Templeton Global Bond Fund Class A, C

Transcription

1 Templeton Global Bond Fund Class A, C Unconstrained Fixed Income Product Profile Product Details 1 Fund Assets $37,875,288, Fund Inception Date 09/18/1986 Number of Securities 157 Including Cash Investment Style Unconstrained Benchmark Citigroup World Government Bond Index Lipper Classification International Income Funds Morningstar Category World Bond Dividend Frequency Monthly, on or near the 20th Third-Party Fund Data Overall Morningstar Rating TM Class A 3 Inception Date Class A 09/18/1986 Class C 05/01/1995 CUSIP NASDAQ Symbol Class A TPINX Class C TEGBX Class A Class C Maximum Sales Charges 4.25% initial sales charge 1.00% contingent deferred sales charge (CDSC) in the first year only Total Annual Operating Expenses With Waiver Without Waiver Class A 0.93% 0.99% Class C 1.33% 1.39% 30-Day Standardized Yield 2 With Waiver Without Waiver Class A 4.51% 4.44% Class C 4.29% 4.22% As of 12/31/2017 the fund s Class A shares received a 4 star overall Morningstar Rating, measuring risk-adjusted returns against 271, 243 and 136 U.S.-domiciled World Bond mutual funds and exchange traded funds over the 3-, 5- and 10- year periods, respectively. A fund s overall rating is derived from a weighted average of the performance figures associated with its 3-, 5- and 10-year (if applicable) rating metrics. Fund Description The fund seeks current income with capital appreciation and growth of income, by investing at least 80% of its net assets in bonds of governments, government related entities and government agencies located anywhere in the world. The fund regularly enters into various currency-related and other transactions involving derivative instruments. Performance Data 4,5 Average Annual Total Returns 6,7 (%) 3 Mths YTD 1 Yr 3 Yrs 5 Yrs 10 Yrs 20 Yrs Since Inception Class A - With Sales Charges Class A - Without Sales Charges Class C - With Sales Charges Class C - Without Sales Charges Citigroup World Government Bond Index 20% 10% 0% -10% Mths YTD 1 Yr 3 Yrs 5 Yrs 10 Yrs 20 Yrs Since Inception Class A - With Sales Charges Class A - Without Sales Charges Citigroup World Government Bond Index Performance data represents past performance, which does not guarantee future results. Current performance may differ from figures shown. The fund s investment return and principal value will change with market conditions, and you may have a gain or a loss when you sell your shares. Please call Franklin Templeton Investments at (800) DIAL BEN/ or visit franklintempleton.com for the most recent month-end performance. The fund has a fee waiver associated with any investment it makes in a Franklin Templeton money fund and/or other Franklin Templeton fund, contractually guaranteed through 04/30/2018. Fund investment results reflect the fee waiver; without this waiver, the results would have been lower. 1. All holdings are subject to change. 2. The fund s 30-day standardized yield is calculated over a trailing 30-day period using the yield to maturity on bonds and/or the dividends accrued on stocks. It may not equal the fund s actual income distribution rate, which reflects the fund s past dividends paid to shareholders. 4. Class A: On 01/01/1993, a plan of distribution was implemented for these shares under Rule 12b-1, which affects subsequent performance. Class C: Prior to 01/01/2004, these shares were offered with an initial sales charge; thus actual returns may differ. The fund offers other share classes subject to different fees and expenses, which will affect their performance. Please see the prospectus for details. 5. Source for Index: FactSet. Indexes are unmanaged, and one cannot invest directly in an index. They do not reflect any fees, expenses or sales charges. 6. Periods shorter than one year are shown as cumulative total returns. 7. Since inception return for the benchmark is calculated to the fund inception date. Not FDIC Insured May Lose Value No Bank Guarantee

2 Calendar Year Returns (% Without Sales Charge) Class A Class C Citigroup World Government Bond Index Performance data represents past performance, which does not guarantee future results. Current performance may differ from figures shown. The fund s investment return and principal value will change with market conditions, and you may have a gain or a loss when you sell your shares. Please call Franklin Templeton Investments at (800) DIAL BEN/ or visit franklintempleton.com for the most recent month-end performance. If the sales charge had been included, the returns would have been lower. Portfolio Manager Insight 8 Market Review During the fourth quarter, the US Federal Reserve (Fed) raised the federal funds target rate 25 basis points (bps) to a range of 1.25% to 1.50% at its December meeting. It also began unwinding its nearly US$4.5 trillion balance sheet in October, allowing around US$6 billion in US Treasuries (USTs) and US$4 billion in mortgage-backed securities (MBS) to begin rolling off each month as they mature. That volume is scheduled to increase in January 2018 to US$12 billion in USTs and US$8 billion in MBS per month. US President Donald Trump nominated Jerome Powell to be the next Fed chair, scheduled to replace Janet Yellen in February Markets have appeared to view Powell as a mainstream continuation of the Yellen/Bernanke Fed, though Powell brings more private sector experience and more support for deregulation. The 10-year UST note finished the fourth quarter seven bps higher at 2.41%. Overall, we continue to expect UST yields to rise with growing inflation pressures in an environment of economic resilience and exceptionally strong US labor markets. In Europe, yields generally declined but the euro strengthened against the US dollar during the quarter. We expect widening rate differentials between rising yields in the US and the low to negative yields in the eurozone to depreciate the euro against the US dollar. The European Central Bank (ECB) is scheduled to reduce the pace of its bond-buying program in January 2018 to 30 billion per month, down from a pace of 60 billion per month. ECB President Mario Draghi has continued to indicate that rates are not likely to be hiked until quantitative easing (QE) ends, implying that rates would likely remain unchanged in Currently, the bond-purchasing program is scheduled to continue at the 30 billion per month pace through September 2018, with the potential to continue at that volume or a reduced volume in subsequent months. Overall, we expect accommodative effects to persist in Europe for the upcoming year. Additionally, we continue to see ongoing risks to the political cohesion across Europe as populist movements continue to influence the political discourse. In Germany, Angela Merkel s efforts to form a coalition government collapsed in November, increasing the political uncertainty for Europe. The euro continues to be vulnerable to unresolved structural and political risks across Europe, in our view. In Japan, Prime Minister Shinzo Abe s political mandate remained strong after his political coalition maintained its supermajority in October elections. We expect Abenomics programs to continue as planned with Abe s ongoing political strength. The Bank of Japan (BOJ) continued with its QE program during the quarter as short-term yields in Japan remained negative. Rising UST yields should produce a more effective environment for the BOJ to actively deploy additional monetary accommodation that weakens the yen, as it continues to target a 0.0% yield on the 10-year Japanese government bond. We expect the Japanese yen to weaken on widening rate differentials with the US. Across emerging markets, rate environments were generally idiosyncratic, as Mexico and India saw rising yields in the 10-year range of their yield curves, while Indonesia and Colombia saw a modest decline. The Mexican peso and Argentine peso notably depreciated against the US dollar, while the South African rand and the euro appreciated. Overall, we continue to see a number of local-currency markets that we believe remain undervalued, particularly in India, Indonesia, Mexico and Colombia. We also see attractive risk-adjusted yields in places like Brazil and Argentina. On the whole, we expect select currencies to appreciate over the medium term, particularly in countries with economic resilience and relatively higher, maintainable rate differentials. Performance Review For the quarter, the fund s negative absolute performance was primarily due to currency positions, followed by interest-rate strategies. Sovereign credit exposures had a largely neutral effect on absolute results. On a relative basis, the fund s underperformance of its benchmark index was primarily due to currency positions, followed by interest-rate strategies. Sovereign credit exposures had a largely neutral effect on relative results. Currency Analysis Among currencies, positions in Latin America (the Mexican peso and Brazilian real) detracted from absolute performance. The fund s net-negative position in the euro also detracted from absolute results, while its net-negative position in the Japanese yen had a largely neutral effect. However, currency positions in Asia ex Japan (the Indian rupee) contributed to absolute performance. On a relative basis, overweighted currency positions in Latin America (the Mexican peso and Brazilian real) detracted from relative results. The fund s underweighted position in the euro also detracted from relative performance, while its underweighted position in the Japanese yen had a largely neutral effect. However, overweighted currency positions in Asia ex Japan (the Indian rupee) contributed to relative results. Duration Analysis The fund maintained a defensive approach regarding interest rates in developed markets, while holding duration exposures in select emerging markets. Negative duration exposure to USTs detracted from absolute performance, as did select duration exposures in Latin America. Select underweighted duration exposures in Europe detracted from relative results. Sovereign Credit Analysis As stated earlier, sovereign credit exposures had largely neutral effects on absolute and relative performance. franklintempleton.com 2

3 Portfolio Positioning During the quarter, we remained positioned in a number of emerging markets, with notable local-currency duration exposures in Brazil, Argentina, Colombia, Indonesia and India, and notable currency exposure to the Mexican peso. We have adjusted specific positions in 2017, including increasing our local-currency exposures in India in March and exiting much of our local-currency exposures in Malaysia in April. We continued to hold net-negative positions in the euro and Japanese yen based on our expectations for widening rate differentials with the US as the Fed tightens policy while the ECB and BOJ continue with monetary accommodation. The short positions in the euro and yen represent directional views on the currencies, as well as hedges against broad strengthening of the US dollar. The short euro position is also a hedge against euroskeptic political risks and unresolved structural risks in Europe. We also continued to hold net-negative positioning in the Australian dollar based on the Reserve Bank of Australia s continued leanings toward accommodative rates, and as a partial hedge against potential economic risks in China as well as broad-based beta risk across emerging markets. In credit markets, we continued to see areas of value in some specific sovereign credits. We also remained positioned for rising yields by maintaining low overall portfolio duration and holding negative duration exposure to USTs through interest-rate swaps. Outlook & Strategy We expect UST yields to rise and the US dollar to strengthen as the Fed moves toward tightening policy while US inflation pressures pick up. The Fed s balance sheet unwinding is likely to put additional upward pressure on yields, in our view. Several major buyers of USTs have pulled back from the UST market in recent years, including foreign governments and central banks in Asia, notably the People s Bank of China. Major oil producing countries have also pulled back, becoming net borrowers instead of net lenders as they were when oil prices were above US$100 per barrel. The Fed will now be added to that list of diminishing demand, as it unwinds its UST and MBS positions. Although the Fed s credibility came into question when it backtracked on projected rate hikes in 2016, we expect it to remain on course with balance sheet unwinding and rate moves in The Fed has indicated intentions to hike rates three times in 2018 and move toward a policy rate of 2.75% in Markets have appeared to focus on the speed and extent of rate hikes from the Fed, but not placed enough attention on the effect of the Fed s balance sheet unwinding, an unprecedented course of action. It could theoretically go smoothly with few disruptions, but in practicality we think that is unlikely. Uncertainties in the markets would likely put further pressure on bond valuations, in our view. Investors who are holding longer duration exposures are taking on a lot of asymmetric risk, in our opinion, particularly in an environment of economic resilience and growing inflation pressures. On the whole, we continue to expect inflation pressures to rise with resilience in the US economy and exceptionally strong US labor markets. We have seen wage pressures pick up in specific pockets of the economy, and we expect those pressures to accelerate. Policy constraints on immigration have also been pressuring wages in various labor sectors. Additionally, financial sector deregulation has the potential to accelerate credit activity, stimulate investment and accelerate the velocity of money, which would further drive inflation. Fiscal expansion could similarly add to inflation dynamics. Overall, our expectations for rising inflation are not dependent on a specific policy adjustment (nor are they dependent on commodity prices); rather they reflect all of the already-existing factors combined with the potential for supplemental policy factors. We see preconditions for rising inflation over the next couple years, which should pressure yields higher. In the major developed economies, we anticipate continued monetary accommodation and low rates in Japan and the eurozone while rates rise in the US those increasing rate differentials should depreciate the yen and euro against the US dollar, in our opinion. Japan now has its monetary policies in a good place to essentially allow the Fed to do the work of depreciating the yen for them. During much of 2016, no matter what the BOJ did, the Fed s actions (or lack of action) determined the rate differentials and the currency valuations. When the Fed lowered expectations for rate hikes in March 2016, that move essentially washed out the effectiveness of any easing policies from the BOJ. The same can now be true in the reverse the BOJ does not have to change its current policy stance to get the depreciation it seeks if the Fed now raises rates at a more meaningful pace. Additionally, the BOJ is nowhere close to a stage where it can taper its QE program, as Japan continues to battle deflation. Thus ongoing QE is expected for quite some time. Despite the eurozone being in a cyclical upswing, we continue to have a negative view on the euro not only because of ongoing monetary accommodation, but also because of populist risks. ECB President Mario Draghi has indicated a desire to eventually normalize rates but has also said that the eurozone continues to need monetary accommodation. Eurozone optimism surged during the summer months but appeared inconsistent with the unresolved structural and political risks within the union, in our view. Angela Merkel s election victory in September 2017 came with new uncertainties around forming a coalition. Additionally, the far-right movement polled at its highest level in several generations. Merkel s efforts to form a coalition were unsuccessful in 2017, increasing the political uncertainty for Europe. Overall, we continue to see ongoing risks to the political cohesion across Europe as populist movements continue to influence the political discourse. We have recently focused on countries that are less externally vulnerable and more domestically driven, and that have demonstrated their resilience to potential increases in trade costs. Select emerging markets that have higher rate environments and domestically oriented economies are likely to fare better in a rising-rate environment than countries with low yields and more externally driven economies, in our view. In Asia, we currently prefer countries with strong domestic drivers that are less leveraged to China, such as India and Indonesia, while we have moved away from economies that are more externally dependent, such as Malaysia. In Latin America, we are focused on countries that have turned away from previous failed experiments with populism, such as Brazil and Argentina, and are now moving toward more orthodox policies with credible monetary policy, proactive business environments and outward-looking trade. We also see attractive valuations in countries like Mexico and Colombia that have maintained sound policy discipline while broadening their economies beyond commodities. China s economy remains in a soft landing, but ongoing rebalancing is needed for the long term. The near-term picture looks fairly stable, in our assessment, but we have concerns for two or three years down the road as China s pace of growth now depends on almost five times as much credit to generate one unit of gross domestic product as it took in the surge of post-global financial crisis growth, starting in The Chinese authorities appear aware of this, but it remains to be seen if they can effectively manage a slowdown in credit. We have seen a number of policies wind down, but we do not expect a hard landing at this point. However, if China has not reduced its credit dependence in a couple years and we get an exogenous shock, such as a recession in the US, then China s ability to intervene to stimulate its economy will be substantially less effective than it was during the last US recession. These risks warrant ongoing monitoring, but the near-term picture appears to support a continued moderation in growth and not a hard landing. Our philosophy is grounded in a focus on long-term fundamentals and patience. We believe that while markets can deviate from fundamentals in the shorter term, they tend to reflect them over the medium to long term. Thus we seek to identify and exploit the imbalances we see in the market and position for the directional trends we see going forward, ahead of inflection points. Our oftentimes contrarian viewpoint also allows us to find potential investment opportunities particularly during periods of volatility and panic, where we can exploit market mispricing. franklintempleton.com 3

4 8. The information provided is not a complete analysis of every material fact regarding any country, market, industry, security or fund. Because market and economic conditions are subject to change, comments, opinions and analyses are rendered as of the date of this material and may change without notice. A portfolio manager s assessment of a particular security, investment or strategy is not intended as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy; it is intended only to provide insight into the fund s portfolio selection process. Holdings are subject to change. Portfolio Characteristics 9,10,11,12 Portfolio Citigroup World Government Bond Index Average Duration Yrs 7.82 Yrs Average Weighted Maturity 3.33 Yrs 9.52 Yrs Annual Turnover Ratio (08/31/2016) 49.70% - Portfolio Diversification Geographic Allocation 13 Geographic Weightings vs. Citigroup World Government Bond Index 14,15 AMERICAS NON-US AMERICAS Mexico Brazil Argentina Colombia Peru USA ASIA Indonesia India South Korea Philippines MIDDLE-EAST/AFRICA South Africa Ghana EUROPE SUPRANATIONAL ST CASH & CASH EQUIVALENTS OTHER AMERICAS NON-US AMERICAS Mexico Brazil Argentina Colombia Peru USA ASIA ASIA EX-JAPAN Indonesia India South Korea Philippines MIDDLE-EAST/AFRICA South Africa Ghana EUROPE NON-EMU EUROPE Ukraine SUPRANATIONAL ST CASH & CASH EQUIVALENTS OTHER % 0% 10% 20% 30% 40% 50% -50% -25% 0% 25% 50% 9. The portfolio characteristics listed are based on the fund s underlying holdings, and do not necessarily reflect the fund s characteristics. Information is historical and may not reflect current or future portfolio characteristics. All holdings are subject to change. 10. Average Duration and Average Weighted Maturity reflect certain derivatives held in the portfolio (or their underlying reference assets). 11. Turnover Ratio is as of the fund s fiscal year-end. 12,15. Source for Index: FactSet. Indexes are unmanaged, and one cannot invest directly in an index. They do not reflect any fees, expenses or sales charges. 13,14. Figures reflect certain derivatives held in the portfolio (or their underlying reference assets) and may not total 100% or may be negative due to rounding, use of derivatives, unsettled trades or other factors. Information is historical and may not reflect current or future portfolio characteristics. All holdings are subject to change. franklintempleton.com 4

5 Currency Allocation 16 Currency Weightings vs. Citigroup World Government Bond Index 17,18 AMERICAS US-DOLLAR NON US-DOLLAR Mexican Peso Brazilian Real Argentine Peso Colombian Peso Peruvian Nuevo Sol MIDEAST/AFRICA South African Rand Ghanaian Cedi New ASIA ASIA EX-JAPAN Indian Rupee Indonesian Rupiah Philippine Peso South Korean Won Australian Dollar JAPANESE YEN EUROPE % -60% -40% % 0% 20% 40% 60% 80% % 120% 140% 160% 180% 200% AMERICAS US-DOLLAR NON US-DOLLAR Mexican Peso Brazilian Real Argentine Peso Colombian Peso Peruvian Nuevo Sol MIDEAST/AFRICA South African Rand Ghanaian Cedi New ASIA ASIA EX-JAPAN Indian Rupee Indonesian Rupiah Philippine Peso South Korean Won Australian Dollar JAPANESE YEN EUROPE EURO -125% % -75% -50% % % 25% 50% 75% % 125% % 16,17. Figures reflect certain derivatives held in the portfolio (or their underlying reference assets) and may not total 100% or may be negative due to rounding, use of derivatives, unsettled trades or other factors. Information is historical and may not reflect current or future portfolio characteristics. All holdings are subject to change. 18. Source for Index: FactSet. Indexes are unmanaged, and one cannot invest directly in an index. They do not reflect any fees, expenses or sales charges. franklintempleton.com 5

6 Credit Quality Ratings 19 Asset Allocation 20 AAA 5.23 AA 4.79 FIXED INCOME A CASH & CASH EQUIVALENTS BBB 6.05 BBB % 10% 20% 30% 40% 50% 60% 70% 80% 90% BB BB B 4.44 B Cash & Cash Equivalents % 5% 10% 15% 20% 25% 30% Investment Grade Non-Investment Grade Cash & Cash Equivalents Supplemental Performance Statistics Supplemental Risk Statistics 21,22 Class A 3 Yrs 5 Yrs 10 Yrs Standard Deviation (%) Tracking Error (%) Information Ratio Sharpe Ratio Performance data represents past performance, which does not guarantee future results. Current performance may differ from figures shown. The fund s investment return and principal value will change with market conditions, and you may have a gain or a loss when you sell your shares. Please call Franklin Templeton Investments at (800) DIAL BEN/ or visit franklintempleton.com for the most recent month-end performance. Investment Philosophy We believe that applying a fundamental, research-driven approach focused on identifying potential sources of total return (current income and capital appreciation) worldwide and seeking to capitalize on global interest rates and currency trends provides the best potential for solid risk-adjusted returns. The strategy is run independently of its benchmark, allowing the manager to hold only the positions it believes have the best potential to maximize riskadjusted returns. This is a high alpha seeking strategy that invests globally and may include allocations to both developed and emerging markets. 19. Ratings shown are assigned by one or more Nationally Recognized Statistical Rating Organizations ( NRSRO ), such as Standard & Poor s, Moody s and Fitch. The ratings are an indication of an issuer s creditworthiness and typically range from AAA or Aaa (highest) to D (lowest). When ratings from all three agencies are available, the middle rating is used; when two are available, the lowest rating is used; and when only one is available, that rating is used. Foreign government bonds without a specific rating are assigned the country rating provided by an NRSRO, if available. If listed, the NR category consists of ratable securities that have not been rated by an NRSRO. The N/A category consists of nonratable securities (e.g., equities). Cash includes equivalents, which may be rated. Derivatives are excluded from this breakdown. Information is historical and may not reflect current or future portfolio characteristics. All holdings are subject to change. 20. Figures reflect certain derivatives held in the portfolio (or their underlying reference assets) and may not total 100% or may be negative due to rounding, use of derivatives, unsettled trades or other factors. Information is historical and may not reflect current or future portfolio characteristics. All holdings are subject to change. 21. Information Ratio and Tracking Error information are displayed for the product versus the Citigroup World Government Bond Index. 22. Information Ratio is a way to evaluate a manager s ability to outperform a benchmark in relation to the risk that manager is assuming, with risk defined as deviation from the benchmark. This measure is calculated by dividing the portfolio s excess return (portfolio return less the benchmark return) by the tracking error (derived by taking the standard deviation of the monthly differences between the portfolio return and the benchmark return over time). franklintempleton.com 6

7 Investment Process Investment Strategy Long-Term, Opportunistic Value Approach Long-term, fundamentally driven investment focus Total return approach that is not benchmark driven Identify economic imbalances that may lead to value opportunities in: Yield curve Currencies Sovereign credit Active positioning across these three areas Precisely isolate desired exposures Risk budget composition will shift based on relative attractiveness during global economic and credit cycles Investment Process 23,24 Global Research Lenses Three Potential Sources of Alpha Portfolio Construction and Implementation Macro Models/Analysis Yield Curve Ideas Risk Modeling VaR Analysis Correlation Analysis Scenario/Stress Testing In-Depth Country Analysis Currency Ideas Identification of High-Conviction Opportunities Management Team Potential Return vs. Expected Risk Global Allocations P O R T F O L I O Local Asset Management Perspective Sovereign Credit Ideas Trading Trade Structuring Market Flows Local Execution/Settlement Liquidity Analysis Review/ Review Review Performance Attribution 23. The above chart is for illustrative and discussion purposes only. The way we implement our main investment strategies and the resulting portfolio holdings may change depending on factors such as market and economic conditions. 24. The Local Asset Management Group is comprised of investment professionals located in affiliates of and joint venture partners with Franklin Templeton Investments. Investment Team Portfolio Manager Years with Firm Years Experience Michael Hasenstab, Ph. D., Executive VP & Chief Investment Officer Sonal Desai, Ph. D., Senior VP, Portfolio Manager, Director of Research 8 24 Additional Resources Global Sovereign/EMD Local Asset Management Glossary Annual Turnover Ratio: Percentage of a fund s holdings replaced with other holdings during a fund s most recent full fiscal year. Average Duration: A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. Duration is expressed as a number of years. Average Weighted Maturity: An estimate of the number of terms to maturity, taking the possibility of early payments into account, for the underlying holdings. Maturity is expressed as a number of years. Information Ratio: In investing terminology, the ratio of expected return to risk. Usually, this statistical technique is used to measure a manager s performance against a benchmark. This measure explicitly relates the degree by which an investment has beaten the benchmark to the consistency by which the investment has beaten the benchmark. Sharpe Ratio: To calculate a Sharpe ratio, an asset s excess returns (its return in excess of the return generated by risk-free assets such as Treasury bills) are divided by the asset s standard deviation. Standard Deviation: A measure of the degree to which a fund s returns varies from the average of its previous returns. The larger the standard deviation, the greater the likelihood (and risk) that a fund s performance will fluctuate from the average return. Tracking Error: Measure of the deviation of the return of a fund compared to the return of a benchmark over a fixed period of time. Expressed as a percentage. The more passively the investment fund is managed, the smaller the tracking error. franklintempleton.com 7

8 What Are The Risks? All investments involve risks, including possible loss of principal. Derivatives, including currency management strategies, involve costs and can create economic leverage in the portfolio which may result in significant volatility and cause the fund to participate in losses on an amount that exceeds the fund s initial investment. The fund may not achieve the anticipated benefits, and may realize losses when a counterparty fails to perform as promised. The markets for particular securities or types of securities are or may become relatively illiquid. Reduced liquidity will have an adverse impact on the security s value and on the fund s ability to sell such securities when necessary to meet the fund s liquidity needs or in response to a specific market event. Foreign securities involve special risks, including currency fluctuations (which may be significant over the short term) and economic and political uncertainties; investments in emerging markets involve heightened risks related to the same factors. Sovereign debt securities are subject to various risks in addition to those relating to debt securities and foreign securities generally, including, but not limited to, the risk that a government entity may be unwilling or unable to pay interest and repay principal on its sovereign debt, or otherwise meet its obligations when due. Investments in lower-rated bonds include higher risk of default and loss of principal. Bond prices generally move in the opposite direction of interest rates. As the prices of bonds in the fund adjust to a rise in interest rates, the fund s share price may decline. Changes in the financial strength of a bond issuer or in a bond s credit rating may affect its value. These and other risks are discussed in the fund s prospectus. Important Legal Information Investors should carefully consider a fund s investment goals, risks, charges and expenses before investing. To obtain a summary prospectus and/or prospectus, which contains this and other information, talk to your financial advisor, call us at (800) DIAL BEN/ or visit franklintempleton.com. Please carefully read a prospectus before you invest or send money. CFA and Chartered Financial Analyst are trademarks owned by CFA Institute. Important data provider notices and terms available at 3. Source: Morningstar, 12/31/2017. For each mutual fund and exchange traded fund with at least a 3-year history, Morningstar calculates a Morningstar Rating based on how a fund ranks on a Morningstar Risk-Adjusted Return measure against other funds in the same category. This measure takes into account variations in a fund s monthly performance, and does not take into account the effects of sales charges, placing more emphasis on downward variations and rewarding consistent performance. The top 10% of funds in each category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars and the bottom 10% receive 1 star. The weights are: 100% 3-year rating for months of total returns, 60% 5-year rating/40% 3- year rating for months of total returns, and 50% 10-year rating/30% 5-year rating/20% 3-year rating for 120 or more months of total returns. While the 10-year overall star rating formula seems to give the most weight to the 10-year period, the most recent 3-year period actually has the greatest impact because it is included in all three rating periods. The Fund s Class A shares received a Morningstar Rating of 3, 4 and 5 star(s) for the 3-, 5- and 10-year periods, respectively. Morningstar Rating is for the named share class only; other classes may have different performance characteristics. Past performance is not an indicator or a guarantee of future performance. Franklin Templeton Distributors, Inc. One Franklin Parkway San Mateo, CA (800) DIAL BEN/ franklintempleton.com 2018 Franklin Templeton Investments. All rights reserved. 406 PP 12/17