" Franklin Templeton Investment Funds

Transcription

1 " Franklin Templeton Investment Funds udited nnual Report June 30, 2008

2 FRNKLIN TEMPLETON INVESTMENT FUNDS socie te d investissement a' capital variable UDITED NNUL REPORT FOR TE YER ENDED JUNE 30, 2008 This report shall not constitute an offer or a solicitation of an offer to buy shares of Franklin Templeton Investment Funds (the Company ). Subscriptions are to be made on the basis of the current simplified prospectus accompanied by the current full prospectus and its addendum, a copy of the latest available audited report and, if published thereafter, the latest unaudited semiannual report. This report is an abridged version of the report of the Company which is available free of charge upon request at the registered office of the Company, at Franklin Templeton Investments local offices or distributors as stated in the current prospectus.

3 FRNKLIN TEMPLETON INVESTMENT FUNDS CONTENTS General Information 3 Report of the Board of Directors 5 Report of the Investment Managers 6 Independent uditor s Report 7 Fund Performance 8 Statement of Net ssets 10 Statistical Information 21 Statement of Operations and Changes in Net ssets 32 Notes to the Financial Statements 43 Franklin Templeton Investments Office Directory 73 2

4 FRNKLIN TEMPLETON INVESTMENT FUNDS socie te d investissement a' capital variable 26, boulevard Royal, L-2449 Luxembourg, Grand-Duchy of Luxembourg (Registered with the registre de commerce et des socie te s, Luxembourg, under number B ) GENERL INFORMTION (as at June 30, 2008) BORD OF DIRECTORS Chairman The onorable Nicholas F. Brady Chairman and Chief Executive Officer COPTNK PRTNERS, INC. 16 North Washington Street Easton, MD 21601, U.S.. Directors Gregory E. Johnson President and Chief Executive Officer FRNKLIN RESOURCES, INC. One Franklin Parkway San Mateo, C , U.S.. Richard. Frank Chief Executive Officer DRBY OVERSES INVESTMENTS LIMITED 1133 Connecticut venue, NW, Suite 400 Washington DC 20036, U.S.. The Duke of bercorn, KG Chairman CLOR TEORNT Barons Court Omagh BT78 4EZ, Northern Ireland, U.K. Mark G. olowesko President OLOWESKO PRTNERS LTD Shipston ouse, P.O. Box N-7776, West Bay Street, Lyford Cay, Nassau, Bahamas James J. K. ung President and Chief Executive Officer SI SECURITIES GLOBL LIMITED Room 63, 21st Floor, New World Tower 1 18 Queen s Road, Central ong Kong Geoffrey. Langlands Managing Partner LNGLNDS CONSULTORI Ltda venida das mericas 500 Bloco 6, Sala 227 (Downtown) Rio de Janeiro ^ RJ CEP , Brazil The Right Reverend Michael. Mann K.C.V.O. The Cottage, Lower End Farm, Eastington Northleach GL54 3PN, England, U.K. (resigned with effect from February 20, 2008) Vijay C. dvani Executive Vice President Global dvisor Services FRNKLIN RESOURCES, INC. One Franklin Parkway San Mateo, C , U.S.. (co-opted with effect from February 25, 2008) Gregory E. McGowan Executive Vice President and General Counsel TEMPLETON WORLDWIDE, INC. 500 East Broward Boulevard, Suite 2100 Fort Lauderdale, FL , U.S.. Dr J. B. Mark Mobius Director Emeritus TEMPLETON SSET MNGEMENT LIMITED 7 Temasek Boulevard, # Suntec Tower One Singapore David E. Smart Director and Chief Executive Officer FRNKLIN TEMPLETON INVESTMENT MNGEMENT LIMITED The delphi Building, 1-11 John dam Street London WC2N 6T, England, U.K. The onourable Trevor G. Trefgarne Chairman GRRO SECURITIES LIMITED 30 Kimbell Gardens London SW6 6QQ, England, U.K. CONDUCTING OFFICERS: William Lockwood 26, boulevard Royal, L-2449 Luxembourg Grand Duchy of Luxembourg Denise Voss 26, boulevard Royal, L-2449 Luxembourg Grand Duchy of Luxembourg REGISTERED OFFICE: 26, boulevard Royal, L-2449 Luxembourg Grand Duchy of Luxembourg PRINCIPL DISTRIBUTOR: TEMPLETON GLOBL DVISORS LIMITED P.O. Box N-7759, Lyford Cay, Nassau, Bahamas INVESTMENT MNGERS: s to: Franklin Mutual Beacon Fund*; Franklin Mutual Global Discovery Fund*; Templeton Euroland Bond Fund Templeton Euroland Fund; Templeton Euro Liquid Reserve Fund; Templeton European Fund; Templeton European Total Return FundÀ; Templeton Global (Euro) Fund; Templeton Global Balanced Fund$; Templeton Global Equity Income Fund; and Templeton Global Fund. FRNKLIN TEMPLETON INVESTMENT MNGEMENT LIMITED 5 Morrison Street Edinburgh E3 8B, Scotland U.K. * Franklin Templeton Investment Management Limited has been appointed as Co-Investment Manager for these Funds, together with Franklin Mutual dvisers, LLC. À Franklin Templeton Investment Management Limited has been appointed as Co-Investment Manager of this Fund, together with Franklin dvisers, Inc. $ Franklin Templeton Investment Management Limited has been appointed as Investment Manager in respect of the equity portion of the assets of the Templeton Global Balanced Fund. s to: Franklin Templeton Global Equity Strategies Fund*; Templeton sian Growth Fund; Templeton BRIC Fund; Templeton China Fund; Templeton Eastern Europe Fund; Templeton Emerging Markets Fund; Templeton Emerging Markets Smaller Companies Fund Templeton Global Income FundÀ; Templeton Japan Fund; Templeton Korea Fund; Templeton Latin merica Fund; and Templeton Thailand Fund. TEMPLETON SSET MNGEMENT LTD 7 Temasek Boulevard # Suntec Tower One Singapore * Templeton sset Management Ltd has been appointed as Co-Investment Manager of this Fund, together with (i) Franklin dvisers, Inc., (ii) Templeton Global dvisors Limited, and (iii) Franklin Mutual dvisers, LLC. À Templeton sset Management Ltd has been appointed as Investment Manager in respect of the equity portion of the assets of the Templeton Global Income Fund. s to: Franklin sian Flex Cap Fund; Franklin Biotechnology Discovery Fund; Franklin igh Yield Fund: Franklin igh Yield (Euro) Fund; Franklin Income Fund; Franklin India Fund; Franklin MEN Fund; Franklin Natural Resources Fund; Franklin Strategic Income Fund; Franklin Technology Fund; Franklin U.S. Equity Fund; Franklin U.S. Focus Fund; Franklin U.S. Government Fund; Franklin U.S. Growth Fund; Franklin U.S. Opportunities Fund; Franklin U.S. Ultra Short Bond Fund; Franklin U.S. Small-Mid Cap Growth Fund; Franklin U.S. Total Return Fund; Franklin Templeton Global Equity Strategies Fund ô; Franklin Templeton Global Fundamental Strategies Fund `; Franklin Templeton Global Growth and Value Fund; Templeton sian Bond Fund; Templeton Emerging Markets Bond Fund; Templeton European Total Return Fund*; Templeton Global Balanced FundÀ; Templeton Global Bond (Euro) Fund; 3

5 FRNKLIN TEMPLETON INVESTMENT FUNDS GENERL INFORMTION (as at June 30, 2008) Templeton Global Bond Fund; Templeton Global igh Yield Fund; Templeton Global Income Fund$; Templeton Global Total Return Fund; and Templeton U.S. Dollar Liquid Reserve Fund. FRNKLIN DVISERS, INC. One Franklin Parkway San Mateo, C , U.S.. Franklin dvisers, Inc. has appointed Franklin Templeton sset Management (India) Private Limited as sub-advisor in relation to the Franklin sian Flex Cap Fund and the Franklin India Fund. ô Franklin dvisers, Inc. has been appointed as Co-Investment Manager of this Fund, together with (i) Templeton sset Management Ltd, (ii) Templeton Global dvisors Limited, and (iii) Franklin Mutual dvisers, LLC. ` Franklin dvisers, Inc. has been appointed as Co-Investment Manager of this Fund, together with (i) Templeton Global dvisors Limited, and (ii) Franklin Mutual dvisers, LLC. * Franklin dvisers, Inc. has been appointed as Co-Investment Manager of this Fund, together with Franklin Templeton Investment Management Limited. À Franklin dvisers, Inc. has been appointed as Investment Manager in respect of the fixed income portion of the assets of Templeton Global Balanced Fund. $ Franklin dvisers, Inc. has been appointed as Investment Manager in respect of the fixed income portion of the assets of Templeton Global Income Fund. CUSTODIN, LISTING GENT ND PRINCIPL PYING GENT: J.P. MORGN BNK LUXEMBOURG S.. European Bank and Business Centre 6 Route de Tre'ves, L-2633 Senningerberg Grand Duchy of Luxembourg REGISTRR ND TRNSFER, CORPORTE, DOMICILIRY ND DMINISTRTIVE GENT: FRNKLIN TEMPLETON INTERNTIONL SERVICES S.. 26, boulevard Royal, L-2449 Luxembourg Grand Duchy of Luxembourg UDITORS: PRICEWTEROUSECOOPERS S.a' r.l. Re viseur d entreprises 400, route d Esch, B.P. 1443, L-1014 Luxembourg Grand Duchy of Luxembourg LEGL DVISERS: ELVINGER, OSS & PRUSSEN 2, place Winston Churchill, B.P. 425, L-2014 Luxembourg Grand Duchy of Luxembourg s to: Franklin European Growth Fund; Franklin European Small-Mid Cap Growth Fund; Franklin Global Growth Fund; Franklin Global Real Estate (Euro) Fund; Franklin Global Real Estate () Fund; Franklin Global Small-Mid Cap Growth Fund; Templeton Global bsolute Return (Euro) Fund; and Templeton Global bsolute Return () Fund. FRNKLIN TEMPLETON INSTITUTIONL LLC 600 Fifth venue, New York, NY 10020, U.S.. s to: Franklin Templeton Global Equity Strategies Fund*; Templeton Growth (Euro) Fund. TEMPLETON GLOBL DVISORS LIMITED P.O. Box N-7759 Lyford Cay, Nassau, Bahamas * Templeton Global dvisors Limited has been appointed as Co-Investment Manager of this Fund, together with (i) Templeton sset Management Ltd, (ii) Franklin dvisers, Inc., and (iii) Franklin Mutual dvisers, LLC. s to: Templeton Global Smaller Companies Fund; Templeton U.S. Value Fund. FRNKLIN TEMPLETON INVESTMENTS CORP. 1, delaide Street East, Suite 2101, Toronto Ontario M5C 3B8, Canada s to: Franklin Mutual Beacon Fund*; Franklin Mutual European Fund; Franklin Mutual Global Discovery Fund*; and Franklin Templeton Global Equity Strategies FundÀ. FRNKLIN MUTUL DVISERS, LLC 101 John F. Kennedy Parkway Short ills, NJ , U.S.. * Franklin Mutual dvisers, LLC has been appointed as Co-Investment Manager for these Funds, together with Franklin Templeton Investment Management Limited. À Franklin Mutual dvisers, LLC has been appointed as Co-Investment Manager of this Fund, together with (i) Templeton sset Management Ltd, (ii) Franklin dvisers, Inc., and (iii) Templeton Global dvisors Limited. s to: Franklin Templeton Japan Fund. FRNKLIN TEMPLETON INVESTMENTS JPN LIMITED Kanematsu Building, 6th Floor 14-1, Kyobashi 2 ^ chome Chuo-Ku, Tokyo, Japan 4

6 FRNKLIN TEMPLETON INVESTMENT FUNDS REPORT OF TE BORD OF DIRECTORS t June 30, 2008, total assets of Franklin Templeton Investment Funds ( FTIF, or the Company ) stood at billion. This is 3% lower than the figure one year before ( billion). s part of our policy of offering a wide range of opportunities to our investors, the following subfunds of FTIF were launched during the financial year:. FTIF Franklin MEN Fund. FTIF Franklin Natural Resources Fund. FTIF Franklin Strategic Income Fund. FTIF Franklin U.S. Focus Fund. FTIF Franklin Templeton Global Equity Strategies Fund. FTIF Franklin Templeton Global Fundamental Strategies Fund. FTIF Templeton Emerging Markets Smaller Companies Fund. FTIF Templeton Global bsolute Return () Fund. FTIF Templeton Global igh Yield Fund Share class launches number of new share class offerings for existing funds were launched during the financial year: In particular, FTIF launched several hedged share classes. Euro-hedged share class launches. FTIF Franklin U.S. Equity Fund, Class I (acc) EUR-1. FTIF Franklin U.S. Opportunities Fund, Class (acc) EUR-1, Class I (acc) EUR-1. FTIF Franklin Mutual Beacon Fund, Class I (acc) EUR-1. FTIF Franklin Templeton Global Fundamental Strategies Fund, Class N (acc) EUR-1. FTIF Templeton sian Bond Fund, Class (acc) EUR-1, Class I (acc) EUR-1. FTIF Templeton sian Growth Fund, Class (acc) EUR-1, Class N (acc) EUR-1, Class I (acc) EUR-1. FTIF Templeton BRIC Fund, Class (acc) EUR-1, Class I (acc) EUR-1. FTIF Templeton Global Balanced Fund Class (acc) EUR-1, Class N (acc) EUR-1, Class I (acc) EUR-1. FTIF Templeton Global Bond Fund, Class I (acc) EUR-1, Class, (Mdis) EUR-1, Class N (Mdis) EUR-1. FTIF Templeton Global Total Return Fund, Class I (acc) EUR-1, Class N (Mdis) EUR-1, Class (Mdis) EUR-1. FTIF Templeton U.S. Value Fund, Class (acc) EUR-1, Class I (acc) EUR-1 Singapore dollar (SGD), British pound (GBP) and Polish zloty (PLN)-hedged share class launches. FTIF Franklin igh Yield Fund, Class (Mdis) SGD-1. FTIF Franklin Income Fund, Class (Mdis) SGD-1. FTIF Franklin U.S. Government Fund, Class (Mdis) SGD-1. FTIF Templeton Global Bond Fund, Class (Mdis) SGD-1, Class (Mdis) GBP-1. FTIF Templeton Global Total Return Fund, Class (Mdis) GBP-1, Class (acc) PLN-1 Euro-denominated share class launches. FTIF Franklin igh Yield (Euro) Fund, Class (Mdis), Class I (Mdis). FTIF Franklin Technology Fund, Class I (acc) EUR. FTIF Franklin Templeton Global Fundamental Strategies, Class (Ydis) EUR. FTIF Franklin Templeton Global Growth and Value Fund, Class I (acc) EUR. FTIF Templeton sian Bond Fund, Class I (acc) EUR. FTIF Templeton BRIC Fund, Class I (Ydis) EUR, Class I (acc) EUR. FTIF Templeton Euro Liquid Reserve Fund, Class I (acc). FTIF Templeton European Total Return Fund, Class (Ydis), Class I (Ydis), Class N (Mdis). FTIF Templeton Global Bond Fund, Class (Ydis) EUR, Class I (Ydis) EUR. FTIF Templeton Global Total Return Fund, Class (Ydis) EUR, Class I (Ydis) EUR U.S. dollar-denominated share class launches. FTIF Franklin Global Growth Fund, Class I (acc). FTIF Franklin Global Small-Mid Cap Growth Fund, Class I (acc). FTIF Franklin igh Yield Fund, Class I (acc). FTIF Franklin Natural Resources Fund, Class C (acc). FTIF Templeton Growth (Euro) Fund, Class (acc). FTIF Templeton Thailand Fund, Class I (acc). FTIF Templeton U.S. Dollar Liquid Reserve Fund, Class I (acc) Singapore dollar-denominated share class launches. FTIF Franklin sian Flex Cap Fund, Class (acc) SGD. FTIF Franklin Biotechnology Discovery Fund, Class (acc) SGD. FTIF Franklin Global Real Estate () Fund, Class (Qdis) SGD. FTIF Franklin U.S. Opportunities Fund, Class (acc) SGD. FTIF Franklin Mutual Beacon Fund, Class (acc) SGD. FTIF Franklin Mutual European Fund, Class (acc) SGD. FTIF Franklin Templeton Japan Fund, Class (acc) SGD. FTIF Templeton sian Bond Fund, Class (Mdis) SGD. FTIF Templeton sian Growth Fund, Class (acc) SGD. FTIF Templeton BRIC Fund, Class (acc) SGD. FTIF Templeton China Fund, Class (acc) SGD. FTIF Templeton Eastern Europe Fund, Class (acc) SGD. FTIF Templeton Emerging Markets Fund, Class (acc) SGD. FTIF Templeton European Fund, Class (acc) SGD. FTIF Templeton Global Fund, Class (acc) SGD. FTIF Templeton Global Balanced Fund, Class (acc) SGD. FTIF Templeton Global Bond Fund, Class (Mdis) SGD. FTIF Templeton Global Equity Income Fund, Class (Qdis) SGD. FTIF Templeton Global Smaller Companies Fund, Class (acc) SGD. FTIF Templeton Global Total Return Fund, Class (Mdis) SGD. FTIF Templeton Japan Fund, Class (acc) SGD. FTIF Templeton Korea Fund, Class (acc) SGD. FTIF Templeton Latin merica Fund, Class (acc) SGD. FTIF Templeton Thailand Fund, Class (acc) SGD Japanese yen-denominated share class launches. FTIF Templeton Global Equity Income Fund, Class I (Qdis) JPY Name changes FTIF Franklin ggressive Growth Fund changed its name to FTIF Franklin U.S. Opportunities Fund. FTIF Templeton bsolute Return (Euro) Fund changed its name to FTIF Templeton Global bsolute Return (Euro) Fund. The Company will continue to make changes to the range of sub-funds when this is in the best interest of investors but we remain committed to retaining investment techniques that have been shown, over time, to increase shareholder value. The Board of Directors of the Company acknowledged of the resignation of the Right Reverend Michael. Mann from his position as Director of the Company on February 20, Pursuant to the approval received from the Luxembourg regulator, the Board of Directors has co-opted Mr Vijay C. dvani as Director of the Company until the forthcoming nnual General Meeting to be held on November 28, TE BORD OF DIRECTORS Luxembourg, ugust

7 FRNKLIN TEMPLETON INVESTMENT FUNDS REPORT OF TE INVESTMENT MNGERS The past financial year has been a trying one for investors. Right from its beginning, equity and bond markets alike have had to deal with a series of negative developments. The severe downturn in the housing market in the United States and parts of Europe left a number of financial institutions facing significant difficulties. Investment banks and insurers that had developed derivative activities linked to so-called Sub-prime mortgages were particularly hard hit. The loss of confidence within the financial system itself led to a significant tightening of credit conditions on interbank markets. In turn, banks tightened credit conditions for their own customers. Markets did stage short-term revivals, first in the autumn of 2007 and again following the rescue of investment bank Bear Stearns in March-pril owever, these revivals proved short-lived, as large banks continued to look for ways to shore up their capital, such as soliciting sovereign wealth funds. way from the financial sector, the sharp rise in commodity prices fed inflation worries across the world and complicated the task of monetary authorities trying to deal with slowing economic growth. Rising inflation, a slowdown in economic growth, and the consequences of the Sub-prime crisis all had a negative impact on equity indexes so that by the end of the financial year, the Dow Jones Industrial verage was flirting with a bear market, usually defined as a 20% drop from its high. The slowdown in the United States has been particularly marked. ousing- and car-related sectors, as well as the financial sector, were all severely shaken in the 12 months under discussion. In an attempt to avoid outright recession, the Federal Reserve cut base rates on seven occasions between ugust 2007 and pril 2008 and provided extra sources of liquidity to the financial system. While individual banks and countries have not been immune from accumulating problems, growth has held up better in the eurozone. s a result, the European Central Bank (ECB) left base rates unchanged, although by the end of the financial year, signs of a downturn were becoming more pronounced. Given worsening economic circumstances and corporate profit declines in many areas, few equity markets in developed markets have provided the kind of returns that investors had come to expect in recent years. t the same time, many emerging markets, including sia, have suffered from a general re-pricing of risk by investors. Inflation has become an especially acute problem for emerging markets where food tends to account for a larger proportion of consumer price indexes. Resource-rich indexes in countries such as Brazil, Canada and Russia have been among the few that have rewarded investors with positive returns of late. fter a long period of underperformance, Japanese equities staged a comeback toward the end of the financial year, as foreign investors became convinced that a bout of inflation would actually be good for an economy long beset by deflation. Fears over inflation and monetary tightening also ensured that bond markets have been volatile. Seen as a safe haven, government bond yields in developed markets shifted downward in the first months of the financial year. s fears of a United States recession grew, bonds rallied further as investors abandoned equities. Toward the end of the financial year, however, bond markets sold off aggressively as central banks were forced to tighten monetary policy to deal with inflation. Corporate bonds have been particularly hard hit by the uncertainties. Issuance in the high-yield market declined markedly as the credit crisis provoked a widening of spreads. Currency markets were marked by the continued fragility of the U.S. dollar against the euro as the Fed repeatedly reduced interest rates. While the falling dollar has helped boost U.S. exports, concerns grew over the dollar s role in fuelling the rise in inflation and commodity prices. The policy of many countries in sia to peg their currencies to the dollar also exacerbated their inflation problems. By contrast with its performance against the euro, the dollar has, by some measures, remained overvalued against a number of currencies, most notably the Chinese yuan. With global corporations ability to grow earnings and margins tested in the current soft economic environment, the outlook for financial markets in the months ahead appears uncertain. But with many markets discounting a lot of bad news, lower oil and food prices, some normalization in credit markets and/or signs of life in property markets could begin to make select equities look inexpensive. By the same token, the conviction that central banks are on top of inflationary pressures would help bonds. The information in this report represents historical data and is not an indication of future results. TE INVESTMENT MNGERS ugust 29,

8 To the Shareholders of Franklin Templeton Investment Funds PricewaterhouseCoopers Socie te a' responsabilite limite e Re viseur d Entreprises 400, route d Esch B.P L-1014 Luxembourg Telephone Facsimile info@lu.pwc.com Following our appointment by the General Meeting of the Shareholders of Franklin Templeton Investment Funds (the SICV) dated November 30, 2007, we have audited the accompanying financial statements of Franklin Templeton Investment Funds and of each of its sub-funds, which comprise the statement of net assets and the schedule of investments as at June 30, 2008 and the statement of operations and changes in net assets for the year then ended, and a summary of significant accounting policies and other explanatory notes to the financial statements. Board of Directors of the SICV s responsibility for the financial statements The Board of Directors of the SICV is responsible for the preparation and fair presentation of these financial statements in accordance with Luxembourg legal and regulatory requirements relating to the preparation of the financial statements. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. uditor s responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on uditing as adopted by the Institut des Re viseurs d Entreprises. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. n audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the uditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the uditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. n audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Board of Directors of the SICV, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, these financial statements give a true and fair view of the financial position of Franklin Templeton Investment Funds and of each of its sub-funds as of June 30, 2008, and of the results of their operations and changes in their net assets for the year then ended in accordance with Luxembourg legal and regulatory requirements relating to the preparation of the financial statements. Other matters Supplementary information included in the annual report has been reviewed in the context of our mandate but has not been subject to specific audit procedures carried out in accordance with the standards described above. Consequently, we express no opinion on such information. owever, we have no observation to make concerning such information in the context of the financial statements taken as a whole. PricewaterhouseCoopers S.a' r.l. Luxembourg, ugust 29, 2008 Re viseur d entreprises Represented by John Parkhouse R.C.S. Luxembourg B ^ TV LUI

9 FRNKLIN TEMPLETON INVESTMENT FUNDS FUND PERFORMNCE IN BSE CURRENCY PERCENTGE CNGE TO JUNE 30, 2008 Launch Base Since Date Currency Months Year Years Years Years Launch % % % % % % Franklin sian Flex Cap Fund 15 Nov 06 (24.4) (12.4) ^ ^ ^ 11.5 Franklin Biotechnology Discovery Fund 03 pr 00 (2.7) (7.0) ^ (16.7) Franklin European Growth Fund 29 Dec 00 EUR (15.8) (22.2) ^ (24.8) Franklin European Small-Mid Cap Growth Fund 03 Dec 01 EUR (16.4) (24.4) ^ 65.8 Franklin Global Growth Fund 29 Dec 00 (11.5) (6.1) ^ 14.2 Franklin Global Real Estate (Euro) Fund 29 Dec 05 EUR (14.7) (26.0) ^ ^ ^ (11.3) Franklin Global Real Estate () Fund 29 Dec 05 (15.5) (26.4) ^ ^ ^ (8.5) Franklin Global Small-Mid Cap Growth Fund 15 pr 02 (5.6) (12.4) ^ 89.2 Franklin igh Yield Fund 01 Mar 96 (1.4) (1.3) Franklin igh Yield (Euro) Fund 17 pr 00 EUR (6.3) (10.3) ^ 10.9 Franklin Income Fund 01 Jul 99 (5.6) (6.4) ^ 74.7 Franklin India Fund 25 Oct 05 (39.7) (16.5) ^ ^ ^ 69.8 Franklin MEN Fund 16 Jun 08 ^ ^ ^ ^ ^ (1.7) Franklin Natural Resources Fund 12 Jul ^ ^ ^ ^ 27.0 Franklin Strategic Income Fund 12 Jul 07 (0.1) ^ ^ ^ ^ 2.3 Franklin Technology Fund 03 pr 00 (10.1) (5.9) ^ (45.6) Franklin U.S. Equity Fund 01 Jul 99 (10.3) (12.5) ^ 49.9 Franklin U.S. Focus Fund 15 May 08 ^ ^ ^ ^ ^ (9.7) Franklin U.S. Government Fund 28 Feb Franklin U.S. Growth Fund 29 ug 03 (8.7) (8.1) 11.6 ^ ^ 19.7 Franklin U.S. Opportunities Fund 03 pr 00 (8.2) ^ (31.8) Franklin U.S. Small-Mid Cap Growth Fund 29 Dec 00 (10.3) (13.2) ^ 10.1 Franklin U.S. Total Return Fund 29 ug 03 (2.1) ^ ^ 17.3 Franklin U.S. Ultra Short Bond Fund 29 ug ^ ^ 14.1 Franklin Mutual Beacon Fund 07 Jul 97 (16.0) (21.5) Franklin Mutual European Fund 31-Dec-01 EUR * (17.3) (21.0) ^ 48.6 Franklin Mutual Global Discovery Fund 25 Oct 05 (9.9) (10.6) ^ ^ ^ 24.3 Franklin Templeton Global Equity Strategies Fund 15 May 08 ^ ^ ^ ^ ^ (8.5) Franklin Templeton Global Fundamental Strategies Fund 25 Oct 07 (6.7) ^ ^ ^ ^ (8.2) Franklin Templeton Global Growth and Value Fund 09 Sep 02 (13.8) (10.9) ^ 90.6 Franklin Templeton Japan Fund 01 Sep 00 JPY (16.0) (33.7) ^ (16.6) Templeton sian Bond Fund 25 Oct 05 (2.2) (0.4) ^ ^ ^ 27.1 Templeton sian Growth Fund 30 Jun 91 (28.4) (11.6) Templeton BRIC Fund 25 Oct 05 (14.7) 7.8 ^ ^ ^ Templeton China Fund 01 Sep 94 (18.2)

10 FRNKLIN TEMPLETON INVESTMENT FUNDS FUND PERFORMNCE IN BSE CURRENCY PERCENTGE CNGE TO JUNE 30, 2008 Launch Base Since Date Currency Months Year Years Years Years Launch % % % % % % Templeton Eastern Europe Fund 10 Nov 97 EUR (26.3) (26.1) Templeton Emerging Markets Fund 28 Feb 91 (16.3) (6.6) Templeton Emerging Markets Bond Fund 05 Jul Templeton Emerging Markets Smaller Companies Fund 18 Oct 07 (23.6) ^ ^ ^ ^ (24.1) Templeton Euro Liquid Reserve Fund 01 Jun 94 EUR Templeton Euroland Fund 08 Jan 99 EUR (23.4) (31.7) (0.8) 51.1 ^ 44.6 Templeton Euroland Bond Fund 08 Jan 99 EUR (1.7) (0.1) (2.0) 8.0 ^ 22.5 Templeton European Fund 03 Dec 01 EUR À (23.0) (31.7) (3.9) 45.8 ^ 5.0 Templeton European Total Return Fund 29 ug 03 EUR (4.2) (4.9) (3.0) ^ ^ 9.1 Templeton Global Fund 28 Feb 91 (17.2) (17.2) Templeton Global (Euro) Fund 26 pr 91 EUR (22.6) (29.6) (7.8) Templeton Global bsolute Return (Euro) Fund 15 Nov 06 EUR (5.0) (8.8) ^ ^ ^ (5.5) Templeton Global bsolute Return () Fund 12 Jul 07 (2.4) ^ ^ ^ ^ (2.1) Templeton Global Balanced Fund 01 Jun 94 (9.5) (9.4) Templeton Global Bond Fund 28 Feb Templeton Global Bond (Euro) Fund 29 ug 03 EUR (3.7) (4.9) (2.5) ^ ^ 6.5 Templeton Global Equity Income Fund 27 May 05 (21.9) (22.4) 13.6 ^ ^ 14.7 Templeton Global igh Yield Fund 27 Sep 07 (0.4) ^ ^ ^ ^ (0.9) Templeton Global Income Fund 27 May 05 (9.6) (9.9) 24.7 ^ ^ 24.7 Templeton Global Smaller Companies Fund 08 Jul 91 (16.6) (28.8) Templeton Global Total Return Fund 29 ug ^ ^ 60.0 Templeton Growth (Euro) Fund 09 ug 00 EUR (21.6) (30.8) (14.6) 11.4 ^ (10.4) Templeton Japan Fund 23 Jun 97 (16.1) (24.6) (14.0) 10.9 (31.2) (50.0) Templeton Korea Fund 08 May 95 (24.5) (20.0) (30.9) Templeton Latin merica Fund 28 Feb 91 ` Templeton Thailand Fund 20 Jun 97 (8.8) Templeton U.S. Dollar Liquid Reserve Fund 01 Jun Templeton U.S. Value Fund 29 ug 03 (16.5) (28.8) (4.3) ^ ^ 16.1 Data source Performance ^ Franklin Templeton Investments * The inception date is for the primary class (cc) EUR, however the sub-fund originally launched on pril 3, À The inception date is for the primary class (cc) EUR, however the sub-fund originally launched on pril 17, ` Fund performance prior to Sept 1996 excluded from calculation because a different portfolio allocation strategy was in use. part from the above mentioned exceptions, all of the figures above are for Class distribution (dis) Shares with all income reinvested (total return) in base currency. Where Class (dis) Shares are not in issue, Class accumulation (acc) Shares are shown. Information on other Share Classes is available on request. This report does not constitute or form part of any offer of shares or an invitation to apply for shares. Subscriptions are to be made on the basis of the current simplified prospectus accompanied by the current full prospectus and its addendum, a copy of the latest available audited report and, if published thereafter, the latest unaudited semi-annual report. The price of shares and income from them can go down as well as up and you may not get back the full amount that you invested. Past performance is no guarantee of future performance. Currency fluctuations may affect the value of investments. 9

11 FRNKLIN TEMPLETON INVESTMENT FUNDS STTEMENT OF NET SSETS T JUNE 30, 2008 TOTL Franklin Franklin Franklin Franklin European sian Biotechnology European Small-Mid Cap Flex Cap Discovery Growth Growth Fund Fund Fund Fund () () () (EUR) (EUR) SSETS Investment in securities at market value (note 2(b)) 60,017,367,999 35,827,096 53,529,306 16,356,067 41,920,431 Cash 426,028,491 52, ,604 8,828 52,461 Time deposits and repurchase agreements (note 19) 1,042,334, ,000 ^ 795,000 1,695,000 mounts receivable on sale of investments 369,310,394 ^ 877, ,414 1,222,621 mounts receivable on subscriptions 559,763,463 ^ 341,504 31,733 1,611,172 Interest and dividends receivable, net 681,520,053 57, ,924 93,563 Other receivables 4,988,403 4,794 ^ 831 4,121 Unrealised profit on forward foreign exchange contracts (note 4) 36,972,909 ^ ^ ^ ^ Unrealised profit on credit default swaps (note 5) 108,592 ^ ^ ^ ^ Unrealised profit on financial future contracts (note 7) 272,702 ^ ^ ^ ^ Option contracts at market value (note 8) 136,928,263 ^ ^ ^ ^ TOTL SSETS 63,275,595,967 36,617,025 54,859,675 17,935,797 46,599,369 LIBILITIES mounts payable on purchases of investments 427,662,117 ^ 1,454, , ,990 mounts payable on redemptions 680,021, , ,867 43, ,253 Bank overdraft 427,900,074 ^ ^ ^ ^ Unrealised loss on forward foreign exchange contracts (note 4) 29,854,468 ^ ^ ^ ^ Unrealised loss on credit default swaps (note 5) 196,456 ^ ^ ^ ^ Unrealised loss on interest rate swaps (note 6) 58,220,057 ^ ^ ^ ^ Unrealised loss on financial future contracts (note 7) 4,977 ^ ^ ^ ^ Investment management fees payable (note 3) 52,623,717 31,618 42,700 14,832 37,147 Taxes and expenses payable 64,943,144 53,807 55,359 16,684 42,273 TOTL LIBILITIES 1,741,426, ,893 1,658, ,988 1,562,663 TOTL NET SSETS 61,534,169,142 36,332,132 53,201,179 17,635,809 45,036,706 TREE YER SSET SUMMRY () () () (EUR) (EUR) June 30, ,601,494,719 45,270,453 67,283,337 33,316, ,651,570 June 30, ,168,720,179 ^ 79,128,385 14,898,206 43,356,265 June 30, ,570,718,303 ^ 89,670,153 12,043,296 8,543, The accompanying notes form an integral

12 FRNKLIN TEMPLETON INVESTMENT FUNDS STTEMENT OF NET SSETS T JUNE 30, 2008 (continued) Franklin Franklin Global Franklin Global Franklin Global Franklin Franklin Franklin Global Real Estate Real Estate Small-Mid Cap igh Yield igh Yield Income Growth (Euro) () Growth Fund (Euro) Fund Fund Fund Fund Fund Fund () (EUR) () () () (EUR) () 35,840,955 27,066,739 33,446,879 19,093,169 1,879,208, ,915, ,706,456 1,216 7,895 7,735 9,535 20,505 ^ ^ 540,000 3,480,000 5,190,000 1,535,000 29,330,000 17,880,000 20,015,000 ^ 28,483 30, ,686 ^ ^ 87,163 7,637 20, ,795 10,470 3,385, ,445 1,418,518 86, , ,641 47,999 42,528,943 4,374,819 7,741,838 3, , ,675 ^ ^ ^ 309,795 ^ ^ 43, , ,932 36,479,440 31,086,004 39,090,172 20,803,698 1,954,521, ,787, ,214,907 ^ ^ ,838 ^ ^ 647,680 14,380 95, ,630 12,133 6,912,800 2,651,288 2,177,284 ^ ^ ^ ^ ^ 107,935 13,378 ^ ^ 369,300 ^ ^ ^ ^ 32,328 25,730 32,965 16,897 1,278, , ,484 34,854 25,576 67,094 20,083 1,398, , ,292 81, , , ,951 9,590,015 3,105,112 4,041,118 36,397,878 30,939,109 38,398,156 20,482,747 1,944,931, ,682, ,173,789 () (EUR) () () () (EUR) () 34,623, ,906,233 90,700,771 20,249,247 2,611,774, ,004, ,744,618 32,801,342 48,376,874 28,915,199 17,498,174 2,725,724, ,572, ,325,251 8,869,003 ^ ^ 6,893,749 3,058,397,548 47,377, ,041,993 part of these financial statements 11

13 FRNKLIN TEMPLETON INVESTMENT FUNDS STTEMENT OF NET SSETS T JUNE 30, 2008 (continued) Franklin Franklin Franklin Franklin Franklin India MEN Natural Strategic Technology Fund Fund* Resources Income Fund Fund** Fund** () () () () () SSETS Investment in securities at market value (note 2(b)) 498,183,161 15,322,132 46,786,454 62,057, ,953,714 Cash ^ 4,594,183 4,177,537 10,450, ,860 Time deposits and repurchase agreements (note 19) ^ 6,295,000 ^ ^ ^ mounts receivable on sale of investments 7,253,693 ^ 228,505 27,609 1,675,594 mounts receivable on subscriptions 2,448,425 4,185,319 2,057, , ,031 Interest and dividends receivable, net 559,050 ^ 9, ,003 5,481 Other receivables 43,554 ^ ^ 16,859 11,404 Unrealised profit on forward foreign exchange contracts (note 4) ^ 53,886 ^ ^ ^ Unrealised profit on credit default swaps (note 5) ^ ^ ^ ^ ^ Unrealised profit on financial future contracts (note 7) ^ ^ ^ ^ ^ Option contracts at market value (note 8) ^ ^ ^ ^ ^ TOTL SSETS 508,487,883 30,450,520 53,259,500 74,371, ,545,084 LIBILITIES mounts payable on purchases of investments ^ 7,481,964 2,332,580 3,134, ,578 mounts payable on redemptions 5,358, , , ,407 2,169,440 Bank overdraft 5,183,126 ^ ^ ^ ^ Unrealised loss on forward foreign exchange contracts (note 4) ^ ^ ^ 49,461 ^ Unrealised loss on credit default swaps (note 5) ^ ^ ^ 30,050 ^ Unrealised loss on interest rate swaps (note 6) ^ ^ ^ ^ ^ Unrealised loss on financial future contracts (note 7) ^ ^ ^ ^ ^ Investment management fees payable (note 3) 483,270 8,369 34,692 40, ,489 Taxes and expenses payable 3,293,275 4,408 27,557 58, ,541 TOTL LIBILITIES 14,318,360 8,152,483 2,717,194 4,029,343 3,297,048 TOTL NET SSETS 494,169,523 22,298,037 50,542,306 70,341, ,248,036 TREE YER SSET SUMMRY () () () () () June 30, ,219,507 ^ ^ ^ 130,129,167 June 30, ,395,612 ^ ^ ^ 138,547,133 June 30, 2005 ^ ^ ^ ^ 166,584,380 * This Fund was launched on June 16, 2008 ** These Funds were launched on July 12, 2007 *** This Fund was launched on May 15, 2008 (1) This Fund had its name changed effective on ugust 31, 2007 (previously Franklin ggressive Growth Fund) 12 The accompanying notes form an integral

14 FRNKLIN TEMPLETON INVESTMENT FUNDS STTEMENT OF NET SSETS T JUNE 30, 2008 (continued) Franklin Franklin Franklin Franklin Franklin Franklin Franklin U.S. U.S. U.S. U.S. U.S. U.S. U.S. Equity Focus Government Growth Opportunities Small-Mid Cap Total Fund Fund*** Fund Fund Fund (1) Growth Return Fund Fund () () () () () () () 178,732,309 4,452,772 1,534,664,987 32,312, ,634,004 29,653,156 54,791,101 13, , ,437 2,663,182 8,985 1,719,417 5,713,058 8,510,000 ^ 10,250,000 ^ ^ ^ ^ ^ 3,017 15,425, ,635 ^ 130,344 69,041, ,833 ^ 6,124,031 33,542 38,132, , , ,060 2,762 7,069,116 11, ,852 6, ,558 6,106 ^ 18,791 ^ ^ ^ 8,487 67,748 70,527 58,368 ^ 164,600 ^ ^ ^ ^ ^ ^ ^ ^ 15, ,572,652 4,756,959 1,573,725,231 35,163, ,138,158 31,676, ,242, , ,199 16,066,793 ^ 28,694,674 77,346 83,175, ,310 ^ 4,430,233 9,202 13,207,008 27,684 55,905 ^ ^ ^ ^ ^ ^ 81,612 ^ ^ ^ ^ ^ ^ 149, ,319 3, ,537 28, ,421 27,154 28, ,085 3,207 1,064,424 26, ,205 28,303 33,795 1,073, ,919 22,318,987 63,594 42,845, ,487 83,524, ,499,067 4,587,040 1,551,406,244 35,100, ,292,850 31,515,579 46,717,257 () () () () () () () 264,384,191 ^ 1,559,253,199 36,349, ,199,031 44,032,933 76,706, ,658,602 ^ 1,397,468,928 29,601, ,555,020 41,371,151 32,788,734 1,275,184,698 ^ 1,421,300,577 28,332,242 88,491,649 19,935,027 36,858,474 part of these financial statements 13

15 FRNKLIN TEMPLETON INVESTMENT FUNDS STTEMENT OF NET SSETS T JUNE 30, 2008 (continued) Franklin Franklin Franklin Franklin U.S. Mutual Mutual Mutual Ultra Beacon European Global Short Bond Fund Fund Discovery Fund Fund () () (EUR) () SSETS Investment in securities at market value (note 2(b)) 56,337,195 1,979,649,113 4,193,452, ,008,538 Cash 6,651,976 29,841,852 ^ 16,440,906 Time deposits and repurchase agreements (note 19) ^ ^ 46,871,339 2,191,475 mounts receivable on sale of investments 106,300 58,658,129 14,377, ,084 mounts receivable on subscriptions 618,072 12,047,380 67,122,746 3,662,728 Interest and dividends receivable, net 141,937 12,138,246 42,022,635 3,730,919 Other receivables 8, , , ,343 Unrealised profit on forward foreign exchange contracts (note 4) ^ ^ ^ ^ Unrealised profit on credit default swaps (note 5) ^ ^ ^ ^ Unrealised profit on financial future contracts (note 7) ^ ^ ^ ^ Option contracts at market value (note 8) ^ 2,509,955 79,597,548 9,080,386 TOTL SSETS 63,864,191 2,095,364,490 4,444,368, ,019,379 LIBILITIES mounts payable on purchases of investments ^ ,394,482 6,910,131 mounts payable on redemptions 240,865 50,212,839 30,238,322 2,305,505 Bank overdraft ^ ^ 16,553,726 ^ Unrealised loss on forward foreign exchange contracts (note 4) ^ 3,131,746 14,355 1,296,964 Unrealised loss on credit default swaps (note 5) ^ ^ ^ ^ Unrealised loss on interest rate swaps (note 6) ^ ^ ^ ^ Unrealised loss on financial future contracts (note 7) ^ ^ ^ ^ Investment management fees payable (note 3) 33,162 1,758,459 3,531, ,084 Taxes and expenses payable 51,045 1,793,035 3,210, ,560 TOTL LIBILITIES 325,072 56,896,254 65,942,987 11,433,244 TOTL NET SSETS 63,539,119 2,038,468,236 4,378,425, ,586,135 TREE YER SSET SUMMRY () () (EUR) () June 30, ,163,368 3,976,435,089 4,018,774, ,544,310 June 30, ,039,025 2,497,854,663 2,153,150,039 75,348,914 June 30, ,340,647 1,943,036,374 1,309,313,770 ^ * This Fund was launched on May 15, 2008 ** This Fund was launched on October 25, The accompanying notes form an integral

16 FRNKLIN TEMPLETON INVESTMENT FUNDS STTEMENT OF NET SSETS T JUNE 30, 2008 (continued) Franklin Franklin Franklin Franklin Templeton Templeton Templeton Templeton Templeton Templeton Templeton sian sian BRIC Global Equity Global Fundamental Global Growth Japan Bond Growth Fund Strategies Strategies and Value Fund Fund Fund Fund* Fund** Fund () () () (JPY) () () () 6,509, ,979,876 46,136,049 28,020,223, ,654,978 6,814,046,353 2,626,354,093 12,525 58,861,105 1, ,565,409 ^ ^ 8,119,580 3,045,000 ^ 1,565,000 ^ ^ ^ 19,400,000 1,606 54, ,030 1,221,286,789 8,771 5,050,661 3,891,332 5,789 4,766, , ,321,424 7,292,869 32,164,044 16,835,509 6,514 1,308,065 99,425 83,025,151 14,371,729 23,043,634 10,082, ,669 6,920 ^ 29,045 21,432 ^ 18,107 1,339,230 ^ ^ 19,049, , ,889 ^ 402 ^ ^ ^ ^ ^ 9,598, ,317,280 48,412,980 30,399,422, ,406,394 6,874,660,209 2,684,837, ,316 5,809, ,279,242,429 ^ ^ 4,446,628 ^ 53, , ,089,094 20,255, ,439,488 70,906,679 ^ ^ ^ ^ 4,280, ,359,651 ^ 9, ,498 42,052 24,124, ,175 7,507,008 3,569,148 6, ,629 46,205 26,509,006 2,124,438 5,722,873 2,491, ,553 6,157, ,038 1,758,964,643 27,157, ,029,020 81,413,952 9,289, ,159,691 47,903,942 28,640,457, ,249,143 6,348,631,189 2,603,423,258 () () () (JPY) () () () ^ ^ 31,503,432 62,219,368, ,324,970 6,668,399,635 1,665,679,700 ^ ^ 25,217,045 73,210,840, ,336,286 4,090,231, ,985,119 ^ ^ 15,018,075 5,193,275,603 ^ 2,064,101,157 ^ part of these financial statements 15

17 FRNKLIN TEMPLETON INVESTMENT FUNDS STTEMENT OF NET SSETS T JUNE 30, 2008 (continued) Templeton Templeton Templeton Templeton Templeton China Eastern Emerging Emerging Emerging Fund Europe Markets Markets Markets Smaller Fund Fund Bond Companies Fund Fund* () (EUR) () () () SSETS Investment in securities at market value (note 2(b)) 657,004, ,777,999 1,298,155,360 1,260,522, ,234,577 Cash 511,494 1,486,240 5,174,494 2,021,978 ^ Time deposits and repurchase agreements (note 19) 590,000 41,060,000 87,740,000 13,270,000 ^ mounts receivable on sale of investments 1,847,869 4,218,005 10,336,834 35,694,897 6,288,667 mounts receivable on subscriptions 7,038,267 1,409,830 7,890,547 5,915, ,738 Interest and dividends receivable, net 3,211,458 1,797,426 3,402,886 31,131, ,833 Other receivables ^ 242,985 53,129 3, ,900 Unrealised profit on forward foreign exchange contracts (note 4) ^ ^ ^ ^ ^ Unrealised profit on credit default swaps (note 5) ^ ^ ^ ^ ^ Unrealised profit on financial future contracts (note 7) ^ ^ ^ ^ ^ Option contracts at market value (note 8) ^ ^ ^ 402 ^ TOTL SSETS 670,203, ,992,485 1,412,753,250 1,348,561, ,591,715 LIBILITIES mounts payable on purchases of investments ,768 2,023,468 28,643,111 ^ mounts payable on redemptions 7,659,924 12,231,019 21,923,295 11,782,721 4,646,039 Bank overdraft ^ ^ ^ ^ 231,499 Unrealised loss on forward foreign exchange contracts (note 4) ^ ^ ^ 3,817,644 ^ Unrealised loss on credit default swaps (note 5) ^ ^ ^ ^ ^ Unrealised loss on interest rate swaps (note 6) ^ ^ ^ ^ ^ Unrealised loss on financial future contracts (note 7) ^ ^ ^ ^ ^ Investment management fees payable (note 3) 916,135 1,187,449 1,825,731 1,059, ,085 Taxes and expenses payable 585, ,545 1,230,457 2,145, ,866 TOTL LIBILITIES 9,162,476 14,656,781 27,002,951 47,449,084 5,729,489 TOTL NET SSETS 661,040, ,335,704 1,385,750,299 1,301,111, ,862,226 TREE YER SSET SUMMRY () (EUR) () () () June 30, ,153,254 1,535,470,469 1,547,177,640 1,050,795,188 ^ June 30, ,333,445 1,368,376,679 1,269,345, ,919,556 ^ June 30, ,983, ,551, ,591, ,915,174 ^ * This Fund was launched on October 18, The accompanying notes form an integral

18 FRNKLIN TEMPLETON INVESTMENT FUNDS STTEMENT OF NET SSETS T JUNE 30, 2008 (continued) Templeton Templeton Templeton Templeton Templeton Templeton Templeton Euro Euroland Euroland European European Global Global Liquid Fund Bond Fund Total Fund (Euro) Reserve Fund Return Fund Fund Fund (EUR) (EUR) (EUR) (EUR) (EUR) () (EUR) 115,127, ,365,418 23,221, ,784, ,313,413 1,559,636, ,138,384 4,570 ^ ^ 1,023,357 25,453 62,312,802 1,308,037 14,795,000 7,640,000 5,010,000 1,400,000 5,860,000 ^ 15,430,000 ^ 8,684,172 ^ ^ ,981 ^ 2,111, , , , ,788 6,488, , ,567 6,851, ,553 1,931,855 5,032,525 15,219,587 5,123,281 ^ 88,291 15,805 32,814 54, ,198 56,456 ^ ^ ^ ^ ^ ^ 75,334 ^ ^ 13,400 ^ 147,400 ^ ^ 132,472, ,848,410 28,925, ,067, ,626,863 1,644,194, ,598,051 ^ ^ 936, ^ 1,068 ^ 1,499,704 1,949, ,799 1,506,688 1,676,420 6,278,475 1,032,753 ^ 3,346,217 9,435 ^ ^ ^ ^ ^ ^ ^ ^ 990,553 ^ ^ 30, ,274 12, , ,250 1,314, ,890 67, ,364 15, , ,506 1,239, ,300 1,598,250 5,741,402 1,197,225 1,782,623 2,970,729 8,833,704 2,034, ,874, ,107,008 27,728, ,284, ,656,134 1,635,360, ,563,108 (EUR) (EUR) (EUR) (EUR) (EUR) () (EUR) 89,849,196 1,155,494,126 14,715, ,654, ,582,634 2,053,160,206 1,002,447, ,611,297 1,116,961,940 15,795, ,140, ,965,316 1,261,195, ,359,689 59,321,720 1,110,899,539 14,808, ,723, ,144,293 1,749,661, ,840,159 part of these financial statements 17

19 FRNKLIN TEMPLETON INVESTMENT FUNDS STTEMENT OF NET SSETS T JUNE 30, 2008 (continued) Templeton Templeton Templeton Templeton Templeton Global Global Global Global Global bsolute Return bsolute Return Balanced Bond Bond (Euro) () Fund Fund (Euro) Fund (1) Fund* Fund (EUR) () () () (EUR) SSETS Investment in securities at market value (note 2(b)) 30,615,805 6,382, ,578,059 9,831,919, ,958,395 Cash ^ 1,315,304 ^ 13,872,482 59,394 Time deposits and repurchase agreements (note 19) 3,215,000 ^ ^ 242,840,000 2,620,000 mounts receivable on sale of investments 201, ,276 6,933, ,465 ^ mounts receivable on subscriptions 343,521 58,014 3,244,521 77,610, ,162 Interest and dividends receivable, net 1,477, ,031 11,510, ,168,353 5,489,716 Other receivables 391,303 44,614 66,982 38,839 11,334 Unrealised profit on forward foreign exchange contracts (note 4) 244,391 ^ 4,413,055 ^ 6,032,345 Unrealised profit on credit default swaps (note 5) 68,965 ^ ^ ^ ^ Unrealised profit on financial future contracts (note 7) ^ 3,787 ^ ^ ^ Option contracts at market value (note 8) ^ ^ TOTL SSETS 36,557,798 8,114,374 1,007,746,358 10,380,565, ,068,601 LIBILITIES mounts payable on purchases of investments 1,931, ,494 2,727,855 52,412,097 70,156 mounts payable on redemptions 269,742 58,014 4,256, ,841,737 2,043,230 Bank overdraft 64,939 ^ 4,990,572 ^ ^ Unrealised loss on forward foreign exchange contracts (note 4) ^ 9,109 ^ 10,752,598 ^ Unrealised loss on credit default swaps (note 5) ^ 16,540 ^ ^ ^ Unrealised loss on interest rate swaps (note 6) ^ ^ ^ 42,730,943 ^ Unrealised loss on financial future contracts (note 7) 3,161 ^ ^ ^ ^ Investment management fees payable (note 3) 13,202 2, ,062 6,188, ,032 Taxes and expenses payable 33,493 6,115 1,101,759 14,711, ,752 TOTL LIBILITIES 2,315, ,195 13,753, ,637,001 2,465,170 TOTL NET SSETS 34,242,182 7,508, ,992,609 10,134,928, ,603,431 TREE YER SSET SUMMRY (EUR) () () () (EUR) June 30, ,593,463 ^ 1,130,092,032 6,908,361, ,255,924 June 30, 2006 ^ ^ 592,514,252 3,634,789,337 59,258,439 June 30, 2005 ^ ^ 414,867,238 1,922,471,448 45,200,547 * This Fund was launched on July 12, 2007 ** This Fund was launched on September 27, 2007 (1) This fund had its name changed effective on ugust 31, 2007 (previously Templeton bsolute Return (Euro) Fund) 18 The accompanying notes form an integral

20 FRNKLIN TEMPLETON INVESTMENT FUNDS STTEMENT OF NET SSETS T JUNE 30, 2008 (continued) Templeton Templeton Templeton Templeton Templeton Templeton Templeton Global Global Global Global Global Growth Japan Equity igh Income Smaller Total (Euro) Fund Income Yield Fund Companies Return Fund Fund Fund** Fund Fund () () () () () (EUR) () 174,927,755 6,909, ,392, ,009,084 3,489,566,161 4,440,559,323 24,652,809 ^ 513, ,225 63,907 32,808,630 ^ 23,286 1,655,000 ^ 2,245,000 6,695,000 ^ 91,580,051 4,255, ,326 ^ 395 2,304 52,183,815 7,365,728 9,510, , , , ,399,270 6,335, ,929 2,955, ,995 1,888, ,687 82,754,300 41,379, ,096 83,285 ^ 33,807 ^ 336, ,932 ^ ^ ^ 804 ^ ^ 180,531,454 7,575, ,771, ,754,223 3,772,049,906 4,587,349,942 38,756,195 ^ ^ 878, ,889 82,212, ,936,751 1,471,938 ^ 427,108 1,132,519 35,493,703 10,834, ,667 1,597,221 ^ ^ ^ ^ 7,303,381 ^ ^ 31,157 1,569,817 ^ 7,162,732 ^ ^ ^ ^ ^ ^ 15,489,114 ^ ^ 155,560 4, , ,677 2,153,241 3,831,663 31, ,526 6, , ,911 5,388,127 3,379,531 34,027 3,390,245 42,050 3,155,289 1,612, ,899,132 25,350,304 2,155, ,141,209 7,533, ,616, ,141,227 3,624,150,774 4,561,999,638 36,600,268 () () () () () (EUR) () 454,567,618 ^ 266,267, ,730,930 1,951,541,554 7,647,134,790 67,659, ,737,457 ^ 39,342, ,979, ,572,804 6,787,870,205 86,742,708 60,587,153 ^ 33,076, ,672, ,912,613 6,050,528,242 52,500,557 part of these financial statements 19

21 FRNKLIN TEMPLETON INVESTMENT FUNDS STTEMENT OF NET SSETS T JUNE 30, 2008 (continued) Templeton Templeton Templeton Templeton Templeton Korea Latin Thailand U.S. Dollar U.S. Fund merica Fund Liquid Value Fund Reserve Fund Fund () () () () () SSETS Investment in securities at market value (note 2(b)) 123,484,981 2,451,971, ,932, ,191,388 14,717,802 Cash 3,453 1,128,118 ^ 142,799,083 1,575,522 Time deposits and repurchase agreements (note 19) 2,650, ,510,000 ^ ^ ^ mounts receivable on sale of investments 9,900, ,645 1,102,939 ^ ^ mounts receivable on subscriptions 241,009 54,157, ,129 7,798,002 3,101 Interest and dividends receivable, net ^ 3,792,632 ^ 184,240 20,130 Other receivables ^ 2,202 ^ ^ ^ Unrealised profit on forward foreign exchange contracts (note 4) ^ ^ ^ ^ 49,063 Unrealised profit on credit default swaps (note 5) ^ ^ ^ ^ ^ Unrealised profit on financial future contracts (note 7) ^ ^ ^ ^ ^ Option contracts at market value (note 8) ^ ^ ^ ^ ^ TOTL SSETS 136,279,836 2,675,440, ,784, ,972,713 16,365,618 LIBILITIES mounts payable on purchases of investments ^ 25,390,174 ^ 29,998, ,396 mounts payable on redemptions 11,436,952 15,745,629 1,081, ,615 31,120 Bank overdraft ^ ^ 1,122,623 ^ ^ Unrealised loss on forward foreign exchange contracts (note 4) ^ ^ ^ ^ ^ Unrealised loss on credit default swaps (note 5) ^ ^ ^ ^ ^ Unrealised loss on interest rate swaps (note 6) ^ ^ ^ ^ ^ Unrealised loss on financial future contracts (note 7) ^ ^ ^ ^ ^ Investment management fees payable (note 3) 186,624 2,916, ,557 71,529 12,944 Taxes and expenses payable 203,895 2,074, , ,183 13,123 TOTL LIBILITIES 11,827,471 46,127,247 2,668,785 31,095, ,583 TOTL NET SSETS 124,452,365 2,629,312, ,115, ,877,178 15,769,035 TREE YER SSET SUMMRY () () () () () June 30, ,183,627 1,620,905, ,924, ,504,519 35,496,924 June 30, ,060, ,098, ,853, ,922,713 10,424,882 June 30, ,976, ,379,856 88,291, ,409,607 7,983,329 The accompanying notes form an integral part of these financial statements 20