Franklin India Growth Fund Advisor Class

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1 Franklin India Growth Fund Advisor Class Growth Equity Product Profile Product Details 1 Fund Assets $165,344, Fund Inception Date 01/31/2008 Number of Issuers 49 NASDAQ Symbol FIGZX Maximum Sales Charge Investment Style Benchmark Lipper Classification Morningstar Category Dividend Frequency Asset Allocation 2 Percent of Total Growth India Region Funds India Equity Annually in December Fund Description The fund seeks long-term capital appreciation by investing primarily in equity securities of companies organized under the laws of, with a principal office in, or for which the principal trading market for their securities is in India, companies that derive 50% or more of their revenues or profits from either goods or services produced or sales made in India, or companies with 50% of more of their assets in India. Performance Data 3 Average Annual Total Returns 4 (%) Since Inception 3 Mths YTD 1 Yr 3 Yrs 5 Yrs (01/31/2008) Advisor Class % EQUITY % CASH & CASH EQUIVALENTS % 0% Mths YTD 1 Yr 3 Yrs 5 Yrs Since Inception 0% 25% 50% 75% 100% 125% Advisor Class Total Annual Operating Expenses With Waiver:1.4% Without Waiver: 1.89% 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 02/28/2018. Fund investment results reflect the expense reduction; without this reduction, the results would have been lower. Calendar Year Returns (%) Advisor Class Portfolio Manager Insight 5 Market Review Indian equities made progress over the fourth quarter and outperformed emerging markets as a whole. India s equity-market performance was, in part, boosted by buoyant global sentiment, given economic growth in many regions and progress of tax reform legislation in the United States during 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 Value No Bank Guarantee

2 December. Sentiment was also strengthened by Moody s upgrade to India s sovereign bond rating from Baa3 to Baa2, with a stable outlook. Locally, the BJP won elections in two states, which also buoyed markets. Meanwhile, certain banking shares were aided by the government s October announcement of a recapitalization plan. In economic news, the Reserve Bank of India (RBI) kept its benchmark interest rate on hold over the quarter and maintained its neutral policy stance. However, inflation risk was a notable concern for the central bank s rate-setters amidst increasing prices for food, fuel and rent. Consumer prices saw a 4.88% year-on-year gain in November, outpacing both the previous month s figure and market expectations. India s annualized gross domestic product (GDP) growth rate for the third calendar quarter of 2017 bounced back somewhat from the previous quarter s disappointing figure, but it marginally missed consensus expectations in the market. The GDP growth rebound was helped partly by an improvement in investment. The country s purchasing managers index (PMI) figures were mixed the manufacturing PMI strengthened to 52.6 in November, while the services PMI began to contract, falling to 48.5 over the month. In currency markets, the Indian rupee advanced against the US dollar over the quarter. Over the fourth quarter, all sectors in the benchmark index moved higher, with telecommunication services, consumer discretionary and information technology (IT) advancing the most. Performance Review The fund advanced over the fourth quarter, broadly keeping pace with the benchmark index. In relative terms, stock selection and an overweight allocation to telecommunication services contributed to returns, as did stock selection in consumer staples and positioning in consumer discretionary. Telecommunications services holdings, including wireless operator Idea Cellular, benefited partly from news early in the quarter that a competitor was to revise its mobile tariffs higher. In consumer staples, not holding tobacco company ITC proved helpful as its shares underperformed over the quarter. In the consumer discretionary sector, a position in Titan Industries, a watch and jewellery retailer, made headway as it reported well-received results during the quarter. There was also notably strong performance from an out-of-benchmark position in Crompton Greaves Consumer Electricals, which sells lights, fans and other home appliances. The sector s return was held back somewhat, however, by a lack of exposure to Maruti Suzuki India, as it made strong progress over the three-month period. Air-conditioner maker Voltas supported returns in the industrials sector. During the quarter, Voltas reported double-digit growth in net profit. However, an off-benchmark holding in machinery company Cummins India fell slightly over the period and detracted from relative performance. Elsewhere, a lack of exposure to health care stock Lupin contributed to relative returns as its shares fell back over the quarter. Conversely, stock selection and an underweight to IT detracted from relative performance, as did an underweight to energy and an overweight to financials. Positions in IT services firms led weakness in the IT sector, with off-benchmark holding Cognizant Technology Solutions falling slightly and an underweight to Infosys detracting, as its shares gained with the appointment of a new chief executive. In the energy sector, a lack of exposure to index heavyweight Reliance Industries negatively impacted relative returns as the stock advanced strongly over the quarter. Amongst financials, an overweight to Yes Bank detracted from relative returns as it fell back over the quarter. Furthermore, several off-benchmark positions in banks, including Kotak Mahindra Bank, HDFC Bank and IndusInd Bank, moved slightly higher but underperformed the broader index, thus detracting from relative returns. However, an underweight position in Housing Development Finance Corporation and a lack of exposure to consumer finance company Bajaj Finance, both of which saw lackluster share-price performance over the quarter, boosted performance, as did an overweight position in State Bank of India. Portfolio Positioning During the fourth quarter, the fund s weighting in consumer discretionary and telecommunication services increased, while exposure to financials and health care declined. At the end of the quarter, financials, consumer discretionary, industrials and materials were the fund s main absolute sector exposures. Outlook & Strategy The International Monetary Fund (IMF) raised its estimates for global growth to 3.6% in 2017 and 3.7% in 2018, pointing to improving economic activity in most regions and a better-than-expected increase in growth in advanced economies. However, the IMF trimmed its growth forecast for India due to the lingering effects of the currency-exchange program and the Goods and Services Tax (GST) on the economy. The recent GDP growth trend for India shows an improvement on a year-on-year basis even though the recovery in manufacturing is uneven, and the credit figures and services sector do not conform to this trend. With inadequate support from ground-level indicators, a rise in GDP may be attributed in part to a favorable base effect, which may last for a few more quarters. But other significant factors could boost economic growth going forward, including a recovery in domestic consumption (automotive sales, sales growth in consumer staples companies, imports of non-oil and non-gold capital goods) and exports (due to the global growth recovery). We believe a recovery in rural demand could also drive domestic consumption. Current trends in two-wheeler sales, tractor sales, diesel demand, rural wage growth, demand for consumer non-durables and usage of cash hint at the same trend. A recovery in rural demand could be led by populist measures undertaken by the government in the run-up to general elections in 2019, a gradual recovery in non-agricultural segments of the rural economy from both the demonetization- and GST-related disruptions, and expectations of a third consecutive year of good monsoons. Amidst the backdrop of a negative output gap, this cumulative surge in demand should help improve capacity utilization levels, which in turn could bode well for earnings growth and lead to a recovery in private capital expenditure in The case for a revival in private capital expenditure stems from improving corporate earnings, a better lending capability of public-sector banks post recapitalization, and a favorable market for equity issuances. Given the possibility that pre-election populist measures could stoke inflation, we expect the government to focus on bringing about amendments and enhancements to existing policy reforms rather than pursue new structural measures. An emphasis on rural expenditure will continue to remain key, with fiscal allocations to affordable housing, rural roads and electrification. A healthy budgetary allocation to road projects should continue in the coming year. If the fiscal deficit target is relaxed, we may see an incremental allocation channeled towards rural schemes. Cumulatively, the degree of the accommodative monetary stance in developed economies is moderating. A gradual monetary tightening by most franklintempleton.com 2

3 advanced economies would have repercussions on the global growth recovery. Looming tensions in the Middle East could aggravate oil supply disruption and thereby weigh on crude oil prices. In India, amidst the backdrop of high government spending and lower-than-expected GST revenue collection, the fiscal deficit will be keenly watched, as continuing weakness in GST collections will be a real concern for the deficit. Despite these challenges, we believe that the Indian economy should be relatively resilient to external shocks because of better levels of foreign-exchange reserves, stronger balance sheets and an improving degree of macroeconomic stability. 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 Portfolio Price to Earnings (12 Month Trailing) 35.69x 23.57x Price to Book Value 3.84x 3.30x Price to Cash Flow 16.38x 14.99x Market Capitalization (Millions in USD) 18,809 57,723 Return on Equity 18.28% 20.40% 3-Year Sales Growth 11.43% 8.23% Estimated 3-5 Yr EPS Growth 22.60% 17.35% Operating Margin 16.58% 17.69% Net Margin 11.31% 13.12% Price to Earnings (12 Month Forward) 29.64x 21.77x Enterprise Value / EBIDTA (Millions in USD) 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. The Return on Equity calculation uses simple weighted average means. The Estimated 3-5 Year EPS Growth uses simple weighted average means. There can be no assurance that the Estimated 3-5 Year EPS Growth will be realized. 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. 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 3

4 Portfolio Diversification Top Ten Holdings 9 Equity as a Percent of Total Top Holdings Sector % HDFC BANK LTD Banks 4.70 HINDUSTAN UNILEVER Household & Personal 3.89 LTD Products TATA MOTORS LTD Automobiles & 3.67 Components YES BANK LTD Banks 3.65 KOTAK MAHINDRA Banks 3.52 BANK LTD STATE BANK OF INDIA Banks 3.47 ULTRATECH CEMENT Materials 3.25 LTD INFOSYS LTD Software & Services 3.23 LARSEN & TOUBRO Capital Goods 3.23 LTD IDEA CELLULAR LTD Telecommunication Services 3.04 Sector Weightings vs. 10,11 Percent of Total Financials Consumer Discretionary Industrials Materials Consumer Staples Information Technology Telecommunication Services Health Care Real Estate 1.99 Energy Utilities 2.13 Cash & Cash Equivalents % 5% 10% 15% 20% 25% 30% 35% Franklin India Growth Fund Largest Sector Contributors vs. 12 Total Sector Effect (%) Financials 1.18 Materials 0.37 Health Care 0.33 Industrials 0.24 Contributors/detractors data shown is for the period from 07/01/2017 to 09/30/2017. Smallest Sector Contributors vs. 13 Total Sector Effect (%) Consumer Discretionary Information Technology Energy Telecommunication Services Consumer Staples 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. 10. 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. 11. 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. 12,13. Past performance is not an indicator or a guarantee of future performance. Information is historical and may not reflect current or future portfolio characteristics. All holdings are subject to change. Source: FactSet. Important data provider notices and terms available at Total Effect represents the excess return by sector as compared to the index. Performance attribution is calculated in the base currency of the fund. franklintempleton.com 4

5 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 We view our primary strengths as the Franklin India Equity team s presence on the ground and in-depth approach to fundamental research, its expertise in India equity investing, its investment process and its ability to think independently. Our bottom-up approach to investing is focused on the fundamental analysis of individual companies, based on internal research. It is the foundation of our investment process, aimed at identifying and selecting companies that combine growth, quality and sustainability characteristics at a sensible price. Stock Selection Philosophy Growth Quality Sustainability of Results Use of financial analysis to evaluate: Capital return and management analysis to determine: Analysis of a company s long-term ability to: potential to generate positive cash flows or earnings that appear to be increasing at a rate faster than that of the industry/economy profitable reinvestment opportunities potential to sustain high return on capital in the long term company management s strategic thinking and execution abilities integrity, depth, capital allocation and corporate governance standards sustain its competitive product/service brand/cost advantage create sustainable shareholder value Investment Process 1. Develop Universe 2. Fundamental Research 3. Valuations 4. Stock Recommendations 5. Portfolio Construction Shortlist companies from the universe of over 5,500 companies. Identify companies with sound business models, strong growth opportunities, sustainable competitive advantages, and quality management. 360-degree, in-depth analysis based on regular interactions with management, employees, customers, competitors & independent industry professionals as well as study reports/news. Financial Analysis and forecasts. Flexible approach use suitable valuation tools depending on the industry & market situation. Focus on the long-term strategic view in the valuation approach. Conduct rigorous team discussion and debate between analysts and managers on potential companies entry onto a buy, hold or sell list. Stocks rated buy, sell or hold based on growth, quality and valuation. Model Portfolio constructed from the analysts buy and hold lists. Final Portfolio: Security sizing determined by stock conviction as well as risk alignment. Portfolio Manager has discretion over exposure to stocks outside the model portfolio. Investment Team Portfolio Manager Years with Firm Years Experience Sukumar Rajah Stephen Dover, CFA Purav Jhaveri, CFA, CPA, FRM Beta, Information Ratio and Tracking Error information are measured against the. 15. 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 5

6 Glossary 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%. Enterprise Value/EBITDA: A ratio used to determine the value of a company and is calculated as the enterprise value divided by EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization). Estimated 3-5 Year EPS Growth: An estimated measure of the growth of earnings per share over a forward-looking period. For a portfolio, the value represents a weighted average of the stocks it holds. Historical 3 Yr Sales Growth: The rate at which sales have increased for the fund s underlying holdings over the last three 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. 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. Net Margin: The ratio of net profits to revenues for a company or business segment that shows how much of each dollar earned by the company is translated into profits. Operating Margin: A measurement of what proportion of a company s revenue is left over after paying for variable costs of production such as wages, raw materials, etc. Price to Book Value: 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. 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 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. Return on Equity: A measure of a corporation s profitability that reveals how much profit a company generates with the money shareholders have invested. 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 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 6

7 What Are The Risks? All investments involve risks, including possible loss of principal. Special risks are associated with foreign investing, including currency fluctuations, economic instability and political developments. Investments in developing markets involve heightened risks related to the same factors, in addition to risks associated with these companies smaller size, lesser liquidity and the potential lack of established legal, political, business and social frameworks to support securities markets in the countries in which they operate. The fund may also experience greater volatility than a fund that is more broadly diversified geographically. The fund is designed for the aggressive portion of a well-diversified portfolio. Risks are detailed 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. 644 PP 12/17