Franklin Corefolio Allocation Fund. Class C

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1 Franklin Corefolio Allocation Fund Class A, C Total Return Multi-Asset Product Profile Product Details Fund Assets $784,972, Fund Inception Date 08/15/2003 Investment Style Benchmark Lipper Classification Morningstar Category Dividend Frequency Third-Party Fund Data Overall Morningstar Rating TM Class A 1 Total Return MSCI World Index;S&P 500 Index Mixed-Asset Target Allocation Aggregate Growth Funds Allocation 85%+ Equity Semiannually Inception Date Class A 08/15/2003 Class C 08/15/2003 CUSIP NASDAQ Symbol Class A P 786 FTCOX Class C P 760 FTCLX Class A Class C Maximum Sales Charges 5.75% initial sales charge 1.00% contingent deferred sales charge (CDSC) in the first year only Total Annual Operating Expenses Class A 1.04% Class C 1.79% As of 12/31/2017 the fund s Class A shares received a 4 star overall Morningstar Rating, measuring risk-adjusted returns against 162, 133 and 106 U.S.-domiciled Allocation 85%+ Equity mutual funds and exchange traded funds over the 3-, 5- and 10- year periods, respectively. A fund s overall rating is derived from a weighted average of the performance figures associated with its 3-, 5- and 10-year (if applicable) rating metrics. Fund Description Franklin Corefolio Allocation Fund seeks capital appreciation through a diversified, multidisciplined approach. It targets both growth- and value-style investments by investing in approximately equal allocations of 25% to Franklin Growth Opportunities Fund, Franklin Growth Fund, Franklin Mutual Shares Fund and Templeton Growth Fund. Performance Data 2,3 Average Annual Total Returns 4,5 (%) 3 Mths YTD 1 Yr 3 Yrs 5 Yrs 10 Yrs Since Inception Class A - With Sales Charges Class A - Without Sales Charges Class C - With Sales Charges Class C - Without Sales Charges S&P 500 Index MSCI World Index % 20% 0% -20% Mths YTD 1 Yr 3 Yrs 5 Yrs 10 Yrs Since Inception Class A - With Sales Charges Class A - Without Sales Charges S&P 500 Index MSCI World Index Performance data represents past performance, which does not guarantee future results. Current performance may differ from figures shown. The fund s investment return and principal value will change with market conditions, and you may have a gain or a loss when you sell your shares. Please call Franklin Templeton Investments at (800) DIAL BEN/ or visit franklintempleton.com for the most recent month-end performance. Calendar Year Returns (% Without Sales Charges) Class A Class C S&P 500 Index MSCI World Index If the sales charge had been included, the returns would have been lower. 2. Class C: Prior to 01/01/2004, these shares were offered with an initial sales charge; thus actual returns may differ. All figures assume reinvestment of dividends and capital gains at net asset value. The fund offers other share classes subject to different fees and expenses, which will affect their performance. Please see the prospectus for details. 3. Source for Index: FactSet. Indexes are unmanaged, and one cannot invest directly in an index. They do not reflect any fees, expenses or sales charges. 4. Periods shorter than one year are shown as cumulative total returns. 5. Since inception return for the benchmark is calculated to the fund inception date. Not FDIC Insured May Lose Value No Bank Guarantee

2 Portfolio Manager Insight 6 Market Review Global equity markets advanced in US-dollar terms during the fourth quarter of Investors mainly focused on continued indications of positive economic growth from several regions and expectations surrounding tax reform in the United States. The International Monetary Fund in October upgraded its forecast for global growth in 2017 and However, it cautioned that recovery from the global financial crisis remains incomplete, and that latent risks could return as central banks pivot away from extensive stimulus. Emerging stock markets, as measured by MSCI indexes, collectively topped their developed-market peers during the fourth quarter. In emerging markets, China s third-quarter annual gross domestic product (GDP) growth was in line with consensus expectations. The World Bank lifted its forecast for China s 2017 GDP, while expecting somewhat decelerated growth in 2018 and 2019 due to domestic policy tightening. South Korea s third-quarter GDP grew year-on-year, and the country s central bank raised interest rates for the first time in six years during November. Brazil s thirdquarter GDP also rose year-on-year, and the country s central bank cut its benchmark interest rate in October and December, bringing it to an all-time low. Mexico s third-quarter annualized GDP growth was the weakest since In the United States, a major tax bill was signed into law in December that featured a significant reduction in the corporate tax rate. The US Federal Reserve (Fed) raised short-term interest rates during the same month, the latest in a series of well-flagged moves. The Fed also maintained its forecast of three rate increases in Meanwhile, third-quarter US GDP came in ahead of consensus estimates. In other developed markets, the European Central Bank (ECB) raised its forecast for eurozone GDP growth in 2017 and through 2020, though it expects growth to moderate after In early November, the Bank of England hiked its benchmark interest rate for the first time in 10 years. Japan s preliminary third-quarter GDP grew at a strongerthan-expected pace on the previous quarter and on an annualized basis. Performance Review Franklin Growth Opportunities Fund The fund lagged the benchmark Russell 3000 Growth Index in the fourth quarter, hindered by stock selection in the health care, industrials and information technology sectors. Conversely, the financials sector was a top contributor to relative returns due to favorable stock selection. Within the health care sector, pharmaceutical industry holdings Celgene, Incyte and Clovis Oncology curbed relative performance. Shares of Nevro also declined and hurt returns, following news that a medical device sales tax did not get repealed under recently passed tax reform. In the wake of double-digit percentage gains for most of the year, information technology stocks dialed back as investors locked in profits and rotated into more cyclical sectors. We continue to believe the backdrop and fundamentals for technology remain strong and the outlook is positive. Information technology sector holdings that pressured returns included Autodesk and Electronic Arts. Conversely, Adobe Systems reported record revenue for its fiscal fourth quarter from its cloud-based subscription products news that rallied its stock and added to performance. The prospects for a lower corporate tax rate and higher interest rates helped financial stocks, including our positions in SVB Financial Group and Charles Schwab. However, a position in insurer Athene Holding detracted from relative performance. Wireless tower operator SBA Communications added to returns in the real estate sector. The consumer staples sector benefited from a position in alcoholic beverage company Constellation Brands, which reported solid fiscal second-quarter 2018 results driven by its beer segment. Strong international growth led to solid third-quarter financial results for energy drink maker Monster Beverage, which also helped returns in the sector. Franklin Growth Fund The fund lagged its benchmark, the S&P 500 Index, in the fourth quarter largely due to its overweighting in the health care sector. In contrast, the utilities and consumer staples sectors contributed to relative returns, as did select holdings that outperformed. The health care sector was burdened by an overweighting in the biotechnology industry and a position in Celgene, which cut its full-year earnings forecast amid slowing sales for one of its key drugs. Sales declines for several flagship drugs also weighed on shares of Amgen and further dampened returns. Other health care sector detractors included precision instruments supplier Mettler-Toledo International and drug developer Allergan. Conversely, health care company Haemonetics was a contributor to absolute and relative performance. In the consumer staples sector, wine and spirits company Brown-Forman proved positive for fund performance. Also in the sector, energy drinkmaker Monster Beverage added to returns. Amazon.com continued to drive results in the consumer discretionary sector, with the online retailer benefiting from revenue growth in retail and sustained growth in Amazon Web Services. Elsewhere, Charles Schwab aided results in the financials sector. Franklin Mutual Shares Fund During the quarter, two of the fund s largest contributors to absolute performance were Caterpillar and Cisco. Caterpillar, a manufacturer of construction and mining equipment, reported better-than-expected quarterly results and raised its 2017 revenue and earnings guidance during the year. The trend continued in October, as quarterly revenues and earnings topped consensus estimates, while full-year guidance was increased again. Finally, the company is likely to benefit from the US tax reform legislation, and would likely experience an additional boost to demand if a potential infrastructure bill comes to fruition. Cisco, a US-based networking equipment and services company, gave investors reasons to believe that its strategic shift toward a subscription-based software revenue model is starting to gain some traction, when it gave forward revenue guidance that exceeded the consensus estimate. In recent quarters, the transition has led to sales headwinds, but in November, Cisco provided quarterly guidance that included year-over-year sales growth. Management also reported solid demand for a new series of network switches. In contrast, detractors included General Electric (GE) and Merck & Co. The stock price of GE, a US-based industrials company with a wide range of business units, dropped when the company lowered 2017 earnings guidance in October and investors became concerned about a potential dividend cut, which occurred in November. Newly appointed Chief Executive Officer John Flannery s November shareholder presentation of the company s new strategic focus failed to impress many investors, and that, along with a franklintempleton.com 2

3 dividend reduction of 50%, led to a further drop in the stock price. The recent series of negative events does not alter our view that GE has businesses that are well positioned and operate in end markets that are exposed to long-term secular growth trends. If GE delivers on its plan to improve free cashflow generation and reduce expenses, we believe there is upside potential in the stock price. Merck & Co. is a global research-driven pharmaceutical company with solid market positions in cardio, diabetes, oncology, vaccines and animal health. A delay in the readout of a critical clinical trial involving one of Merck s most important drugs, Keytruda, overshadowed third-quarter results, which were decent considering the impact of a June cyber-attack that disrupted operations. Templeton Growth Fund The fund underperformed its benchmark for the quarter. Health care was the most significant sector detractor during the quarter, pressured both by stock selection and an overweight in the weak, defensive sector. US health care firms Allergan, Gilead Sciences and Amgen impaired relative results. Shares of pharmaceutical firm Allergan declined on concerns about competition from generics. Despite the market s excessive focus on product-specific headwinds, we estimate Allergan as a whole has one of the industry s most durable drug portfolios when it comes to exclusivity and patent protection. The company also boasts an industry-leading research and development (R&D) pipeline that, in conjunction with its base businesses, should continue to drive strong earnings and free cash flow growth over our investment horizon. More generally, continued concerns about generic competition, increasing regulatory and political scrutiny on pricing, and a consolidating payer industry all broadly pressured the health care sector throughout We view such concerns as both myopic and overstated. Generic competition is a fact of life in the pharmaceutical industry, and one best addressed through innovation, which has accelerated following the doubling of R&D investment over the last 30 years. In our analysis, the regulatory and political concerns about pricing ignore data indicating prescription drugs represent a relatively modest portion of US health care costs and actually lower costs elsewhere in the health care system. Turning to contributors, stock selection in the financials sector had a positive impact, led by led by South Korean lender KB Financial Group. Its shares rallied on a healthy macroeconomic backdrop and improving earnings prospects following the first South Korean interest-rate hike in six years. Similar to South Korea, Europe also has been benefiting from a stronger economic upcycle and the prospect of incrementally tighter monetary policy, and we remain constructive on our select banking, asset management and insurance holdings in Europe. Shares of US financial services firm Capital One Financial also gained in value, after the firm demonstrated the ability to stabilize charge-offs and stem losses through tighter underwriting and slower loan growth. Investors cheered the firm s forecast of healthy profit improvement in 2017 amid cost cuts and market share gains in the auto loan business. Improving capital ratios, a solid funding profile and expanding net interest margins were also well received and keep us positive on the stock as strategic execution continues apace. Portfolio Positioning Franklin Growth Opportunities Fund: The fund s investment philosophy is to identify and invest in high-quality growth companies with sustainable long-term growth prospects, superior profitability and meaningful competitive advantages. For the quarter ended, the fund s largest sector overweighting versus the benchmark index was information technology, while the fund was most underweight the industrials sector and had no exposure to utilities. Franklin Growth Fund: During the fourth quarter, the fund s sector weightings modestly decreased in health care and remained relatively stable in other sectors over the prior quarter. The fund s largest sector overweighting during the reporting period was industrials. In contrast, the financials sector was most underweight in relative terms. Franklin Mutual Shares Fund: At quarter-end, the fund s investment in equities was 85.4% while the level of cash and cash equivalents stood at 6.2%. In addition, 72.0% of foreign securities exposure was hedged back to the US dollar at quarter-end. The fund initiated or added to a few select positions. We initiated a position in a US-based electric utility. While it faces meaningful near-term challenges, we believe investors became overly pessimistic about the company s longer-term prospects. We also added to our position in a large independent energy E&P company. Compared to the benchmark, the fund continued to have a meaningful overweight in the financials sector and a sizeable underweight in the information technology sector. Templeton Growth Fund: On average, the fund was overweight compared to the benchmark in the energy, health care and financials sectors. The fund was most underweight relative to the benchmark in the consumer staples, industrials and information technology sectors, with no exposure to the real estate sector. Outlook & Strategy After a false dawn in 2016, value lagged growth by the most in nearly two decades in 2017, marking the tenth year out of the past 11 that global growth has bested global value. At times like this, it may be tempting for some value investors to relax their discipline and buy the expensive stocks that have been working. Yet, countering that impulse is decades of market history suggesting that starting-point valuation is virtually all that really matters when it comes to long-term results. Meanwhile, financial repression from the world s central banks appears to have forced investors farther out the risk spectrum to chase yield and growth in a market offering little of either. We and the underlying equity fund managers view this as unsustainable for two main reasons. First, many consider zero interest-rate policies and quantitative easing to have favored capital at the expense of labor, deepening inequality and disadvantaging the majority of the electorate, whose opinions matter in a democracy. Second, financial repression could fuel potentially destabilizing asset price bubbles. Overvaluation appears to be largely concentrated in fixed income markets, as well as the growth-oriented and bond proxy stocks that have dominated this cycle. We do not know how the process of policy normalization by central banks will evolve. Nonetheless, we do believe this mature cycle will eventually change, and with it the conditions that have been so hostile to value investing. We would not want to own the leaders of the last cycle during this transition. But the stocks left behind the companies whose long-term earnings and cash flow potential we believe have been overlooked and undervalued by a narrowly focused market might be best positioned for the reversals we view as likely to unfold in the future. 6. The information provided is not a complete analysis of every material fact regarding any country, market, industry, security or fund. Because market and economic conditions are subject to change, comments, opinions and analyses are rendered as of the date of this material and may change without notice. A portfolio manager s assessment of a particular security, investment or strategy is not intended as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy; it is intended only to provide insight into the fund s portfolio selection process. Holdings are subject to change. franklintempleton.com 3

4 Portfolio Diversification Underlying Funds Top Ten Holdings 7 Percent of Total Top Holdings % APPLE INC 2.70 MICROSOFT CORP 2.57 ELI LILLY & CO 1.97 ROYAL DUTCH SHELL PLC 1.78 MEDTRONIC PLC 1.77 CISCO SYSTEMS INC 1.61 WALT DISNEY CO 1.58 MERCK & CO INC 1.57 ALPHABET INC 1.50 SAMSUNG ELECTRONICS CO LTD 1.48 Geographic Allocation 8 Percent of Total NORTH AMERICA EUROPE ASIA 5.51 MID-EAST/AFRICA 0.57 CASH & CASH EQUIVALENTS % 20% 40% 60% 80% 100% Supplemental Performance Statistics Supplemental Risk Statistics 9 Class A 3 Yrs 5 Yrs 10 Yrs Standard Deviation (%) Tracking Error (%) Beta Sharpe Ratio Performance data represents past performance, which does not guarantee future results. Current performance may differ from figures shown. The fund s investment return and principal value will change with market conditions, and you may have a gain or a loss when you sell your shares. Please call Franklin Templeton Investments at (800) DIAL BEN/ or visit franklintempleton.com for the most recent month-end performance. Investment Philosophy The fund seeks capital appreciation by investing approximately 25% in four underlying funds Franklin Growth Opportunities Fund, Franklin Growth Fund, Templeton Growth Fund and Franklin Mutual Shares Fund. These underlying funds form a portfolio consisting of both growth- and value-style stocks from around the world across a range of market capitalizations. 7. Holdings of the same issuers have been combined. Top ten holdings information is historical and may not reflect current or future portfolio characteristics. All holdings are subject to change. The information provided is not a recommendation to purchase, sell, or hold any particular security. The portfolio manager for the fund reserves the right to withhold release of information with respect to holdings that would otherwise be included. 8. Information is historical and may not reflect current or future portfolio characteristics. Percentage may not equal 100% due to rounding. All holdings are subject to change. 9. Beta and Tracking Error information are displayed for the product versus the S&P 500 Index. franklintempleton.com 4

5 Investment Process The fund will invest in approximately equal allocations of four underlying fund, providing a cost-effective means of allocation assets across different investment advisors and types of investments. Diversification - We typically seek broad industry and country exposures for added diversification opportunities. Low Common Holdings - The distinct investment approaches of the underlying managers generally leads to a low number of holdings common to all four underlying funds. Automatic Rebalancing - We maintain consistent exposures to distinct investment strategies throughout changing market environments. Investment Team Portfolio Manager Years with Firm Years Experience T. Anthony Coffey, CFA, Senior Vice President - Portfolio Manager Glossary Beta: A measure of the magnitude of a portfolio s past share-price fluctuations in relation to the ups and downs of the overall market (or appropriate market index). The market (or index) is assigned a beta of 1.00, so a portfolio with a beta of 1.20 would have seen its share price rise or fall by 12% when the overall market rose or fell by 10%. Sharpe Ratio: To calculate a Sharpe ratio, an asset s excess returns (its return in excess of the return generated by risk-free assets such as Treasury bills) are divided by the asset s standard deviation. Standard Deviation: A measure of the degree to which a fund s returns varies from the average of its previous returns. The larger the standard deviation, the greater the likelihood (and risk) that a fund s performance will fluctuate from the average return. Tracking Error: Measure of the deviation of the return of a fund compared to the return of a benchmark over a fixed period of time. Expressed as a percentage. The more passively the investment fund is managed, the smaller the tracking error. franklintempleton.com 5

6 What Are The Risks? All investments involve risks, including possible loss of principal. Because the Franklin Corefolio Allocation Fund invests in underlying funds that may engage in a variety of investment strategies involving certain risks, this fund of funds 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 which are heightened in developing countries. Smaller or relatively new or unseasoned companies can be particularly sensitive to changing economic conditions, and their prospects for growth are less certain than those of larger, more established companies. Value securities may not increase in price as anticipated or may decline further in value. These and other risks, including investments in specialized industry sectors such as the technology sector, which has been among the most volatile in the market, are discussed in the fund s prospectus. Important Legal Information Investors should carefully consider a fund s investment goals, risks, charges and expenses before investing. To obtain a summary prospectus and/or prospectus, which contains this and other information, talk to your financial advisor, call us at (800) DIAL BEN/ or visit franklintempleton.com. Please carefully read a prospectus before you invest or send money. CFA and Chartered Financial Analyst are trademarks owned by CFA Institute. Standard & Poor s, S&P and S&P 500 are registered trademarks of Standard & Poor s Financial Services LLC. S&P does not sponsor, endorse, sell or promote and S&P index-based product. MSCI makes no warranties and shall have no liability with respect to any MSCI data reproduced herein. No further redistribution or use is permitted. This report is not prepared or endorsed by MSCI. Important data provider notices and terms available at: 1. Source: Morningstar, 12/31/2017. For each mutual fund and exchange traded fund with at least a 3-year history, Morningstar calculates a Morningstar Rating based on how a fund ranks on a Morningstar Risk-Adjusted Return measure against other funds in the same category. This measure takes into account variations in a fund s monthly performance, and does not take into account the effects of sales charges, placing more emphasis on downward variations and rewarding consistent performance. The top 10% of funds in each category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars and the bottom 10% receive 1 star. The weights are: 100% 3-year rating for months of total returns, 60% 5-year rating/40% 3- year rating for months of total returns, and 50% 10-year rating/30% 5-year rating/20% 3-year rating for 120 or more months of total returns. While the 10-year overall star rating formula seems to give the most weight to the 10-year period, the most recent 3-year period actually has the greatest impact because it is included in all three rating periods. The Fund s Class A shares received a Morningstar Rating of 3, 4 and 4 star(s) for the 3-, 5- and 10-year periods, respectively. Morningstar Rating is for the named share class only; other classes may have different performance characteristics. Past performance is not an indicator or a guarantee of future performance. Franklin Templeton Distributors, Inc. One Franklin Parkway San Mateo, CA (800) DIAL BEN/ franklintempleton.com 2018 Franklin Templeton Investments. All rights reserved. 470 PP 12/17