Franklin Templeton Fixed Income Group. Franklin Templeton Investment Funds Franklin Strategic Income Fund - A (acc) USD. Data as of 31 March 2018

Transcription

1 Franklin Templeton Fixed Income Group Data as of 31 March 2018 Franklin Templeton Investment Funds - A (acc) USD

2 Table of Contents Investment Capabilities Overview...3 Performance Risk Statistics W ho Is Franklin Templeton Investments?...4 Historical Sector W eightings...26 Franklin Templeton Fixed Income Global Investment Professional Presence... 5 Corporate Credit Research Team Mortgage Research Team...28 Franklin Templeton Fixed Income Group Investment Process Overview... 7 Franklin Floating Rate Debt Group Research Team...29 Franklin Templeton Fixed Income...8 Global Fixed Income Sovereign and Emerging Markets Debt...30 Investment Process Leverages the Entire Franklin Templeton Fixed Income Platform...9 Franklin Municipal Bond Team Franklin Templeton Fixed Income Multi-Sector Functional Chart...10 Quantitative Portfolio Management Team Investment Risk Management at Franklin Templeton...33 Risk Management...12 Management Profile...34 Summary...13 Glossary...38 W hat are the Key Risks?...14 Important Disclosures...39 Portfolio Characteristics...15 Geographic Allocation...16 Currency Allocation...17 Sector Exposure...18 Credit Quality Exposure Maturity Allocation...20 Coupon Allocation...21 Discrete Performance Historical Performance...23 Calendar Year Returns

3 Investment Capabilities Overview FRANKLIN TEMPLETON INVESTMENTS Total Combined Assets Under Management : US$737.5 Billion 2 AUM Equity 5 Fixed Income US$315.0 Billion CAPABILITIES Value Deep Value Core Value Blend GARP Growth Convertibles Sector Shariah Smart Beta INVESTMENT Templeton Global Equity Group (1940) TEAMS Franklin Equity Group (1947) Franklin Mutual Series (1949) Franklin Templeton Emerging Markets Equity (1987) 8 Multi-Asset Solutions US$290.0 Billion Government Municipals Corporate Credit Bank Loans Securitised Multi-Sector Currencies Sukuk Franklin Templeton Fixed Income Group (1970) Templeton Global Macro (1986) Franklin LAM-Fixed Income (1993) 11 US$124.0 Billion Income Real Return Balanced/Hybrid Total Return Target Date/Risk Absolute Return Tactical Asset Allocation Managed Volatility Franklin Templeton Multi-Asset Solutions (1996) Franklin SystematiQ (2011) Alternatives US$16.2 Billion Commodities Infrastructure Real Estate Hedge Funds Private Equity Franklin Real Asset Advisors (1984) Darby Overseas Investments (1994) K2 Advisors (1994) Pelagos Capital Management (2005) Source: Franklin Templeton Investments (FTI), as of 31 March 2018, based on latest available data. Total combined Assets Under Management (Total AUM) combines U.S. and non-u.s. AUM of the investment management subsidiaries of the parent company, Franklin Resources, Inc. (FRI) [NYSE: BEN], a global investment management organisation operating as FTI. Only selected business entities within FTI claim compliance with the GIPS standards as described in the table of contents if applicable. Total and platform AUM includes discretionary and non-discretionary accounts, including pooled investment vehicles, separate accounts and other vehicles. Total and platform AUM may also include advisory accounts with or without trading authority. In addition, assets for which certain FTI advisers provide limited asset allocation advisory services, and assets that are not allocated to FTI products are not included in the AUM figures shown. Franklin Templeton Multi-Asset Solutions may invest in various investment platforms advised by a number of investment advisory entities within FTI. Platform AUM reported for FT Multi-Asset Solutions therefore may include certain AUM separately reported under each utilised investment platform. Total AUM also includes assets managed by certain FTI advisers that do not form part of the selected investment platforms shown. As a result, the combined platform AUMs may not equal Total AUM and may be calculated and reported separately for regulatory or other purposes under each investment adviser. Each local asset manager may be considered as an entity affiliated with or associated to FTI by virtue of being a direct or indirect wholly-owned subsidiary of FRI, an entity or joint venture in which FRI owns a partial interest, which may be a minority interest, or a third party asset management company to which investment advisory services have been delegated by an FTI adviser. 3

4 0718 Who Is Franklin Templeton Investments? An Investment Management Organisation Focusing on research and investment management with more than 600 investment professionals covering all major asset classes Serving the needs of investors worldwide with a dedicated team of 2018 Franklin Templeton Investments total firm assets US$737.5 billion as of 31 March 2018 investment professionals 2001 Providing the resources, expertise, experience and commitment to ensure outstanding service to our clients 2000 Offering a broad range of investment strategies and vehicles Fiduciary Trust Company International joins Franklin Templeton Investments Bissett Investment Management joins Franklin Templeton Investments Franklin Resources, Inc. (BEN), stock is added to S&P 500 Index Mutual Series joins Franklin Templeton Investments Templeton joins Franklin Templeton Investments Franklin Resources, Inc., stock listed and begins trading on New York Stock Exchange Franklin Resources, Inc., moves offices from New York to California Franklin Resources, Inc., formed as a holding company going public as BEN Franklin Distributors, Inc., introduces its first mutual funds Investment professionals include portfolio managers, analysts and traders. As of 31 March

5 0299 Franklin Templeton Fixed Income Global Income Global Investment Professional Presence Warsaw Calgary London San Mateo New York Seoul Dubai Shanghai2 Mumbai Mexico City Hyderabad Singapore Kuala Lumpur Global Fixed Income Offices Fixed Income Local Asset Management (LAM) Offices1 São Paulo Buenos Aires Melbourne Over 180 global fixed income investment professionals3 provide broad coverage of potential alpha opportunities across sectors and around the world. 1. This unit is comprised of investment professionals located in affiliates of and joint venture partners with Franklin Templeton Investments. Reference to Local Asset Management is in relation to fixed income teams (excluding equity). 2. Includes individuals that are not employees of Franklin Resources, Inc. (FRI) or wholly owned subsidiaries of FRI. However, these individuals are part of our joint venture or strategic partnership relationships worldwide and are an integral component of our overall fixed income research efforts. 3. Investment professionals include portfolio managers, analysts and traders. As of 31 March

6 3837 An Actively Managed, Flexible Strategy Seeks to Provide Broad Exposure to the Fixed Income Markets Broad Fixed Income Exposure The fund seeks to provide broad exposure by actively and strategically investing across the fixed income universe, including U.S., international and emerging markets, investment- and below investment-grade securities and all varieties of fixed and floating rate income securities Opportunistic and Flexible Leverage Global Capabilities As this fund is unconstrained rather than benchmark- To uncover opportunities and pursue diversified sources driven, we have the flexibility to capitalise on market shifts and identify investments we believe provide the best prospects for current income and long-term capital appreciation of alpha across sectors, countries and securities, our investment process is structured to take full advantage of Franklin Templeton s global investment capabilities Diversification and Low Correlation Risk/Return Drives Security Selection We believe a portfolio built around a diversified set of Within each sector, we attempt to focus on attractive relatively low-correlated strategies and positions has the potential to generate attractive risk-adjusted returns over a full market cycle securities from a risk/return standpoint to drive the portfolio s total return performance based on individual security and broader sector allocation decisions 6

7 0300 Franklin Income Group Investment Group Investment Process Franklin Templeton Templeton Fixed Fixed Income Process Overview Overview Top-Down Macro Analysis Bottom-Up Sector Analysis Quantitative Analysis Fixed Income Policy Committee (FIPC) and Macro Strategists Senior leaders seek to capitalise on global economic trends Sector Allocation/Specialists Dedicated sector teams strive to add value through security- and sectorspecific insights Quantitative Analysts Dedicated team builds proprietary risk models to identify potential alpha opportunities Country Duration Currency Yield Curve Volatility Corporate Credit Sovereigns Securitised Bank Loans Municipals Relative Value Analysis Derivatives Long/Short Risk Arbitrage/Mispricing Combination of Skill and Expertise with a Wide Breadth of Independent Opportunities Portfolio Construction Expected Risk/Return Correlation Analysis Position Sizing Optimisation Goal Is to Create Diverse Portfolios of Low-Correlated Positions For illustrative purposes only. Our investment process is dynamic and subject to change. 7

8 0301 Franklin Templeton Fixed Income Michael Hasenstab, Ph.D. Chief Investment Officer Global Macro Global Sovereign Local Emerging Market Debt 20 Investment Professionals Christopher Molumphy, CFA Chief Investment Officer Corporate Credit Global Sovereign/ Emerging Markets Mortgages Bank Loans Municipals Local Asset Management1 Glenn Voyles, CFA Matt Fey, CFA John Beck William Ledward, Ph.D. Roger Bayston, CFA Mark Boyadjian, CFA Sheila Amoroso Rafael Costas Australia, Brazil, Canada, China,2 India, Korea, Malaysia, Mexico and UAE 33 Investment Professionals 12 Investment Professionals 9 Investment Professionals 18 Investment Professionals 31 Investment Professionals 45 Investment Professionals Quantitative: David Yuen, CFA, FRM, 7 Professionals Fixed Income Policy Committee Co-Chairs: Christopher Molumphy and Michael Materasso Dedicated Fixed Income Investment Professionals3 CFA Charterholders 14 Ph.D.s 62 M.B.A.s 1. This unit is comprised of investment professionals located in affiliates of and joint venture partners with Franklin Templeton Investments. Reference to Local Asset Management is in relation to fixed income teams (excluding equity). 2. Includes individuals that are not employees of Franklin Resources, Inc. (FRI) or wholly owned subsidiaries of FRI. However, these individuals are part of our joint venture or strategic partnership relationships worldwide and are an integral component of our overall fixed income research efforts. 3. Investment professionals include portfolio managers, analysts and traders. CFA and Chartered Financial Analyst are trademarks owned by CFA Institute. As of 31 March

9 3838 Investment Process Process Leverages the Entire Entire Franklin Templeton Fixed Income Platform Investment Top-Down Approach Fixed Income Policy Committee Macro Economic Corporate Credit Risk Management Sector-Specific Analysis Global Fixed Income Bank Loans Mortgages Franklin Strategic Income Fund Municipals Bottom-Up Approach 9

10 0807 Franklin Templeton Fixed Income Multi-Sector Functional Chart Christopher Molumphy, CFA Michael Hasenstab, Ph.D. Chief Investment Officer Chief Investment Officer Fixed Income Policy Committee Co-chairs: Christopher Molumphy and Michael Materasso Mortgages Quantitative Analysis (9 Professionals) (7 Professionals) 180+ Dedicated Fixed Income Investment Professionals Corporate Credit (33 Professionals) Investment Grade Credit Research High Yield Credit Research Franklin Strategic Income Fund Municipals (31 Professionals) US$290 Global Fixed Income Bank Loans (32 Professionals) (18 Professionals) billion in fixed income assets under management1 Local Asset Management (45 Professionals) 1. Includes aggregate Franklin Templeton Fixed Income assets managed through its affiliates. Professionals include portfolio managers, analysts and traders. CFA and Chartered Financial Analyst are trademarks owned by CFA Institute. As of 31 March

11 0775 Franklin Franklin Strategic Strategic Income Income Fund Fund The Fund s Flexible Mandate Allows It to Invest in a Wide Variety of Fixed Income Sectors, Including: Our Top Investment Ideas Can Be Sourced From: High-Yield Corporate Bonds Franklin High Income Fund U.S. Government and Agency Bonds Franklin U.S. Government Securities Fund Franklin Adjustable U.S. Government Securities Fund Franklin Limited Maturity U.S. Government Securities Fund International Bonds Templeton Global Bond Fund Templeton International Bond Fund Templeton Global Total Return Fund Mortgage-Backed Securities Franklin Strategic Mortgage Portfolio Floating Rate Loans Franklin Floating Rate Daily Access Fund Convertible Securities Franklin Convertible Securities Fund U.S. TIPS Franklin Real Return Fund Emerging Markets Templeton Emerging Markets Income Fund1 Municipal Bonds Franklin Municipal Bond Department Funds referenced are U.S.-registered open-end mutual funds. Franklin High Yield Fund, Franklin U.S. Government Securities Fund, Franklin Adjustable U.S. Government Securities Fund, Franklin Limited Maturity U.S. Government Securities Fund, Templeton International Bond Fund, Franklin Strategic Mortgage Portfolio, Franklin Floating Rate Daily Access Fund and Franklin Real Return Fund are neither registered nor available for distribution in Luxembourg and are mentioned for indicative purpose only. 1. Templeton Emerging Markets Income Fund is a closed-end fund. 11

12 0777 Risk Risk Management Management Our Methodology Includes the Following: Review Continual review of investments by Risk Management Group State-of-the-art compliance tools, including Charles River Measure and monitor sector and industry risk exposures Monitor risk indices exposures Expected return and risk of each active position is analysed Each active position is sized in the context of its contribution to the total risk budget Portfolio attribution is calculated for active positions Active positions are summarised in daily management reports Risk Analysis in Portfolio Construction Compliance system Quarterly formal audit review process conducted by the following groups: Portfolio Review Committee Global Portfolio Services Office of the Chairman Chief Executive Officer Seek to build portfolios with the most attractive risk/return profile Is the reward sufficient to compensate for the risk? How can downside risk be reduced? Monitor tracking error and deviations from custom benchmark metrics Maintain rigorous security selection Quantitative analysts sit on the trading desk and are tasked with both monitoring risks and recommending implementation of ideas Calculation of expected risk, return and correlation to drive portfolio construction Seek to ensure portfolios reflect prospectus objectives and limitations Front-end compliance Compliance officer on trading desk Monthly performance analysis 12

13 Summary - A (acc) USD As of 31 March 2018 Summary of Investment Objective The Fund aims to earn a high level of current income and seeks capital appreciation over the long term by investing principally in fixed and floating rate debt securities globally, including those in emerging markets. Morningstar Category Global Flexible Bond Investment Style Fixed Income - Total Return Fund Inception Date 12 July 2007 Share Class Inception Date 12 July 2007 Portfolio Manager(s) Benchmark Bloomberg Barclays U.S. Aggregate Index Christopher J. Molumphy, CFA United States Base Currency for Fund USD Roger Bayston, CFA United States Base Currency for Share Class USD Patricia O'Connor, CFA United States Total Net Assets (USD) 1,007,586, Kent Burns, CFA United States Asset Allocation Fixed Income: 93.77% Cash & Cash Equivalents: 5.76% Equity: 0.47% Number of Holdings 720 Total Expense Ratio 1.35% Fund Identifiers ISIN Code LU SEDOL Code B1Z6FP9 Bloomberg Code FTSIACU LX Fund Ratings (31 March 2018) Overall Morningstar Rating «««Morningstar, Inc All rights reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Information is historical and may not reflect current or future portfolio characteristics. All portfolio holdings are subject to change. Asset Allocation 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 any derivatives, unsettled trades or other factors. The fund offers other share classes subject to different fees and expenses, which will affect their performance. Please see the prospectus for details. Past performance is not an indicator or a guarantee of future performance. 13

14 What are the Key Risks? The value of shares in the Fund and income received from it can go down as well as up and investors may not get back the full amount invested. Performance may also be affected by currency fluctuations. Currency fluctuations may affect the value of overseas investments. The Fund invests mainly in debt securities of any quality from issuers of both developed and emerging countries. Such securities have historically been subject to price movements, generally due to interest rates, foreign exchange rates or movements in the bond market. As a result, the performance of the Fund can fluctuate moderately over time. The Fund may distribute income gross of expenses. W hilst this might allow more income to be distributed, it may also have the effect of reducing capital. Other significant risks include: credit risk, derivatives risk, emerging markets risk, liquidity risk. For full details of all of the risks applicable to this Fund, please refer to the Risk Considerations section of the Fund in the current prospectus of Franklin Templeton Investment Funds. 14

15 Portfolio Characteristics vs. Bloomberg Barclays U.S. Aggregate Index As of 31 March 2018 Portfolio Index BBB AA Average Duration 4.00 Yrs 6.08 Yrs Average W eighted Maturity 5.86 Yrs 8.37 Yrs Yield to Maturity 4.60% 3.12% Yield to W orst 4.49% 3.12% Average Credit Quality Information is historical and may not reflect current or future portfolio characteristics. All portfolio holdings are subject to change. Average Duration, Average Weighted Maturity, Yield to Maturity and Yield to Worst reflect certain derivatives held in the portfolio (or their underlying reference assets). Source: Franklin Templeton Investments. The average credit quality (ACQ) rating may change over time. The portfolio itself has not been rated by an independent rating agency. The letter rating, which may be based on bond ratings from different agencies, is provided to indicate the average credit rating of the portfolio s underlying bonds and generally ranges from AAA (highest) to D (lowest). The ACQ is determined by assigning a sequential integer to all credit ratings AAA to D, taking a simple, asset-weighted average of debt holdings by market value and rounding to the nearest rating. The risk of default increases as a bond s rating decreases, so the ACQ provided is not a statistical measurement of the portfolio s default risk because a simple, weighted average does not measure the increasing level of risk from lower rated bonds. The ACQ is provided for informational purposes only. Derivative positions and unrated securities are not reflected in the ACQ. Yield figures quoted should not be used as an indication of the income that has or will be received. Yield figures are based on the portfolio's underlying holdings and do not represent a payout of the portfolio. 15

16 Geographic Allocation vs. Bloomberg Barclays U.S. Aggregate Index As of 31 March 2018 United States United Kingdom Mexico Indonesia Brazil China France Argentina Netherlands Republic of Serbia Canada Germany Supranational ST Cash and Cash Equivalents 0% 25% 50% 75% 100% Bloomberg Barclays U.S. Aggregate Index NORTH AMERICA UNITED STATES CANADA EUROPE NON-EMU EUROPE United Kingdom Republic of Serbia Ukraine Switzerland Russia Hungary Sweden Poland Other EMU EUROPE France Netherlands Luxembourg Germany Ireland Italy Belgium Spain Other LATIN AMERICA / CARIBBEAN Mexico Brazil Argentina Colombia Bermuda Cayman Islands Chile Other ASIA Portfolio % Index % Over/Under % ASIA EX-JAPAN Indonesia China India Malaysia South Korea Macau Philippines Other JAPAN MIDDLE EAST / AFRICA United Arab Emirates Israel Zambia Other AUSTRALIA / NEW ZEALAND Australia OFFSET SUPRANATIONAL OTHER ST CASH AND CASH EQUIVALENTS Portfolio % Index % Over/Under % Information is historical and may not reflect current or future portfolio characteristics. All portfolio holdings are subject to change. 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 any derivatives, unsettled trades or other factors. 16

17 Currency Allocation vs. Bloomberg Barclays U.S. Aggregate Index As of 31 March 2018 NORTH AMERICA U.S. DOLLAR NON-US DOLLAR Mexican Peso Canadian Dollar ASIA ASIA EX-JAPAN Indian Rupee Indonesian Rupiah Malaysian Ringgit South Korean W on AUSTRALIA/NEW ZEALAND Australian Dollar LATIN AMERICA / CARIBBEAN Brazilian Real Argentine Peso EUROPE NON-EURO Polish Zloty Swedish Krona Norwegian Krone British Pound Swiss Franc Euro U.S. Dollar Mexican Peso Canadian Dollar Indian Rupee Indonesian Rupiah Malaysian Ringgit South Korean Won Australian Dollar Brazilian Real Argentine Peso Polish Zloty Swedish Krona Norwegian Krone British Pound Portfolio % Index % Over/Under % Swiss Franc Euro -5% 16% 37% 58% 79% 100% Bloomberg Barclays U.S. Aggregate Index Information is historical and may not reflect current or future portfolio characteristics. All portfolio holdings are subject to change. 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 any derivatives, unsettled trades or other factors. 17

18 Sector Exposure vs. Bloomberg Barclays U.S. Aggregate Index As of 31 March 2018 High Yield Corporates Bank Loans Investment Grade Corporates International Bonds Agency Mortgage-Backed Securities Residential Mortgage-Backed Securities Collateralized Loan Obligations U.S. Treasury ABS Treasury Inflation-Protected Securities CMBS Municipal Bonds Others Covered Bonds U.S. Agency Cash & Cash Equivalents High Yield Corporates Bank Loans Investment Grade Corporates International Bonds Agency Mortgage-Backed Securities Residential Mortgage-Backed Securities Collateralized Loan Obligations U.S. Treasury ABS Treasury Inflation-Protected Securities CMBS Portfolio % Index % Over/Under % Municipal Bonds Others Covered Bonds U.S. Agency Cash & Cash Equivalents 0% 8% 16% 24% 32% 40% Bloomberg Barclays U.S. Aggregate Index Information is historical and may not reflect current or future portfolio characteristics. All portfolio holdings are subject to change. Figures are intended to estimate the portfolio s exposure, including any hedged or increased exposure through 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 any derivatives, unsettled trades or other factors. 18

19 Credit Quality Exposure vs. Bloomberg Barclays U.S. Aggregate Index As of 31 March 2018 AAA AA A BBB BB B CCC CC C D NR N/A Cash Investment Grade Non-Investment Grade N/A Cash AAA AA A BBB BB B CCC CC C D Portfolio % Index % Over/Under % NR N/A Cash 0% 20% 40% 60% 80% Bloomberg Barclays U.S. Aggregate Index Information is historical and may not reflect current or future portfolio characteristics. All portfolio holdings are subject to change. Figures are intended to estimate the portfolio's exposure to issuer credit risk, including any hedged or increased exposure through credit derivatives held in the portfolio (or their underlying reference assets), and may not total 100% or may be negative due to rounding, use of any derivatives, unsettled trades or other factors. Any credit derivatives are assigned the ratings of their underlying reference assets. 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. The NR category consists of rateable securities that have not been rated by an NRSRO. The N/A category consists of nonrateable securities (e.g., equities). Cash includes equivalents, which may be rated. 19

20 Maturity Allocation vs. Bloomberg Barclays U.S. Aggregate Index As of 31 March to 1 Year 1 to 2 Years 2 to 3 Years 3 to 5 Years 5 to 7 Years 7 to 10 Years 10 to 15 Years 15 to 20 Years 20 to 30 Years 30+ Years N/A 0 to 1 Year 1 to 2 Years 2 to 3 Years 3 to 5 Years 5 to 7 Years 7 to 10 Years Portfolio % Index % Over/Under % to 15 Years 15 to 20 Years 20 to 30 Years 30+ Years N/A 0% 10% 20% 30% 40% Bloomberg Barclays U.S. Aggregate Index Information is historical and may not reflect current or future portfolio characteristics. All portfolio holdings are subject to change. 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 any derivatives, unsettled trades or other factors. 20

21 Coupon Allocation vs. Bloomberg Barclays U.S. Aggregate Index As of 31 March 2018 Coupon 0-0.5% 0.5-1% 1-1.5% 1.5-2% 2-2.5% 2.5-3% 3-3.5% 3.5-4% 4-4.5% 4.5-5% 5-5.5% 5.5-6% 6-6.5% 6.5-7% 7-7.5% 7.5-8% 8-8.5% 8.5-9% 9-9.5% % % % % % % % > 15% Cash N/A Offset Derivatives Portfolio % Index % Over/Under % Information is historical and may not reflect current or future portfolio characteristics. All portfolio holdings are subject to change. 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 any derivatives, unsettled trades or other factors. 21

22 Discrete Performance - A (acc) USD As of 31 March 2018 Discrete Annual Performance (%) - A (acc) USD Net of Fees Bloomberg Barclays U.S. Aggregate Index Inception Date 03/17 03/18 03/16 03/17 03/15 03/16 03/14 03/15 03/13 03/ All performance data shown is in the Fund currency stated and net of management fees. Sales charges and other commissions, taxes and other relevant costs paid by the investor are not included in the calculations. Performance data may represent blended share class performance, e.g., hybrid created from an A (dis) share class which was converted to A (acc). The fund offers other share classes subject to different fees and expenses, which will affect their performance. Please see the prospectus for details. The value of shares in the Fund and income received from it can go down as well as up, and investors may not get back the full amount invested. Past performance is not an indicator or a guarantee of future performance. Current performance may differ from figures shown. Currency fluctuations may affect the value of overseas investments. When investing in a fund denominated in a foreign currency, performance may also be affected by currency fluctuations. Please visit franklintempleton.lu for current performance. 22

23 Historical Performance - A (acc) USD As of 31 March 2018 Annualised Total Returns (%) - A (acc) USD Net of Fees Inception Date 1 Yr 3 Yrs 5 Yrs 10 Yrs Since Incept Inception Date 1 Mth 3 Mths YTD 1 Yr 3 Yrs 5 Yrs 10 Yrs Since Incept Bloomberg Barclays U.S. Aggregate Index Cumulative Performance (%) - A (acc) USD Net of Fees Bloomberg Barclays U.S. Aggregate Index All performance data shown is in the Fund currency stated and net of management fees. Sales charges and other commissions, taxes and other relevant costs paid by the investor are not included in the calculations. Performance data may represent blended share class performance, e.g., hybrid created from an A (dis) share class which was converted to A (acc). The fund offers other share classes subject to different fees and expenses, which will affect their performance. Please see the prospectus for details. The value of shares in the Fund and income received from it can go down as well as up, and investors may not get back the full amount invested. Past performance is not an indicator or a guarantee of future performance. Current performance may differ from figures shown. Currency fluctuations may affect the value of overseas investments. When investing in a fund denominated in a foreign currency, performance may also be affected by currency fluctuations. Please visit franklintempleton.lu for current performance. 23

24 Calendar Year Returns - A (acc) USD As of 31 March % % % % -11% YTD A (acc) USD Net of Fees Bloomberg Barclays U.S. Aggregate Index All performance data shown is in the Fund currency stated and net of management fees. Sales charges and other commissions, taxes and other relevant costs paid by the investor are not included in the calculations. Performance data may represent blended share class performance, e.g., hybrid created from an A (dis) share class which was converted to A (acc). The fund offers other share classes subject to different fees and expenses, which will affect their performance. Please see the prospectus for details. The value of shares in the Fund and income received from it can go down as well as up, and investors may not get back the full amount invested. Past performance is not an indicator or a guarantee of future performance. Current performance may differ from figures shown. Currency fluctuations may affect the value of overseas investments. When investing in a fund denominated in a foreign currency, performance may also be affected by currency fluctuations. Please visit franklintempleton.lu for current performance. 24

25 Performance Risk Statistics - A (acc) USD As of 31 March 2018 Performance Risk Statistics 1 Yr 3 Yrs* 5 Yrs* 10 Yrs* - A (acc) USD Bloomberg Barclays US Aggregate Index Information Ratio^^ Sharpe Ratio Standard Deviation (%): Tracking Error (%)^^ The base currency of a fund determines the risk-free rate index used in calculating certain risk statistics on this page. A fund that is based in USD uses the US T-Bill Index as the risk free rate return, a EUR-based fund uses the Euro 3-Month T-Bill Index, a GBP-based fund uses the UK Treasury Bills 3 Month Index, a JPY-based fund uses the Japan Financing Bill 3 Month Index, and an AUD-based fund uses the Australia T-Note 3 Month Index. ^^Measured against the Bloomberg Barclays US Aggregate Index. *Annualised. Past performance is not an indicator or a guarantee of future performance. 25

26 1217 Historical Historical Sector Sector Weightings Exposure As of 31 December % Agency MBS¹ ABS 90% Bank Loans CMBS 80% Collateralised Loan Obligations International Bonds 70% % Total Portfolio IG Corporates 60% HY Corporates Munis 50% RMBS¹ U.S. Agency 40% U.S. Treasury Other 30% Treasury Inflation-Protected Securities² 20% Cash & Cash Equivalents 10% 0% Effective 31 December 2016, the broad Mortgage-Backed Securities sector was broken out into two components, Residential Mortgage-Backed Securities and Agency Mortgage-Backed Securities. The break out is not available prior to Effective 31 December 2017, the Treasury Inflation-Protected Securities sector was broken out from the U.S. Treasury sector. Figures are intended to estimate the portfolio's exposure, including any hedged or increased exposure through 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 any derivatives, unsettled trades or other factors. 26

27 0307 Corporate Credit Research Team Comprehensive Coverage Globally integrated team of experienced credit analysts fosters intensive industry and issuer coverage Matt Fey, CFA Director of Research, Corporate Bonds Global coverage facilitates cross-currency investment analysis and relative value assessment Research Orientation 24 Credit Research Analysts Located in San Mateo, New York, London and Singapore Consistent credit process emphasises in-depth fundamental analysis, with analysts taking a proactive, forward-looking approach Joint investment-grade/high-yield team approach Collaboration, as permitted by confidentiality agreements, between global equity analysts, fixed income Local Asset Management (LAM) teams1 and the Floating Rate Debt Group Equity Analysts Provide Additional Perspective on Companies Globally Floating Rate Debt Group 18 Dedicated Professionals Joint company visits Shared coverage responsibilities Ongoing dialogue 23 Fixed Income Local Asset Management Analysts Market Presence Franklin Templeton s depth and breadth as a large company allows Provide Local Perspective Located in Calgary, Dubai, Hyderabad, Kuala Lumpur, Melbourne, Mexico City, Mumbai, Sao Paulo, Seoul for potential opportunities to access sell side resources and new issues 1. Includes individuals that are not employees of Franklin Resources, Inc. (FRI) or wholly owned subsidiaries of FRI. However, these individuals are part of our joint venture or strategic partnership relationships worldwide and are an integral component of our overall fixed income research efforts. Analysts include research analysts and research associates. CFA and Chartered Financial Analyst are trademarks owned by CFA Institute. As of 31 March

28 0541 Mortgage Research Team Research Orientation Roger Bayston, CFA Senior Vice President Analysts cover a broad range of securitised bonds across a variety of product types, origination years and coupon structures Evaluate generics relative to other mortgage sectors including: Non-Agency CMOs Agency CMOs Non-Agency RMBS Supply/demand technicals Quantitative Focus Quantitative models utilised to analyse the impact of change in volatility, spread movements, prepayments and yield curve movements Paul Varunok Lead Portfolio Manager Neil Dhruv Trading Debra Chen, CFA, Ph.D. RMBS, Covered Bonds Pururav Thoutireddy Securitized and Structured Products, CMBS, CDOs, Agency MBS Someshwar Marepalli, CFA Research Analyst; MBS, CMBS Proprietary systems and nonproprietary systems are used to evaluate securities independently from market expectations and to help us understand the market s underlying assumptions Aviraj Chatterjee Research Analyst; RMBS, ABS Nikhil Jagannathan Research Analyst; MBS, Systems Vivek Ravuri Research Analyst; MBS, Systems Professionals include portfolio managers, analysts and traders. CFA and Chartered Financial Analyst are trademarks owned by CFA Institute. As of 31 March

29 0308 Franklin Floating Rate Debt Group Research Team Fundamental Analysis Mark Boyadjian, CFA Independent investment team conducting bottom-up credit research Director of Franklin Floating Rate Debt Group through proprietary financial data in order to continuously assess, monitor and communicate changes in the sector Dedicated team of 18 professionals with US$13.1 billion in total assets under management1 Disciplined Approach Rigorous sell discipline combined with decisive portfolio management Focus on issues with the potential to generate relatively high income levels with characteristics that indicate low probability of default and low expected loss in the event of default Focus on capital preservation by seeking higher quality issues with stronger asset coverage Retail Funds Portfolio Managers Institutional Portfolios Portfolio Managers Floating Rate Debt Research Dept Mark Boyadjian, CFA Madeline Lam Justin Ma, CFA Mark Boyadjian, CFA Alex Yu, Ph.D., CFA Hague Van Dillen Margaret Chiu, CFA Reema Agarwal, CFA 1 Portfolio Analyst 8 Research Analysts Director of Research Maintain diversified portfolios through disciplined portfolio construction Risk Management Integrate risk management in portfolio construction by estimating expected Large team supported by deep resources Thorough company and sector coverage from multiple perspectives Well-established execution and deal structuring capabilities frequency of default and loss in event of default, as well as total value at risk Professionals include portfolio managers, research analysts, portfolio analysts and traders. CFA and Chartered Financial Analyst are trademarks owned by CFA Institute. As of 31 March The AUM is comprised of pooled vehicles and other accounts for which the Floating Rate Debt Group provides discretionary investment management advice. This AUM figure is an approximation only and has not been audited. 29

30 0306 Global Fixed Income Sovereign and Emerging Markets Debt Comprehensive Coverage Conduct rigorous research on developed and emerging countries Disciplined application of various exchange rate equilibrium models and scenario analyses Global Fixed Income Research 33 Professionals located in London, New York, San Mateo and Singapore Coverage includes Global Sovereign, Emerging Markets and Currency Frequent interaction and consultation with global equity research analysts and local asset management investment professionals Research Orientation Consistent research process emphasises in-depth fundamental analysis, with analysts taking a proactive, forward-looking approach Multi-faceted proprietary research focused on macroeconomic country Franklin Templeton Fixed Income Group Local Asset Management1 Australia, Brazil, Canada, China,2 India, Malaysia, Mexico, Poland, South Korea and United Arab Emirates (UAE) 45 Fixed Income Investment Professionals Provide additional perspective on local market dynamics fundamentals, currency and interest rate analysis Market Presence Size and breadth of Franklin Templeton Investments provides better access to information and markets Franklin Templeton Emerging Markets Equity and Templeton Global Equity Groups1 123 Investment Professionals Provide additional perspective on local market dynamics Global trading platform provides ability to trade directly in many local markets 1. This unit is comprised of investment professionals located in affiliates of and joint venture partners with Franklin Templeton Investments. Reference to Local Asset Management is in relation to fixed income teams (excluding equity). 2. Includes individuals that are not employees of Franklin Resources, Inc. (FRI) or wholly owned subsidiaries of FRI. However, these individuals are part of our joint venture or strategic partnership relationships worldwide and are an integral component of our overall fixed income research efforts. Investment professionals include portfolio managers, analysts and traders. As of 31 March

31 0776 Franklin Municipal Bond Team As of 31 March 2018 Sheila Amoroso Co-Director, Senior Vice President Rafael Costas Co-Director, Senior Vice President Thomas Walsh Senior Vice President, Director of Research Molly Butler Vice President, Manager of Research James Conn, CFA SVP, Portfolio Manager John Pomeroy SVP, Portfolio Manager Grace Cheng VP, Research Analyst Lawrence Pascal VP, Research Analyst Michael Conn VP, Portfolio Manager Francisco Rivera VP, Portfolio Manager Robin Fisher VP, Research Analyst Michael Shepard VP, Research Analyst Carrie Higgins VP, Portfolio Manager Christopher Sperry, CFA VP, Portfolio Manager Jennifer Johnston VP, Research Analyst Lisa Shirley VP, Research Analyst Daniel Workman, CFA VP, Portfolio Manager John Wiley SVP, Portfolio Manager James Lucas, CFA VP, Research Analyst Robert Yolland SVP, Research Analyst John Bonelli Portfolio Manager Stella Wong VP, Portfolio Manager Scott Owens, CFA VP, Research Analyst Amanda Stewart VP, Research Analyst Rose Donatelli Portfolio Assistant Jeff Snyder VP, Dir, Senior Portfolio Manager Vander Shanholt, CFA VP, Research Analyst Kristen Lambert, CFA VP, Research Analyst Frances Liu Senior Portfolio Analyst Dylan Sanderson Portfolio Manager Gregory Danielian Research Analyst Kelley Birch Research Analyst Nicholas Bucklin, CFA VP, Portfolio Manager Dulce Demee Investment Administration Associate CFA and Chartered Financial Analyst are trademarks owned by CFA Institute. 31

32 0309 Quantitative Portfolio Management Team Functions That Can Add Value Analytical tools David Yuen, CFA, FRM Senior Vice President Individual position sizing Allocations of risk capital Alpha generation potential sought Sector allocations and portfolio optimisations Original Research Supports Idea Generation Team contributes active alpha ideas for portfolio consideration Topics may include: Quantitative credit modelling (default and recovery) Capital structure opportunities (loan, bond, convertible, preferred, hybrid, equity) Credit curve dynamics Tina Chou Credit Derivatives, Basis Trades, Long/Short Credit William Chong, CFA, FRM Currency and Rates Derivatives, Cross Border Arbitrage Anthony Pecore Portfolio Construction, Hedging Factor Modelling, Statistical and Risk Analyses Patrick Klein, Ph.D. Securitised and Structured Products, Inflation, Portfolio Construction, Quant Modelling David Luria, CFA Credit and Currency Derivatives, Basis Trades, Long/Short Credit Long-short basis opportunities Credit derivative and hedging strategies Rick Li, Ph.D. Macro-econometrics, Rates and Currencies Volatility and correlation Loan prepayment model Professionals include portfolio managers, analysts and traders. CFA and Chartered Financial Analyst are trademarks owned by CFA Institute. As of 31 March

33 6215 Investment Risk Risk Management Management at at Franklin Templeton Investment As investors and stewards of our clients capital, we are constantly searching for greater transparency into the drivers of investment risk in our strategies and assuring alignment with investment team convictions and client expectations. Investment risk management at Franklin Templeton: Begins with the portfolio Is strengthened by the independent Is powered by actionable insights management team s research Investment Risk Management from 20+ risk consultants with an process and the assessment of Group that reports directly to average of 10 years experience and market and active risk the CEO 75+ risk analysts located around the globe Is supported by integrated risk Serves multiple stakeholders Combines a mosaic of analytics, analytics for the portfolio including investors, portfolio management team s use managers, fund boards and oversight protocols and regulators collaborative consultation with portfolio managers Integrated Independent Insightful As of 31 March

34 Management Profile CHRISTOPHER J. MOLUMPHY, CFA Executive Vice President Chief Investment Officer Franklin Templeton Fixed Income Group Franklin Advisers, Inc. San Mateo, California, United States Christopher J. Molumphy is executive vice president and chief investment officer of the Franklin Templeton Fixed Income Group. In this role, Mr. Molumphy oversees Franklin's Municipal, High Yield, Investment Grade, Global (including Emerging Markets), Money Market, Floating Rate and Local Asset Management-Fixed Income teams, and Co-Chairs the Group's Fixed Income Policy Committee. He is a member of Franklin Resources' executive committee, a small group of the company's top leaders responsible for shaping the firm's overall strategy. In addition, he serves on the firm's management and investment committees. Mr. Molumphy is also named portfolio manager to a number of institutional separate accounts and funds, including, Franklin High Income Fund and Franklin Total Return Fund. Mr. Molumphy joined Franklin Templeton Investments as an analyst in 1988 and has served as a portfolio manager since Prior to assuming his current role in 2000, he served as director of Franklin's High Yield and Investment Grade teams since Mr. Molumphy earned his bachelor's degree in economics from Stanford University and an M.B.A. in finance from the University of Chicago Graduate School of Business. He is a Chartered Financial Analyst (CFA) charterholder, as well as a member of the Security Analysts of San Francisco (SASF), the CFA Institute, the Stanford Institute for Economic Policy Research (SIEPR), and the San Francisco Bond Club. 34

35 Management Profile ROGER BAYSTON, CFA Senior Vice President Director, Fixed Income Franklin Templeton Fixed Income Group Franklin Advisers, Inc. San Mateo, California, United States Roger Bayston is a senior vice president for the Franklin Templeton Fixed Income Group. He is also a senior portfolio manager for several fixed income products and private accounts for Franklin Templeton Investments. Mr. Bayston directs a staff performing research and trading responsibilities for government, mortgage- and asset-backed securities. He sits on the Fixed Income Policy Committee and helps set portfolio strategy for multi-sector fixed income portfolios. In addition, he leads the team responsible for developing and implementing quantitative-based fixed income strategies of Franklin's bond portfolios and fixed income products. Before joining Franklin Templeton Investments in 1991, Mr. Bayston managed portfolios of fixed income securities for Bankers Trust Company's Investment Management Group. Mr. Bayston holds a B.S. from the University of Virginia and an M.B.A. from the University of California at Los Angeles. He is a member of the Security Analysts of San Francisco and CFA Institute. He is also a Chartered Financial Analyst (CFA) charterholder. 35

36 Management Profile PATRICIA O'CONNOR, CFA Vice President Portfolio Manager Franklin Templeton Fixed Income Group Franklin Advisers, Inc. San Mateo, California, United States Patricia (Tricia) O'Connor is a vice president and portfolio manager for the Franklin Templeton Fixed Income Group. She co-manages multiple US and global high yield funds as well as institutional separate accounts. Ms. O'Connor also co-manages the Strategic Income and Multi-Sector Credit Funds. Prior to joining Franklin Templeton in 1997, Ms. O'Connor worked for Morgan Stanley Asset Management. Ms. O'Connor holds a B.S. in accounting from Lehigh University and an M.B.A. in finance and economics from the University of Chicago. She is a Chartered Financial Analyst (CFA) charterholder, as well as a member of the CFA Society of San Francisco and CFA Institute. 36

37 Management Profile KENT BURNS, CFA Senior Vice President Portfolio Manager Franklin Templeton Fixed Income Group Franklin Advisers, Inc. San Mateo, California, United States Kent Burns is a senior vice president and portfolio manager for the Franklin Templeton Fixed Income Group. He specializes in U.S. multi-sector fixed income strategies and government-related bonds. Mr. Burns joined Franklin Templeton Investments in He holds a B.A. in quantitative economics and decision science from University of California at San Diego, and a master's degree in economic theory from University of California at Santa Barbara. He is a Chartered Financial Analyst (CFA) charterholder and teaches review programs for CFA candidates. He is a member of the CFA Institute and the CFA Society of San Francisco. 37