Templeton Global Equity Group Data as of 31 March 2018 Franklin Templeton Investment Funds - A (acc) USD
Table of Contents Investment Capabilities Overview...3 Franklin Templeton Investments A Trusted, Long-Term Partner in Investment Management...4 We Consider Sustainability in All That We Do...5 Who Is Franklin Templeton Investments?...6 Extensive Global Presence...7 Cornerstones...8 Why?...9 Investment Objective and Characteristics...10 Templeton s Investment Philosophy...11 Templeton Global Equity Investment Process...12 ESG Assessments Case Studies...17 Investment Process Global Interest Rate, Currency, Sovereign Credit Positioning...18 Global Research Multiple Perspectives/Lenses... 19 Isolating Risk Exposures...20 Summary...21 What are the Key Risks?...22 Geographic Allocation Total...23 Geographic Allocation Equity...24 Geographic Allocation Fixed Income... 25 Sector Allocation Equity...26 Sector Allocation Fixed Income...27 Currency Allocation Fixed Income...28 Quality Allocation Fixed Income...29 Top Ten Holdings Equity...30 Portfolio Characteristics Total... 31 Discrete Performance... 32 Historical Performance...33 Calendar Year Returns... 34 Performance Risk Statistics... 35 Management Profile...36 Glossary...38 Important Disclosures...40 2
Investment Capabilities Overview 2 Equity FRANKLIN TEMPLETON INVESTMENTS Total Combined Assets Under Management : US$737.5 Billion 5 Fixed Income 8 Multi-Asset Solutions 11 Alternatives AUM US$315.0 Billion US$290.0 Billion US$124.0 Billion US$16.2 Billion CAPABILITIES Value Government Income Commodities Deep Value Municipals Real Return Infrastructure Core Value Corporate Credit Balanced/Hybrid Real Estate Blend Bank Loans Total Return Hedge Funds GARP Securitised Target Date/Risk Private Equity Growth Multi-Sector Absolute Return Convertibles Currencies Tactical Asset Allocation Sector Sukuk Managed Volatility Shariah Smart Beta INVESTMENT Templeton Global Equity Group (1940) Franklin Templeton Fixed Income Group (1970) Franklin Templeton Multi-Asset Solutions (1996) Franklin Real Asset Advisors (1984) TEAMS Franklin Equity Group (1947) Templeton Global Macro (1986) Franklin SystematiQ (2011) Darby Overseas Investments (1994) Franklin Mutual Series (1949) Franklin LAM-Fixed Income (1993) K2 Advisors (1994) Franklin Templeton Emerging Markets Equity Pelagos Capital Management (2005) (1987) Source: Franklin Templeton Investments (FTI), as of 31 March 2018, based on latest available data. Total combined Assets Under Management (Total AUM) combines U.S. and non-u.s. AUM of the investment management subsidiaries of the parent company, Franklin Resources, Inc. (FRI) [NYSE: BEN], a global investment management organisation operating as FTI. Only selected business entities within FTI claim compliance with the GIPS standards as described in the table of contents if applicable. Total and platform AUM includes discretionary and non-discretionary accounts, including pooled investment vehicles, separate accounts and other vehicles. Total and platform AUM may also include advisory accounts with or without trading authority. In addition, assets for which certain FTI advisers provide limited asset allocation advisory services, and assets that are not allocated to FTI products are not included in the AUM figures shown. Franklin Templeton Multi-Asset Solutions may invest in various investment platforms advised by a number of investment advisory entities within FTI. Platform AUM reported for FT Multi-Asset Solutions therefore may include certain AUM separately reported under each utilised investment platform. Total AUM also includes assets managed by certain FTI advisers that do not form part of the selected investment platforms shown. As a result, the combined platform AUMs may not equal Total AUM and may be calculated and reported separately for regulatory or other purposes under each investment adviser. Each local asset manager may be considered as an entity affiliated with or associated to FTI by virtue of being a direct or indirect wholly-owned subsidiary of FRI, an entity or joint venture in which FRI owns a partial interest, which may be a minority interest, or a third party asset management company to which investment advisory services have been delegated by an FTI adviser. 3
5889 Franklin Templeton Investments A Trusted, Long-Term Partner in Investment Management A Trusted, Long-Term Partner in Investment Management Investment excellence Diverse investment solutions across multiple asset classes Time-tested investment disciplines plus exceptional research enables strong long-term performance potential Integrated, comprehensive and proven approach to investment risk management Committed to environmental, social and governance (ESG) investment integration Global perspective, local expertise Pioneer in global investing, with track record of innovation Unmatched breadth and depth of global presence Deep experience and long-term commitment to the markets we enter Strength and experience 70 years of navigating well through all market cycles Global business diversified by investment objective, geography and client type Values-driven culture guides how we work 4
5888 We ESG Consider and Corporate Sustainability Sustainability All That We Do Guides How We Work Our primary objective is to deliver exceptional investment management through an active fundamental approach while always acting in the best interests of our clients and shareholders As a fiduciary, we recognize that ESG considerations are a driver of long-term investment performance and thus affect our business and the companies we invest in Our approach to ESG is one of the many strengths of our organization ESG considerations at the corporate level that impact our business: Environmental Impact Energy usage Greenhouse gases Waste/recycling Water consumption Social Factors Diversity and inclusion Talent management (attracting, retaining top talent) Charitable giving Customer privacy and data security Employee volunteering Governance Anti-money laundering Code of ethics/conduct Compliance Executive compensation Enterprise risk management ESG investment integration 5
0718 Who Is Franklin Templeton Investments? An Investment Management Organisation Focusing on research and investment management with more than 600 investment professionals covering all major asset classes Serving the needs of investors worldwide with a dedicated team of investment professionals Providing the resources, expertise, experience and commitment to ensure outstanding service to our clients Offering a broad range of investment strategies and vehicles 2000 2001 2018 Franklin Templeton Investments total firm assets US$737.5 billion as of 31 March 2018 Fiduciary Trust Company International joins Franklin Templeton Investments Bissett Investment Management joins Franklin Templeton Investments 1996 1998 Franklin Resources, Inc. (BEN), stock is added to S&P 500 Index Mutual Series joins Franklin Templeton Investments 1992 Templeton joins Franklin Templeton Investments 1986 Franklin Resources, Inc., stock listed and begins trading on New York Stock Exchange 1973 Franklin Resources, Inc., moves offices from New York to California 1971 Franklin Resources, Inc., formed as a holding company going public as BEN 1947 Franklin Distributors, Inc., introduces its first mutual funds Investment professionals include portfolio managers, analysts and traders. As of 31 March 2018. 6
0719 Extensive Global Presence San Mateo Ft. Lauderdale Toronto London New York Nassau Edinburgh Frankfurt Hong Kong Melbourne Singapore Global Fixed Income Offices Templeton Global Equity Research Offices Templeton Global Macro Research Offices 11 Global Macro and Global Equity offices and more than 160 investment professionals. As of 31 March 2018. 7
0720 Cornerstones Global Perspective Our global research analysts conduct fundamental research in equity and fixed income around the globe. With analysts on the ground in our local asset management offices, our local contacts and access enable the team to develop unfettered views which underlie our investment decision-making process. Long-Term Value Global equity and fixed income analysts search the globe for the best values in both asset classes. Investment Strategy Fixed Income Utilise fundamental, macro-driven research to identify potential sources of total return (current income and capital appreciation) worldwide Identify economic imbalances that may lead to value opportunities in interest rates (duration), currencies, sovereign credit and corporate/spread sectors Equity Markets are often short-sighted and affected by sentiment, which creates short-term distortions in share prices Comprehensive, rigorous bottom-up analysis with long-term focus allows us to look beyond short-term noise and identify the fundamental value of a stock 8
0727 Why? Growth and Income Long-term, fundamental research Focus on sustainable global capital appreciation and income opportunities Flexible and Opportunistic Flexibility to allocate across regions, countries, asset classes and sectors Actively managed to precisely isolate desired exposures Potential for Lower Overall Risk Through Diversification Truly global approach to investing Focus on companies with low valuations Identify economic imbalances leading to value in interest rates (duration), currencies, sovereign credit and corporate/spread sectors Global Expertise Recognised pioneer in global investing Collaborative investment approach facilitates knowledge sharing 9
0721 Investment Objective and Characteristics FTIF (the fund ) seeks capital appreciation and current income, consistent with prudent investment management, by investing principally in equity and government securities issued by entities throughout the world, including Emerging Markets. The Investment Manager anticipates that the majority of the fund s portfolio will normally be invested in equity securities. The fund will seek income by investing in fixed and floating rate debt securities and debt obligations of governments, governmentrelated or corporate issuers worldwide. At no time will the fund invest more than 40% of its total net assets in fixed income securities. 10
2880 Templeton s The Investment Philosophy We Utilise a Disciplined, Consistent Approach Based on Three Timeless Principles of Investing Value Uncover bargains seeking companies trading at large discounts to their business value Business value based on normalised earnings, cash flow or asset value potential Flexible approach in a disciplined framework The best bargains are those stocks having the lowest prices in relation to possible earning power of future years. Sir John Templeton October 1957 Patience Rolling five-year time horizon focused on normalised business value Long-term focus takes advantage of short-term price volatility to reveal investment opportunities Patience allows time for value recognition and has historically resulted in low turnover Bottom-up stock picking Build portfolios with undervalued securities identified through research process Portfolio structure reflects where we are finding value across sectors and regions Portfolio management process seeks to buy pessimism and sell optimism 11
2940 Templeton s Global Valuation-Driven Equity Investment Investment Process Process 1 Identify Potential Bargains 2 In-Depth Fundamental Analysis 3 Research Team Evaluation 4 Bottom-Up Portfolio Construction 5 Portfolio Monitoring and Risk Management Experienced analysts Focus on global industry sectors Quantitative and qualitative assessment Identify material ESG issues Five-year financial forecasts Management/supplier/ competitive evaluation Upside/downside return quantification Recommendation of Bargain List candidates Presentation of investment thesis Investment debate and critique: Devil s Advocate ESG Devil s Advocate Director of Research approval Investment parameters Industry and sector framework Build and diversify portfolio Long-term approach: 20% historical turnover 1 Ongoing valuation analysis Ongoing ESG Monitoring Disciplined sell methodology Weekly peer review and risk analytics TEMPLETON S BOTTOM-UP STOCK SELECTION PROCESS The above chart is for illustrative and discussion purposes only. 1. Historical turnover is based on Templeton Global Equity Group s overall experience, over a five-year period ended 31 March 2018, and is not intended to reflect the historical turnover of the fund. Please see the fund s fiscal year-end turnover on the Portfolio Summary slide. The turnover is a byproduct of Templeton s long-term approach to managing portfolios, but various factors, such as a portfolio s specific investment parameters and market or economic conditions may cause actual portfolio turnover to vary. For more information regarding an individual strategy s or fund s historical turnover ratio please contact your Franklin Templeton representative. 12
2940 A Bottom-Up Research Process Leverages Global Capabilities Across Market Cap Spectrum 1. Identify Potential Bargains 2. In-Depth Fundamental Analysis 3. Research Team Evaluation Global focus Analysts are aligned by sectors globally Unconstrained investable universe Fundamental and quantitative assessment Price/Earnings Price/Book Value Price/Cash Flow Identify material ESG issues Environmental Social Governance Most attractively valued companies based on valuation Develop research models Revenue drivers; growth potential Assessment of ESG factors on long-term risk/return Operating costs Capital expenditures Capital allocation Retained capital Competitor analysis Five-year financial forecasts Emphasis on future earnings potential Cash flow potential Upside/downside return quantification Recommendation of Bargain List candidates Presentation of investment thesis Valuation history Business outlook relative to global industry Why we believe business is undervalued Opportunities and risks Capital strength appraisal Rigorous investment team debate Team vetting generates best thinking Devil s Advocate critique ESG Devil s Advocate Director of Research approval Bargain List The above chart is for illustrative and discussion purposes only. 13
2940 Lifecycle of a Templeton Stock SOURCE OF FUNDS LIST Fully valued stocks recommended for sale VALUATION CORE LIST Attractively priced stocks with potential for significant price upside BARGAIN LIST Stocks priced at a significant discount to our estimation of their future business value TIME Templeton s research platform is designed to track securities through their valuation lifecycle. The above chart is intended solely to illustrate the ideal interplay between the Bargain List, Core List and Source of Funds List over an anticipated holding period but there is no guarantee any Templeton stock will follow this lifecycle. The chart is hypothetical and is not intended to represent an actual Templeton portfolio, or any stock purchased or sold by Templeton. 14
2940 Bottom-Up Portfolio Construction Step 4 Portfolio Manager Stock Selection Decisions & Oversight Approved Database Sector Analyst Portfolios Portfolio-Specific Features 300 500 Securities on Proprietary Database Source of Funds List Core List Bargain List Analysts highest-conviction holdings per sector Mandate parameters Geographic/sector constraints Portfolio cash flow TEMPLETON GLOBAL OR NON-U.S. PORTFOLIO Approximately 100 Securities 1 Historically low turnover, which may result in lower transaction costs SELL DISCIPLINE The above chart is for illustrative and discussion purposes only. The turnover is a byproduct of Templeton s long-term approach to managing portfolios, but various factors, such as a portfolio s specific investment parameters and market or economic conditions may cause actual portfolio turnover to vary. For more information regarding an individual strategy s or fund s historical turnover ratio please contact your Franklin Templeton representative. Portfolio managers purchase securities from the approved Templeton database of 300 500 securities which was derived from the investable universe of approximately 10,000 equity securities. 1. Although the typical Templeton Global or Non-U.S. equity portfolio holds approximately 100 securities, individual portfolios may vary, depending on various factors, such as portfolio size or investment strategy. 15
2940 Portfolio Monitoring and Risk Management Step 5 TEMPLETON GLOBAL EQUITY GROUP Ongoing Valuation Analysis Disciplined Sell Methodology Integrated Risk Approach Research team closely monitors investment thesis including ESG factors and updates forecasts and recommendations: Sector Team Meetings Meet monthly to review main holdings, best ideas and sector analyst portfolios, discuss sector drivers and trends, and vet potential new bargains Industry Reviews Industry analysis reports and stock holdings formally reviewed twice a year by each analyst to the full investment team Analyst Database Reviews All stocks under analysts coverage also formally reviewed on a rotating weekly schedule Stocks placed on the Source of Funds List and sold if: Price meets/exceeds our estimation of full value, or Greater value exists in another similar security, or Fundamental change in our investment thesis occurs Stock-specific risk is addressed primarily through our research discipline and team vetting process Ongoing assessment of material ESG issues provides another way to quantify potential downside risk Portfolio risk is managed through sector and geographic diversification and weekly peer review process Investment Risk Management Group an independent team of risk specialists reporting directly to the CEO performs a risk oversight function and can consult with the portfolio managers to provide unbiased risk insights The above chart is for illustrative and discussion purposes only. 16
5960 ESG Assessments Case Studies Environmental Social Governance HeidelbergCement KasikornBank Petrofac During our ESG Assessment of HeidelbergCement, a leading building materials company based in Germany, we observed a significant increase in carbon intensity, which presented the risk of increased costs linked to carbon pricing or regulatory caps on emissions. We raised these concerns with management to confirm that the company had policies and programmes in place to manage future emissions. The company provided data showing that their carbon intensity had actually been declining per ton of cement produced over the past several years. Emissions have been stable during a period of rising production, and the company has generated relatively low emissions per sales compared to peers. The company has also instated a new 2030- based carbon target, and is working to increase the energy efficiency and the proportion of alternate fuels to 30% by FY2020, which is among the strongest targets in the construction materials industry. KasikornBank, a major bank in Thailand, financed the construction of Xayaburi Dam in Laos. A nongovernmental organisation (NGO) claimed it had received substantial opposition to the dam from residents. Protestors voiced concerns the dam would have negative effects on the nearby communities, such as forced displacement, the end to gold panning in the river and difficult access to forest products. We contacted the company regarding these potential ESG concerns. The bank believed it complied with Laos social and environmental laws, based on World Bank standards. KasikornBank had an established ESG Governance System for all credit underwriting, third-party technical advisors to identify areas of non-compliance and direct any necessary corrective actions, and a requirement to submit periodic Environmental Management Reports on projects for monitoring purposes. Multiple ESG concerns would have indicated inadequate risk structures and would have been factored into our determination of the company s valuation. However, this was not the case, as no controversies have been reported since this incident. Petrofac is a large engineering and construction company focusing on the oil and gas industry in the Middle East. Its stock fell sharply on news of the UK Serious Fraud Office s (SFO) investigation of bribery, corruption and money laundering by Petrofac and its officers, including the CEO and COO. We did not expect the SFO to investigate Petrofac as an earlier investigation by Freshfields and KPMG, which was shared with SFO, indicated that Petrofac s directors were not aware of misconduct and there was no evidence of bribes. The reputational impact of the SFO s investigation will likely have a negative impact on new contracts. This could create financial stress as the company s balance sheet is already stretched. Also, the SFO s investigation highlights corporate governance problems, which could lead to further de-rating, especially if the CEO and COO are charged with bribery. This is not a complete analysis of every material fact regarding an industry, security or investment and should not be viewed as an investment recommendation. It is, however, intended to provide insight into the fund s portfolio selection process. The actions taken with respect to this investment, and its performance, may not be representative of other advice or investments. Factual statements are taken from sources considered reliable, but have not been independently verified for completeness or accuracy by the fund s manager or its affiliates. These opinions may not be relied upon as investment advice or an offer for a particular security or as an indication of trading intent for any Franklin Templeton fund. In addition, it should not be assumed that any securities transactions discussed were or will prove to be profitable. Logo used for illustrative purposes to identify respective company and should not be construed as an endorsement of or affiliation with Franklin Templeton Investments. 17
0535 Investment Process Global Interest Rate, Currency, Investment Sovereign Credit Process Global PositioningInterest Rate, Currency, Sovereign Credit Positioning GLOBAL RESEARCH SOURCES OF POTENTIAL ALPHA PORTFOLIO CONSTRUCTION AND IMPLEMENTATION In-Depth Country Analysis Macro Models/Analysis Duration Ideas Currency Ideas PM Team Potential Return vs. Expected Risk Global Allocations Trading Trade Structuring Market Flows Local Execution/ Settlement Best Execution PORTFOLIO Local Asset Management Perspectives Sovereign Credit Ideas Risk Modelling VaR Correlations Scenario/Stress Risk Analysis Feedback Feedback Review/ Performance Attribution The above chart is for illustrative and discussion purposes only. 18
0537 Global Research Multiple Perspectives/Lenses COUNTRY ANALYSIS Fundamentals Monetary and fiscal policy Macroeconomic disequilibria Capacity for change and policy implementation Country visits Meetings with policymakers MACRO MODELLING Currency and interest rate valuation Currency models Purchasing Power Parity (PPP), equilibrium exchange rates, interest rate differentials Interest rate models Econometric analysis, Taylor Rule, yield curve analysis Trading Short-term technicals and flows Ad hoc thematic research Scenario, shock and theme/trend analysis LOCAL PERSPECTIVE 1 Local/regional perspectives Australia Brazil Canada China 2 India Malaysia Mexico Poland South Korea United Arab Emirates 1. This unit is comprised of investment professionals located in affiliates of and joint venture partners with Franklin Templeton Investments. Reference to Local Asset Management is in relation to fixed income teams (excluding equity). 2. Includes individuals that are not employees of Franklin Resources, Inc. (FRI) or wholly owned subsidiaries of FRI. However, these individuals are part of our joint venture or strategic partnership relationships worldwide and are an integral component of our overall fixed income research efforts. 19
0545 Isolating Risk Exposures Our flexible investment approach allows us to manage interest rate (duration), currency and sovereign credit exposures and risks independently For example, if we find an attractive local interest rate opportunity in a country, but find the currency unattractive, we can hedge out the currency risk, or cross-hedge the currency to a different currency that we do find attractive Example: Long maturity local Mexico bonds (denominated in Mexican pesos) cross-hedged to Indian rupees Step 1 = Purchase pesodenominated Mexican bond Step 2 = Cross-hedge peso risk into Indian rupee risk Result = Rupee-denominated long-dated Mexican debt Single Security Hedge-Out Mexican Peso and Hedge-In Indian Rupee Result Mexican Interest Rate Risk Mexican Interest Rate Risk Cross-Hedge Mexican - Peso Mexican Peso Risk Indian Rupee + = Indian Rupee Risk For illustrative purposes only; not representative of any current holdings. 20
Summary - A (acc) USD As of 31 March 2018 Morningstar Category Investment Style USD Moderate Allocation Balanced Fund Inception Date 1 June 1994 Share Class Inception Date 14 May 2001 Benchmark Base Currency for Fund Base Currency for Share Class Custom 65% MSCI ACWI + 35% JP Morgan Global Government Bond Index USD USD Total Net Assets (USD) 954,692,402.67 Asset Allocation Equity: 64.33% Number of Issuers 113 Total Expense Ratio 1.64% Fixed Income: 18.18% Cash & Cash Equivalents: 17.49% Summary of Investment Objective The Fund seeks capital appreciation and current income by investing principally in equity securities and government debt securities issued by entities throughout the world, including emerging markets. The portfolio manager anticipates that the majority of the Fund s portfolio is normally invested in equity or equity-linked securities. Portfolio Manager(s) Michael Hasenstab, PhD Peter Wilmshurst, CFA Sonal Desai, PhD Alan Chua, CFA Tian Qiu, CFA Fund Identifiers ISIN Code LU0128525689 SEDOL Code 7116580 Bloomberg Code United States Australia United States Singapore Hong Kong TEMGBLA LX Fund Ratings (31 March 2018) Overall Morningstar Rating «««Holdings of the same issuer have been combined. Morningstar, Inc. 2018. All rights reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Information is historical and may not reflect current or future portfolio characteristics. All portfolio holdings are subject to change. Asset Allocation 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 any derivatives, unsettled trades or other factors. The fund offers other share classes subject to different fees and expenses, which will affect their performance. Please see the prospectus for details. Past performance is not an indicator or a guarantee of future performance. 21
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, equity-related and debt securities around the world. Such securities have historically been subject to significant price movements that may occur suddenly due to equity and bond market or company-specific factors. As a result, the performance of the Fund can fluctuate considerably over time. The Fund may distribute income gross of expenses. Whilst this might allow more income to be distributed, it may also have the effect of reducing capital. Other significant risks include: credit risk, currency risk, emerging markets risk, liquidity risk, derivatives 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. 22
Geographic Allocation Total vs. Custom 65% MSCI ACWI + 35% JP Morgan Global Government Bond Index As of 31 March 2018 North America Europe Asia Latin America / Caribbean Mid-East / Africa Australia / New Zealand Other Cash & Cash Equivalents 0% 10% 20% 30% 40% 50% 60% Custom 65% MSCI ACWI + 35% JP Morgan Global Government Bond Index Portfolio % Index % Over/Under % North America 25.98 54.96-28.99 United States 24.56 52.31-27.75 Canada 1.41 2.65-1.24 Europe 24.36 28.55-4.19 United Kingdom 9.26 6.79 2.48 France 4.81 5.47-0.66 Germany 2.52 4.26-1.74 Netherlands 2.15 1.48 0.68 Switzerland 1.92 1.88 0.04 Italy 1.70 3.27-1.57 Spain 0.00 2.44-2.44 Other 1.99 2.96-0.97 Asia 21.10 14.17 6.93 South Korea 5.96 0.00 5.96 Japan 5.33 12.98-7.65 India 4.89 0.00 4.89 China 2.76 0.00 2.76 Other 2.16 1.20 0.97 Latin America / Caribbean 9.73 0.00 9.73 Mexico 3.66 0.00 3.66 Brazil 3.64 0.00 3.64 Colombia 1.74 0.00 1.74 Other 0.69 0.00 0.69 Mid-East / Africa 0.80 0.11 0.69 Israel 0.71 0.11 0.60 Ghana 0.08 0.00 0.08 Australia / New Zealand 0.00 2.20-2.20 Australia 0.00 2.16-2.16 New Zealand 0.00 0.04-0.04 Other 0.54 0.00 0.54 Supranational 0.54 0.00 0.54 Cash & Cash Equivalents 17.49 0.00 17.49 Information is historical and may not reflect current or future portfolio characteristics. All portfolio holdings are subject to change. 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 any derivatives, unsettled trades or other factors. 23
Geographic Allocation Equity vs. MSCI All Country World Index As of 31 March 2018 North America Europe Asia Mid-East / Africa Australia / New Zealand Latin America / Caribbean 0% 12% 24% 36% 48% 60% MSCI All Country World Index Portfolio % Index % Over/Under % North America 40.38 55.23-14.84 United States 38.18 52.28-14.10 Canada 2.20 2.94-0.75 Europe 37.87 21.46 16.41 United Kingdom 14.40 5.64 8.76 France 7.48 3.56 3.92 Germany 3.92 3.16 0.76 Netherlands 3.35 1.20 2.15 Switzerland 2.98 2.54 0.44 Italy 2.65 0.82 1.83 Ireland 1.81 0.15 1.66 Spain 0.00 1.05-1.05 Others 1.29 3.33-2.05 Asia 20.64 18.47 2.18 Japan 8.29 7.97 0.32 China 4.29 3.65 0.64 South Korea 3.74 1.84 1.90 India 1.59 0.99 0.60 Hong Kong 1.23 1.17 0.05 Singapore 0.85 0.44 0.41 Taiwan 0.00 1.43-1.43 Others 0.66 0.98-0.32 Mid-East / Africa 1.10 1.13-0.02 Israel 1.10 0.15 0.96 Others 0.00 0.98-0.98 Australia / New Zealand 0.00 2.20-2.20 Australia 0.00 2.15-2.15 New Zealand 0.00 0.05-0.05 Latin America / Caribbean 0.00 1.52-1.52 Others 0.00 1.52-1.52 Weightings as percent of equity. Information is historical and may not reflect current or future portfolio characteristics. All portfolio holdings are subject to change. 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 any derivatives, unsettled trades or other factors. 24
Geographic Allocation Fixed Income vs. JP Morgan Global Government Bond Index As of 31 March 2018 Non-US Americas USA Asia ex-japan Japan Middle East / Africa EMU Europe Non-EMU Europe Supranational Other -35% -14% 7% 28% 49% 70% JP Morgan Global Government Bond Index Portfolio % Index % Over/Under % AMERICAS 61.67 40.23 21.44 NON-US AMERICAS 61.67 1.35 60.32 Mexico 33.98 0.00 33.98 Brazil 16.62 0.00 16.62 Colombia 7.94 0.00 7.94 Argentina 3.14 0.00 3.14 Canada 0.00 1.35-1.35 USA 0.00 38.89-38.89 ASIA 35.68 21.87 13.81 ASIA EX-JAPAN 35.68 1.64 34.04 India 17.66 0.00 17.66 South Korea 16.20 0.00 16.20 Philippines 1.82 0.00 1.82 Australia 0.00 1.64-1.64 JAPAN 0.00 20.23-20.23 MIDDLE EAST / AFRICA 0.39 0.00 0.39 Ghana 0.39 0.00 0.39 EUROPE 0.00 37.89-37.89 EMU EUROPE 0.00 29.63-29.63 France 0.00 8.09-8.09 Italy 0.00 7.61-7.61 Germany 0.00 5.50-5.50 Spain 0.00 4.73-4.73 Belgium 0.00 2.01-2.01 Netherlands 0.00 1.70-1.70 NON-EMU EUROPE 0.00 8.26-8.26 United Kingdom 0.00 7.47-7.47 Denmark 0.00 0.48-0.48 Sweden 0.00 0.32-0.32 SUPRANATIONAL 2.47 0.00 2.47 OTHER -0.21 0.00-0.21 Weightings as percent of fixed income. Information is historical and may not reflect current or future portfolio characteristics. All portfolio holdings are subject to change. 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 any derivatives, unsettled trades or other factors. 25
Sector Allocation Equity vs. MSCI All Country World Index As of 31 March 2018 Financials Health Care Information Technology Energy Consumer Discretionary Industrials Telecommunication Services Materials Consumer Staples Real Estate Utilities 0% 6% 12% 18% 24% 30% MSCI All Country World Index Portfolio % Index % Over/Under % Financials 21.74 18.69 3.05 Banks 12.97 10.43 2.54 Diversified Financials 5.01 4.29 0.71 Insurance 3.76 3.97-0.20 Health Care 16.23 10.63 5.60 Pharmaceuticals, Biotechnology & Life Sciences 14.74 7.04 7.70 Health Care Equipment & Services 1.49 3.59-2.10 Information Technology 14.86 18.84-3.98 Software & Services 7.56 10.54-2.98 Technology Hardware & Equipment 6.47 4.96 1.51 Semiconductors & Semiconductor Equipment 0.83 3.34-2.51 Energy 11.07 6.20 4.86 Consumer Discretionary 8.48 12.26-3.78 Media 2.44 2.07 0.37 Automobiles & Components 2.35 2.56-0.21 Consumer Durables & Apparel 1.87 1.95-0.08 Retailing 1.81 3.97-2.16 Consumer Services 0.00 1.71-1.71 Industrials 8.24 10.85-2.61 Capital Goods 7.70 7.69 0.01 Transportation 0.54 2.16-1.62 Commercial & Professional Services 0.00 1.00-1.00 Telecommunication Services 7.19 2.89 4.30 Materials 5.55 5.35 0.19 Consumer Staples 3.82 8.40-4.58 Food, Beverage & Tobacco 1.65 4.83-3.18 Food & Staples Retailing 1.34 1.65-0.31 Household & Personal Products 0.83 1.92-1.09 Real Estate 2.14 2.99-0.85 Utilities 0.70 2.90-2.20 Weightings as percent of equity. Information is historical and may not reflect current or future portfolio characteristics. All portfolio holdings are subject to change. 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 any derivatives, unsettled trades or other factors. 26
Sector Allocation Fixed Income vs. JP Morgan Global Government Bond Index As of 31 March 2018 Local Curr. Govt/Agency Bonds: Investment Grade Portfolio % Index % Over/Under % Local Curr. Govt/Agency Bonds 97.74 61.11 36.63 Investment Grade 77.60 61.11 16.48 Non-Investment Grade 20.14 0.00 20.14 US Treasuries/Agencies 0.00 38.89-38.89 Derivatives -0.21 0.00-0.21 Supranational 2.47 0.00 2.47 Local Curr. Govt/Agency Bonds: Non-Investment Grade US Treasuries/Agencies Derivatives Supranational -2% 15% 32% 49% 66% 83% JP Morgan Global Government Bond Index Weightings as percent of fixed income. Information is historical and may not reflect current or future portfolio characteristics. All portfolio holdings are subject to change. 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 any derivatives, unsettled trades or other factors. 27
Currency Allocation Fixed Income vs. JP Morgan Global Government Bond Index As of 31 March 2018 Mexican Peso Brazilian Real Colombian Peso Argentine Peso Canadian Dollar U.S. Dollar Indian Rupee Philippine Peso South Korean Won Australian Dollar Japanese Yen Ghanaian Cedi Euro British Pound Danish Krone Swedish Krona Portfolio % Index % Over/Under % AMERICAS 74.81 40.23 34.57 NON-US DOLLAR 64.14 1.35 62.79 Mexican Peso 36.45 0.00 36.45 Brazilian Real 16.62 0.00 16.62 Colombian Peso 7.94 0.00 7.94 Argentine Peso 3.14 0.00 3.14 Canadian Dollar 0.00 1.35-1.35 U.S. DOLLAR 10.67 38.89-28.22 ASIA 24.81 21.87 2.93 ASIA EX-JAPAN 24.81 1.64 23.17 Indian Rupee 22.27 0.00 22.27 Philippine Peso 1.82 0.00 1.82 South Korean Won 0.71 0.00 0.71 Australian Dollar 0.00 1.64-1.64 JAPANESE YEN 0.00 20.23-20.23 MIDEAST/AFRICA 0.39 0.00 0.39 Ghanaian Cedi 0.39 0.00 0.39 EUROPE 0.00 37.89-37.89 Euro 0.00 29.63-29.63 NON-EURO 0.00 8.26-8.26 Euro 0.00 29.63-29.63 British Pound 0.00 7.47-7.47 Danish Krone 0.00 0.48-0.48 Swedish Krona 0.00 0.32-0.32 0% 15% 30% 45% 60% 75% JP Morgan Global Government Bond Index Weightings as percent of fixed income. Information is historical and may not reflect current or future portfolio characteristics. All portfolio holdings are subject to change. 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 any derivatives, unsettled trades or other factors. 28
Quality Allocation Fixed Income vs. JP Morgan Global Government Bond Index As of 31 March 2018 AAA AA+ AA BBB- AA- A+ A- BBB BB- B B- NR Portfolio % Index % Over/Under % AAA 2.46 65.20-62.74 AA+ 0.00 2.01-2.01 AA 16.17 0.00 16.17 AA- 0.00 20.23-20.23 A+ 0.00 7.61-7.61 A- 33.91 0.31 33.60 BBB 9.74 0.00 9.74 BBB- 17.62 0.00 17.62 BB- 16.58 0.00 16.58 B 3.13 0.00 3.13 B- 0.39 0.00 0.39 NR 0.00 4.64-4.64 Investment Grade 79.90 95.36-15.46 Non-Investment Grade 20.10 4.64 15.46 0% 20% 40% 60% 80% JP Morgan Global Government Bond Index The information only pertains to the fixed income component of the portfolio. Weightings as percent of fixed income. Percentage may not total 100% due to rounding. 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. The NR category consists of rateable securities that have not been rated by an NRSRO. Cash and equivalents as well as derivatives are excluded from this breakdown. As a result, the chart does not reflect the fund's total net assets. 29
Top Ten Holdings Equity As of 31 March 2018 Name of Issuer Country Industry % of Total SAMSUNG ELECTRONICS CO LTD South Korea Technology Hardware & Equipment 1.62 ROYAL DUTCH SHELL PLC United Kingdom Energy 1.34 ORACLE CORP United States Software & Services 1.32 MICROSOFT CORP United States Software & Services 1.31 BP PLC United Kingdom Energy 1.30 ALPHABET INC United States Software & Services 1.27 SOFTBANK GROUP CORP Japan Telecommunication Services 1.07 SUNTORY BEVERAGE & FOOD LTD Japan Food Beverage & Tobacco 1.06 CITIGROUP INC United States Banks 1.05 CAPITAL ONE FINANCIAL CORP United States Diversified Financials 1.03 Total 12.38 The Ten Largest Holdings represent the ten largest holdings of the fund as of the date indicated. These securities do not represent all of the securities purchased, sold or recommended for advisory clients, and the reader should not assume that investment in the securities listed was or will be profitable. All portfolio holdings are subject to change. Holdings of the same issuer have been combined. The portfolio manager for the fund reserves the right to withhold release of information with respect to holdings that would otherwise be included in the top 10 holdings list. 30
Portfolio Characteristics Total vs. MSCI All Country World Index & JP Morgan Global Government Bond Index As of 31 March 2018 Equity Characteristics Portfolio Benchmark Price to Earnings (12-mo Trailing) 16.04x 18.84x Price to Cash Flow 6.93x 11.45x Price to Book 1.47x 2.23x Dividend Yield 2.56% 2.42% Market Capitalisation (Millions USD) 114,232 113,218 Market Capitalisation Breakdown in USD Portfolio % <2.0 Billion 0.57 2.0-5.0 Billion 4.79 5.0-10.0 Billion 8.65 10.0-25.0 Billion 16.07 25.0-50.0 Billion 21.07 >50.0 Billion 48.85 Fixed Income Characteristics Portfolio Benchmark Average Credit Quality BBB+ AA Average Duration 2.56 Yrs 8.00 Yrs Average Weighted Maturity 3.26 Yrs 9.96 Yrs Yield to Maturity 7.27% 1.36% Yield to Worst 7.27% 1.36% Total Characteristics Portfolio Blended Yield 2.98% Information is historical and may not reflect current or future portfolio characteristics. All portfolio holdings are subject to change. Average Duration, Average Weighted Maturity, Yield to Maturity, Yield to Worst and Blended Yield reflect certain derivatives held in the portfolio (or their underlying reference assets). Source: Franklin Templeton Investments. The average credit quality (ACQ) rating may change over time. The portfolio itself has not been rated by an independent rating agency. The letter rating, which may be based on bond ratings from different agencies, is provided to indicate the average credit rating of the portfolio s underlying bonds and generally ranges from AAA (highest) to D (lowest). The ACQ is determined by assigning a sequential integer to all credit ratings AAA to D, taking a simple, asset-weighted average of debt holdings by market value and rounding to the nearest rating. The risk of default increases as a bond s rating decreases, so the ACQ provided is not a statistical measurement of the portfolio s default risk because a simple, weighted average does not measure the increasing level of risk from lower rated bonds. The ACQ is provided for informational purposes only. Derivative positions and unrated securities are not reflected in the ACQ. Yield figures quoted should not be used as an indication of the income that has or will be received. Yield figures are based on the portfolio's underlying holdings and do not represent a payout of the portfolio. 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 dividend yield quoted here is the yield on securities within the Fund s portfolio and should not be used as an indication of the income received from this portfolio. The market capitalisation figures for both the portfolio and the benchmark are the security level, not aggregated up to the main issuer. Source: FactSet. Price Ratio calculations for the weighted average use harmonic means. Any exceptions to this are noted. Market capitalisation statistics are indicated in the base currency for the portfolio presented. A blended measure used for balanced funds, the internal or blended yield is the market-weighted average of the current yield of the fund's fixed income component and the dividend yield of the fund's equity component. This measure is gross of fees. Past performance is not an indicator or a guarantee of future performance. 31
Discrete Performance - A (acc) USD As of 31 March 2018 Discrete Annual Performance (%) Inception Date - A (acc) USD Net of Fees 14.5.2001 8.45 10.85-8.27-2.81 15.73 Custom 65% MSCI ACWI + 35% JP Morgan Global Government Bond Index 12.74 8.68-0.24 2.55 11.34 03/17 03/18 03/16 03/17 03/15 03/16 03/14 03/15 03/13 03/14 Effective 31 July 2017, changed its benchmark to the Custom 65% MSCI All Country World + 35% JP Morgan Global Government Bond Index. All performance data shown is in the Fund currency stated and net of management fees. Sales charges and other commissions, taxes and other relevant costs paid by the investor are not included in the calculations. Performance data may represent blended share class performance, e.g., hybrid created from an A (dis) share class which was converted to A (acc). The fund offers other share classes subject to different fees and expenses, which will affect their performance. Please see the prospectus for details. 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. Current performance may differ from figures shown. Currency fluctuations may affect the value of overseas investments. When investing in a fund denominated in a foreign currency, performance may also be affected by currency fluctuations. Please visit franklintempleton.lu for current performance. 32
Historical Performance - A (acc) USD As of 31 March 2018 Annualised Total Returns (%) Inception Date 1 Yr 3 Yrs 5 Yrs 10 Yrs - A (acc) USD Net of Fees 14.5.2001 8.45 3.31 4.40 3.08 5.20 Custom 65% MSCI ACWI + 35% JP Morgan Global Government Bond Index 12.74 6.92 6.89 5.10 6.29 Since Incept Cumulative Performance (%) Inception Date 1 Mth 3 Mths YTD 1 Yr 3 Yrs 5 Yrs 10 Yrs - A (acc) USD Net of Fees 14.5.2001-1.21-0.58-0.58 8.45 10.27 24.03 35.44 135.31 Custom 65% MSCI ACWI + 35% JP Morgan Global Government Bond Index -0.81 0.27 0.27 12.74 22.23 39.55 64.44 179.84 Since Incept Effective 31 July 2017, changed its benchmark to the Custom 65% MSCI All Country World + 35% JP Morgan Global Government Bond Index. All performance data shown is in the Fund currency stated and net of management fees. Sales charges and other commissions, taxes and other relevant costs paid by the investor are not included in the calculations. Performance data may represent blended share class performance, e.g., hybrid created from an A (dis) share class which was converted to A (acc). The fund offers other share classes subject to different fees and expenses, which will affect their performance. Please see the prospectus for details. 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. Current performance may differ from figures shown. Currency fluctuations may affect the value of overseas investments. When investing in a fund denominated in a foreign currency, performance may also be affected by currency fluctuations. Please visit franklintempleton.lu for current performance. 33
Calendar Year Returns - A (acc) USD As of 31 March 2018 25% 11% -0.58 0.27 15.52 18.13 3.82 6.22-6.12-1.88-2.74 3.34 17.89 12.98 17.97 11.37-5.68-1.82 5.81 11.22 21.35 23.13-29.22-25.96-3% -17% -31% YTD 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 - A (acc) USD Net of Fees Custom 65% MSCI ACWI + 35% JP Morgan Global Government Bond Index Effective 31 July 2017, changed its benchmark to the Custom 65% MSCI All Country World + 35% JP Morgan Global Government Bond Index. All performance data shown is in the Fund currency stated and net of management fees. Sales charges and other commissions, taxes and other relevant costs paid by the investor are not included in the calculations. Performance data may represent blended share class performance, e.g., hybrid created from an A (dis) share class which was converted to A (acc). The fund offers other share classes subject to different fees and expenses, which will affect their performance. Please see the prospectus for details. 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. Current performance may differ from figures shown. Currency fluctuations may affect the value of overseas investments. When investing in a fund denominated in a foreign currency, performance may also be affected by currency fluctuations. Please visit franklintempleton.lu for current performance. 34
Performance Risk Statistics - A (acc) USD As of 31 March 2018 Performance Risk Statistics 1 Yr 3 Yrs* 5 Yrs* 10 Yrs* 15 Yrs* Standard Deviation (%): - A (acc) USD 6.61 9.37 8.99 14.67 13.06 Custom 65% MSCI ACWI + 35% JP Morgan Global Government Bond Index 5.76 7.41 7.22 11.58 10.37 Tracking Error (%)^^ 2.64 3.98 3.60 4.55 4.11 Information Ratio^^ -1.62-0.91-0.69-0.44-0.32 Beta^^ 1.05 1.16 1.15 1.22 1.22 Sharpe Ratio 1.11 0.30 0.45 0.19 0.43 Effective 31 July 2017, changed its benchmark to the Custom 65% MSCI All Country World + 35% JP Morgan Global Government Bond Index. The base currency of a fund determines the risk-free rate index used in calculating certain risk statistics on this page. A fund that is based in USD uses the US T-Bill Index as the risk free rate return, a EUR-based fund uses the Euro 3-Month T-Bill Index, a GBP-based fund uses the UK Treasury Bills 3 Month Index, a JPY-based fund uses the Japan Financing Bill 3 Month Index, and an AUD-based fund uses the Australia T-Note 3 Month Index. ^^Measured against the Custom 65% MSCI ACWI + 35% JP Morgan Global Government Bond Index. *Annualised. Past performance is not an indicator or a guarantee of future performance. 35
Management Profile PETER WILMSHURST, CFA Executive Vice President Portfolio Manager, Research Analyst Templeton Global Equity Group Franklin Templeton Investments Australia Limited Melbourne, Victoria, Australia Peter Wilmshurst is an executive vice president in the Templeton Global Equity Group with research responsibility for banks in Europe, and Asian telecommunications companies. He is also the coordinator for the financials sector team and the portfolio manager of a number of Templeton's global portfolios. Prior to joining Franklin Templeton in 1998, Mr. Wilmshurst was an equity portfolio manager and analyst with Norwich Investment Management in Australia and an actuary at MLC Life Company. He entered the financial services industry in 1993. Mr. Wilmshurst holds a bachelor of economics degree and a master of economics degree from Macquarie University (Australia). He qualified as a Fellow of the Institute of the Actuaries of Australia and as a Fellow of the Financial Services Institute of Australia. Mr. Wilmshurst is a Chartered Financial Analyst (CFA) charterholder and a past president of the CFA Society of Melbourne. 36
Management Profile MICHAEL HASENSTAB, PH.D. Executive Vice President, Portfolio Manager Chief Investment Officer Templeton Global Macro Franklin Advisers, Inc. San Mateo, California, United States Michael Hasenstab, Ph.D., is executive vice president and chief investment officer for Templeton Global Macro, which conducts in-depth global macroeconomic analysis covering thematic topics, regional and country analysis, and interest rate, currency and sovereign credit market outlooks. Templeton Global Macro offers global, unconstrained investment strategies through a variety of investment vehicles ranging from retail mutual funds to unregistered, privately offered hedge funds. Dr. Hasenstab is a portfolio manager for a number of funds, including Templeton Global Bond Fund and Templeton Global Total Return Fund. Dr. Hasenstab is economic advisor to the CEO of Franklin Resources, Inc., providing his perspective and insight through the lens of Templeton Global Macro. In addition, he is a member of Franklin Resources' executive committee, a small group of the company's top leaders responsible for shaping the firm's overall strategy. Dr. Hasenstab has received numerous industry awards and accolades throughout his investment career. Over the last decade, the funds that he and his team manage have collectively received more than 400 awards from various rating agencies globally, including Lipper and Morningstar. In addition, various publications have recognized Dr. Hasenstab's investment expertise including, most recently, his being named one of Forbes' Money Masters of 2015. Investment Week named him Global Bond Manager of the Year in 2008, 2010 and 2011 and recognized him as one of the most influential fund managers in 2010. Morningstar awarded him Fixed Income Manager of the Year in Canada in 2013 and Fund Manager of the Year in the U.S. in 2010. In 2011 and 2012, he was highlighted as one of the most influential young people in business in Fortune's 40 under 40. Dr. Hasenstab initially joined Franklin Templeton Investments in July 1995. After a leave of absence to obtain his doctor of philosophy (Ph.D.) degree, he rejoined the company in April 2001. He has worked and traveled extensively abroad, with a special focus on Asia. Dr. Hasenstab holds a Ph.D. in economics from the Asia Pacific School of Economics and Management at Australian National University, a master's degree in economics of development from the Australian National University, and a B.A. in international relations/political economy from Carleton College in the United States. 37