Templeton China World Fund Advisor Class

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1 Templeton China World Fund Advisor Class Equity Product Profile Product Details 1 Fund Assets $290,551, Fund Inception Date 09/08/1993 Number of Issuers 51 NASDAQ Symbol TACWX Maximum Sales Charge 0.00 Investment Style Benchmark Lipper Classification Morningstar Category Dividend Frequency Asset Allocation 2 Equity Cash & Cash Equivalents 1.04 MSCI Golden Dragon Index China Region Funds China Region Annually in December % 25% 50% 75% 100% 125% Fund Description The fund seeks long-term capital appreciation by investing at least 80% of its net assets in securities of China companies. For purposes of the fund s investments, China companies are companies that are organized under the laws of, or with a principal office in, the People s Republic of China (China), Hong Kong or Taiwan; companies whose principal trading market is in China, Hong Kong or Taiwan; companies that derive at least 50% of their revenues from goods or services sold or produced in China; or companies that have at least 50% of their assets in China. Performance Data 3 Average Annual Total Returns 4 (%) Since Inception 3 Mths YTD 1 Yr 3 Yrs 5 Yrs 10 Yrs 20 Yrs (09/08/1993) Advisor Class MSCI Golden Dragon Index 20% 10% 0% -10% Mths YTD 1 Yr 3 Yrs 5 Yrs 10 Yrs 20 Yrs Since Inception Advisor Class Total Annual Operating Expenses With Waiver:1.6% Without Waiver: 1.66% Performance data represents past performance, which does not guarantee future results. Current performance may differ from figures shown. The fund s investment return and principal value will change with market conditions, and you may have a gain or a loss when you sell your shares. Please call Franklin Templeton Investments at (800) DIAL BEN/ or visit franklintempleton.com for the most recent month-end performance. Advisor Class shares are offered only to certain eligible investors as stated in the prospectus. They are offered without sales charges or Rule 12b-1 fees. The fund offers other share classes subject to different fees and expenses, which will affect their performance. Please see the prospectus for details. The fund has an expense reduction contractually guaranteed through 05/31/2019. Fund investment results reflect the expense reduction; without this reduction, the results would have been lower. Calendar Year Returns (%) Advisor Class MSCI Golden Dragon Index 1. All holdings are subject to change. Holdings of the same issuers have been combined. 2. Information is historical and may not reflect current or future portfolio characteristics. Percentage may not equal 100% due to rounding. All holdings are subject to change. 3. Source for Index: FactSet. Indexes are unmanaged, and one cannot invest directly in an index. They do not reflect any fees, expenses or sales charges. 4. Periods shorter than one year are shown as cumulative total returns. Not FDIC Insured May Lose No Bank Guarantee

2 Portfolio Manager Insight 5 Performance Review QUARTERLY KEY PERFORMANCE DRIVERS Helped Hurt Stocks Concrete and cement manufacturers based in China performed strongly over the quarter, as China s supply-side reforms and pollution curbs helped reduce capacity in the cement industry and provided a positive backdrop for the country s leading producers. Asia Cement (China) Holdings, in particular, saw its first-half sales and earnings surge. Energy stocks, including China Petroleum & Chemical Corporation (Sinopec), one of the largest integrated energy and chemical companies in China, benefited from rising oil prices, as Brent crude touched US$80 per barrel in September. In contrast, Uni-President China Holdings detracted. China s largest manufacturer of beverages and instant noodles saw post-dividend profit-taking after strong performance. Outlook & Strategy In the last decade, China has surpassed the United States to become a far more important export market for most large emerging economies, mainly due to its burgeoning consumer market. Thus, trade growth now predominantly comes from intra-emerging market demand. Rising protectionism in the West may further pivot focus towards regional agreements; indeed, China appears eager to replace US trade leadership in Asia. An escalation in the trade dispute between the US and China has come at a challenging time, when China s labor-cost advantage is fading and it is embarking upon the process of deleveraging. However, we believe supply-side reforms and deleveraging could help ease structural risks. Meanwhile, a shift towards innovation, technology and consumption as primary drivers of growth supports improved earnings sustainability. Corporate results have also been encouraging, with many companies not just reporting improved operating and financial performance, but also proposing to pay out a higher portion of earnings to shareholders. In general, we continue to like themes such as the structural growth in the technology sector, rising consumption and economic reforms. Technology is reshaping the global economy. While emerging markets were once disadvantaged by poor infrastructure, digitalization and new technologies have enabled China to address development challenges. We aim to look beyond the noise of negative news headlines and instead focus on the underlying fundamentals of the Chinese asset class. We find a disconnect between the negative sentiment permeating the market and positive Chinese equity fundamentals, including rising cash flows, improving capital-allocation discipline, corporate deleveraging, healthy earnings and discounted valuations. 5. The information provided is not a complete analysis of every material fact regarding any country, market, industry, security or fund. Because market and economic conditions are subject to change, comments, opinions and analyses are rendered as of the date of this material and may change without notice. A portfolio manager s assessment of a particular security, investment or strategy is not intended as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy; it is intended only to provide insight into the fund s portfolio selection process. Holdings are subject to change. Portfolio Characteristics 6,7,8,9 Asia Cement (China) Holdings Corp. China Petroleum & Chemical Corporation Class H Taiwan Semiconductor Manufacturing Co., Ltd. Uni-President China Holdings Ltd. ANTA Sports Products Ltd. Nine Dragons Paper Holdings Ltd. Portfolio Price to Earnings (12 Month Trailing) 12.14x 13.37x Price to Book 1.45x 1.65x Price to Cash Flow 6.73x 9.79x Market Capitalization (Millions in USD) 134,928 96,402 Annual Turnover Ratio (08/31/2017) 7.92% - Sectors Materials (Stock Selection) Information Technology (Stock Selection) Energy (Overweight) Financials (Stock Selection) Consumer Staples Utilities (Underweight) 6. The portfolio characteristics listed are based on the fund s underlying holdings, and do not necessarily reflect the fund s characteristics. Due to data limitations all equity holdings are assumed to be the primary equity issue (usually the ordinary or common shares) of each security s issuing company. This methodology may cause small differences between the portfolio s reported characteristics and the portfolio s actual characteristics. In practice, Franklin Templeton s portfolio managers invest in the class or type of security which they believe is most appropriate at the time of purchase. The market capitalization figures for both the portfolio and the benchmark are at the security level, not aggregated up to the main issuer. Source: Factset. Price ratio calculations for weighted average use harmonic means. Any exceptions to this are noted. Information is historical and may not reflect current or future portfolio characteristics. All holdings are subject to change. 7. Source: FactSet. Price ratio calculations for weighted average use harmonic means. Any exceptions to this are noted. 8. Turnover Ratio is as of the fund s fiscal year-end. 9. Source for Index: FactSet. Indexes are unmanaged, and one cannot invest directly in an index. They do not reflect any fees, expenses or sales charges. franklintempleton.com 2

3 Portfolio Diversification Top Ten Holdings 10 Top Holdings Sector % TAIWAN SEMICONDUCTOR MANUFACTURING CO LTD TENCENT HOLDINGS LTD ALIBABA GROUP HOLDING LTD CHINA PETROLEUM & CHEMICAL CORP ANTA SPORTS PRODUCTS LTD UNI-PRESIDENT CHINA HOLDINGS LTD CHINA CONSTRUCTION BANK CORP Semiconductors & Semiconductor Equipment Media & Entertainment 8.70 Retailing 7.58 Energy 5.82 Consumer Durables & 5.56 Apparel Food, Beverage & 4.76 Tobacco Banks 4.46 AIA GROUP LTD Insurance 4.15 INDUSTRIAL AND Banks 3.54 COMMERCIAL BANK OF CHINA LTD CHINA MOBILE LTD Telecommunication Services 2.79 Sector Weightings vs. 11,12 Consumer Discretionary Financials Communication Services Information Technology Consumer Staples Energy Industrials Health Care Materials Real Estate Utilities Cash & Cash Equivalents % 5% 10% 15% 20% 25% 30% Templeton China World Fund Supplemental Performance Statistics 3 Yrs 5 Yrs 10 Yrs Standard Deviation (%) Tracking Error (%) Information Ratio Beta Sharpe Ratio Performance data represents past performance, which does not guarantee future results. Current performance may differ from figures shown. The fund s investment return and principal value will change with market conditions, and you may have a gain or a loss when you sell your shares. Please call Franklin Templeton Investments at (800) DIAL BEN/ or visit franklintempleton.com for the most recent month-end performance. Investment Philosophy Templeton s approach is based on presence on the ground a network of local offices, onsite company research visits, and more than a decade of pioneering new emerging markets and investment opportunities. The advantage in our process comes from our inhouse investment research capabilities, the length of our track record, and the independence of the emerging markets team and process. Templeton s approach to the market is founded on three tenets:, Patience, and Bottom-Up stock selection. We seek companies trading at a substantial discount to what our research indicates the company may be worth. 10. Holdings of the same issuers have been combined. Top ten holdings information is historical and may not reflect current or future portfolio characteristics. All holdings are subject to change. The information provided is not a recommendation to purchase, sell, or hold any particular security. The portfolio manager for the fund reserves the right to withhold release of information with respect to holdings that would otherwise be included. 11. Information is historical and may not reflect current or future portfolio characteristics. Percentage may not equal 100% due to rounding. All holdings are subject to change. 12. Source for Index: FactSet. Indexes are unmanaged, and one cannot invest directly in an index. They do not reflect any fees, expenses or sales charges. 13. Beta, Information Ratio and Tracking Error information are measured against the. 14. Information Ratio is a way to evaluate a manager s ability to outperform a benchmark in relation to the risk that manager is assuming, with risk defined as deviation from the benchmark. This measure is calculated by dividing the portfolio s excess return (portfolio return less the benchmark return) by the tracking error (derived by taking the standard deviation of the monthly differences between the portfolio return and the benchmark return over time). franklintempleton.com 3

4 Patience Security prices can fluctuate more widely than underlying security values. In our opinion, market efficiencies should recognize and correct these security prices over time. Bottom-Up We identify value through rigorous fundamental analysis of a company s business to determine what we consider its economic worth to be based on future earnings potential, cash flow or asset value potential. Templeton s investment process involves five steps and is designed to add value for investors over the long term. Investment Process STEP 1 Identify stocks for potential purchase STEP 2 Analyze securities STEP 3 Evaluate securities with research team STEP 4 Construct portfolio STEP 5 Manage and maintain portfolio Investment Team Portfolio Manager Years with Firm Years Experience Eddie Chow, CFA, Senior Executive Vice President, Director of China Strategies Annual Turnover Ratio: Percentage of a fund s holdings replaced with other holdings during a fund s most recent full fiscal year. Beta: A measure of the magnitude of a portfolio s past share-price fluctuations in relation to the ups and downs of the overall market (or appropriate market index). The market (or index) is assigned a beta of 1.00, so a portfolio with a beta of 1.20 would have seen its share price rise or fall by 12% when the overall market rose or fell by 10%. Information Ratio: In investing terminology, the ratio of expected return to risk. Usually, this statistical technique is used to measure a manager s performance against a benchmark. This measure explicitly relates the degree by which an investment has beaten the benchmark to the consistency by which the investment has beaten the benchmark. Market Capitalization: A determination of a company s value, calculated by multiplying the total number of company stock shares outstanding by the price per share. Market capitalization is expressed in millions of USD. Price to Earnings (12-mo Trailing): The share price of a stock, divided by its per-share earnings over the past year. For a portfolio, the value represents a weighted average of the stocks it holds. Price to Book : The price per share of a stock divided by its book value (i.e., net worth) per share. For a portfolio, the value represents a weighted average of the stocks it holds. Price to Cash Flow: Supplements price/earnings ratio as a measure of relative value for a stock. For a portfolio, the value represents a weighted average of the stocks it holds. Sharpe Ratio: To calculate a Sharpe ratio, an asset s excess returns (its return in excess of the return generated by risk-free assets such as Treasury bills) are divided by the asset s standard deviation. Standard Deviation: A measure of the degree to which returns vary from the average of its previous returns. The larger the standard deviation, the greater the likelihood (and risk) that performance will fluctuate from the average return. Tracking Error: Measure of the deviation of the return of a product compared to the return of a benchmark over a fixed period of time. Expressed as a percentage. The more passively the investment is managed, the smaller the tracking error. franklintempleton.com 4

5 What Are The Risks? All investments involve risks, including possible loss of principal. The government s participation in the economy is still high and, therefore, Templeton China World Fund s investments in China will be subject to larger regulatory risk levels compared to many other countries. In addition, special risks are associated with international investing, including currency fluctuations, economic instability and political developments. Investments in emerging markets involve heightened risks related to the same factors. The fund may also experience greater volatility than a fund that is more broadly diversified geographically. Historically, smaller and mid-sized securities have experienced more price volatility than larger company stocks, especially over the short term. Also, as a nondiversified fund investing in China companies, the fund may invest in a relatively small number of issuers and, as a result, be subject to a greater risk of loss with respect to its portfolio securities. The fund is designed for the aggressive portion of a well-diversified portfolio. These and other risk considerations are discussed in the fund s prospectus. Important Legal Information Investors should carefully consider a fund s investment goals, risks, charges and expenses before investing. To obtain a summary prospectus and/or prospectus, which contains this and other information, talk to your financial advisor, call us at (800) DIAL BEN/ or visit franklintempleton.com. Please carefully read a prospectus before you invest or send money. CFA and Chartered Financial Analyst are trademarks owned by CFA Institute. MSCI makes no warranties and shall have no liability with respect to any MSCI data reproduced herein. No further redistribution or use is permitted. This report is not prepared or endorsed by MSCI. Important data provider notices and terms available at: Franklin Templeton Distributors, Inc. One Franklin Parkway San Mateo, CA (800) DIAL BEN/ franklintempleton.com 2018 Franklin Templeton Investments. All rights reserved. 680 PP 09/18