Templeton Global Bond Fund Advisor Class

Transcription

1 Templeton Global Bond Fund Advisor Class Unconstrained Fixed Income Product Profile Product Details 1 Fund Assets $39,897,846, Fund Inception Date 09/18/1986 Number of Securities 146 Including Cash NASDAQ Symbol TGBAX Maximum Sales Charge 0.00 Investment Style Unconstrained Benchmark Citigroup World Government Bond Index Lipper Classification International Income Funds Morningstar Category World Bond Dividend Frequency Monthly, on or near the 20th Asset Allocation 2 FIXED INCOME CASH & CASH EQUIVALENTS Third-Party Fund Data % 25% 50% 75% Overall Morningstar Rating TM As of 09/30/2017 the fund s Advisor Class shares received a 4 star overall Morningstar Rating, measuring risk-adjusted returns against 285, 251 and 128 U.S.-domiciled World Bond 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 The fund seeks current income with capital appreciation and growth of income, by investing at least 80% of its net assets in bonds of governments, government related entities and government agencies located anywhere in the world. The fund regularly enters into various currency-related and other transactions involving derivative instruments. Performance Data 4,5 Average Annual Total Returns 6 (%) Since Inception 3 Mths YTD 1 Yr 3 Yrs 5 Yrs 10 Yrs 20 Yrs (09/18/1986) Advisor Class Citigroup World Government Bond Index 20% 10% 0% -10% Mths YTD 1 Yr 3 Yrs 5 Yrs 10 Yrs 20 Yrs Since Inception Advisor Class Citigroup World Government Bond Index Total Annual Operating Expenses With Waiver: 0.68% Without Waiver: 0.74% 30-Day Standardized Yield 7 With Waiver: 4.77% Without Waiver: 4.70% 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. Advisor Class shares are offered only to certain eligible investors as stated in the prospectus. They are offered without sales charges or Rule 12b-1 fees. The fund offers other share classes subject to different fees and expenses, which will affect their performance. Please see the prospectus for details. The fund has a fee waiver associated with any investment it makes in a Franklin Templeton money fund and/or other Franklin Templeton fund, contractually guaranteed through 04/30/2018. Fund investment results reflect the fee waiver; without this waiver, the results would have been lower All holdings are subject to change. 2. Figures reflect certain derivatives held in the portfolio (or their underlying reference assets) and may not total 100% or may be negative due to rounding, use of derivatives, unsettled trades or other factors. Information is historical and may not reflect current or future portfolio characteristics. All holdings are subject to change. 5. 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. 6. Periods shorter than one year are shown as cumulative total returns. 7. 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. Not FDIC Insured May Lose Value No Bank Guarantee

2 Calendar Year Returns (%) Advisor Class Citigroup World Government Bond 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. Portfolio Manager Insight 8 Market Review The US Federal Reserve (Fed) kept rates unchanged (range of 1.00% to 1.25%) during the quarter, while remaining on track for a rate hike in December and announcing its intentions to begin unwinding its balance sheet in October. Fed Chair Janet Yellen commented on the strength of the US economy and household spending, while indicating that the committee expects inflation to stabilize around its 2% target over the medium term. The comments appeared a bit more hawkish than markets had been expecting, as Yellen emphasized the need to normalize policy while indicating that recently subdued inflation was not as much of a concern. Overall, we expect US Treasury yields to continue rising as the Fed unwinds its balance sheet and tightens policy, while inflation pressures build on exceptional strength in the US labor market. A number of currencies strengthened against the US dollar during the third quarter, notably the Brazilian real, Colombian peso, euro and Australian dollar. However, the US dollar broadly strengthened against a number of global currencies during September, reversing the weakening trend that had persisted throughout much of Europe largely remained in a state of optimism during the quarter, driven by the cyclical upswing in eurozone growth as well as recent political refortifying since French President Emmanuel Macron s victory in May. However, Angela Merkel s win in the German election in September came with new uncertainties around forming a coalition with the FDP (Free Democrats) and the Greens, and dissolving the grand coalition between her center-right CDU (Christian Democratic Union) party and the SPD (Social Democrats). Overall, we continue to see ongoing risks to the political cohesion across Europe as populist movements continue to influence the political discourse. The euro continues to be vulnerable to unresolved structural and political risks across Europe, in our view. The Bank of Japan (BOJ) and European Central Bank (ECB) continued with their quantitative easing (QE) programs during the quarter as short-term yields in Japan and the eurozone remained negative. We expect the euro and Japanese yen to weaken on widening rate differentials with the US. Rising US Treasury yields should produce a more effective environment for the BOJ to actively deploy additional monetary accommodation that weakens the yen. In Europe, we expect the ECB to continue with monetary accommodation through 2017, as it has indicated. ECB President Mario Draghi has indicated the ECB will announce a new schedule for additional QE tapering in October. Nonetheless, Draghi continued to indicate that overall monetary accommodation is still needed for the near term, with eventual policy normalizing still several quarters away. Across emerging markets, rate environments were generally idiosyncratic, as Indonesia and Brazil saw declining yields in the 10-year range of their yield curves, while India, Colombia and Mexico saw a modest rise. Overall, we continue to see a number of local-currency markets that we believe are undervalued, particularly in places like India, Indonesia, Mexico and Colombia. We also see attractive risk-adjusted yields in places like Brazil and Argentina. On the whole, we continue to expect select currencies to appreciate over the medium term, particularly in countries with economic resilience and relatively higher, maintainable rate differentials. Performance Review For the quarter, the fund s positive absolute performance was primarily attributable to interest-rate strategies. Sovereign credit exposures and currency positions had largely neutral effects on absolute results. On a relative basis, the fund s underperformance of its benchmark index was primarily due to currency positions. Sovereign credit exposures and interest-rate strategies had largely neutral effects on relative results. Currency Analysis Among currencies, positions in Latin America (the Brazilian real) contributed to absolute performance. However, the fund s net-negative position in the euro detracted from absolute results, while its net-negative position in the Japanese yen had a largely neutral effect. On a relative basis, the fund s underweighted position in the euro detracted from relative performance, while its underweighted position in the Japanese yen had a largely neutral effect. Overweighted currency positions in Latin America (the Brazilian real) contributed to relative results. Duration Analysis The fund maintained a defensive approach regarding interest rates in developed markets, while holding duration exposures in select emerging markets. Select duration exposures in Latin America (Brazil) contributed to absolute performance, while negative duration exposure to US Treasuries detracted. Select overweighted duration exposures in Latin America (Brazil) contributed to relative results, while underweighted duration exposures in the United States and Europe detracted. Sovereign Credit Analysis As stated earlier, sovereign credit exposures had largely neutral effects on absolute and relative performance. Portfolio Positioning During the quarter, we remained positioned in a number of emerging markets, with notable local-currency duration exposures in Brazil, Argentina, Colombia, Indonesia and India, and notable currency exposure to the Mexican peso. We have adjusted specific positions in recent quarters, including increasing our local-currency exposures in India in March and exiting much of our local-currency exposures in Malaysia in April. We exited our remaining Ukrainian sovereign bonds in August, but continued to hold Ukrainian GDP (gross domestic product) warrants. We continued to hold net-negative positions in the euro and Japanese yen based on our expectations for widening rate differentials with the US as the Fed tightens policy while the ECB and BOJ continue with monetary accommodation. The short positions in the euro and yen represent directional views on the currencies, as well as hedges against broad strengthening of the US dollar. The short euro position is also a hedge against euroskeptic political risks and unresolved structural franklintempleton.com 2

3 risks in Europe. We also continued to hold net-negative positioning in the Australian dollar based on the Reserve Bank of Australia s continued leanings toward accommodative rates. In credit markets, we continued to see areas of value in some specific sovereign credits. We also remained positioned for rising yields by maintaining low overall portfolio duration and holding negative duration exposure to US Treasuries through interest-rate swaps. Outlook & Strategy We expect US Treasury yields to rise and recent US-dollar weakness to reverse as the Fed moves toward tightening policy while US inflation pressures pick up. We also expect the Fed s balance sheet unwinding to put upward pressure on yields. Several major buyers of US Treasuries have pulled back from the US Treasury market in recent years, including foreign governments and central banks in Asia, notably the People s Bank of China. Major oil producing countries have also pulled back, becoming net borrowers instead of net lenders as they were when oil prices were above US$100 per barrel. The Fed will now be added to that list of diminishing demand, as it unwinds its US Treasury positions at a pace of US$6 billion per month, raising that pace by US$6 billion every three months until reaching a pace of US$30 billion per month. It will also unwind its mortgage-backed security purchases at a pace of US$4 billion per month, increasing that pace by US$4 billion every three months until reaching a pace of US$20 billion per month. Recent indications from the Fed project a rate hike in December, three rate hikes in 2018 and a trend toward a policy rate of 2.75% in The Fed will be the first central bank to unwind QE, likely followed by the ECB at a later stage. This unprecedented balance sheet unwinding could theoretically go smoothly with few disruptions, but in practicality we think that is unlikely. Uncertainties in the markets would likely put further pressure on bond valuations, in our view. On the whole, we continue to expect inflation pressures to rise with resilience in the US economy and exceptionally strong US labor markets. We have seen wage pressures pick up in specific pockets of the economy, and we expect those pressures to accelerate. Policy constraints on immigration have also been pressuring wages in various labor sectors. Additionally, financial sector deregulation has the potential to accelerate credit activity, stimulate investment and accelerate the velocity of money, which would further drive inflation. Fiscal expansion could similarly add to inflation dynamics. A number of potential Trump administration policies may fuel growth and add to existing inflation pressures, in our view. Even though there have been some highprofile setbacks on health care and tax reform, the administration has been pushing ahead with financial deregulation. Lending activity has picked up as banks have drawn down reserves and second tier lending has risen. These activities can fuel the economy and boost inflation, but also can accelerate the pace at which we eventually get to an overheated economy and ultimately to a contraction. The US economy has been growing above potential in an environment of full employment for several quarters additional stimulus at this late stage of the current expansion raises the potential for overcapacities. In the major developed economies, we anticipate continued monetary accommodation and low rates in Japan and the eurozone while rates rise in the US those increasing rate differentials should depreciate the yen and euro against the US dollar, in our opinion. Japan now has its monetary policies in a good place to essentially allow the Fed to do the work of depreciating the yen for them. During much of 2016, no matter what the BOJ did, the Fed s actions (or lack of action) determined the rate differentials and the currency valuations. When the Fed lowered expectations for rate hikes in March 2016, that move essentially washed out the effectiveness of any easing policies from the BOJ. The same can now be true in the reverse the BOJ does not have to change anything in its current policy stance to get the depreciation it seeks if the Fed now resumes raising rates at a more meaningful pace. Additionally, the BOJ is nowhere close to a stage where it can taper its QE program, as the country continues to battle deflation. Thus ongoing QE is expected for quite some time. Despite the eurozone being in a cyclical upswing, we continue to have a negative view on the euro not only because of ongoing monetary accommodation, but also because of populist risks. ECB President Mario Draghi has indicated a desire to eventually normalize rates but has also recently said that the eurozone continues to need monetary accommodation. Optimism for the eurozone appeared to be at a peak during the summer that belied the unresolved structural and political risks within the union, in our view. However, the euro notably weakened after the September 24 German elections, as Angela Merkel s win came with new uncertainties. A number of investors seemed to conclude during the summer months that Emmanuel Macron s victory over Marine Le Pen in the French presidential election meant we no longer needed to be concerned for populist risks in the eurozone. But overall, the eurozone at large is still vulnerable to an exogenous shock, in our view. Euroskeptic movements are likely to be an ongoing issue in Europe until the underlying causes are mitigated. Unfortunately, the factors that have generated populism (i.e., immigration issues, the refugee crisis and terrorism) and given rise to candidates such as Le Pen in France and Geert Wilders in the Netherlands do not show signs of diminishing, in our opinion. We have recently focused on countries that are less externally vulnerable and more domestically driven, and that have demonstrated their resilience to potential increases in trade costs. Select emerging markets that have higher rate environments and domestically oriented economies are likely to fare better in a rising-rate environment than countries with low yields and more externally driven economies, in our view. In Asia, we currently prefer countries with strong domestic drivers that are less leveraged to China, such as India and Indonesia, while we have moved away from economies that are more externally dependent, such as Malaysia. In Latin America, we are focused on countries that have turned away from previous failed experiments with populism, such as Brazil and Argentina, and are now moving toward more orthodox policies with credible monetary policy, proactive business environments and outward-looking trade. We also see attractive valuations in countries like Mexico and Colombia that have maintained sound policy discipline while broadening their economies beyond commodities. China s economy remains in a soft landing, but ongoing rebalancing is needed for the long term. The near-term picture looks fairly stable, in our assessment, but we have concerns for two or three years down the road as China s pace of growth now depends on almost five times as much credit to generate one unit of GDP as it took in the surge of post-global financial crisis growth, starting in The Chinese authorities appear aware of this, but it remains to be seen if they can effectively manage a slowdown in credit. We have seen a number of policies wind down, but we do not expect a hard landing at this point. However, if China has not reduced its credit dependence in a couple years and we get an exogenous shock, such as a recession in the US, then China s ability to intervene to stimulate its economy will be substantially less effective than it was during the last US recession. These risks warrant ongoing monitoring, but the near-term picture appears to support a continued moderation in growth and not a hard landing. Our philosophy is grounded in a focus on long-term fundamentals and patience. We believe that while markets can deviate from fundamentals in the shorter term, they tend to reflect them over the medium to long term. Thus we seek to identify and exploit the imbalances we see in the market and position for the directional trends we see going forward, ahead of inflection points. Our oftentimes contrarian viewpoint also allows us to find potential investment opportunities particularly during periods of volatility and panic, where we can exploit market mispricing. 8. 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 franklintempleton.com 3

4 portfolio selection process. Holdings are subject to change. Portfolio Characteristics 9,10,11,12 Portfolio Citigroup World Government Bond Index Average Duration Yrs 7.77 Yrs Average Weighted Maturity 3.36 Yrs 9.42 Yrs Annual Turnover Ratio (08/31/2016) 49.70% - Portfolio Diversification Geographic Allocation 13 Geographic Weightings vs. Citigroup World Government Bond Index 14,15 AMERICAS NON-US AMERICAS Mexico Brazil Argentina Colombia Peru USA ASIA Indonesia India South Korea Philippines MIDDLE-EAST/AFRICA Ghana South Africa EUROPE SUPRANATIONAL ST CASH & CASH EQUIVALENTS OTHER AMERICAS NON-US AMERICAS Mexico Brazil Argentina Colombia Peru USA ASIA ASIA EX-JAPAN Indonesia India South Korea Philippines MIDDLE-EAST/AFRICA Ghana South Africa EUROPE NON-EMU EUROPE Ukraine SUPRANATIONAL ST CASH & CASH EQUIVALENTS OTHER % 0% 10% 20% 30% 40% 50% -50% -25% 0% 25% 50% 9. The portfolio characteristics listed are based on the fund s underlying holdings, and do not necessarily reflect the fund s characteristics. Information is historical and may not reflect current or future portfolio characteristics. All holdings are subject to change. 10. Average Duration and Average Weighted Maturity reflect certain derivatives held in the portfolio (or their underlying reference assets). 11. Turnover Ratio is as of the fund s fiscal year-end. 12,15. 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. 13,14. Figures reflect certain derivatives held in the portfolio (or their underlying reference assets) and may not total 100% or may be negative due to rounding, use of derivatives, unsettled trades or other factors. Information is historical and may not reflect current or future portfolio characteristics. All holdings are subject to change. franklintempleton.com 4

5 Currency Allocation 16 Currency Weightings vs. Citigroup World Government Bond Index 17,18 AMERICAS US-DOLLAR NON US-DOLLAR Mexican Peso Brazilian Real Argentine Peso Colombian Peso Peruvian Nuevo Sol MIDEAST/AFRICA Ghanaian Cedi New South African Rand ASIA ASIA EX-JAPAN Indian Rupee Indonesian Rupiah Philippine Peso Australian Dollar JAPANESE YEN EUROPE % -40% % % 20% 40% 60% 80% % 120% 140% 160% 180% AMERICAS US-DOLLAR NON US-DOLLAR Mexican Peso Brazilian Real Argentine Peso Colombian Peso Peruvian Nuevo Sol MIDEAST/AFRICA Ghanaian Cedi New South African Rand ASIA ASIA EX-JAPAN Indian Rupee Indonesian Rupiah Philippine Peso Australian Dollar JAPANESE YEN EUROPE EURO -125% % -75% -50% % % 25% 50% 75% 100% % 150% 16,17. Figures reflect certain derivatives held in the portfolio (or their underlying reference assets) and may not total 100% or may be negative due to rounding, use of derivatives, unsettled trades or other factors. Information is historical and may not reflect current or future portfolio characteristics. All holdings are subject to change. 18. 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. franklintempleton.com 5

6 Credit Quality Ratings 19 AAA 0.37 AA 4.27 A BBB 5.73 BBB BB B 0.11 B Cash & Cash Equivalents % 5% 10% 15% 20% 25% 30% 35% 40% Investment Grade Non-Investment Grade Cash & Cash Equivalents Supplemental Performance Statistics 3 Yrs 5 Yrs 10 Yrs Standard Deviation (%) Tracking Error (%) Information Ratio 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 We believe that applying a fundamental, research-driven approach focused on identifying potential sources of total return (current income and capital appreciation) worldwide and seeking to capitalize on global interest rates and currency trends provides the best potential for solid risk-adjusted returns. The strategy is run independently of its benchmark, allowing the manager to hold only the positions it believes have the best potential to maximize riskadjusted returns. This is a high alpha seeking strategy that invests globally and may include allocations to both developed and emerging markets. Investment Process Investment Strategy Long-Term, Opportunistic Value Approach Long-term, fundamentally driven investment focus 19. Ratings shown are assigned by one or more Nationally Recognized Statistical Rating Organizations ( NRSRO ), such as Standard & Poor s, Moody s and Fitch. The ratings are an indication of an issuer s creditworthiness and typically range from AAA or Aaa (highest) to D (lowest). When ratings from all three agencies are available, the middle rating is used; when two are available, the lowest rating is used; and when only one is available, that rating is used. Foreign government bonds without a specific rating are assigned the country rating provided by an NRSRO, if available. If listed, the NR category consists of ratable securities that have not been rated by an NRSRO. The N/A category consists of nonratable securities (e.g., equities). Cash includes equivalents, which may be rated. Derivatives are excluded from this breakdown. Information is historical and may not reflect current or future portfolio characteristics. All holdings are subject to change. 20. Information Ratio and Tracking Error information are displayed for the product versus the Citigroup World Government Bond Index. 21. Information Ratio is a way to evaluate a manager s ability to outperform a benchmark in relation to the risk that manager is assuming, with risk defined as deviation from the benchmark. This measure is calculated by dividing the portfolio s excess return (portfolio return less the benchmark return) by the tracking error (derived by taking the standard deviation of the monthly differences between the portfolio return and the benchmark return over time). franklintempleton.com 6

7 Total return approach that is not benchmark driven Identify economic imbalances that may lead to value opportunities in: Yield curve Currencies Sovereign credit Active positioning across these three areas Precisely isolate desired exposures Risk budget composition will shift based on relative attractiveness during global economic and credit cycles Investment Process 22,23 Global Research Lenses Three Potential Sources of Alpha Portfolio Construction and Implementation Macro Models/Analysis Yield Curve Ideas Risk Modeling VaR Analysis Correlation Analysis Scenario/Stress Testing In-Depth Country Analysis Currency Ideas Identification of High-Conviction Opportunities Management Team Potential Return vs. Expected Risk Global Allocations P O R T F O L I O Local Asset Management Perspective Sovereign Credit Ideas Trading Trade Structuring Market Flows Local Execution/Settlement Liquidity Analysis Review/ Review Review Performance Attribution 22. The above chart is for illustrative and discussion purposes only. The way we implement our main investment strategies and the resulting portfolio holdings may change depending on factors such as market and economic conditions. 23. The Local Asset Management Group is comprised of investment professionals located in affiliates of and joint venture partners with Franklin Templeton Investments. Investment Team Portfolio Manager Years with Firm Years Experience Michael Hasenstab, Ph. D., Executive VP and Chief Investment Officer Sonal Desai, Ph. D., Senior VP, Portfolio Manager, Director of Research 7 23 Additional Resources Global Sovereign/EMD Local Asset Management Glossary Annual Turnover Ratio: Percentage of a fund s holdings replaced with other holdings during a fund s most recent full fiscal year. Average Duration: A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. Duration is expressed as a number of years. Average Weighted Maturity: An estimate of the number of terms to maturity, taking the possibility of early payments into account, for the underlying holdings. Maturity is expressed as a number of years. Information Ratio: In investing terminology, the ratio of expected return to risk. Usually, this statistical technique is used to measure a manager s performance against a benchmark. This measure explicitly relates the degree by which an investment has beaten the benchmark to the consistency by which the investment has beaten the benchmark. 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 7

8 What Are The Risks? All investments involve risks, including possible loss of principal. Derivatives, including currency management strategies, involve costs and can create economic leverage in the portfolio which may result in significant volatility and cause the fund to participate in losses on an amount that exceeds the fund s initial investment. The fund may not achieve the anticipated benefits, and may realize losses when a counterparty fails to perform as promised. The markets for particular securities or types of securities are or may become relatively illiquid. Reduced liquidity will have an adverse impact on the security s value and on the fund s ability to sell such securities when necessary to meet the fund s liquidity needs or in response to a specific market event. Foreign securities involve special risks, including currency fluctuations (which may be significant over the short term) and economic and political uncertainties; investments in emerging markets involve heightened risks related to the same factors. Sovereign debt securities are subject to various risks in addition to those relating to debt securities and foreign securities generally, including, but not limited to, the risk that a government entity may be unwilling or unable to pay interest and repay principal on its sovereign debt, or otherwise meet its obligations when due. Investments in lower-rated bonds include higher risk of default and loss of principal. Bond prices generally move in the opposite direction of interest rates. As the prices of bonds in the fund adjust to a rise in interest rates, the fund s share price may decline. Changes in the financial strength of a bond issuer or in a bond s credit rating may affect its value. These and other risks 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. Important data provider notices and terms available at: 3. Source: Morningstar, 09/30/2017. 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 Advisor Class shares received a Morningstar Rating of 3, 4 and 5 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. 4. Effective 01/02/1997, the fund began offering Advisor Class Shares. For periods prior to the fund s Advisor Class inception date, a restated figure is used based on the fund s oldest share class, Class A performance, excluding the effect of Class A s maximum initial sales charge but reflecting the effect of the Class A Rule 12b-1 fees; and b) for periods after the fund s Advisor Class inception date, actual Advisor Class performance is used, reflecting all charges and fees applicable to that class. Franklin Templeton Distributors, Inc. One Franklin Parkway San Mateo, CA (800) DIAL BEN/ franklintempleton.com 2017 Franklin Templeton Investments. All rights reserved. 616 PP 09/17