ratio

 

     

 

     

 

     

 

A

     $1,000      $1,043.80      $2.16      $1,023.09      $2.14      0.42%

C

     $1,000      $1,040.90      $6.02      $1,019.31      $5.96      1.17%

R

     $1,000      $1,042.80      $3.45      $1,021.83      $3.41      0.67%

R6

     $1,000      $1,000.60      $0.25      $1,020.71      $0.25      0.06%

Advisor

     $1,000      $1,045.70      $0.88      $1,024.35      $0.87      0.17%

1. For Classes A, C, R and Advisor, 7/1/17 for Actual and Hypothetical. For Class R6, 8/1/17 for Actual and 7/1/17 for Hypothetical.

2. For Classes A, C, R and Advisor, 7/1/17–12/31/17. For Class R6, 8/1/17–12/31/17.

3. 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 184/365 to reflect the one-half year period. The multiplier is 153/365 for Actual Class R6 expenses to reflect the number of days since inception.

 

     
franklintempleton.com   Annual Report          15  

FRANKLIN FUND ALLOCATOR SERIES

 

 

Financial Highlights

Franklin Corefolio Allocation Fund

     Year Ended December 31,  
    

2017

    

2016

    

2015

    

2014

    

2013

  

 

  
Class A                               
Per share operating performance           
(for a share outstanding throughout the year)           

Net asset value, beginning of year

      $17.06       $16.80       $18.00       $17.61       $13.57  
  

 

 

  
Income from investment operationsa:           

Net investment incomeb,c

      0.17       0.14       0.14       0.23       0.11  

Net realized and unrealized gains (losses)

      3.23       1.07       (0.32 )      0.91       4.09  
  

 

 

  

Total from investment operations

      3.40       1.21       (0.18)       1.14       4.20  
  

 

 

  

Less distributions from:

           

Net investment income and short term gains received from

           

Underlying Funds

      (0.18)       (0.17)       (0.16)       (0.29)       (0.16)  

Net realized gains

      (0.60)       (0.78)       (0.86)       (0.46)       —    
  

 

 

  

Total distributions

      (0.78 )      (0.95 )      (1.02 )      (0.75 )      (0.16)  
  

 

 

  

Net asset value, end of year

                  $19.68       $17.06       $16.80       $18.00       $17.61  
  

 

 

  

Total returnd

      20.07%       7.64%       (1.20)%       6.48%       31.01%  
Ratios to average net assets           

Expensese

      0.47%f       0.45%f       0.47%f       0.48%f       0.44%  

Net investment incomec

      0.90%       0.83%       0.80%       1.27%       0.68%  
Supplemental data           

Net assets, end of year (000’s)

      $579,707       $507,530       $523,540       $558,862       $558,124  

Portfolio turnover rate

      0.71%       0.40%       0.53%       5.77%       5.90%  

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, 2017.

fBenefit of waiver and payments by affiliates rounds to less than 0.01%.

 

 

     
16      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,

  
  

 

 

  
     2017      2016      2015      2014      2013  

 

  
Class C               
Per share operating performance               

(for a share outstanding throughout the year)

               

Net asset value, beginning of year

      $16.85        $16.61        $17.81        $17.44        $13.45  
  

 

 

  
Income from investment operationsa:               

Net investment income (loss)b,c

      0.02        0.01        0.02        0.10        (—) d 

Net realized and unrealized gains (losses)

      3.19        1.05        (0.33)        0.89        4.04  
  

 

 

  
Total from investment operations      3.21        1.06        (0.31)        0.99        4.04  
  

 

 

  

Less distributions from:

               

Net investment income and short term gains received from

               

Underlying Funds

      (0.03)        (0.04)        (0.03)        (0.16)        (0.05)  

Net realized gains

      (0.60)        (0.78)        (0.86)        (0.46)        —    
  

 

 

  

Total distributions

      (0.63)        (0.82)        (0.89)        (0.62)        (0.05)  
  

 

 

  

Net asset value, end of year

                  $19.43        $16.85        $16.61        $17.81        $17.44  
  

 

 

  

Total returne

      19.20%        6.82%        (1.92)%        5.69%        30.09%  
Ratios to average net assets               

Expensesf

      1.22%g        1.20%g        1.19%g        1.19%g        1.15%  

Net investment income (loss)c

      0.15%        0.08%        0.08%        0.56%        (0.03)%  
Supplemental data               

Net assets, end of year (000’s)

      $170,218        $160,729        $172,116        $176,680        $176,332  

Portfolio turnover rate

      0.71%        0.40%        0.53%        5.77%        5.90%  

 

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 0.58% for the year ended December 31, 2017.

gBenefit of waiver and payments by affiliates rounds to less than 0.01%.

 

     
franklintempleton.com   The accompanying notes are an integral part of these financial statements.    |    Annual Report             17  

FRANKLIN FUND ALLOCATOR SERIES

FINANCIAL HIGHLIGHTS

 

Franklin Corefolio Allocation Fund (continued)

 

     Year Ended December 31,  
     2017     2016     2015     2014     2013  

 

  
Class R           

Per share operating performance

           

(for a share outstanding throughout the year)

           

Net asset value, beginning of year

      $17.06       $16.81       $18.01       $17.60       $13.56  
  

 

 

  

Income from investment operationsa:

           

Net investment incomeb,c

      0.12       0.10       0.10       0.16       0.06  

Net realized and unrealized gains (losses)

      3.23       1.06       (0.32)       0.95       4.11  
  

 

 

  

Total from investment operations

      3.35       1.16       (0.22)       1.11       4.17  
  

 

 

  

Less distributions from:

           

Net investment income and short term gains received from

           

Underlying Funds

      (0.13)       (0.13)       (0.12)       (0.24)       (0.13)  

Net realized gains

      (0.60)       (0.78)       (0.86)       (0.46)       —  
  

 

 

  

Total distributions

      (0.73)       (0.91)       (0.98)       (0.70)       (0.13)  
  

 

 

  

Net asset value, end of year

                  $19.68       $17.06       $16.81       $18.01       $17.60  
  

 

 

  

Total return

      19.79%       7.33%       (1.43)%       6.30%       30.76%  
Ratios to average net assets           

Expensesd

      0.72% e      0.70% e      0.69% e      0.69% e      0.65%  

Net investment incomec

      0.65%       0.58%       0.58%       1.06%       0.47%  
Supplemental data           

Net assets, end of year (000’s)

      $1,629       $1,461       $1,423       $1,545       $1,903  

Portfolio turnover rate

      0.71%       0.40%       0.53%       5.77%       5.90%  

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, 2017.

eBenefit 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,
2017a		  

 

  

Class R6

   
Per share operating performance   

(for a share outstanding throughout the year)

   

Net asset value, beginning of year

      $19.18  
  

 

 

  
Income from investment operationsb:   

Net investment incomec,d

      0.26  

Net realized and unrealized gains (losses)

      0.73  
  

 

 

  

Total from investment operations

      0.99  
  

 

 

  

Less distributions from:

   

Net investment income

      (0.25)  

Net realized gains

      (0.25)  
  

 

 

  

Total distributions

      (0.50)  
  

 

 

  

Net asset value, end of year

      $19.67  
  

 

 

  

Total returne

      5.28%  
Ratios to average net assetsf   

Expenses before waiver and payments by affiliatesg

      3.47%  

Expenses net of waiver and payments by affiliatesg

      0.08%  

Net investment incomed

      1.29%  
Supplemental data   

Net assets, end of year (000’s)

      $5  

Portfolio turnover rate

      0.71%  

aFor the period August 1, 2017 (effective date) to December 31, 2017.

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 in which the Fund invests.

eTotal return is not annualized for periods less than one year.

fRatios are annualized for periods less than one year.

gDoes not include expenses of the Underlying Funds in which the Fund invests. The weighted average indirect expenses of the Underlying Funds was 0.58% for the year ended December 31, 2017.

 

     
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,  
     2017      2016      2015      2014      2013  

 

  
Advisor Class               
Per share operating performance               

(for a share outstanding throughout the year)

               

Net asset value, beginning of year

      $17.08        $16.82        $18.03        $17.64        $13.59  
  

 

 

  

Income from investment operationsa:

               

Net investment incomeb,c

      0.25        0.21        0.21        0.32        0.18  

Net realized and unrealized gains (losses)

      3.21        1.04        (0.35)        0.88        4.08  
  

 

 

  

Total from investment operations

      3.46        1.25        (0.14)        1.20        4.26  
  

 

 

  

Less distributions from:

               

Net investment income and short term gains received from Underlying Funds

      (0.23)        (0.21)        (0.21)        (0.35)        (0.21)  

Net realized gains

      (0.60)        (0.78)        (0.86)        (0.46)        —    
  

 

 

  

Total distributions

      (0.83)        (0.99)        (1.07)        (0.81)        (0.21)  
  

 

 

  

Net asset value, end of year

                  $19.71        $17.08        $16.82        $18.03        $17.64  
  

 

 

  

Total return

      20.40%        7.90%        (0.96)%        6.79%        31.38%  
Ratios to average net assets               

Expensesd

      0.22%e        0.20%e        0.19%e        0.19%e        0.15%  

Net investment incomec

      1.15%        1.08%        1.08%        1.56%        0.97%  
Supplemental data               

Net assets, end of year (000’s)

      $33,607        $22,721        $19,396        $18,918        $15,495  

Portfolio turnover rate

      0.71%        0.40%        0.53%        5.77%        5.90%  

 

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, 2017.

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, 2017

Franklin Corefolio Allocation Fund

       Shares          Value  

 

  
 

Investments in Underlying Funds 100.1%

        
 

Domestic Equity 75.0%

 

        
a  

Franklin Growth Fund, Class R6

      2,103,909        $ 198,903,592  
a,b  

Franklin Growth Opportunities Fund, Class R6

      5,018,837          196,888,988  
a  

Franklin Mutual Shares Fund, Class R6

      6,736,303          192,725,624  
         

 

 

  
                 

 

588,518,204

  
         

 

 

  
 

Foreign Equity 25.1%

        
a  

Templeton Growth Fund Inc., Class R6

      7,249,681          197,336,318  
         

 

 

  
 

Total Investments in Underlying Funds

        
 

before Short Term Investments (Cost $531,548,661)

           785,854,522  
         

 

 

  
 

Short Term Investments (Cost $79) 0.0%†

        
 

Money Market Funds 0.0%†

        
a,c  

Institutional Fiduciary Trust Money Market Portfolio, 0.89%

      79          79  
         

 

 

  
 

Total Investments in Underlying Funds (Cost $531,548,740) 100.1%

           785,854,601  
 

Other Assets, less Liabilities (0.1)%

           (688,257 ) 
         

 

 

  
 

Net Assets 100.0%

         $ 785,166,344  
         

 

 

  

 

†Rounds to less than 0.1% of net assets.

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,

  
  

 

 

  
     2017     2016     2015     2014     2013  

 

  
Class A           

Per share operating performance

(for a share outstanding throughout the year)

           

Net asset value, beginning of year

      $13.47       $12.14       $13.31       $13.37       $11.14  
  

 

 

  
Income from investment operationsa:           

Net investment incomeb,c

      0.40       0.36       0.35       0.46       0.32  

Net realized and unrealized gains (losses)

      1.10       1.26       (1.16 )      (0.06 )      2.29  
  

 

 

  

Total from investment operations

      1.50       1.62       (0.81 )      0.40       2.61  
  

 

 

  

Less distributions from net investment income

      (0.43 )      (0.29 )      (0.36 )      (0.46 )      (0.38)  
  

 

 

  

Net asset value, end of year

      $14.54       $13.47       $12.14       $13.31       $13.37  
  

 

 

  

Total returnd

      11.20%       13.52%       (6.18)%       2.92%       23.64%  
Ratios to average net assets           

Expensese

      0.43%f       0.42%f       0.41%f       0.41%f       0.39%  

Net investment incomec

      2.81%       2.87%       2.65%       3.35%       2.63%  
Supplemental data           

Net assets, end of year (000’s)

      $3,300,005       $3,310,397       $3,346,192       $3,958,706       $4,170,045  

Portfolio turnover rate

      0.48%       0.06%       —%       3.79%       3.04%  

 

 

 

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, 2017.

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,

  
  

 

 

  
      2017      2016      2015     2014      2013  

 

  
Class C              

Per share operating performance

(for a share outstanding throughout the year)

              

Net asset value, beginning of year

      $13.27        $11.96        $13.11       $13.18        $10.99  
  

 

 

  

Income from investment operationsa:

              

Net investment incomeb,c

      0.28        0.26        0.25       0.35        0.23  

Net realized and unrealized gains (losses)

      1.10        1.25        (1.14 )      (0.07)        2.25  
  

 

 

  

Total from investment operations

      1.38        1.51        (0.89)       0.28        2.48  
  

 

 

  

Less distributions from net investment income

      (0.32)        (0.20)        (0.26)       (0.35)        (0.29)  
  

 

 

  

Net asset value, end of year

      $14.33        $13.27        $11.96       $13.11        $13.18  
  

 

 

  

Total returnd

      10.43%        12.71%        (6.85)%       2.12%        22.69%  
Ratios to average net assets              

Expensese

      1.18%f        1.17%f        1.16%f       1.16%f        1.14%  

Net investment incomec

      2.06%        2.12%        1.90%       2.60%        1.88%  
Supplemental data              

Net assets, end of year (000’s)

      $1,261,997        $1,402,623        $1,458,281       $1,745,766        $1,829,111  

Portfolio turnover rate

      0.48%        0.06%        —%       3.79%        3.04%  

 

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, 2017.

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,

  
  

 

 

  
     2017     2016     2015     2014     2013  

 

  

 

Class R

           

Per share operating performance

(for a share outstanding throughout the year)

           

Net asset value, beginning of year

      $13.49       $12.16       $13.33       $13.39       $11.16  
  

 

 

  
Income from investment operationsa:           

Net investment incomeb,c

      0.34       0.33       0.32       0.44       0.29  

Net realized and unrealized gains (losses)

      1.13       1.26       (1.16 )      (0.08)       2.29  
  

 

 

  

Total from investment operations

      1.47       1.59       (0.84)       0.36       2.58  
  

 

 

  

Less distributions from net investment income

      (0.38 )      (0.26 )      (0.33 )      (0.42 )      (0.35)  
  

 

 

  

Net asset value, end of year

                  $14.58       $13.49       $12.16       $13.33       $13.39  
  

 

 

  

Total return

      10.97%       13.22%       (6.40)%       2.68%       23.28%  
Ratios to average net assets           

Expensesd

      0.68%e       0.67%e       0.66%e       0.66%e       0.64%  

Net investment incomec

      2.56%       2.62%       2.40%       3.10%       2.38%  
Supplemental data           

Net assets, end of year (000’s)

      $7,843       $10,776       $10,724       $11,619       $10,597  

Portfolio turnover rate

      0.48%       0.06%       —%       3.79%       3.04%  

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, 2017.

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,
2017a		  
 
 
Class R6   

Per share operating performance

(for a share outstanding throughout the year)

   

Net asset value, beginning of year

      $14.46  
  

 

 

  
Income from investment operationsb:   

Net investment incomec,d

      0.30  

Net realized and unrealized gains (losses)

      0.06  
  

 

 

  

Total from investment operations

      0.36  
  

 

 

  

Less distributions from net investment income

      (0.20)  
  

 

 

  

Net asset value, end of year

      $14.62  
  

 

 

  

Total returne

      2.56%  
Ratios to average net assetsf   

Expenses before waiver and payments by affiliatesg

      4.28%  

Expenses net of waiver and payments by affiliatesg

      0.06%  

Net investment incomed

      3.18%  
Supplemental data   

Net assets, end of year (000’s)

      $5  

Portfolio turnover rate

      0.48%  

aFor the period August 1, 2017 (effective date) to December 31, 2017.

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 in which the Fund invests.

eTotal return is not annualized for periods less than one year.

fRatios are annualized for periods less than one year.

gDoes not include expenses of the Underlying Funds in which the Fund invests. The weighted average indirect expenses of the Underlying Funds was 0.58% for the year ended December 31, 2017.

 

     
franklintempleton.com   The accompanying notes are an integral part of these financial statements.    |    Annual Report             25  

FRANKLIN FUND ALLOCATOR SERIES

FINANCIAL HIGHLIGHTS

 

Franklin Founding Funds Allocation Fund (continued)

 

  

 

Year Ended December 31,

 

  

 

 

  
     2017       2016       2015       2014       2013  

 

  
Advisor Class           

Per share operating performance

(for a share outstanding throughout the year)

           

Net asset value, beginning of year

      $13.54       $12.20       $13.38       $13.44       $11.20  
  

 

 

  
Income from investment operationsa:           

Net investment incomeb,c

      0.46       0.40       0.39       0.53       0.39  

Net realized and unrealized gains (losses)

      1.10       1.26       (1.18 )      (0.10)       2.26  
  

 

 

  

Total from investment operations

      1.56       1.66       (0.79)       0.43       2.65  
  

 

 

  

Less distributions from net investment income

      (0.47 )      (0.32 )      (0.39 )      (0.49 )      (0.41)  
  

 

 

  

Net asset value, end of year

                  $14.63       $13.54       $12.20       $13.38       $13.44  
  

 

 

  

Total return

      11.58%       13.82%       (5.98)%       3.17%       23.93%  

Ratios to average net assets

           

Expensesd

      0.18%e       0.17%e       0.16%e       0.16%e       0.14%  
Net investment incomec      3.06%       3.12%       2.90%       3.60%       2.88%  

Supplemental data

           

Net assets, end of year (000’s)

      $174,219       $131,368       $123,966       $141,932       $114,369  

Portfolio turnover rate

      0.48%       0.06%       —%       3.79%       3.04%  

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, 2017.

eBenefit 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

 

Statement of Investments, December 31, 2017

Franklin Founding Funds Allocation Fund

 

          

Shares

 

     

Value

 

  
 

Investments in Underlying Funds 100.1%

      
  Domestic Equity 33.4%      

a

  

Franklin Mutual Shares Fund, Class R6

      55,351,664      $ 1,583,611,110  
       

 

 

  
  Domestic Hybrid 33.3%      

a

  

Franklin Income Fund, Class R6

      670,219,817        1,581,718,767  
       

 

 

  
  Foreign Equity 33.4%      

a

  

Templeton Growth Fund Inc., Class R6

      58,210,549        1,584,491,152  
       

 

 

  
 

Total Investments in Underlying Funds

before Short Term Investments (Cost $4,365,378,349)

         4,749,821,029  
       

 

 

  
 

Short Term Investments (Cost $760) 0.0%†

      
  Money Market Funds 0.0%†      

a,b

  

Institutional Fiduciary Trust Money Market Portfolio, 0.89%

      760        760  
       

 

 

  
 

Total Investments in Underlying Funds (Cost $4,365,379,109) 100.1%

         4,749,821,789  
 

Other Assets, less Liabilities (0.1)%

         (5,752,218 ) 
       

 

 

  
 

Net Assets 100.0%

       $ 4,744,069,571  
       

 

 

  

 

†Rounds to less than 0.1% of net assets.
aSee Note 3(e) regarding investments in Underlying Funds.
bThe 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             27  

FRANKLIN FUND ALLOCATOR SERIES

 

Financial Statements

Statements of Assets and Liabilities

December 31, 2017

 

    

Franklin
Corefolio
Allocation
Fund

 

    

Franklin
Founding Funds
Allocation Fund

 

  

Assets:

    

Investments in securities:

    

Cost - Non-controlled affiliates (Note 3e)

         $531,548,740               $4,365,379,109  
 

 

 

  

Value - Non-controlled affiliates (Note 3e)

     $785,854,601       $4,749,821,789  

Cash

     167,674       3,379,455  

Receivables:

    

Capital shares sold

     616,668       2,528,815  

Other assets

     83       567  
 

 

 

  

Total assets

     786,639,026       4,755,730,626  
 

 

 

  

Liabilities:

    

Payables:

    

Capital shares redeemed

     454,841       6,125,746  

Administrative fees

     19,895       120,547  

Distribution fees

     524,143       3,467,038  

Transfer agent fees

     425,339       1,734,286  

Accrued expenses and other liabilities

     48,464       213,438  
 

 

 

  

Total liabilities

     1,472,682       11,661,055  
 

 

 

  

Net assets, at value

     $785,166,344       $4,744,069,571  
 

 

 

  

Net assets consist of:

    

Paid-in capital

     $509,792,982       $4,803,073,661  

Undistributed net investment income

     482,410       50,704,599  

Net unrealized appreciation (depreciation)

     254,305,861       384,442,680  

Accumulated net realized gain (loss)

     20,585,091       (494,151,369 ) 
 

 

 

  

Net assets, at value

     $785,166,344       $4,744,069,571  
 

 

 

  
Class A:    

Net assets, at value

     $579,707,169       $3,300,005,164  
 

 

 

  

Shares outstanding

     29,459,648       226,891,491  
 

 

 

  

Net asset value per sharea

     $19.68       $14.54  
 

 

 

  

Maximum offering price per share (net asset value per share ÷ 94.25%)

     $20.88       $15.43  
 

 

 

  
Class C:    

Net assets, at value

     $170,218,121       $1,261,997,296  
 

 

 

  

Shares outstanding

     8,761,001       88,087,017  
 

 

 

  

Net asset value and maximum offering price per sharea

     $19.43       $14.33  
 

 

 

  
Class R:    

Net assets, at value

     $    1,629,279       $      7,842,631  
 

 

 

  

Shares outstanding

     82,787       537,897  
 

 

 

  

Net asset value and maximum offering price per share

     $19.68       $14.58  
 

 

 

  
Class R6:    

Net assets, at value

     $            5,135       $             5,060  
 

 

 

  

Shares outstanding

     261       346  
 

 

 

  

Net asset value and maximum offering price per shareb

     $            19.67       $             14.62  
 

 

 

  
Advisor Class:    

Net assets, at value

     $  33,606,640       $  174,219,420  
 

 

 

  

Shares outstanding

     1,704,985       11,910,541  
 

 

 

  

Net asset value and maximum offering price per share

     $19.71       $14.63  
 

 

 

  

 

aRedemption  price is equal to net asset value less contingent deferred sales charges, if applicable.
bNet  asset value and maximum offering price may not recalculate due to rounding of net assets and/or shares outstanding.

 

     
28        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, 2017

 

     

Franklin
Corefolio
Allocation Fund

 

    

Franklin
Founding Funds
Allocation Fund

 

  

Investment income:

     

Dividends:

     

Non-controlled affiliates (Note 3e)

            $  10,253,329       $156,719,072  
  

 

 

  

Expenses:

     

Administrative fees (Note 3a)

      224,454       1,449,300  

Distribution fees: (Note 3b)

     

Class A

      1,375,575       8,315,322  

Class C

      1,681,398       13,338,219  

Class R

      7,713       45,796  

Transfer agent fees: (Note 3d)

     

Class A

      870,055       4,555,191  

Class C

      265,877       1,830,388  

Class R

      2,439       12,547  

Class R6

      73       88  

Advisor Class

      44,976       216,890  

Reports to shareholders

      54,388       366,673  

Registration and filing fees

      100,003       151,149  

Professional fees

      36,928       76,002  

Trustees’ fees and expenses

      5,076       33,789  

Other

      14,677       52,474  
  

 

 

  

Total expenses

      4,683,632       30,443,828  

Expenses waived/paid by affiliates (Note 3e and 3f)

      (258 )      (3,003 ) 
  

 

 

  

Net expenses

      4,683,374       30,440,825  
  

 

 

  

Net investment income

      5,569,955       126,278,247  
  

 

 

  

Realized and unrealized gains (losses):

     

Net realized gain (loss) from:

     

Sale of investments:

     

Non-controlled affiliates (Note 3e)

      8,776,622       72,370,637  

Capital gain distributions from Underlying Funds:

     

Non-controlled affiliates (Note 3e)

      27,522,831       68,403,604  
  

 

 

  

Net realized gain (loss)

      36,299,453       140,774,241  
  

 

 

  

Net change in unrealized appreciation (depreciation) on:

     

Investments:

     

Non-controlled affiliates (Note 3e)

      92,487,360       239,603,757  
  

 

 

  

Net realized and unrealized gain (loss)

      128,786,813       380,377,998  
  

 

 

  

Net increase (decrease) in net assets resulting from operations

      $134,356,768       $506,656,245  
  

 

 

  

 

     
franklintempleton.com   The accompanying notes are an integral part of these financial statements.    |    Annual Report             29  

FRANKLIN FUND ALLOCATOR SERIES

FINANCIAL STATEMENTS

 

Statements of Changes in Net Assets

 

   

Franklin Corefolio

Allocation Fund

    

Franklin Founding Funds

Allocation Fund

  
 

 

 

  
    Year Ended December 31,     Year Ended December 31,  
 

 

 

  
     2017     2016     2017     2016  

Increase (decrease) in net assets:

        

Operations:

        

Net investment income

       $ 5,569,955         $ 4,464,050         $ 126,278,247         $ 126,567,176  

Net realized gain (loss)

     36,299,453       23,319,424       140,774,241       95,973,585  

Net change in unrealized appreciation (depreciation)

     92,487,360       20,074,183       239,603,757       368,692,349  
 

 

 

  

Net increase (decrease) in net assets resulting from operations

     134,356,768       47,857,657       506,656,245       591,233,110  
 

 

 

  

Distributions to shareholders from:

        

Net investment income and short term gains received from

        

Underlying Funds:

        

Class A

     (5,257,240 )      (4,860,981 )      (98,666,117 )      (73,164,442 ) 

Class C

     (301,168 )      (353,650 )      (29,019,210 )      (21,414,705 ) 

Class R

     (10,966 )      (10,552 )      (216,032 )      (214,299 ) 

Class R6

     (64 )      —         (69 )      —    

Advisor Class

     (387,654 )      (273,325 )      (5,346,121 )      (3,114,421 ) 

Net realized gains:

        

Class A

     (17,289,079 )      (23,135,786 )      —         —    

Class C

     (5,280,861 )      (7,634,487 )      —         —    

Class R

     (49,108 )      (68,108 )      —         —    

Class R6

     (65 )      —         —         —    

Advisor Class

     (922,908 )      (918,626 )      —         —    
 

 

 

  

Total distributions to shareholders

     (29,499,113 )      (37,255,515 )      (133,247,549 )      (97,907,867 ) 
 

 

 

  

Capital share transactions: (Note 2)

        

Class A

     (4,837,099 )      (23,919,590 )      (266,326,868 )      (372,282,081 ) 

Class C

     (14,328,351 )      (13,720,355 )      (245,847,581 )      (198,606,550 ) 

Class R

     (47,258 )      10,564       (3,696,768 )      (1,069,039 ) 

Class R6

     5,000       —         5,000       —    

Advisor Class

     7,075,931       2,992,796       31,363,501       (5,366,638 ) 
 

 

 

  

Total capital share transactions

     (12,131,777 )      (34,636,585 )      (484,502,716 )      (577,324,308 ) 
 

 

 

  

Net increase (decrease) in net assets

     92,725,878       (24,034,443 )      (111,094,020 )      (83,999,065 ) 

Net assets:

        

Beginning of year

     692,440,466       716,474,909       4,855,163,591       4,939,162,656  
 

 

 

  

End of year

     $785,166,344       $692,440,466       $4,744,069,571       $4,855,163,591  
 

 

 

  

Undistributed net investment income included in net assets:
End of year

       $ 482,410         $ 497,334         $ 50,704,599         $ 54,471,274  
 

 

 

  

 

     
30        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-three 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 Funds invest in affiliated mutual funds managed by Franklin Templeton (Underlying Funds). The Funds offer five classes of shares: Class A, Class C, Class R, Class R6 and Advisor Class. Each class of shares may differ by its initial sales load, contingent deferred sales charges, voting rights on matters affecting a single class, its exchange privilege and fees due to differing arrangements for distribution and transfer agent fees. Effective August 1, 2017, the Funds began offering a new class of shares, Class R6.

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, 2017, 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 the statute of limitations in each jurisdiction in which the Fund invests.

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. 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. 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.

 

 

     
franklintempleton.com   Annual Report             31  

FRANKLIN FUND ALLOCATOR SERIES

NOTES TO FINANCIAL STATEMENTS

 

 

1.  Organization and Significant Accounting

Policies (continued)

c.  Security Transactions, Investment Income, Expenses and Distributions (continued)

Realized and unrealized gains and losses and net investment income, excluding 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, 2017, there were an unlimited number of shares authorized (without par value). Transactions in the Funds’ shares were as follows:

 

     Franklin Corefolio
Allocation Fund		             Franklin Founding Funds
Allocation Fund		  
      Shares      Amount             Shares      Amount  

Class A Shares:

              
Year ended December 31, 2017              
Shares sold      2,817,012      $ 52,910,655          15,304,440      $ 217,551,523   
Shares issued in reinvestment of distributions      1,141,388        22,008,253          6,557,756        93,750,165   
Shares redeemed      (4,256,707 )       (79,756,007 )         (40,784,255 )       (577,628,556)  
  

 

 

  

 

Netincrease (decrease)

 

     

 

 (298,307

 

 ) 

 

    $

 

 (4,837,099

 

 ) 

 

       

 

 (18,922,059

 

 ) 

 

    $

 

 (266,326,868)

 

  

 

  

 

 

  
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)  
  

 

 

  

Netincrease (decrease)

 

     

 

 (1,405,714

 

 ) 

 

    $

 

 (23,919,590

 

 ) 

 

       

 

 (29,879,471

 

 ) 

 

    $

 

 (372,282,081)

 

  

 

  

 

 

  
Class C Shares:              
Year ended December 31, 2017              
Shares sold      992,423      $ 18,395,905          5,064,004      $ 70,473,622   
Shares issued in reinvestment of distributions      290,484        5,486,825          2,019,077        28,382,010   
Shares redeemed      (2,060,680 )       (38,211,081 )         (24,718,389 )       (344,703,213)  
  

 

 

  

Net increase (decrease)

 

     

 

 (777,773

 

 ) 

 

    $

 

 (14,328,351

 

 ) 

 

       

 

 (17,635,308

 

 ) 

 

    $

 

 (245,847,581)

 

  

 

  

 

 

  
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)

 

  

 

  

 

 

  

 

32        Annual Report   franklintempleton.com

FRANKLIN FUND ALLOCATOR SERIES

NOTES TO FINANCIAL STATEMENTS

 

 

 

     Franklin Corefolio
Allocation Fund		            Franklin Founding Funds
Allocation Fund		  
      Shares      Amount            Shares     Amount  

 

Class R Shares:

            
Year ended December 31, 2017            
Shares sold      5,857      $ 108,807         67,650     $ 953,078   
Shares issued in reinvestment of distributions      3,123        60,074         14,667       210,003   
Shares redeemed      (11,854 )       (216,139 )        (343,308 )      (4,859,849)  
  

 

 

  

Net increase (decrease)

 

     

 

 (2,874

 

 ) 

 

    $

 

 (47,258

 

 ) 

 

      

 

 (260,991

 

 ) 

 

   $

 

 (3,696,768)

 

  

 

  

 

 

  
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)

 

  

 

  

 

 

  

Class R6 Shares:

            

Year ended December 31, 2017a

            
Shares sold      261      $ 5,000         346     $ 5,000   
  

 

 

  
Advisor Class Shares:            
Year ended December 31, 2017            
Shares sold      637,225      $ 12,034,539         5,316,982     $ 75,701,599   
Shares issued in reinvestment of distributions      53,681        1,040,547         329,521       4,742,068   
Shares redeemed      (316,011 )       (5,999,155 )        (3,436,382 )      (49,080,166)  
  

 

 

  
Net increase (decrease)     

 

 374,895

 

  

 

    $

 

 7,075,931

 

  

 

      

 

 2,210,121

 

  

 

   $

 

 31,363,501 

 

  

 

  

 

 

  

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)

 

  

 

  

 

 

  

aFor the period August 1, 2017 (effective date) to December 31, 2017.

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.

 

franklintempleton.com   Annual Report         33  

FRANKLIN FUND ALLOCATOR SERIES

NOTES TO FINANCIAL STATEMENTS

 

3.   Transactions with Affiliates (continued)

b.   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.

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
Corefolio
Allocation Fund		      Franklin
Founding Funds
Allocation Fund		  

 

  

 

Sales charges retained net of commissions paid to unaffiliated brokers/dealers

      $146,680        $464,283  

 

CDSC retained

   

 

 

 

$    7,041

 

 

   

 

 

 

$  37,405

 

 

d.   Transfer Agent Fees

Each class of shares pays transfer agent fees to Investor Services for its performance of shareholder servicing obligations. Effective November 1, 2017, the fees are based on an annualized asset based fee of 0.02% plus a transaction based fee. Prior to November 1, 2017, the fees were account based fees that varied based on fund or account type. In addition, each class reimburses Investor Services for out of pocket expenses incurred and, except for Class R6, reimburses 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, 2017, the Funds paid transfer agent fees as noted in the Statements of Operations of which the following amounts were retained by Investor Services:

 

     Franklin
Corefolio
Allocation Fund		      Franklin
Founding Funds
Allocation Fund		  

 

  

Transfer agent fees

      $528,552        $2,392,862  

 

34        Annual Report   franklintempleton.com

FRANKLIN FUND ALLOCATOR SERIES

NOTES TO FINANCIAL STATEMENTS

 

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.

Investments in Underlying Funds for the year ended December 31, 2017, were as follows:

 

Underlying Funds    Number of
Shares Held
at Beginning
of Year		      Gross
Additions		      Gross
Reductions		     Number of
Shares
Held at End
of Year		      Value
at End
of Year		      Dividend
Income		      Realized
Gain (Loss)		     Net Change
in Unrealized
Appreciation
(Depreciation)		  

 

  

Franklin Corefolio Allocation Fund

                      

Non-Controlled Affiliates

                      

Franklin Growth Fund, Class R6

      2,263,209        66,072        (225,372 )      2,103,909      $ 198,903,592      $ 1,518,520      $ 10,954,927a     $ 32,811,944  

Franklin Growth Opportunities Fund,

                      

Class R6

      5,120,061        372,224        (473,448 )      5,018,837        196,888,988        —          16,247,695a       31,248,852  

Franklin Mutual Shares Fund,

                      

Class R6

      6,230,761        625,569        (120,027 )      6,736,303        192,725,624        4,584,944        8,234,261a       2,352,481  

Institutional Fiduciary Trust Money

                      

Market Portfolio, 0.89%

      329,163        34,776,618        (35,105,702 )      79        79        2,739        —         —    

Templeton Growth Fund Inc.,

                      

Class R6

      7,490,909        154,513        (395,741 )      7,249,681        197,336,318        4,147,126        862,570       26,074,083  
             

 

 

  

Total Affiliated Securities

               $ 785,854,601      $ 10,253,329      $ 36,299,453     $ 92,487,360  
             

 

 

  

Franklin Founding Funds Allocation Fund

 

                   

Non-Controlled Affiliates

                      

Franklin Income Fund, Class R6

      702,953,600        41,319,775        (74,053,558 )      670,219,817      $ 1,581,718,767      $ 85,349,534      $ (789,224 )    $ 49,011,854  

Franklin Mutual Shares Fund,

                      

Class R6

      56,858,363        3,729,234        (5,235,933 )      55,351,664        1,583,611,110        37,788,848        101,534,983a       (6,107,520 ) 

Institutional Fiduciary Trust Money

                      

Market Portfolio, 0.89%

      45,364,019        276,014,060        (321,377,319 )      760        760        28,603        —         —    

Templeton Growth Fund Inc.,

                      

Class R6

      68,244,005        1,702,639        (11,736,095 )      58,210,549        1,584,491,152        33,552,087        40,028,482       196,699,423  
             

 

 

  

Total Affiliated Securities

               $ 4,749,821,789      $ 156,719,072      $ 140,774,241     $ 239,603,757  
             

 

 

  

aIncludes realized gain distributions received.

f.   Waiver and Expense Reimbursements

For the Funds Investor Services has voluntarily agreed in advance to waive or limit its fees so that the Class R6 transfer agent fees do not exceed 0.03%. Investor Services may discontinue this waiver in the future.

4.   Income Taxes

For tax purposes, capital losses may be carried over to offset future capital gains. At December 31, 2017, the capital loss carryforwards were as follows:

 

    

 Franklin
Founding Funds
Allocation Fund		  
 
 

 

  

Capital loss carryforwards subject to expiration:

   

2018

      $465,945,460  
  

 

 

  

 

franklintempleton.com   Annual Report             35  

FRANKLIN FUND ALLOCATOR SERIES

NOTES TO FINANCIAL STATEMENTS

 

4.     Income Taxes (continued)

During the year ended December 31, 2017, Franklin Founding Funds Allocation Fund utilized $137,484,992 of capital loss carryforwards.

On December 31, 2017, Franklin Founding Funds Allocation Fund had expired capital loss carryforwards of $1,003,221,597, which were reclassified to paid-in capital.

The tax character of distributions paid during the years ended December 31, 2017 and 2016, was as follows:

 

     Franklin Corefolio
Allocation Fund		      Franklin Founding Funds
Allocation Fund		  
     2017      2016      2017      2016  

 

  

Distributions paid from:

            

Ordinary income

     $ 6,711,024      $ 5,497,971      $ 133,247,549      $ 97,907,867  

Long term capital gain

      22,788,089        31,757,544        —        —  
  

 

 

  
      $29,499,113      $37,255,515      $133,247,549      $97,907,867  
  

 

 

  

At December 31, 2017, 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
Corefolio
Allocation Fund		     Franklin
Founding Funds
Allocation Fund		  

 

  

Cost of investments

            $ 535,002,871     $ 4,393,585,020  
  

 

 

  

Unrealized appreciation

            $ 254,305,861     $ 416,961,563  

Unrealized depreciation

      (3,454,131 )      (60,724,794 ) 
  

 

 

  

Net unrealized appreciation (depreciation)

            $ 250,851,730     $ 356,236,769  
  

 

 

  

Undistributed ordinary income

            $ 503,247     $ 50,704,622  

Undistributed long term capital gains

      24,018,389       —  
  

 

 

  

Distributable earnings

            $ 24,521,636     $ 50,704,622  
  

 

 

  

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.

In accordance with U.S. GAAP permanent differences are reclassified among capital accounts to reflect their tax character. At the year ended December 31, 2017, such reclassifications were as follows:

 

    

 Franklin
Founding Funds
Allocation Fund		  
 
 

 

  

Paid-in Capital

    $ (1,003,221,596 ) 

Undistributed net investment income

    $ 3,202,627  

Accumulated net realized gain (loss)

    $ 1,000,018,969  

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.

 

36            Annual Report   franklintempleton.com

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, 2017, were as follows:

 

     Franklin
Corefolio
Allocation Fund		      Franklin
Founding Funds
Allocation Fund		  

 

  

Purchases

    $ 5,300,000      $ 23,000,000  

Sales

    $ 51,733,782      $ 629,767,047  

6.   Credit Facility

The Funds, together with other U.S. registered and foreign investment funds (collectively, Borrowers), managed by Franklin Templeton Investments, are borrowers in a joint syndicated senior unsecured credit facility totaling $2 billion (Global Credit Facility) which matured on February 9, 2018. 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 9, 2018, the Borrowers renewed the Global Credit Facility for a one year term, maturing February 8, 2019, 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, 2017, 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, 2017, 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.

 

franklintempleton.com   Annual Report         37  

FRANKLIN FUND ALLOCATOR SERIES

NOTES TO FINANCIAL STATEMENTS

 

 

8.   Subsequent Events

The Funds have evaluated subsequent events through the issuance of the financial statements and determined that no events have occurred that require disclosure other than those already disclosed in the financial statements.

 

38        Annual Report   franklintempleton.com

FRANKLIN FUND ALLOCATOR SERIES

 

Report of Independent Registered Public Accounting Firm

To the Board of Trustees of Franklin Fund Allocator Series and Shareholders of Franklin Corefolio Allocation Fund and Franklin Founding Funds Allocation Fund

Opinions on the Financial Statements

We have audited the accompanying statements of assets and liabilities, including the statements of investments, of Franklin Corefolio Allocation Fund and Franklin Founding Funds Allocation Fund (the “Funds”) as of December 31, 2017, the related statements of operations for the year ended December 31, 2017, the statements of changes in net assets for each of the two years in the period ended December 31, 2017, including the related notes, and the financial highlights for each of the periods indicated therein (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of each of the Funds as of December 31, 2017, 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 ended December 31, 2017, and each of the financial highlights for each of the periods indicated therein, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinions

These financial statements are the responsibility of the Funds’ management. Our responsibility is to express an opinion on the Funds’ financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Funds in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits of these financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our procedures included confirmation of securities owned as of December 31, 2017 by correspondence with the transfer agent. We believe that our audits provide a reasonable basis for our opinions.

PricewaterhouseCoopers LLP

San Francisco, California

February 15, 2018

We have served as the auditor of one or more investment companies in the Franklin Templeton Group of Funds since 1948.

 

     
franklintempleton.com  

Annual Report    

     39  

FRANKLIN FUND ALLOCATOR SERIES

 

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 $24,924,952 as a long term capital gain dividend for the fiscal year ended December 31, 2017.

Under Section 871(k)(2)(C) of the Code, Franklin Corefolio Allocation Fund hereby reports the maximum amount allowable but no less than $753,932 as a short term capital gain dividend for purposes of the tax imposed under Section 871(a)(1)(A) of the Code for the fiscal year ended December 31, 2017.

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, 2017:

 

Franklin
Corefolio
    Allocation Fund		     Franklin
Founding Funds
Allocation Fund		  

 

 

  
  98.70%       46.46%  

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, 2017:

 

Franklin

Corefolio
    Allocation Fund

     Franklin
Founding Funds
Allocation Fund		  

 

 

  
  $10,223,410       $100,834,323  

Distributions, including qualified dividend income, paid during calendar year 2017 will be reported to shareholders on Form 1099-DIV by mid-February 2018. 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, 2017, 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 27, 2017, 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, Class R6, and Advisor Class shareholders of record.

 

Class    Foreign Tax Paid
Per Share		      Foreign Source
Income Per Share		      Foreign Source Qualified
Dividends Per Share		  

 

  

Franklin Corefolio Allocation Fund

         

Class A

      $0.0076        $0.0748        $0.0531  

Class C

      $0.0076        $0.0748        $0.0531  

Class R

      $0.0076        $0.0748        $0.0531  

Class R6

      $0.0076        $0.0748        $0.0531  

Advisor Class

      $0.0076        $0.0748        $0.0531  

Franklin Founding Funds Allocation Fund

         

Class A

      $0.0075        $0.0732        $0.0520  

Class C

      $0.0075        $0.0732        $0.0520  

Class R

      $0.0075        $0.0732        $0.0520  

Class R6

      $0.0075        $0.0732        $0.0520  

Advisor Class

      $0.0075        $0.0732        $0.0520  

 

     
40        Annual Report           franklintempleton.com

FRANKLIN FUND ALLOCATOR SERIES

 

 

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 2018, shareholders will receive Form 1099-DIV which will include their share of taxes paid and foreign source income distributed during the calendar year 2017. 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 2017 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.

 

     
franklintempleton.com           Annual Report             41  

FRANKLIN FUND ALLOCATOR SERIES

 

Special Meeting of Shareholders

MEETING OF SHAREHOLDERS: OCTOBER 30, 2017 AND RECONVENED ON DECEMBER 15, 2017 AND DECEMBER 29, 2017

(UNAUDITED)

A Special Meeting of Shareholders of Franklin Fund Allocator Series was held at the offices of Franklin Templeton Investments, One Franklin Parkway, San Mateo, California on October 30, 2017 and reconvened on December 15, 2017 and December 29, 2017. The purpose of the meeting was to elect Trustees of Franklin Fund Allocator Series and to vote to approve an amended fundamental investment restriction regarding investments in commodities for each of the Funds. At the meeting, (i) the following persons were elected by the shareholders to serve as Trustees of Franklin Fund Allocator Series: Harris J. Ashton, Terrence J. Checki, Mary C. Choksi, Edith E. Holiday, Gregory E. Johnson, Rupert H. Johnson, Jr., J. Michael Luttig, Larry D. Thompson, and John B. Wilson; (ii) the proposal to approve the amended fundamental investment restriction regarding investments in commodities was approved by shareholders of Franklin Corefolio Allocation Fund; and (iii) sufficient votes were not received to pass the proposal to approve the amended fundamental investment restriction regarding investments in commodities for Franklin Founding Funds Allocation Fund. No other business was transacted at the meeting.

The results of the voting at the meeting are as follows:

Proposal 1.     To elect a Board of Trustees:

 

Name    For      Withheld  

Harris J. Ashton

      390,516,091        13,444,532  

Terrence J. Checki

      390,358,474        13,602,149  

Mary C. Choksi

      390,976,557        12,983,067  

Edith E. Holiday

      390,925,009        13,035,612  

Gregory E. Johnson

      390,675,564        13,285,060  

Rupert H. Johnson, Jr.

      390,454,015        13,506,608  

J. Michael Luttig

      390,724,016        13,236,605  

Larry D. Thompson

      390,661,770        13,298,853  

John B. Wilson

      390,907,907        13,052,714  

Total Trust Shares Outstanding*: 723,360,102

Proposal 2.     To approve an amended fundamental investment restriction regarding investments in commodities:

Franklin Corefolio Allocation Fund

 

      Shares  

For

      17,990,563  

Against

      588,502  

Abstain

      670,098  

Broker Non-Votes

      5,340,847  

Total Fund Shares Voted

      24,590,010  

Total Fund Shares Outstanding*

      39,942,536  

* As of the record date.

 

 

     
42        Annual Report   franklintempleton.com

FRANKLIN FUND ALLOCATOR SERIES

SPECIAL MEETING OF SHAREHOLDERS

 

 

Franklin Founding Funds Allocation Fund

 

      Shares  

For

      127,977,712  

Against

      4,409,609  

Abstain

      7,018,584  

Broker Non-Votes

      54,728,638  

Total Fund Shares Voted

      194,134,543  

Total Fund Shares Outstanding*

      339,036,905  

 

     
franklintempleton.com   Annual Report             43  

FRANKLIN FUND ALLOCATOR SERIES

 

Board Members and Officers

The name, year of birth and address of the officers and board members, as well as their affiliations, positions held with the Trust, principal occupations during at least the past five years and number of US 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

 

Name, Year of Birth
and Address

 

   

Position

 

     

Length of
Time Served

 

     

Number of Portfolios in
Fund Complex Overseen
by Board Member*

 

     

Other Directorships Held

During at Least the Past 5 Years

 

Harris J. Ashton (1932)

One Franklin Parkway

San Mateo, CA 94403-1906

    Trustee      Since 1995      139      Bar-S Foods (meat packing company) (1981-2010).

 

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).

 

Terrence J. Checki (1945)

One Franklin Parkway

San Mateo, CA 94403-1906

    Trustee     

Since December

2017

      113      Hess Corporation (exploration of oil and gas) (2014-present).

Principal Occupation During at Least the Past 5 Years:

          

Member of the Council on Foreign Relations (1996-present); Member of the National Committee on U.S.-China Relations (1999-present); member of the Board of Trustees of the Economic Club of New York (2013 -present); member of the Board of Trustees of the Foreign Policy Association (2005-present) and member of various other boards of trustees and advisory boards; and formerly, Executive Vice President of the Federal Reserve Bank of New York and Head of its Emerging Markets and Internal Affairs Group and Member of Management Committee (1995-2014); and Visiting Fellow at the Council on Foreign Relations (2014).

 

 

Mary C. Choksi (1950)

One Franklin Parkway

San Mateo, CA 94403-1906

    Trustee      Since 2014      139      Avis Budget Group Inc. (car rental) (2007-present), Omnicom Group Inc. (advertising and marketing communications services) (2011-present) and White Mountains Insurance Group, Ltd. (holding company) (2017).

Principal Occupation During at Least the Past 5 Years:

          

Director of various companies; and formerly, Founder and Senior Advisor, Strategic Investment Group (investment management group) (2015-2017); 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)

One Franklin Parkway

San Mateo, CA 94403-1906

    Trustee      Since 1998      139      Hess Corporation (exploration and refining of oil and gas) (1993-present), Canadian National Railway (railroad) (2001-present), White Mountains Insurance Group, Ltd. (holding company) (2004-present), Santander Consumer USA Holdings, Inc. (consumer finance) (2016-Present), 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)

One Franklin Parkway

San Mateo, CA 94403-1906

    Trustee      Since 2009      139      Boeing Capital Corporation (aircraft financing) (2006-2013).

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).

 

 

     
44        Annual Report   franklintempleton.com

FRANKLIN FUND ALLOCATOR SERIES

 

Independent Board Members (continued)

 

Name, Year of Birth and
Address

 

  

Position

 

     

Length of

Time Served

 

     

Number of Portfolios in
Fund Complex Overseen
by Board Member*

 

     

Other Directorships Held

During at Least the Past 5 Years

 

Larry D. Thompson (1945)

One Franklin Parkway

San Mateo, CA 94403-1906

   Trustee      Since 2007      139      The Southern Company (energy company) (2014-present; previously 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; Counsel, Finch McCranie, LLP (law firm) (2015-present); Independent Compliance Monitor and Auditor, Volkswagen AG (manufacturer of automobiles and commercial vehicles) (2017); 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)

One Franklin Parkway

San Mateo, CA 94403-1906

   Lead
Independent
Trustee		      Trustee since 2006 and Lead Independent Trustee since 2008      113      None

Principal Occupation During at Least the Past 5 Years:

President and Founder, Hyannis Port Capital, Inc. (real estate and private equity investing) (2002-present); serves on private and non-profit boards; and formerly, President, Staples International and Head of Global Transformation (office supplies) (2012-2016); 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

 

Name, Year of Birth

and Address

 

  

Position

 

     

Length of

Time Served

 

     

Number of Portfolios in
Fund Complex Overseen
by Board Member*

 

     

Other Directorships Held

During at Least the Past 5 Years

 

**Gregory E. Johnson (1961)

One Franklin Parkway

San Mateo, CA 94403-1906

   Trustee      Since 2007      153      None

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 43 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)

One Franklin Parkway

San Mateo, CA 94403-1906

   Chairman of
the Board
and Trustee		      Since 2013      139      None

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 41 of the investment companies in Franklin Templeton Investments.

 

 

Alison E. Baur (1964)

One Franklin Parkway

San Mateo, CA 94403-1906

   Vice
President		      Since 2012      Not Applicable      Not Applicable

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.

 

 

 

     
franklintempleton.com   Annual Report             45  

FRANKLIN FUND ALLOCATOR SERIES

 

Interested Board Members and Officers (continued)

 

Name, Year of Birth
and Address

 

    Position   

Length of

Time Served

    Number of Portfolios in
Fund Complex Overseen
by Board Member*		    Other Directorships Held
During at
Least the Past 5
Years
Gaston Gardey (1967)
One Franklin Parkway
San Mateo, CA 94403-1906		    Chief Financial
Officer,
Chief
Accounting
Officer and
Treasurer		    Since 2009    Not Applicable    Not Applicable

 

Principal Occupation During at Least the Past 5 Years:

Treasurer, U.S. Fund Administration & Reporting, Franklin Templeton Investments; and officer of 28 of the investment companies in Franklin Templeton Investments.

 

Aliya S. Gordon (1973)
One Franklin Parkway
San Mateo, CA 94403-1906		    Vice President    Since 2009    Not Applicable    Not Applicable
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)
One Franklin Parkway
San Mateo, CA 94403-1906		    Vice President    Since 2009    Not Applicable    Not Applicable
Principal Occupation During at Least the Past 5 Years:

Senior Associate General Counsel, Franklin Templeton Investments; Vice President, Franklin Templeton Distributors, Inc. and FASA,

LLC; and officer of 45 of the investment companies in Franklin Templeton Investments.

 

Matthew T. Hinkle (1971)
One Franklin Parkway
San Mateo, CA 94403-1906		    Chief Executive
Officer –
Finance and Administration 		   Since
June 2017		    Not Applicable    Not Applicable

 

Principal Occupation During at Least the Past 5 Years:

Senior Vice President, Franklin Templeton Services, LLC; officer of 45 of the investment companies in Franklin Templeton Investments; and formerly, Vice President, Global Tax (2012-April 2017) and Treasurer/Assistant Treasurer, Franklin Templeton Investments (2009-2017).

 

Edward B. Jamieson (1948)
One Franklin Parkway
San Mateo, CA 94403-1906		    President and Chief Executive Officer – Investment Management    Since 2010    Not Applicable    Not Applicable

 

Principal Occupation During at Least the Past 5 Years:

President 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)
One Franklin Parkway
San Mateo, CA 94403-1906

 

    Vice President –AML Compliance    Since 2016    Not Applicable    Not Applicable
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)
300 S.E. 2nd Street
Fort Lauderdale, FL 33301-1923		    Vice President    Since 2013    Not Applicable    Not Applicable

 

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.

 

 

     
46        Annual Report   franklintempleton.com

FRANKLIN FUND ALLOCATOR SERIES

 

Interested Board Members and Officers (continued)

 

Name, Year of Birth
and Address

 

    Position    Length of
Time Served		    Number of Portfolios in
Fund Complex Overseen
by Board Member*		    Other Directorships Held
During at Least the Past 5 Years
Robert C. Rosselot (1960)
300 S.E. 2nd Street
Fort Lauderdale, FL 33301-1923		    Chief Compliance Officer    Since 2013    Not Applicable    Not Applicable

 

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)
One Franklin Parkway
San Mateo, CA 94403-1906		    Vice President and Secretary    Since 2006    Not Applicable    Not Applicable

 

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)
One Franklin Parkway
San Mateo, CA 94403-1906		    Vice President    Since 2015    Not Applicable    Not Applicable

 

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)
One Franklin Parkway
San Mateo, CA 94403-1906		    Vice President    Since 2005    Not Applicable    Not Applicable

 

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)
300 S.E. 2nd Street
Fort Lauderdale, FL 33301-1923		    Vice President    Since 2011    Not Applicable    Not Applicable

 

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 US registered investment companies within the Franklin Templeton Investments fund complex. These portfolios have a common investment manager or affiliated investment managers.

**GregoryE. Johnson is considered to be an interested person of the Fund under the federal securities laws due to his position as an officer and director of Franklin 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.

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.

 

     
franklintempleton.com   Annual Report             47  

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 US 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.

 

 

     
48        Annual Report   franklintempleton.com

 

 

 

 

 

 

LOGO

  

Annual Report and Shareholder Letter

Franklin Fund Allocator Series

 

  

Fund Administrator

  

Franklin Templeton Services, LLC

 

  

Distributor

  

Franklin Templeton Distributors, Inc.

(800) DIAL BEN® / 342-5236

franklintempleton.com

 

  

Shareholder Services

(800) 632-2301

 

Authorized for distribution only when accompanied or preceded by a summary prospectus and/or prospectus. Investors should carefully consider a fund’s investment goals, risks, charges and expenses before investing. A prospectus contains this and other information; please read it carefully before investing.

To help ensure we provide you with quality service, all calls to and from our service areas are monitored and/or recorded.

 

© 2018 Franklin Templeton Investments. All rights reserved.   

FAS2 A 02/18

                     LOGO  

Annual Report

and Shareholder Letter

 

December 31, 2017

 

 

Franklin Fund Allocator Series

 

 

 

 

    

Franklin LifeSmart™

Retirement Income Fund

2020 Retirement Target Fund

2025 Retirement Target Fund

2030 Retirement Target Fund

2035 Retirement Target Fund

    

    

 

2040 Retirement Target Fund

2045 Retirement Target Fund

2050 Retirement Target Fund

2055 Retirement Target Fund

 

 

LOGO

Sign up for electronic delivery at franklintempleton.com/edelivery

Franklin Templeton Investments

Gain From Our Perspective®

At Franklin Templeton Investments, we’re dedicated to one goal: delivering exceptional asset management for our clients. By bringing together multiple, world-class investment teams in a single firm, we’re able to offer specialized expertise across styles and asset classes, all supported by the strength and resources of one of the world’s largest asset managers. This has helped us to become a trusted partner to individual and institutional investors across the globe.

 

 

 

 

Dear Shareholder:

 

During the 12 months ended December 31, 2017, mostly upbeat economic data, improved corporate earnings and supportive monetary policies were positives for US securities markets. After two rate increases earlier in 2017, at its December meeting the US Federal Reserve (Fed) raised the target range for its benchmark federal funds rate 0.25% to 1.25%–1.50% amid ongoing labor market strength, rising economic activity and low inflation in the US. The Fed also announced a gradual monthly reduction in its balance sheet starting in January of 2018 as part of its ongoing plan to normalize monetary policy.

In this environment, US stocks, as measured by the Standard & Poor’s® 500 Index, ended the period with a +21.83% total return.1 Stocks in global developed markets, as measured by the MSCI World Index, returned +23.07% for the same period.1 Investment-grade bonds, as measured by the Bloomberg Barclays US Aggregate Bond Index, posted a +3.54% 12-month total return,1 and short-term investments, as measured by the Citigroup 3-Month Treasury Bill Index, returned +0.84%.2

We are committed to our long-term perspective and disciplined investment approach as we conduct a rigorous, fundamental analysis of securities with a regular emphasis on investment risk management.

We believe active, professional investment management serves investors well. We also recognize the important role of financial advisors in today’s markets and encourage investors to continue to seek their advice. Amid changing markets and

economic conditions, we are confident investors with a well-diversified portfolio and a patient, long-term outlook will be well positioned for the years ahead.

In addition, Franklin Fund Allocator Series’ annual report includes more detail about prevailing conditions and a discussion about investment decisions during the period. Please remember all securities markets fluctuate, as do mutual fund share prices.

We thank you for investing with Franklin Templeton, welcome your questions and comments, and look forward to serving your investment needs in the years ahead.

Sincerely,

 

LOGO

Rupert H. Johnson, Jr.

Chairman

Franklin Fund Allocator Series

This letter reflects our analysis and opinions as of December 31, 2017, unless otherwise indicated. The information is not a complete analysis of every aspect of any market, country, industry, security or fund. Statements of fact are from sources considered reliable.

 

 

1. Source: Morningstar.

2. Source: FactSet.

See www.franklintempletondatasources.com for additional data provider information.

 

Not FDIC Insured   |   May Lose Value   |   No Bank Guarantee

 

     
franklintempleton.com   Not part of the annual report              1  

 

 

Contents

 

Annual Report   
Economic and Market Overview      3  
Franklin LifeSmart™ Retirement Income Fund      4  
Franklin LifeSmart™ 2020 Retirement Target Fund      11  
Franklin LifeSmart™ 2025 Retirement Target Fund      17  
Franklin LifeSmart™ 2030 Retirement Target Fund      23  
Franklin LifeSmart™ 2035 Retirement Target Fund      29  
Franklin LifeSmart™ 2040 Retirement Target Fund      35  
Franklin LifeSmart™ 2045 Retirement Target Fund      41  
Franklin LifeSmart™ 2050 Retirement Target Fund      47  
Franklin LifeSmart™ 2055 Retirement Target Fund      53  
Financial Highlights and Statements of Investments      59  
Financial Statements      120  
Notes to Financial Statements      134  
Report of Independent Registered Public Accounting Firm      158  
Tax Information      159  
Special Meeting of Shareholders      162  
Board Members and Officers      167  
Shareholder Information      171  
          

Visit franklintempleton.com for fund updates, to access your account, or to find helpful financial planning tools.

    

 

 

     
  2          Annual Report   franklintempleton.com

Annual Report

Economic and Market Overview

 

The global economy grew moderately during the 12-month period under review. In this environment, global developed and emerging market stocks generated a +24.62% total return, as measured by the MSCI All Country World Index.1 Global markets were aided by price gains in oil and other commodities, generally upbeat economic data across regions, the European Central Bank’s (ECB’s) extension of its monetary easing program, and investor optimism about pro-growth and pro-business policies in the US. The prospect for reforms in the European Union (EU) with Emmanuel Macron’s election as France’s president, encouraging corporate earnings reports and the passage of the US tax reform bill also supported global stocks.

However, global markets reflected investor concerns about the terms of the UK’s exit from the EU, political uncertainty in the US and the EU, and geopolitical tensions in the Korean peninsula and other regions. Other concerns included the health of European banks, global oil oversupply despite a pact by major oil-producing countries to extend production cuts, and comments from key central bankers around the world about potentially raising interest rates.

After strengthening in 2017’s second and third quarters, the US economy moderated in the fourth quarter. The economy grew faster in 2017 than in 2016, however, largely due to growth in consumer spending, business investment and exports. The unemployment rate decreased from 4.7% in December 2016 to 4.1% at period-end.2 Annual inflation, as measured by the Consumer Price Index, was 2.1% in December 2016, and while it varied over the 12-month period, remained unchanged at period-end.2 The US Federal Reserve (Fed) raised its target range for the federal funds rate 0.25% three times during the period, amid signs of a growing US economy, strengthening labor market and improving business spending. At its December meeting, the Fed confirmed that the monthly balance sheet reduction would increase from US$10 billion to US$20 billion beginning in January 2018.

In Europe, the UK’s economic growth moderated in 2017 compared to 2016, largely due to slower growth in the services sector. In November, the Bank of England raised its key policy rate 0.25%, its first increase in a decade. The eurozone’s growth accelerated in 2017’s second and third quarters, but moderated in the fourth quarter. However, the eurozone’s 2017

economic growth rate was the fastest in a decade. The bloc’s annual inflation rate, while low, ended higher than in December 2016. The European Central Bank (ECB) kept its benchmark interest rate unchanged during the period. However, at its October meeting, the ECB extended the time frame for its massive bond-buying program from December 2017 to at least September 2018, while reducing the amount of monthly bond purchases in half beginning in January 2018.

In Asia, Japan’s quarterly gross domestic product (GDP) grew for the seventh consecutive quarter, although third-quarter 2017 growth was lower than the previous quarter. The Bank of Japan left its benchmark interest rate unchanged during the period and continued its monetary stimulus measures.

In emerging markets, Brazil’s quarterly GDP grew for the third consecutive quarter, although third-quarter 2017 growth slowed from the previous quarter. The country’s central bank cut its benchmark interest rate several times during the period to spur economic growth. Russia’s GDP grew in 2017’s first three quarters compared to the prior-year periods, amid the Bank of Russia’s continued policy support. China’s GDP grew faster in 2017 than in 2016, supported by solid growth in industrial production, services, fixed-asset investment, retail sales, and imports and exports. The People’s Bank of China left its benchmark interest rate unchanged during the period. Overall, emerging market stocks, as measured by the MSCI Emerging Markets Index, rose substantially during the period.

The foregoing information reflects our analysis and opinions as of December 31, 2017. The information is not a complete analysis of every aspect of any market, country, industry, security or fund. Statements of fact are from sources considered reliable.

 

 

1. Source: Morningstar.

2. Source: US Bureau of Labor Statistics.

See www.franklintempletondatasources.com for additional data provider information.

 

 

franklintempleton.com

   Annual Report             3  

Franklin LifeSmart Retirement Income Fund

 

This annual report for Franklin LifeSmart Retirement Income Fund covers the fiscal year ended December 31, 2017.

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.

Asset Allocation*

Based on Total Net Assets as of 12/31/17

 

LOGO

*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.

**Rounds to less than 0.1%.

Performance Overview

The Fund’s Class A shares delivered a +4.84% cumulative total return for the 12 months ended December 31, 2017. 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 +24.62% 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 +7.69% total return.1 The Citigroup 3-Month Treasury Bill Index, a proxy for short-term investments and other net assets, returned +0.84%.2 You can find the Fund’s long-term performance data in the Performance Summary beginning on page 6.

Performance data represent past performance, which does not guarantee future results. Investment return and principal value will fluctuate, and you may have a gain or loss when you sell your shares. Current performance may differ from figures shown. For most recent month-end performance, go to franklintempleton.com or call (800) 342-5236.

Investment Strategy

When selecting equity funds, the investment manager considers the underlying funds’ foreign and domestic exposure, market capitalization ranges, and investment style (growth vs. value). When selecting fixed-income funds, the investment manager focuses primarily on maximizing income, appropriate to the Fund’s risk profile, and considers the credit quality, duration and maturity of the underlying funds’ portfolios. Certain fixed-income funds may hold securities across the credit quality spectrum, including below investment grade or “junk” bonds. In evaluating the risk level of the underlying funds, including alternative investments funds, the investment manager analyzes such factors as: (a) relative and absolute performance, including correlations with other underlying funds as well as corresponding benchmarks, and (b) their volatility (the variability of returns from one period to the next).

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, 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, underperformed the Fund’s fixed income benchmark, the Bloomberg Barclays Multiverse Index.

 

 

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 64.

 

4       

 

Annual Report

   franklintempleton.com

FRANKLIN LIFESMART RETIREMENT INCOME FUND

 

Fund Holdings       
12/31/17       
      % of Total
Net Assets		  

Franklin Floating Rate Daily Access Fund – Class R6

      24.6%  

Franklin Income Fund – Class R6

      21.5%  

Franklin U.S. Government Securities Fund – Class R6

      15.1%  

iShares iBoxx High Yield Corporate Bond ETF

      9.2%  

iShares U.S. Preferred Stock ETF

      8.4%  

Franklin High Income Fund – Class R6

      6.8%  

Morgan Stanley – Index-Linked Notes

      5.7%  

Templeton Global Total Return Fund – Class R6

      4.5%  

Barclays Bank PLC – Index-Linked Notes

      4.2%  

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, underperformed the MSCI ACWI and outperformed the Bloomberg Barclays Multiverse Index. The index-linked notes 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.

 

LOGO   

LOGO

T. Anthony Coffey, CFA

LOGO   

LOGO

 

Thomas A. Nelson, CFA

  

 

Portfolio Managers

 

CFA® is a trademark owned by CFA Institute.

The foregoing information reflects our analysis, opinions and portfolio holdings as of December 31, 2017, the end of the reporting period. The way we implement our main investment strategies and the resulting portfolio holdings may change depending on factors such as market and economic conditions. These opinions may not be relied upon as investment advice or an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but the investment manager makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.

 

 

     
franklintempleton.com   Annual Report             5  

FRANKLIN LIFESMART RETIREMENT INCOME FUND

 

Performance Summary as of December 31, 2017

 

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 12/31/171

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.

 

Share Class    Cumulative 
Total Return2		      Average Annual 
Total Return3		  
A      

1-Year

      +4.84%        -1.20%  

5-Year

      +24.37%        +3.23%  

10-Year

      +45.29%        +3.20%  
Advisor      

1-Year

      +5.09%        +5.09%  

5-Year

      +26.05%        +4.74%  

10-Year

      +49.46%        +4.10%  

 

     30-Day Standardized Yield4  
Share Class    (with waiver)      (without waiver)  

A

      4.21%        3.60%  

C

      3.42%        2.81%  

R

      3.95%        3.34%  

R6

      4.51%        3.96%  

Advisor

      4.45%        3.84%  

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.

 

     
6        Annual Report   franklintempleton.com

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.

Class A (1/1/08–12/31/17)

 

LOGO

Advisor Class (1/1/08–12/31/17)

 

LOGO

See page 9 for Performance Summary footnotes.

 

     
franklintempleton.com   Annual Report             7  

FRANKLIN LIFESMART RETIREMENT INCOME FUND

PERFORMANCE SUMMARY

 

Net Asset Value                     
Share Class (Symbol)    12/31/17                  12/31/16                  Change  

A (FTRAX)

      $11.06        $10.96        +$0.10  

C (FRTCX)

      $10.92        $10.83        +$0.09  

R (FBRLX)

      $11.01        $10.92        +$0.09  

R6 (FLMTX)

      $11.11        $11.01        +$0.10  

Advisor (FLRDX)

      $11.10        $11.00        +$0.10  

 

Distributions (1/1/17–12/31/17)       
Share Class    Net Investment
Income		  

A

      $0.4332  

C

      $0.3468  

R

      $0.4032  

R6

      $0.4680  

Advisor

      $0.4620  

 

Total Annual Operating Expenses7              
Share Class    With Waiver      Without Waiver  

A

      0.85%        1.45%  

Advisor

      0.60%        1.20%  

 

     
8        Annual Report   franklintempleton.com

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 an expense reduction and a fee waiver associated with any investments it makes in a Franklin Templeton money fund, contractually guaranteed through 4/30/18. Fund investment results reflect the expense reduction and fee waiver; 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. The Fund’s 30-day standardized yield is calculated over a trailing 30-day period using the yield to maturity on bonds and/or the dividends accrued on stocks. It may not equal the Fund’s actual income distribution rate, which reflects the Fund’s past dividends paid to shareholders.

5. 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.

6. 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.

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.

 

     
franklintempleton.com   Annual Report             9  

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

(actual return after expenses)

    Hypothetical
(5% annual return before expenses)		     
     

 

   

 

   
               Expenses         Expenses    Net

Share

Class

    Beginning
Account
Value 7/1/17		    Ending
Account
Value 12/31/17		   

Paid During
Period

7/1/17–12/31/171,2

    Ending
Account
Value 12/31/17		   

Paid During
Period

7/1/17–12/31/171,2

    Annualized
Expense
Ratio2

 

   

 

   

 

   

 

A

    $1,000    $1,018.80    $1.53    $1,023.69    $1.53    0.30%

C

    $1,000    $1,015.00    $5.33    $1,019.91    $5.35    1.05%

R

    $1,000    $1,016.60    $2.80    $1,022.43    $2.80    0.55%

R6

    $1,000    $1,019.40    $0.00    $1,025.21    $0.00    0.00%

Advisor

    $1,000    $1,019.10    $0.25    $1,024.95    $0.26    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 184/365 to reflect the one-half year period.

2. Reflects expenses after fee waivers and expense reimbursements. Does not include acquired fund fees and expenses.

 

     
10        Annual Report   franklintempleton.com

Franklin LifeSmart 2020 Retirement Target Fund

 

This annual report for Franklin LifeSmart 2020 Retirement Target Fund covers the fiscal year ended December 31, 2017.

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. 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), with an increasing emphasis on income as the target date of 2020 approaches. The target date is the approximate retirement year of the investor.

Asset Allocation*

Based on Total Net Assets as of 12/31/17

 

LOGO

*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 +11.53% cumulative total return for the 12 months ended December 31, 2017. 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 +24.62% 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 +7.69% total return.1 The Citigroup 3-Month Treasury Bill Index, a proxy for short-term investments and other net assets, returned +0.84%.2 You can find more of the Fund’s 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

When selecting equity funds, the investment manager considers the underlying funds’ foreign and domestic exposure, market capitalization ranges, and investment style (growth vs. value). When selecting fixed-income funds, the investment manager focuses primarily on maximizing income, appropriate to the Fund’s risk profile, and considers the credit quality, duration and maturity of the underlying funds’ portfolios. Certain fixed-income funds may hold securities across the credit quality spectrum, including below investment grade or “junk” bonds. In evaluating the risk level of the underlying funds, including alternative investments funds, the investment manager analyzes such factors as: (a) relative and absolute performance, including correlations with other underlying funds as well as corresponding benchmarks, and (b) their volatility (the variability of returns from one period to the next).

We attempt to invest the assets of each Fund 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.

 

 

 

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 70.

 

 

franklintempleton.com

   Annual Report             11  

FRANKLIN LIFESMART 2020 RETIREMENT TARGET FUND

 

Top 10 Fund Holdings       
12/31/17       
     

% of Total

Net Assets

  

Franklin Low Duration Total Return Fund – Class R6

      20.3%  

Templeton Global Total Return Fund – Class R6

      11.3%  

Franklin Growth Fund – Class R6

      10.5%  

Franklin Rising Dividends Fund – Class R6

      4.3%  

Franklin LibertyQ Emerging Markets ETF

      4.2%  

Franklin Growth Opportunities Fund – Class R6

      4.1%  

iShares Core U.S. Aggregate Bond ETF

      4.1%  

Franklin FTSE Europe ETF

      3.7%  

Franklin U.S. Government Securities Fund – Class R6

      3.7%  

Franklin International Small Cap Growth Fund –
Class R6

      3.3%  

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 shifts every year, in accordance with the target date associated with the portfolio.

At period-end, our largest domestic value fund holding, Franklin Rising Dividends Fund – Class R6, underperformed the Fund’s equity benchmark, the MSCI ACWI, while our largest domestic growth fund holding, Franklin Growth Fund –Class R6, outperformed the index. Our largest foreign equity fund holding, Franklin LibertyQ Emerging Markets ETF, also outperformed the index. On the fixed income side, our largest domestic fixed income fund holding, Franklin Low Duration Total Return Fund – Class R6, and our foreign fixed income fund holding, Templeton Global Total Return Fund – Class R6, underperformed the Fund’s fixed income benchmark, the Bloomberg Barclays Multiverse Index.

Thank you for your continued participation in Franklin LifeSmart 2020 Retirement Target Fund. We look forward to serving your future investment needs.

 

LOGO   

LOGO

 

T. Anthony Coffey, CFA

LOGO   

LOGO

 

Thomas A. Nelson, CFA

   Portfolio Managers

The foregoing information reflects our analysis, opinions and portfolio holdings as of December 31, 2017, 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 LIFESMART 2020 RETIREMENT TARGET FUND

 

Performance Summary as of December 31, 2017

 

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. Your dividend income will vary depending on dividends or interest paid by securities in the Fund’s portfolio, adjusted for operating expenses of each class. Capital gain distributions are net profits realized from the sale of portfolio securities.

Performance as of 12/31/171

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.

 

Share Class    Cumulative 
Total Return2		      Average Annual 
Total Return3		  
A      

1-Year

      +11.53%         +5.13%  

3-Year

      +12.41%         +1.94%  

Since Inception (7/1/13)

      +30.43%         +4.69%  
Advisor      

1-Year

      +11.88%         +11.88%  

3-Year

      +13.41%         +4.29%  

Since Inception (7/1/13)

      +32.07%         +6.37%  
 

 

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 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.

Class A (7/1/13–12/31/17)

 

LOGO

Advisor Class (7/1/13–12/31/17)

 

LOGO

See page 15 for Performance Summary footnotes.

 

     
14        Annual Report   franklintempleton.com

FRANKLIN LIFESMART 2020 RETIREMENT TARGET FUND

PERFORMANCE SUMMARY

 

Distributions (1/1/17–12/31/17)

 

Share Class    Net Investment
Income		  
A      $0.1472  
C      $0.0644  
R      $0.1072  
R6      $0.1812  
Advisor      $0.1760  

Total Annual Operating Expenses6

 

Share Class    With Waiver      Without Waiver  

A

      0.95%        1.63%  

Advisor

      0.70%        1.38%  

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 an expense reduction and a fee waiver associated with any investments it makes in a Franklin Templeton money fund, contractually guaranteed through 4/30/18. Fund investment results reflect the expense reduction and fee waiver; 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, 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 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 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             15  

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
(actual return after expenses)		    Hypothetical
(5% annual return before expenses)		     

Share

Class

    Beginning
Account
Value 7/1/17		    Ending
Account
Value 12/31/17		    Expenses Paid
During Period
7/1/17–12/31/171,2		    Ending
Account
Value 12/31/17		    Expenses Paid
During Period
7/1/17–12/31/171,2		    Net
Annualized
Expense
Ratio2

 

   

 

   

 

   

 

A

    $1,000    $1,049.60    $1.55    $1,023.69    $1.53    0.30%

C

    $1,000    $1,045.80    $5.41    $1,019.91    $5.35    1.05%

R

    $1,000    $1,048.10    $2.84    $1,022.43    $2.80    0.55%

R6

    $1,000    $1,051.10    $0.00    $1,025.21    $0.00    0.00%

Advisor

    $1,000    $1,050.90    $0.26    $1,024.95    $0.26    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 184/365 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 LifeSmart 2025 Retirement Target Fund

 

This annual report for Franklin LifeSmart 2025 Retirement Target Fund covers the fiscal year ended December 31, 2017.

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. 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), with an increasing emphasis on income as the target date of 2025 approaches. The target date is the approximate retirement year of the investor.

Asset Allocation*

Based on Total Net Assets as of 12/31/17

 

LOGO

*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 +14.95% cumulative total return for the 12 months ended December 31, 2017. 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 +24.62% 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 +7.69% total return.1 The Citigroup 3-Month Treasury Bill Index, a proxy for short-term investments and other net assets, returned +0.84%.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

When selecting equity funds, the investment manager considers the underlying funds’ foreign and domestic exposure, market capitalization ranges, and investment style (growth vs. value). When selecting fixed-income funds, the investment manager focuses primarily on maximizing income, appropriate to the Fund’s risk profile, and considers the credit quality, duration and maturity of the underlying funds’ portfolios. Certain fixed-income funds may hold securities across the credit quality spectrum, including below investment grade or “junk” bonds. In evaluating the risk level of the underlying funds, including alternative investments funds, the investment manager analyzes such factors as: (a) relative and absolute performance, including correlations with other underlying funds as well as corresponding benchmarks, and (b) their volatility (the variability of returns from one period to the next).

We attempt to invest the assets of each Fund 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.

 

 

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 77.

 

 

franklintempleton.com

   Annual Report             17  

FRANKLIN LIFESMART 2025 RETIREMENT TARGET FUND

 

Top 10 Fund Holdings       
12/31/17       
      % of Total
Net Assets		  

Franklin Growth Fund – Class R6

      13.9%  

Franklin Low Duration Total Return Fund – Class R6

      13.5%  

Templeton Global Total Return Fund – Class R6

      7.3%  

Franklin LibertyQ Emerging Markets ETF

      6.3%  

Franklin Rising Dividends Fund – Class R6

      5.8%  

Franklin Growth Opportunities Fund – Class R6

      5.3%  

Franklin FTSE Europe ETF

      5.0%  

Franklin International Small Cap Growth Fund –
Class R6

      4.4%  

Financial Select Sector SPDR ETF

      3.6%  

Franklin LibertyQ U.S. Equity ETF

      3.4%  

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 shifts every year, in accordance with the target date associated with the portfolio.

At period-end, our largest domestic value fund holding, Franklin Rising Dividends Fund – Class R6, underperformed the Fund’s equity benchmark, the MSCI ACWI, while our largest domestic growth fund holding, Franklin Growth Fund – Class R6, outperformed the index. Our largest foreign equity fund holding, Franklin LibertyQ Emerging Markets ETF, also outperformed the index. On the fixed income side, our largest domestic fixed income fund holding, Franklin Low Duration Total Return Fund – Class R6, and our foreign fixed income fund holding, Templeton Global Total Return Fund – Class R6, underperformed the Fund’s fixed income benchmark, the Bloomberg Barclays Multiverse Index.

Thank you for your continued participation in Franklin LifeSmart 2025 Retirement Target Fund. We look forward to serving your future investment needs.

 

LOGO   

LOGO

 

T. Anthony Coffey, CFA

LOGO   

LOGO

 

Thomas A. Nelson, CFA

  

 

Portfolio Managers

The foregoing information reflects our analysis, opinions and portfolio holdings as of December 31, 2017, 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   franklintempleton.com

FRANKLIN LIFESMART 2025 RETIREMENT TARGET FUND

 

Performance Summary as of December 31, 2017

 

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. Your dividend income will vary depending on dividends or interest paid by securities in the Fund’s portfolio, adjusted for operating expenses of each class. Capital gain distributions are net profits realized from the sale of portfolio securities.

Performance as of 12/31/171

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.

 

Share Class    Cumulative
Total Return2		      Average Annual
Total Return3		  
A      

1-Year

      +14.95%        +8.35%  

5-Year

      +45.39%        +6.50%  

10-Year

      +59.40%        +4.15%  
Advisor      

1-Year

      +15.30%        +15.30%  

5-Year

      +47.49%        +8.08%  

10-Year

      +63.97%        +5.07%  

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.

 

     
franklintempleton.com   Annual Report              19  

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.

Class A (1/1/08–12/31/17)

 

LOGO

Advisor Class (1/1/08–12/31/17)

 

LOGO

See page 21 for Performance Summary footnotes.

 

     
20        Annual Report   franklintempleton.com

FRANKLIN LIFESMART 2025 RETIREMENT TARGET FUND

PERFORMANCE SUMMARY

 

Distributions (1/1/17–12/31/17)

 

Share Class    Net Investment
Income		  
A      $0.2306  
C      $0.1372  
R      $0.1892  
R6      $0.2687  
Advisor      $0.2627  

Total Annual Operating Expenses6

 

Share Class    With Waiver      Without Waiver  
A      0.97%        1.43%  
Advisor      0.72%        1.18%  

 

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 an expense reduction and a fee waiver associated with any investments it makes in a Franklin Templeton money fund, contractually guaranteed through 4/30/18. Fund investment results reflect the expense reduction and fee waiver; 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, 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 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             21  

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
(actual return after expenses)		    Hypothetical
(5% annual return before expenses)		     

Share

Class

    Beginning
Account
Value 7/1/17		    Ending
Account
Value 12/31/17		   

Expenses

Paid During

Period

7/1/17–12/31/171,2

    Ending
Account
Value 12/31/17		   

Expenses

Paid During

Period

7/1/17–12/31/171,2

   Net
Annualized
Expense
Ratio2

 

   

 

   

 

   

 

A    $1,000    $1,065.10    $1.56    $1,023.69    $1.53    0.30%
C    $1,000    $1,061.80    $5.46    $1,019.91    $5.35    1.05%
R    $1,000    $1,064.40    $2.86    $1,022.43    $2.80    0.55%
R6    $1,000    $1,067.20    $0.00    $1,025.21    $0.00    0.00%
Advisor    $1,000    $1,066.70    $0.26    $1,024.95    $0.26    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 184/365 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   franklintempleton.com

Franklin LifeSmart 2030 Retirement Target Fund

 

This annual report for Franklin LifeSmart 2030 Retirement Target Fund covers the fiscal year ended December 31, 2017.

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. 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), with an increasing emphasis on income as the target date of 2030 approaches. The target date is the approximate retirement year of the investor.

Asset Allocation*

Based on Total Net Assets as of 12/31/17

 

LOGO

*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 +16.73% cumulative total return for the 12 months ended December 31, 2017. 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 +24.62% 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 +7.69% total return.1 The Citigroup 3-Month Treasury Bill Index, a proxy for short-term investments and other net assets, returned +0.84%.2 You can find more of the Fund’s performance data in the Performance Summary beginning on page 25.

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, the investment manager considers the underlying funds’ foreign and domestic exposure, market capitalization ranges, and investment style (growth vs. value). When selecting fixed-income funds, the investment manager focuses primarily on maximizing income, appropriate to the Fund’s risk profile, and considers the credit quality, duration and maturity of the underlying funds’ portfolios. Certain fixed-income funds may hold securities across the credit quality spectrum, including below investment grade or “junk” bonds. In evaluating the risk level of the underlying funds, including alternative investments funds, the investment manager analyzes such factors as: (a) relative and absolute performance, including correlations with other underlying funds as well as corresponding benchmarks, and (b) their volatility (the variability of returns from one period to the next).

We attempt to invest the assets of each Fund 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.

 

 

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.

 

 

franklintempleton.com

   Annual Report             23  

FRANKLIN LIFESMART 2030 RETIREMENT TARGET FUND

 

 

Top 10 Fund Holdings       
12/31/17       
      % of Total
Net Assets		  

Franklin Growth Fund – Class R6

      15.0%  

Franklin Low Duration Total Return Fund – Class R6

      10.0%  

Franklin LibertyQ Emerging Markets ETF

      7.0%  

Franklin Rising Dividends Fund – Class R6

      6.4%  

Franklin FTSE Europe ETF

      5.9%  

Franklin International Small Cap Growth Fund – Class R6

      5.7%  

Templeton Global Total Return Fund – Class R6

      5.6%  

Franklin Growth Opportunities Fund – Class R6

      5.6%  

Financial Select Sector SPDR ETF

      4.0%  

Franklin LibertyQ U.S. Equity ETF

      3.7%  

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 shifts every year, in accordance with the target date associated with the portfolio.

At period-end, our largest domestic value fund holding, Franklin Rising Dividends Fund – Class R6, underperformed the Fund’s equity benchmark, the MSCI ACWI, while our largest domestic growth fund holding, Franklin Growth Fund – Class R6, outperformed the index. Our largest foreign equity fund holding, Franklin LibertyQ Emerging Markets ETF, also outperformed the index. On the fixed income side, our largest domestic fixed income fund holding, Franklin Low Duration Total Return Fund – Class R6, and our foreign fixed income fund holding, Templeton Global Total Return Fund – Class R6, underperformed the Fund’s fixed income benchmark, the Bloomberg Barclays Multiverse Index.

 

Thank you for your continued participation in Franklin LifeSmart 2030 Retirement Target Fund. We look forward to serving your future investment needs.

 

LOGO   

LOGO

T. Anthony Coffey, CFA

LOGO   

LOGO

 

Thomas A. Nelson, CFA

   Portfolio Managers

The foregoing information reflects our analysis, opinions and portfolio holdings as of December 31, 2017, the end of the reporting period. The way we implement our main investment strategies and the resulting portfolio holdings may change depending on factors such as market and economic conditions. These opinions may not be relied upon as investment advice or an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but the investment manager makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.

 

 

     
24        Annual Report   franklintempleton.com

FRANKLIN LIFESMART 2030 RETIREMENT TARGET FUND

 

Performance Summary as of December 31, 2017

 

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. Your dividend income will vary depending on dividends or interest paid by securities in the Fund’s portfolio, adjusted for operating expenses of each class. Capital gain distributions are net profits realized from the sale of portfolio securities.

Performance as of 12/31/171

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.

 

Share Class    Cumulative 
Total Return2		      Average Annual
Total Return3 		 
A      

1-Year

      +16.73%         +9.98%  

3-Year

      +18.05%         +3.62%  

Since Inception (7/1/13)

      +39.44%         +6.26%  
Advisor      

1-Year

      +16.97%         +16.97%  

3-Year

      +18.91%         +5.94%  

Since Inception (7/1/13)

      +40.97%         +7.93%  
 

 

Performance data represent past performance, which does not guarantee future results. Investment return and principal value will fluctuate, and you may have a gain or loss when you sell your shares. Current performance may differ from figures shown. For most recent month-end performance, go to franklintempleton.com or call (800) 342-5236.

 

See page 27 for Performance Summary footnotes.

 

     
franklintempleton.com   Annual Report              25  

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.

Class A (7/1/13–12/31/17)

 

LOGO

Advisor Class (7/1/13–12/31/17)

 

LOGO

See page 27 for Performance Summary footnotes.

 

     
26        Annual Report   franklintempleton.com

FRANKLIN LIFESMART 2030 RETIREMENT TARGET FUND

PERFORMANCE SUMMARY

 

Distributions (1/1/17–12/31/17)

 

Share Class    Net Investment
Income		  
A      $0.2230  
C      $0.1453  
R      $0.1834  
R6      $0.2596  
Advisor      $0.2540  

Total Annual Operating Expenses6

Share Class    With Waiver      Without Waiver  
A      0.99%        1.71%  
Advisor      0.74%        1.46%  

 

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 an expense reduction and a fee waiver associated with any investments it makes in a Franklin Templeton money fund, contractually guaranteed through 4/30/18. Fund investment results reflect the expense reduction and fee waiver; 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, 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 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             27  

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
(actual return after expenses)		      Hypothetical
(5% annual return before expenses)		       

Share

Class

    Beginning
Account
Value 7/1/17		      Ending
Account
Value 12/31/17		     

Expenses

Paid During
Period

7/1/17–12/31/171,2

      Ending
Account
Value 12/31/17		     

Expenses

Paid During
Period

7/1/17–12/31/171,2

      Net
Annualized
Expense
Ratio2

 

     

 

     

 

     

 

A

    $1,000      $1,074.10      $1.57      $1,023.69      $1.53      0.30%

C

    $1,000      $1,070.00      $5.48      $1,019.91      $5.35      1.05%

R

    $1,000      $1,072.60      $2.87      $1,022.43      $2.80      0.55%

R6

    $1,000      $1,075.20      $0.00      $1,025.21      $0.00      0.00%

Advisor

    $1,000      $1,074.80      $0.26      $1,024.95      $0.26      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 184/365 to reflect the one-half year period.

2. Reflects expenses after fee waivers and expense reimbursements. Does not include acquired fund fees and expenses.

 

     
28        Annual Report   franklintempleton.com

Franklin LifeSmart 2035 Retirement Target Fund

 

This annual report for Franklin LifeSmart 2035 Retirement Target Fund covers the fiscal year ended December 31, 2017.

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. 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), with an increasing emphasis on income as the target date of 2035 approaches. The target date is the approximate retirement year of the investor.

Asset Allocation*

Based on Total Net Assets as of 12/31/17

 

LOGO

*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 +17.93% cumulative total return for the 12 months ended December 31, 2017. 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 +24.62% 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 +7.69% total return.1 The Citigroup 3-Month Treasury Bill Index, a proxy for short-term investments and other net assets, returned +0.84%.2 You can find the Fund’s long-term performance data in the Performance Summary beginning on page 31.

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, the investment manager considers the underlying funds’ foreign and domestic exposure, market capitalization ranges, and investment style (growth vs. value). When selecting fixed-income funds, the investment manager focuses primarily on maximizing income, appropriate to the Fund’s risk profile, and considers the credit quality, duration and maturity of the underlying funds’ portfolios. Certain fixed-income funds may hold securities across the credit quality spectrum, including below investment grade or “junk” bonds. In evaluating the risk level of the underlying funds, including alternative investments funds, the investment manager analyzes such factors as: (a) relative and absolute performance, including correlations with other underlying funds as well as corresponding benchmarks, and (b) their volatility (the variability of returns from one period to the next).

We attempt to invest the assets of each Fund 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.

 

 

 

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 91.

 

 

franklintempleton.com

   Annual Report             29  

FRANKLIN LIFESMART 2035 RETIREMENT TARGET FUND

 

 

Top 10 Fund Holdings       
12/31/17       
      % of Total
Net Assets		  

Franklin Growth Fund – Class R6

      16.1%  

Franklin Low Duration Total Return Fund – Class R6

      7.6%  

Franklin Growth Opportunities Fund – Class R6

      7.1%  

Franklin LibertyQ Emerging Markets ETF

      7.0%  

Franklin International Small Cap Growth Fund – Class R6

      6.4%  

Franklin Rising Dividends Fund – Class R6

      6.4%  

Franklin FTSE Europe ETF

      6.2%  

Templeton Global Total Return Fund – Class R6

      4.3%  

Financial Select Sector SPDR ETF

      4.2%  

Franklin LibertyQ U.S. Equity ETF

      4.1%  

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 shifts every year, in accordance with the target date associated with the portfolio.

At period-end, our largest domestic value fund holding, Franklin Rising Dividends Fund – Class R6, underperformed the Fund’s equity benchmark, the MSCI ACWI, while our largest domestic growth fund holding, Franklin Growth Fund – Class R6, outperformed the index. Our largest foreign equity fund holding, Franklin LibertyQ Emerging Markets ETF, also outperformed the index. On the fixed income side, our largest domestic fixed income fund holding, Franklin Low Duration Total Return Fund – Class R6, and our foreign fixed income fund holding, Templeton Global Total Return Fund – Class R6, underperformed the Fund’s fixed income benchmark, the Bloomberg Barclays Multiverse Index.

 

Thank you for your continued participation in Franklin LifeSmart 2035 Retirement Target Fund. We look forward to serving your future investment needs.

 

LOGO   

LOGO

 

T. Anthony Coffey, CFA

LOGO   

LOGO

 

Thomas A. Nelson, CFA

  

 

Portfolio Managers

The foregoing information reflects our analysis, opinions and portfolio holdings as of December 31, 2017, 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.

 

 

     
30        Annual Report   franklintempleton.com

FRANKLIN LIFESMART 2035 RETIREMENT TARGET FUND

 

Performance Summary as of December 31, 2017

 

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. Your dividend income will vary depending on dividends or interest paid by securities in the Fund’s portfolio, adjusted for operating expenses of each class. Capital gain distributions are net profits realized from the sale of portfolio securities.

Performance as of 12/31/171

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.

 

Share Class    Cumulative 
Total Return2		      Average Annual 
Total Return3 		 
A      

1-Year

      +17.93%        +11.18%  

5-Year

      +52.68%        +7.55%  

10-Year

      +62.22%        +4.34%  
Advisor      

1-Year

      +18.24%        +18.24%  

5-Year

      +54.75%        +9.13%  

10-Year

      +67.16%        +5.27%  
 

 

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 33 for Performance Summary footnotes.

 

     
franklintempleton.com   Annual Report              31  

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.

Class A (1/1/08–12/31/17)

 

LOGO

Advisor Class (1/1/08–12/31/17)

 

LOGO

See page 33 for Performance Summary footnotes.

 

     
32        Annual Report   franklintempleton.com

FRANKLIN LIFESMART 2035 RETIREMENT TARGET FUND

PERFORMANCE SUMMARY

 

Distributions (1/1/17–12/31/17)

 

Share Class   

Net Investment

Income

  
A      $0.2769  
C      $0.1855  
R      $0.2369  
R6      $0.3165  
Advisor      $0.3098  

Total Annual Operating Expenses6

Share Class    With Waiver      Without Waiver  
A      0.99%        1.51%  
Advisor      0.74%        1.26%  

 

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 an expense reduction and a fee waiver associated with any investments it makes in a Franklin Templeton money fund, contractually guaranteed through 4/30/18. Fund investment results reflect the expense reduction and fee waiver; 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, 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 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             33  

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
(actual return after expenses)		      Hypothetical
(5% annual return before expenses)		       

Share

Class

    Beginning
Account
Value 7/1/17		      Ending
Account
Value 12/31/17		      Expenses Paid
During Period
7/1/17–12/31/171,2		      Ending
Account
Value 12/31/17		      Expenses Paid
During Period
7/1/17–12/31/171,2		      Net
Annualized
Expense
Ratio2

 

     

 

     

 

     

 

A    $1,000      $1,078.40      $1.57      $1,023.69      $1.53      0.30%
C    $1,000      $1,073.90      $5.44      $1,019.96      $5.30      1.04%
R    $1,000      $1,077.00      $2.88      $1,022.43      $2.80      0.55%
R6    $1,000      $1,080.00      $0.00      $1,025.21      $0.00      0.00%
Advisor    $1,000      $1,079.40      $0.26      $1,024.95      $0.26      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 184/365 to reflect the one-half year period.

2. Reflects expenses after fee waivers and expense reimbursements. Does not include acquired fund fees and expenses.

 

     
34        Annual Report   franklintempleton.com

Franklin LifeSmart 2040 Retirement Target Fund

 

This annual report for Franklin LifeSmart 2040 Retirement Target Fund covers the fiscal year ended December 31, 2017.

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. 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), with an increasing emphasis on income as the target date of 2040 approaches. The target date is the approximate retirement year of the investor.

Asset Allocation*

Based on Total Net Assets as of 12/31/17

 

LOGO

*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 +18.50% cumulative total return for the 12 months ended December 31, 2017. 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 +24.62% 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 +7.69% total return.1 The Citigroup 3-Month Treasury Bill Index, a proxy for short-term investments and other net assets, returned +0.84%.2 You can find more of the Fund’s performance data in the Performance Summary beginning on page 37.

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, the investment manager considers the underlying funds’ foreign and domestic exposure, market capitalization ranges, and investment style (growth vs. value). When selecting fixed-income funds, the investment manager focuses primarily on maximizing income, appropriate to the Fund’s risk profile, and considers the credit quality, duration and maturity of the underlying funds’ portfolios. Certain fixed-income funds may hold securities across the credit quality spectrum, including below investment grade or “junk” bonds. In evaluating the risk level of the underlying funds, including alternative investments funds, the investment manager analyzes such factors as: (a) relative and absolute performance, including correlations with other underlying funds as well as corresponding benchmarks, and (b) their volatility (the variability of returns from one period to the next).

We attempt to invest the assets of each Fund 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.

 

 

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 98.

 

 

franklintempleton.com

   Annual Report             35  

FRANKLIN LIFESMART 2040 RETIREMENT TARGET FUND

 

 

Top 10 Fund Holdings       
12/31/17       
      % of Total
Net Assets		  

Franklin Growth Fund – Class R6

      16.7%  

Franklin Growth Opportunities Fund – Class R6

      7.6%  

Franklin LibertyQ Emerging Markets ETF

      7.1%  

Franklin International Small Cap Growth Fund – Class R6

      6.8%  

Franklin Low Duration Total Return Fund – Class R6

      6.7%  

Franklin Rising Dividends Fund – Class R6

      6.6%  

Franklin FTSE Europe ETF

      6.3%  

Franklin LibertyQ U.S. Equity ETF

      4.3%  

Financial Select Sector SPDR ETF

      4.3%  

Franklin Mutual International Fund – Class R6

      3.9%  

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 shifts every year, in accordance with the target date associated with the portfolio.

At period-end, our largest domestic value fund holding, Franklin Rising Dividends Fund – Class R6, underperformed the Fund’s equity benchmark, the MSCI ACWI, while our largest domestic growth fund holding, Franklin Growth Fund – Class R6, outperformed the index. Our largest foreign equity fund holding, Franklin LibertyQ Emerging Markets ETF, also outperformed the index. On the fixed income side, our largest domestic fixed income fund holding, Franklin Low Duration Total Return Fund – Class R6, and our foreign fixed income fund holding, Templeton Global Total Return Fund – Class R6, underperformed the Fund’s fixed income benchmark, the Bloomberg Barclays Multiverse Index.

 

Thank you for your continued participation in Franklin LifeSmart 2040 Retirement Target Fund. We look forward to serving your future investment needs.

 

LOGO   

LOGO

 

T. Anthony Coffey, CFA

LOGO   

LOGO

 

Thomas A. Nelson, CFA

  

 

Portfolio Managers

The foregoing information reflects our analysis, opinions and portfolio holdings as of December 31, 2017, 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.

 

 

     
36        Annual Report   franklintempleton.com

FRANKLIN LIFESMART 2040 RETIREMENT TARGET FUND

 

Performance Summary as of December 31, 2017

 

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. Your dividend income will vary depending on dividends or interest paid by securities in the Fund’s portfolio, adjusted for operating expenses of each class. Capital gain distributions are net profits realized from the sale of portfolio securities.

Performance as of 12/31/171

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.

 

Share Class     

Cumulative

Total Return2

        Average Annual
Total Return3 		 
A          

1-Year

        +18.50%          +11.72%  

3-Year

        +19.57%          +4.06%  

Since Inception (7/1/13)

        +42.67%          +6.80%  
Advisor          

1-Year

        +18.88%          +18.88%  

3-Year

        +20.51%          +6.42%  

Since Inception (7/1/13)

        +44.51%          +8.52%  

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 39 for Performance Summary footnotes.

 

     
franklintempleton.com   Annual Report              37  

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.

Class A (7/1/13–12/31/17)

 

LOGO

Advisor Class (7/1/13–12/31/17)

 

LOGO

See page 39 for Performance Summary footnotes.

 

     
38        Annual Report   franklintempleton.com

FRANKLIN LIFESMART 2040 RETIREMENT TARGET FUND

PERFORMANCE SUMMARY

 

Distributions (1/1/17–12/31/17)

 

Share Class    Net Investment
Income		  
A      $0.2325  
C      $0.1585  
R      $0.1855  
R6      $0.2704  
Advisor      $0.2641  

Total Annual Operating Expenses6

Share Class    With Waiver      Without Waiver  
A      1.00%        1.89%  
Advisor      0.75%        1.64%  

 

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 an expense reduction and a fee waiver associated with any investments it makes in a Franklin Templeton money fund, contractually guaranteed through 4/30/18. Fund investment results reflect the expense reduction and fee waiver; 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, 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 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             39  

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
(actual return after expenses)		      Hypothetical
(5% annual return before expenses)		       

Share

Class

    Beginning
Account
Value 7/1/17		      Ending
Account
Value 12/31/17		     

Expenses

Paid During

Period

7/1/17–12/31/171,2

      Ending
Account
Value 12/31/17		     

Expenses

Paid During

Period

7/1/17–12/31/171,2

     

Net

Annualized

Expense

Ratio2

 

     

 

     

 

     

 

A

    $1,000      $1,081.10      $1.57      $1,023.69      $1.53      0.30%

C

    $1,000      $1,077.20      $5.50      $1,019.91      $5.35      1.05%

R

    $1,000      $1,080.00      $2.88      $1,022.43      $2.80      0.55%

R6

    $1,000      $1,082.70      $0.00      $1,025.21      $0.00      0.00%

Advisor

    $1,000      $1,082.30      $0.26      $1,024.95      $0.26      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 184/365 to reflect the one-half year period.

2. Reflects expenses after fee waivers and expense reimbursements. Does not include acquired fund fees and expenses.

 

     
40        Annual Report   franklintempleton.com

Franklin LifeSmart 2045 Retirement Target Fund

 

This annual report for Franklin LifeSmart 2045 Retirement Target Fund covers the fiscal year ended December 31, 2017.

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. 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), with an increasing emphasis on income as the target date of 2045 approaches. The target date is the approximate retirement year of the investor.

Asset Allocation*

Based on Total Net Assets as of 12/31/17

 

LOGO

*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 +18.72% cumulative total return for the 12 months ended December 31, 2017. 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 +24.62% 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 +7.69% total return.1 The Citigroup 3-Month Treasury Bill Index, a proxy for short-term investments and other net assets, returned +0.84%.2 You can find the Fund’s long-term performance data in the Performance Summary beginning on page 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.

Investment Strategy

When selecting equity funds, the investment manager considers the underlying funds’ foreign and domestic exposure, market capitalization ranges, and investment style (growth vs. value). When selecting fixed-income funds, the investment manager focuses primarily on maximizing income, appropriate to the Fund’s risk profile, and considers the credit quality, duration and maturity of the underlying funds’ portfolios. Certain fixed-income funds may hold securities across the credit quality spectrum, including below investment grade or “junk” bonds. In evaluating the risk level of the underlying funds, including alternative investments funds, the investment manager analyzes such factors as: (a) relative and absolute performance, including correlations with other underlying funds as well as corresponding benchmarks, and (b) their volatility (the variability of returns from one period to the next).

We attempt to invest the assets of each Fund 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.

 

 

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 105.

 

 

franklintempleton.com

   Annual Report             41  

FRANKLIN LIFESMART 2045 RETIREMENT TARGET FUND

 

 

Top 10 Fund Holdings   
12/31/17       
      % of Total
Net Assets		  

Franklin Growth Fund – Class R6

      16.7%  

Franklin Growth Opportunities Fund – Class R6

      7.6%  

Franklin LibertyQ Emerging Markets ETF

      7.5%  

Franklin International Small Cap Growth Fund – Class R6

      6.7%  

Franklin Rising Dividends Fund – Class R6

      6.6%  

Franklin FTSE Europe ETF

      6.5%  

Franklin Low Duration Total Return Fund – Class R6

      6.1%  

Financial Select Sector SPDR ETF

      4.3%  

Franklin LibertyQ U.S. Equity ETF

      4.3%  

Templeton Foreign Fund – Class R6

      4.2%  

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 shifts every year, in accordance with the target date associated with the portfolio.

At period-end, our largest domestic value fund holding, Franklin Rising Dividends Fund – Class R6, underperformed the Fund’s equity benchmark, the MSCI ACWI, while our largest domestic growth fund holding, Franklin Growth Fund – Class R6, outperformed the index. Our largest foreign equity fund holding, Franklin LibertyQ Emerging Markets ETF, also outperformed the index. On the fixed income side, our largest domestic fixed income fund holding, Franklin Low Duration Total Return Fund – Class R6, and our foreign fixed income fund holding, Templeton Global Total Return Fund – Class R6, underperformed the Fund’s fixed income benchmark, the Bloomberg Barclays Multiverse Index.

Thank you for your continued participation in Franklin LifeSmart 2045 Retirement Target Fund. We look forward to serving your future investment needs.

 

LOGO   

LOGO

 

T. Anthony Coffey, CFA

LOGO   

LOGO

 

Thomas A. Nelson, CFA

   Portfolio Managers

The foregoing information reflects our analysis, opinions and portfolio holdings as of December 31, 2017, 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.

 

 

     
42        Annual Report   franklintempleton.com

FRANKLIN LIFESMART 2045 RETIREMENT TARGET FUND

 

Performance Summary as of December 31, 2017

 

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. Your dividend income will vary depending on dividends or interest paid by securities in the Fund’s portfolio, adjusted for operating expenses of each class. Capital gain distributions are net profits realized from the sale of portfolio securities.

Performance as of 12/31/171

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.

 

Share Class    Cumulative 
Total Return2		      Average Annual 
Total Return3 		 
A      

1-Year

      +18.72%         +11.92%   

5-Year

      +54.93%         +7.86%   

10-Year

      +64.85%         +4.50%   
Advisor      

1-Year

      +19.04%         +19.04%   

5-Year

      +57.10%         +9.46%   

10-Year

      +69.59%         +5.42%   
 

 

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 45 for Performance Summary footnotes.

 

     
franklintempleton.com   Annual Report              43  

FRANKLIN LIFESMART 2045 RETIREMENT TARGET FUND

PERFORMANCE1 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.

Class A (1/1/08–12/31/17)

 

LOGO

Advisor Class (1/1/08–12/31/17)

 

LOGO

See page 45 for Performance Summary footnotes.

        

 

 

     
44        Annual Report   franklintempleton.com

FRANKLIN LIFESMART 2045 RETIREMENT TARGET FUND

PERFORMANCE SUMMARY

 

Distributions (1/1/17–12/31/17)

 

Share Class    Net Investment
Income		  
A      $0.2901  
C      $0.1944  
R      $0.2573  
R6      $0.3304  
Advisor      $0.3231  

Total Annual Operating Expenses6

Share Class    With Waiver      Without Waiver  

A

      1.01%        1.68%  

Advisor

      0.76%        1.43%  

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 an expense reduction and a fee waiver associated with any investments it makes in a Franklin Templeton money fund, contractually guaranteed through 4/30/18. Fund investment results reflect the expense reduction and fee waiver; 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, 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 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             45  

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
(actual return after expenses)		      Hypothetical
(5% annual return before expenses)		       
Share
Class		    Beginning
Account
Value 7/1/17		      Ending
Account
Value 12/31/17		      Expenses
Paid During
Period
7/1/17–12/31/171,2		      Ending
Account
Value 12/31/17		      Expenses
Paid During
Period
7/1/17–12/31/171,2		      Net
Annualized
Expense
Ratio2

 

     

 

     

 

     

 

A

    $1,000      $1,082.40      $1.57      $1,023.69      $1.53      0.30%

C

    $1,000      $1,077.80      $5.45      $1,019.96      $ 5.30      1.04%

R

    $1,000      $1,081.00      $2.88      $1,022.43      $2.80      0.55%

R6

    $1,000      $1,084.00      $0.00      $1,025.21      $0.00      0.00%

Advisor

    $1,000      $1,083.40      $0.26      $1,024.95      $0.26      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 184/365 to reflect the one-half year period.

2. Reflects expenses after fee waivers and expense reimbursements. Does not include acquired fund fees and expenses.

 

     
46        Annual Report   franklintempleton.com

Franklin LifeSmart 2050 Retirement Target Fund

 

This annual report for Franklin LifeSmart 2050 Retirement Target Fund covers the fiscal year ended December 31, 2017.

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. 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), with an increasing emphasis on income as the target date of 2050 approaches. The target date is the approximate retirement year of the investor.

Asset Allocation*

Based on Total Net Assets as of 12/31/17

 

LOGO

*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 +18.96% cumulative total return for the 12 months ended December 31, 2017. 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 +24.62% 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 +7.69% total return.1 The Citigroup 3-Month Treasury Bill Index, a proxy for short-term investments and other net assets, returned +0.84%.2 You can find more of the Fund’s performance data in the Performance Summary beginning on page 49.

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, the investment manager considers the underlying funds’ foreign and domestic exposure, market capitalization ranges, and investment style (growth vs. value). When selecting fixed-income funds, the investment manager focuses primarily on maximizing income, appropriate to the Fund’s risk profile, and considers the credit quality, duration and maturity of the underlying funds’ portfolios. Certain fixed-income funds may hold securities across the credit quality spectrum, including below investment grade or “junk” bonds. In evaluating the risk level of the underlying funds, including alternative investments funds, the investment manager analyzes such factors as: (a) relative and absolute performance, including correlations with other underlying funds as well as corresponding benchmarks, and (b) their volatility (the variability of returns from one period to the next).

We attempt to invest the assets of each Fund 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.

 

 

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 112.

 

 

franklintempleton.com

   Annual Report             47  

FRANKLIN LIFESMART 2050 RETIREMENT TARGET FUND

 

 

Top 10 Fund Holdings       
12/31/17       
      % of Total
Net Assets		  

Franklin Growth Fund – Class R6

      17.0%  

Franklin LibertyQ Emerging Markets ETF

      7.9%  

Franklin Growth Opportunities Fund – Class R6

      7.6%  

Franklin International Small Cap Growth Fund – Class R6

      6.7%  

Franklin Rising Dividends Fund – Class R6

      6.6%  

Franklin FTSE Europe ETF

      6.5%  

Franklin Low Duration Total Return Fund – Class R6

      5.5%  

Franklin LibertyQ U.S. Equity ETF

      4.5%  

Templeton Foreign Fund – Class R6

      4.3%  

Financial Select Sector SPDR ETF

      4.3%  

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 shifts every year, in accordance with the target date associated with the portfolio.

At period-end, our largest domestic value fund holding, Franklin Rising Dividends Fund – Class R6, underperformed the Fund’s equity benchmark, the MSCI ACWI, while our largest domestic growth fund holding, Franklin Growth Fund – Class R6, outperformed the index. Our largest foreign equity fund holding, Franklin LibertyQ Emerging Markets ETF, also outperformed the index. On the fixed income side, our largest domestic fixed income fund holding, Franklin Low Duration Total Return Fund – Class R6, and our foreign fixed income fund holding, Templeton Global Total Return Fund – Class R6, underperformed the Fund’s fixed income benchmark, the Bloomberg Barclays Multiverse Index.

Thank you for your continued participation in Franklin LifeSmart 2050 Retirement Target Fund. We look forward to serving your future investment needs.

 

LOGO   

LOGO

 

T. Anthony Coffey, CFA

LOGO   

LOGO

 

Thomas A. Nelson, CFA

   Portfolio Managers

The foregoing information reflects our analysis, opinions and portfolio holdings as of December 31, 2017, 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.

 

 

     
48        Annual Report   franklintempleton.com

FRANKLIN LIFESMART 2050 RETIREMENT TARGET FUND

 

Performance Summary as of December 31, 2017

 

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. Your dividend income will vary depending on dividends or interest paid by securities in the Fund’s portfolio, adjusted for operating expenses of each class. Capital gain distributions are net profits realized from the sale of portfolio securities.

Performance as of 12/31/171

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.

 

Share Class    Cumulative
Total Return2		      Average Annual
Total Return3 		 
A      

1-Year

      +18.96%        +12.11%  

3-Year

      +20.74%        +4.40%  

Since Inception (7/1/13)

      +44.54%        +7.11%  
Advisor      

1-Year

      +19.20%        +19.20%  

3-Year

      +21.70%        +6.77%  

Since Inception (7/1/13)

      +46.42%        +8.84%  
 

 

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 51 for Performance Summary footnotes.

 

     
franklintempleton.com   Annual Report              49  

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.

Class A (7/1/13–12/31/17)

 

LOGO

Advisor Class (7/1/13–12/31/17)

 

LOGO

See page 51 for Performance Summary footnotes.

 

     
50        Annual Report   franklintempleton.com

FRANKLIN LIFESMART 2050 RETIREMENT TARGET FUND

PERFORMANCE SUMMARY

 

Distributions (1/1/17–12/31/17)

 

Share Class    Net Investment
Income		  
A      $0.2308  
C      $0.1466  
R      $0.1981  
R6      $0.2649  
Advisor      $0.2589  

 

Total Annual Operating Expenses6  
Share Class    With Waiver      Without Waiver  

A

      1.00%        2.17%  

Advisor

      0.75%        1.92%  

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 an expense reduction and a fee waiver associated with any investments it makes in a Franklin Templeton money fund, contractually guaranteed through 4/30/18. Fund investment results reflect the expense reduction and fee waiver; 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, 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 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             51  

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
(actual return after expenses)		    Hypothetical
(5% annual return before expenses)		     

Share

Class

    Beginning
Account
Value 7/1/17		    Ending
Account
Value 12/31/17		   

Expenses

Paid During
Period

7/1/17–12/31/171,2

    Ending
Account
Value 12/31/17		   

Expenses

Paid During
Period

7/1/17–12/31/171,2

    Net
Annualized
Expense
Ratio2

 

   

 

   

 

   

 

A

    $1,000    $1,082.40    $1.57    $1,023.69    $1.53    0.30%

C

    $1,000    $1,078.70    $5.50    $1,019.91    $5.35    1.05%

R

    $1,000    $1,081.50    $2.89    $1,022.43    $2.80    0.55%

R6

    $1,000    $1,084.70    $0.00    $1,025.21    $0.00    0.00%

Advisor

    $1,000    $1,084.20    $0.26    $1,024.95    $0.26    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 184/365 to reflect the one-half year period.

2. Reflects expenses after fee waivers and expense reimbursements. Does not include acquired fund fees and expenses.

 

     
52        Annual Report   franklintempleton.com

Franklin LifeSmart 2055 Retirement Target Fund

 

This annual report for Franklin LifeSmart 2055 Retirement Target Fund covers the fiscal year ended December 31, 2017.

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. 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), with an increasing emphasis on income as the target date of 2055 approaches. The target date is the approximate retirement year of the investor.

Asset Allocation*

Based on Total Net Assets as of 12/31/17

 

LOGO

*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 +19.06% cumulative total return for the 12 months ended December 31, 2017. 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 +24.62% 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 +7.69% total return.1 The Citigroup 3-Month Treasury Bill Index, a proxy for short-term investments and other net assets, returned +0.84%.2 You can find the Fund’s long-term performance data in the Performance Summary beginning on page 55.

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, the investment manager considers the underlying funds’ foreign and domestic exposure, market capitalization ranges, and investment style (growth vs. value). When selecting fixed-income funds, the investment manager focuses primarily on maximizing income, appropriate to the Fund’s risk profile, and considers the credit quality, duration and maturity of the underlying funds’ portfolios. Certain fixed-income funds may hold securities across the credit quality spectrum, including below investment grade or “junk” bonds. In evaluating the risk level of the underlying funds, including alternative investments funds, the investment manager analyzes such factors as: (a) relative and absolute performance, including correlations with other underlying funds as well as corresponding benchmarks, and (b) their volatility (the variability of returns from one period to the next).

We attempt to invest the assets of each Fund 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.

 

 

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 119.

 

 

franklintempleton.com

   Annual Report             53  

FRANKLIN LIFESMART 2055 RETIREMENT TARGET FUND

 

 

Top 10 Fund Holdings       
12/31/17       
      % of Total
Net Assets		  

Franklin Growth Fund – Class R6

      17.4%  

Franklin Growth Opportunities Fund – Class R6

      7.6%  

Franklin LibertyQ Emerging Markets ETF

      7.6%  

Franklin International Small Cap Growth Fund –
Class R6

      6.9%  

Franklin Rising Dividends Fund – Class R6

      6.8%  

Franklin FTSE Europe ETF

      6.6%  

Franklin Low Duration Total Return Fund – Class R6

      5.6%  

Franklin LibertyQ U.S. Equity ETF

      4.7%  

Templeton Foreign Fund – Class R6

      4.6%  

Financial Select Sector SPDR ETF

      4.3%  

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 shifts every year, in accordance with the target date associated with the portfolio.

At period-end, our largest domestic value fund holding, Franklin Rising Dividends Fund – Class R6, underperformed the Fund’s equity benchmark, the MSCI ACWI, while our largest domestic growth fund holding, Franklin Growth Fund – Class R6, outperformed the index. Our largest foreign equity fund holding, Franklin LibertyQ Emerging Markets ETF, also outperformed the index. On the fixed income side, our largest domestic fixed income fund holding, Franklin Low Duration Total Return Fund – Class R6, and our foreign fixed income fund holding, Templeton Global Total Return Fund – Class R6, underperformed the Fund’s fixed income benchmark, the Bloomberg Barclays Multiverse Index.

Thank you for your continued participation in Franklin LifeSmart 2055 Retirement Target Fund. We look forward to serving your future investment needs.

 

LOGO   

LOGO

 

T. Anthony Coffey, CFA

  
LOGO   

LOGO

 

Thomas A. Nelson, CFA

  

 

Portfolio Managers

The foregoing information reflects our analysis, opinions and portfolio holdings as of December 31, 2017, 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.

 

 

     
54        Annual Report   franklintempleton.com

FRANKLIN LIFESMART 2055 RETIREMENT TARGET FUND

 

Performance Summary as of December 31, 2017

 

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. Your dividend income will vary depending on dividends or interest paid by securities in the Fund’s portfolio, adjusted for operating expenses of each class. Capital gain distributions are net profits realized from the sale of portfolio securities.

Performance as of 12/31/171

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.

 

Share Class    Cumulative
Total Return2		      Average Annual
Total Return3		  
A      

1-Year

      +19.06%        +12.19%  

Since Inception (5/1/15)

      +16.15%        +3.45%  
Advisor      

1-Year

      +19.27%        +19.27%  

Since Inception (5/1/15)

      +16.75%        +5.98%  
 

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 57 for Performance Summary footnotes.

 

     
franklintempleton.com   Annual Report              55  

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.

Class A (5/1/15–12/31/17)

 

LOGO

Advisor Class (5/1/15–12/31/17)

 

LOGO

 

See page 57 for Performance Summary footnotes.

 

     
56        Annual Report   franklintempleton.com

FRANKLIN LIFESMART 2055 RETIREMENT TARGET FUND

PERFORMANCE SUMMARY

 

Distributions (1/1/17–12/31/17)

 

Share Class    Net Investment
Income		      Long-Term
Capital Gain		      Total  

A

      $0.1911        $0.0301        $0.2212  

C

      $0.1367        $0.0301        $0.1668  

R

      $0.1609        $0.0301        $0.1910  

R6

      $0.2180        $0.0301        $0.2481  

Advisor

      $0.2130        $0.0301        $0.2431  

 

 

Total Annual Operating Expenses6  
Share Class    With Waiver      Without Waiver  

A

      1.00%        4.71%  

Advisor

      0.75%        4.46%  

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 an expense reduction and a fee waiver associated with any investments it makes in a Franklin Templeton money fund, contractually guaranteed through 4/30/18. Fund investment results reflect the expense reduction and fee waiver; 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, 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 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             57  

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
(actual return after expenses)		    Hypothetical
(5% annual return before expenses)		     

Share

Class

    Beginning
Account
Value 7/1/17		    Ending
Account
Value 12/31/17		   

Expenses

Paid During
Period

7/1/17–12/31/171,2

    Ending
Account
Value 12/31/17		   

Expenses

Paid During
Period

7/1/17–12/31/171,2

    Net
Annualized
Expense
Ratio2

 

   

 

   

 

   

 

A

    $1,000    $1,084.10    $1.58    $1,023.69    $1.53    0.30%

C

    $1,000    $1,079.80    $5.50    $1,019.91    $5.35    1.05%

R

    $1,000    $1,081.50    $2.89    $1,022.43    $2.80    0.55%

R6

    $1,000    $1,085.60    $0.00    $1,025.21    $0.00    0.00%

Advisor

    $1,000    $1,085.10    $0.26    $1,024.95    $0.26    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 184/365 to reflect the one-half year period.

2. Reflects expenses after fee waivers and expense reimbursements. Does not include acquired fund fees and expenses.

 

     
58        Annual Report   franklintempleton.com

FRANKLIN FUND ALLOCATOR SERIES

 

Financial Highlights

Franklin LifeSmart Retirement Income Fund

 

    Year Ended December 31,  
     2017      2016      2015      2014      2013  
Class A              
Per share operating performance              

(for a share outstanding throughout the year)

              

Net asset value, beginning of year

     $10.96        $10.78        $11.67        $12.28        $11.67  
       

Income from investment operationsa:

              

Net investment incomeb,c

     0.43        0.27        0.26        0.39        0.25  

Net realized and unrealized gains (losses)

     0.10        0.28        (0.55 )       (0.01 )       1.16  
       

Total from investment operations

     0.53        0.55        (0.29 )       0.38        1.41  
       

Less distributions from:

              

Net investment income

     (0.43 )       (0.28 )       (0.27 )       (0.40 )       (0.27 ) 

Net realized gains

     —        (0.05 )       (0.33 )       (0.59 )       (0.53 ) 

Tax return of capital

     —        (0.04 )       —        —        —  
       

Total distributions

     (0.43 )       (0.37 )       (0.60 )       (0.99 )       (0.80 ) 
       

Net asset value, end of year

           $11.06        $10.96        $10.78        $11.67        $12.28  
       

Total returnd

     4.84%        5.25%        (2.59)%        3.07%        12.27%  
Ratios to average net assets              

Expenses before waiver and payments by affiliatese

     0.92%        0.90%        0.92%        0.84%        0.83%  

Expenses net of waiver and payments by affiliatese

     0.30%f        0.30%        0.33%        0.35%        0.38%  

Net investment incomec

     3.89%        2.50%        2.27%        3.20%        2.04%  
Supplemental data              

Net assets, end of year (000’s)

     $32,397        $39,713        $44,823        $48,121        $44,347  

Portfolio turnover rate

     28.12%        149.53%        38.48%        68.98%        73.66%  

aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.

bBased on average daily shares outstanding.

cRecognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds and exchange traded funds in which the Fund invests.

dTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable.

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 0.44% for the year ended December 31, 2017.

fBenefit of expense reduction rounds to less than 0.01%.

 

     
franklintempleton.com   The accompanying notes are an integral part of these financial statements.    |    Annual Report             59  

FRANKLIN FUND ALLOCATOR SERIES

FINANCIAL HIGHLIGHTS

 

Franklin LifeSmart Retirement Income Fund (continued)

 

    Year Ended December 31,  
     2017      2016      2015      2014      2013  
Class C              
Per share operating performance              

(for a share outstanding throughout the year)

              

Net asset value, beginning of year

     $10.83        $10.66        $11.55        $12.16        $11.57  
       

Income from investment operationsa:

              

Net investment incomeb,c

     0.34        0.19        0.18        0.30        0.16  

Net realized and unrealized gains (losses)

     0.10        0.28        (0.55 )       (0.01 )       1.15  
       

Total from investment operations

     0.44        0.47        (0.37 )       0.29        1.31  
       

Less distributions from:

              

Net investment income

     (0.35 )       (0.22 )       (0.19 )       (0.31 )       (0.19 ) 

Net realized gains

     —        (0.05 )       (0.33 )       (0.59 )       (0.53 ) 

Tax return of capital

     —        (0.03 )       —        —        —  
       

Total distributions

     (0.35 )       (0.30 )       (0.52 )       (0.90 )       (0.72 ) 
       

Net asset value, end of year

           $10.92        $10.83        $10.66        $11.55        $12.16  
       

Total returnd

     4.07%        4.50%        (3.32)%        2.39%        11.46%  
Ratios to average net assets              

Expenses before waiver and payments by affiliatese

     1.67%        1.64%        1.64%        1.54%        1.53%  

Expenses net of waiver and payments by affiliatese

     1.05%f        1.04%        1.05%        1.05%        1.08%  

Net investment incomec

     3.14%        1.76%        1.55%        2.50%        1.34%  
Supplemental data              

Net assets, end of year (000’s)

     $16,070        $17,570        $20,858        $21,189        $20,395  

Portfolio turnover rate

     28.12%        149.53%        38.48%        68.98%        73.66%  

aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.

bBased on average daily shares outstanding.

cRecognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds and exchange traded funds in which the Fund invests.

dTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable.

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 0.44% for the year ended December 31, 2017.

fBenefit of expense reduction rounds to less than 0.01%.

 

     
60        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,  
     2017      2016      2015      2014      2013  
Class R              
Per share operating performance              

(for a share outstanding throughout the year)

              

Net asset value, beginning of year

     $10.92        $10.74        $11.64        $12.25        $11.64  
       

Income from investment operationsa:

              

Net investment incomeb,c

     0.40        0.25        0.25        0.36        0.22  

Net realized and unrealized gains (losses)

     0.09        0.28        (0.57 )       (— )d       1.16  
       

Total from investment operations

     0.49        0.53        (0.32 )       0.36        1.38  
       

Less distributions from:

              

Net investment income

     (0.40 )       (0.26 )       (0.25 )       (0.38 )       (0.24 ) 

Net realized gains

     —        (0.05 )       (0.33 )       (0.59 )       (0.53 ) 

Tax return of capital

     —        (0.04 )       —        —        —  
       

Total distributions

     (0.40 )       (0.35 )       (0.58 )       (0.97 )       (0.77 ) 
       

Net asset value, end of year

             $11.01        $10.92        $10.74        $11.64        $12.25  
       

Total return

     4.57%        4.94%        (2.87)%        2.89%        12.04%  
Ratios to average net assets              

Expenses before waiver and payments by affiliatese

     1.17%        1.15%        1.14%        1.04%        1.03%  

Expenses net of waiver and payments by affiliatese

     0.55%f        0.55%        0.55%        0.55%        0.58%  

Net investment incomec

     3.64%        2.25%        2.05%        3.00%        1.84%  
Supplemental data              

Net assets, end of year (000’s)

     $4,071        $4,920        $4,130        $2,828        $2,279  

Portfolio turnover rate

     28.12%        149.53%        38.48%        68.98%        73.66%  

aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.

bBased on average daily shares outstanding.

cRecognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds and exchange traded funds in which the Fund invests.

dAmount rounds to less than $0.01 per share.

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 0.44% for the year ended December 31, 2017.

fBenefit of expense reduction rounds to less than 0.01%.

 

     
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,  
     2017      2016      2015      2014      2013a  
Class R6              
Per share operating performance              

(for a share outstanding throughout the year)

              

Net asset value, beginning of year

     $11.01        $10.82        $11.72        $12.32        $12.17  
       

Income from investment operationsb:

              

Net investment incomec,d

     0.47        0.30        0.31        0.57        0.49  

Net realized and unrealized gains (losses)

     0.10        0.29        (0.57 )       (0.14 )       0.44  
       

Total from investment operations

     0.57        0.59        (0.26 )       0.43        0.93  
       

Less distributions from:

              

Net investment income

     (0.47 )       (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

     (0.47 )       (0.40 )       (0.64 )       (1.03 )       (0.78 ) 
       

Net asset value, end of year

             $11.11        $11.01        $10.82        $11.72        $12.32  
       

Total returne

     5.14%        5.60%        (2.34)%        3.49%        7.78%  
Ratios to average net assetsf              

Expenses before waiver and payments by affiliatesg

     0.52%        0.55%        0.53%        0.44%        0.60%  

Expenses net of waiver and payments by affiliatesg

     —%h        —%        —%        —%        —%  

Net investment incomed

     4.19%        2.80%        2.60%        3.55%        2.42%  
Supplemental data              

Net assets, end of year (000’s)

     $4,031        $3,930        $6,828        $6,709        $763  

Portfolio turnover rate

     28.12%        149.53%        38.48%        68.98%        73.66%  

aFor the period May 1, 2013 (effective date) December 31, 2013.

bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.

cBased on average daily shares outstanding.

dRecognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds and exchange traded funds in which the Fund invests.

eTotal return is not annualized for periods less than one year.

fRatios are annualized for periods less than one year.

gDoes not include expenses of the Underlying Funds and exchange traded funds in which the Fund invests. The weighted average indirect expenses of the Underlying Funds and exchange traded funds was 0.44% for the year ended December 31, 2017.

hBenefit of expense reduction rounds to less than 0.01%.

 

     
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,  
     2017      2016      2015      2014      2013  
Advisor Class              
Per share operating performance              

(for a share outstanding throughout the year)

              

Net asset value, beginning of year

     $11.00        $10.81        $11.71        $12.31        $11.70  
       

Income from investment operationsa:

              

Net investment incomeb,c

     0.46        0.29        0.25        0.43        0.29  

Net realized and unrealized gains (losses)

     0.10        0.29        (0.52 )       (— )d       1.16  
       

Total from investment operations

     0.56        0.58        (0.27 )       0.43        1.45  
       

Less distributions from:

              

Net investment income

     (0.46 )       (0.30 )       (0.30 )       (0.44 )       (0.31 ) 

Net realized gains

     —        (0.05 )       (0.33 )       (0.59 )       (0.53 ) 

Tax return of capital

     —        (0.04 )       —        —        —  
       

Total distributions

     (0.46 )       (0.39 )       (0.63 )       (1.03 )       (0.84 ) 
       

Net asset value, end of year

             $11.10        $11.00        $10.81        $11.71        $12.31  
       

Total return

     5.09%        5.55%        (2.40)%        3.45%        12.55%  
Ratios to average net assets              

Expenses before waiver and payments by affiliatese

     0.67%        0.65%        0.64%        0.54%        0.53%  

Expenses net of waiver and payments by affiliatese

     0.05%f        0.05%        0.05%        0.05%        0.08%  

Net investment incomec

     4.14%        2.75%        2.55%        3.50%        2.34%  
Supplemental data              

Net assets, end of year (000’s)

     $2,122        $1,696        $880        $2,194        $2,494  

Portfolio turnover rate

     28.12%        149.53%        38.48%        68.98%        73.66%  

aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.

bBased on average daily shares outstanding.

cRecognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds and exchange traded funds in which the Fund invests.

dAmount rounds to less than $0.01 per share.

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 0.44% for the year ended December 31, 2017.

fBenefit of expense reduction rounds to less than 0.01%.

 

     
franklintempleton.com   The accompanying notes are an integral part of these financial statements.    |    Annual Report             63  

FRANKLIN FUND ALLOCATOR SERIES

 

Statement of Investments, December 31, 2017

Franklin LifeSmart Retirement Income Fund  
           Shares        Value  
 

Investments in Underlying Funds and Exchange Traded Funds 90.1%

        
 

Domestic Equity 8.4%

        
 

iShares U.S. Preferred Stock ETF

      130,400        $ 4,964,328  
         

 

 

  
 

Domestic Fixed Income 55.7%

        
a  

Franklin Floating Rate Daily Access Fund, Class R6

      1,642,895          14,408,195  
a  

Franklin High Income Fund, Class R6

      2,134,595          4,013,039  
a  

Franklin U.S. Government Securities Fund, Class R6

      1,455,994          8,852,441  
 

iShares iBoxx High Yield Corporate Bond ETF

      61,900          5,401,394  
         

 

 

  
            32,675,069  
         

 

 

  
 

Domestic Hybrid 21.5%

        
a  

Franklin Income Fund, Class R6

      5,341,125          12,605,056  
         

 

 

  
 

Foreign Fixed Income 4.5%

        
a  

Templeton Global Total Return Fund, Class R6

      218,266          2,630,100  
         

 

 

  
 

Total Investments in Underlying Funds and Exchange Traded Funds
(Cost $51,681,287)

           52,874,553  
         

 

 

  
         Units           
b  

Index-Linked Notes 9.9%

        
c,d,e  

Barclays Bank PLC, senior note, 144A, 0.947%, 7/08/19

      2,500          2,483,383  
c,f  

Morgan Stanley, senior note, 144A, 4.89%, 3/29/18

      26,778          3,345,370  
         

 

 

  
 

Total Index-Linked Notes (Cost $5,497,797)

           5,828,753  
         

 

 

  
 

Total Investments before Short Term Investments (Cost $57,179,084)

           58,703,306  
         

 

 

  
         Shares           
 

Short Term Investments (Cost $65,050) 0.1%

        
 

Money Market Funds 0.1%

        
a,g  

Institutional Fiduciary Trust Money Market Portfolio, 0.89%

      65,050          65,050  
         

 

 

  
 

Total Investments (Cost $57,244,134) 100.1%

           58,768,356  
 

Other Assets, less Liabilities (0.1)%

           (76,822 ) 
         

 

 

  
 

Net Assets 100.0%

         `$ 58,691,534  
         

 

 

  

See Abbreviations on page 157.

aSee Note 3(f) regarding investments in FT Underlying Funds.

bSee Note 1(c) regarding index-linked notes.

cSecurity 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. These securities have been deemed liquid under guidelines approved by the Trust’s Board of Trustees. At December 31, 2017, the aggregate value of these securities was $5,828,753, representing 9.9% of net assets.

dFair valued using significant unobservable inputs. See Note 8 regarding fair value measurements.

eSecurity pays a variable coupon based on the distribution of the SPXDIV Index. The coupon rate shown represents the rate at period end. Cash payment at maturity or upon early redemption is based on the performance of the S&P 500 Index.

fSecurity pays a fixed 2.00% coupon rate and a variable coupon based on the distribution of the Morgan Stanley Custom Enhanced SPX B DT Index. The coupon rate shown represents the combined rate at period end. Cash payment at maturity or upon early redemption is based on the performance of the Morgan Stanley Custom Enhanced SPX B Index.

gThe rate shown is the annualized seven-day yield at period end.

 

     
64        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,  
     2017      2016      2015      2014      2013a  
Class A              

Per share operating performance

(for a share outstanding throughout the year)

              

Net asset value, beginning of year

     $10.68        $10.61        $11.14        $10.94        $10.00  
 

 

 

  
Income from investment operationsb:              

Net investment incomec,d

     0.18        0.13        0.24        0.33        0.16  

Net realized and unrealized gains (losses)

     1.05        0.19        (0.48 )       0.20        0.91  
 

 

 

  

Total from investment operations

     1.23        0.32        (0.24 )       0.53        1.07  
 

 

 

  
Less distributions from:              

Net investment income

     (0.15 )       (0.17 )       (0.19 )       (0.27 )       (0.13 ) 

Net realized gains

     —        (0.08 )       (0.10 )       (0.06 )       (— )e 
 

 

 

  

Total distributions

     (0.15 )       (0.25 )       (0.29 )       (0.33 )       (0.13 ) 
 

 

 

  

Net asset value, end of year

             $11.76        $10.68        $10.61        $11.14        $10.94  
       

Total returnf

     11.53%        3.03%        (2.18)%        4.83%        10.69%  
Ratios to average net assetsg              

Expenses before waiver and payments by affiliatesh

     1.02%        0.98%        1.05%        2.25%        11.14%  

Expenses net of waiver and payments by affiliatesh

     0.30%        0.30%        0.32%        0.35%        0.24%  

Net investment incomed

     1.58%        1.25%        2.06%        3.20%        3.12%  
Supplemental data              

Net assets, end of year (000’s)

     $20,289        $19,292        $19,895        $7,302        $2,189  

Portfolio turnover rate

     47.93%        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 in which the 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 0.58% for the year ended December 31, 2017.

 

     
franklintempleton.com   The accompanying notes are an integral part of these financial statements.    |    Annual Report             65  

FRANKLIN FUND ALLOCATOR SERIES

FINANCIAL HIGHLIGHTS

 

Franklin LifeSmart 2020 Retirement Target Fund (continued)

 

    Year Ended December 31,  
     2017      2016      2015      2014      2013a  
Class C              

Per share operating performance

(for a share outstanding throughout the year)

              

Net asset value, beginning of year

     $10.62        $10.56        $11.08        $10.90        $10.00  
 

 

 

  
Income from investment operationsb:              

Net investment incomec,d

     0.10        0.05        0.14        0.24        0.18  

Net realized and unrealized gains (losses)

     1.03        0.18        (0.44 )       0.21        0.83  
 

 

 

  

Total from investment operations

     1.13        0.23        (0.30 )       0.45        1.01  
 

 

 

  
Less distributions from:              

Net investment income

     (0.06 )       (0.09 )       (0.12 )       (0.21 )       (0.11 ) 

Net realized gains

     —        (0.08 )       (0.10 )       (0.06 )       (— )e 
 

 

 

  

Total distributions

     (0.06 )       (0.17 )       (0.22 )       (0.27 )       (0.11 ) 
 

 

 

  

Net asset value, end of year

             $11.69        $10.62        $10.56        $11.08        $10.90  
       

Total returnf

     10.69%        2.29%        (2.84)%        4.09%        10.16%  
Ratios to average net assetsg              

Expenses before waiver and payments by affiliatesh

     1.77%        1.73%        1.78%        2.95%        11.95%  

Expenses net of waiver and payments by affiliatesh

     1.05%        1.05%        1.05%        1.05%        1.05%  

Net investment incomed

     0.83%        0.50%        1.33%        2.50%        2.31%  
Supplemental data              

Net assets, end of year (000’s)

     $6,287        $5,138        $5,221        $2,617        $250  

Portfolio turnover rate

     47.93%        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 in which the 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 0.58% for the year ended December 31, 2017.

 

     
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 (continued)

 

    Year Ended December 31,  
     2017      2016      2015      2014      2013a  
Class R              

Per share operating performance

(for a share outstanding throughout the year)

              

Net asset value, beginning of year

     $10.66        $10.59        $11.12        $10.93        $10.00  
 

 

 

  
Income from investment operationsb:              

Net investment incomec,d

     0.12        0.10        0.35        0.42        0.11  

Net realized and unrealized gains (losses)

     1.08        0.18        (0.61 )       0.08        0.93  
 

 

 

  

Total from investment operations

     1.20        0.28        (0.26 )       0.50        1.04  
 

 

 

  
Less distributions from:              

Net investment income

     (0.11 )       (0.13 )       (0.17 )       (0.25 )       (0.11 ) 

Net realized gains

     —        (0.08 )       (0.10 )       (0.06 )       (— )e 
 

 

 

  

Total distributions

     (0.11 )       (0.21 )       (0.27 )       (0.31 )       (0.11 ) 
 

 

 

  

Net asset value, end of year

             $11.75        $10.66        $10.59        $11.12        $10.93  
       

Total returnf

     11.26%        2.74%        (2.35)%        4.61%        10.48%  
Ratios to average net assetsg              

Expenses before waiver and payments by affiliatesh

     1.27%        1.23%        1.28%        2.45%        11.45%  

Expenses net of waiver and payments by affiliatesh

     0.55%        0.55%        0.55%        0.55%        0.55%  

Net investment incomed

     1.33%        1.00%        1.83%        3.00%        2.81%  
Supplemental data              

Net assets, end of year (000’s)

     $969        $3,145        $3,189        $80        $11  

Portfolio turnover rate

     47.93%        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 in which the Fund invests.

eAmount rounds to less than $0.01 per share.

fTotal return is not annualized for periods less than one year.

gRatios are annualized for periods less than one year.

hDoes not include expenses of the Underlying Funds and exchange traded funds in which the Fund invests. The weighted average indirect expenses of the Underlying Funds and exchange traded funds was 0.58% for the year ended December 31, 2017.

 

     
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,  
     2017      2016      2015      2014      2013a  
Class R6              

Per share operating performance

(for a share outstanding throughout the year)

              

Net asset value, beginning of year

     $10.70        $10.64        $11.15        $10.95        $10.00  
 

 

 

  
Income from investment operationsb:              

Net investment incomec,d

     0.21        0.17        0.23        0.45        0.14  

Net realized and unrealized gains (losses)

     1.06        0.17        (0.42 )       0.11        0.94  
 

 

 

  

Total from investment operations

     1.27        0.34        (0.19 )       0.56        1.08  
 

 

 

  
Less distributions from:              

Net investment income

     (0.18 )       (0.20 )       (0.22 )       (0.30 )       (0.13 ) 

Net realized gains

     —        (0.08 )       (0.10 )       (0.06 )       (— )e 
 

 

 

  

Total distributions

     (0.18 )       (0.28 )       (0.32 )       (0.36 )       (0.13 ) 
 

 

 

  

Net asset value, end of year

             $11.79        $10.70        $10.64        $11.15        $10.95  
       

Total returnf

     11.93%        3.33%        (1.80)%        5.14%        10.84%  
Ratios to average net assetsg              

Expenses before waiver and payments by affiliatesh

     0.59%        0.57%        0.66%        1.81%        11.51%  

Expenses net of waiver and payments by affiliatesh

     —%        —%        —%        —%        —%  

Net investment incomed

     1.88%        1.55%        2.38%        3.55%        3.36%  
Supplemental data              

Net assets, end of year (000’s)

     $8,831        $6,670        $6,751        $7,361        $11  

Portfolio turnover rate

     47.93%        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 in which the Fund invests.

eAmount rounds to less than $0.01 per share.

fTotal return is not annualized for periods less than one year.

gRatios are annualized for periods less than one year.

hDoes not include expenses of the Underlying Funds and exchange traded funds in which the Fund invests. The weighted average indirect expenses of the Underlying Funds and exchange traded funds was 0.58% for the year ended December 31, 2017.

 

     
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,

  
     2017      2016      2015      2014      2013a  
Advisor Class              

Per share operating performance

(for a share outstanding throughout the year)

              

Net asset value, beginning of year

     $10.70        $10.63        $11.15        $10.95        $10.00  
 

 

 

  
Income from investment operationsb:              

Net investment incomec,d

     0.23        0.16        0.25        0.39        0.17  

Net realized and unrealized gains (losses)

     1.04        0.18        (0.45 )       0.17        0.91  
 

 

 

  

Total from investment operations

     1.27        0.34        (0.20 )       0.56        1.08  
 

 

 

  
Less distributions from:              

Net investment income

     (0.18 )       (0.19 )       (0.22 )       (0.30 )       (0.13 ) 

Net realized gains

     —        (0.08 )       (0.10 )       (0.06 )       (— )e 
 

 

 

  

Total distributions

     (0.18 )       (0.27 )       (0.32 )       (0.36 )       (0.13 ) 
 

 

 

  

Net asset value, end of year

             $11.79        $10.70        $10.63        $11.15        $10.95  
       

Total returnf

     11.88%        3.28%        (1.85)%        5.08%        10.83%  
Ratios to average net assetsg              

Expenses before waiver and payments by affiliatesh

     0.77%        0.73%        0.78%        1.95%        10.95%  

Expenses net of waiver and payments by affiliatesh

     0.05%        0.05%        0.05%        0.05%        0.05%  

Net investment incomed

     1.83%        1.50%        2.33%        3.50%        3.31%  
Supplemental data              

Net assets, end of year (000’s)

     $691        $317        $290        $98        $44  

Portfolio turnover rate

     47.93%        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 in which the Fund invests.

eAmount rounds to less than $0.01 per share.

fTotal return is not annualized for periods less than one year.

gRatios are annualized for periods less than one year.

hDoes not include expenses of the Underlying Funds and exchange traded funds in which the Fund invests. The weighted average indirect expenses of the Underlying Funds and exchange traded funds was 0.58% for the year ended December 31, 2017.

 

     
franklintempleton.com   The accompanying notes are an integral part of these financial statements.    |    Annual Report             69  

FRANKLIN FUND ALLOCATOR SERIES

 

Statement of Investments, December 31, 2017

Franklin LifeSmart 2020 Retirement Target Fund

 

          Shares      Value  
 

Investments in Underlying Funds and Exchange Traded Funds 97.4%

     
 

Alternative Strategies 4.7%

     
a  

Franklin K2 Long Short Credit Fund, Class R6

     86,634      $ 902,723  
a  

Franklin Pelagos Commodities Strategy Fund, Class R6

     126,603        845,712  
      

 

 

  
       1,748,435  
      

 

 

  
 

Domestic Equity 29.3%

     
 

Financial Select Sector SPDR ETF

     34,800        971,268  
a  

Franklin Growth Fund, Class R6

     41,360        3,910,204  
a,b  

Franklin Growth Opportunities Fund, Class R6

     38,900        1,526,046  
a  

Franklin LibertyQ U.S. Equity ETF

     34,600        1,000,283  
a  

Franklin Rising Dividends Fund, Class R6

     26,237        1,602,829  
a,b  

Franklin Small Cap Growth Fund, Class R6

     21,218        504,128  
a  

Franklin Utilities Fund, Class R6

     33,104        623,682  
 

iShares S&P 500 Value ETF

     6,378        728,623  
      

 

 

  
         10,867,063  
      

 

 

  
 

Domestic Fixed Income 35.1%

    
a  

Franklin Floating Rate Daily Access Fund, Class R6

     113,595        996,227  
a  

Franklin Low Duration Total Return Fund, Class R6

     768,049        7,542,245  
a  

Franklin Strategic Income Fund, Class R6

     101,065        995,493  
a  

Franklin U.S. Government Securities Fund, Class R6

     223,660        1,359,850  
 

iShares Core U.S. Aggregate Bond ETF

     13,800        1,508,754  
 

iShares iBoxx $ Investment Grade Corporate Bond ETF

     5,100        619,956  
      

 

 

  
         13,022,525  
      

 

 

  
 

Foreign Equity 17.0%

    
a  

Franklin FTSE Europe ETF

     54,400        1,387,472  
a  

Franklin International Small Cap Growth Fund, Class R6

     59,882        1,206,623  
a  

Franklin LibertyQ Emerging Markets ETF

     47,400        1,566,333  
a  

Franklin Mutual International Fund, Class R6

     47,619        760,469  
 

iShares Global Infrastructure ETF

     10,702        483,945  
a  

Templeton Foreign Fund, Class R6

     110,287        875,682  
      

 

 

  
         6,280,524  
      

 

 

  
 

Foreign Fixed Income 11.3%

    
a  

Templeton Global Total Return Fund, Class R6

     347,950        4,192,791  
      

 

 

  
 

Total Investments in Underlying Funds and Exchange Traded Funds before Short Term Investments (Cost $32,926,306)

        36,111,338  
      

 

 

  
    Short Term Investments 2.6%             
 

Money Market Funds (Cost $904,584) 2.4%

     
a,c  

Institutional Fiduciary Trust Money Market Portfolio, 0.89%

     904,584        904,584  
      

 

 

  

 

     
70        Annual Report           franklintempleton.com

FRANKLIN FUND ALLOCATOR SERIES

STATEMENT OF INVESTMENTS

 

Franklin LifeSmart 2020 Retirement Target Fund (continued)

 

           Principal
Amount		      Value  
 

Repurchase Agreements (Cost $64,954) 0.2%

      
d  

Joint Repurchase Agreement, 1.377%, 1/02/18 (Maturity Value $64,964)

      
 

BNP Paribas Securities Corp. (Maturity Value $10,590)

      
 

Deutsche Bank Securities Inc. (Maturity Value $11,803)

      
 

HSBC Securities (USA) Inc. (Maturity Value $42,359)

      
 

Merrill Lynch, Pierce, Fenner & Smith Inc. (Maturity Value $212)

      
 

Collateralized by U.S. Government Agency Securities, 0.00% - 1.98%, 7/27/18 - 11/22/21; U.S. Treasury Note, 1.25% - 2.00%, 12/31/18 - 4/30/22; and U.S. Treasury Note, Index Linked, 0.125%, 4/15/18 (valued at $66,258)

      $64,954      $ 64,954  
       

 

 

  
 

Total Investments (Cost $33,895,844) 100.0%

         37,080,876  
 

Other Assets, less Liabilities (0.0)%†

         (13,631 ) 
       

 

 

  
 

Net Assets 100.0%

       $ 37,067,245  
       

 

 

  

 

 

See Abbreviations on page 157.

†Rounds to less than 0.1% of net assets.

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.

dSee Note 1(b) regarding joint repurchase agreement.

 

     
franklintempleton.com   The accompanying notes are an integral part of these financial statements.    |    Annual Report             71  

FRANKLIN FUND ALLOCATOR SERIES

 

Financial Highlights

Franklin LifeSmart 2025 Retirement Target Fund

 

    Year Ended December 31,  
    2017      2016      2015      2014      2013  
Class A                                            

Per share operating performance

(for a share outstanding throughout the year)

              

Net asset value, beginning of year

     $11.49        $11.44        $12.36        $12.76        $11.11  
 

 

 

  
Income from investment operationsa:              

Net investment incomeb,c

     0.19        0.14        0.19        0.26        0.16  

Net realized and unrealized gains (losses)

     1.52        0.19        (0.43 )       0.30        2.06  
 

 

 

  
Total from investment operations     1.71        0.33        (0.24 )       0.56        2.22  
 

 

 

  
Less distributions from:              

Net investment income and short term gains received from Underlying Funds and exchange traded funds

     (0.23 )       (0.13 )       (0.19 )       (0.28 )       (0.19 ) 
Net realized gains     —        (0.15 )       (0.49 )       (0.68 )       (0.38 ) 
 

 

 

  
Total distributions     (0.23 )       (0.28 )       (0.68 )       (0.96 )       (0.57 ) 
 

 

 

  

Net asset value, end of year

             $12.97        $11.49        $11.44        $12.36        $12.76  
       

Total returnd

     14.95%        2.96%        (2.08)%        4.39%        20.18%  
Ratios to average net assets              
Expenses before waiver and payments by affiliatese     0.80%        0.76%        0.77%        0.83%        0.84%  
Expenses net of waiver and payments by affiliatese     0.30%        0.30%        0.33%        0.35%        0.38%  
Net investment incomec     1.52%        1.18%        1.52%        2.03%        1.31%  
Supplemental data              

Net assets, end of year (000’s)

     $77,510        $74,746        $72,625        $67,854        $58,811  
Portfolio turnover rate     34.08%        83.67%        36.22%        62.00%        47.39%  

 

aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.

bBased on average daily shares outstanding.

cRecognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds and exchange traded funds in which the Fund invests.

dTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable.

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 0.59% for the year ended December 31, 2017.

 

     
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 (continued)

 

    Year Ended December 31,  
     2017      2016      2015      2014      2013  
Class C                                            
Per share operating performance
(for a share outstanding throughout the year)		              
Net asset value, beginning of year     $11.32        $11.27        $12.18        $12.60        $10.97  
 

 

 

  
Income from investment operationsa:              

Net investment incomeb,c

     0.09        0.05        0.10        0.16        0.07  

Net realized and unrealized gains (losses)

     1.50        0.20        (0.42 )       0.29        2.05  
 

 

 

  
Total from investment operations     1.59        0.25        (0.32 )       0.45        2.12  
 

 

 

  
Less distributions from:              

Net investment income and short term gains received from Underlying Funds and exchange traded funds

     (0.14 )       (0.05 )       (0.10 )       (0.19 )       (0.11 ) 

Net realized gains

     —        (0.15 )       (0.49 )       (0.68 )       (0.38 ) 
 

 

 

  
Total distributions     (0.14 )       (0.20 )       (0.59 )       (0.87 )       (0.49 ) 
 

 

 

  
Net asset value, end of year             $12.77        $11.32        $11.27        $12.18        $12.60  
       

Total returnd

     14.06%        2.21%        (2.74)%        3.58%        19.52%  
Ratios to average net assets              
Expenses before waiver and payments by affiliatese     1.55%        1.51%        1.49%        1.53%        1.54%  
Expenses net of waiver and payments by affiliatese     1.05%        1.05%        1.05%        1.05%        1.08%  
Net investment incomec     0.77%        0.43%        0.80%        1.33%        0.61%  
Supplemental data              
Net assets, end of year (000’s)     $27,301        $26,401        $29,425        $28,712        $25,248  
Portfolio turnover rate     34.08%        83.67%        36.22%        62.00%        47.39%  

 

aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.

bBased on average daily shares outstanding.

cRecognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds and exchange traded funds in which the Fund invests.

dTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable.

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 0.59% for the year ended December 31, 2017.

 

     
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,  
     2017      2016      2015      2014      2013  
Class R              

Per share operating performance

(for a share outstanding throughout the year)

              

Net asset value, beginning of year

     $11.44        $11.40        $12.31        $12.72        $11.07  
 

 

 

  
Income from investment operationsa:              

Net investment incomeb,c

     0.14        0.11        0.17        0.23        0.13  

Net realized and unrealized gains (losses)

     1.54        0.19        (0.42 )       0.30        2.07  
 

 

 

  

Total from investment operations

     1.68        0.30        (0.25 )       0.53        2.20  
 

 

 

  
Less distributions from:              

Net investment income and short term gains received from Underlying Funds and exchange traded funds

     (0.19 )       (0.11 )       (0.17 )       (0.26 )       (0.17 ) 

Net realized gains

     —        (0.15 )       (0.49 )       (0.68 )       (0.38 ) 
 

 

 

  

Total distributions

     (0.19 )       (0.26 )       (0.66 )       (0.94 )       (0.55 ) 
 

 

 

  

Net asset value, end of year

             $12.93        $11.44        $11.40        $12.31        $12.72  
 

 

 

  

Total return

     14.73%        2.65%        (2.20)%        4.12%        20.05%  
Ratios to average net assets              

Expenses before waiver and payments by affiliatesd

     1.05%        1.01%        0.99%        1.03%        1.04%  

Expenses net of waiver and payments by affiliatesd

     0.55%        0.55%        0.55%        0.55%        0.58%  

Net investment incomec

     1.27%        0.93%        1.30%        1.83%        1.11%  
Supplemental data              

Net assets, end of year (000’s)

     $6,166        $7,411        $6,062        $5,361        $4,835  

Portfolio turnover rate

     34.08%        83.67%        36.22%        62.00%        47.39%  

aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.

bBased on average daily shares outstanding.

cRecognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds and exchange traded funds in which the Fund invests.

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 0.59% for the year ended December 31, 2017.

 

     
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,

  
     2017      2016      2015      2014      2013a  
Class R6              
Per share operating performance
(for a share outstanding throughout the year)		              
Net asset value, beginning of year     $11.52        $11.47        $12.39        $12.79        $11.74  
 

 

 

  
Income from investment operationsb:              

Net investment incomec,d

     0.23        0.17        0.24        0.41        0.55  

Net realized and unrealized gains (losses)

     1.53        0.20        (0.44 )       0.20        1.06  
 

 

 

  

Total from investment operations

     1.76        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

     (0.27 )       (0.17 )       (0.23 )       (0.33 )       (0.18 ) 

Net realized gains

     —        (0.15 )       (0.49 )       (0.68 )       (0.38 ) 
 

 

 

  

Total distributions

     (0.27 )       (0.32 )       (0.72 )       (1.01 )       (0.56 ) 
 

 

 

  

Net asset value, end of year

             $13.01        $11.52        $11.47        $12.39        $12.79  
 

 

 

  

Total returne

     15.34%        3.24%        (1.74)%        4.74%        13.90%  
Ratios to average net assetsf              

Expenses before waiver and payments by affiliatesg

     0.37%        0.37%        0.36%        0.39%        0.45%  

Expenses net of waiver and payments by affiliatesg

     —%        —%        —%        —%        —%  

Net investment incomed

     1.82%        1.48%        1.85%        2.38%        1.69%  
Supplemental data              

Net assets, end of year (000’s)

     $17,009        $13,936        $17,129        $14,010        $2,339  

Portfolio turnover rate

     34.08%        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 in which the Fund invests.

eTotal return is not annualized for periods less than one year.

fRatios are annualized for periods less than one year.

gDoes not include expenses of the Underlying Funds and exchange traded funds in which the Fund invests. The weighted average indirect expenses of the Underlying Funds and exchange traded funds was 0.59% for the year ended December 31, 2017.

 

     
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,  
     2017      2016      2015      2014      2013  
Advisor Class              
Per share operating performance
(for a share outstanding throughout the year)		              
Net asset value, beginning of year     $11.51        $11.46        $12.38        $12.79        $11.12  
 

 

 

  
Income from investment operationsa:              

Net investment incomeb,c

     0.23        0.17        0.16        0.29        0.19  

Net realized and unrealized gains (losses)

     1.52        0.19        (0.37 )       0.30        2.08  
 

 

 

  
Total from investment operations     1.75        0.36        (0.21 )       0.59        2.27  
 

 

 

  

Less distributions from:

              

Net investment income and short term gains received from
Underlying Funds and exchange traded funds

     (0.26 )       (0.16 )       (0.22 )       (0.32 )       (0.22 ) 

Net realized gains

     —        (0.15 )       (0.49 )       (0.68 )       (0.38 ) 
 

 

 

  

Total distributions

     (0.26 )       (0.31 )       (0.71 )       (1.00 )       (0.60 ) 
 

 

 

  

Net asset value, end of year

             $13.00        $11.51        $11.46        $12.38        $12.79  
 

 

 

  

Total return

     15.30%        3.20%        (1.80)%        4.61%        20.66%  
Ratios to average net assets              

Expenses before waiver and payments by affiliatesd

     0.55%        0.51%        0.49%        0.53%        0.54%  

Expenses net of waiver and payments by affiliatesd

     0.05%        0.05%        0.05%        0.05%        0.08%  

Net investment incomec

     1.77%        1.43%        1.80%        2.33%        1.61%  
Supplemental data              

Net assets, end of year (000’s)

     $1,866        $1,381        $1,194        $2,814        $2,487  

Portfolio turnover rate

     34.08%        83.67%        36.22%        62.00%        47.39%  

aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.

bBased on average daily shares outstanding.

cRecognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds and exchange traded funds in which the Fund invests.

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 0.59% for the year ended December 31, 2017.

 

     
76        Annual Report    |    The accompanying notes are an integral part of these financial statements.   franklintempleton.com

FRANKLIN FUND ALLOCATOR SERIES

 

Statement of Investments, December 31, 2017

Franklin LifeSmart 2025 Retirement Target Fund

 

           Shares        Value  
  Investments in Underlying Funds and Exchange Traded Funds 97.9%        
    Alternative Strategies 4.8%                
a  

Franklin K2 Long Short Credit Fund, Class R6

      304,923        $ 3,177,305  
a  

Franklin Pelagos Commodities Strategy Fund, Class R6

      447,478          2,989,152  
            6,166,457  
    Domestic Equity 39.0%                
 

Financial Select Sector SPDR ETF

      169,400          4,727,954  
a  

Franklin Growth Fund, Class R6

      190,521          18,011,853  
a,b  

Franklin Growth Opportunities Fund, Class R6

      176,178          6,911,477  
a  

Franklin LibertyQ U.S. Equity ETF

      153,900          4,449,234  
a  

Franklin Rising Dividends Fund, Class R6

      123,696          7,556,565  
a,b  

Franklin Small Cap Growth Fund, Class R6

      117,520          2,792,276  
a  

Franklin Utilities Fund, Class R6

      151,930          2,862,362  
 

iShares S&P 500 Value ETF

      29,381          3,356,485  
            50,668,206  
 

Domestic Fixed Income 23.5%

        
a  

Franklin Floating Rate Daily Access Fund, Class R6

      246,435          2,161,235  
a  

Franklin Low Duration Total Return Fund, Class R6

      1,781,870          17,497,960  
a  

Franklin Strategic Income Fund, Class R6

      220,117          2,168,148  
a  

Franklin U.S. Government Securities Fund, Class R6

      540,046          3,283,482  
 

iShares Core U.S. Aggregate Bond ETF

      34,000          3,717,220  
 

iShares iBoxx $ Investment Grade Corporate Bond ETF

      13,500          1,641,060  
            30,469,105  
    Foreign Equity 23.3%                
a  

Franklin FTSE Europe ETF

      257,000          6,554,785  
a  

Franklin International Small Cap Growth Fund, Class R6

      280,645          5,655,004  
a  

Franklin LibertyQ Emerging Markets ETF

      245,600          8,115,852  
a  

Franklin Mutual International Fund, Class R6

      219,075          3,498,627  
 

iShares Global Infrastructure ETF

      59,399          2,686,023  
a  

Templeton Foreign Fund, Class R6

      470,403          3,734,999  
            30,245,290  
    Foreign Fixed Income 7.3%                
a  

Templeton Global Total Return Fund, Class R6

      790,981          9,531,325  
 

Total Investments in Underlying Funds and Exchange Traded Funds before Short Term Investments (Cost $106,867,671)

           127,080,383  
 

Short Term Investments 2.1%

        
    Money Market Funds (Cost $1,977,315) 1.5%                
a,c  

Institutional Fiduciary Trust Money Market Portfolio, 0.89%

      1,977,315          1,977,315  
         

 

 

  

 

     
franklintempleton.com           Annual Report             77  

FRANKLIN FUND ALLOCATOR SERIES

STATEMENT OF INVESTMENTS

 

Franklin LifeSmart 2025 Retirement Target Fund (continued)

 

      Principal
Amount		      Value  

   Repurchase Agreements (Cost $749,786) 0.6%

      

   dJoint Repurchase Agreement, 1.377%, 1/02/18 (Maturity Value $749,900)

      

BNP Paribas Securities Corp. (Maturity Value $122,241)

      

Deutsche Bank Securities Inc. (Maturity Value $136,249)

      

HSBC Securities (USA) Inc. (Maturity Value $488,965)

      

Merrill Lynch, Pierce, Fenner & Smith Inc. (Maturity Value $2,445)

      

Collateralized by U.S. Government Agency Securities, 0.00% - 1.98%, 7/27/18 - 11/22/21; U.S. Treasury Note, 1.25% - 2.00%, 12/31/18 - 4/30/22; and U.S. Treasury Note, Index Linked, 0.125%, 4/15/18 (valued at $764,840 )

    $ 749,786      $         749,786  
     

 

 

  

Total Investments (Cost $109,594,772) 100.0%

         129,807,484  

Other Assets, less Liabilities 0.0%†

         45,213  

Net Assets 100.0%

       $ 129,852,697  

See Abbreviations on page 157.

†Rounds to less than 0.1% of net assets.

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.

dSee Note 1(b) regarding joint repurchase agreement.

 

     
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,  
     2017      2016      2015      2014      2013a  
Class A              
Per share operating performance              

(for a share outstanding throughout the year)

              

Net asset value, beginning of year

     $11.08        $10.95        $11.45        $11.11        $10.00  
       

Income from investment operationsb:

              

Net investment incomec,d

     0.19        0.13        0.20        0.25        0.15  

Net realized and unrealized gains (losses)

     1.65        0.19        (0.39 )       0.33        1.07  
       

Total from investment operations

     1.84        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

     (0.22 )       (0.09 )       (0.16 )       (0.18 )       (0.11 ) 

Net realized gains

     —        (0.10 )       (0.15 )       (0.06 )       (— )e 
       

Total distributions

     (0.22 )       (0.19 )       (0.31 )       (0.24 )       (0.11 ) 
       

Net asset value, end of year

     $12.70        $11.08        $10.95        $11.45        $11.11  
       

Total returnf

             16.73%        2.93%        (1.75)%        5.28%        12.19%  
Ratios to average net assetsg              

Expenses before waiver and payments by affiliatesh

     1.08%        1.02%        1.17%        2.28%        20.77%  

Expenses net of waiver and payments by affiliatesh

     0.30%        0.30%        0.32%        0.35%        0.23%  

Net investment incomed

     1.60%        1.17%        1.55%        2.58%        2.72%  
Supplemental data              

Net assets, end of year (000’s)

     $19,270        $16,788        $13,631        $5,098        $1,260  

Portfolio turnover rate

     37.45%        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 in which the 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 0.60% for the year ended December 31, 2017.

 

     
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,  
     2017      2016      2015      2014      2013a  
Class C              

Per share operating performance

(for a share outstanding throughout the year)

              

Net asset value, beginning of year

     $10.97        $10.86        $11.38        $11.09        $10.00  
 

 

 

  
Income from investment operationsb:              

Net investment incomec,d

     0.11        0.05        0.11        0.24        0.13  

Net realized and unrealized gains (losses)

     1.63        0.17        (0.38 )       0.26        1.05  
 

 

 

  

Total from investment operations

     1.74        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

     (0.15 )       (0.01 )       (0.10 )       (0.15 )       (0.09 ) 

Net realized gains

     —        (0.10 )       (0.15 )       (0.06 )       (— )e 
 

 

 

  

Total distributions

     (0.15 )       (0.11 )       (0.25 )       (0.21 )       (0.09 ) 
 

 

 

  

Net asset value, end of year

     $12.56        $10.97        $10.86        $11.38        $11.09  
 

 

 

  

Total returnf

             15.89%        2.08%        (2.43)%        4.67%        11.73%  
Ratios to average net assetsg              

Expenses before waiver and payments by affiliatesh

     1.83%        1.77%        1.90%        2.98%        21.59%  

Expenses net of waiver and payments by affiliatesh

     1.05%        1.05%        1.05%        1.05%        1.05%  

Net investment incomed

     0.85%        0.42%        0.82%        1.88%        1.90%  
Supplemental data              

Net assets, end of year (000’s)

     $7,642        $5,127        $4,124        $1,950        $132  

Portfolio turnover rate

     37.45%        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 in which the 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 0.60% for the year ended December 31, 2017.

 

     
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,  
     2017      2016      2015      2014      2013a  
Class R              

Per share operating performance

(for a share outstanding throughout the year)

              

Net asset value, beginning of year

     $11.06        $10.94        $11.44        $11.10        $10.00  
 

 

 

  
Income from investment operationsb:              

Net investment incomec,d

     0.15        0.10        0.18        0.18        0.13  

Net realized and unrealized gains (losses)

     1.65        0.18        (0.39 )       0.38        1.07  
 

 

 

  

Total from investment operations

     1.80        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

     (0.18 )       (0.06 )       (0.14 )       (0.16 )       (0.10 ) 

Net realized gains

     —        (0.10 )       (0.15 )       (0.06 )       (— )e 
 

 

 

  

Total distributions

     (0.18 )       (0.16 )       (0.29 )       (0.22 )       (0.10 ) 
 

 

 

  

Net asset value, end of year

     $12.68        $11.06        $10.94        $11.44        $11.10  
 

 

 

  

Total returnf

     16.39%        2.60%        (1.89)%        5.07%        11.98%  
Ratios to average net assetsg              

Expenses before waiver and payments by affiliatesh

     1.33%        1.27%        1.40%        2.48%        21.09%  

Expenses net of waiver and payments by affiliatesh

     0.55%        0.55%        0.55%        0.55%        0.55%  

Net investment incomed

     1.35%        0.92%        1.32%        2.38%        2.40%  
Supplemental data              

Net assets, end of year (000’s)

     $1,148        $1,398        $870        $48        $47  

Portfolio turnover rate

     37.45%        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 in which the Fund invests.

eAmount rounds to less than $0.01 per share.

fTotal return is not annualized for periods less than one year.

gRatios are annualized for periods less than one year.

hDoes not include expenses of the Underlying Funds and exchange traded funds in which the Fund invests. The weighted average indirect expenses of the Underlying Funds and exchange traded funds was 0.60% for the year ended December 31, 2017.

 

     
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,  
     2017      2016      2015      2014      2013a  
Class R6              

Per share operating performance

(for a share outstanding throughout the year)

              

Net asset value, beginning of year

     $11.12        $10.99        $11.47        $11.12        $10.00  
 

 

 

  
Income from investment operationsb:              

Net investment incomec,d

     0.23        0.16        0.20        0.36        0.11  

Net realized and unrealized gains (losses)

     1.65        0.19        (0.35 )       0.26        1.12  
 

 

 

  

Total from investment operations

     1.88        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

     (0.26 )       (0.12 )       (0.18 )       (0.21 )       (0.11 ) 

Net realized gains

     —        (0.10 )       (0.15 )       (0.06 )       (— )e 
 

 

 

  

Total distributions

     (0.26 )       (0.22 )       (0.33 )       (0.27 )       (0.11 ) 
 

 

 

  

Net asset value, end of year

     $12.74        $11.12        $10.99        $11.47        $11.12  
 

 

 

  

Total returnf

             17.01%        3.20%        (1.34)%        5.60%        12.34%  
Ratios to average net assetsg              

Expenses before waiver and payments by affiliatesh

     0.54%        0.57%        0.68%        1.74%        21.00%  

Expenses net of waiver and payments by affiliatesh

     —%        —%        —%        —%        —%  

Net investment incomed

     1.90%        1.47%        1.87%        2.93%        2.95%  
Supplemental data              

Net assets, end of year (000’s)

     $18,260        $14,455        $13,041        $12,041        $11  

Portfolio turnover rate

     37.45%        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 in which the Fund invests.

eAmount rounds to less than $0.01 per share.

fTotal return is not annualized for periods less than one year.

gRatios are annualized for periods less than one year.

hDoes not include expenses of the Underlying Funds and exchange traded funds in which the Fund invests. The weighted average indirect expenses of the Underlying Funds and exchange traded funds was 0.60% for the year ended December 31, 2017.

 

     
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,  
     2017      2016      2015      2014      2013a  
Advisor Class              

Per share operating performance

(for a share outstanding throughout the year)

              

Net asset value, beginning of year

     $11.11        $10.98        $11.47        $11.12        $10.00  
 

 

 

  
Income from investment operationsb:              

Net investment incomec,d

     0.23        0.15        0.27        0.23        0.13  

Net realized and unrealized gains (losses)

     1.64        0.19        (0.43 )       0.38        1.10  
 

 

 

  

Total from investment operations

     1.87        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

     (0.25 )       (0.11 )       (0.18 )       (0.20 )       (0.11 ) 

Net realized gains

     —        (0.10 )       (0.15 )       (0.06 )       (— )e 
 

 

 

  

Total distributions

     (0.25 )       (0.21 )       (0.33 )       (0.26 )       (0.11 ) 
 

 

 

  

Net asset value, end of year

     $12.73        $11.11        $10.98        $11.47        $11.12  
 

 

 

  

Total returnf

             16.97%        3.15%        (1.46)%        5.56%        12.32%  
Ratios to average net assetsg              

Expenses before waiver and payments by affiliatesh

     0.83%        0.77%        0.90%        1.98%        20.59%  

Expenses net of waiver and payments by affiliatesh

     0.05%        0.05%        0.05%        0.05%        0.05%  

Net investment incomed

     1.85%        1.42%        1.82%        2.88%        2.90%  
Supplemental data              

Net assets, end of year (000’s)

     $662        $332        $303        $101        $82  

Portfolio turnover rate

     37.45%        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 in which the Fund invests.

eAmount rounds to less than $0.01 per share.

fTotal return is not annualized for periods less than one year.

gRatios are annualized for periods less than one year.

hDoes not include expenses of the Underlying Funds and exchange traded funds in which the Fund invests. The weighted average indirect expenses of the Underlying Funds and exchange traded funds was 0.60% for the year ended December 31, 2017.

 

     
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, 2017

Franklin LifeSmart 2030 Retirement Target Fund

 

           Shares      Value  
 

Investments in Underlying Funds and Exchange Traded Funds 97.6%

      
 

Alternative Strategies 4.7%

      
a  

Franklin K2 Long Short Credit Fund, Class R6

      109,217      $ 1,138,045  

a

  

Franklin Pelagos Commodities Strategy Fund, Class R6

      160,524        1,072,298  
       

 

 

  
          2,210,343  
       

 

 

  
 

Domestic Equity 43.3%

      
 

Financial Select Sector SPDR ETF

      67,200        1,875,552  

a

  

Franklin Growth Fund, Class R6

      74,736        7,065,559  

a,b

  

Franklin Growth Opportunities Fund, Class R6

      66,753        2,618,718  

a

  

Franklin LibertyQ U.S. Equity ETF

      59,400        1,717,248  

a

  

Franklin Rising Dividends Fund, Class R6

      49,468        3,022,018  

a,b

  

Franklin Small Cap Growth Fund, Class R6

      55,300        1,313,917  

a

  

Franklin Utilities Fund, Class R6

      64,089        1,207,439  
 

iShares S&P 500 Value ETF

      13,426        1,533,786  
       

 

 

  
          20,354,237  
       

 

 

  
    Domestic Fixed Income 17.7%              

a

  

Franklin Floating Rate Daily Access Fund, Class R6

      70,071        614,526  

a

  

Franklin Low Duration Total Return Fund, Class R6

      478,158        4,695,507  

a

  

Franklin Strategic Income Fund, Class R6

      62,409        614,726  

a

  

Franklin U.S. Government Securities Fund, Class R6

      151,620        921,852  
 

iShares Core U.S. Aggregate Bond ETF

      9,700        1,060,501  
 

iShares iBoxx $ Investment Grade Corporate Bond ETF

      3,200        388,992  
       

 

 

  
          8,296,104  
       

 

 

  
    Foreign Equity 26.3%              

a

  

Franklin FTSE Europe ETF

      108,100        2,757,091  

a

  

Franklin International Small Cap Growth Fund, Class R6

      132,768        2,675,265  

a

  

Franklin LibertyQ Emerging Markets ETF

      99,700        3,294,586  

a

  

Franklin Mutual International Fund, Class R6

      90,470        1,444,811  
 

iShares Global Infrastructure ETF

      19,394        876,997  

a

  

Templeton Foreign Fund, Class R6

      165,784        1,316,321  
       

 

 

  
          12,365,071  
       

 

 

  
    Foreign Fixed Income 5.6%              
a  

Templeton Global Total Return Fund, Class R6

      218,069        2,627,734  
       

 

 

  
 

Total Investments in Underlying Funds and Exchange Traded Funds before Short Term Investments (Cost $40,686,182)

         45,853,489  
       

 

 

  
 

Short Term Investments 2.1%

      
 

Money Market Funds (Cost $842,489) 1.8%

      

a,c

  

Institutional Fiduciary Trust Money Market Portfolio, 0.89%

      842,489        842,489  
       

 

 

  

 

     
84        Annual Report   franklintempleton.com

FRANKLIN FUND ALLOCATOR SERIES

STATEMENT OF INVESTMENTS

 

Franklin LifeSmart 2030 Retirement Target Fund (continued)

 

           Principal
Amount		      Value  
 

Repurchase Agreements (Cost $161,510) 0.3%

      
d  

Joint Repurchase Agreement, 1.377%, 1/02/18 (Maturity Value $161,535)

      
 

BNP Paribas Securities Corp. (Maturity Value $26,332)

      
 

Deutsche Bank Securities Inc. (Maturity Value $29,349)

      
 

HSBC Securities (USA) Inc. (Maturity Value $105,327)

      
 

Merrill Lynch, Pierce, Fenner & Smith Inc. (Maturity Value $527)

      
 

Collateralized by U.S. Government Agency Securities, 0.00% - 1.98%, 7/27/18 - 11/22/21; U.S. Treasury Note, 1.25% - 2.00%, 12/31/18 - 4/30/22; and U.S. Treasury Note, Index Linked, 0.125%, 4/15/18 (valued at $164,753)

      $161,510      $ 161,510  
       

 

 

  
 

Total Investments (Cost $41,690,181) 99.7%

         46,857,488  
 

Other Assets, less Liabilities 0.3%

         125,064  
       

 

 

  
 

Net Assets 100.0%

       $   46,982,552  
       

 

 

  

 

 

See Abbreviations on page 157.

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.

dSee Note 1(b) regarding joint repurchase agreement.

 

     
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

 

    Year Ended December 31,  
     2017      2016      2015      2014      2013  
Class A              

Per share operating performance

(for a share outstanding throughout the year)

              

Net asset value, beginning of year

     $11.86        $11.78        $12.67        $12.85        $11.01  
 

 

 

  
Income from investment operationsa:              

Net investment incomeb,c

    0.20        0.13        0.17        0.22        0.14  

Net realized and unrealized gains (losses)

     1.92        0.23        (0.41 )       0.42        2.26  
 

 

 

  

Total from investment operations

     2.12        0.36        (0.24 )       0.64        2.40  
 

 

 

  
Less distributions from:              

Net investment income and short term gains received from Underlying Funds and exchange traded funds

     (0.28 )       (0.10 )       (0.18 )       (0.24 )       (0.15 ) 

Net realized gains

     —        (0.18 )       (0.47 )       (0.58 )       (0.41 ) 
 

 

 

  

Total distributions

     (0.28 )       (0.28 )       (0.65 )       (0.82 )       (0.56 ) 
 

 

 

  

Net asset value, end of year

     $13.70        $11.86        $11.78        $12.67        $12.85  
 

 

 

  

Total returnd

    17.93%        3.11%        (2.00)%        4.96%        22.06%  
Ratios to average net assets              

Expenses before waiver and payments by affiliatese

    0.86%        0.82%        0.84%        0.91%        0.94%  

Expenses net of waiver and payments by affiliatese

    0.30%        0.30%        0.33%        0.35%        0.38%  

Net investment incomec

    1.55%        1.15%        1.30%        1.76%        1.17%  
Supplemental data              

Net assets, end of year (000’s)

     $61,238        $56,650        $53,701        $50,264        $42,510  

Portfolio turnover rate

     31.98%        77.39%        33.86%        61.73%        49.84%  

aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.

bBased on average daily shares outstanding.

cRecognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds and exchange traded funds in which the Fund invests.

dTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable.

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, 2017.

 

     
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,  
     2017      2016      2015      2014      2013  
Class C              

Per share operating performance

(for a share outstanding throughout the year)

              

Net asset value, beginning of year

     $11.61        $11.54        $12.43        $12.63        $10.85  
 

 

 

  
Income from investment operationsa:              

Net investment incomeb,c

    0.10        0.04        0.07        0.12        0.06  

Net realized and unrealized gains (losses)

     1.88        0.22        (0.40 )       0.41        2.21  
 

 

 

  

Total from investment operations

     1.98        0.26        (0.33 )       0.53        2.27  
 

 

 

  
Less distributions from:              

Net investment income and short term gains received from Underlying Funds and exchange traded funds

     (0.19 )       (0.01 )       (0.09 )       (0.15 )       (0.08 ) 

Net realized gains

     —        (0.18 )       (0.47 )       (0.58 )       (0.41 ) 
 

 

 

  

Total distributions

     (0.19 )       (0.19 )       (0.56 )       (0.73 )       (0.49 ) 
 

 

 

  

Net asset value, end of year

     $13.40        $11.61        $11.54        $12.43        $12.63  
 

 

 

  

Total returnd

    17.09%        2.34%        (2.76)%        4.23%        21.17%  
Ratios to average net assets              

Expenses before waiver and payments by affiliatese

    1.60%        1.57%        1.56%        1.61%        1.64%  

Expenses net of waiver and payments by affiliatese

    1.04%        1.05%        1.05%        1.05%        1.08%  

Net investment incomec

    0.81%        0.40%        0.58%        1.06%        0.47%  
Supplemental data              

Net assets, end of year (000’s)

     $21,451        $18,781        $19,953        $19,965        $16,873  

Portfolio turnover rate

     31.98%        77.39%        33.86%        61.73%        49.84%  

aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.

bBased on average daily shares outstanding.

cRecognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds and exchange traded funds in which the Fund invests.

dTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable.

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, 2017.

 

     
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,  
     2017      2016      2015      2014      2013  
Class R              

Per share operating performance

(for a share outstanding throughout the year)

              

Net asset value, beginning of year

     $11.84        $11.77        $12.66        $12.84        $11.01  
 

 

 

  
Income from investment operationsa:              

Net investment incomeb,c

    0.15        0.12        0.13        0.19        0.11  

Net realized and unrealized gains (losses)

     1.94        0.21        (0.40 )       0.42        2.26  
 

 

 

  

Total from investment operations

     2.09        0.33        (0.27 )       0.61        2.37  
 

 

 

  
Less distributions from:              

Net investment income and short term gains received from Underlying Funds and exchange traded funds

     (0.24 )       (0.08 )       (0.15 )       (0.21 )       (0.13 ) 

Net realized gains

     —        (0.18 )       (0.47 )       (0.58 )       (0.41 ) 
 

 

 

  

Total distributions

     (0.24 )       (0.26 )       (0.62 )       (0.79 )       (0.54 ) 
 

 

 

  

Net asset value, end of year

     $13.69        $11.84        $11.77        $12.66        $12.84  
 

 

 

  

Total return

     17.71%        2.87%        (2.25)%        4.75%        21.77%  
Ratios to average net assets              

Expenses before waiver and payments by affiliatesd

    1.11%        1.07%        1.06%        1.11%        1.14%  

Expenses net of waiver and payments by affiliatesd

    0.55%        0.55%        0.55%        0.55%        0.58%  

Net investment incomec

    1.30%        0.90%        1.08%        1.56%        0.97%  
Supplemental data              

Net assets, end of year (000’s)

     $5,745        $6,080        $4,688        $4,577        $4,093  

Portfolio turnover rate

     31.98%        77.39%        33.86%        61.73%        49.84%  

aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.

bBased on average daily shares outstanding.

cRecognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds and exchange traded funds in which the Fund invests.

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, 2017.

 

     
    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,  
     2017      2016      2015      2014      2013a  
Class R6              

Per share operating performance

(for a share outstanding throughout the year)

              

Net asset value, beginning of year

     $11.94        $11.85        $12.75        $12.92        $11.77  
 

 

 

  
Income from investment operationsb:              

Net investment incomec,d

    0.25        0.17        0.22        0.36        0.58  

Net realized and unrealized gains (losses)

     1.93        0.23        (0.43 )       0.33        1.17  
 

 

 

  

Total from investment operations

     2.18        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

     (0.32 )       (0.13 )       (0.22 )       (0.28 )       (0.19 ) 

Net realized gains

     —        (0.18 )       (0.47 )       (0.58 )       (0.41 ) 
 

 

 

  

Total distributions

     (0.32 )       (0.31 )       (0.69 )       (0.86 )       (0.60 ) 
 

 

 

  

Net asset value, end of year

     $13.80        $11.94        $11.85        $12.75        $12.92  
 

 

 

  

Total returne

    18.31%        3.48%        (1.75)%        5.35%        15.09%  
Ratios to average net assetsf              

Expenses before waiver and payments by affiliatesg

    0.38%        0.39%        0.38%        0.42%        0.49%  

Expenses net of waiver and payments by affiliatesg

    —%        —%        —%        —%        —%  

Net investment incomed

    1.85%        1.45%        1.63%        2.11%        1.55%  
Supplemental data              

Net assets, end of year (000’s)

     $26,497        $22,068        $20,244        $16,262        $2,532  

Portfolio turnover rate

     31.98%        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 in which the Fund invests.

eTotal return is not annualized for periods less than one year.

fRatios are annualized for periods less than one year.

gDoes not include expenses of the Underlying Funds and exchange traded funds in which the Fund invests. The weighted average indirect expenses of the Underlying Funds and exchange traded funds was 0.61% for the year ended December 31, 2017.

 

     
franklintempleton.com   The accompanying notes are an integral part of these financial statements.    |    Annual Report             89  

FRANKLIN FUND ALLOCATOR SERIES

FINANCIAL HIGHLIGHTS

 

Franklin LifeSmart 2035 Retirement Target Fund (continued)
    Year Ended December 31,  
     2017      2016      2015      2014      2013  
Advisor Class              

Per share operating performance

(for a share outstanding throughout the year)

              

Net asset value, beginning of year

     $11.95        $11.86        $12.75        $12.93        $11.07  
 

 

 

  
Income from investment operationsa:              

Net investment incomeb,c

    0.23        0.16        0.16        0.26        0.18  

Net realized and unrealized gains (losses)

     1.94        0.23        (0.37 )       0.41        2.28  
 

 

 

  

Total from investment operations

     2.17        0.39        (0.21 )       0.67        2.46  
 

 

 

  
Less distributions from:              

Net investment income and short term gains received from Underlying Funds and exchange traded funds

     (0.31 )       (0.12 )       (0.21 )       (0.27 )       (0.19 ) 

Net realized gains

     —        (0.18 )       (0.47 )       (0.58 )       (0.41 ) 
 

 

 

  

Total distributions

     (0.31 )       (0.30 )       (0.68 )       (0.85 )       (0.60 ) 
 

 

 

  

Net asset value, end of year

     $13.81        $11.95        $11.86        $12.75        $12.93  
 

 

 

  

Total return

     18.24%        3.42%        (1.76)%        5.22%        22.43%  
Ratios to average net assets              

Expenses before waiver and payments by affiliatesd

    0.61%        0.57%        0.56%        0.61%        0.64%  

Expenses net of waiver and payments by affiliatesd

    0.05%        0.05%        0.05%        0.05%        0.08%  

Net investment incomec

    1.80%        1.40%        1.58%        2.06%        1.47%  
Supplemental data              

Net assets, end of year (000’s)

     $1,578        $1,451        $1,722        $2,182        $1,815  

Portfolio turnover rate

     31.98%        77.39%        33.86%        61.73%        49.84%  

aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.

bBased on average daily shares outstanding.

cRecognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds and exchange traded funds in which the Fund invests.

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, 2017.

 

     
90        Annual Report    |    The accompanying notes are an integral part of these financial statements.   franklintempleton.com

FRANKLIN FUND ALLOCATOR SERIES

 

Statement of Investments, December 31, 2017

Franklin LifeSmart 2035 Retirement Target Fund

 

           Shares      Value  
 

Investments in Underlying Funds and Exchange Traded Funds 97.8%

      
 

Alternative Strategies 4.7%

      

a

  

Franklin K2 Long Short Credit Fund, Class R6

      272,339      $ 2,837,777  

a

  

Franklin Pelagos Commodities Strategy Fund, Class R6

      401,076        2,679,185  
       

 

 

  
          5,516,962  
       

 

 

  
 

Domestic Equity 45.9%

      
 

Financial Select Sector SPDR ETF

      176,500        4,926,115  

a

  

Franklin Growth Fund, Class R6

      198,598        18,775,451  

a,b

  

Franklin Growth Opportunities Fund, Class R6

      209,805        8,230,671  

a

  

Franklin LibertyQ U.S. Equity ETF

      164,000        4,741,224  

a

  

Franklin Rising Dividends Fund, Class R6

      122,435        7,479,534  

a,b

  

Franklin Small Cap Growth Fund, Class R6

      118,226        2,809,049  

a

  

Franklin Utilities Fund, Class R6

      155,847        2,936,156  
 

iShares S&P 500 Value ETF

      31,402        3,587,364  
       

 

 

  
          53,485,564  
       

 

 

  
 

Domestic Fixed Income 13.6%

      

a

  

Franklin Floating Rate Daily Access Fund, Class R6

      123,995        1,087,436  

a

  

Franklin Low Duration Total Return Fund, Class R6

      904,326        8,880,483  

a

  

Franklin Strategic Income Fund, Class R6

      107,242        1,056,334  

a

  

Franklin U.S. Government Securities Fund, Class R6

      310,246        1,886,296  
 

iShares Core U.S. Aggregate Bond ETF

      18,400        2,011,672  
 

iShares iBoxx $ Investment Grade Corporate Bond ETF

      7,700        936,012  
       

 

 

  
          15,858,233  
       

 

 

  
 

Foreign Equity 29.3%

      

a

  

Franklin FTSE Europe ETF

      282,200        7,197,511  

a

  

Franklin International Small Cap Growth Fund, Class R6

      371,243        7,480,538  

a

  

Franklin LibertyQ Emerging Markets ETF

      246,900        8,158,811  

a

  

Franklin Mutual International Fund, Class R6

      275,168        4,394,437  
 

iShares Global Infrastructure ETF

      61,836        2,796,224  

a

  

Templeton Foreign Fund, Class R6

      510,656        4,054,605  
       

 

 

  
          34,082,126  
       

 

 

  
 

Foreign Fixed Income 4.3%

      

a

  

Templeton Global Total Return Fund, Class R6

      417,150        5,026,660  
       

 

 

  
 

Total Investments in Underlying Funds and Exchange Traded Funds before Short Term Investments (Cost $94,410,842)

         113,969,545  
       

 

 

  
 

Short Term Investments 1.9%

      
 

Money Market Funds (Cost $1,024,047) 0.9%

      

a,c

  

Institutional Fiduciary Trust Money Market Portfolio, 0.89%

      1,024,047        1,024,047  
       

 

 

  

 

     
franklintempleton.com       |    Annual Report             91  

FRANKLIN FUND ALLOCATOR SERIES

STATEMENT OF INVESTMENTS

 

Franklin LifeSmart 2035 Retirement Target Fund (continued)

 

           Principal
Amount		        Value  
 

Repurchase Agreements (Cost $1,110,909) 1.0%

        

d

  

Joint Repurchase Agreement, 1.377%, 1/02/18 (Maturity Value $1,111,078)

        
 

BNP Paribas Securities Corp. (Maturity Value $181,117)

        
 

Deutsche Bank Securities Inc. (Maturity Value $201,872)

        
 

HSBC Securities (USA) Inc. (Maturity Value $724,467)

        
 

Merrill Lynch, Pierce, Fenner & Smith Inc. (Maturity Value $3,622)

        
 

Collateralized by U.S. Government Agency Securities, 0.00% - 1.98%, 7/27/18 - 11/22/21; U.S. Treasury Note, 1.25% - 2.00%, 12/31/18 -4/30/22; and U.S. Treasury Note, Index Linked, 0.125%, 4/15/18 (valued at $1,133,214 )

    $ 1,110,909        $ 1,110,909  
         

 

 

  
 

Total Investments (Cost $96,545,798) 99.7%

           116,104,501  
 

Other Assets, less Liabilities 0.3%

           405,622  
         

 

 

  
 

Net Assets 100.0%

         $   116,510,123  
         

 

 

  

 

 

See Abbreviations on page 157.

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.

dSee Note 1(b) regarding joint repurchase agreement.

 

     
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

 

    Year Ended December 31,  
     2017     2016     2015     2014     2013a  
Class A          
Per share operating performance          

(for a share outstanding throughout the year)

          

Net asset value, beginning of year

     $11.20       $11.06       $11.58       $11.19       $10.00  
 

 

 

  

Income from investment operationsb:

          

Net investment incomec,d

    0.18       0.14       0.18       0.24       0.11  

Net realized and unrealized gains (losses)

     1.88       0.17       (0.40 )      0.39       1.18  
 

 

 

  

Total from investment operations

     2.06       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

     (0.23 )      (0.08 )      (0.15 )      (0.18 )      (0.10 ) 

Net realized gains

     —       (0.09 )      (0.15 )      (0.06 )      (— )e  
 

 

 

  

Total distributions

     (0.23 )      (0.17 )      (0.30 )      (0.24 )      (0.10 ) 
 

 

 

  

Net asset value, end of year

     $13.03       $11.20       $11.06       $11.58       $11.19  
 

 

 

  

Total returnf

    18.50 %      2.91 %      (1.94) %      5.67 %      12.91 % 
Ratios to average net assetsg          

Expenses before waiver and payments by affiliatesh

    1.26 %      1.19 %      1.40 %      3.25 %      33.48 % 

Expenses net of waiver and payments by affiliatesh

    0.30 %      0.30 %      0.32 %      0.35 %      0.25 % 

Net investment incomed

    1.55 %      1.22 %      1.41 %      2.37 %      1.98 % 
Supplemental data          

Net assets, end of year (000’s)

     $14,001       $13,213       $8,177       $2,891       $672  

Portfolio turnover rate

     39.11 %      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 in which the 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 0.62% for the year ended December 31, 2017.

 

     
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,  
     2017      2016      2015      2014      2013a  
Class C              

Per share operating performance

(for a share outstanding throughout the year)

              

Net asset value, beginning of year

     $11.05        $10.97        $11.52        $11.15        $10.00  
 

 

 

  
Income from investment operationsb:              

Net investment incomec,d

    0.11        0.05        0.11        0.17        0.08  

Net realized and unrealized gains (losses)

     1.83        0.18        (0.41 )       0.39        1.16  
 

 

 

  

Total from investment operations

     1.94        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

     (0.16 )       (0.06 )       (0.10 )       (0.13 )       (0.09 ) 

Net realized gains

     —        (0.09 )       (0.15 )       (0.06 )       (— )e  
 

 

 

  

Total distributions

     (0.16 )       (0.15 )       (0.25 )       (0.19 )       (0.09 ) 
 

 

 

  

Net asset value, end of year

     $12.83        $11.05        $10.97        $11.52        $11.15  
 

 

 

  

Total returnf

    17.63%        2.17%        (2.66)%        5.03%        12.46%  
Ratios to average net assetsg              

Expenses before waiver and payments by affiliatesh

    2.01%        1.94%        2.13%        3.95%        34.28%  

Expenses net of waiver and payments by affiliatesh

    1.05%        1.05%        1.05%        1.05%        1.05%  

Net investment incomed

    0.80%        0.47%        0.68%        1.67%        1.18%  
Supplemental data              

Net assets, end of year (000’s)

     $4,015        $2,686        $1,988        $747        $60  

Portfolio turnover rate

     39.11%        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 in which the 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 0.62% for the year ended December 31, 2017.

 

     
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,  
     2017      2016      2015      2014      2013a  
Class R              

Per share operating performance

(for a share outstanding throughout the year)

              

Net asset value, beginning of year

     $11.17        $11.05        $11.58        $11.19        $10.00  
 

 

 

  
Income from investment operationsb:              

Net investment incomec,d

    0.13        0.13        0.17        0.20        0.07  

Net realized and unrealized gains (losses)

     1.91        0.16        (0.41 )       0.41        1.21  
 

 

 

  

Total from investment operations

     2.04        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

     (0.19 )       (0.08 )       (0.14 )       (0.16 )       (0.09 ) 

Net realized gains

     —        (0.09 )       (0.15 )       (0.06 )       (— )e  
 

 

 

  

Total distributions

     (0.19 )       (0.17 )       (0.29 )       (0.22 )       (0.09 ) 
 

 

 

  

Net asset value, end of year

     $13.02        $11.17        $11.05        $11.58        $11.19  
 

 

 

  

Total returnf

    18.31%        2.66%        (2.14)%        5.48%        12.81%  
Ratios to average net assetsg              

Expenses before waiver and payments by affiliatesh

    1.51%        1.43%        1.63%        3.45%        33.78%  

Expenses net of waiver and payments by affiliatesh

    0.55%        0.54%        0.55%        0.55%        0.55%  

Net investment incomed

    1.30%        0.98%        1.18%        2.17%        1.68%  
Supplemental data              

Net assets, end of year (000’s)

     $1,519        $2,188        $1,009        $37        $11  

Portfolio turnover rate

     39.11%        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 in which the Fund invests.

eAmount rounds to less than $0.01 per share.

fTotal return is not annualized for periods less than one year.

gRatios are annualized for periods less than one year.

hDoes not include expenses of the Underlying Funds and exchange traded funds in which the Fund invests. The weighted average indirect expenses of the Underlying Funds and exchange traded funds was 0.62% for the year ended December 31, 2017.

 

     
franklintempleton.com   The accompanying notes are an integral part of these financial statements.    |    Annual Report             95  

FRANKLIN FUND ALLOCATOR SERIES

FINANCIAL HIGHLIGHTS

 

Franklin LifeSmart 2040 Retirement Target Fund (continued)

    Year Ended December 31,  
     2017      2016      2015      2014      2013a  
Class R6              
Per share operating performance
(for a share outstanding throughout the year)		              

Net asset value, beginning of year

     $11.26        $11.10        $11.61        $11.20        $10.00  
 

 

 

  
Income from investment operationsb:              

Net investment incomec,d

    0.23        0.16        0.19        0.33        0.10  

Net realized and unrealized gains (losses)

     1.89        0.18        (0.37 )       0.35        1.20  
 

 

 

  

Total from investment operations

     2.12        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

     (0.27 )       (0.09 )       (0.18 )       (0.21 )       (0.10 ) 

Net realized gains

     —        (0.09 )       (0.15 )       (0.06 )       (— )e  
 

 

 

  

Total distributions

     (0.27 )       (0.18 )       (0.33 )       (0.27 )       (0.10 ) 
 

 

 

  

Net asset value, end of year

     $13.11        $11.26        $11.10        $11.61        $11.20  
 

 

 

  

Total returnf

    18.92%        3.16%        (1.62)%        6.13%        13.07%  
Ratios to average net assetsg              

Expenses before waiver and payments by affiliatesh

    0.61%        0.65%        0.82%        2.55%        33.68%  

Expenses net of waiver and payments by affiliatesh

    —%        —%        —%        —%        —%  

Net investment incomed

    1.85%        1.52%        1.73%        2.72%        2.23%  
Supplemental data              

Net assets, end of year (000’s)

     $17,521        $13,867        $12,037        $10,154        $11  

Portfolio turnover rate

     39.11%        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 in which the Fund invests.

eAmount rounds to less than $0.01 per share.

fTotal return is not annualized for periods less than one year.

gRatios are annualized for periods less than one year.

hDoes not include expenses of the Underlying Funds and exchange traded funds in which the Fund invests. The weighted average indirect expenses of the Underlying Funds and exchange traded funds was 0.62% for the year ended December 31, 2017.

 

     
96        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,  
     2017      2016      2015      2014      2013a  
Advisor Class              
Per share operating performance
(for a share outstanding throughout the year)		              

Net asset value, beginning of year

     $11.25        $11.09        $11.61        $11.20        $10.00  
 

 

 

  
Income from investment operationsb:              

Net investment incomec,d

    0.22        0.15        0.40        0.20        0.10  

Net realized and unrealized gains (losses)

     1.89        0.19        (0.59 )       0.48        1.20  
 

 

 

  

Total from investment operations

     2.11        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

     (0.26 )       (0.09 )       (0.18 )       (0.21 )       (0.10 ) 

Net realized gains

     —        (0.09 )       (0.15 )       (0.06 )       (— )e  
 

 

 

  

Total distributions

     (0.26 )       (0.18 )       (0.33 )       (0.27 )       (0.10 ) 
 

 

 

  

Net asset value, end of year

     $13.10        $11.25        $11.09        $11.61        $11.20  
 

 

 

  

Total returnf

    18.88%        3.15%        (1.72)%        6.08%        13.04%  
Ratios to average net assetsg              

Expenses before waiver and payments by affiliatesh

    1.01%        0.94%        1.13%        2.95%        33.28%  

Expenses net of waiver and payments by affiliatesh

    0.05%        0.05%        0.05%        0.05%        0.05%  

Net investment incomed

    1.80%        1.47%        1.68%        2.67%        2.18%  
Supplemental data              

Net assets, end of year (000’s)

     $155        $141        $121        $23        $23  

Portfolio turnover rate

     39.11%        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 in which the Fund invests.

eAmount rounds to less than $0.01 per share.

fTotal return is not annualized for periods less than one year.

gRatios are annualized for periods less than one year.

hDoes not include expenses of the Underlying Funds and exchange traded funds in which the Fund invests. The weighted average indirect expenses of the Underlying Funds and exchange traded funds was 0.62% for the year ended December 31, 2017.

 

     
franklintempleton.com   The accompanying notes are an integral part of these financial statements.    |    Annual Report             97  

FRANKLIN FUND ALLOCATOR SERIES

 

Statement of Investments, December 31, 2017

Franklin LifeSmart 2040 Retirement Target Fund  
           Shares        Value  
    Investments in Underlying Funds and Exchange Traded Funds 97.4%                
    Alternative Strategies 4.7%                
     a  

Franklin K2 Long Short Credit Fund, Class R6

      86,360        $ 899,878  
     a  

Franklin Pelagos Commodities Strategy Fund, Class R6

      127,402          851,044  
         

 

 

  
            1,750,922  
         

 

 

  
    Domestic Equity 48.1%                
 

Financial Select Sector SPDR ETF

      57,100          1,593,661  
     a  

Franklin Growth Fund, Class R6

      65,804          6,221,103  
   a,b  

Franklin Growth Opportunities Fund, Class R6

      71,929          2,821,776  
     a  

Franklin LibertyQ U.S. Equity ETF

      55,300          1,598,717  
a  

Franklin Rising Dividends Fund, Class R6

      40,411          2,468,717  
     a,b  

Franklin Small Cap Growth Fund, Class R6

      40,180          954,674  
a  

Franklin Utilities Fund, Class R6

      51,662          973,305  
 

iShares S&P 500 Value ETF

      11,017          1,258,583  
         

 

 

  
            17,890,536  
         

 

 

  
    Domestic Fixed Income 11.6%                
a  

Franklin Floating Rate Daily Access Fund, Class R6

      35,270          309,313  
a  

Franklin Low Duration Total Return Fund, Class R6

      252,322          2,477,803  
a  

Franklin Strategic Income Fund, Class R6

      30,286          298,320  
a  

Franklin U.S. Government Securities Fund, Class R6

      90,122          547,942  
 

iShares Core U.S. Aggregate Bond ETF

      4,300          470,119  
 

iShares iBoxx $ Investment Grade Corporate Bond ETF

      1,600          194,496  
         

 

 

  
            4,297,993  
         

 

 

  
    Foreign Equity 29.6%                
a  

Franklin FTSE Europe ETF

      91,500          2,333,708  
a  

Franklin International Small Cap Growth Fund, Class R6

      124,690          2,512,514  
a  

Franklin LibertyQ Emerging Markets ETF

      79,700          2,633,687  
a  

Franklin Mutual International Fund, Class R6

      91,940          1,468,281  
 

iShares Global Infrastructure ETF

      17,742          802,293  
a  

Templeton Foreign Fund, Class R6

      159,417          1,265,770  
         

 

 

  
            11,016,253  
         

 

 

  
    Foreign Fixed Income 3.4%                
a  

Templeton Global Total Return Fund, Class R6

      105,449          1,270,655  
         

 

 

  
 

Total Investments in Underlying Funds and Exchange Traded Funds before Short Term Investments (Cost $31,770,505)

           36,226,359  
         

 

 

  
    Short Term Investments 1.9%                
    Money Market Funds (Cost $511,800) 1.4%                
a,c  

Institutional Fiduciary Trust Money Market Portfolio, 0.89%

      511,800          511,800  
         

 

 

  

 

     
98        Annual Report    |       franklintempleton.com

FRANKLIN FUND ALLOCATOR SERIES

STATEMENT OF INVESTMENTS

 

Franklin LifeSmart 2040 Retirement Target Fund (continued)

  
           Principal
Amount		        Value  
 

Repurchase Agreements (Cost $211,733) 0.5%

        
d  

Joint Repurchase Agreement, 1.377%, 1/02/18 (Maturity Value $211,765)

        
 

BNP Paribas Securities Corp. (Maturity Value $34,520)

        
 

Deutsche Bank Securities Inc. (Maturity Value $38,476)

        
 

HSBC Securities (USA) Inc. (Maturity Value $138,079)

        
 

Merrill Lynch, Pierce, Fenner & Smith Inc. (Maturity Value $690)

        
 

Collateralized by U.S. Government Agency Securities, 0.00% - 1.98%, 7/27/18 - 11/22/21; U.S. Treasury Note, 1.25% - 2.00%, 12/31/18 - 4/30/22; and U.S. Treasury Note, Index Linked, 0.125%, 4/15/18 (valued at $215,984)

    $ 211,733        $ 211,733  
         

 

 

  
 

Total Investments (Cost $32,494,038) 99.3%

           36,949,892  
 

Other Assets, less Liabilities 0.7%

           261,558  
         

 

 

  
 

Net Assets 100.0%

         $ 37,211,450  
         

 

 

  

See Abbreviations on page 157.

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.

dSee Note 1(b) regarding joint repurchase agreement.

 

     
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

     Year Ended December 31,  
      2017      2016      2015      2014      2013  
Class A               
Per share operating performance
(for a share outstanding throughout the year)		               

Net asset value, beginning of year

      $11.86        $11.75        $12.70        $12.88        $10.92  
  

 

 

  
Income from investment operationsa:               

Net investment incomeb,c

     0.20        0.14        0.16        0.20        0.13  

Net realized and unrealized gains (losses)

      2.01        0.24        (0.42 )       0.43        2.36  
  

 

 

  

Total from investment operations

      2.21        0.38        (0.26 )       0.63        2.49  
  

 

 

  
Less distributions from:               

Net investment income and short term gains received from Underlying Funds and exchange traded funds

      (0.29 )       (0.10 )       (0.17 )       (0.22 )       (0.15 ) 

Net realized gains

      —        (0.17 )       (0.52 )       (0.59 )       (0.38 ) 
  

 

 

  

Total distributions

      (0.29 )       (0.27 )       (0.69 )       (0.81 )       (0.53 ) 
  

 

 

  

Net asset value, end of year

      $13.78        $11.86        $11.75        $12.70        $12.88  
  

 

 

  

Total returnd

     18.72%        3.29%        (2.17)%        4.94%        23.07%  
Ratios to average net assets               

Expenses before waiver and payments by affiliatese

     1.01%        0.97%        1.01%        1.11%        1.16%  

Expenses net of waiver and payments by affiliatese

     0.30%        0.30%        0.33%        0.35%        0.38%  

Net investment incomec

     1.53%        1.15%        1.26%        1.57%        1.08%  
Supplemental data               

Net assets, end of year (000’s)

      $46,783        $44,521        $38,444        $34,259        $27,991  

Portfolio turnover rate

      31.69%        75.72%        34.07%        65.20%        44.44%  

aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.

bBased on average daily shares outstanding.

cRecognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds and exchange traded funds in which the Fund invests.

dTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable.

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 0.63% for the year ended December 31, 2017.

 

     
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,  
     2017      2016      2015      2014      2013  
Class C              
Per share operating performance
(for a share outstanding throughout the year)		              

Net asset value, beginning of year

     $11.57        $11.48        $12.42        $12.63        $10.73  
 

 

 

  
Income from investment operationsa:              

Net investment incomeb,c

    0.10        0.04        0.07        0.11        0.04  

Net realized and unrealized gains (losses)

     1.96        0.23        (0.40 )       0.41        2.31  
 

 

 

  

Total from investment operations

     2.06        0.27        (0.33 )       0.52        2.35  
 

 

 

  
Less distributions from:              

Net investment income and short term gains received from Underlying Funds and exchange traded funds

     (0.19 )       (0.01 )       (0.09 )       (0.14 )       (0.07 ) 

Net realized gains

     —        (0.17 )       (0.52 )       (0.59 )       (0.38 ) 
 

 

 

  

Total distributions

     (0.19 )       (0.18 )       (0.61 )       (0.73 )       (0.45 ) 
 

 

 

  

Net asset value, end of year

     $13.44        $11.57        $11.48        $12.42        $12.63  
 

 

 

  

Total returnd

    17.92%        2.43%        (2.82)%        4.15%        22.20%  
Ratios to average net assets              

Expenses before waiver and payments by affiliatese

    1.75%        1.72%        1.73%        1.81%        1.86%  

Expenses net of waiver and payments by affiliatese

    1.04%        1.05%        1.05%        1.05%        1.08%  

Net investment incomec

    0.79%        0.40%        0.54%        0.87%        0.38%  
Supplemental data              

Net assets, end of year (000’s)

     $13,190        $12,527        $12,850        $11,785        $9,484  

Portfolio turnover rate

     31.69%        75.72%        34.07%        65.20%        44.44%  

aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.

bBased on average daily shares outstanding.

cRecognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds and exchange traded funds in which the Fund invests.

dTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable.

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 0.63% for the year ended December 31, 2017.

 

     
franklintempleton.com   The accompanying notes are an integral part of these financial statements.    |    Annual Report             101  

FRANKLIN FUND ALLOCATOR SERIES

FINANCIAL HIGHLIGHTS

 

Franklin LifeSmart 2045 Retirement Target Fund (continued)

     Year Ended December 31,  
      2017      2016      2015      2014      2013  
Class R               
Per share operating performance
(for a share outstanding throughout the year)		               

Net asset value, beginning of year

      $11.81        $11.71        $12.66        $12.82        $10.88  
  

 

 

  
Income from investment operationsa:               

Net investment incomeb,c

     0.17        0.11        0.14        0.14        0.10  

Net realized and unrealized gains (losses)

      2.00        0.23        (0.42 )       0.47        2.35  
  

 

 

  

Total from investment operations

      2.17        0.34        (0.28 )       0.61        2.45  
  

 

 

  
Less distributions from:               

Net investment income and short term gains received from Underlying Funds and exchange traded funds

      (0.26 )       (0.07 )       (0.15 )       (0.18 )       (0.13 ) 

Net realized gains

      —        (0.17 )       (0.52 )       (0.59 )       (0.38 ) 
  

 

 

  

Total distributions

      (0.26 )       (0.24 )       (0.67 )       (0.77 )       (0.51 ) 
  

 

 

  

Net asset value, end of year

      $13.72        $11.81        $11.71        $12.66        $12.82  
  

 

 

  

Total return

      18.43%        2.99%        (2.35)%        4.75%        22.76%  
Ratios to average net assets               

Expenses before waiver and payments by affiliatesd

     1.26%        1.22%        1.23%        1.31%        1.36%  

Expenses net of waiver and payments by affiliatesd

     0.55%        0.55%        0.55%        0.55%        0.58%  

Net investment incomec

     1.28%        0.90%        1.04%        1.37%        0.88%  
Supplemental data               

Net assets, end of year (000’s)

      $5,464        $4,682        $4,327        $3,474        $4,564  

Portfolio turnover rate

      31.69%        75.72%        34.07%        65.20%        44.44%  

aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.

bBased on average daily shares outstanding.

cRecognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds and exchange traded funds in which the Fund invests.

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 0.63% for the year ended December 31, 2017.

 

     
102        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,  
      2017      2016      2015      2014      2013a  
Class R6               
Per share operating performance
(for a share outstanding throughout the year)		               

Net asset value, beginning of year

      $11.94        $11.83        $12.77        $12.95        $11.67  
  

 

 

  
Income from investment operationsb:               

Net investment incomec,d

     0.25        0.17        0.21        0.33        0.60  

Net realized and unrealized gains (losses)

      2.02        0.24        (0.42 )       0.35        1.24  
  

 

 

  

Total from investment operations

      2.27        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

      (0.33 )       (0.13 )       (0.21 )       (0.27 )       (0.18 ) 

Net realized gains

      —        (0.17 )       (0.52 )       (0.59 )       (0.38 ) 
  

 

 

  

Total distributions

      (0.33 )       (0.30 )       (0.73 )       (0.86 )       (0.56 ) 
  

 

 

  

Net asset value, end of year

      $13.88        $11.94        $11.83        $12.77        $12.95  
  

 

 

  

Total returne

     19.10%        3.55%        (1.77)%        5.24%        16.08%  
Ratios to average net assetsf               

Expenses before waiver and payments by affiliatesg

     0.43%        0.44%        0.45%        0.51%        0.60%  

Expenses net of waiver and payments by affiliatesg

     —%        —%        —%        —%        —%  

Net investment incomed

     1.83%        1.45%        1.59%        1.92%        1.46%  
Supplemental data               

Net assets, end of year (000’s)

      $13,787        $10,912        $10,975        $8,987        $1,718  

Portfolio turnover rate

      31.69%        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 in which the Fund invests.

eTotal return is not annualized for periods less than one year.

fRatios are annualized for periods less than one year.

gDoes not include expenses of the Underlying Funds and exchange traded funds in which the Fund invests. The weighted average indirect expenses of the Underlying Funds and exchange traded funds was 0.63% for the year ended December 31, 2017.

 

     
franklintempleton.com   The accompanying notes are an integral part of these financial statements.    |    Annual Report             103  

FRANKLIN FUND ALLOCATOR SERIES

FINANCIAL HIGHLIGHTS

 

Franklin LifeSmart 2045 Retirement Target Fund (continued)

    Year Ended December 31,  
     2017      2016      2015      2014      2013  
Advisor Class              
Per share operating performance
(for a share outstanding throughout the year)		              

Net asset value, beginning of year

     $11.94        $11.83        $12.76        $12.94        $10.96  
 

 

 

  
Income from investment operationsa:              

Net investment incomeb,c

    0.23        0.15        0.13        0.24        0.17  

Net realized and unrealized gains (losses)

     2.03        0.25        (0.34 )       0.43        2.37  
 

 

 

  

Total from investment operations

     2.26        0.40        (0.21 )       0.67        2.54  
 

 

 

  
Less distributions from:              

Net investment income and short term gains received from Underlying Funds and exchange traded funds

     (0.32 )       (0.12 )       (0.20 )       (0.26 )       (0.18 ) 

Net realized gains

     —        (0.17 )       (0.52 )       (0.59 )       (0.38 ) 
 

 

 

  

Total distributions

     (0.32 )       (0.29 )       (0.72 )       (0.85 )       (0.56 ) 
 

 

 

  

Net asset value, end of year

     $13.88        $11.94        $11.83        $12.76        $12.94  
 

 

 

  

Total return

     19.04%        3.49%        (1.82)%        5.20%        23.48%  
Ratios to average net assets              

Expenses before waiver and payments by affiliatesd

    0.76%        0.72%        0.73%        0.81%        0.86%  

Expenses net of waiver and payments by affiliatesd

    0.05%        0.05%        0.05%        0.05%        0.08%  

Net investment incomec

    1.78%        1.40%        1.54%        1.87%        1.38%  
Supplemental data              

Net assets, end of year (000’s)

     $602        $479        $532        $1,576        $1,188  

Portfolio turnover rate

     31.69%        75.72%        34.07%        65.20%        44.44%  

aThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.

bBased on average daily shares outstanding.

cRecognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds and exchange traded funds in which the Fund invests.

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 0.63% for the year ended December 31, 2017.

 

     
104        Annual Report    |    The accompanying notes are an integral part of these financial statements.   franklintempleton.com

FRANKLIN FUND ALLOCATOR SERIES

 

Statement of Investments, December 31, 2017

Franklin LifeSmart 2045 Retirement Target Fund  
           Shares        Value  
 

Investments in Underlying Funds and Exchange Traded Funds 97.9%

        
 

Alternative Strategies 4.8%

        
a  

Franklin K2 Long Short Credit Fund, Class R6

      187,404        $ 1,952,745  

a

  

Franklin Pelagos Commodities Strategy Fund, Class R6

      275,261          1,838,747  
         

 

 

  
            3,791,492  
         

 

 

  
 

Domestic Equity 47.9%

        
 

Financial Select Sector SPDR ETF

      124,000          3,460,840  

a

  

Franklin Growth Fund, Class R6

      140,901          13,320,754  

a,b

  

Franklin Growth Opportunities Fund, Class R6

      154,448          6,058,976  

a

  

Franklin LibertyQ U.S. Equity ETF

      119,300          3,448,951  

a

  

Franklin Rising Dividends Fund, Class R6

      86,278          5,270,737  

a,b

  

Franklin Small Cap Growth Fund, Class R6

      87,967          2,090,107  

a

  

Franklin Utilities Fund, Class R6

      110,252          2,077,147  
 

iShares S&P 500 Value ETF

      22,155          2,530,987  
         

 

 

  
            38,258,499  
         

 

 

  
    Domestic Fixed Income 10.5%                

a

  

Franklin Floating Rate Daily Access Fund, Class R6

      65,267          572,392  

a

  

Franklin Low Duration Total Return Fund, Class R6

      494,261          4,853,644  

a

  

Franklin Strategic Income Fund, Class R6

      57,358          564,972  

a

  

Franklin U.S. Government Securities Fund, Class R6

      166,371          1,011,535  
 

iShares Core U.S. Aggregate Bond ETF

      8,700          951,171  
 

iShares iBoxx $ Investment Grade Corporate Bond ETF

      3,300          401,148  
         

 

 

  
            8,354,862  
         

 

 

  
    Foreign Equity 31.4%                

a

  

Franklin FTSE Europe ETF

      202,100          5,154,561  

a

  

Franklin International Small Cap Growth Fund, Class R6

      265,700          5,353,862  

a

  

Franklin LibertyQ Emerging Markets ETF

      182,300          6,024,103  

a

  

Franklin Mutual International Fund, Class R6

      196,741          3,141,949  
 

iShares Global Infrastructure ETF

      44,875          2,029,248  

a

  

Templeton Foreign Fund, Class R6

      425,835          3,381,131  
         

 

 

  
            25,084,854  
         

 

 

  
    Foreign Fixed Income 3.3%                

a

  

Templeton Global Total Return Fund, Class R6

      218,541          2,633,423  
         

 

 

  
 

Total Investments in Underlying Funds and Exchange Traded Funds before Short Term Investments (Cost $64,297,400)

           78,123,130  
         

 

 

  
 

Short Term Investments 1.8%

        
 

Money Market Funds (Cost $516,375) 0.7%

        

a,c

  

Institutional Fiduciary Trust Money Market Portfolio, 0.89%

      516,375          516,375  
         

 

 

  

 

     
franklintempleton.com       |     Annual Report             105  

FRANKLIN FUND ALLOCATOR SERIES

STATEMENT OF INVESTMENTS

 

Franklin LifeSmart 2045 Retirement Target Fund (continued)  
           Principal
Amount		        Value  
 

Repurchase Agreements (Cost $908,386) 1.1%

        
        d  

Joint Repurchase Agreement, 1.377%, 1/02/18 (Maturity Value $908,525)

        
 

BNP Paribas Securities Corp. (Maturity Value $148,098)

        
 

Deutsche Bank Securities Inc. (Maturity Value $165,070)

        
 

HSBC Securities (USA) Inc. (Maturity Value $592,395)

        
 

Merrill Lynch, Pierce, Fenner & Smith Inc. (Maturity Value $2,962)

        
 

Collateralized by U.S. Government Agency Securities, 0.00% - 1.98%, 7/27/18 - 11/22/21; U.S. Treasury Note, 1.25% - 2.00%, 12/31/18 - 4/30/22; and U.S. Treasury Note, Index Linked, 0.125%, 4/15/18 (valued at $926,625 )

    $ 908,386        $ 908,386  
         

 

 

  
 

Total Investments (Cost $65,722,161) 99.7%

           79,547,891  
 

Other Assets, less Liabilities 0.3%

           278,712  
         

 

 

  
 

Net Assets 100.0%

         $ 79,826,603  
         

 

 

  

 

 

 

See Abbreviations on page 157.

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.

dSee Note 1(b) regarding joint repurchase agreement.

 

     
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

 

    Year Ended December 31,  
     2017      2016      2015      2014      2013a  
Class A              
Per share operating performance
(for a share outstanding throughout the year)		              

Net asset value, beginning of year

     $11.29        $11.11        $11.62        $11.21        $10.00  
 

 

 

  
Income from investment operationsb:              

Net investment incomec,d

    0.20        0.14        0.22        0.22        0.10  

Net realized and unrealized gains (losses)

     1.93        0.23        (0.41 )       0.43        1.21  
 

 

 

  

Total from investment operations

     2.13        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

     (0.23 )       (0.09 )       (0.16 )       (0.18 )       (0.10 ) 

Net realized gains

     —        (0.10 )       (0.16 )       (0.06 )       —  
 

 

 

  

Total distributions

     (0.23 )       (0.19 )       (0.32 )       (0.24 )       (0.10 ) 
 

 

 

  

Net asset value, end of year

     $13.19        $11.29        $11.11        $11.62        $11.21  
 

 

 

  

Total returne

    18.96%        3.32%        (1.76)%        5.80%        13.14%  
Ratios to average net assetsf              

Expenses before waiver and payments by affiliatesg

    1.53%        1.47%        1.82%        4.12%        34.22%  

Expenses net of waiver and payments by affiliatesg

    0.30%        0.30%        0.32%        0.35%        0.23%  

Net investment incomed

    1.62%        1.17%        1.47%        2.21%        1.88%  
Supplemental data              

Net assets, end of year (000’s)

     $13,823        $10,597        $6,762        $2,318        $512  

Portfolio turnover rate

     35.70%        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 in relation to income earned and/or fluctuating fair value of the investments of the Fund.

cBased on average daily shares outstanding.

dRecognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds and exchange traded funds in which the Fund invests.

eTotal return 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 0.63% for the year ended December 31, 2017.

 

     
franklintempleton.com   The accompanying notes are an integral part of these financial statements.    |    Annual Report             107  

FRANKLIN FUND ALLOCATOR SERIES

FINANCIAL HIGHLIGHTS

 

Franklin LifeSmart 2050 Retirement Target Fund (continued)

    Year Ended December 31,  
     2017      2016      2015      2014      2013a  
Class C              
Per share operating performance
(for a share outstanding throughout the year)		              

Net asset value, beginning of year

     $11.24        $11.07        $11.56        $11.18        $10.00  
 

 

 

  
Income from investment operationsb:              

Net investment incomec,d

    0.11        0.05        0.07        0.15        0.09  

Net realized and unrealized gains (losses)

     1.91        0.23        (0.33 )       0.42        1.18  
 

 

 

  

Total from investment operations

     2.02        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

     (0.15 )       (0.01 )       (0.07 )       (0.13 )       (0.09 ) 

Net realized gains

     —        (0.10 )       (0.16 )       (0.06 )       —  
 

 

 

  

Total distributions

     (0.15 )       (0.11 )       (0.23 )       (0.19 )       (0.09 ) 
 

 

 

  

Net asset value, end of year

     $13.11        $11.24        $11.07        $11.56        $11.18  
 

 

 

  

Total returne

    18.03%        2.56%        (2.40)%        5.03%        12.82%  
Ratios to average net assetsf              

Expenses before waiver and payments by affiliatesg

    2.28%        2.22%        2.55%        4.82%        35.04%  

Expenses net of waiver and payments by affiliatesg

    1.05%        1.05%        1.05%        1.05%        1.05%  

Net investment incomed

    0.87%        0.42%        0.74%        1.51%        1.06%  
Supplemental data              

Net assets, end of year (000’s)

     $3,797        $2,675        $1,921        $943        $82  

Portfolio turnover rate

     35.70%        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 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 in relation to income earned and/or fluctuating fair value of the investments of the Fund.

cBased on average daily shares outstanding.

dRecognition of net investment income by the Fund is affected by the timing of declaration of dividends by the Underlying Funds and exchange traded funds in which the Fund invests.

eTotal return 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 0.63% for the year ended December 31, 2017.

 

     
108        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,  
     2017      2016      2015      2014      2013a  
Class R              
Per share operating performance
(for a share outstanding throughout the year)		              

Net asset value, beginning of year

     $11.29        $11.12        $11.63        $11.21        $10.00  
 

 

 

  
Income from investment operationsb:              

Net investment incomec,d

    0.16        0.11        0.16        0.18        0.06  

Net realized and unrealized gains (losses)

     1.94        0.22        (0.37 )       0.45        1.24  
 

 

 

  

Total from investment operations

     2.10        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

     (0.20 )       (0.06 )       (0.14 )       (0.15 )       (0.09 ) 

Net realized gains

     —        (0.10 )       (0.16 )       (0.06 )       —  
 

 

 

  

Total distributions

     (0.20 )       (0.16 )       (0.30 )       (0.21 )       (0.09 ) 
 

 

 

  

Net asset value, end of year

     $13.19        $11.29        $11.12        $11.63        $11.21  
 

 

 

  

Total returne

    18.67%        3.01%        (1.98)%        5.67%        13.02%  
Ratios to average net assetsf              

Expenses before waiver and payments by affiliatesg

    1.78%        1.71%        2.05%        4.32%        34.54%  

Expenses net of waiver and payments by affiliatesg

    0.55%        0.54%        0.55%        0.55%        0.55%  

Net investment incomed

    1.37%        0.93%        1.24%        2.01%        1.56%  
Supplemental data              

Net assets, end of year (000’s)

     $1,608        $1,219        $747        $33        $11  

Portfolio turnover rate

     35.70%        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 in which the Fund invests.

eTotal return is not annualized for periods less than one year.

fRatios are annualized for periods less than one year.

gDoes not include expenses of the Underlying Funds and exchange traded funds in which the Fund invests. The weighted average indirect expenses of the Underlying Funds and exchange traded funds was 0.63% for the year ended December 31, 2017.

 

     
franklintempleton.com   The accompanying notes are an integral part of these financial statements.    |    Annual Report             109  

FRANKLIN FUND ALLOCATOR SERIES

FINANCIAL HIGHLIGHTS

 

Franklin LifeSmart 2050 Retirement Target Fund (continued)

    Year Ended December 31,  
     2017      2016      2015      2014      2013a  
Class R6              
Per share operating performance
(for a share outstanding throughout the year)		              

Net asset value, beginning of year

     $11.34        $11.16        $11.65        $11.23        $10.00  
 

 

 

  
Income from investment operationsb:              

Net investment incomec,d

    0.24        0.15        0.19        0.32        0.09  

Net realized and unrealized gains (losses)

     1.94        0.24        (0.34 )       0.37        1.25  
 

 

 

  

Total from investment operations

     2.18        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

     (0.26 )       (0.11 )       (0.18 )       (0.21 )       (0.11 ) 

Net realized gains

     —        (0.10 )       (0.16 )       (0.06 )       —  
 

 

 

  

Total distributions

     (0.26 )       (0.21 )       (0.34 )       (0.27 )       (0.11 ) 
 

 

 

  

Net asset value, end of year

     $13.26        $11.34        $11.16        $11.65        $11.23  
 

 

 

  

Total returne

    19.36%        3.55%        (1.39)%        6.16%        13.39%  
Ratios to average net assetsf              

Expenses before waiver and payments by affiliatesg

    0.69%        0.75%        1.00%        3.22%        34.36%  

Expenses net of waiver and payments by affiliatesg

    —%        —%        —%        —%        —%  

Net investment incomed

    1.92%        1.47%        1.79%        2.56%        2.11%  
Supplemental data              

Net assets, end of year (000’s)

     $12,099        $9,174        $8,012        $6,348        $11  

Portfolio turnover rate

     35.70%        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 in which the Fund invests.

eTotal return is not annualized for periods less than one year.

fRatios are annualized for periods less than one year.

gDoes not include expenses of the Underlying Funds and exchange traded funds in which the Fund invests. The weighted average indirect expenses of the Underlying Funds and exchange traded funds was 0.63% for the year ended December 31, 2017.

 

     
110        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,  
     2017      2016      2015      2014      2013a  
Advisor Class              
Per share operating performance
(for a share outstanding throughout the year)		              

Net asset value, beginning of year

     $11.35        $11.16        $11.65        $11.22        $10.00  
 

 

 

  
Income from investment operationsb:              

Net investment incomec,d

    0.23        0.15        0.18        0.23        0.10  

Net realized and unrealized gains (losses)

     1.94        0.25        (0.33 )       0.47        1.23  
 

 

 

  

Total from investment operations

     2.17        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

     (0.26 )       (0.11 )       (0.18 )       (0.21 )       (0.11 ) 

Net realized gains

     —        (0.10 )       (0.16 )       (0.06 )       —  
 

 

 

  

Total distributions

     (0.26 )       (0.21 )       (0.34 )       (0.27 )       (0.11 ) 
 

 

 

  

Net asset value, end of year

     $13.26        $11.35        $11.16        $11.65        $11.22  
 

 

 

  

Total returne

    19.20%        3.59%        (1.43)%        6.22%        13.26%  
Ratios to average net assetsf              

Expenses before waiver and payments by affiliatesg

    1.28%        1.22%        1.55%        3.82%        34.04%  

Expenses net of waiver and payments by affiliatesg

    0.05%        0.05%        0.05%        0.05%        0.05%  

Net investment incomed

    1.87%        1.42%        1.74%        2.51%        2.06%  
Supplemental data              

Net assets, end of year (000’s)

     $512        $395        $394        $327        $75  

Portfolio turnover rate

     35.70%        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 in which the Fund invests.

eTotal return is not annualized for periods less than one year.

fRatios are annualized for periods less than one year.

gDoes not include expenses of the Underlying Funds and exchange traded funds in which the Fund invests. The weighted average indirect expenses of the Underlying Funds and exchange traded funds was 0.63% for the year ended December 31, 2017.

 

     
franklintempleton.com   The accompanying notes are an integral part of these financial statements.    |    Annual Report             111  

FRANKLIN FUND ALLOCATOR SERIES

    

 

Statement of Investments, December 31, 2017

Franklin LifeSmart 2050 Retirement Target Fund  
           Shares        Value  
 

Investments in Underlying Funds and Exchange Traded Funds 97.0%

        
 

Alternative Strategies 4.7%

        
a  

Franklin K2 Long Short Credit Fund, Class R6

      73,455        $ 765,406  
a  

Franklin Pelagos Commodities Strategy Fund, Class R6

      108,629          725,642  
         

 

 

  
            1,491,048  
         

 

 

  
 

Domestic Equity 47.9%

        
 

Financial Select Sector SPDR ETF

      49,000          1,367,590  
a  

Franklin Growth Fund, Class R6

      57,252          5,412,658  
a,b  

Franklin Growth Opportunities Fund, Class R6

      62,061          2,434,663  
a  

Franklin LibertyQ U.S. Equity ETF

      49,900          1,442,604  
a  

Franklin Rising Dividends Fund, Class R6

      34,398          2,101,377  
a,b  

Franklin Small Cap Growth Fund, Class R6

      29,202          693,830  
a  

Franklin Utilities Fund, Class R6

      43,825          825,655  
 

iShares S&P 500 Value ETF

      8,492          970,126  
         

 

 

  
            15,248,503  
         

 

 

  
 

Domestic Fixed Income 9.9%

        
a  

Franklin Floating Rate Daily Access Fund, Class R6

      26,321          230,837  
a  

Franklin Low Duration Total Return Fund, Class R6

      177,483          1,742,879  
a  

Franklin Strategic Income Fund, Class R6

      22,315          219,806  
a  

Franklin U.S. Government Securities Fund, Class R6

      67,091          407,910  
 

iShares Core U.S. Aggregate Bond ETF

      3,500          382,655  
 

iShares iBoxx $ Investment Grade Corporate Bond ETF

      1,500          182,340  
         

 

 

  
            3,166,427  
         

 

 

  
 

Foreign Equity 31.5%

        
a  

Franklin FTSE Europe ETF

      81,500          2,078,657  
a  

Franklin International Small Cap Growth Fund, Class R6

      105,648          2,128,805  
a  

Franklin LibertyQ Emerging Markets ETF

      76,000          2,511,420  
a  

Franklin Mutual International Fund, Class R6

      78,616          1,255,505  
 

iShares Global Infrastructure ETF

      15,343          693,810  
a  

Templeton Foreign Fund, Class R6

      173,344          1,376,348  
         

 

 

  
            10,044,545  
         

 

 

  
 

Foreign Fixed Income 3.0%

        
a  

Templeton Global Total Return Fund, Class R6

      79,140          953,640  
         

 

 

  
 

Total Investments in Underlying Funds and Exchange Traded Funds before Short Term Investments (Cost $26,961,098)

           30,904,163  
         

 

 

  
 

Short Term Investments 2.2%

        
 

Money Market Funds (Cost $544,475) 1.7%

        
a,c  

Institutional Fiduciary Trust Money Market Portfolio, 0.89%

      544,475          544,475  
         

 

 

  

 

     
112        Annual Report    |       franklintempleton.com

FRANKLIN FUND ALLOCATOR SERIES

STATEMENT OF INVESTMENTS

 

Franklin LifeSmart 2050 Retirement Target Fund (continued)  
           Principal
Amount		     Value  
 

Repurchase Agreements (Cost $143,947) 0.5%

     
d  

Joint Repurchase Agreement, 1.377%, 1/02/18 (Maturity Value $143,969)

     
 

BNP Paribas Securities Corp. (Maturity Value $23,468)

     
 

Deutsche Bank Securities Inc. (Maturity Value $26,158)

     
 

HSBC Securities (USA) Inc. (Maturity Value $93,874)

     
 

Merrill Lynch, Pierce, Fenner & Smith Inc. (Maturity Value $469)

     
 

Collateralized by U.S. Government Agency Securities, 0.00% - 1.98%, 7/27/18 - 11/22/21; U.S. Treasury Note, 1.25% - 2.00%, 12/31/18 - 4/30/22; and U.S. Treasury Note, Index Linked, 0.125%, 4/15/18 (valued at $146,837)

    $ 143,947     $ 143,947  
      

 

 

  
 

Total Investments (Cost $27,649,520) 99.2%

        31,592,585  
 

Other Assets, less Liabilities 0.8%

        247,338  
      

 

 

  
 

Net Assets 100.0%

      $ 31,839,923  
      

 

 

  

See Abbreviations on page 157.

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.

dSee Note 1(b) regarding joint repurchase agreement.

 

     
franklintempleton.com   The accompanying notes are an integral part of these financial statements.    |    Annual Report             113  

FRANKLIN FUND ALLOCATOR SERIES

 

Financial Highlights

Franklin LifeSmart 2055 Retirement Target Fund

    Year Ended December 31,  
     2017      2016      2015a  
Class A        
Per share operating performance        
(for a share outstanding throughout the year)        

Net asset value, beginning of year

     $9.47        $9.34        $10.00  
 

 

 

  
Income from investment operationsb:        

Net investment incomec,d

    0.18        0.12        0.16  

Net realized and unrealized gains (losses)

     1.62        0.17        (0.70 ) 
 

 

 

  

Total from investment operations

     1.80        0.29        (0.54 ) 
 

 

 

  

Less distributions from:

        

Net investment income and short term gains received from Underlying Funds and exchange traded funds

     (0.19 )       (0.10 )       (0.12 ) 

Net realized gains

     (0.03 )       (0.06 )       —  
 

 

 

  
Total distributions     (0.22 )       (0.16 )       (0.12 ) 
 

 

 

  
Net asset value, end of year     $11.05        $ 9.47        $  9.34  
 

 

 

  

Total returne

    19.06%        3.13%        (5.40)%  
Ratios to average net assetsf        

Expenses before waiver and payments by affiliates and expense reductiong

    3.18%        5.09%        9.66%  

Expenses net of waiver and payments by affiliates and expense reductiong

    0.30%        0.32%        0.19%  

Net investment incomed

    1.75%        1.43%        2.62%  
Supplemental data        

Net assets, end of year (000’s)

     $4,684        $2,732        $1,817  

Portfolio turnover rate

     31.85%        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 in which the 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 0.63% for the year ended December 31, 2017.

 

     
114        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,  
     2017      2016      2015a  
Class C        

Per share operating performance

(for a share outstanding throughout the year)

        

Net asset value, beginning of year

     $9.39        $9.30        $10.00  
 

 

 

  

Income from investment operationsb:

        

Net investment incomec,d

    0.12        0.08        0.24  

Net realized and unrealized gains (losses)

     1.58        0.14        (0.84 ) 
 

 

 

  

Total from investment operations

     1.70        0.22        (0.60 ) 
 

 

 

  

Less distributions from:

        

Net investment income and short term gains received from Underlying Funds and exchange traded funds

     (0.14 )       (0.07 )       (0.10 ) 

Net realized gains

     (0.03 )       (0.06 )       —  
 

 

 

  

Total distributions

     (0.17 )       (0.13 )       (0.10 ) 
 

 

 

  

Net asset value, end of year

     $10.92        $  9.39        $  9.30  
 

 

 

  
Total returne     18.10%        2.36%        (5.99)%  
Ratios to average net assetsf        

Expenses before waiver and payments by affiliates and expense reductiong

    3.93%        5.82%        10.52%  

Expenses net of waiver and payments by affiliates and expense reductiong

    1.05%        1.05%        1.05%  

Net investment incomed

    1.00%        0.70%        1.76%  
Supplemental data        

Net assets, end of year (000’s)

     $1,428        $572        $172  

Portfolio turnover rate

     31.85%        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 in which the 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 0.63% for the year ended December 31, 2017.

 

     
franklintempleton.com   The accompanying notes are an integral part of these financial statements.    |    Annual Report             115  

FRANKLIN FUND ALLOCATOR SERIES

FINANCIAL HIGHLIGHTS

 

Franklin LifeSmart 2055 Retirement Target Fund (continued)

 

    Year Ended December 31,  
     2017      2016      2015a  
Class R        

Per share operating performance

(for a share outstanding throughout the year)

        

Net asset value, beginning of year

     $9.44        $9.33        $10.00  
 

 

 

  

Income from investment operationsb:

        

Net investment incomec,d

    0.13        0.12        0.18  

Net realized and unrealized gains (losses)

     1.63        0.14        (0.74 ) 
 

 

 

  

Total from investment operations

     1.76        0.26        (0.56 ) 
 

 

 

  

Less distributions from:

        

Net investment income and short term gains received from Underlying Funds and exchange traded funds

     (0.16 )       (0.09 )       (0.11 ) 

Net realized gains

     (0.03 )       (0.06 )       —  
 

 

 

  

Total distributions

     (0.19 )       (0.15 )       (0.11 ) 
 

 

 

  

Net asset value, end of year

     $11.01        $9.44        $9.33  
 

 

 

  
Total returne     18.69%        2.84%        (5.61)%  
Ratios to average net assetsf        

Expenses before waiver and payments by affiliates and expense reductiong

    3.43%        5.32%        9.98%  

Expenses net of waiver and payments by affiliates and expense reductiong

    0.55%        0.55%        0.51%  

Net investment incomed

    1.50%        1.20%        2.30%  
Supplemental data        

Net assets, end of year (000’s)

     $354        $357        $41  

Portfolio turnover rate

     31.85%        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 in which the Fund invests.

eTotal return is not annualized for periods less than one year.

fRatios are annualized for periods less than one year, 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 0.63% for the year ended December 31, 2017.

 

     
116        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,  
     2017      2016      2015a  
Class R6        

Per share operating performance

(for a share outstanding throughout the year)

        

Net asset value, beginning of year

     $9.48        $9.34        $10.00  
 

 

 

  

Income from investment operationsb:

        

Net investment incomec,d

    0.22        0.21        0.32  

Net realized and unrealized gains (losses)

     1.61        0.11        (0.85 ) 
 

 

 

  

Total from investment operations

     1.83        0.32        (0.53 ) 
 

 

 

  

Less distributions from:

        

Net investment income and short term gains received from Underlying Funds and exchange traded funds

     (0.22 )       (0.12 )       (0.13 ) 

Net realized gains

     (0.03 )       (0.06 )       —  
 

 

 

  

Total distributions

     (0.25 )       (0.18 )       (0.13 ) 
 

 

 

  

Net asset value, end of year

     $11.06        $  9.48        $  9.34  
 

 

 

  
Total returne     19.32%        3.49%        (5.33)%  
Ratios to average net assetsf        

Expenses before waiver and payments by affiliates and expense reductiong

    1.85%        4.21%        10.04%  

Expenses net of waiver and payments by affiliates and expense reductiong

    —%        —%        —%  

Net investment incomed

    2.05%        1.75%        2.81%  
Supplemental data        

Net assets, end of year (000’s)

     $3,184        $1,618        $92  

Portfolio turnover rate

     31.85%        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 in which the Fund invests.

eTotal return is not annualized for periods less than one year.

fRatios are annualized for periods less than one year, 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 0.63% for the year ended December 31, 2017.

 

     
franklintempleton.com   The accompanying notes are an integral part of these financial statements.    |    Annual Report             117  

FRANKLIN FUND ALLOCATOR SERIES

FINANCIAL HIGHLIGHTS

 

Franklin LifeSmart 2055 Retirement Target Fund (continued)

    Year Ended December 31,  
     2017      2016      2015a  
Advisor Class        

Per share operating performance

(for a share outstanding throughout the year)

        

Net asset value, beginning of year

     $9.48        $9.35        $10.00  
 

 

 

  

Income from investment operationsb:

        

Net investment incomec,d

    0.20        0.13        0.10  

Net realized and unrealized gains (losses)

     1.62        0.18        (0.63 ) 
 

 

 

  

Total from investment operations

     1.82        0.31        (0.53 ) 
 

 

 

  

Less distributions from:

        

Net investment income and short term gains received from Underlying Funds and exchange traded funds

     (0.21 )       (0.12 )       (0.12 ) 

Net realized gains

     (0.03 )       (0.06 )       —  
 

 

 

  

Total distributions

     (0.24 )       (0.18 )       (0.12 ) 
 

 

 

  

Net asset value, end of year

     $11.06        $  9.48        $  9.35  
 

 

 

  
Total returne     19.27%        3.45%        (5.37)%  
Ratios to average net assetsf        

Expenses before waiver and payments by affiliatesg

    2.93%        4.82%        9.52%  

Expenses net of waiver and payments by affiliatesg

    0.05%        0.05%        0.05%  

Net investment incomed

    2.00%        1.70%        2.76%  
Supplemental data        

Net assets, end of year (000’s)

     $32        $13        $11  

Portfolio turnover rate

     31.85%        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 in which the Fund invests.

eTotal return is not annualized for periods less than one year.

fRatios are annualized for periods less than one year, 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 0.63% for the year ended December 31, 2017.

 

     
118        Annual Report    |    The accompanying notes are an integral part of these financial statements.   franklintempleton.com

FRANKLIN FUND ALLOCATOR SERIES

 

Statement of Investments, December 31, 2017

    Franklin LifeSmart 2055 Retirement Target Fund                
         Shares        Value  

 

  
 

Investments in Underlying Funds and Exchange Traded Funds 96.5%

        
 

Alternative Strategies 4.6%

        
a  

Franklin K2 Long Short Credit Fund, Class R6

      21,844        $   227,616  
a  

Franklin Pelagos Commodities Strategy Fund, Class R6

      32,784          218,999  
         

 

 

  
            446,615  
         

 

 

  
 

Domestic Equity 48.0%

        
 

Financial Select Sector SPDR ETF

      15,000          418,650  
a  

Franklin Growth Fund, Class R6

      17,843          1,686,827  
a,b  

Franklin Growth Opportunities Fund, Class R6

      18,780          736,749  
a  

Franklin LibertyQ U.S. Equity ETF

      15,800          456,777  
a  

Franklin Rising Dividends Fund, Class R6

      10,824          661,215  
a,b  

Franklin Small Cap Growth Fund, Class R6

      9,307          221,135  
a  

Franklin Utilities Fund, Class R6

      13,928          262,409  
 

iShares S&P 500 Value ETF

      1,795          205,061  
         

 

 

  
            4,648,823  
         

 

 

  
 

Domestic Fixed Income 9.3%

        
a  

Franklin Floating Rate Daily Access Fund, Class R6

      7,983          70,010  
a  

Franklin Low Duration Total Return Fund, Class R6

      55,284          542,891  
a  

Franklin Strategic Income Fund, Class R6

      6,743          66,418  
a  

Franklin U.S. Government Securities Fund, Class R6

      18,864          114,691  
 

iShares Core U.S. Aggregate Bond ETF

      700          76,531  
 

iShares iBoxx $ Investment Grade Corporate Bond ETF

      200          24,312  
         

 

 

  
            894,853  
         

 

 

  
 

Foreign Equity 31.7%

        
a  

Franklin FTSE Europe ETF

      25,000          637,625  
a  

Franklin International Small Cap Growth Fund, Class R6

      33,224          669,472  
a  

Franklin LibertyQ Emerging Markets ETF

      22,200          733,599  
a  

Franklin Mutual International Fund, Class R6

      24,624          393,245  
 

iShares Global Infrastructure ETF

      4,097          185,266  
a  

Templeton Foreign Fund, Class R6

      56,457          448,268  
         

 

 

  
            3,067,475  
         

 

 

  
 

Foreign Fixed Income 2.9%

        
a  

Templeton Global Total Return Fund, Class R6

      23,590          284,265  
         

 

 

  
 

Total Investments in Underlying Funds and Exchange Traded Funds before Short Term Investments (Cost $8,397,414)

           9,342,031  
         

 

 

  
 

Short Term Investments (Cost $122,197) 1.3%

        
 

Money Market Funds 1.3%

        

a,c

  

Institutional Fiduciary Trust Money Market Portfolio, 0.89%

      122,197          122,197  
         

 

 

  
 

Total Investments in Underlying Funds and Exchange Traded Funds

(Cost $8,519,611) 97.8%

           9,464,228  
 

Other Assets, less Liabilities 2.2%

           217,488  
         

 

 

  
 

Net Assets 100.0%

         $ 9,681,716  
         

 

 

  

See Abbreviations on page 157.

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.

 

     
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

December 31, 2017

 

     Franklin
LifeSmart
Retirement
Income Fund		      Franklin
LifeSmart
2020 Retirement
Target Fund		      Franklin
LifeSmart
2025 Retirement
Target Fund		  

 

  

Assets:

         

Investments in securities:

         

Cost - Unaffiliated issuers

      $15,747,289        $  3,951,872        $  14,406,254  

Cost - Non-controlled affiliates (Note 3f)

      41,496,845        29,879,018        94,438,732  

Cost - Unaffiliated repurchase agreements

      —        64,954        749,786  
  

 

 

  

Value - Unaffiliated issuers

      $16,194,475        $  4,312,546        $  16,128,742  

Value - Non-controlled affiliates (Note 3f)

      42,573,881        32,703,376        112,928,956  

Value - Unaffiliated repurchase agreements

      —        64,954        749,786  

Receivables:

         

Capital shares sold

      41,433        55,046        232,603  

Dividends and interest

      36,162        26        123  

Affiliates

      5,943        31,471        71,596  

Other assets

      6        6        15  
  

 

 

  

Total assets

      58,851,900        37,167,425        130,111,821  
  

 

 

  

Liabilities:

         

Payables:

         

Capital shares redeemed

      462        36,439        74,454  

Distribution fees

      43,894        19,581        81,368  

Transfer agent fees

      20,938        19,785        65,772  

Reports to shareholders

      7,319        3,393        15,655  

Professional fees

      87,341        20,888        21,482  

Accrued expenses and other liabilities

      412        94        393  
  

 

 

  

Total liabilities

      160,366        100,180        259,124  
  

 

 

  

Net assets, at value

      $58,691,534        $37,067,245        $129,852,697  
  

 

 

  

Net assets consist of:

         

Paid-in capital

      $59,125,635        $35,273,175        $110,561,955  

Undistributed net investment income

      980        122,066        190,555  

Net unrealized appreciation (depreciation)

      1,524,222        3,185,032        20,212,712  

Accumulated net realized gain (loss)

      (1,959,303 )       (1,513,028 )       (1,112,525 ) 
  

 

 

  

Net assets, at value

      $58,691,534        $37,067,245        $129,852,697  
  

 

 

  

 

     
120        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, 2017

 

    

Franklin

LifeSmart

Retirement

Income Fund

    

Franklin

LifeSmart

2020 Retirement

Target Fund

    

Franklin

LifeSmart

2025 Retirement

Target Fund

  

 

  
Class A:       

Net assets, at value

      $32,396,822       $20,289,299       $77,510,341  
  

 

 

  

Shares outstanding

      2,930,379       1,724,982       5,973,926  
  

 

 

  

Net asset value per sharea

     $11.06       $11.76       $12.97  
  

 

 

  

Maximum offering price per share (net asset value per share ÷ 94.25%)

      $11.73       $12.48       $13.76  
  

 

 

  
Class C:       

Net assets, at value

      $16,070,439       $  6,287,281       $27,301,380  
  

 

 

  

Shares outstanding

      1,471,499       537,682       2,137,385  
  

 

 

  

Net asset value and maximum offering price per sharea

     $10.92       $11.69       $12.77  
  

 

 

  
Class R:       

Net assets, at value

      $  4,071,142       $     969,377       $  6,165,715  
  

 

 

  

Shares outstanding

      369,820       82,531       477,018  
  

 

 

  

Net asset value and maximum offering price per share

      $11.01       $11.75       $12.93  
  

 

 

  
Class R6:       

Net assets, at value

      $  4,031,125       $  8,830,523       $17,009,317  
  

 

 

  

Shares outstanding

      362,961       749,080       1,307,219  
  

 

 

  

Net asset value and maximum offering price per share

      $11.11       $11.79       $13.01  
  

 

 

  
Advisor Class:       

Net assets, at value

      $  2,122,006       $     690,765       $  1,865,944  
  

 

 

  

Shares outstanding

      191,241       58,586       143,513  
  

 

 

  

Net asset value and maximum offering price per share

      $11.10       $11.79       $13.00  
  

 

 

  

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             121  

FRANKLIN FUND ALLOCATOR SERIES

FINANCIAL STATEMENTS

 

Statements of Assets and Liabilities (continued)

December 31, 2017

 

    

Franklin

LifeSmart

2030 Retirement

Target Fund

    

Franklin

LifeSmart

2035 Retirement

Target Fund

     

Franklin

LifeSmart

2040 Retirement

Target Fund

  

 

  

Assets:

                 

Investments in securities:

                 

Cost - Unaffiliated issuers

         $  5,086,800          $  12,478,781           $  3,761,767  

Cost - Non-controlled affiliates (Note 3f)

         36,441,871          82,956,108           28,520,538  

Cost - Unaffiliated repurchase agreements

         161,510          1,110,909           211,733  
  

 

 

  

Value - Unaffiliated issuers

         $  5,735,828          $  14,257,387           $  4,319,152  

Value - Non-controlled affiliates (Note 3f)

         40,960,150          100,736,205           32,419,007  

Value - Unaffiliated repurchase agreements

         161,510          1,110,909           211,733  

Receivables:

                 

Capital shares sold

         173,361          598,940           296,558  

Dividends and interest

         51          134           43  

Affiliates

         41,559          71,965           39,790  

Other assets

         6          12           2  
  

 

 

  

Total assets

         47,072,465          116,775,552           37,286,285  
  

 

 

  

Liabilities:

                 

Payables:

                 

Capital shares redeemed

         17,000          98,056           13,395  

Distribution fees

         21,115          64,573           13,421  

Transfer agent fees

         24,824          69,257           21,985  

Reports to shareholders

         4,439          10,608           3,864  

Professional fees

         22,463          22,636           22,113  

Accrued expenses and other liabilities

         72          299           57  
  

 

 

  

Total liabilities

         89,913          265,429           74,835  
  

 

 

  

Net assets, at value

         $46,982,552          $116,510,123           $37,211,450  
  

 

 

  

Net assets consist of:

                 

Paid-in capital

         $42,410,884          $  96,565,319           $32,737,275  

Undistributed net investment income

         183,923          181,835           139,506  

Net unrealized appreciation (depreciation)

         5,167,307          19,558,703           4,455,854  

Accumulated net realized gain (loss)

         (779,562 )         204,266           (121,185 ) 
  

 

 

  

Net assets, at value

         $46,982,552          $116,510,123           $37,211,450  
  

 

 

  

 

     
122        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, 2017

 

    

Franklin

LifeSmart

2030 Retirement

Target Fund

     

Franklin LifeSmart

2035 Retirement

Target Fund

     

Franklin

LifeSmart

2040 Retirement

Target Fund

  

 

  
Class A:                  

Net assets, at value

         $19,270,135           $61,238,494           $14,001,440  
  

 

 

  

Shares outstanding

         1,517,432           4,468,550           1,074,161  
  

 

 

  

Net asset value per sharea

        $12.70           $13.70           $13.03  
  

 

 

  

Maximum offering price per share (net asset value per share ÷ 94.25%)

         $13.47           $14.54           $13.82  
  

 

 

  
Class C:                  

Net assets, at value

         $  7,642,457           $21,451,135           $  4,014,751  
  

 

 

  

Shares outstanding

         608,486           1,600,356           312,919  
  

 

 

  

Net asset value and maximum offering price per sharea

        $12.56           $13.40           $12.83  
  

 

 

  
Class R:                  

Net assets, at value

         $  1,148,050           $  5,744,849           $  1,519,056  
  

 

 

  

Shares outstanding

         90,524           419,691           116,712  
  

 

 

  

Net asset value and maximum offering price per share

         $12.68           $13.69           $13.02  
  

 

 

  
Class R6:                  

Net assets, at value

         $18,260,147           $26,497,374           $17,521,001  
  

 

 

  

Shares outstanding

         1,432,867           1,920,335           1,336,549  
  

 

 

  

Net asset value and maximum offering price per share

         $12.74           $13.80           $13.11  
  

 

 

  
Advisor Class:                  

Net assets, at value

         $     661,763           $  1,578,271           $155,202  
  

 

 

  

Shares outstanding

         51,968           114,255           11,848  
  

 

 

  

Net asset value and maximum offering price per share

         $12.73           $13.81           $13.10  
  

 

 

  

 

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             123  

FRANKLIN FUND ALLOCATOR SERIES

FINANCIAL STATEMENTS

 

Statements of Assets and Liabilities (continued)

December 31, 2017

 

    

Franklin

LifeSmart

2045 Retirement

Target Fund

     

Franklin

LifeSmart

2050 Retirement

Target Fund

    

Franklin

LifeSmart

2055 Retirement

Target Fund

  

 

  

Assets:

                 

Investments in securities:

                 

Cost - Unaffiliated issuers

         $8,096,722           $3,141,365          $802,939  

Cost - Non-controlled affiliates (Note 3f)

         56,717,053           24,364,208          7,716,672  

Cost - Unaffiliated repurchase agreements

         908,386           143,947          —  
  

 

 

  

Value - Unaffiliated issuers

         $9,373,394           $3,596,521          $909,820  

Value - Non-controlled affiliates (Note 3f)

         69,266,111           27,852,117          8,554,408  

Value - Unaffiliated repurchase agreements

         908,386           143,947          —  

Cash

         —           —          109,161  

Receivables:

                 

Investment securities sold

         37,883           —          —  

Capital shares sold

         339,069           240,968          119,366  

Dividends and interest

         97           39          12  

Affiliates

         71,884           85,906          37,013  

Other assets

         7           3          —  
  

 

 

  

Total assets

         79,996,831           31,919,501          9,729,780  
  

 

 

  

Liabilities:

                 

Payables:

   

Capital shares redeemed

         17,299           9,485          3,629  

Distribution fees

         45,330           12,951          3,734  

Transfer agent fees

         77,108           31,932          15,903  

Reports to shareholders

         9,166           4,483          2,744  

Professional fees

         21,129           20,692          22,017  

Accrued expenses and other liabilities

         196           35          37  
  

 

 

  

Total liabilities

         170,228           79,578          48,064  
  

 

 

  

Net assets, at value

         $79,826,603           $31,839,923          $9,681,716  
  

 

 

  

Net assets consist of:

                 

Paid-in capital

         $65,447,747           $27,925,277          $8,689,457  

Undistributed net investment income

         49,764           125,661          —  

Net unrealized appreciation (depreciation)

         13,825,730           3,943,065          944,617  

Accumulated net realized gain (loss)

         503,362           (154,080 )         47,642  
  

 

 

  

Net assets, at value

         $79,826,603           $31,839,923          $9,681,716  
  

 

 

  

 

     
124        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, 2017

 

    

Franklin

LifeSmart

2045 Retirement
Target Fund

     

Franklin

LifeSmart

2050 Retirement

Target Fund

     

Franklin

LifeSmart

2055 Retirement

Target Fund

  

 

  
Class A:                  

Net assets, at value

         $46,783,101           $13,823,087           $4,683,506  
  

 

 

  

Shares outstanding

         3,394,414           1,047,723           423,985  
  

 

 

  

Net asset value per sharea

        $13.78           $13.19           $11.05  
  

 

 

  

Maximum offering price per share (net asset value per share ÷ 94.25%)

         $14.62           $13.99           $11.72  
  

 

 

  
Class C:                  

Net assets, at value

         $13,190,215           $  3,797,370           $1,428,031  
  

 

 

  

Shares outstanding

         981,226           289,597           130,766  
  

 

 

  

Net asset value and maximum offering price per sharea

        $13.44           $13.11           $10.92  
  

 

 

  
Class R:                  

Net assets, at value

         $  5,463,808           $  1,608,376           $   354,141  
  

 

 

  

Shares outstanding

         398,170           121,902           32,152  
  

 

 

  

Net asset value and maximum offering price per share

         $13.72           $13.19           $11.01  
  

 

 

  
Class R6:                  

Net assets, at value

         $13,787,071           $12,098,681           $3,183,891  
  

 

 

  

Shares outstanding

         993,439           912,340           287,927  
  

 

 

  

Net asset value and maximum offering price per share

         $13.88           $13.26           $11.06  
  

 

 

  
Advisor Class:                  

Net assets, at value

         $     602,408           $     512,409           $     32,147  
  

 

 

  

Shares outstanding

         43,389           38,633           2,907  
  

 

 

  

Net asset value and maximum offering price per share

         $13.88           $13.26           $11.06  
  

 

 

  

 

 

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             125  

FRANKLIN FUND ALLOCATOR SERIES

FINANCIAL STATEMENTS

 

Statements of Operations

for the year ended December 31, 2017

 

    

Franklin

LifeSmart

Retirement

Income Fund

    

Franklin

LifeSmart

2020 Retirement

Target Fund

    

Franklin

LifeSmart

2025 Retirement

Target Fund

  

 

  

Investment income:

                

Dividends:

                

Unaffiliated issuers

         $  611,846          $  112,929          $    415,206  

Non-controlled affiliates (Note 3f)

         1,795,775          562,687          1,882,890  

Interest:

                

Unaffiliated issuers

         194,914          52          197  
  

 

 

  

Total investment income

         2,602,535          675,668          2,298,293  
  

 

 

  

Expenses:

                

Management and asset allocation fees (Note 3a)

         155,468          89,953          316,023  

Distribution fees: (Note 3c)

                

Class A

         86,923          48,734          187,994  

Class C

         168,382          55,778          266,804  

Class R

         22,180          10,331          36,044  

Transfer agent fees: (Note 3e)

                

Class A

         59,964          37,246          141,209  

Class C

         29,077          10,657          50,310  

Class R

         7,694          3,956          13,543  

Class R6

         807          589          1,078  

Advisor Class

         3,325          898          3,050  

Custodian fees (Note 4)

         1,132          630          1,230  

Reports to shareholders

         13,431          8,385          28,214  

Registration and filing fees

         75,802          78,536          76,474  

Professional fees

         57,165          28,565          29,623  

Trustees’ fees and expenses

         453          —          880  

Other

         3,769          1,638          2,594  
  

 

 

  

Total expenses

         685,572          375,896          1,155,070  

Expense reductions (Note 4)

         (13 )         —          —  

Expenses waived/paid by affiliates (Note 3f and 3g)

         (378,889 )         (247,208 )         (608,812 ) 
  

 

 

  

Net expenses

         306,670          128,688          546,258  
  

 

 

  

Net investment income

         2,295,865          546,980          1,752,035  
  

 

 

  

Realized and unrealized gains (losses):

                

Net realized gain (loss) from:

                

Sale of investments:

                

Unaffiliated issuers

         36,005          105,924          459,120  

Non-controlled affiliates (Note 3f)

         243,669          465,381          2,132,541  

Capital gain distributions from Underlying Funds:

                

Non-controlled affiliates (Note 3f)

         —          308,561          1,416,682  
  

 

 

  

Net realized gain (loss)

         279,674          879,866          4,008,343  
  

 

 

  

Net change in unrealized appreciation (depreciation) on:

                

Investments:

                

Unaffiliated issuers

         277,307          304,569          1,475,860  

Non-controlled affiliates (Note 3f)

         21,345          2,169,429          10,209,571  
  

 

 

  

Net change in unrealized appreciation (depreciation)

         298,652          2,473,998          11,685,431  
  

 

 

  

Net realized and unrealized gain (loss)

         578,326          3,353,864          15,693,774  
  

 

 

  

Net increase (decrease) in net assets resulting from operations

         $2,874,191          $3,900,844          $17,445,809  
  

 

 

  

 

     
126        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, 2017

 

    

Franklin

LifeSmart

2030 Retirement

Target Fund

    

Franklin

LifeSmart

2035 Retirement

Target Fund

    

Franklin

LifeSmart

2040 Retirement

Target Fund

  

 

  

Investment income:

                

Dividends:

                

Unaffiliated issuers

         $136,005          $354,219          $106,740  

Non-controlled affiliates (Note 3f)

         664,413          1,674,389          530,085  

Interest:

                

Unaffiliated issuers

         31          72          18  
  

 

 

  

Total investment income

         800,449          2,028,680          636,843  
  

 

 

  

Expenses:

                

Asset allocation fees (Note 3a)

         105,415          274,665          86,032  

Distribution fees: (Note 3c)

                

Class A

         44,274          145,498          33,466  

Class C

         63,402          198,022          33,020  

Class R

         5,999          29,429          8,926  

Transfer agent fees: (Note 3e)

                

Class A

         52,458          140,295          54,918  

Class C

         18,780          48,100          13,547  

Class R

         3,556          14,206          7,330  

Class R6

         915          1,336          1,063  

Advisor Class

         1,651          3,630          607  

Custodian fees (Note 4)

         310          584          289  

Reports to shareholders

         10,695          22,782          10,266  

Registration and filing fees

         77,134          76,132          76,988  

Professional fees

         30,017          30,820          29,443  

Trustees’ fees and expenses

         —          751          —  

Other

         1,670          2,407          4,329  
  

 

 

  

Total expenses

         416,276          988,657          360,224  
  

 

 

  

Expenses waived/paid by affiliates (Note 3f and 3g)

         (289,687 )         (572,833 )         (275,480 ) 
  

 

 

  

Net expenses

         126,589          415,824          84,744  
  

 

 

  

Net investment income

         673,860          1,612,856          552,099  
  

 

 

  

Realized and unrealized gains (losses):

                

Net realized gain (loss) from:

                

Sale of investments:

                

Unaffiliated issuers

         147,714          391,306          119,484  

Non-controlled affiliates (Note 3f)

         540,640          1,760,459          567,066  

Capital gain distributions from Underlying Funds:

                

Non-controlled affiliates (Note 3f)

         561,931          1,574,481          526,463  
  

 

 

  

Net realized gain (loss)

         1,250,285          3,726,246          1,213,013  
  

 

 

  

Net change in unrealized appreciation (depreciation) on:

                

Investments:

                

Unaffiliated issuers

         555,876          1,614,951          499,073  

Non-controlled affiliates (Note 3f)

         3,964,520          11,015,926          3,577,782  
  

 

 

  

Net change in unrealized appreciation (depreciation)

         4,520,396          12,630,877          4,076,855  
  

 

 

  

Net realized and unrealized gain (loss)

         5,770,681          16,357,123          5,289,868  
  

 

 

  

Net increase (decrease) in net assets resulting from operations

         $6,444,541          $17,969,979          $5,841,967  
  

 

 

  

 

     
franklintempleton.com   The accompanying notes are an integral part of these financial statements.    |    Annual Report             127  

FRANKLIN FUND ALLOCATOR SERIES

FINANCIAL STATEMENTS

 

Statements of Operations (continued)

for the year ended December 31, 2017

 

    

Franklin

LifeSmart

2045 Retirement
Target Fund

    

Franklin

LifeSmart

2050 Retirement

Target Fund

    

Franklin

LifeSmart

2055 Retirement

Target Fund

  

 

  

Investment income:

                

Dividends:

                

Unaffiliated issuers

         $    243,017          $    84,754          $    20,294  

Non-controlled affiliates (Note 3f)

         1,148,713          444,845          131,986  

Interest:

                

Unaffiliated issuers

         49          11          —  
  

 

 

  

Total investment income

         1,391,779          529,610          152,280  
  

 

 

  

Expenses:

                

Asset allocation fees (Note 3a)

         189,890          68,973          18,523  

Distribution fees: (Note 3c)

                

Class A

         112,270          29,465          9,333  

Class C

         125,937          32,400          9,815  

Class R

         26,062          7,216          1,636  

Transfer agent fees: (Note 3e)

                

Class A

         154,637          70,909          41,103  

Class C

         43,850          19,492          10,805  

Class R

         17,979          8,759          3,603  

Class R6

         1,115          820          566  

Advisor Class

         2,148          2,747          300  

Custodian fees (Note 4)

         650          116          16  

Reports to shareholders

         21,389          11,297          6,836  

Registration and filing fees

         75,764          76,573          76,704  

Professional fees

         28,808          27,969          29,588  

Trustees’ fees and expenses

         523          —          —  

Other

         2,075          4,279          4,067  
  

 

 

  

Total expenses

         803,097          361,015          212,895  

Expenses waived/paid by affiliates (Note 3f and 3g)

         (507,015 )         (283,470 )         (189,602 ) 
  

 

 

  

Net expenses

         296,082          77,545          23,293  
  

 

 

  

Net investment

income

         1,095,697          452,065          128,987  
  

 

 

  

Realized and unrealized gains (losses):

                

Net realized gain (loss) from:

                

Sale of investments:

                

Unaffiliated issuers

         264,819          94,224          20,623  

Non-controlled affiliates (Note 3f)

         1,331,929          406,475          75,309  

Capital gain distributions from Underlying Funds:

                

Non-controlled affiliates (Note 3f)

         1,139,758          450,406          137,878  
  

 

 

  

Net realized gain (loss)

         2,736,506          951,105          233,810  
  

 

 

  

Net change in unrealized appreciation (depreciation) on:

                

Investments:

                

Unaffiliated issuers

         1,152,246          323,464          90,454  

Non-controlled affiliates (Note 3f)

         7,984,932          2,997,000          792,771  
  

 

 

  

Net change in unrealized appreciation (depreciation)

         9,137,178          3,320,464          883,225  
  

 

 

  

Net realized and unrealized gain (loss)

         11,873,684          4,271,569          1,117,035  
  

 

 

  

Net increase (decrease) in net assets resulting from operations

         $12,969,381          $4,723,634          $1,246,022  
  

 

 

  

 

     
128        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 LifeSmart Retirement

Income Fund

    

Franklin LifeSmart 2020

Retirement Target Fund

  
  

 

 

  
     Year Ended December 31,     Year Ended December 31,  
  

 

 

  
            2017            2016            2017            2016  

 

  

Increase (decrease) in net assets:

                     

Operations:

                     

Net investment income

         $  2,295,865          $  1,654,982          $    546,980          $    408,608  

Net realized gain (loss)

         279,674          (1,309,613 )         879,866          (1,718,865 ) 

Net change in unrealized appreciation (depreciation)

         298,652          3,026,905          2,473,998          2,259,234  
  

 

 

  

Net increase (decrease) in net assets resulting from operations

         2,874,191          3,372,274          3,900,844          948,977  
  

 

 

  

Distributions to shareholders from:

                     

Net investment income:

                     

Class A

         (1,347,314 )         (1,067,178 )         (253,048 )         (295,979 ) 

Class C

         (531,859 )         (373,226 )         (33,094 )         (42,176 ) 

Class R

         (161,786 )         (115,568 )         (15,307 )         (41,080 ) 

Class R6

         (173,591 )         (143,332 )         (133,651 )         (128,117 ) 

Advisor Class

         (80,364 )         (28,206 )         (8,207 )         (5,734 ) 

Net realized gains:

                     

Class A

         —          (207,339 )         —          (147,075 ) 

Class C

         —          (93,502 )         —          (38,213 ) 

Class R

         —          (23,580 )         —          (23,056 ) 

Class R6

         —          (22,885 )         —          (50,620 ) 

Advisor Class

         —          (2,809 )         —          (2,386 ) 

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

         (2,294,914 )         (2,330,202 )         (443,307 )         (774,436 ) 
  

 

 

  

Capital share transactions: (Note 2)

                     

Class A

         (7,658,921 )         (5,766,509 )         (870,559 )         (678,470 ) 

Class C

         (1,647,620 )         (3,530,632 )         623,599          (126,761 ) 

Class R

         (892,189 )         701,188          (2,410,573 )         (59,597 ) 

Class R6

         68,684          (2,957,601 )         1,372,114          (117,450 ) 

Advisor Class

         413,703          821,012          332,685          24,559  
  

 

 

  

Total capital share transactions

         (9,716,343 )         (10,732,542 )         (952,734 )         (957,719 ) 
  

 

 

  

Net increase (decrease) in net assets

         (9,137,066 )         (9,690,470 )         2,504,803          (783,178 ) 

Net assets:

                     

Beginning of year

         67,828,600          77,519,070          34,562,442          35,345,620  
  

 

 

  

End of year

         $58,691,534          $67,828,600          $37,067,245          $34,562,442  
  

 

 

  

Undistributed net investment income included in net assets:

                     

End of year

         $            980          $              —          $     122,066          $              —  
  

 

 

  

 

     
franklintempleton.com   The accompanying notes are an integral part of these financial statements.    |    Annual Report             129  

FRANKLIN FUND ALLOCATOR SERIES

FINANCIAL STATEMENTS

 

Statements of Changes in Net Assets (continued)

 

    

Franklin LifeSmart 2025

Retirement Target Fund

    

Franklin LifeSmart 2030

Retirement Target Fund

  
  

 

 

  
     Year Ended December 31,     Year Ended December 31,  
  

 

 

  
            2017            2016            2017            2016  

 

  

Increase (decrease) in net assets:

                     

Operations:

                     

Net investment income

         $    1,752,035          $    1,310,993          $    673,860          $    411,328  

Net realized gain (loss)

         4,008,343          (3,773,763 )         1,250,285          (1,654,056 ) 

Net change in unrealized appreciation (depreciation)

         11,685,431          6,097,411          4,520,396          2,378,481  
  

 

 

  

Net increase (decrease) in net assets resulting from operations

         17,445,809          3,634,641          6,444,541          1,135,753  
  

 

 

  

Distributions to shareholders from:

                     

Net investment income and short term gains received from

                     

Underlying Funds and exchange traded funds:

                     

Class A

         (1,374,446 )         (878,508 )         (327,886 )         (126,582 ) 

Class C

         (297,151 )         (110,040 )         (77,020 )         (4,373 ) 

Class R

         (99,527 )         (65,898 )         (17,966 )         (7,457 ) 

Class R6

         (341,974 )         (221,187 )         (356,330 )         (147,921 ) 

Advisor Class

         (35,619 )         (18,598 )         (12,533 )         (3,285 ) 

Net realized gains:

                     

Class A

         —          (950,733 )         —          (142,848 ) 

Class C

         —          (371,035 )         —          (44,370 ) 

Class R

         —          (89,222 )         —          (13,218 ) 

Class R6

         —          (198,247 )         —          (116,284 ) 

Advisor Class

         —          (15,098 )         —          (2,570 ) 
  

 

 

  

Total distributions to shareholders

         (2,148,717 )         (2,918,566 )         (791,735 )         (608,908 ) 
  

 

 

  

Capital share transactions: (Note 2)

                     

Class A

         (6,346,715 )         1,701,071          95,351          2,929,403  

Class C

         (2,345,913 )         (3,132,785 )         1,683,531          912,677  

Class R

         (2,146,310 )         1,274,985          (421,357 )         492,452  

Class R6

         1,226,269          (3,302,638 )         1,613,558          1,247,649  

Advisor Class

         294,008          183,035          259,133          20,840  
  

 

 

  

Total capital share transactions

         (9,318,661 )         (3,276,332 )         3,230,216          5,603,021  
  

 

 

  

Net increase (decrease) in net assets

         5,978,431          (2,560,257 )         8,883,022          6,129,866  

Net assets:

                     

Beginning of year

         123,874,266          126,434,523          38,099,530          31,969,664  
  

 

 

  

End of year

         $129,852,697          $123,874,266          $46,982,552          $38,099,530  
  

 

 

  

Undistributed net investment income included in net assets:

                     

End of year

         $       190,555          $       512,171          $     183,923          $     270,932  
  

 

 

  

 

     
130        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 2035     Franklin LifeSmart 2040  
     Retirement Target Fund     Retirement Target Fund  
  

 

 

  
     Year Ended December 31,     Year Ended December 31,  
  

 

 

  
            2017            2016            2017            2016  

 

  

Increase (decrease) in net assets:

                     

Operations:

                     

Net investment income

         $    1,612,856          $    1,073,370          $    552,099          $    343,851  

Net realized gain (loss)

         3,726,246          (2,678,698 )         1,213,013          (1,016,680 ) 

Net change in unrealized appreciation (depreciation)

         12,630,877          4,700,786          4,076,855          1,592,824  
  

 

 

  

Net increase (decrease) in net assets resulting from operations

         17,969,979          3,095,458          5,841,967          919,995  
  

 

 

  

Distributions to shareholders from:

                     

Net investment income and short term gains received from

                     

Underlying Funds and exchange traded funds:

                     

Class A

         (1,237,729 )         (456,196 )         (253,313 )         (96,332 ) 

Class C

         (292,039 )         (16,809 )         (44,336 )         (14,559 ) 

Class R

         (103,431 )         (38,744 )         (28,246 )         (14,619 ) 

Class R6

         (594,604 )         (239,563 )         (350,580 )         (113,150 ) 

Advisor Class

         (33,742 )         (15,115 )         (3,178 )         (933 ) 

Net realized gains:

                     

Class A

         —          (866,788 )         —          (81,000 ) 

Class C

         —          (294,076 )         —          (19,378 ) 

Class R

         —          (76,428 )         —          (9,693 ) 

Class R6

         —          (286,348 )         —          (105,785 ) 

Advisor Class

         —          (25,258 )         —          (865 ) 
  

 

 

  

Total distributions to shareholders

         (2,261,545 )         (2,315,325 )         (679,653 )         (456,314 ) 
  

 

 

  

Capital share transactions: (Note 2)

                     

Class A

         (3,756,706 )         2,414,240          (1,243,051 )         4,880,830  

Class C

         (162,642 )         (1,236,171 )         849,399          664,099  

Class R

         (1,197,740 )         1,387,939          (950,985 )         1,132,018  

Class R6

         978,576          1,659,173          1,305,987          1,603,590  

Advisor Class

         (89,779 )         (282,775 )         (7,764 )         18,185  
  

 

 

  

Total capital share transactions

         (4,228,291 )         3,942,406          (46,414 )         8,298,722  
  

 

 

  

Net increase (decrease) in net assets

         11,480,143          4,722,539          5,115,900          8,762,403  

Net assets:

                     

Beginning of year

         105,029,980          100,307,441          32,095,550          23,333,147  
  

 

 

  

End of year

         $116,510,123          $105,029,980          $37,211,450          $32,095,550  
  

 

 

  

Undistributed net investment income included in net assets:

                     

End of year

         $       181,835          $       748,992          $     139,506          $     240,354  
  

 

 

  

 

     
franklintempleton.com   The accompanying notes are an integral part of these financial statements.    |    Annual Report             131  

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,  
  

 

 

  
            2017            2016            2017            2016  

 

  

Increase (decrease) in net assets:

                     

Operations:

                     

Net investment income

       $ 1,095,697        $ 726,730        $ 452,065        $ 263,282  

Net realized gain (loss)

         2,736,506          (1,614,004 )         951,105          (712,315 ) 

Net change in unrealized appreciation (depreciation)

         9,137,178          3,133,971          3,320,464          1,368,939  
  

 

 

  

Net increase (decrease) in net assets resulting from operations

         12,969,381          2,246,697          4,723,634          919,906  
  

 

 

  

Distributions to shareholders from:

                     

Net investment income and short term gains received from Underlying

                     

Funds and exchange traded funds:

                     

Class A

         (991,792 )         (360,611 )         (227,300 )         (79,243 ) 

Class C

         (191,439 )         (11,455 )         (38,463 )         (2,729 ) 

Class R

         (102,628 )         (27,720 )         (24,090 )         (6,596 ) 

Class R6

         (318,300 )         (117,669 )         (230,863 )         (90,757 ) 

Advisor Class

         (14,750 )         (4,985 )         (9,680 )         (3,716 ) 

Net realized gains:

                     

Class A

         —          (593,026 )         —          (72,692 ) 

Class C

         —          (180,569 )         —          (20,602 ) 

Class R

         —          (60,988 )         —          (8,463 ) 

Class R6

         —          (145,665 )         —          (94,425 ) 

Advisor Class

         —          (8,268 )         —          (3,495 ) 
  

 

 

  

Total distributions to shareholders

         (1,618,909 )         (1,510,956 )         (530,396 )         (382,718 ) 
  

 

 

  

Capital share transactions: (Note 2)

                     

Class A

         (4,479,414 )         5,592,714          1,431,159          3,681,070  

Class C

         (1,244,538 )         (406,063 )         634,245          700,198  

Class R

         7,133          355,637          168,600          447,082  

Class R6

         1,038,166          (218,042 )         1,305,479          863,376  

Advisor Class

         34,233          (67,298 )         47,364          (6,134 ) 
  

 

 

  

Total capital share transactions

         (4,644,420 )         5,256,948          3,586,847          5,685,592  
  

 

 

  

Net increase (decrease) in net assets

         6,706,052          5,992,689          7,780,085          6,222,780  

Net assets:

                     

Beginning of year

         73,120,551          67,127,862          24,059,838          17,837,058  
  

 

 

  

End of year

       $ 79,826,603        $ 73,120,551        $ 31,839,923        $ 24,059,838  
  

 

 

  

Undistributed net investment income included in net assets:

                     

End of year

         $49,764          $515,400          $125,661          $181,312  
  

 

 

  

 

     
132        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 2055

Retirement Target Fund

  
  

 

 

  
     Year Ended December 31,  
  

 

 

  
            2017            2016  

 

  

Increase (decrease) in net assets:

           

Operations:

           

Net investment income

         $  128,987          $    47,134  

Net realized gain (loss)

         233,810          (54,517 ) 

Net change in unrealized appreciation (depreciation)

         883,225          129,837  
  

 

 

  

Net increase (decrease) in net assets resulting from operations

         1,246,022          122,454  
  

 

 

  

Distributions to shareholders from:

           

Net investment income and short term gains received from Underlying Funds and exchange traded funds:

           

Class A

         (76,553 )         (27,206 ) 

Class C

         (15,831 )         (3,443 ) 

Class R

         (5,073 )         (3,039 ) 

Class R6

         (58,541 )         (18,759 ) 

Advisor Class

         (612 )         (158 ) 

Net realized gains:

           

Class A

         (12,515 )         (13,471 ) 

Class C

         (3,807 )         (1,934 ) 

Class R

         (949 )         (1,284 ) 

Class R6

         (8,438 )         (878 ) 

Advisor Class

         (86 )         (74 ) 
  

 

 

  

Total distributions to shareholders

         (182,405 )         (70,246 ) 
  

 

 

  

Capital share transactions: (Note 2)

           

Class A

         1,412,621          878,999  

Class C

         721,550          396,100  

Class R

         (53,699 )         308,455  

Class R6

         1,231,508          1,520,706  

Advisor Class

         15,487          1,808  
  

 

 

  

Total capital share transactions

         3,327,467          3,106,068  
  

 

 

  

Net increase (decrease) in net assets

         4,391,084          3,158,276  

Net assets:

           

Beginning of year

         5,290,632          2,132,356  
  

 

 

  

End of year

         $9,681,716          $5,290,632  
  

 

 

  

Undistributed net investment income included in net assets:

           

End of year

         $            —          $     18,072  
  

 

 

  

 

     
franklintempleton.com   The accompanying notes are an integral part of these financial statements.    |    Annual Report             133  

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-three 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 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 may differ by its initial sales load, contingent deferred sales charges, voting rights on matters affecting a single class, its exchange privilege and fees 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. 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.

Investments in repurchase agreements are valued at cost, which approximates 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 review of key inputs and assumptions, transactional back-testing or disposition analysis, and reviews of any related market activity.

 

 

134    Annual Report   franklintempleton.com

FRANKLIN FUND ALLOCATOR SERIES

NOTES TO FINANCIAL STATEMENTS

 

b. Joint Repurchase Agreement

Certain or all Funds enter into a joint repurchase agreement whereby their uninvested cash balance is deposited into a joint cash account with other funds managed by the investment manager or an affiliate of the investment manager and is used to invest in one or more repurchase agreements. The value and face amount of the joint repurchase agreement are allocated to the funds based on their pro-rata interest. A repurchase agreement is accounted for as a loan by the Fund to the seller, collateralized by securities which are delivered to the Funds’ custodian. The fair value, including accrued interest, of the initial collateralization is required to be at least 102% of the dollar amount invested by the funds, with the value of the underlying securities marked to market daily to maintain coverage of at least 100%. Repurchase agreements are subject to the terms of Master Repurchase Agreements (MRAs) with approved counterparties (sellers). The MRAs contain various provisions, including but not limited to events of default and maintenance of collateral for repurchase agreements. In the event of default by either the seller or the Funds, certain MRAs may permit the non-defaulting party to net and close-out all transactions, if any, traded under such agreements. The Funds may sell securities it holds as collateral and apply the proceeds towards the repurchase price and any other amounts owed by the seller to the Funds in the event of default by the seller. This could involve costs or delays in addition to a loss on the securities if their value falls below the repurchase price owed by the seller. The joint repurchase agreement held by the Funds at year end, as indicated in the Statements of Investments, had been entered into on December 29, 2017.

c. Index-Linked Notes

Certain or all Funds invest in index-linked notes. Index-linked notes are senior, unsecured, subordinated debt securities issued by a financial institution, and the 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. There may be no guarantee of a

return of principal with index-linked notes and the appreciation potential may be limited. Index-linked notes may be more volatile and less liquid than other investments held by the Funds.

d. 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, 2017, 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 the statute of limitations in each jurisdiction in which the Fund invests.

e. 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. Interest income and 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 of 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

 

 

     
franklintempleton.com   Annual Report             135  

FRANKLIN FUND ALLOCATOR SERIES

NOTES TO FINANCIAL STATEMENTS

 

 

1. Organization and Significant Accounting Policies (continued)

e. Security Transactions, Investment Income, Expenses and Distributions (continued)

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, excluding 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.

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. 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, 2017, there were an unlimited number of shares authorized (without par value). Transactions in the Funds’ shares were as follows:

 

     Franklin LifeSmart Retirement
Income Fund		            Franklin LifeSmart 2020
Retirement Target Fund		  
      Shares      Amount            Shares      Amount  
Class A Shares:              
Year ended December 31, 2017              
Shares sold      731,972      $ 8,120,711          681,275      $ 7,691,255  
Shares issued in reinvestment of distributions      120,488        1,334,419          21,940        252,502  
Shares redeemed      (1,545,303 )       (17,114,051 )         (784,798 )       (8,814,316 ) 
  

 

 

  
Net increase (decrease)      (692,843 )     $ (7,658,921 )         (81,583 )     $ (870,559 ) 
  

 

 

  
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 ) 
  

 

 

  

 

136    Annual Report   franklintempleton.com

FRANKLIN FUND ALLOCATOR SERIES

NOTES TO FINANCIAL STATEMENTS

 

 

     Franklin LifeSmart Retirement
Income Fund		            Franklin LifeSmart 2020
Retirement Target Fund		  
      Shares      Amount            Shares      Amount  
Class C Shares:              
Year ended December 31, 2017              
Shares sold      396,707      $ 4,345,248          175,591      $ 1,967,931  
Shares issued in reinvestment of distributions      46,522        509,094          2,875        33,094  
Shares redeemed      (593,842 )       (6,501,962 )         (124,566 )       (1,377,426)  
  

 

 

  
Net increase (decrease)      (150,613 )     $ (1,647,620 )         53,900      $ 623,599  
  

 

 

  
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)  
  

 

 

  
Class R Shares:              
Year ended December 31, 2017              
Shares sold      50,614      $ 558,692          32,070      $ 357,038  
Shares issued in reinvestment of distributions      11,283        124,440          1,345        15,307  
Shares redeemed      (142,730 )       (1,575,321 )         (245,948 )       (2,782,918)  
  

 

 

  
Net increase (decrease)      (80,833 )     $ (892,189 )         (212,533 )     $ (2,410,573)  
  

 

 

  
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)  
  

 

 

  
Class R6 Shares:              
Year ended December 31, 2017              
Shares sold      89,787      $ 999,316          251,004      $ 2,785,379  
Shares issued in reinvestment of distributions      7,934        88,300          150        1,724  
Shares redeemed      (91,591 )       (1,018,932 )         (125,245 )       (1,414,989)  
  

 

 

  
Net increase (decrease)      6,130      $ 68,684          125,909      $ 1,372,114  
  

 

 

  
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)  
  

 

 

  
Advisor Class Shares:              
Year ended December 31, 2017              
Shares sold      54,570      $ 607,835          121,202      $ 1,365,924  
Shares issued in reinvestment of distributions      5,148        57,243          710        8,207  
Shares redeemed      (22,567 )       (251,375 )         (92,976 )       (1,041,446)  
  

 

 

  
Net increase (decrease)      37,151      $ 413,703          28,936      $ 332,685  
  

 

 

  
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  
  

 

 

  

 

     
franklintempleton.com       Annual Report             137  

FRANKLIN FUND ALLOCATOR SERIES

NOTES TO FINANCIAL STATEMENTS

 

2. Shares of Beneficial Interest (continued)

 

     Franklin LifeSmart 2025
Retirement Target Fund		            Franklin LifeSmart 2030
Retirement Target Fund		  
      Shares      Amount            Shares      Amount  
Class A Shares:              
Year ended December 31, 2017              
Shares sold      1,193,133      $ 14,738,650          525,562      $ 6,304,600  
Shares issued in reinvestment of distributions      106,594        1,347,489          26,877        327,860  
Shares redeemed      (1,829,516 )       (22,432,854 )         (550,283 )       (6,537,109 ) 
  

 

 

  
Net increase (decrease)      (529,789 )     $ (6,346,715 )         2,156      $ 95,351  
  

 

 

  
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  
  

 

 

  
Class C Shares:              
Year ended December 31, 2017              
Shares sold      366,346      $ 4,411,808          228,867      $ 2,713,582  
Shares issued in reinvestment of distributions      22,476        278,103          6,420        76,987  
Shares redeemed      (584,107 )       (7,035,824 )         (93,985 )       (1,107,038 ) 
  

 

 

  
Net increase (decrease)      (195,285 )     $ (2,345,913 )         141,302      $ 1,683,531  
  

 

 

  
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  
  

 

 

  
Class R Shares:              
Year ended December 31, 2017              
Shares sold      167,790      $ 2,018,474          35,252      $ 408,766  
Shares issued in reinvestment of distributions      6,526        81,636          1,487        17,966  
Shares redeemed      (345,027 )       (4,246,420 )         (72,670 )       (848,089 ) 
  

 

 

  
Net increase (decrease)      (170,711 )     $ (2,146,310 )         (35,931 )     $ (421,357 ) 
  

 

 

  
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  
  

 

 

  
Class R6 Shares:              
Year ended December 31, 2017              
Shares sold      291,501      $ 3,580,167          217,893      $ 2,634,617  
Shares issued in reinvestment of distributions      6,518        82,756          329        4,047  
Shares redeemed      (200,085 )       (2,436,654 )         (85,585 )       (1,025,106 ) 
  

 

 

  
Net increase (decrease)      97,934      $ 1,226,269          132,637      $ 1,613,558  
  

 

 

  
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  
  

 

 

  

 

138    Annual Report   franklintempleton.com

FRANKLIN FUND ALLOCATOR SERIES

NOTES TO FINANCIAL STATEMENTS

 

     Franklin LifeSmart 2025
Retirement Target Fund		            Franklin LifeSmart 2030
Retirement Target Fund		  
      Shares      Amount            Shares      Amount  
Advisor Class Shares:              
Year ended December 31, 2017              
Shares sold      82,091      $ 1,014,059          23,477      $ 275,141  
Shares issued in reinvestment of distributions      2,151        27,340          1,022        12,533  
Shares redeemed      (60,660 )       (747,391 )         (2,409 )       (28,541 ) 
  

 

 

  
Net increase (decrease)      23,582      $ 294,008          22,090      $ 259,133  
  

 

 

  
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  
  

 

 

  
     Franklin LifeSmart 2035
Retirement Target Fund		            Franklin LifeSmart 2040
Retirement Target Fund		  
      Shares      Amount            Shares      Amount  
Class A Shares:              
Year ended December 31, 2017              
Shares sold      831,333      $ 10,706,025          413,983      $ 5,059,943  
Shares issued in reinvestment of distributions      91,237        1,212,546          20,192        253,301  
Shares redeemed      (1,229,900 )       (15,675,277 )         (539,696 )       (6,556,295 ) 
  

 

 

  
Net increase (decrease)      (307,330 )     $ (3,756,706 )         (105,521 )     $ (1,243,051 ) 
  

 

 

  
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  
  

 

 

  
Class C Shares:              
Year ended December 31, 2017              
Shares sold      304,744      $ 3,835,120          114,923      $ 1,389,222  
Shares issued in reinvestment of distributions      21,457        275,188          3,625        44,336  
Shares redeemed      (342,817 )       (4,272,950 )         (48,776 )       (584,159 ) 
  

 

 

  
Net increase (decrease)      (16,616 )     $ (162,642 )         69,772      $ 849,399  
  

 

 

  
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  
  

 

 

  

 

     
franklintempleton.com       Annual Report             139  

FRANKLIN FUND ALLOCATOR SERIES

NOTES TO FINANCIAL STATEMENTS

 

2. Shares of Beneficial Interest (continued)

 

     Franklin LifeSmart 2035
Retirement Target Fund		            Franklin LifeSmart 2040
Retirement Target Fund		  
      Shares      Amount            Shares      Amount  
Class R Shares:              
Year ended December 31, 2017              
Shares sold      114,879      $ 1,480,867          29,094      $ 347,801  
Shares issued in reinvestment of distributions      6,841        90,043          2,304        28,246  
Shares redeemed      (215,413 )       (2,768,650 )         (110,596 )       (1,327,032 ) 
  

 

 

  
Net increase (decrease)      (93,693 )     $ (1,197,740 )         (79,198 )     $ (950,985 ) 
  

 

 

  
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  
  

 

 

  
Class R6 Shares:              
Year ended December 31, 2017              
Shares sold      310,785      $ 4,056,593          252,480      $ 3,111,042  
Shares issued in reinvestment of distributions      6,041        81,283          630        8,021  
Shares redeemed      (244,842 )       (3,159,300 )         (147,973 )       (1,813,076 ) 
  

 

 

  
Net increase (decrease)      71,984      $ 978,576          105,137      $ 1,305,987  
  

 

 

  
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  
  

 

 

  
Advisor Class Shares:              
Year ended December 31, 2017              
Shares sold      53,937      $ 700,265          8,494      $ 105,876  
Shares issued in reinvestment of distributions      2,497        33,673          251        3,178  
Shares redeemed      (63,569 )       (823,717 )         (9,406 )       (116,818 ) 
  

 

 

  
Net increase (decrease)      (7,135 )     $ (89,779 )         (661 )     $ (7,764 ) 
  

 

 

  
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  
  

 

 

  

 

140    Annual Report   franklintempleton.com

FRANKLIN FUND ALLOCATOR SERIES

NOTES TO FINANCIAL STATEMENTS

 

 

     Franklin LifeSmart 2045
Retirement Target Fund		             Franklin LifeSmart 2050
Retirement Target Fund		  
      Shares      Amount             Shares      Amount  
Class A Shares:              
Year ended December 31, 2017              
Shares sold      749,360      $ 9,671,955          431,903      $ 5,332,879  
Shares issued in reinvestment of distributions      72,025        962,628          17,842        227,263  
Shares redeemed      (1,181,996 )       (15,113,997 )         (340,448 )       (4,128,983 ) 
  

 

 

  
Net increase (decrease)      (360,611 )     $ (4,479,414 )         109,297      $ 1,431,159  
  

 

 

  
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  
  

 

 

  
Class C Shares:              
Year ended December 31, 2017              
Shares sold      222,383      $ 2,776,071          113,908      $ 1,391,855  
Shares issued in reinvestment of distributions      13,606        174,885          3,104        38,463  
Shares redeemed      (337,139 )       (4,195,494 )         (65,476 )       (796,073 ) 
  

 

 

  
Net increase (decrease)      (101,150 )     $ (1,244,538 )         51,536      $ 634,245  
  

 

 

  
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  
  

 

 

  
Class R Shares:              
Year ended December 31, 2017              
Shares sold      91,184      $ 1,162,751          44,001      $ 539,605  
Shares issued in reinvestment of distributions      6,825        90,445          1,912        24,086  
Shares redeemed      (96,378 )       (1,246,063 )         (31,942 )       (395,091 ) 
  

 

 

  
Net increase (decrease)      1,631      $ 7,133          13,971      $ 168,600  
  

 

 

  
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  
  

 

 

  
Class R6 Shares:              
Year ended December 31, 2017              
Shares sold      211,781      $ 2,758,355          205,547      $ 2,553,994  
Shares issued in reinvestment of distributions      3,270        44,224          294        3,787  
Shares redeemed      (135,886 )       (1,764,413 )         (102,179 )       (1,252,302 ) 
  

 

 

  
Net increase (decrease)      79,165      $ 1,038,166          103,662      $ 1,305,479  
  

 

 

  
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  
  

 

 

  

 

     
franklintempleton.com       Annual Report             141  

FRANKLIN FUND ALLOCATOR SERIES

NOTES TO FINANCIAL STATEMENTS

 

2. Shares of Beneficial Interest (continued)

 

 

     Franklin LifeSmart 2045
Retirement Target Fund		             Franklin LifeSmart 2050
Retirement Target Fund		  
      Shares      Amount             Shares      Amount  
Advisor Class Shares:              
Year ended December 31, 2017              
Shares sold      24,133      $ 308,531          3,842      $ 47,718  
Shares issued in reinvestment of distributions      1,095        14,735          754        9,680  
Shares redeemed      (21,959 )       (289,033 )         (821 )       (10,034 ) 
  

 

 

  
Net increase (decrease)      3,269      $ 34,233          3,775      $ 47,364  
  

 

 

  
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 ) 
  

 

 

  
     Franklin LifeSmart 2055
Retirement Target Fund		                      
      Shares      Amount                      
Class A Shares:              
Year ended December 31, 2017              
Shares sold      179,712      $ 1,868,533          
Shares issued in reinvestment of distributions      6,703        73,349          
Shares redeemed      (50,854 )       (529,261 )         
  

 

 

          
Net increase (decrease)      135,561      $ 1,412,621          
  

 

 

          
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          
  

 

 

          
Class C Shares:              
Year ended December 31, 2017              
Shares sold      90,816      $ 939,276          
Shares issued in reinvestment of distributions      1,817        19,638          
Shares redeemed      (22,755 )       (237,364 )         
  

 

 

          
Net increase (decrease)      69,878      $ 721,550          
  

 

 

          
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          
  

 

 

    

 

 

        

 

142    Annual Report   franklintempleton.com

FRANKLIN FUND ALLOCATOR SERIES

NOTES TO FINANCIAL STATEMENTS

 

 

     Franklin LifeSmart 2055
Retirement Target Fund		  
      Shares      Amount  
Class R Shares:      
Year ended December 31, 2017      
Shares sold      13,895      $ 144,258  
Shares issued in reinvestment of distributions      555        6,022  
Shares redeemed      (20,084 )       (203,979 ) 
  

 

 

  
Net increase (decrease)      (5,634 )     $ (53,699 ) 
  

 

 

  
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  
  

 

 

  
Class R6 Shares:      
Year ended December 31, 2017      
Shares sold      150,392      $ 1,583,951  
Shares issued in reinvestment of distributions      683        7,493  
Shares redeemed      (33,852 )       (359,936 ) 
  

 

 

  
Net increase (decrease)      117,223      $ 1,231,508  
  

 

 

  
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  
  

 

 

  
Advisor Class Shares:      
Year ended December 31, 2017      
Shares sold      1,920      $ 19,323  
Shares issued in reinvestment of distributions      42        455  
Shares redeemed      (411 )       (4,291 ) 
  

 

 

  
Net increase (decrease)      1,551      $ 15,487  
  

 

 

  
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  
  

 

 

  

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

 

     
franklintempleton.com   Annual Report             143  

FRANKLIN FUND ALLOCATOR SERIES

NOTES TO FINANCIAL STATEMENTS

 

3. Transactions with Affiliates (continued)

 

a. Management and Asset Allocation Fees

The Funds, except Franklin LifeSmart Retirement Income Fund, 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.

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.

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.

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
LifeSmart
Retirement
Income Fund		      Franklin
LifeSmart
2020 Retirement
Target Fund		      Franklin
LifeSmart
2025 Retirement
Target Fund		  

Sales charges retained net of commissions paid to unaffiliated brokers/dealers

      $20,846        $8,712        $41,405  
CDSC retained      $  1,727        $   542        $  3,729  

 

144    Annual Report   franklintempleton.com

FRANKLIN FUND ALLOCATOR SERIES

NOTES TO FINANCIAL STATEMENTS

 

     

Franklin
LifeSmart

2030 Retirement
Target Fund

     

Franklin
LifeSmart

2035 Retirement
Target Fund

     

Franklin
LifeSmart

2040 Retirement
Target Fund

  

Sales charges retained net of commissions paid to unaffiliated brokers/dealers

      $20,894        $38,789        $17,067  
CDSC retained      $     946        $  2,146        $  1,180  
      Franklin
LifeSmart
2045 Retirement
Target Fund		      Franklin
LifeSmart
2050 Retirement
Target Fund		      Franklin
LifeSmart
2055 Retirement
Target Fund		  

Sales charges retained net of commissions paid to unaffiliated brokers/dealers

      $36,375        $17,705        $9,731  
CDSC retained      $  4,353        $  1,838        $   752  

e. Transfer Agent Fees

Each class of shares pays transfer agent fees to Investor Services for its performance of shareholder servicing obligations. Effective November 1, 2017, the fees are based on an annualized asset based fee of 0.02% plus a transaction based fee. Prior to November 1, 2017, the fees were account based fees that varied based on fund or account type. In addition, each class reimburses Investor Services for out of pocket expenses incurred and, except for Class R6, reimburses 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, 2017, the Funds paid transfer agent fees as noted in the Statements of Operations of which the following amounts were retained by Investor Services:

 

      Franklin
LifeSmart
Retirement
Income Fund		     

Franklin
LifeSmart

2020 Retirement
Target Fund

     

Franklin
LifeSmart

2025 Retirement
Target Fund

  
Transfer agent fees      $42,312        $21,041        $88,487  
      Franklin
LifeSmart
2030 Retirement
Target Fund		      Franklin
LifeSmart
2035 Retirement
Target Fund		      Franklin
LifeSmart
2040 Retirement
Target Fund		  
Transfer agent fees      $33,116        $91,432        $32,411  
      Franklin
LifeSmart
2045 Retirement
Target Fund		      Franklin
LifeSmart
2050 Retirement
Target Fund		      Franklin
LifeSmart
2055 Retirement
Target Fund		  
Transfer agent fees      $99,050        $47,671        $27,691  

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.

 

     
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)

 

Investments in FT Underlying Funds for the year ended December 31, 2017, were as follows:

 

FT Underlying Funds   Number of
Shares Held
at Beginning
of Year		     Gross
Additions		     Gross
Reductions		    

Number of
Shares

Held at End
of Year

    

Value

at End

of Year

     Dividend
Income		     Realized
Gain (Loss)		     Net Change in
Unrealized
Appreciation
(Depreciation)		  
Franklin LifeSmart Retirement Income Fund                
Non-Controlled Affiliates                

Franklin Floating Rate Daily Access Fund, Class R6

     1,884,664       448,200       (689,969 )      1,642,895     $ 14,408,195     $ 570,431     $ 24,984     $ (215,751 ) 

Franklin High Income Fund, Class R6

     —       2,134,595       —       2,134,595       4,013,039       62,057       —       (42,317 ) 

Franklin Income Fund, Class R6

     5,166,874       2,347,649       (2,173,398 )      5,341,125       12,605,056       634,034       73,560       266,282  

Franklin Strategic Income Fund, Class R6

     622,444       87,927       (710,371 )      —       — a       87,992       357,490       — a  

Franklin U.S. Government Securities Fund, Class R6

     2,398,566       197,905       (1,140,477 )      1,455,994       8,852,441       401,368       (245,481 )      (5,111 ) 

Institutional Fiduciary Trust Money Market

                

Portfolio, 0.89%

     15       14,580,022       (14,514,987 )      65,050       65,050       1,881       —       —  

Templeton Global Total Return Fund, Class R6

     239,735       26,789       (48,258 )      218,266       2,630,100       38,012       33,116       18,242  
         

 

 

  

Total Affiliated Securities

           $ 42,573,881     $ 1,795,775     $ 243,669     $ 21,345  
         

 

 

  
Franklin LifeSmart 2020 Retirement Target Fund              
Non-Controlled Affiliates                

Franklin Floating Rate Daily Access Fund, Class R6

     —       131,263       (17,668 )      113,595     $ 996,227     $ 29,972     $ (625 )    $ (12,986 ) 

Franklin Focused Core Equity Fund, Class R6

     71,450       5,090       (76,540 )      —       — a       —       94,388       — a  

Franklin FTSE Europe ETF

     —       54,700       (300 )      54,400       1,387,472       312       (86 )      18,321  

Franklin Growth Fund, Class R6

     48,806       8,304       (15,750 )      41,360       3,910,204       29,449       156,726 b       719,020  

Franklin Growth Opportunities Fund, Class R6

     43,927       9,210       (14,237 )      38,900       1,526,046       —       137,811 b       237,938  

Franklin India Growth Fund, Class R6

     50,406       6,493       (56,899 )      —       — a       —       154,963       — a  

Franklin International Small Cap Growth Fund, Class R6

     73,900       16,489       (30,507 )      59,882       1,206,623       79,738       44,463 b       249,442  

Franklin K2 Alternative Strategies Fund, Class R6

     90,400       10,611       (101,011 )      —       — a       —       45,229       — a  

Franklin K2 Long Short Credit Fund, Class R6

     97,573       18,154       (29,093 )      86,634       902,723       17,383       26,855 b       5,541  

Franklin LibertyQ Emerging Markets ETF

     46,200       16,200       (15,000 )      47,400       1,566,333       39,341       11,935       285,094  

Franklin LibertyQ U.S. Equity ETF

     —       41,600       (7,000 )      34,600       1,000,283       12,307       82       108,382  

Franklin Low Duration Total Return Fund, Class R6

     482,134       411,564       (125,649 )      768,049       7,542,245       142,872       (17,339 )      (36,744 ) 

Franklin Mutual International Fund, Class R6

     56,683       9,337       (18,401 )      47,619       760,469       17,176       7,750       78,128  

Franklin Pelagos Commodities Strategy Fund, Class R6

     104,776       38,900       (17,073 )      126,603       845,712       1,050       (2,320 )      14,535  

Franklin Rising Dividends Fund, Class R6

     41,021       5,860       (20,644 )      26,237       1,602,829       24,328       95,032 b       196,538  

Franklin Small Cap Growth Fund, Class R6

     25,385       4,045       (8,212 )      21,218       504,128       —       14,691 b       79,208  

Franklin Strategic Income Fund, Class R6

     173,601       46,500       (119,036 )      101,065       995,493       28,095       3,755       26,925  

Franklin U.S. Government Securities Fund, Class R6

     381,149       103,640       (261,129 )      223,660       1,359,850       46,951       (48,542 )      20,022  

Franklin Utilities Fund, Class R6

     38,257       7,220       (12,373 )      33,104       623,682       19,629       18,849 b       28,293  

Institutional Fiduciary Trust Money Market Portfolio, 0.89%

     190,417       12,368,362       (11,654,195 )      904,584       904,584       2,674       —       —  

Templeton Foreign Fund, Class R6

     146,086       23,237       (59,036 )      110,287       875,682       16,594       27,079       115,876  

Templeton Global Total Return Fund, Class R6

     195,805       212,819       (60,674 )      347,950       4,192,791       54,816       3,246       35,896  
         

 

 

  

Total Affiliated Securities

           $ 32,703,376     $ 562,687     $ 773,942     $ 2,169,429  
         

 

 

  

 

146    Annual Report   franklintempleton.com

FRANKLIN FUND ALLOCATOR SERIES

NOTES TO FINANCIAL STATEMENTS

 

FT Underlying Funds   Number of
Shares Held
at Beginning
of Year		     Gross
Additions		     Gross
Reductions		    

Number of
Shares

Held at End
of Year

    

Value

at End

of Year

     Dividend
Income		     Realized
Gain (Loss)		     Net Change in
Unrealized
Appreciation
(Depreciation)		  
Franklin LifeSmart 2025 Retirement Target Fund              
Non-Controlled Affiliates                

Franklin Floating Rate Daily Access Fund, Class R6

     —       269,016       (22,581 )      246,435     $ 2,161,235     $ 64,787     $ (1,017 )    $ (28,310 ) 

Franklin Focused Core Equity Fund, Class R6

     310,586       4,351       (314,937 )      —       — a       —       364,563       — a  

Franklin FTSE Europe ETF

     —       258,300       (1,300 )      257,000       6,554,785       1,469       (339 )      87,218  

Franklin Growth Fund, Class R6

     222,262       11,072       (42,813 )      190,521       18,011,853       136,764       706,030 b       3,356,707  

Franklin Growth Opportunities Fund, Class R6

     196,335       17,623       (37,780 )      176,178       6,911,477       —       634,176b       1,083,668  

Franklin India Growth Fund, Class R6

     236,461       4,409       (240,870 )      —       — a       —       678,993       — a  

Franklin International Small Cap Growth Fund, Class R6

     341,435       35,291       (96,081 )      280,645       5,655,004       372,661       252,062 b       1,130,776  

Franklin K2 Alternative Strategies Fund, Class R6

     322,782       9,080       (331,862 )      —       — a       —       219,525       — a  

Franklin K2 Long Short Credit Fund, Class R6

     347,486       32,742       (75,305 )      304,923       3,177,305       61,182       91,908 b       19,206  

Franklin LibertyQ Emerging Markets ETF

     230,100       63,200       (47,700 )      245,600       8,115,852       200,760       63,605       1,463,939  

Franklin LibertyQ U.S. Equity ETF

     —       173,200       (19,300 )      153,900       4,449,234       54,884       8,491       482,076  

Franklin Low Duration Total Return Fund, Class R6

     1,135,007       867,402       (220,539 )      1,781,870       17,497,960       326,779       (57,116 )      (67,994 ) 

Franklin Mutual International Fund, Class R6

     257,590       10,840       (49,355 )      219,075       3,498,627       79,238       (35,534 )      432,625  

Franklin Pelagos Commodities Strategy Fund, Class R6

     384,794       98,627       (35,943 )      447,478       2,989,152       3,709       (2,699 )      51,228  

Franklin Rising Dividends Fund, Class R6

     191,281       8,506       (76,091 )      123,696       7,556,565       114,060       442,219 b       942,923  

Franklin Small Cap Growth Fund, Class R6

     139,063       5,251       (26,794 )      117,520       2,792,276       —       132,330 b       389,886  

Franklin Strategic Income Fund, Class R6

     390,110       76,810       (246,803 )      220,117       2,168,148       60,768       (118,833 )      185,430  

Franklin U.S. Government Securities Fund, Class R6

     931,341       189,031       (580,326 )      540,046       3,283,482       112,032       (108,751 )      41,345  

Franklin Utilities Fund, Class R6

     175,188       10,979       (34,237 )      151,930       2,862,362       90,719       91,133 b       137,640  

Institutional Fiduciary Trust Money Market Portfolio, 0.89%

     722,986       32,200,680       (30,946,351 )      1,977,315       1,977,315       8,303       —       —  

Templeton Foreign Fund, Class R6

     616,488       23,051       (169,136 )      470,403       3,734,999       70,777       189,009       423,628  

Templeton Global Total Return Fund, Class R6

     462,110       432,869       (103,998 )      790,981       9,531,325       123,998       (532 )      77,580  
         

 

 

  

Total Affiliated Securities

           $ 112,928,956     $ 1,882,890     $ 3,549,223     $ 10,209,571  
         

 

 

  
Franklin LifeSmart 2030 Retirement Target Fund              
Non-Controlled Affiliates                

Franklin Floating Rate Daily Access Fund, Class R6

     —       72,574       (2,503 )      70,071     $ 614,526     $ 16,760     $ (92 )    $ (7,610 ) 

Franklin Focused Core Equity Fund, Class R6

     100,655       5,311       (105,966 )      —       — a       —       135,149       — a  

Franklin FTSE Europe ETF

     —       108,100       —       108,100       2,757,091       617       —       36,495  

Franklin Growth Fund, Class R6

     72,816       11,197       (9,277 )      74,736       7,065,559       52,885       196,314 b       1,266,278  

Franklin Growth Opportunities Fund, Class R6

     66,763       12,539       (12,549 )      66,753       2,618,718       —       217,265 b       380,461  

Franklin India Growth Fund, Class R6

     85,606       6,821       (92,427 )      —       — a       —       261,872       — a  

Franklin International Small Cap Growth Fund, Class R6

     134,599       29,436       (31,267 )      132,768       2,675,265       175,755       74,649 b       508,473  

Franklin K2 Alternative Strategies Fund, Class R6

     99,662       13,114       (112,776 )      —       — a       —       48,406       — a  

Franklin K2 Long Short Credit Fund, Class R6

     109,077       23,880       (23,740 )      109,217       1,138,045       21,914       23,512 b       13,580  

Franklin LibertyQ Emerging Markets ETF

     78,100       28,600       (7,000 )      99,700       3,294,586       80,186       2,504       565,191  

Franklin LibertyQ U.S. Equity ETF

     —       65,700       (6,300 )      59,400       1,717,248       20,723       (1,378 )      183,241  

Franklin Low Duration Total Return Fund, Class R6

     270,854       230,484       (23,180 )      478,158       4,695,507       80,008       (5,193 )      (27,902 ) 

Franklin Mutual International Fund, Class R6

     88,600       13,038       (11,168 )      90,470       1,444,811       32,539       (2,318 )      148,755  

Franklin Pelagos Commodities Strategy Fund, Class R6

     109,178       56,832       (5,486 )      160,524       1,072,298       1,331       (1,446 )      23,259  

 

franklintempleton.com   Annual Report     147  

FRANKLIN FUND ALLOCATOR SERIES

NOTES TO FINANCIAL STATEMENTS

 

3. Transactions with Affiliates (continued)

 

f. Investments in FT Underlying Funds (continued)

 

FT Underlying Funds   Number of
Shares Held
at Beginning
of Year		     Gross
Additions		     Gross
Reductions		    

Number of
Shares

Held at End
of Year

    

Value

at End

of Year

     Dividend
Income		     Realized
Gain (Loss)		     Net Change in
Unrealized
Appreciation
(Depreciation)		  
Franklin LifeSmart 2030 Retirement Target Fund (continued)            
Non-Controlled Affiliates (continued)                

Franklin Rising Dividends Fund, Class R6

     63,789       7,898       (22,219 )      49,468     $ 3,022,018     $ 43,447     $ 120,279 b     $ 391,334  

Franklin Small Cap Growth Fund, Class R6

     54,396       7,680       (6,776 )      55,300       1,313,917       —       24,474 b       205,562  

Franklin Strategic Income Fund, Class R6

     95,407       20,408       (53,406 )      62,409       614,726       15,559       (8,448 )      23,895  

Franklin U.S. Government Securities Fund, Class R6

     224,100       48,906       (121,386 )      151,620       921,852       28,076       (22,295 )      4,745  

Franklin Utilities Fund, Class R6

     61,409       10,478       (7,798 )      64,089       1,207,439       35,821       20,492 b       60,303  

Institutional Fiduciary Trust Money Market Portfolio, 0.89%

     61,193       12,737,617       (11,956,321 )      842,489       842,489       3,348       —       —  

Templeton Foreign Fund, Class R6

     181,114       25,511       (40,841 )      165,784       1,316,321       24,944       19,317       174,724  

Templeton Global Total Return Fund, Class R6

     109,721       118,875       (10,527 )      218,069       2,627,734       30,500       (492 )      13,736  
         

 

 

  

Total Affiliated Securities

           $ 40,960,150     $ 664,413     $ 1,102,571     $ 3,964,520  
         

 

 

  
Franklin LifeSmart 2035 Retirement Target Fund              
Non-Controlled Affiliates                

Franklin Floating Rate Daily Access Fund, Class R6

     —       133,749       (9,754 )      123,995     $ 1,087,436     $ 31,129     $ (325 )    $ (13,913 ) 

Franklin Focused Core Equity Fund, Class R6

     307,928       1,090       (309,018 )      —       — a       —       314,947       — a  

Franklin FTSE Europe ETF

     —       282,800       (600 )      282,200       7,197,511       1,614       (171 )      94,038  

Franklin Growth Fund, Class R6

     216,137       11,194       (28,733 )      198,598       18,775,451       141,723       601,730 b       3,496,197  

Franklin Growth Opportunities Fund, Class R6

     218,186       20,615       (28,996 )      209,805       8,230,671       —       733,072 b       1,243,060  

Franklin India Growth Fund, Class R6

     231,375       2,334       (233,709 )      —       — a       —       652,500       — a  

Franklin International Small Cap Growth Fund, Class R6

     421,648       46,041       (96,446 )      371,243       7,480,538       492,086       274,585 b       1,483,429  

Franklin K2 Alternative Strategies Fund, Class R6

     276,640       14,459       (291,099 )      —       — a       —       179,343       — a  

Franklin K2 Long Short Credit Fund, Class R6

     299,300       40,713       (67,674 )      272,339       2,837,777       54,644       74,618 b       21,858  

Franklin LibertyQ Emerging Markets ETF

     215,500       62,000       (30,600 )      246,900       8,158,811       199,393       44,429       1,440,322  

Franklin LibertyQ U.S. Equity ETF

     —       178,600       (14,600 )      164,000       4,741,224       57,872       880       513,416  

Franklin Low Duration Total Return Fund, Class R6

     548,374       456,150       (100,198 )      904,326       8,880,483       157,654       (24,263 )      (38,937 ) 

Franklin Mutual International Fund, Class R6

     301,451       13,261       (39,544 )      275,168       4,394,437       99,323       (22,606 )      501,037  

Franklin Pelagos Commodities Strategy Fund, Class R6

     314,820       113,991       (27,735 )      401,076       2,679,185       3,325       (3,162 )      53,835  

Franklin Rising Dividends Fund, Class R6

     176,199       7,777       (61,541 )      122,435       7,479,534       110,490       353,133 b       977,426  

Franklin Small Cap Growth Fund, Class R6

     130,369       5,092       (17,235 )      118,226       2,809,049       —       70,220 b       441,811  

Franklin Strategic Income Fund, Class R6

     184,001       36,046       (112,805 )      107,242       1,056,334       28,124       (40,536 )      70,417  

Franklin U.S. Government Securities Fund, Class R6

     493,378       99,502       (282,634 )      310,246       1,886,296       60,330       (52,906 )      15,837  

Franklin Utilities Fund, Class R6

     166,994       10,943       (22,090 )      155,847       2,936,156       90,387       73,010 b       148,456  

Institutional Fiduciary Trust Money Market Portfolio, 0.89%

     376,115       26,390,481       (25,742,549 )      1,024,047       1,024,047       7,634       —       —  

Templeton Foreign Fund, Class R6

     622,852       24,216       (136,412 )      510,656       4,054,605       76,833       104,940       534,604  

Templeton Global Total Return Fund, Class R6

     233,322       231,735       (47,907 )      417,150       5,026,660       61,828       1,502       33,033  
         

 

 

  

Total Affiliated Securities

           $ 100,736,205     $ 1,674,389     $ 3,334,940     $ 11,015,926  
         

 

 

  

 

148    Annual Report   franklintempleton.com

FRANKLIN FUND ALLOCATOR SERIES

NOTES TO FINANCIAL STATEMENTS

 

FT Underlying Funds   Number of
Shares Held
at Beginning
of Year		     Gross
Additions		     Gross
Reductions		    

Number of
Shares

Held at End
of Year

    

Value

at End

of Year

     Dividend
Income		     Realized
Gain (Loss)		     Net Change in
Unrealized
Appreciation
(Depreciation)		  
Franklin LifeSmart 2040 Retirement Target Fund                
Non-Controlled Affiliates                

Franklin Floating Rate Daily Access Fund, Class R6

     —       39,039       (3,769 )      35,270     $ 309,313     $ 8,523     $ (128 )    $ (3,769 ) 

Franklin Focused Core Equity Fund, Class R6

     99,364       4,593       (103,957 )      —       — a       —       126,302       — a  

Franklin FTSE Europe ETF

     —       91,500       —       91,500       2,333,708       522       —       30,286  

Franklin Growth Fund, Class R6

     67,717       8,943       (10,856 )      65,804       6,221,103       46,565       203,682 b       1,121,513  

Franklin Growth Opportunities Fund, Class R6

     70,803       12,569       (11,443 )      71,929       2,821,776       —       250,536 b       409,178  

Franklin India Growth Fund, Class R6

     76,925       4,181       (81,106 )      —       — a       —       228,437       — a  

Franklin International Small Cap Growth Fund, Class R6

     134,099       25,802       (35,211 )      124,690       2,512,514       164,646       63,949 b       508,477  

Franklin K2 Alternative Strategies Fund, Class R6

     84,269       9,655       (93,924 )      —       — a       —       39,132       — a  

Franklin K2 Long Short Credit Fund, Class R6

     92,199       18,412       (24,251 )      86,360       899,878       17,328       18,233 b       12,299  

Franklin LibertyQ Emerging Markets ETF

     67,200       24,600       (12,100 )      79,700       2,633,687       64,467       9,897       461,824  

Franklin LibertyQ U.S. Equity ETF

     —       61,700       (6,400 )      55,300       1,598,717       19,254       (492 )      169,671  

Franklin Low Duration Total Return Fund, Class R6

     146,850       138,442       (32,970 )      252,322       2,477,803       42,305       (1,444 )      (16,097 ) 

Franklin Mutual International Fund, Class R6

     95,684       11,751       (15,495 )      91,940       1,468,281       33,073       (6,632 )      162,326  

Franklin Pelagos Commodities Strategy Fund, Class R6

     91,571       46,064       (10,233 )      127,402       851,044       1,056       (2,302 )      18,907  

Franklin Rising Dividends Fund, Class R6

     54,989       6,081       (20,659 )      40,411       2,468,717       35,993       103,096 b       326,049  

Franklin Small Cap Growth Fund, Class R6

     41,829       4,983       (6,632 )      40,180       954,674       —       20,062 b       150,233  

Franklin Strategic Income Fund, Class R6

     50,488       10,946       (31,148 )      30,286       298,320       7,639       7,182       743  

Franklin U.S. Government Securities Fund, Class R6

     137,788       32,908       (80,574 )      90,122       547,942       17,758       (15,610 )      4,807  

Franklin Utilities Fund, Class R6

     52,313       7,726       (8,377 )      51,662       973,305       29,447       21,600 b       47,782  

Institutional Fiduciary Trust Money Market Portfolio, 0.89%

     183,134       10,599,317       (10,270,651 )      511,800       511,800       2,591       —       —  

Templeton Foreign Fund, Class R6

     184,504       21,799       (46,886 )      159,417       1,265,770       23,986       26,053       168,096  

Templeton Global Total Return Fund, Class R6

     56,988       62,904       (14,443 )      105,449       1,270,655       14,932       1,976       5,457  
         

 

 

  

Total Affiliated Securities

           $ 32,419,007     $ 530,085     $ 1,093,529     $ 3,577,782  
         

 

 

  
Franklin LifeSmart 2045 Retirement Target Fund                
Non-Controlled Affiliates                

Franklin Floating Rate Daily Access Fund, Class R6

     —       71,787       (6,520 )      65,267     $ 572,392     $ 16,354     $ (246 )    $ (7,272 ) 

Franklin Focused Core Equity Fund, Class R6

     226,425       4,117       (230,542 )      —       — a       —       229,379       — a  

Franklin FTSE Europe ETF

     —       203,500       (1,400 )      202,100       5,154,561       1,158       (289 )      66,844  

Franklin Growth Fund, Class R6

     153,668       10,121       (22,888 )      140,901       13,320,754       101,035       429,456 b       2,498,070  

Franklin Growth Opportunities Fund, Class R6

     160,883       17,485       (23,920 )      154,448       6,058,976       —       543,833 b       919,950  

Franklin India Growth Fund, Class R6

     152,337       3,888       (156,225 )      —       — a       —       450,993       — a  

Franklin International Small Cap Growth Fund, Class R6

     302,418       37,311       (74,029 )      265,700       5,353,862       353,486       191,236 b       1,072,934  

Franklin K2 Alternative Strategies Fund, Class R6

     191,089       11,312       (202,401 )      —       — a       —       123,151       — a  

Franklin K2 Long Short Credit Fund, Class R6

     205,705       32,728       (51,029 )      187,404       1,952,745       37,601       48,819 b       17,381  

Franklin LibertyQ Emerging Markets ETF

     161,000       48,200       (26,900 )      182,300       6,024,103       147,579       44,474       1,066,429  

Franklin LibertyQ U.S. Equity ETF

     —       129,300       (10,000 )      119,300       3,448,951       42,504       4,706       373,695  

Franklin Low Duration Total Return Fund, Class R6

     302,710       257,045       (65,494 )      494,261       4,853,644       83,811       (6,915 )      (28,398 ) 

Franklin Mutual International Fund, Class R6

     216,679       12,508       (32,446 )      196,741       3,141,949       71,162       (21,683 )      365,061  

Franklin Pelagos Commodities Strategy Fund, Class R6

     224,286       76,470       (25,495 )      275,261       1,838,747       2,281       (1,890 )      35,398  

 

franklintempleton.com   Annual Report     149  

FRANKLIN FUND ALLOCATOR SERIES

NOTES TO FINANCIAL STATEMENTS

 

3. Transactions with Affiliates (continued)

 

f. Investments in FT Underlying Funds (continued)

 

FT Underlying Funds   Number of
Shares Held
at Beginning
of Year		     Gross
Additions		     Gross
Reductions		    

Number of
Shares

Held at End
of Year

    

Value

at End

of Year

     Dividend
Income		     Realized
Gain (Loss)		     Net Change in
Unrealized
Appreciation
(Depreciation)		  
Franklin LifeSmart 2045 Retirement Target Fund (continued)            
Non-Controlled Affiliates (continued)                

Franklin Rising Dividends Fund, Class R6

     124,876       7,223       (45,821 )      86,278     $ 5,270,737     $ 78,493     $ 246,258 b     $ 700,305  

Franklin Small Cap Growth Fund, Class R6

     97,302       5,168       (14,503 )      87,967       2,090,107       —       52,529 b       332,149  

Franklin Strategic Income Fund, Class R6

     104,214       16,209       (63,065 )      57,358       564,972       15,022       17,200       (1,187 ) 

Franklin U.S. Government Securities Fund, Class R6

     275,361       47,648       (156,638 )      166,371       1,011,535       32,187       (29,405 )      9,623  

Franklin Utilities Fund, Class R6

     118,411       9,568       (17,727 )      110,252       2,077,147       64,480       52,474 b       106,669  

Institutional Fiduciary Trust Money Market Portfolio, 0.89%

     468,586       18,475,866       (18,428,077 )      516,375       516,375       5,174       —       —  

Templeton Foreign Fund, Class R6

     521,744       27,592       (123,501 )      425,835       3,381,131       64,163       88,880       448,287  

Templeton Global Total Return Fund, Class R6

     129,291       122,453       (33,203 )      218,541       2,633,423       32,223       8,727       8,994  
         

 

 

  

Total Affiliated Securities

           $ 69,266,111     $ 1,148,713     $ 2,471,687     $ 7,984,932  
         

 

 

  
Franklin LifeSmart 2050 Retirement Target Fund                
Non-Controlled Affiliates                

Franklin Floating Rate Daily Access Fund, Class R6

     —       28,648       (2,327 )      26,321     $ 230,837     $ 6,049     $ (92 )    $ (2,716 ) 

Franklin Focused Core Equity Fund, Class R6

     78,484       6,065       (84,549 )      —       — a       —       143,710       — a  

Franklin FTSE Europe ETF

     —       81,600       (100 )      81,500       2,078,657       464       (25 )      26,819  

Franklin Growth Fund, Class R6

     51,909       10,156       (4,813 )      57,252       5,412,658       40,399       128,975 b       950,044  

Franklin Growth Opportunities Fund, Class R6

     53,630       13,334       (4,903 )      62,061       2,434,663       —       183,316 b       344,440  

Franklin India Growth Fund, Class R6

     52,795       5,908       (58,703 )      —       — a       —       182,912       — a  

Franklin International Small Cap Growth Fund, Class R6

     100,058       26,511       (20,921 )      105,648       2,128,805       139,652       53,177 b       385,305  

Franklin K2 Alternative Strategies Fund, Class R6

     62,928       9,420       (72,348 )      —       — a       —       33,320       — a  

Franklin K2 Long Short Credit Fund, Class R6

     67,452       19,302       (13,299 )      73,455       765,406       14,739       13,866 b       9,069  

Franklin LibertyQ Emerging Markets ETF

     55,900       25,500       (5,400 )      76,000       2,511,420       60,097       2,455       414,826  

Franklin LibertyQ U.S. Equity ETF

     —       52,900       (3,000 )      49,900       1,442,604       17,180       (787 )      151,892  

Franklin Low Duration Total Return Fund, Class R6

     97,303       105,567       (25,387 )      177,483       1,742,879       28,297       (382 )      (12,004 ) 

Franklin Mutual International Fund, Class R6

     71,811       13,450       (6,645 )      78,616       1,255,505       28,257       711       119,977  

Franklin Pelagos Commodities Strategy Fund, Class R6

     70,838       40,709       (2,918 )      108,629       725,642       901       (770 )      17,155  

Franklin Rising Dividends Fund, Class R6

     41,207       6,492       (13,301 )      34,398       2,101,377       29,231       80,506 b       264,417  

Franklin Small Cap Growth Fund, Class R6

     26,850       4,874       (2,522 )      29,202       693,830       —       12,043 b       106,840  

Franklin Strategic Income Fund, Class R6

     33,073       10,400       (21,158 )      22,315       219,806       5,323       8,192       (3,116 ) 

Franklin U.S. Government Securities Fund, Class R6

     86,663       31,085       (50,657 )      67,091       407,910       11,577       (9,380 )      1,962  

Franklin Utilities Fund, Class R6

     39,182       8,347       (3,704 )      43,825       825,655       23,759       12,775b       39,072  

Institutional Fiduciary Trust Money Market Portfolio, 0.89%

     181,567       8,997,414       (8,634,506 )      544,475       544,475       2,316       —       —  

Templeton Foreign Fund, Class R6

     176,382       31,779       (34,817 )      173,344       1,376,348       26,081       11,086       181,712  

Templeton Global Total Return Fund, Class R6

     38,236       52,003       (11,099 )      79,140       953,640       10,523       1,273       1,306  
         

 

 

  

Total Affiliated Securities

           $ 27,852,117     $ 444,845     $ 856,881     $ 2,997,000  
         

 

 

  

 

150    Annual Report   franklintempleton.com

FRANKLIN FUND ALLOCATOR SERIES

NOTES TO FINANCIAL STATEMENTS

 

FT Underlying Funds   Number of
Shares Held
at Beginning
of Year		     Gross
Additions		     Gross
Reductions		    

Number of
Shares

Held at End
of Year

    

Value

at End

of Year

     Dividend
Income		     Realized
Gain (Loss)		     Net Change in
Unrealized
Appreciation
(Depreciation)		  
Franklin LifeSmart 2055 Retirement Target Fund                
Non-Controlled Affiliates                

Franklin Floating Rate Daily Access Fund, Class R6

     —       8,626       (643 )      7,983     $ 70,010     $ 1,587     $ (30 )    $ (723 ) 

Franklin Focused Core Equity Fund, Class R6

     17,233       4,526       (21,759 )      —       — a       —       31,325       — a  

Franklin FTSE Europe ETF

     —       25,000       —       25,000       637,625       142       —       8,145  

Franklin Growth Fund, Class R6

     11,630       6,867       (654 )      17,843       1,686,827       12,438       38,039 b       253,203  

Franklin Growth Opportunities Fund, Class R6

     11,687       7,734       (641 )      18,780       736,749       —       54,481 b       81,802  

Franklin India Growth Fund, Class R6

     11,601       4,434       (16,035 )      —       — a       —       41,369       — a  

Franklin International Small Cap Growth Fund, Class R6

     22,604       15,501       (4,881 )      33,224       669,472       43,637       12,817 b       98,581  

Franklin K2 Alternative Strategies Fund, Class R6

     13,497       5,365       (18,862 )      —       — a       —       6,494       — a  

Franklin K2 Long Short Credit Fund, Class R6

     14,523       10,658       (3,337 )      21,844       227,616       4,383       3,853 b       1,655  

Franklin LibertyQ Emerging Markets ETF

     11,100       12,200       (1,100 )      22,200       733,599       16,804       (68 )      103,524  

Franklin LibertyQ U.S. Equity ETF

     —       16,200       (400 )      15,800       456,777       5,238       (127 )      45,623  

Franklin Low Duration Total Return Fund, Class R6

     19,590       43,228       (7,534 )      55,284       542,891       7,521       (114 )      (3,752 ) 

Franklin Mutual International Fund, Class R6

     16,099       9,399       (874 )      24,624       393,245       8,799       (23 )      30,815  

Franklin Pelagos Commodities Strategy Fund, Class R6

     15,880       17,593       (689 )      32,784       218,999       272       (214 )      6,193  

Franklin Rising Dividends Fund, Class R6

     9,309       4,480       (2,965 )      10,824       661,215       8,384       18,587 b       77,491  

Franklin Small Cap Growth Fund, Class R6

     6,123       3,529       (345 )      9,307       221,135       —       3,698 b       30,697  

Franklin Strategic Income Fund, Class R6

     6,730       5,182       (5,169 )      6,743       66,418       1,368       867       140  

Franklin U.S. Government Securities Fund, Class R6

     16,523       14,148       (11,807 )      18,864       114,691       2,717       (1,894 )      59  

Franklin Utilities Fund, Class R6

     8,945       5,458       (475 )      13,928       262,409       6,803       4,028 b       8,074  

Institutional Fiduciary Trust Money Market

                

Portfolio, 0.89%

     83,312       3,457,364       (3,418,479 )      122,197       122,197       759       —       —  

Templeton Foreign Fund, Class R6

     41,260       23,538       (8,341 )      56,457       448,268       8,495       431       51,637  

Templeton Global Total Return Fund, Class R6

     7,573       19,204       (3,187 )      23,590       284,265       2,639       (332 )      (393 ) 
         

 

 

  

Total Affiliated Securities

           $ 8,554,408     $ 131,986     $ 213,187     $ 792,771  
         

 

 

  

aAs of December 31, 2017, no longer held by the fund.

bIncludes 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, 2018. Total expenses waived or paid are not subject to recapture subsequent to the Funds’ fiscal year end.

h. Other Affiliated Transactions

At December 31, 2017, Franklin Advisers, Inc. owned 8.2% of Franklin LifeSmart 2055 Retirement Target Fund’s outstanding shares.

 

franklintempleton.com   Annual Report     151  

FRANKLIN FUND ALLOCATOR SERIES

NOTES TO FINANCIAL STATEMENTS

 

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, 2017, the custodian fees were reduced as noted in the Statements of Operations.

5. Income Taxes

For tax purposes, capital losses may be carried over to offset future capital gains, if any. At December 31, 2017, the capital loss carryforwards were as follows:

 

     

Franklin
LifeSmart
Retirement
Income Fund

 

     

Franklin
LifeSmart
    2020 Retirement
Target Fund

 

     

Franklin
LifeSmart
    2030 Retirement
Target Fund

 

  

Capital loss carryforwards not subject to expiration:

         

Short term

      $   156,956        $684,887        $234,049  

Long term

      1,259,864        10,127        —  

Total capital loss carryforwards

      $1,416,820        $695,014        $234,049  

During the year ended December 31, 2017, the Funds utilized capital loss carryforwards as follows:

 

    

Franklin

LifeSmart

Retirement

    Income Fund

 

     

Franklin
LifeSmart
    2020 Retirement
Target Fund

 

     

Franklin
LifeSmart
    2025 Retirement
Target Fund

 

     

Franklin
LifeSmart
    2030 Retirement
Target Fund

 

  
     $169,551        $  764,967        $  2,359,923        $  1,163,849  
  

Franklin

LifeSmart

2035
Retirement

    Target Fund

 

     

Franklin
LifeSmart

    2040 Retirement
Target Fund

 

     

Franklin
LifeSmart

    2045 Retirement
Target Fund

 

     

Franklin
LifeSmart

    2050 Retirement
Target Fund

 

  
     $2,100,351        $  832,264        $  1,321,191        $  653,707  

 

   

Franklin

LifeSmart

2055 Retirement

Target Fund

 

 

$28,717

The tax character of distributions paid during the years ended December 31, 2017 and 2016, was as follows:

 

     Franklin LifeSmart Retirement
Income Fund		     

Franklin LifeSmart 2020

Retirement Target Fund

     

Franklin LifeSmart 2025

Retirement Target Fund

  
     2017      2016      2017      2016      2017      2016  

Distributions paid from:

                  

Ordinary income

      $2,294,914        $1,727,570        $443,307        $508,617        $2,148,717        $1,596,928  

Long term capital gain

      —        350,055        —        261,345        —        1,321,638  
     $2,294,914        $2,077,625        $443,307        $769,962        $2,148,717        $2,918,566  

Return of capital

      —        252,577        —        —        —        —  
     $2,294,914        $2,330,202        $443,307        $769,962        $2,148,717        $2,918,566  

 

152    Annual Report   franklintempleton.com

FRANKLIN FUND ALLOCATOR SERIES

NOTES TO FINANCIAL STATEMENTS

 

 

    

Franklin LifeSmart 2030

Retirement Target Fund

     

Franklin LifeSmart 2035

Retirement Target Fund

     

Franklin LifeSmart 2040

Retirement Target Fund

  
      2017      2016      2017      2016      2017      2016  

Distributions paid from:

                  

Ordinary income

    $ 791,735      $ 289,801      $ 2,261,545      $ 1,001,102      $ 679,653      $ 239,712  

Long term capital gain

      —        319,107        —        1,314,223        —        216,602  
   $ 791,735      $ 608,908      $ 2,261,545      $ 2,315,325      $ 679,653      $ 456,314  
    

Franklin LifeSmart 2045

Retirement Target Fund

     

Franklin LifeSmart 2050

Retirement Target Fund

     

Franklin LifeSmart 2055

Retirement Target Fund

  
      2017      2016      2017      2016      2017      2016  

Distributions paid from:

                  

Ordinary income

    $ 1,618,909      $ 685,135      $ 530,396      $ 183,051      $ 156,610      $ 52,618  

Long term capital gain

      —        825,821        —        199,667        25,795        17,628  
   $ 1,618,909      $ 1,510,956      $ 530,396      $ 382,718      $ 182,405      $ 70,246  

At December 31, 2017, 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
LifeSmart
Retirement
Income Fund		     Franklin
LifeSmart
2020 Retirement
Target Fund		    

Franklin
LifeSmart

2025 Retirement
Target Fund

  
Cost of investments      $57,786,628       $34,713,851       $112,087,456  

Unrealized appreciation

      $  2,090,029       $  3,325,488       $  20,613,376  
Unrealized depreciation      (1,108,301 )      (958,463 )      (2,893,348 ) 

Net unrealized appreciation (depreciation)

      $     981,728       $  2,367,025       $  17,720,028  

Undistributed ordinary income

      $            980       $     122,066       $       190,555  
Undistributed long term capital gains      —       —       1,380,137  

Distributable earnings

      $            980       $     122,066       $    1,570,692  
      Franklin
LifeSmart
2030 Retirement
Target Fund		    

Franklin
LifeSmart

2035 Retirement
Target Fund

    

Franklin
LifeSmart

2040 Retirement
Target Fund

  

Cost of investments

      $42,235,690       $97,677,709       $32,896,953  

Unrealized appreciation

      $  5,267,806       $19,743,383       $  4,501,293  
Unrealized depreciation      (646,008 )      (1,316,591 )      (448,354 ) 

Net unrealized appreciation (depreciation)

      $  4,621,798       $18,426,792       $  4,052,939  

Undistributed ordinary income

      $     183,923       $     181,835       $     139,506  
Undistributed long term capital gains      —       1,336,175       281,724  

Distributable earnings

      $     183,923       $  1,518,010       $     421,230  

 

franklintempleton.com   Annual Report     153  

FRANKLIN FUND ALLOCATOR SERIES

NOTES TO FINANCIAL STATEMENTS

 

5. Income Taxes (continued)

 

     

Franklin
LifeSmart
2045 Retirement
Target Fund

 

    

Franklin
LifeSmart
2050 Retirement
Target Fund

 

    

Franklin
LifeSmart
2055 Retirement
Target Fund

 

  

Cost of investments

      $66,401,085       $28,030,880       $8,606,975  

Unrealized appreciation

      $13,903,476       $  3,968,631       $   951,788  

Unrealized depreciation

      (756,670 )      (406,926 )      (94,535 ) 

Net unrealized appreciation (depreciation)

      $13,146,806       $  3,561,705       $   857,253  

Undistributed ordinary income

      $       49,764       $     125,661       $     15,657  

Undistributed long term capital gains

      1,182,284       227,274       119,352  

Distributable earnings

      $  1,232,048       $     352,935       $   135,009  

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 LifeSmart 2025 Retirement Target Fund, Franklin LifeSmart 2035 Retirement Target Fund, Franklin LifeSmart 2040 Retirement Target Fund, Franklin LifeSmart 2045 Retirement Target Fund and Franklin LifeSmart 2055 Retirement Target Fund utilized a tax accounting practice to treat a portion of the proceeds from capital shares redeemed as a distribution from realized capital gains

6. Investment Transactions

Purchases and sales of Underlying Funds and ETFs (excluding short term securities) for the year ended December 31, 2017, were as follows:

 

     

Franklin
LifeSmart
Retirement
Income Fund

 

     

Franklin
LifeSmart
2020 Retirement
Target Fund

 

     

Franklin
LifeSmart
2025 Retirement
Target Fund

 

  

Purchases

      $17,471,849        $17,005,119        $42,609,462  

Sales

      $29,193,299        $19,265,765        $56,304,307  
     

Franklin
LifeSmart
2030 Retirement
Target Fund

 

     

Franklin
LifeSmart

2035 Retirement
Target Fund

 

     

Franklin
LifeSmart

2040 Retirement
Target Fund

 

  

Purchases

      $17,323,074        $34,722,870        $13,273,049  

Sales

      $15,579,998        $43,097,990        $14,612,714  
     

Franklin
LifeSmart

2045 Retirement
Target Fund

 

     

Franklin
LifeSmart

2050 Retirement
Target Fund

 

     

Franklin
LifeSmart

2055 Retirement
Target Fund

 

  

Purchases

      $23,808,261        $12,145,294        $5,242,083  

Sales

      $31,347,069        $9,697,949        $2,297,941  

 

154    Annual Report   franklintempleton.com

FRANKLIN FUND ALLOCATOR SERIES

NOTES TO FINANCIAL STATEMENTS

 

7. Credit Facility

The Funds, together with other U.S. registered and foreign investment funds (collectively, Borrowers), managed by Franklin Templeton Investments, are borrowers in a joint syndicated senior unsecured credit facility totaling $2 billion (Global Credit Facility) which matured on February 9, 2018. 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 9, 2018, the Borrowers renewed the Global Credit Facility for a one year term, maturing February 8, 2019, 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, 2017, 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, 2017, 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

      $ 52,874,553      $ —      $                 —      $ 52,874,553  

        Index-Linked Notes

      —        3,345,370        2,483,383        5,828,753  

        Short Term Investments

      65,050        —        —        65,050  
  

 

 

  

            Total Investments in Securities

      $ 52,939,603      $   3,345,370      $   2,483,383      $ 58,768,356  
  

 

 

  

Franklin LifeSmart 2020 Retirement Target Fund

            

    Assets:

            

    Investments in Securities:

            

        Underlying Funds and Exchange Traded Funds

      $ 36,111,338      $ —      $ —      $ 36,111,338  

        Short Term Investments

      904,584        64,954        —        969,538  
  

 

 

  

            Total Investments in Securities

      $   37,015,922      $ 64,954      $ —      $   37,080,876  
  

 

 

  

 

franklintempleton.com   Annual Report     155  

FRANKLIN FUND ALLOCATOR SERIES

NOTES TO FINANCIAL STATEMENTS

 

 

8. Fair Value Measurements (continued)

 

     Level 1      Level 2      Level 3      Total  

 

  

Franklin LifeSmart 2025 Retirement Target Fund

            

    Assets:

            

Investments in Securities:

            

Underlying Funds and Exchange Traded Funds

      $ 127,080,383          $ —      $                 —          $ 127,080,383  

Short Term Investments

      1,977,315        749,786        —        2,727,101  
  

 

 

  

Total Investments in Securities

      $ 129,057,698          $ 749,786      $ —          $ 129,807,484  
  

 

 

  

Franklin LifeSmart 2030 Retirement Target Fund

            

    Assets:

            

Investments in Securities:

            

Underlying Funds and Exchange Traded Funds

      $ 45,853,489          $ —      $ —          $ 45,853,489  

Short Term Investments

      842,489        161,510        —        1,003,999  
  

 

 

  

Total Investments in Securities

      $ 46,695,978          $ 161,510      $ —          $ 46,857,488  
  

 

 

  

Franklin LifeSmart 2035 Retirement Target Fund

            

    Assets:

            

Investments in Securities:

            

Underlying Funds and Exchange Traded Funds

      $ 113,969,545          $ —      $ —          $ 113,969,545  

Short Term Investments

      1,024,047        1,110,909        —        2,134,956  
  

 

 

  

Total Investments in Securities

      $ 114,993,592          $ 1,110,909      $ —          $ 116,104,501  
  

 

 

  

Franklin LifeSmart 2040 Retirement Target Fund

            

    Assets:

            

Investments in Securities:

            

Underlying Funds and Exchange Traded Funds

      $ 36,226,359          $ —      $ —          $ 36,226,359  

Short Term Investments

      511,800        211,733        —        723,533  
  

 

 

  

Total Investments in Securities

      $         36,738,159          $         211,733      $ —          $         36,949,892  
  

 

 

  

Franklin LifeSmart 2045 Retirement Target Fund

            

    Assets:

            

Investments in Securities:

            

Underlying Funds and Exchange Traded Funds

      $ 78,123,130          $ —      $ —          $ 78,123,130  

Short Term Investments

      516,375        908,386        —        1,424,761  
  

 

 

  

Total Investments in Securities

      $ 78,639,505          $ 908,386      $ —          $ 79,547,891  
  

 

 

  

Franklin LifeSmart 2050 Retirement Target Fund

            

    Assets:

            

Investments in Securities:

            

Underlying Funds and Exchange Traded Funds

      $ 30,904,163          $ —      $ —          $ 30,904,163  

Short Term Investments

      544,475        143,947        —        688,422  
  

 

 

  

Total Investments in Securities

      $ 31,448,638          $ 143,947      $ —          $ 31,592,585  
  

 

 

  

Franklin LifeSmart 2055 Retirement Target Fund

            

    Assets:

            

Investments in Securities:

            

Underlying Funds and Exchange Traded Funds

      $ 9,342,031          $ —      $ —          $ 9,342,031  

Short Term Investments

      122,197        —        —        122,197  
  

 

 

  

Total Investments in Securities

      $ 9,464,228          $ —      $ —          $ 9,464,228  
  

 

 

  

 

156    Annual Report   franklintempleton.com

FRANKLIN FUND ALLOCATOR SERIES

NOTES TO FINANCIAL STATEMENTS

 

 

A reconciliation of assets in which Level 3 inputs are used in determining fair value is presented when there are significant Level 3 financial instruments at the beginning and/or end of the year. At December 31, 2017, the reconciliation of assets is as follows:

 

     Balance at
Beginning
of Year		     Purchases     Sales     Transfer
Into
Level 3		     Transfer
Out of
Level 3		     Cost Basis
Adjustments		     Net
Realized
Gain
(Loss)		     Net
Unrealized
Appreciation
(Depreciation)		     Balance at
End of
Year		    

Net Change in
Unrealized
Appreciation
(Depreciation)
on Assets
Held at

Year End

  

Franklin LifeSmart Retirement Income Fund

 

            

Assets:

                    

Investments in Securities:

 

                

Index-Linked Notes

       $—       $2,500,000       $—       $—       $—       $—       $—       $(16,617)       $2,483,383       $(16,617)  

Level 3 investments include financial instruments with values derived using prior transaction prices or third party pricing information without adjustment for which such inputs are unobservable. They may also include fair value of immaterial financial instruments and/or other assets developed using various valuation techniques and unobservable inputs.

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.

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
SPXDIV        S&P 500 Dividend Points        

 

franklintempleton.com   Annual Report     157  

FRANKLIN FUND ALLOCATOR SERIES

 

Report of Independent Registered Public Accounting Firm

To the Board of Trustees of Franklin Fund Allocator Series and Shareholders of Franklin LifeSmart Retirement Income 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

Opinions on the Financial Statements

We have audited the accompanying statements of assets and liabilities, including the statements of investments, of Franklin LifeSmart Retirement Income 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, Franklin Lifesmart 2055 Retirement Target Fund (the “Funds”) as of December 31, 2017, the related statements of operations for the year ended December 31, 2017, the statements of changes in net assets for each of the two years in the period ended December 31, 2017, including the related notes, and the financial highlights for each of the periods indicated therein (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of each of the Funds as of December 31, 2017, 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 ended December 31, 2017, and each of the financial highlights for each of the periods indicated therein, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinions

These financial statements are the responsibility of the Funds’ management. Our responsibility is to express an opinion on the Funds’ financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Funds in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits of these financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our procedures included confirmation of securities owned as of December 31, 2017 by correspondence with the custodian, transfer agent, and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinions.

PricewaterhouseCoopers LLP

San Francisco, California February 15, 2018

We have served as the auditor of one or more investment companies in the Franklin Templeton Group of Funds since 1948.

 

158    Annual Report   franklintempleton.com

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, 2017:

 

 

Franklin

LifeSmart

2025 Retirement

Target Fund

 

   

Franklin

LifeSmart

2035

Retirement

Target Fund

     

Franklin

LifeSmart

2040

Retirement

Target Fund

     

Franklin

LifeSmart

2045

Retirement

Target Fund

     

Franklin

LifeSmart

2055

Retirement

Target Fund

  

$114,286

   

 

 

 

$100,577

 

 

   

 

 

 

$26,224

 

 

   

 

 

 

$105,620

 

 

   

 

 

 

$43,883

 

 

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, 2017:

 

Franklin

LifeSmart

Retirement

Income Fund

   

Franklin

LifeSmart

2020 Retirement

Target Fund

     

Franklin

LifeSmart

2025 Retirement

Target Fund

     

Franklin

LifeSmart

2030 Retirement

Target Fund

  

 

13.23%

   

 

 

 

21.96%

 

 

   

 

 

 

21.28%

 

 

   

 

 

 

22.31%

 

 

Franklin

LifeSmart

2035 Retirement

Target Fund

 

   

Franklin

LifeSmart

2040 Retirement

Target Fund

     

Franklin

LifeSmart

2045 Retirement

Target Fund

     

Franklin

LifeSmart

2050 Retirement

Target Fund

  

20.39%

   

 

 

 

22.15%

 

 

   

 

 

 

20.33%

 

 

   

 

 

 

23.17%

 

 

Franklin

LifeSmart

2055 Retirement

Target Fund

                        

21.93%

         

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, 2017:

 

Franklin

LifeSmart

Retirement

Income Fund

   

Franklin

LifeSmart

2020 Retirement

Target Fund

     

Franklin

LifeSmart

2025 Retirement

Target Fund

     

Franklin

LifeSmart

2030 Retirement

Target Fund

  

 

$417,259

   

 

 

 

$216,220

 

 

   

 

 

 

$1,023,063

 

 

   

 

 

 

$400,748

 

 

Franklin

LifeSmart

2035 Retirement

Target Fund

 

   

Franklin

LifeSmart

2040 Retirement

Target Fund

 

     

Franklin

LifeSmart

2045 Retirement

Target Fund

 

     

Franklin

LifeSmart

2050 Retirement

Target Fund

 

  

$1,087,955

      $354,012        $792,823        $305,354  

Franklin

LifeSmart

2055 Retirement

Target Fund

 

                        

$88,214

         

Distributions, including qualified dividend income, paid during calendar year 2017 will be reported to shareholders on Form 1099-DIV by mid-February 2018. Shareholders are advised to check with their tax advisors for information on the treatment of these amounts on their individual income tax returns.

 

franklintempleton.com   Annual Report     159  

FRANKLIN FUND ALLOCATOR SERIES

TAX INFORMATION (UNAUDITED)

 

During the fiscal year ended December 31, 2017, the Fund’s, 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 27, 2017, 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.

 

Class   

Foreign Tax Paid

Per Share

    Foreign Source
Income Per Share		      Foreign Source Qualified
Dividends Per Share
Franklin LifeSmart 2020 Retirement Target Fund         

Class A

    $0.0023      $0.0327      $0.0147

Class C

    $0.0023      $0.0327      $0.0147

Class R

    $0.0023      $0.0327      $0.0147

Class R6

    $0.0023      $0.0327      $0.0147

Advisor Class

    $0.0023      $0.0327      $0.0147
Franklin LifeSmart 2025 Retirement Target Fund         

Class A

    $0.0031      $0.0391      $0.0213

Class C

    $0.0031      $0.0391      $0.0213

Class R

    $0.0031      $0.0391      $0.0213

Class R6

    $0.0031      $0.0391      $0.0213

Advisor Class

    $0.0031      $0.0391      $0.0213
Franklin LifeSmart 2030 Retirement Target Fund         

Class A

    $0.0031      $0.0402      $0.0239

Class C

    $0.0031      $0.0402      $0.0239

Class R

    $0.0031      $0.0402      $0.0239

Class R6

    $0.0031      $0.0402      $0.0239

Advisor Class

    $0.0031      $0.0402      $0.0239
Franklin LifeSmart 2035 Retirement Target Fund         

Class A

    $0.0039      $0.0485      $0.0299

Class C

    $0.0039      $0.0485      $0.0299

Class R

    $0.0039      $0.0485      $0.0299

Class R6

    $0.0039      $0.0485      $0.0299

Advisor Class

    $0.0039      $0.0485      $0.0299
Franklin LifeSmart 2040 Retirement Target Fund         

Class A

    $0.0037      $0.0463      $0.0294

Class C

    $0.0037      $0.0463      $0.0294

Class R

    $0.0037      $0.0463      $0.0294

Class R6

    $0.0037      $0.0463      $0.0294

Advisor Class

    $0.0037      $0.0463      $0.0294
Franklin LifeSmart 2045 Retirement Target Fund         

Class A

    $0.0042      $0.0516      $0.0328

Class C

    $0.0042      $0.0516      $0.0328

Class R

    $0.0042      $0.0516      $0.0328

Class R6

    $0.0042      $0.0516      $0.0328

Advisor Class

    $0.0042      $0.0516      $0.0328
Franklin LifeSmart 2050 Retirement Target Fund         

Class A

    $0.0040      $0.0485      $0.0315

Class C

    $0.0040      $0.0485      $0.0315

Class R

    $0.0040      $0.0485      $0.0315

Class R6

    $0.0040      $0.0485      $0.0315

Advisor Class

    $0.0040      $0.0485      $0.0315

 

160    Annual Report   franklintempleton.com

FRANKLIN FUND ALLOCATOR SERIES

TAX INFORMATION (UNAUDITED)

 

Class

    Foreign Tax Paid
Per Share		      Foreign Source
Income Per Share		      Foreign Source Qualified
Dividends Per Share		  
Franklin LifeSmart 2055 Retirement Target Fund         

Class A

      $0.0033        $0.0405        $0.0268  

Class C

      $0.0033        $0.0405        $0.0268  

Class R

      $0.0033        $0.0405        $0.0268  

Class R6

      $0.0033        $0.0405        $0.0268  

Advisor Class

      $0.0033        $0.0405        $0.0268  

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 2018, shareholders will receive Form 1099-DIV which will include their share of taxes paid and foreign source income distributed during the calendar year 2017. 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 2017 individual income tax returns.

 

 

1. Qualified 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.

 

franklintempleton.com   Annual Report     161  

FRANKLIN FUND ALLOCATOR SERIES

 

Special Meeting of Shareholders

MEETING OF SHAREHOLDERS: OCTOBER 30, 2017 AND RECONVENED ON DECEMBER 15, 2017 AND DECEMBER 29, 2017

(UNAUDITED)

A Special Meeting of Shareholders of Franklin Fund Allocator Series was held at the offices of Franklin Templeton Investments, One Franklin Parkway, San Mateo, California on October 30, 2017 and reconvened on December 15, 2017 and December 29, 2017. The purpose of the meeting was to elect Trustees of Franklin Fund Allocator Series and to vote on the following proposals: for each of the Funds, except Franklin LifeSmart Retirement Income Fund, to approve the use of a “manager of managers” structure whereby the Fund’s investment manager would be able to hire and replace subadvisers without shareholder approval; and for each of the Funds, to approve an amended fundamental investment restriction regarding investments in commodities. At the meeting, (i) the following persons were elected by the shareholders to serve as Trustees of Franklin Fund Allocator Series: Harris J. Ashton, Terrence J. Checki, Mary C. Choksi, Edith E. Holiday, Gregory E. Johnson, Rupert H. Johnson, Jr., J. Michael Luttig, Larry D. Thompson, and John B. Wilson; (ii) the proposal to use a “manager of managers” structure was approved by shareholders of each Fund voting, except Franklin LifeSmart 2045 Retirement Target Fund; and (iii) the proposal to approve the amended fundamental investment restriction regarding investments in commodities was approved by shareholders of each Fund. No other business was transacted at the meeting.

The results of the voting at the meeting are as follows:

Proposal 1. To elect a Board of Trustees:

 

Name    For      Withheld  

Harris J. Ashton

 

      390,516,091        13,444,532  

Terrence J. Checki

 

      390,358,474        13,602,149  

Mary C. Choksi

 

      390,976,557        12,983,067  

Edith E. Holiday

 

      390,925,009        13,035,612  

Gregory E. Johnson

 

      390,675,564        13,285,060  

Rupert H. Johnson, Jr.

 

      390,454,015        13,506,608  

J. Michael Luttig

 

      390,724,016        13,236,605  

Larry D. Thompson

 

      390,661,770        13,298,853  

John B. Wilson

      390,907,907        13,052,714  

Total Trust Shares Outstanding*: 723,360,102

 

* As of the record date.

 

162    Annual Report   franklintempleton.com

FRANKLIN FUND ALLOCATOR SERIES

SPECIAL MEETING OF SHAREHOLDERS

 

 

Proposal 2. To approve the use of a “manager of managers” structure whereby the Fund’s investment manager would be able to hire and replace subadvisers without shareholder approval:

Franklin LifeSmart 2020 Retirement Target Fund

 

      Shares  

For

      1,756,409  

Against

      32,805  

Abstain

      27,884  

Broker Non-Votes

      591,225  

Total Fund Shares Voted

      2,408,323  

Total Fund Outstanding Shares*

      3,045,571  
Franklin LifeSmart 2025 Retirement Target Fund   
      Shares  

For

      4,013,449  

Against

      267,276  

Abstain

      232,812  

Broker Non-Votes

      1,100,424  

Total Fund Shares Voted

      5,613,963  

Total Fund Outstanding Shares*

      10,052,054  
Franklin LifeSmart 2030 Retirement Target Fund   
      Shares  

For

      1,995,136  

Against

      32,117  

Abstain

      48,511  

Broker Non-Votes

      521,286  

Total Fund Shares Voted

      2,597,050  

Total Fund Outstanding Shares*

      3,467,754  
Franklin LifeSmart 2035 Retirement Target Fund   
      Shares  

For

      3,717,927  

Against

      187,157  

Abstain

      26,271  

Broker Non-Votes

      1,387,124  

Total Fund Shares Voted

      5,318,481  

Total Fund Outstanding Shares*

      8,364,587  
Franklin LifeSmart 2040 Retirement Target Fund   
      Shares  

For

      1,625,398  

Against

      4,158  

Abstain

      11,324  

Broker Non-Votes

      310,626  

Total Fund Shares Voted

      1,951,505  

Total Fund Shares Outstanding*

      2,692,745  

 

franklintempleton.com   Annual Report     163  

FRANKLIN FUND ALLOCATOR SERIES

SPECIAL MEETING OF SHAREHOLDERS

 

Franklin LifeSmart 2045 Retirement Target Fund

 

      Shares  

For

      2,317,288  

Against

      237,615  

Abstain

      53,728  

Broker Non-Votes

      964,381  

Total Fund Shares Voted

      3,573,012  

Total Fund Shares Outstanding*

      5,805,142  
Franklin LifeSmart 2050 Retirement Target Fund   
      Shares  

For

      1,295,693  

Against

      3,793  

Abstain

      836  

Broker Non-Votes

      200,554  

Total Fund Shares Voted

      1,500,876  

Total Fund Shares Outstanding*

      2,243,656  
Franklin LifeSmart 2055 Retirement Target Fund   
      Shares  

For

      414,270  

Against

      10,718  

Abstain

      556  

Broker Non-Votes

      87,788  

Total Fund Shares Voted

      513,332  

Total Fund Shares Outstanding*

      748,576  

 

Proposal 3. To approve an amended fundamental investment restriction regarding investments in commodities:

Franklin LifeSmart Retirement Income Fund

 

      Shares  

For

      2,558,850  

Against

      28,752  

Abstain

      92,466  

Broker Non-Votes

      555,349  

Total Fund Shares Voted

      3,235,417  

Total Fund Shares Outstanding*

      5,474,017  
Franklin LifeSmart 2020 Retirement Target Fund   
      Shares  

For

      1,775,125  

Against

      12,950  

Abstain

      29,023  

Broker Non-Votes

      591,225  

Total Fund Shares Voted

      2,408,323  

Total Fund Shares Outstanding*

      3,045,571  

 

164    Annual Report   franklintempleton.com

FRANKLIN FUND ALLOCATOR SERIES

SPECIAL MEETING OF SHAREHOLDERS

 

Franklin LifeSmart 2025 Retirement Target Fund

 

      Shares  

For

      4,109,114  

Against

      121,704  

Abstain

      282,721  

Broker Non-Votes

      1,100,424  

Total Fund Shares Voted

      5,613,963  

Total Fund Shares Outstanding*

      10,052,054  
Franklin LifeSmart 2030 Retirement Target Fund   
      Shares  

For

      2,007,020  

Against

      22,890  

Abstain

      45,855  

Broker Non-Votes

      521,286  

Total Fund Shares Voted

      2,597,050  

Total Fund Shares Outstanding*

      3,467,754  
Franklin LifeSmart 2035 Retirement Target Fund   
      Shares  

For

      3,788,603  

Against

      35,179  

Abstian

      107,574  

Broker Non-Votes

      1,387,124  

Total Fund Shares Voted

      5,318,481  

Total Fund Shares Outstanding*

      8,364,587  
Franklin LifeSmart 2040 Retirement Target Fund   
      Shares  

For

      1,625,398  

Against

      4,377  

Abstain

      11,104  

Broker Non-Votes

      310,626  

Total Fund Shares Voted

      1,951,505  

Total Fund Shares Outstanding*

      2,692,745  
Franklin LifeSmart 2045 Retirement Target Fund   
      Shares  

For

      2,543,856  

Against

      10,001  

Abstain

      54,774  

Broker Non-Votes

      964,381  

Total Fund Shares Voted

      3,573,012  

Total Fund Shares Outstanding*

      5,805,142  

 

franklintempleton.com   Annual Report     165  

FRANKLIN FUND ALLOCATOR SERIES

SPECIAL MEETING OF SHAREHOLDERS

 

Franklin LifeSmart 2050 Retirement Target Fund

 

      Shares  

For

      1,286,839  

Against

      1,035  

Abstain

      12,448  

Broker Non-Votes

      200,554  

Total Fund Shares Voted

      1,500,876  

Total Fund Shares Outstanding*

      2,243,656  
Franklin LifeSmart 2055 Retirement Target Fund   
      Shares  

For

      414,129  

Against

      10,520  

Abstain

      895  

Broker Non-Votes

      87,788  

Total Fund Shares Voted

      513,332  

Total Fund Shares Outstanding*

      748,576  

 

166    Annual Report   franklintempleton.com

FRANKLIN FUND ALLOCATOR SERIES

 

Board Members and Officers

The name, year of birth and address of the officers and board members, as well as their affiliations, positions held with the Trust, principal occupations during at least the past five years and number of US 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

 

Name, Year of Birth

and Address

 

   

Position      

 

   

Length of

Time Served      

 

   

Number of Portfolios in
Fund Complex Overseen      
by Board Member*

 

   

Other Directorships Held

During at Least the Past 5 Years

 

 

Harris J. Ashton (1932)

    Trustee    Since 1995    139    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).

 

         
Terrence J. Checki (1945)    Trustee    Since December    113    Hess Corporation (exploration of oil

One Franklin Parkway

       2017       and gas) (2014-present).

San Mateo, CA 94403-1906

            

 

Principal Occupation During at Least the Past 5 Years:

Member of the Council on Foreign Relations (1996-present); Member of the National Committee on U.S.-China Relations (1999-present); member of the Board of Trustees of the Economic Club of New York (2013 -present); member of the Board of Trustees of the Foreign Policy Association (2005-present) and member of various other boards of trustees and advisory boards; and formerly, Executive Vice President of the Federal Reserve Bank of New York and Head of its Emerging Markets and Internal Affairs Group and Member of Management Committee (1995-2014); and Visiting Fellow at the Council on Foreign Relations (2014).

 

 

Mary C. Choksi (1950)

One Franklin Parkway

San Mateo, CA 94403-1906

    Trustee    Since 2014    139    Avis Budget Group Inc. (car rental) (2007-present), Omnicom Group Inc. (advertising and marketing communications services) (2011-present) and White Mountains Insurance Group, Ltd. (holding company) (2017).

 

Principal Occupation During at Least the Past 5 Years:

Director of various companies; and formerly, Founder and Senior Advisor, Strategic Investment Group (investment management group) (2015-2017); 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)
One Franklin Parkway
San Mateo, CA 94403-1906

    Trustee    Since 1998    139    Hess Corporation (exploration and refining of oil and gas) (1993-present), Canadian National Railway (railroad) (2001-present), White Mountains Insurance Group, Ltd. (holding company) (2004-present), Santander Consumer USA Holdings, Inc. (consumer finance) (2016-Present), 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    139    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).

 

     
franklintempleton.com       Annual Report             167  

FRANKLIN FUND ALLOCATOR SERIES

 

Independent Board Members (continued)

 

Name,Year of Birth

and Address

 

    Position   

Length of

Time Served

    Number of Portfolios in
Fund Complex Overseen
by Board Member*		    Other Directorships Held
During at Least the
Past 5 Years

 

Larry D. Thompson (1945)

One Franklin Parkway

San Mateo, CA 94403-1906

    Trustee    Since 2007    139    The Southern Company (energy company) (2014-present; previously 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; Counsel, Finch McCranie, LLP (law firm) (2015-present); Independent Compliance Monitor and Auditor, Volkswagen AG (manufacturer of automobiles and commercial vehicles) (2017); 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)
One Franklin Parkway
San Mateo, CA 94403-1906

   

 

Lead

Independent

Trustee

   

 

Trustee since

2006 and Lead Independent

Trustee since 2008

 

   

 

113

   

 

None

 

Principal Occupation During at Least the Past 5 Years:

President and Founder, Hyannis Port Capital, Inc. (real estate and private equity investing) (2002-present); serves on private and non-profit boards; and formerly, President, Staples International and Head of Global Transformation (office supplies) (2012-2016); 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

Name,Year of Birth

and Address

 

    Position   

Length of

Time Served

    Number of Portfolios in
Fund Complex Overseen
by Board Member*		    Other Directorships Held
During at Least the Past 5 Years

 

**Gregory E. Johnson (1961)

   

 

Trustee

   

 

Since 2007

   

 

153

   

 

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 43 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)
One Franklin Parkway

San Mateo, CA 94403-1906

   

 

Chairman of the

Board and Trustee

   

 

Since 2013

   

 

139

   

 

None

 

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 41 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.

 

     
168        Annual Report       franklintempleton.com

FRANKLIN FUND ALLOCATOR SERIES

 

Interested Board Members and Officers (continued)

 

Name,Year of Birth

and Address

 

   

Position

 

   

Length of

Time Served

 

   

Number of Portfolios in
Fund Complex Overseen
by Board Member*

 

   

Other Directorships Held
During at Least the Past 5 Years

 

 

Gaston Gardey (1967)

   

 

Chief Financial

   

 

Since 2009

   

 

Not Applicable

   

 

Not Applicable

One Franklin Parkway

    Officer,         

San Mateo, CA 94403-1906

   

Chief

Accounting

Officer and

Treasurer

         

 

Principal Occupation During at Least the Past 5 Years:    

Treasurer, U.S. Fund Administration & Reporting, Franklin Templeton Investments; and officer of 28 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 FASA, LLC; and officer of 45 of the investment companies in Franklin Templeton Investments.

 

 

Matthew T. Hinkle (1971)

   

 

Chief Executive

   

 

Since

   

 

Not Applicable

   

 

Not Applicable

One Franklin Parkway    Officer –    June 2017      
San Mateo, CA 94403-1906    Finance and Administration         

Principal Occupation During at Least the Past 5 Years:

Senior Vice President, Franklin Templeton Services, LLC; officer of 45 of the investment companies in Franklin Templeton Investments; and formerly, Vice President, Global Tax (2012-April 2017) and Treasurer/Assistant Treasurer, Franklin Templeton Investments (2009-2017).

 

 

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 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 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.

 

     
franklintempleton.com       Annual Report             169  

FRANKLIN FUND ALLOCATOR SERIES    

 

Interested Board Members and Officers (continued)    

 

Name,Year of Birth

and Address

 

   

Position

 

   

Length of

Time Served

   

Number of Portfolios in
Fund Complex Overseen
by Board Member*

 

   

Other Directorships Held
During at Least the Past
5 Years

 

 

Robert C. Rosselot (1960)

   

 

Chief

   

 

Since 2013

   

 

Not Applicable

   

 

Not Applicable

300 S.E. 2nd Street

Fort Lauderdale, FL 33301-1923

    Compliance 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
San Mateo, CA 94403-1906		    and Secretary         

 

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 US 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 of Franklin

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.

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.

 

     
170         Annual Report   franklintempleton.com

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 US 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 US 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.

        

 

 

 

franklintempleton.com   Annual Report     171  

This page intentionally left blank.

 

 

 

 

LOGO   

Annual Report and Shareholder Letter

Franklin Fund Allocator Series

 

  

Investment Manager

Franklin Advisers, Inc.

 

  

Distributor

Franklin Templeton Distributors, Inc.

(800) DIAL BEN® / 342-5236

franklintempleton.com

 

  

Shareholder Services

(800) 632-2301

 

 

Authorized for distribution only when accompanied or preceded by a summary prospectus and/or prospectus. Investors should carefully consider a fund’s investment goals, risks, charges and expenses before investing. A prospectus contains this and other information; please read it carefully before investing.

To help ensure we provide you with quality service, all calls to and from our service areas are monitored and/or recorded.

 

© 2018 Franklin Templeton Investments. All rights reserved.    RTF A 02/18

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 $343,016 for the fiscal year ended December 31, 2017 and $340,229 for the fiscal year ended December 31, 2016.

(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

There were no 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.

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 $14,000 for the fiscal year ended December 31, 2017 and $345,590 for the fiscal year ended December 31, 2016. 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, review of system processes related to fixed income securities, and benchmarking services in connection with the 2015 ICI TA Survey.

(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 $14,000 for the fiscal year ended December 31, 2017 and $345,590 for the fiscal year ended December 31, 2016.

(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 Matthew T. Hinkle, 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 Matthew T. Hinkle, 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/ MATTHEW T. HINKLE
  Matthew T. Hinkle
  Chief Executive Officer – Finance and Administration
Date   February 26, 2018

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/ MATTHEW T. HINKLE
  Matthew T. Hinkle
  Chief Executive Officer – Finance and Administration
Date   February 26, 2018

 

By   /s/ GASTON GARDEY
  Gaston Gardey
  Chief Financial Officer and Chief Accounting Officer
Date   February 26, 2018