Templeton Developing Markets Trust Advisor Class Value Equity Product Profile Product Details 1 Fund Assets $1,420,822,800.04 Fund Inception Date 10/16/1991 Number of Issuers 94 NASDAQ Symbol TDADX Maximum Sales Charge Investment Style Benchmark Lipper Classification Morningstar Category Dividend Frequency Asset Allocation 2 Value MSCI Emerging Markets Index S&P/IFCI Composite Index Emerging Markets Funds Diversified Emerging Mkts Annually, in October, if necessary, December Fund Description The fund seeks long-term capital appreciation by investing at least 80% of its net assets in securities of developing- or emerging-market issuers. Performance Data 3,4 Average Annual Total Returns 5 (%) Since Inception 3 Mths YTD 1 Yr 3 Yrs 5 Yrs 10 Yrs 20 Yrs (10/16/1991) Advisor Class 0.15-7.55-1.02 16.15 3.18 4.51 8.68 6.59 MSCI Emerging -0.95-7.39-0.44 12.77 3.99 5.76 10.17 7.87 Markets Index S&P/IFCI -1.59-7.80-0.75 13.00 4.51 6.28 10.97 8.20 Composite Index 40% 20% 0% -20% 0.15 16.15 12.77 13.00 3.18 3.99 4.51 4.51 5.76 6.28 8.68 10.17 10.97 6.59 7.87 8.20-0.95-1.59-1.02-0.44-0.75-7.55-7.39-7.80 3 Mths YTD 1 Yr 3 Yrs 5 Yrs 10 Yrs 20 Yrs Since Inception Equity 98.73 Advisor Class S&P/IFCI Composite Index Cash & Cash Equivalents 1.27 0% 25% 50% 75% 100% 125% Total Annual Operating Expenses With Waiver:1.13% Without Waiver: 1.28% 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/342-5236 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 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 04/30/2019. Fund investment results reflect the expense reduction and fee waiver; without these reductions, the results would have been lower. Calendar Year Returns (%) 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 Advisor Class 40.59 18.08-19.47-7.79-1.02 13.44-15.60 17.73 74.44-53.79 MSCI Emerging 37.75 11.60-14.60-1.82-2.27 18.63-18.17 19.20 79.02-53.18 Markets Index S&P/IFCI 37.89 10.78-12.38-1.11-0.58 18.89-19.03 20.64 81.03-53.74 Composite 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. 4. 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. 5. Periods shorter than one year are shown as cumulative total returns. Not FDIC Insured May Lose Value No Bank Guarantee
Portfolio Manager Insight 6 Performance Review QUARTERLY KEY PERFORMANCE DRIVERS Helped Hurt Chip maker Taiwan Semiconductor Manufacturing Company benefited from strong demand for its latest high-performance chips, as well as news of a competitor halting its development of advanced chip-production technology. Fila Korea rallied on better-than-expected quarterly earnings, thanks to higher sales and margins. The financial results reflected a recovery in the sportswear company s domestic and US businesses, as well as its rapid growth in China. However, South Africa-based internet and media group Naspers declined. It is a major shareholder in Chinese internet giant Tencent, which fell amid regulatory uncertainty in China s online gaming industry. Naspers plan to spin off and list its pay-television business lent some support to the stock. 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-em demand. Rising protectionism in the West may further pivot focus towards regional agreements; indeed, China appears eager to replace US trade leadership in Asia. In emerging markets 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 emerging markets to address development challenges and leapfrog technological change. We aim to look beyond the noise of negative news headlines and instead focus on the underlying fundamentals of the EM asset class. We find a disconnect between the negative sentiment permeating the market and positive EM equity fundamentals, including rising cash flows, improving capital-allocation discipline, corporate deleveraging, healthy earnings and discounted valuations. Not all emerging markets will be hurt by the same factors, and performances of individual emerging markets vary considerably. As stock pickers, we can choose among the varied opportunities that emerging markets offer to build well-diversified portfolios that seek to avoid excessive risks. 6. 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 7,8,9 Stocks Sectors Countries Taiwan Semiconductor Manufacturing Co., Ltd. Information Technology (Stock Selection) China (Stock Selection) Fila Korea Ltd Financials (Stock Selection) Taiwan (Stock Selection) Tencent Holdings Ltd. Consumer Discretionary (Stock Selection) India (Stock Selection) Naspers Limited Class N Materials (Stock Selection) South Africa (Stock Selection) Brilliance China Automotive Holdings Limited Energy (Underweight) Russia (Stock Selection) MGM China Holdings Limited Communication Services (Overweight) Hong Kong (Overweight) Portfolio Price to Earnings (12 Month Trailing) 11.74x 13.32x Price to Book Value 1.77x 1.65x Price to Cash Flow 6.93x 8.61x Market Capitalization (Millions in USD) 104,669 73,799 7. 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. 8. Source: FactSet. Price ratio calculations for weighted average use harmonic means. Any exceptions to this are noted. 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
Portfolio Diversification Top Ten Holdings 10 Top Holdings Sector Country % SAMSUNG ELECTRONICS CO LTD Technology Hardware & Equipment South Korea 8.07 TAIWAN SEMICONDUCTOR Semiconductors & Semiconductor Taiwan 7.57 MANUFACTURING CO LTD Equipment NASPERS LTD Media & Entertainment South Africa 6.25 BRILLIANCE CHINA AUTOMOTIVE Automobiles & Components China 4.62 HOLDINGS LTD ALIBABA GROUP HOLDING LTD Retailing China 4.20 UNILEVER PLC Household & Personal Products United Kingdom 3.07 TENCENT HOLDINGS LTD Media & Entertainment China 2.87 ICICI BANK LTD Banks India 2.42 BANCO SANTANDER MEXICO SA Banks Mexico 2.02 INSTITUCION DE BANCA MULTIPLE GRUP CHINA MOBILE LTD Telecommunication Services China 1.94 Geographic Weightings vs. 11,12 China 23.48 30.99 South Korea 16.87 14.88 Taiwan 12.29 12.36 South Africa 6.09 7.06 Russia 6.73 3.70 India 6.64 8.53 Brazil 4.87 6.19 Thailand 3.72 2.48 United Kingdom 3.07 Indonesia 1.95 2.85 Mexico 2.34 3.16 Peru 1.53 0.41 Cambodia 1.32 Hungary 0.29 0.95 Macao 0.92 United States 0.90 Hong Kong 0.89 Saudi Arabia 0.56 Pakistan 0.06 0.55 Czech Republic 0.44 0.19 Kenya 0.28 Philippines 0.22 0.96 Singapore 0.15 Argentina 0.03 Nigeria 0.01 Cash & Cash Equivalents 1.27 0% 25% 50% Templeton Developing Markets Trust Sector Weigthings vs. 13,14 Information Technology Financials Communication Services Consumer Discretionary Consumer Staples Energy Materials Health Care Industrials Real Estate Utilities Cash & Cash Equivalents 6.32 6.57 5.94 8.22 4.21 7.89 2.69 3.04 2.34 5.49 0.42 2.79 2.41 1.27 Templeton Developing Markets Trust 10.42 14.11 15.85 17.79 17.23 20.14 21.65 23.21 0% 5% 10% 15% 20% 25% 30% 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. 11,13. 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. 12,14. 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. franklintempleton.com 3
Supplemental Performance Statistics Supplemental Risk Statistics 15,16 Advisor Class 3 Yrs 5 Yrs 10 Yrs Standard Deviation (%) 12.94 13.79 20.88 Tracking Error (%) 3.50 4.32 4.53 Information Ratio 0.97-0.19-0.28 Beta 0.89 0.90 0.96 Sharpe Ratio 1.18 0.19 0.20 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/342-5236 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: Value, Patience, and Bottom-Up stock selection. Value We seek companies trading at a substantial discount to what our research indicates the company may be worth. 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 Chetan Sehgal, CFA, Senior Management Director, Director of Portfolio 23 23 Management, Emerging Markets Equities Additional Resources Investment Risk Management Group Group Global Portfolio Compliance Global Trading Platform 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 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. 15. Beta, Information Ratio and Tracking Error information are measured against the. 16. 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 4
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. 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. 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 5
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, of which frontier markets are a subset, 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. Because these frameworks are typically even less developed in frontier markets, as well as various factors including the increased potential for extreme price volatility, illiquidity, trade barriers and exchange controls, the risks associated with developing markets are magnified in frontier markets. Templeton Developing Markets Trust is designed for the aggressive portion of a welldiversified 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/342-5236 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. Standard & Poor s, S&P and S&P 500 are registered trademarks of Standard & Poor s Financial Services LLC. S&P does not sponsor, endorse, sell or promote and S&P index-based product. Important data provider notices and terms available at: www.franklintempletondatasources.com 3. Effective 01/02/1997, the fund began offering Advisor Class Shares. For periods prior to the fund s Advisor Class inception date, a restated figure is used based on the fund s oldest share class, Class A performance, excluding the effect of Class A s maximum initial sales charge but reflecting the effect of the Class A Rule 12b-1 fees; and b) for periods after the fund s Advisor Class inception date, actual Advisor Class performance is used, reflecting all charges and fees applicable to that class. Franklin Templeton Distributors, Inc. One Franklin Parkway San Mateo, CA 94403-1906 (800) DIAL BEN/342-5236 franklintempleton.com 2018 Franklin Templeton Investments. All rights reserved. 611 PP 09/18