Franklin Templeton Investment Funds Franklin Mutual European Fund Deep Value Fund Profile Fund Details Inception Date 3 April 2000 Investment Style Benchmark(s) Deep Value MSCI Europe NETR (Price with Net Dividend Index) FUND OBJECTIVE The Franklin Mutual European Fund (the Fund ) seeks capital appreciation which may occasionally be short term and on a secondary basis it also seeks income primarily by investing in the securities of companies incorporated or having their principal business activities in European countries. To a lesser extent, the Fund may also invest in distressed securities or securities of companies that are involved in mergers, acquisitions, consolidations, liquidations and reorganizations. The Fund follows a unique value style, seeking to invest in securities that the Fund s managers perceive to be trading at a significant discount to their intrinsic value. The Fund may invest up to 10% of its total net assets in securities of non- European issuers. The Fund managers generally buy equities in the equities local currency and the Fund does not hedge its currency exposure. Katrina S. Dudley, CFA We believe that superior research is critical to finding undervalued companies. We also recognize that companies in the midst of change or in distress can provide opportunity overlooked by the market. These beliefs are the basis for our unique approach. The Fund may invest in financial derivative instruments, which may include, but are not limited to, futures, options, contracts for difference, forward contracts on financial instruments and options on such contracts, swaps such as credit default swaps, synthetic equity swaps or total return swaps. WHY CONSIDER THIS FUND Investing in undervalued securities. Seeking to buy companies at a significant discount to their intrinsic value, the Fund invests primarily in undervalued European securities and to a lesser extent distressed securities and merger arbitrage. A well-diversified portfolio with solid risk management. Fund managers seek a well-diversified portfolio with risk spread among a large number of investments, and as they tend to hold cash, it can be helpful in managing risk during difficult market scenarios. Portfolio management with an eye on risk. Regardless of market circumstances, Fund managers engage in bottom-up, stockby-stock analysis with a long-term perspective and a careful eye on risk. A dedicated management team. Based in Short Hills, New Jersey and London, consists of a dedicated team of over 35 investment professionals including research analysts, portfolio managers and traders. For Professional Investor Use Only. Not for Distribution to Retail Investors.
INVESTMENT PHILOSOPHY & PROCESS The team takes a unique value approach to investing, seeking those companies that are believed to be trading at a substantial discount to their intrinsic business value. Often the companies purchased by portfolio managers are out of favor with investors, overlooked by the investment community, or are involved in complicated corporate restructurings. The Fund management team looks for catalysts such as a complicated corporate restructuring, the sale of non-core assets, spin-offs, share buybacks, or new management teams which will help the team unlock value for the Fund s shareholders. As well, the Fund managers are activist investors if they think it is necessary to protect shareholders interests. The investment team takes a proactive interest in the companies in which it invests; thinking and acting as business owners. Through its proprietary bottom-up research, the team seeks to identify securities which are significantly undervalued in the marketplace and have the potential to appreciate in value, regardless of market movements. Portfolio managers often accumulate a significant stake in a business with an eye towards working with corporate management to help unlock value for the shareholders. The team adheres to a bottom-up, value-oriented investment process. The team invests primarily in undervalued securities, merger arbitrage or restructuring opportunities, and the distressed securities of companies going through bankruptcy or reorganization. Undervalued Securities Undervalued stocks are the foundation of the Franklin Mutual European Fund. The process of finding undervalued special situations involves the continuous analysis of companies to seek those stocks obligations trading at a deep discount to their intrinsic value. The team strives to identify securities that have the dynamics to appreciate in value irrespective of market movements. Merger Arbitrage In addition to identifying undervalued securities, the team invests in announced merger arbitrage opportunities which offer attractive investment returns. The portfolio managers examine companies in the midst of change such as mergers, acquisitions, or some form of restructuring such as a disposition or spin-off. The objective of this strategy is to capture the spread between the market value of the takeover target and the eventual price realized upon the completion of the event. Distressed Securities Another aspect of the team s approach involves investing in financially distressed situations. The team identifies bank debt or distressed bonds trading at a significant discount to the underlying value of the securities. Both distressed and M&A investing have historically provided investors with capital appreciation and a low to moderate correlation to the returns of the overall equities market. The team uses proprietary, in-depth research and does not rely on recommendations from outside sources in securities selection. Nevertheless, Franklin Mutual Series strong ties with broker-dealers provides the team with a constant flow of information about securities that are undervalued, distressed, or involved in mergers and acquisitions or reorganizations. The analysts do not employ any mechanical screening methods; they cover the complete universe of global stock markets, focusing on areas where there are likely to be undervalued situations. The team s unique value approach to investing is focused on individual securities and precludes thematic, sector, or industry stock selection methods. During the analytical and stock selection process the team searches for catalysts which will help them unlock value for the Fund s shareholders. These catalysts may include: Corporate restructuring Sale of non-core assets Spin-offs Share buybacks New management team The team of analysts and portfolio managers work closely together to generate investment ideas for all funds managed by. Each member of the team focuses on a minimum of 12-15 securities at any given time. Each investment idea is rigorously and thoroughly researched and each investment idea must stand on its own investment merits to be included in the Fund. For Professional Investor Use Only. Not for Distribution to Retail Investors. 2
PORTFOLIO CONSTRUCTION RISK MANAGEMENT Risk management is integrated into every aspect of the Fund s investment process. Security Selection The Fund s managers know that buying securities when they are generally out of favor and trading at significant discounts to intrinsic value has historically limited downside risk. Diversification within the Portfolio The Fund is widely diversified and will hold in excess of one hundred different securities at any point in time. This limits individual security selection risk. Alternative Investments In addition to investing in undervalued equities, the Fund s managers also invest in merger arbitrage and distressed debt opportunities. Historically, the returns on those investments have had low to moderate correlation to the returns of the rest of the market. In addition, the Fund s managers only participate in announced merger arbitrage opportunities and they do not use leverage to invest. The team does not actively make any asset allocation decisions. Sector and country weightings are a residual of the stock selection process and there are no established weights or preclusions for any sector. The team often purchases significant stakes in companies and may also exert influence on management. The focus is entirely on the pursuit of the best investment ideas and portfolios are not constructed with any reference to an index. The team considers cash to be a by-product of the stock selection process. As the analysts search for attractive opportunities, they are acutely aware of potential downside risks to securities that may seem "cheap. If they cannot find attractive investments, they have always preferred to hold cash. It is an important aspect of philosophy, which has been paramount to its long-term success. Sell Discipline Fund managers will sell a security for the following reasons: Country/Regional Limits The Fund invests across the European equity universe with a bias to large-cap, developed-market equities that offer significant value. The Fund may invest up to 10% of the assets of the portfolio outside Europe. Sector Limits The Fund managers have the freedom to invest in any or all sectors; wherever they find the best investment opportunities. Min/Max Stock Positions Individual stock positions are, on average, between 1-3% of the portfolio. Cash Policy The Fund s investment team considers cash a by-product of the stock selection process, and it is not unusual for cash to comprise 5% to 20% of the Fund. If attractive opportunities are not immediately found, the Fund s managers prefer to hold cash, which is an important aspect of Franklin Mutual Series philosophy. Capitalization Limits The Fund managers may invest in companies of any size. The security approaches or reaches the analyst s estimate of intrinsic value. The price of the security rises significantly and exceeds a level that the team considers appropriate given their evaluation of its potential risk and return characteristics. The economic fundamentals of the business have changed, causing a reduction in the estimate of the intrinsic value of the company, thereby changing the investment s reward-risk parameters. For Professional Investor Use Only. Not for Distribution to Retail Investors. 3
PORTFOLIO MANAGEMENT TEAM uses a team approach for the management of its funds. Based primarily in Short Hills, New Jersey, the team is comprised of 26 analysts, portfolio managers and assistant portfolio managers, and 9 traders who are completely integrated with the team. All investment professionals are responsible for generating investment ideas for the team, for their respective areas of research coverage and responsibility. Katrina S. Dudley, CFA Katrina Dudley is co-portfolio manager of the Franklin Mutual European mutual funds, overseeing approximately $5 billion of assets. She has been a manager of these funds for the past 10 years and has been a member of the Mutual Series team for 14 years. In addition to her portfolio management responsibilities, as an analyst at Mutual Series, her research responsibilities include global industrial, machinery and transportation companies. She regularly interacts with management teams to discuss their businesses, competitive advantage and market outlooks. Prior to joining Mutual Series in 2002, Ms. Dudley was an investment analyst at Federated Investors, Inc. covering the technology and health care sectors. From 1995 to 2001, Ms. Dudley worked in the corporate finance division of Ernst & Young LLP, most recently as a senior manager, where she specialized in valuation and litigation consulting. Ms. Dudley recently authored the introduction to the Vault Career Guide to Mutual Funds. Ms. Dudley also appeared in Money Magazines 2013 Investor's Guide 'Top Stock Picks from Top Pros'. Ms. Dudley has an M.B.A. from New York University's Stern School of Business, a B.A. of Laws (first class honors) and a B.A. in Commerce from Bond University (Australia), and an Associate of Science degree from the University of the People. She is a Chartered Financial Analyst (CFA) charterholder. Ms. Dudley is a trustee of The Children's Village, an $80 million revenue social services agency where she is the Chair of the Audit Committee and a member of the Nomination/Governance and the Executive Committees. She lives with her husband and four children in New York City. Mandana Hormozi Mandana Hormozi is a research analyst and a portfolio manager for. She is co-portfolio manager of Franklin Mutual Beacon Fund. Her global research responsibilities include the media and telecommunications industries. Prior to joining in 2003, Ms. Hormozi was a senior vice president in the equity research department at Lazard Freres. Previously, she was an economic research analyst at Mitsubishi Bank. Ms. Hormozi earned a B.A. from Columbia University and an M.B.A. from Columbia Business School. For Professional Investor Use Only. Not for Distribution to Retail Investors. 4
WHAT ARE THE KEY RISKS? The value of shares in the Fund and income received from it can go down as well as up and investors may not get back the full amount invested. Performance may also be affected by currency fluctuations. Currency fluctuations may affect the value of overseas investments. The Fund invests mainly in equity and equity-related securities of companies located in or doing significant business in European countries. Such securities have historically been subject to significant price movements that may occur suddenly due to market or company-specific factors. As a result, the performance of the Fund can fluctuate considerably over time. Other significant risks include: currency risk, derivatives risk, liquidity risk, Shanghai-Hong Kong Stock Connect risk. For full details of all of the risks applicable to this Fund, please refer to the Risk Considerations section of the Fund in the current prospectus of Franklin Templeton Investment Funds. CFA and Chartered Financial Analyst are trademarks owned by CFA Institute. This document is intended to be of general interest only and does not constitute legal or tax advice nor is it an offer for shares or invitation to apply for shares of any of the Luxembourg-domiciled SICAV Franklin Templeton Investment Funds (the Fund ). Given the rapidly changing market environment, Franklin Templeton Investments disclaims responsibility for updating this material. Subscriptions to shares of the Fund can only be made on the basis of the current prospectus of the Fund, accompanied by the latest available audited annual report and the latest semi-annual report if published thereafter. An investment in the Fund entails risks which are described in the Fund's prospectus. The value of shares in the Fund and income received from it can go down as well as up, and investors may not get back the full amount invested. Past performance is not an indicator or a guarantee of future performance. Currency fluctuations may affect the value of overseas investments. When investing in a fund denominated in a foreign currency, your performance may also be affected by currency fluctuations. In emerging markets, the risks can be greater than in developed markets. Investments in derivative instruments entail specific risks that may increase the risk profile of the fund and are more fully described in the Fund s prospectus. If the fund invests in a specific sector or geographical area, the returns may be more volatile than a more diversified fund. No shares of the Fund may be directly or indirectly offered or sold to residents of the United States of America. Shares of the Fund are not available for distribution in all jurisdictions and prospective investors should confirm availability with their local Franklin Templeton Investments representative before making any plans to invest. Opinions expressed are the author s at publication date and they are subject to change without prior notice. Any research and analysis contained in this document has been procured by Franklin Templeton Investments for its own purposes and is provided to you only incidentally. A copy of the latest prospectus, the annual report and semi-annual report, if published thereafter can be found on our website: www.franklintempletongem.com or can be obtained, free of charge, from the address below. Issued by Franklin Templeton Investments (ME) Limited, authorized and regulated by the Dubai Financial Services Authority. Dubai office: Franklin Templeton Investments, The Gate, East Wing, Level 2, Dubai International Financial Centre, P.O. Box 506613, Dubai, U.A.E., Tel.: +9714-4284100 Fax:+9714-4284140. For Professional Investor Use Only. Not for Distribution to Retail Investors. DE 06-18 2018 Franklin Templeton Investments. All rights reserved.