Franklin Emerging Market Debt Opportunities Fund Advisor Class

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1 Franklin Emerging Market Debt Opportunities Fund Advisor Class Unconstrained Fixed Income Product Profile Product Details Fund Assets $524,491, Fund Inception Date 05/24/2006 Number of Securities 99 Including Cash NASDAQ Symbol FEMDX Investment Style Unconstrained Benchmark JP Morgan EMBI Global Diversified (USD Based) ;JP Morgan GBI- EM Broad Diversified ;BofA Merrill Lynch Emerging Market Corporate Plus (USD Hedged) Morningstar Category Emerging Markets Bond Dividend Frequency Semiannually Fund Description The fund seeks high total return by investing mainly in debt obligations of sovereign and subsovereign issuers located in emerging market countries 1. Overview The Fund will normally invest at least 80% of its net assets in debt securities of emerging market countries. The Fund invests in debt securities issued by sovereign and subsovereign government entities, including securities issued by political subdivisions, local authorities, government agencies, government owned, controlled, sponsored or guaranteed corporations, and supranationals located in emerging market countries. Although the investment manager tends to focus on these types of securities, securities issued by corporate entities that are controlled (i.e., more than 50% owned) by a sovereign entity, and corporate emerging markets debt, are also considered suitable investments. The Fund may invest up to 100% of its assets in high yield, lower quality debt securities ( junk bonds ). Performance Data Average Annual Total Returns (USD %) 3 Mths YTD 1 Yr 3 Yrs 5 Yrs 10 Yrs Since Inception (05/24/2006) Advisor Class JP Morgan EMBI Global Diversified (USD Based) JP Morgan GBI-EM Broad Diversified BofA Merrill Lynch Emerging Market Corporate Plus (USD Hedged) Total Annual Operating Expenses With Waiver:1.01% Without Waiver:1.09% 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 your Franklin Templeton institutional marketing representative at or visit ftinstitutional.com for the most recent month-end performance. The fund has an expense reduction and a fee waiver associated with any investments it makes in a Franklin Templeton money fund and/or other Franklin Templeton fund, contractually guaranteed through 11/30/2017. Fund investment results reflect the expense reduction and fee waiver; without these reductions, the results would have been lower. 1. Emerging market countries generally include those considered to be developing by the World Bank. These countries typically are located in the Asia-Pacific region, Eastern Europe, Central and South America, and Africa. In addition, countries that have restructured their external or local debt during the past 10 years or currently have restructured external or local debt outstanding may also be considered to be emerging market countries. Not FDIC Insured May Lose Value No Bank Guarantee

2 15% 10% 5% 0% Mths YTD 1 Yr 3 Yrs 5 Yrs 10 Yrs Since Inception Advisor Class JP Morgan EMBI Global Diversified (USD Based) JP Morgan GBI-EM Broad Diversified BofA Merrill Lynch Emerging Market Corporate Plus (USD Hedged) Calendar Year Returns (USD %) Advisor Class JP Morgan EMBI Global Diversified (USD Based) Portfolio Manager Insight Market Review Emerging-market (EM) hard-currency government bonds returned 2.63% during the quarter, as per the JP Morgan Emerging Markets Bond Global Diversified (EMBIGD). Ten-year US Treasury yields fell until early September, before rebounding to 2.33% by the end of the month, just three basis points higher for the quarter. The spread-to-worst of US dollar-denominated EM sovereign debt over US Treasuries, on the other hand, narrowed somewhat during the quarter. EM local-currency government bonds returned 3.14%, unhedged in US-dollar terms, as per the JP Morgan Government Bond Emerging Markets (GBI-EM) Broad Diversified. EM local-currency bond yields fell somewhat during the quarter, but EM currencies also declined in value. EM hard-currency corporate bonds returned 2.12%, as per the BofA Merrill Lynch Emerging Markets Corporate Plus, hedged into US dollars. Outlook & Strategy Many emerging markets fundamentals have strengthened since the beginning of 2017, and this has resulted in broad-based upward revisions of their economic forecasts. Upgrades have been concentrated in Europe, the Middle East and Africa, but other regions have shown signs of improvement as well. Output, however, has remained below potential in most emerging economies. Together with benign inflation, this may support further accommodation of monetary policy in those countries. In addition, capital flows into EM fixed income assets have been strong in the year to date. So far, retail flows have dominated, but strategic flows appear likely to lead for the remainder of As a result of these fundamental and technical factors, hard-currency EM spreads have been at the lower end of their historical range, which poses a risk. Consequently, it remains important that we continue to search for idiosyncratic ideas, less crowded positions and positions with low correlations to broader markets. Geopolitical risks will continue to pose a threat, but overall, we are constructive on the outlook for EM debt. Portfolio Characteristics 2 JP Morgan EMBI Global Diversified (USD Portfolio Based) Number of Securities Including Cash Average Duration 4.30 Yrs 6.81 Yrs Average Weighted Maturity 7.23 Yrs Yrs Duration to Worst 4.46 Yrs 6.80 Yrs 2

3 Portfolio Diversification Geographic Allocation 3,4 MIDDLE EAST / AFRICA LATIN AMERICA EASTERN EUROPE FAR EAST / ASIA RESIDUAL 3.94 FUNDS SUPRANATIONAL % 5% 10% 15% 20% 25% 30% 35% 40% 45% Currency Allocation 3 US Dollar Uruguayan Peso Mexican Peso South African Rand Colombian Peso Turkish Lira Russian Ruble Ghanaian Cedi New Kenyan Shilling Ugandan Shilling Peruvian Nuevo Sol Georgian Lari Egyptian Pound Indian Rupee Azerbaijani Manat Euro Japanese Yen % 0% 20% 40% 60% 80% 100% Sector Allocation 3,5 Sovereign Quasi-Sovereign Corporates Residual 3.95 Funds % 10% 20% 30% 40% 50% 60% 70% Supplemental Performance Statistics 3 Yrs 5 Yrs 10 Yrs Since Inception Standard Deviation (%) Franklin Emerging Market Debt Opportunities Fund JP Morgan EMBI Global Diversified (USD Based) Tracking Error (%) Information Ratio Sharpe Ratio Franklin Emerging Market Debt Opportunities Fund JP Morgan EMBI Global Diversified (USD Based) Investment Process Franklin s Emerging Market Debt Opportunities investment process can be summarized in three integral steps country allocation, currency allocation and issuer selection. 4,5. The Funds refers to a private limited partnership fund focused on global distressed debt. 6. Information Ratio and Tracking Error information are displayed for the product versus the JP Morgan EMBI Global Diversified (USD Based). 3

4 Ongoing Monitoring and Risk Management 1. Country Allocation 2. Currency Allocation 3. Issuer Selection Countries are ranked into three risk categories (high/medium/low) Yield vs. Fundamentals Improving Credit Potential to Help the Strategy Meet its Return Target Hard vs. Local Currency Assessment Yield vs. Risk Volatility Liquidity Relative Pricing Sovereign Debt Emerging Market Credit (Sovereign, Quasi-Sovereign, Corporate) Local Asset Management Corporate Credit Global Macro Emerging Market Equity Investment Team Portfolio Manager Years with Firm Years Experience William Ledward, Ph. D Nicholas Hardingham, CFA Stephanie Marjan Ouwendijk, CFA 2 10 Additional Resources Corporates - High Yield Corporates - Investment Grade Fixed Income Policy Committee Global Sovereign/EMD Local Asset Management Templeton Emerging Markets Equity Product Managers Years with Firm Years Experience Alberto Landi 9 9 Stuart Lingard 6 19 Glossary Term Average Duration: A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. Duration is expressed as a number of years. Average Weighted Maturity: An estimate of the number of terms to maturity, taking the possibility of early payments into account, for the underlying holdings. Maturity is expressed as a number of years. 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%. Duration to Worst: Duration of a bond computed using the bond s nearest call date or maturity, whichever comes first. This measure ignores future cash flow fluctuations due to embedded optionality. Information Ratio: In investing terminology, the ratio of expected return to risk. Usually, this statistical technique is used to measure a manager s performance against a benchmark. This measure explicitly relates the degree by which an investment has beaten the benchmark to the consistency by which the investment has beaten the benchmark. Sharpe Ratio: To calculate a Sharpe ratio, an asset s excess returns (its return in excess of the return generated by risk-free assets such as Treasury bills) are divided by the asset s standard deviation. Standard Deviation: A measure of the degree to which a fund s returns varies from the average of its previous returns. The larger the standard deviation, the greater the likelihood (and risk) that a fund s performance will fluctuate from the average return. Tracking Error: Measure of the deviation of the return of a fund compared to the return of a benchmark over a fixed period of time. Expressed as a percentage. The more passively the investment fund is managed, the smaller the tracking error. 4

5 What Are The Risks? All investments involve risks, including possible loss of principal. Special risks are associated with foreign investing including currency volatility, economic instability, and social and political developments of countries where the fund invests. Investments in emerging markets involve heightened risks related to the same factors, in addition to those associated with these markets smaller size, lesser liquidity and lack of established legal, political, business and social frameworks to support securities markets. The risks associated with higher yielding, lower rated securities include higher risk of default and loss of principal. In addition, interest rate movements will affect the fund s share price and yield. Prices of debt securities generally move in the opposite direction of interest rates. Thus, as prices of debt securities in the fund adjust to a rise in interest rates, the fund s share price may decline. The fund is actively managed but there is no guarantee that the manager s investment decisions will produce the desired results. These and other risks are detailed in the fund s prospectus. Important Legal Information 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 publication date 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. Source: FactSet. JP Morgan EMBI Global Diversified (USD Based) tracks total returns for U.S. dollar-denominated debt instruments issued by emerging market sovereign and quasi-sovereign entities. The secondary benchmark, JP Morgan GBI-EM Broad Diversified, includes securities denominated in local currencies. The third benchmark was changed to The BofA Merrill Lynch Emerging Markets Corporate Plus (100% Hedged into USD). This benchmark is a capitalization weighted fixed income index hedged to the U.S. dollar and comprised of U.S. dollar and euro denominated emerging markets non-sovereign debt publicly issued within the major domestic and European markets. es are unmanaged, and one cannot invest directly in an index. They do not reflect any fees, expenses or sales charges. 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, call Franklin Templeton at (800) or visit ftinstitutional.com. Please carefully read a prospectus before you invest or send money. CFA and Chartered Financial Analyst are trademarks owned by CFA Institute. The index data referenced herein is the property of Merrill Lynch, Pierce, Fenner & Smith Incorporated ( BofAML ) and/or its licensors and has been licensed for use by Franklin Templeton. BofAML and its licensors accept no liability in connection with this use. See for a full copy of the Disclaimer. Important data provider notices and terms available at 2. Average Duration, Average Weighted Maturity and Duration to Worst reflect certain derivatives held in Portfolio (or their underlying reference assets). 3. Figures reflect certain derivatives held in the portfolio (or their underlying reference assets) and may not total 100% or may be negative due to rounding, use of derivatives, unsettled trades or other factors. 7. 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). 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. Franklin Templeton Distributors, Inc. One Franklin Parkway San Mateo, CA Tel: (800) ftinstitutional.com 2017 Franklin Templeton Investments. All rights reserved.