franklintempleton series ii funds · 2020. 6. 2. · audited annual report for the year ended...

AUDITED ANNUAL REPORT

FRANKLIN TEMPLETONSERIES II FUNDSSociété d’investissement à capital variable

October 31, 2019

R.C.S. B 127 818

FRANKLIN TEMPLETON SERIES II FUNDSsociété d’investissement à capital variable

AUDITED ANNUAL REPORTFor the year ended October 31, 2019

This report shall not constitute an offer or a solicitation of an offer to buy shares of Franklin Templeton Series II Funds (hereafter referred to as “FTSIIF” or the “Company”).Subscriptions are to be made on the basis of the current prospectus, a copy of the latest available audited report and, if published thereafter, the latest unaudited semi-annualreport.

ContentsGeneral Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Report of the Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Report of the Investment Managers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Independent auditor's report. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Fund Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Statement of Net Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Statement of Operations and Changes in Net Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Statistical Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Notes to Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Schedule of Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

Franklin Floating Rate II Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

Franklin Emerging Market Investment Grade Debt Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

Franklin Emerging Market Corporate Debt Fund. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

Franklin Emerging Market Debt Opportunities II Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

Franklin Upper Tier Floating Rate Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

Franklin Multi-Sector Credit Income Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

Additional information - Unaudited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

Franklin Templeton Office Directory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59

FRANKLIN TEMPLETON SERIES II FUNDS

2 Audited Annual Report www.franklintempleton.lu

société d’investissement à capital variable8A, rue Albert Borschette, L-1246 Luxembourg, Grand-Duchy of Luxembourg(Registered with the registre de commerce et des sociétés, Luxembourg, under number B-127.818)

BOARD OF DIRECTORSCHAIRMAN:William JacksonDirectorFRANKLIN TEMPLETON INVESTMENT MANAGEMENT LIMITED5 Morrison StreetEdinburgh, EH3 8BHScotland, United Kingdom

DIRECTORS:James F. KinlochDirectorFRANKLIN TEMPLETON LUXEMBOURG S.A.8A, rue Albert BorschetteL-1246 LuxembourgGrand Duchy of Luxembourg

Michel TulleGeneral Manager and Conducting OfficerFRANKLIN TEMPLETON FRANCE S.A.20 rue de la PaixF-75002 ParisFrance

Reinhard BerbenManaging DirectorFRANKLIN TEMPLETON INVESTMENT SERVICES GMBHMainzer Landstrasse 1660325 FrankfurtGermany

REGISTERED OFFICE:8A, rue Albert BorschetteL-1246 LuxembourgGrand Duchy of Luxembourg

PRINCIPAL DISTRIBUTOR:FRANKLIN TEMPLETON INTERNATIONAL SERVICES S.à r.l.8A, rue Albert BorschetteL-1246 LuxembourgGrand Duchy of Luxembourg

DISTRIBUTION CONTROLLER:FRANKLIN TEMPLETON INTERNATIONAL SERVICES S.à r.l.8A, rue Albert BorschetteL-1246 LuxembourgGrand Duchy of Luxembourg

INVESTMENT MANAGERS:FRANKLIN ADVISERS, INC.One Franklin ParkwaySan Mateo, CA 94403-1906U.S.A.

FRANKLIN TEMPLETON INVESTMENT MANAGEMENT LIMITEDCannon Place78 Cannon StreetLondon EC4N 6HLUnited Kingdom

FRANKLIN TEMPLETON INSTITUTIONAL, LLC280 Park AvenueNew York, NY 10017U.S.A.

DEPOSITARY AND LISTING AGENT:THE BANK OF NEW YORK MELLON SA/NV, LUXEMBOURG BRANCHVertigo Building2-4, rue Eugène RuppertL-2453 LuxembourgGrand Duchy of Luxembourg

PRINCIPAL PAYING AGENT:J.P. MORGAN BANK LUXEMBOURG S.A.European Bank and Business Centre6, route de TrèvesL-2633 SenningerbergGrand Duchy of Luxembourg

MANAGEMENT COMPANY:FRANKLIN TEMPLETON INTERNATIONAL SERVICES S.à r.l.8A, rue Albert BorschetteL-1246 LuxembourgGrand Duchy of Luxembourg

AUDITOR:Ernst & Young S.A.35E, Avenue John F. KennedyL-1855 LuxembourgGrand Duchy of Luxembourg

LEGAL ADVISER:ELVINGER HOSS PRUSSEN S.A.2, place Winston ChurchillL-1340 LuxembourgGrand Duchy of Luxembourg

INVESTMENT MANAGERS PER FUND:Franklin Floating Rate II Fund:Franklin Advisers, Inc.

Franklin Emerging Market Corporate Debt Fund:Franklin Templeton Investment Management Limited andFranklin Templeton Institutional, LLC

Franklin Emerging Market Debt Opportunities II Fund:Franklin Templeton Investment Management Limited

Franklin Emerging Market Investment Grade Debt Fund:Franklin Templeton Investment Management Limited

Franklin Upper Tier Floating Rate Fund:Franklin Advisers, Inc.

Franklin Multi-Sector Credit Income Fund:Franklin Advisers, Inc.


General Information

www.franklintempleton.lu Audited Annual Report 3

The Board of Directors of Franklin Templeton Series II Funds (“FTSIIF”) submits the following report for the financial year endedOctober 31, 2019.

Structure and size of the fundFTSIIF is an open-ended investment company organised as a société anonyme under the laws of the Grand Duchy of Luxembourgand qualifies as a société d’investissement à capital variable (“SICAV”). FTSIIF qualifies as an Undertaking for Collective Investment(“UCI”) under the Directive 2009/65/EC of July 13, 2009 of the European Parliament and of the Council and is registered on the officiallist of Undertakings for Collective Investment pursuant to Part II of the Luxembourg law of December 17, 2010 relating to Undertakingsfor Collective Investment, as amended. The Company qualifies as an Alternative Investment Fund within the meaning of article 1(39) ofthe law of July 12, 2013.The Company has appointed Franklin Templeton International Services S.à r.l. (the �Management Company� orthe �AIFM� or �FTIS�) as an authorized Alternative Investment Fund Manager to provide investment management, administration andmarketing functions to the Company with the possibility to delegate certain of such functions to third-parties.

FTSIIF was incorporated officially on May 14, 2007 for an undetermined period of time. FTSIIF is organised as an umbrella structurefor sub-funds, each of which has its own investment portfolio.

At financial year ended October 31, 2019, FTSIIF comprised the following six sub-funds:

– Franklin Templeton Series II Funds – Franklin Floating Rate II Fund– Franklin Templeton Series II Funds – Franklin Emerging Market Investment Grade Debt Fund– Franklin Templeton Series II Funds – Franklin Emerging Market Corporate Debt Fund– Franklin Templeton Series II Funds – Franklin Upper Tier Floating Rate Fund (put into liquidation effective January 17, 2019)– Franklin Templeton Series II Funds – Franklin Multi-Sector Credit Income Fund– Franklin Templeton Series II Funds – Franklin Emerging Market Debt Opportunities II Fund

The base currency of the first five sub-funds is the U.S. dollar. The base currency of the Franklin Emerging Market Debt Opportunities IIFund is the Euro.

At financial year ended October 31, 2019, FTSIIF had net assets of USD 1.29 billion, compared to USD 2.93 billion under managementas at October 31, 2018.

Board of DirectorsThe Board of Directors is responsible for the FTSIIF’s management and administration, including the determination of investmentpolicy, and has appointed Franklin Templeton International Services S.à r.l. as the Management Company to perform the day-to-daymanagement and administration of FTSIIF. At October 31, 2019, the Directors were the following:

• William Jackson

• Michel Tulle

• James F. Kinloch

• Reinhard Berben

Notable eventsOn November 26, 2018, the Board of Directors decided to create a side pocket (containing Restricted Assets (the “Side-Pocket”)) incompliance with the CSSF guidelines in order to ensure the equal treatment of shareholders requesting the redemption of their sharesand the remaining shareholders within the Franklin Upper Tier Floating Rate Fund.

Consequently, on November 28, 2018, the following share classes launched:

- Franklin Upper Tier Floating Rate Fund I (acc) SP

- Franklin Upper Tier Floating Rate Fund I (Qdis) SP

- Franklin Upper Tier Floating Rate Fund I (Qdis) CHF Hedged SP

- Franklin Upper Tier Floating Rate Fund I (Qdis) Euro Hedged SP

- Franklin Upper Tier Floating Rate Fund Y (Qdis) SP

Franklin Upper Tier Floating Rate Fund was put into liquidation effective January 17, 2019

On May 17, 2019, the following share classes launched:

- Franklin Emerging Market Debt Opportunities II Fund Y (acc) AUD Hedged

- Franklin Emerging Market Debt Opportunities II Fund Y (acc) USD Hedged

On May 17, 2019, the following share class dividend distribution frequency changed from yearly to monthly, consequently class namechanged:

- Franklin Floating Rate II Fund A (Ydis) is renamed as Franklin Floating Rate II Fund A (Mdis)

Effective August 1, 2019, the following share classes investment management fee discontinued:

- Franklin Upper Tier Floating Rate Fund I (acc)


Report of the Board of Directors


Notable events (continued)- Franklin Upper Tier Floating Rate Fund I (acc) SP

- Franklin Upper Tier Floating Rate Fund I (Qdis)


- Franklin Upper Tier Floating Rate Fund I (Qdis) CHF Hedged


- Franklin Upper Tier Floating Rate Fund I (Qdis) Euro Hedged


- Franklin Upper Tier Floating Rate Fund Y (Qdis)


On August 19, 2019, the following share classes closed:






On September 5, 2019, the following share class closed:

- Franklin Floating Rate II Fund I (acc) CHF Hedged

On September 26, 2019, the following share class launched:

- Franklin Emerging Market Corporate Debt Fund Y (acc)

THE BOARD OF DIRECTORSLuxembourg, November 2019


Report of the Board of Directors (continued)


Franklin Floating Rate II Fund

Syndicated Bank Loan Market Overview

Technical conditions in the loan market significantly weakened towards the end of 2018 as the asset class was impacted by broadervolatility in the equity and credit markets. However, improved investor sentiment early in 2019 and demand from new collateralised loanobligation (CLO) vehicles led to a sharp rebound. As the period progressed, expectations of rate cuts that would decrease incomegeneration helped to limit principal gains, as retail investors continued to redeem from loan mutual funds, although at a steadier pace.Healthy demand from CLOs remained, which helped to support loan prices amidst periodic bouts of volatility. While the loan marketsaw an increase in new issuance to finance mergers and acquisitions, there were also large paydowns that helped to keep net newissuance relatively low versus historical levels.

While many investors had expected rising interest rates at the beginning of the period, eventual uncertainty surrounding future ratehikes led to the largest monthly outflow by dollar amount, which significantly deteriorated technical conditions in December. Outflowsfrom retail investors continued throughout the period as the US Federal Reserve cut its benchmark rate three times, promptinginvestors to shift away from low duration assets. Assets under management of retail loan funds declined significantly from the recentpeak in October 2018 and the composition of the loan investor base shifted as a result, with loan retail funds holding a meaningfullysmaller share.

CLOs, which had already been the majority holder of institutional leveraged loans, further gained share as retail investor demandshrunk. Although rate cuts moderated demand for floating rate CLO tranches compared to the prior period, issuance of new CLOvehicles remained the primary driver of demand for loans. Issuance was slower in 2019 compared to the previous year, but more than ahundred open CLO warehouses continued ramping and buying loans, which provided a floor to loan valuations and a source of supportto loan prices. Managers overcame challenges in loan supply and arbitrage, in addition to fears that scrutiny from financial regulatorswould diminish demand from investors.

New issuance in the loan market remained relatively low, which eventually helped to balance technical conditions as investor sentimentimproved in 2019. Furthermore, price declines in the loan market restrained refinancing and repricing activity, which was more commonin previous periods. Amidst the slowdown in demand in the loan market, some deals also shifted funds from the loan market to the bondmarket, where there was more demand, reversing the trend from the previous year when the loan market surpassed the size of the highyield bond market by some measures. New supply continued to be primarily in B-rated loans, while loan documentation remainedrelatively loose. Although deals related to mergers and acquisition (M&A) transactions picked up, the pace of total issuance continuedto lag due to an increase in paydowns, especially among larger tranche names.

The default rate by principal amount declined during the period and continued to be below the historical average, after reaching a threeyear high earlier in 2018. The default outlook remained generally benign even with higher leverage levels, especially among first-lienloans, as well as a higher proportion of B-rated loans in the market and more loans trading at distressed levels. However, uncertaintyabout the pace of economic growth also increased concern about potential downgrades, as the pace of credit rating downgradesoutpaced the number of loans that were upgraded. Due to CLO limits on holding CCC loans, further downgrades were expected topotentially contribute to selling and volatility in the loan market. As a result, lower rated loans underperformed during the period, as lesssupport from CLO managers and the absence of demand from retail investors led to greater price declines for loans that were facingoperational headwinds and higher leverage. Amidst fears of slower economic growth, higher rated loans outperformed, widening thespread differential between BB-rated and B-rated loans.

Manager’s Discussion

During the one-year period under review, the Fund returned -1.37% (A [Mdis]), underperforming its benchmark, the CS Leveraged LoanIndex (CSLLI), which returned 2.61%. The Fund maintained an overweight in the upper tier of the market throughout the period, whichcontributed to performance as Upper-Tier loans in the index returned 4.38%, Middle-Tier returned 2.31%, and Lower-Tier returned-3.97%, according to the CSLLI. Although Upper-Tier loans outperformed during the quarter, performance was primarily driven by loanselection, in particular a few issuers that faced operational challenges and industry headwinds.

The top individual contributors to performance included higher-rated issuers that attracted stronger demand, as well as names that hadsupport due to potential catalysts that were expected to push prices higher. Within our portfolio, GNC (a specialty retailer of nutritionalsupplements) was the top contributor to performance after an equity investment from a Chinese pharmaceutical company clearedregulatory hurdles and was used to reduce leverage. Onsite Rentals (a specialised industrial equipment rental company) alsocontributed to performance as it reported improved results due to an increase in contracts and as the company explored a potentialinitial public offering.

The top detractors from performance included issuers that faced challenges in operations, in addition to sector headwinds, whichresulted in weaker results. Ascena Retail Group, a specialty apparel retailer with multiple core brands, also detracted from performanceafter the company reported worse than expected results and weak guidance for the remainder of the year, which resulted in majormanagement changes and a material change in strategy. The term loan of Fieldwood Energy (a producer of oil and gas) also declinedas the company reported a weaker quarter due to increased regulatory downtime, along with lower oil prices.

During the period, the fund looked to de-risk areas of the portfolio that we believed had elevated credit risk and high uncertainty. Inaddition, many of the fund’s sells during the quarter included higher rated loans that traded at tight levels. Buys during the periodincluded higher rated loans that launched deals in the primary market with relatively attractive spreads. The fund continued to maintaina significant overweight in upper tier loans, which were approximately 49% of the loan portfolio at the end of the period, compared to


Report of the Investment Managers


Manager’s Discussion (continued)

27% for the index. The fund also held protection in HYCDX to protect against volatility in the credit markets and unwound a portion ofthe position during bouts of volatility.

Franklin Emerging Market Investment Grade Debt Fund

Market Overview

The US Federal Reserve raised its target federal funds rate in December 2018. But only weeks later, it pivoted to an unexpectedlydovish stance, which resulted in three rate cuts, in July, September and October 2019. The US-China trade conflict waxed and wanedover the twelve months under consideration. According to the International Monetary Fund, trade tensions were an important cause ofslower economic growth around the world. Oil prices fell from around US$75 per barrel at the start of the review period to just underUS$60 at the end of October 2019.

• EM investment-grade (IG) hard-currency government debt returned 17.52% in the 12 months under review, as per the JP MorganEM Bond Index Global Diversified—Investment Grade, in US dollars. Benchmark 10-year US Treasury yields fell from 3.14% at thebeginning of the review period to 1.69% by the end of October 2019. Over that same timeframe, EM IG risk spreads narrowed from 190basis points (bps) to 163 bps, on a yield-to-worst basis.• EM local-currency IG sovereign debt returned 16.87% over the review period, as per the JP Morgan GBI-EM Global Diversified –Investment Grade, in US dollars. Local-currency EM IG yields fell nearly 100 bps, and EM currencies registered a mixed performanceduring the year under review.• EM hard-currency IG corporate bonds returned 12.80% during the period, as per the ICE BofAML Emerging Markets High GradeCorporate Plus Index, hedged into US dollars. EM IG corporate bonds’ risk spreads over US Treasuries narrowed, but less so thansovereign spreads.

Investment Strategy

The fund’s objective is to achieve income yield and long-term capital appreciation. It seeks to achieve this objective by investingprimarily in fixed- and floating-rate debt securities and debt obligations of government and government-related issuers, supranationalentities organised or supported by several national governments, and corporate issuers located in an EM country and/or deriving asignificant proportion of their economic activity from EM countries. All investments will, at the time of purchase, be rated as investmentgrade by one or more credit ratings agencies or, if unrated, be declared to be of comparable quality by the Investment Manager.


The fund returned 11.35% (I [acc] shares in US dollars) net of fees, for the 12-month period ending October 31, 2019.

Main contributors

1. Long-dated US-dollar bonds from Kazakhstan

The Kazakhstani government’s investment-grade rating is based on its prudent fiscal policies, the country’s energy resources andmoderate inflation. The long-dated bonds held by the fund, with maturity dates up to 2044, benefited disproportionately from falls in USTreasury yields during the year under review.

2. Long-dated US-dollar bonds of Southern Copper

These long-dated bonds, due 2042, also benefited strongly from falls in US Treasury yields during the year under review. Copper pricespeaked in the beginning of 2019 but have come down since then.

Main detractors

In local-currency terms, no position in any security detracted from performance during the year under review. Exposure to certain EMcurrencies was the only detractor from returns, led by the weaker Uruguayan and Colombian pesos.

1. Exposure to the weaker Uruguayan peso

The Uruguayan economy remained strong during the 12 months under review. The Uruguayan peso, however, came under pressurefrom economic and political problems in neighboring Argentina and Brazil, the country’s two main trading partners. In turn, because ofthe weaker Uruguayan peso, domestic inflation rose somewhat.

2. Exposure to the weaker Colombian peso

Oil prices fell by more than 25% in the 12 months under review, which weighed on the value of the Colombian peso. In September2019, the Colombian central bank announced a programme to increase the country’s international reserves. It did so after the IMF hadhinted that its Flexible Credit Line, worth a potential US$11 billion, might not be renewed in May 2020. The Colombian central bank’sprogramme was structured to limit its impact on the Colombian peso, but the currency has performed poorly since it was introduced.


Report of the Investment Managers (continued)


Franklin Emerging Market Corporate Debt Fund

Market Overview

The US Federal Reserve raised its target federal funds rate in December 2018. But only weeks later, it pivoted to an unexpectedlydovish stance, which resulted in three rate cuts, in July, September and October 2019. The US-China trade conflict waxed and wanedover the twelve months under consideration. According to the International Monetary Fund, these trade tensions were an importantcause of slower economic growth around the world. As growth slowed, oil prices fell from around US$75 per barrel at the start of thereview period to just under US$60 at the end of October 2019.

In the corporate segment, EM corporate debt returned 12.35% in the 12 months to October 31, 2019, as per the ICE BofAML EmergingMarket Corporate Plus Index. Benchmark 10-year US Treasury yields fell from 3.14% at the beginning of the review period to 1.69% bythe end of October 2019, and spreads on EM corporate bonds narrowed.

Investment Strategy

The fund’s objective is to achieve income yield and long-term capital appreciation by investing primarily in fixed and floating rate debtsecurities and debt obligations of corporate and government-related issuers located in an EM country and/or deriving a significantproportion of their economic activity from developing or emerging countries. There are no restrictions on credit quality or maturity withrespect to the securities in which the fund may invest and as such the Fund may invest to an unlimited extent in below investment gradeand unrated securities.


For the 12-month period ending October 31, 2019, the fund returned 12.42% net (I [acc] shares in US dollars), compared with the12.35% (hedged, in US dollars) return on the Bank of America Merrill Lynch EM Corporate Plus Index.

Main contributors

1. US-dollar bonds issued by Turkish food producer Yas̨ar

The lira’s depreciation in 2018 raised concerns that Turkish corporate borrowers might be unable to repay their foreign-currency debts.Yas̨ar was one such company, with a significant currency mismatch. But the company’s bonds performed well in 2019, in particularafter Yas̨ar repurchased US$44 million in face value of its US$250 million bond, due May 2020. An unsecured bank loan financed therepurchase, with guarantees by several of the group’s unlisted operating companies. Yasar’s liquidity position remains difficult due tothe continued absence of hard-currency revenues. But credit rating agency Fitch reported that the company has US$200 million inundrawn committed and US$250 million in uncommitted bank lines.

2. US-dollar bonds of Indonesian property developer Lippo Karawaci

Lippo Karawaci’s credit rating was cut several times in 2018 and one of its flagship developments near Jakarta became involved in abribery scandal. But the company returned to strength in 2019, by successfully delivering asset sales and equity injections, as well asan overhaul of its management team.

Main detractors

1. US-dollar bonds issued by South Africa’s Petra Diamonds

The world diamond market is struggling with oversupply and slowing demand, exacerbated by reduced demand from middle-marketparticipants and pro-democracy protests in Hong Kong. The company’s performance continued to languish during the year underreview, as revenues fell and losses widened over the financial year to June 30, 2019. In October, the company’s first-quarter results, forJuly-September 2019, revealed a 23% fall in revenues and a poorer product mix. One of Petra Diamonds’ principal financial challengesis the refinancing of a US$650 million bond that comes due in May 2022. Some investors see this as a challenge if the diamond marketcontinues to weaken.

2. Exposure to the weaker Georgian lari

The fund’s exposure to the Georgian lari as a result of its investment in short-dated Bank of Georgia bonds detracted from returns. Inlocal-currency terms, these bonds appreciated, but the Georgian lari weakened as tensions with Russia increased in the latter parts ofthe review period.

Franklin Emerging Market Debt Opportunities II Fund

Market Overview

The US Federal Reserve raised its target federal funds rate in December 2018. But only weeks later, it pivoted to an unexpectedlydovish stance, which resulted in three rate cuts, in July, September and October 2019. The US-China trade conflict waxed and wanedover the twelve months under consideration. According to the International Monetary Fund, trade tensions were an important cause ofslower economic growth around the world. Oil prices fell from around US$75 per barrel at the start of the review period to just underUS$60 at the end of October 2019.• EM hard-currency sovereign bonds returned 11.75% in the 12 months to October 31, 2019, as per the JPMorgan EM Bond IndexGlobal Diversified B-/B3 and higher, hedged into euros. Benchmark 10-year US Treasury yields fell from 3.14% at the beginning of thereview period to 1.69% by the end of October 2019, and spreads on EM government bonds narrowed substantially.




Market Overview (continued)

• EM hard-currency corporate bonds returned 8.95% over the review period, as per the ICE BofAML Emerging Market Corporate PlusIndex, hedged into euros.• EM local-currency sovereign debt returned 16.85% over the same timeframe, as per the JP Morgan GBI-EM Broad Diversifiedindex, in euros. Most EM currencies appreciated, relative to the euro, but EM local-currency bond yields dropped significantly.

Investment Strategy

The fund’s objective is to achieve income yield and long-term capital appreciation. It seeks to achieve this objective by investingprimarily in fixed- and floating-rate debt securities and debt obligations of government and government-related issuers, supranationalentities organised or supported by several national governments, and corporate issuers located in an EM country and/or deriving asignificant proportion of their economic activity from EM countries.


For the 12-month period ending October 31, 2019, the fund returned 6.66% (I [Ydis] shares in euros), compared with a return of11.75% for the JPMorgan EM Bond Index Global Diversified B-/B3 and higher, hedged into euros, and a return of 16.85% for the JPMorgan GBI-EM Broad Diversified Index, also in euros.

Main contributors

1. Ukrainian US-dollar bonds, issued by the Ukrainian government and by agro-industrial concern MHP

The landslide election of anti-establishment candidate Volodymyr Zelensky as Ukraine’s new president in April 2019 boosted allUkrainian assets. This rally was reinforced President Zelensky’s party’s victory in parliamentary elections in July. Among other things,Mr Zelensky maintained a constructive relationship with the International Monetary Fund (IMF); started to pursue his pro-reform,anti-corruption agenda; and appeared willing to mend ties with Russia. In addition, Ukraine’s domestic demand and agriculturalproduction rose in the first half of 2019. By contrast, prices for gas, one of the country’s major imports, declined.

2. Long-dated US-dollar bonds, issued by Kazakhstan’s national railways

Kazakshtan’s investment-grade rating is based on the country’s energy resources, its prudent fiscal position and moderate inflation.The bonds held by the fund, with maturity dates up to 2042, benefited disproportionately from falls in US Treasury yields during the yearunder review.

Main detractors

1. Argentine hard-currency bonds, in US dollars and in euros

Argentine assets continued to come under pressure during the year under review, despite the IMF’s record support package agreed inSeptember 2018. In early 2019, some data pointed to an economic revival. But in August 2019, Argentina’s President Macri suffered aheavier-than-expected defeat in primary elections, making it highly likely that a change of government would occur in October. Themarket reacted negatively to the prospect of former president Cristina Fernández de Kirchner becoming vice president if AlbertoFernández were to win the presidency. This financial stress led to a failed rollover of short-term domestic debt towards the end ofAugust and forced the Argentine government to announce a restructuring of short-term securities governed by domestic law.Government bond prices fell by around 50% and the peso depreciated sharply. The major credit rating agencies downgraded severalArgentine issuers and international investors all but deserted Argentine markets.

2. Exposure to the weaker Argentine peso

Argentine local-currency bonds posted small gains during the year under review, in local-currency terms, after their steep falls in 2018.But the Argentine peso sold off substantially over the twelve months under review, for the reasons described above. It stabilised only atthe end of October 2019, after Alberto Fernández won the presidency over incumbent president Mauricio Macri.

Franklin Multi-Sector Credit Income Fund

Market Overview

Towards the end of fourth quarter of 2018, market sentiment was weighed down by numerous issues including continuing declines inoil prices, lingering concerns over trade tensions with China and uncertain interest-rate expectations. The ensuing volatility and agenerally pessimistic market tone gave way to improved market conditions in the first quarter of 2019 (Q1). A dovish tilt in policy outlookby global central banks, anticipation of an eventual US trade deal with China, broad equity market recoveries and re-opening of capitalmarkets contributed towards positive market sentiment as spreads across fixed income sectors generally trended narrower during Q1.With the exception of May, during which market sentiment was weighed down by factors such as worsening trade tensions, the secondquarter of 2019 ended on a positive note as expectations of a pause in US-China trade tensions ahead of the G20 Osaka summit, acontinuing dovish US Federal Reserve (Fed) stance and increasing market expectations for rate cuts this year provided tailwinds.Moving on to the third quarter of 2019, amidst a generally low interest rate environment, US market sentiments were mixed as investorsgrappled with trade-related developments that seesawed between anticipated improvement and disappointment over lack of progress.Other geopolitical developments also affected sentiments such as renewed impeachment discussions and tensions in the Middle East.October witnessed slight progress in trade developments in the form of a partial trade deal with China.




Market Overview (continued)

During the 12-month performance period, the Fed increased the fed funds rate once—during December 2018’s Federal Open MarketCommittee (FOMC) meeting— before subsequently cutting its policy rate three times in 2019. Comments from the latest FOMCmeeting during October indicated the Fed’s recognition of continued overhangs on the economy including slowing global growth andtrade tensions between the US and China. The Fed stated that it still saw the US economy expanding at a “moderate pace” with astrong labour market and household spending that “has been rising at a strong pace”. The statement from the meeting indicated thatthe Fed continued to see weak data from export and business investment and that inflation remains below their 2.0% target. Thewording of the statement changed from the Fed indicating that it would “act as appropriate” to a more neutral stance. At the pressconference, Chair Powell extended the point by saying “the current stance of policy is likely to remain appropriate” and that neweconomic data would have to cause a “material reassessment of the outlook” to warrant further changes to its policy rate.

It is difficult, in our view, to identify meaningful warning signs across the US economy that warrant the level of pessimism currentlypriced into the US Treasury market. This disconnect may be due to the higher significance assigned to confidence indicators, whichhave been more reflective of fears about trade tensions, rather than actual economic data, which have broadly indicated a resilient,albeit slower, pace of growth. With consumers driving most of the economic activity, the main areas that influence householdspending—principally the labour market, but also the housing and stock markets, as well as historically low interest rates—havegenerally remained solid to robust. We believe the readiness of Fed policymakers to pre-emptively shape monetary policy by focusingon weaker confidence readings, rather than concentrating on relatively firm underlying data, could eventually prove problematic. Thefurther the Fed proceeds along the path of “mid-cycle adjustment” interest-rate cuts, the greater the potential for unintendedconsequences to result, in our opinion.

Investment Strategy

Bank Loans

In October, amidst the backdrop of a partial trade deal with China and a Fed rate cut, leveraged loan investors continued to grapple withunderperformance of lower-quality credits. As we have noted in the past, the bifurcation of loan performance has persisted, becomingmore pronounced during the past month. Loans in the energy and metals and mining sectors have been particularly impacted. Asoutflows from retail loan vehicles have increased compared with September, a number of loans in the lower-rated categories wereunder noticeable pricing pressure, especially from issuers with challenged financial metrics or higher risk of downgrades. Lower creditquality loans have seen sudden, sharp moves in terms of decreasing price levels and widening spreads, as have lower-ratedcollateralised loan obligation (CLO) tranches. As a further illustration of how bifurcation has accelerated, the attached table illustratesthe average rolling discount margin for Upper-Tier loans in the year-to-end October period has decreased and leveled out. The discountmargin for Lower-Tier loans, in comparison, has steadily increased since February ; this can be thought of as a reflection of increasingpricing discounts for Lower-Tier loans overall.

While we think that the bifurcation phenomenon could continue in the near term, we look for periods of volatility as an opportunity for usto add higher-quality names at a discount, to the extent that volatility is technically induced. Based on past seasonal trends, we do notanticipate an active forward issuance calendar from now until year end. To the extent that the forward calendar remains light, thetechnical support that investors would typically expect however, has been tempered this time around by increasing investor caution asindicated in the bifurcation of loan performance. Despite the potential headwinds, we remain constructive on floating-rate credit, due inpart to the general strength of the US economy and subdued default outlook. Our core focus remains our rigorous credit qualityscreening, proper due diligence and preference for issuers that we believe are fundamentally sound and resilient to the test of time.

DiscountMargin(3-yearlife)

Date 12/31/18 01/31/19 02/28/19 03/29/19 04/30/19 05/31/19 06/28/19 07/31/19 08/30/19 09/30/19 10/31/19

Upper Tier 391 bp 306 bp 273 bp 291 bp 253 bp 274 bp 272 bp 257 bp 264 bp 261 bp 266 bpMiddle Tier 573 bp 507 bp 464 bp 491 bp 451 bp 475 bp 486 bp 476 bp 510 bp 508 bp 547 bpLower Tier 1203 bp 1216 bp 1196 bp 1165 bp 1135 bp 1154 bp 1225 bp 1246 bp 1305 bp 1365 bp 1459 bp

High Yield

In a continuation of the third quarter of 2019, the bifurcation we have noted between higher- and lower-quality high-yield (HY) issuesremained pronounced in the month of October. Higher-quality credits, specifically BB rated bonds, outperformed for the month, whilethe lower-rated CCC segment generally underperformed. As a result, spreads between CCC and BB rated bonds widened furtherduring the month. In terms of industries, CCC underperformance was largely driven by the energy, telecommunications and health careindustries. The energy sector remained the leading driver for HY defaults over the past 12 months, although the HY default rate remainsbelow its long-term average. Conversely, the retail sector outperformed in October and leads all industries for year-to-date results. Wemaintain our view that as we enter the latter phases of the current business cycle, HY investors in general have exhibited a reluctanceto take on additional undue credit risk from lower credit tranches, which illustrates a degree of investor discipline.

Looking ahead, while we maintain our opinion that HY fundamentals remain supportive, we recognise the potential challenges posedby increasingly full HY valuations, especially amongst BB rated credits. Although HY demand has remained healthy amidst robust retailinflows, we are mindful of geopolitical developments that could suddenly alter the demand picture, such as US political developmentsand the still-evolving trade negotiation with China. Short of unfavourable and unforeseen events, however, the current environment of




Investment Strategy (continued)

low-yields and stable technical conditions could conceivably continue to spur demand for the asset class, in our view. In addition, wealso believe that the underperformance of lower-quality bank loans along with the potential for more downgrades could provide atailwind for additional HY sector demand. At this point in the credit cycle, our rigorous credit selection discipline takes on even greaterimportance as we seek to invest in issuers that we think are fundamentally sound, and thus better positioned to withstand lessfavourable economic environments.


During the 12-month period ended October 31, 2019, the fund returned 4.75% (I [acc]) on a net basis. Over the period, our exposure tosovereign emerging-market (EM) debt was a major detractor from relative performance, as was our allocation to non-US dollardenominated developed-market debt. Conversely, our allocation to hard currency sovereign developed-market debt contributed toresults. Our corporate exposure, including bank loans, investment-grade and high-yield corporate bonds, also benefitted performance.While our allocation to CLOs contributed to results, our security selection within the sector detracted. Our overall foreign currencyexposure was a major contributor to performance, while our non-US and US yield curve positioning hindered results

THE INVESTMENT MANAGERSNovember 2019



The information stated in this report represents historical data and is not an indication of future results.


EYErnst & YoungSociote (-1nonym('

:35E, Avenuc John F, :\cnnedyL-1855 Luxelllboulq

B p, 780L-20 17 LUXClllboLlICj

Building a betterworking world

Tel: +352 £,2 12/1 1 R,C,S, l_uxcmIJOulC) B 47 771PIA LU 1606:307':

','!WW,cy,(orn/lu xeml10urq

Independent auditor's report

To the Shareholders of

Franklin Templeton Series II Funds8A, rue Albert Borschette

L-1246 Luxembourg

Opinion

We have audited the financial statements of Franklin Templeton Series II Funds (the "Fund") and of each of its sub-funds, which

comprise the statement of net assets and the schedule of investments as at October 31, 2019 and the statement of operations and

changes in net assets for the year then ended, and the notes to the financial statements, including a summary of significant accountingpolicies,

In our opinion, the accompanying financial statements give a true and fair view of the financial position of the Fund and of each of its

sub-funds as at October 31,2019, and of the results of their operations and changes in their net assets for the year then ended in

accordance with Luxembourg legal and regulatory requirements relating to the preparation and presentation of the financial statements.

Basis for Opinion

We conducted our audit in accordance with the Law of July 23,2016 on the audit profession (the "Law of July 23,2016") and withInternational Standards on Auditing ("ISAs") as adopted for Luxembourg by the "Commission de Surveillance du Secteur Financier"

("CSSF"). Our responsibilities under the Law of July 23, 2016 and ISAs are further described in the "responsibilities of the "reviseur

d'entreprises agree" for the audit of the financial statements" section of our report. We are also independent of the Fund in accordancewith the International Ethics Standards Board for Accountants' Code of Ethics for Professional Accountants ("IESBA Code") as adopted

for Luxembourg by the CSSF together with the ethical requirements that are relevant to our audit of the financial statements, and havefulfilled our other ethical responsibilities under those ethical requirements. We believe that the audit evidence we have obtained issufficient and appropriate to provide a basis for our opinion.

Other information

The Board of Directors of the Fund is responsible for the other information. The other information comprises the information included inthe annual report but does not include the financial statements and our report of the "reviseur d'entreprises agree" thereon.

Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusionthereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, considerwhether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwiseappears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of thisother information, we are required to report this fact. We have nothing to report in this regard.

Responsibilities of the Board of Directors of the Fund for the financial statements

The Board of Directors of the Fund is responsible for the preparation and fair presentation of these financial statements in accordance

with Luxembourg legal and regulatory requirements relating to the preparation and presentation of the financial statements, and for suchinternal control as the Board of Directors of the Fund determines is necessary to enable the preparation of financial statements that arefree from material misstatement, whether due to fraud or error.


EYBuilding a betterworking world

In preparing the financial statements, the Board of Directors of the Fund is responsible for assessing the Fund's and each of its sub-

funds' ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern

basis of accounting unless the Board of Directors of the Fund either intends to liquidate the Fund or any of its sub-funds or to ceaseoperations, or has no realistic alternative but to do so.

Responsibilities of the "reviseur d'entreprises agree" for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material

misstatement, whether due to fraud or error, and to issue a report of the "reviseur d'entreprises agree" that includes our opinion.

Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Law of July23, 2016 and with ISAs as adopted for Luxembourg by the CSSF will always detect a material misstatement when it exists.

Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be

expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with the Law of July 23, 2016 and with ISAs as adopted for Luxembourg by the CSSF, we exercise

professional judgment and maintain professional skepticism throughout the audit. We also:

Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and

perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis

for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as

fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the

circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control.

Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related

disclosures made by the Board of Directors of the Fund

Conclude on the appropriateness of the Board of Directors of the Fund's use of the going concern basis of accounting and, based

on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant

doubt on the Fund's or any of its sub-funds' ability to continue as a going concern. If we conclude that a material uncertainty

exists, we are required to draw attention in our report of the "reviseur d'entreprises agree" to the related disclosures in the

financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit

evidence obtained up to the date of our report of the "reviseur d'entreprises agree". However, future events or conditions may

cause the Fund or any of its sub-funds to cease to continue as a going concern.

Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the

financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit andsignificant audit findings, including any significant deficiencies in internal control that we identify during our audit.

Ernst & YoungSociete anonymeC'b,"~~':;':"~

Kerry Nichol

Luxembourg, February 28, 2020


A member firm of Ernst & Young Global Limited


THIS PAGE LEFT BLANK INTENTIONALLY


Share classesLaunchdate

6 Months%

1 Year%

3 Years%

SinceLaunch %

Franklin Floating Rate II Fund A (acc) 29 May 07 (2.091) (1.310) 4.858 35.890

Franklin Floating Rate II Fund A (acc) Euro Hedged 29 May 07 (3.541) (4.362) (2.808) 20.834

Franklin Floating Rate II Fund A (Mdis)1 29 May 07 (2.177) (1.372) 4.756 35.997

Franklin Floating Rate II Fund I (acc) 29 May 07 (1.947) (1.052) 5.932 41.002

Franklin Floating Rate II Fund I (acc) Euro Hedged 29 May 07 (3.438) (4.138) (2.009) 24.588

Franklin Floating Rate II Fund I (acc) GBP Hedged 28 Apr 17 (2.735) (2.924) - (0.399)

Franklin Floating Rate II Fund I (Mdis) 15 Nov 07 (1.897) (0.952) 6.002 42.197

Franklin Floating Rate II Fund I (Qdis) Euro Hedged 15 Jul 13 (3.434) (3.991) (1.834) 7.766

Franklin Floating Rate II Fund I (Ydis) 28 Apr 17 (1.934) (0.888) - 3.775

Franklin Floating Rate II Fund I (Ydis) CHF Hedged 16 Dec 16 (3.622) (4.381) - (3.736)

Franklin Floating Rate II Fund I (Ydis) Euro Hedged 28 Apr 17 (3.439) (3.906) - (3.048)

Franklin Floating Rate II Fund W (acc) 31 Jan 13 (2.060) (1.165) 5.598 37.917

Franklin Floating Rate II Fund W (acc) Euro Hedged 23 May 14 (3.421) (3.954) (1.692) 22.506

Franklin Floating Rate II Fund W (Qdis) 08 Mar 17 (2.023) (1.087) - 3.524

Franklin Floating Rate II Fund Y (Mdis) 26 Jan 18 (1.717) (0.512) - 2.260

Franklin Emerging Market Investment Grade Debt Fund I (acc) 24 Feb 12 4.680 11.352 14.867 27.505

Franklin Emerging Market Investment Grade Debt Fund I (acc) Euro 24 Feb 12 5.340 13.079 13.160 53.907

Franklin Emerging Market Investment Grade Debt Fund I (acc) Euro Hedged 24 Feb 12 3.121 8.133 6.150 15.701

Franklin Emerging Market Investment Grade Debt Fund Y (Mdis) 12 Jan 18 5.081 12.218 - 7.400

Franklin Emerging Market Corporate Debt Fund I (acc) 24 Feb 12 4.820 12.424 16.384 45.714

Franklin Emerging Market Corporate Debt Fund I (acc) Euro Hedged 24 Feb 12 3.171 9.073 7.580 33.511

Franklin Emerging Market Corporate Debt Fund Y (acc)2 26 Sep 19 - - - 1.000

Franklin Emerging Market Corporate Debt Fund Y (Mdis) Euro 26 Jun 15 5.776 15.102 17.387 30.807

Franklin Emerging Market Debt Opportunities II Fund I (Ydis) 30 Nov 12 1.396 6.661 10.504 26.542

Franklin Emerging Market Debt Opportunities II Fund X (Ydis) 13 Nov 15 1.628 7.202 12.789 23.278

Franklin Emerging Market Debt Opportunities II Fund Y (acc) AUD Hedged3 17 May 19 - - - 2.601

Franklin Emerging Market Debt Opportunities II Fund Y (acc) USD Hedged3 17 May 19 - - - 3.301

Franklin Multi-Sector Credit Income Fund I (acc) 02 Oct 15 1.167 4.746 12.616 21.400

Franklin Multi-Sector Credit Income Fund I (acc) AUD Hedged 02 Oct 15 0.661 3.745 12.144 21.900

Franklin Multi-Sector Credit Income Fund I (acc) CHF Hedged 02 Oct 15 (0.638) 1.112 3.022 9.100

Franklin Multi-Sector Credit Income Fund I (acc) Euro Hedged 02 Oct 15 (0.269) 1.644 4.116 11.300

Franklin Multi-Sector Credit Income Fund I (acc) GBP Hedged 02 Oct 15 0.259 2.564 7.110 16.000

Franklin Multi-Sector Credit Income Fund I (Qdis) Euro Hedged 02 Oct 15 (0.243) 1.582 4.023 11.207

Franklin Multi-Sector Credit Income Fund I (Ydis) 02 Oct 15 1.179 4.719 12.403 21.062

Franklin Multi-Sector Credit Income Fund I (Ydis) Euro 02 Oct 15 1.770 6.288 10.562 21.733

Franklin Multi-Sector Credit Income Fund I (Ydis) Euro Hedged 02 Oct 15 (0.211) 1.685 4.356 11.360

Franklin Multi-Sector Credit Income Fund I (Ydis) GBP Hedged 02 Oct 15 0.410 2.831 7.233 16.245

1On May 17, 2019, Franklin Floating Rate II Fund A (Ydis) is renamed as Franklin Floating Rate II Fund A (Mdis)2This share class was launched on September 26, 20193This share class was launched on May 17, 2019

This report shall not constitute an offer or a solicitation of an offer to buy shares. Subscriptions are to be made on the basis of the current issuing document, and a copy of the latest available auditedannual report and, if published thereafter, the latest unaudited semi-annual report. The price of shares and income from them can go down as well as up and you may not get back the full amount thatyou invested. Past performance is no guarantee of future performance. Currency fluctuations may affect the value of investments.

Data source: Performance – Franklin Templeton


Fund PerformancePercentage Change to October 31, 2019


Total

Franklin FloatingRate II Fund

Franklin EmergingMarket

Investment GradeDebt Fund

Franklin EmergingMarket Corporate

Debt Fund

(USD) (USD) (USD) (USD)

ASSETS

Investment in securities at market value (note 2(b)) 1,188,689,650 196,646,384 36,687,459 23,369,707

Cash 20,164,719 3,002,467 363,245 114,529

Amounts receivable on sale of investments 64,670,473 14,320,688 1,744,927 699,971

Amounts receivable on subscriptions 30,670 30,670 - -

Interest and dividends receivable, net 21,092,308 2,121,857 478,097 309,444

Other receivables 367,627 123,680 10,901 11,143

Unrealised profit on forwards foreign exchange contracts (note 4) 5,128,087 411,585 163,471 1,102

Unrealised profit on cross currency swap contracts(note 8) 9,012 - - -

Unrealised profit on total return swap contracts(note 9) 18,924 - - -

TOTAL ASSETS 1,300,171,470 216,657,331 39,448,100 24,505,896

LIABILITIES

Amounts payable on purchases of investments 2,647,766 2,339,298 301,640 -

Amounts payable on redemptions 1,623,115 1,623,115 - -

Investment management fees payable (note 3) 693,227 86,596 6,906 6,528

Taxes and expenses payable 1,172,815 206,734 47,059 43,908

Unrealised loss on financial future contracts (note 5) 2,130 - - -

Credit default swap contracts at market value(note 7) 345,826 215,294 - -

TOTAL LIABILITIES 6,484,879 4,471,037 355,605 50,436

TOTAL NET ASSETS 1,293,686,591 212,186,294 39,092,495 24,455,460

THREE YEAR NET ASSET SUMMARY

October 31, 2018 2,934,982,646 730,357,536 36,682,976 17,830,112

October 31, 2017 3,423,491,459 728,788,836 36,634,222 34,021,343

October 31, 2016 3,053,178,230 390,021,649 53,407,761 31,045,731

1This Fund was put into liquidation effective January 17, 2019


Statement of Net Assetsat October 31, 2019

The accompanying notes form an integral part of these financial statements


Franklin EmergingMarket Debt

Opportunities IIFund

Franklin UpperTier Floating Rate

Fund1

Franklin Multi-Sector CreditIncome Fund

(EUR) (USD) (USD)

808,753,012 15,696,666 14,287,156

12,537,815 2,461,591 239,461

40,547,937 1,416,229 1,265,542

- - -

16,182,804 7,606 126,622

168,907 - 33,522

3,981,490 31,779 79,594

- - 9,012

- - 18,924

882,171,965 19,613,871 16,059,833

- - 6,828

- - -

523,471 - 9,370

561,553 201,436 47,378

- - 2,130

- - 130,532

1,085,024 201,436 196,238

881,086,941 19,412,435 15,863,595

788,614,963 1,231,068,539 26,134,218

771,205,013 1,698,335,823 26,080,329

588,038,980 1,907,673,781 24,544,563


Statement of Net Assets (continued)at October 31, 2019



Total

Franklin FloatingRate II

Fund

Franklin EmergingMarket

Investment GradeDebt Fund

Franklin EmergingMarket Corporate

Debt Fund

(USD) (USD) (USD) (USD)

NET ASSETS ATTHE BEGINNING OF THE YEAR 2,934,982,646 730,357,536 36,682,976 17,830,112Currency translation adjustment (13,366,954) - - -

2,921,615,692 730,357,536 36,682,976 17,830,112

INCOMEDividends (net of withholding taxes) 2,010,923 - - -Interest on bonds and loans (net of withholding taxes) 127,854,863 24,110,416 1,982,919 1,119,266Bank interest 2,077,765 180,889 11,720 4,106Net interest income on swaps 189,002 - - -Sundry income 1,050,952 249,561 8,381 11,627

TOTAL INCOME 133,183,505 24,540,866 2,003,020 1,134,999

EXPENSESInvestment management fees (note 3) 10,817,010 1,745,383 82,684 68,575Administration and transfer agency fees 3,334,709 757,792 23,013 15,358Subscription tax (note 13) 287,507 129,720 3,775 1,863Depositary fees 935,026 160,902 34,833 32,436Audit, printing and publishing expenses 143,902 21,247 12,344 12,351Bank charges 98,168 2,188 - 122Net interest expense on swaps 396,913 396,913 - -Class A (dis) and Class A (acc) shares’ maintenance charges (note 16) 356,217 356,217 - -Other charges 562,298 117,259 34,271 30,601

TOTAL EXPENSES 16,931,750 3,687,621 190,920 161,306Expense reimbursement (note 18) (889,000) (270,933) (14,829) (35,350)

NET EXPENSES 16,042,750 3,416,688 176,091 125,956

NET PROFIT/(LOSS) FROM INVESTMENTS 117,140,755 21,124,178 1,826,929 1,009,043Realised profit on sale of investments 76,197,708 17,113,807 91,257 127,919Realised loss on sale of investments (96,532,752) (26,511,637) (318,144) (495,116)Net realised profit/(loss) on forward foreign exchange contracts (62,399,033) (3,085,404) (872,213) 6,871Net realised profit/(loss) on financial future contracts (64,403) - - -Net realised profit/(loss) on credit default swap contracts 147,842 290,473 - -Net realised profit/(loss) on total return swap contracts 44,044 - - -Net realised profit/(loss) on foreign exchange transactions 128,402 (12,660) (13,771) (25,442)

NET REALISED PROFIT/(LOSS) FOR THE YEAR 34,662,563 8,918,757 714,058 623,275Change in net unrealised appreciation/(depreciation) on:

Unrealised appreciation on investments 300,010,295 27,453,785 6,221,232 2,681,426Unrealised depreciation on investments (299,536,160) (43,656,742) (3,582,216) (1,193,094)Forward foreign exchange contracts 30,219,395 1,535,793 307,491 (2,380)Financial future contracts (15,418) - - -Cross currency swap contracts 2,686 - - -Credit default swap contracts 83,617 66,090 - -Total return swap contracts (11,671) - - -Foreign exchange transactions (298,671) (161) 11,491 3,305

Capital gains tax (44,586) - - -

NET INCREASE/(DECREASE) IN NET ASSETS AS A RESULT OFOPERATIONS 65,072,050 (5,682,478) 3,672,056 2,112,532MOVEMENT OFCAPITALIssue of shares 261,330,092 101,710,069 2,246,221 13,062,610Redemption of shares (1,808,361,621) (569,772,452) (1,592,527) (7,578,093)Equalisation (note 15) (17,926,606) (8,535,575) (10,485) (5,566)

(1,564,958,135) (476,597,958) 643,209 5,478,951Dividends paid/accumulated (note 20) (128,043,016) (35,890,806) (1,905,746) (966,135)

NET INCREASE/(DECREASE) IN NET ASSETSAS A RESULT OF MOVEMENT IN CAPITAL (1,693,001,151) (512,488,764) (1,262,537) 4,512,816NET ASSETS ATTHE END OF THE YEAR 1,293,686,591 212,186,294 39,092,495 24,455,460

Portfolio Turnover Ratio (note 22) (66.34)% 12.93% 35.95%

1This Fund was put into liquidation effective January 17, 2019


Statement of Operations and Changes in Net AssetsFor the Year ended October 31, 2019



Franklin EmergingMarket Debt

Opportunities IIFund

FranklinUpper Tier

Floating RateFund1

Franklin Multi-Sector CreditIncome Fund

(EUR) (USD) (USD)

788,614,963 1,231,068,539 26,134,218- - -

788,614,963 1,231,068,539 26,134,218

1,803,033 - -67,149,901 24,509,253 1,240,721

323,157 1,501,826 18,807- - 189,002

389,428 344,089 2,965

69,665,519 26,355,168 1,451,495

6,001,024 2,072,847 154,5791,422,821 917,898 33,776

85,906 53,724 2,614412,186 213,938 33,20632,518 47,698 13,99577,581 8,334 998

- - -- - -

199,316 92,864 65,002

8,231,352 3,407,303 304,170(423,069) - (96,039)

7,808,283 3,407,303 208,131

61,857,236 22,947,865 1,243,36420,043,898 35,950,685 559,079

(14,566,608) (52,558,834) (402,882)(45,825,409) (7,148,182) (191,024)

- - (64,403)- - (142,631)- - 44,044

258,909 (100,844) (7,642)

21,768,026 (909,310) 1,037,905

177,767,937 62,016,184 3,373,078(165,048,250) (63,549,571) (3,476,215)

19,541,211 6,452,884 131,293- - (15,418)- - 2,686- - 17,527- - (11,671)

(281,169) - 282(39,977) - -

53,707,778 4,010,187 1,059,467

90,989,480 41,253,412 1,577,208(3,485,388) (1,214,674,048) (10,857,248)

580,018 (9,383,494) (638,380)

88,084,110 (1,182,804,130) (9,918,420)(49,319,910) (32,862,161) (1,411,670)

38,764,200 (1,215,666,291) (11,330,090)881,086,941 19,412,435 15,863,595

24.57% N/A 87.46%


Statement of Operations and Changes in Net Assets (continued)For the Year ended October 31, 2019



Net Asset Value per Share

Annualised TotalExpense Ratio

October 31,2019

(See Note 19)

SharesOutstandingOctober 31,

2019October 31,

2019October 31,

2018October 31,

2017

FRANKLIN FLOATING RATE II FUND USDFranklin Floating Rate II Fund A (acc) 1.00% 3,986,589.281 13.59 13.77 13.36Franklin Floating Rate II Fund A (acc) Euro Hedged 1.00% 510,605.643 8.99 9.40 9.36Franklin Floating Rate II Fund A (Mdis)1 1.00% 1,917,571.573 7.80 8.78 8.88Franklin Floating Rate II Fund I (acc) 0.65% 2,769,236.655 14.10 14.25 13.77Franklin Floating Rate II Fund I (acc) CHF Hedged2 - - - 10.04 10.02Franklin Floating Rate II Fund I (acc) Euro Hedged 0.65% 416,467.414 9.27 9.67 9.60Franklin Floating Rate II Fund I (acc) GBP Hedged 0.65% 11,000.000 9.96 10.26 10.07Franklin Floating Rate II Fund I (Mdis) 0.65% 2,421,371.207 8.02 8.62 8.78Franklin Floating Rate II Fund I (Qdis) Euro Hedged 0.65% 1,772,421.795 8.04 8.91 9.29Franklin Floating Rate II Fund I (Ydis) 0.59% 500.000 9.64 10.25 10.13Franklin Floating Rate II Fund I (Ydis) CHF Hedged 0.65% 10,984.170 8.78 9.70 10.04Franklin Floating Rate II Fund I (Ydis) Euro Hedged 0.62% 9,246.491 8.98 9.88 10.01Franklin Floating Rate II Fund W (acc) 0.70% 3,275,323.786 11.89 12.03 11.63Franklin Floating Rate II Fund W (acc) Euro Hedged 0.70% 459,586.039 10.44 10.87 10.78Franklin Floating Rate II Fund W (Qdis) 0.70% 1,438,851.490 9.13 9.81 9.98Franklin Floating Rate II Fund Y (Mdis) 0.08% 163,240.608 9.28 9.93 -

FRANKLIN EMERGING MARKET INVESTMENT GRADE DEBT FUND USDFranklin Emerging Market Investment Grade Debt Fund I (acc) 0.95% 500.029 12.75 11.45 11.80Franklin Emerging Market Investment Grade Debt Fund I (acc) Euro 0.95% 743.080 15.39 13.61 13.63Franklin Emerging Market Investment Grade Debt Fund I (acc) Euro Hedged 0.95% 982,718.000 11.57 10.70 11.34Franklin Emerging Market Investment Grade Debt Fund Y (Mdis) 0.20% 2,684,312.798 9.83 9.22 -

FRANKLIN EMERGING MARKET CORPORATE DEBT FUND USDFranklin Emerging Market Corporate Debt Fund I (acc) 1.10% 572,954.736 14.57 12.96 13.23Franklin Emerging Market Corporate Debt Fund I (acc) Euro Hedged 1.10% 17,884.118 13.35 12.24 12.84Franklin Emerging Market Corporate Debt Fund Y (acc)3 0.31% 152,535.809 10.10 - -Franklin Emerging Market Corporate Debt Fund Y (Mdis) Euro 0.31% 1,231,679.857 10.41 9.58 9.96

FRANKLIN EMERGING MARKET DEBT OPPORTUNITIES II FUND EURFranklin Emerging Market Debt Opportunities II Fund I (Ydis) 0.90% 101,168,681.178 8.71 8.71 9.48Franklin Emerging Market Debt Opportunities II Fund X (Ydis) 0.20% 429.142 9.99 10.01 10.87Franklin Emerging Market Debt Opportunities II Fund Y (acc) AUD Hedged4 0.08% 14,492.682 10.26 - -Franklin Emerging Market Debt Opportunities II Fund Y (acc) USD Hedged4 0.08% 9,951.399 10.33 - -

FRANKLIN UPPER TIER FLOATING RATE FUND USD5

Franklin Upper Tier Floating Rate Fund I (acc)6 - - - 10.31 10.10Franklin Upper Tier Floating Rate Fund I (acc) SP7 0.50% 1,567.836 10.59 - -Franklin Upper Tier Floating Rate Fund I (Qdis)6 - - - 9.58 9.80Franklin Upper Tier Floating Rate Fund I (Qdis) SP7 0.50% 1,613,562.523 9.43 - -Franklin Upper Tier Floating Rate Fund I (Qdis) CHF Hedged6 - - - 8.82 9.33Franklin Upper Tier Floating Rate Fund I (Qdis) CHF Hedged SP7 0.50% 434,115.159 8.40 - -Franklin Upper Tier Floating Rate Fund I (Qdis) Euro Hedged6 - - - 9.03 9.50Franklin Upper Tier Floating Rate Fund I (Qdis) Euro Hedged SP7 0.50% 43,318.538 8.66 - -Franklin Upper Tier Floating Rate Fund Y (Qdis)6 - - - 10.06 -Franklin Upper Tier Floating Rate Fund Y (Qdis) SP7 0.01% 6,024.734 10.02 - -

FRANKLIN MULTI-SECTOR CREDIT INCOME FUND USDFranklin Multi-Sector Credit Income Fund I (acc) 0.80% 995,224.524 12.14 11.59 11.44Franklin Multi-Sector Credit Income Fund I (acc) AUD Hedged 0.80% 70,997.515 12.19 11.75 11.60Franklin Multi-Sector Credit Income Fund I (acc) CHF Hedged 0.80% 48,617.500 10.91 10.79 11.00Franklin Multi-Sector Credit Income Fund I (acc) Euro Hedged 0.80% 44,593.090 11.13 10.95 11.09Franklin Multi-Sector Credit Income Fund I (acc) GBP Hedged 0.80% 32,931.570 11.60 11.31 11.34Franklin Multi-Sector Credit Income Fund I (Qdis) Euro Hedged 0.80% 69,618.846 9.00 9.43 10.10Franklin Multi-Sector Credit Income Fund I (Ydis) 0.80% 500.000 10.30 10.39 10.83Franklin Multi-Sector Credit Income Fund I (Ydis) Euro 0.80% 445.931 10.35 10.29 10.42Franklin Multi-Sector Credit Income Fund I (Ydis) Euro Hedged 0.80% 44,593.090 9.45 9.85 10.50Franklin Multi-Sector Credit Income Fund I (Ydis) GBP Hedged 0.80% 32,931.570 9.80 10.10 10.67

1On May 17, 2019, Franklin Floating Rate II Fund A (Ydis) is renamed as Franklin Floating Rate II Fund A (Mdis)2This share class was closed on September 5, 20193This share class was launched on September 26, 20194This share class was launched on May 17, 20195This Fund was put into liquidation effective January 17, 20196This share class was closed on August 19, 20197This share class was launched on November 28, 2018


Statistical InformationFor the Year ended October 31, 2019



Note 1 — The CompanyFranklin Templeton Series II Funds (“FTSIIF” or the “Company”) is an Undertaking for Collective Investment pursuant to Part II of theLuxembourg law of December 17, 2010 relating to Undertakings for Collective Investment, as amended, and qualifies as a sociétéd’investissement à capital variable. The Company qualifies as an Alternative Investment Fund within the meaning of article 1(39) of the law ofJuly 12, 2013. The Company was incorporated in Luxembourg on May 14, 2007, for an undetermined period of time. At the date of this report, itoffers shares in 5 sub-funds of the Company (the “Fund(s)”). The Board of Directors of the Company may authorise the creation of additionalFunds in the future with different investment objectives.

The exclusive objective of the Company is to invest the assets of the Funds in transferable securities and other permitted assets of any kind,including units or shares of Investment Funds, with the purpose of spreading investment risks and affording its shareholders the results of themanagement of its assets.

Funds changesOn November 26, 2018, the Board of Directors decided to create a side pocket (containing Restricted Assets (the “Side-Pocket”)) in compliancewith the CSSF guidelines in order to ensure the equal treatment of shareholders requesting the redemption of their shares and the remainingshareholders within the Franklin Upper Tier Floating Rate Fund.

Consequently, on November 28, 2018, the following share classes launched:






Franklin Upper Tier Floating Rate Fund was put into liquidation effective January 17, 2019

On May 17, 2019, the following share classes launched:

- Franklin Emerging Market Debt Opportunities II Fund Y (acc) AUD Hedged

- Franklin Emerging Market Debt Opportunities II Fund Y (acc) USD Hedged

On May 17, 2019, the following share class dividend distribution frequency changed from yearly to monthly, consequently class name changed:

- Franklin Floating Rate II Fund A (Ydis) is renamed as Franklin Floating Rate II Fund A (Mdis)

Effective August 1, 2019, the following share classes investment management fee discontinued:











On August 19, 2019, the following share classes closed:






On September 5, 2019, the following share class closed:

- Franklin Floating Rate II Fund I (acc) CHF Hedged

On September 26, 2019, the following share class launched:

- Franklin Emerging Market Corporate Debt Fund Y (acc)

Note 2 — Significant accounting policies(a) GeneralThe financial statements are prepared in accordance with the regulations of the Grand Duchy of Luxembourg relating to investment funds.


Notes to Financial StatementsAt October 31, 2019


Note 2 — Significant accounting policies (continued)

(b) Investment in securitiesCorporate debt securities generally trade in the over-the-counter market rather than on a securities exchange. The Company may utiliseindependent pricing services, quotations from bond dealers, and information with respect to bond and note transactions, to assist in determininga current market value for each security. These pricing services may use valuation models or matrix pricing which considers information withrespect to comparable bond and note transactions, quotations from bond dealers, or by reference to other securities that are consideredcomparable in such characteristics as rating, interest rate and maturity date, option adjusted spread models, prepayment projections, interestrate spreads and yield curves, to determine current value.

Senior secured corporate loans with floating or variable interest rates generally trade in the over-the-counter market rather than on a securitiesexchange. The Company may utilise independent pricing services, quotations from loan dealers and other financial institutions, and informationwith respect to bond and note transactions, to assist in determining a current market value for each security. These pricing services useindependent market quotations from loan dealers or financial institutions and may incorporate valuation methodologies that consider multiplebond characteristics such as dealer quotes, issuer type, coupon, maturity, weighted average maturity, interest rate spreads and yield curves,cash flow and credit risk/quality analysis to determine current value.

Securities which are listed on a stock exchange or traded on any other organised market are valued at the last available price on such exchangeor market which is normally the principal market for each security, and those securities dealt in on an over-the-counter market are valued in amanner as near as possible to that for quoted securities.

Securities not listed on any stock exchange nor traded on any organised market are valued at the last available price, or if such price is notrepresentative of their fair value, they are valued prudently and in good faith on the basis of their reasonably foreseeable sales prices.

For mortgage-backed and other similar holdings with scheduled debt paydowns, the Company records estimates, based on its historicalexperience, for anticipated paydowns. Such estimates are recorded as a reduction or increase to the related holdings as disclosed on theSchedule of Investments and are included in the related unrealised appreciation/(depreciation) on investments shown on the “Statement ofOperations and Changes in Net Assets”.

Stocks, shares or units in open-ended investment funds are valued based on the last available net asset value determined according to theprovisions of the particular investment fund’s prospectus as provided by the administration agent of such investment fund.

The Management Company has procedures to determine the fair value of individual securities and other assets for which market prices are notreadily available or which may not be reliably priced. In such circumstances, the price of such investment shall be adjusted in accordance withthe procedures adopted, as determined by or under the direction of the Board of Directors.

During the accounting year under review, discounts and premiums were amortised to income over the period to maturity, or date sold, if earlierand gains and losses on investment securities sold were computed on the average cost basis for all Funds.

(c) Forward foreign exchange contractsForward foreign exchange contracts are valued at the forward rate applicable at the “Statement of Net Assets” date for the remaining period,until maturity. Gains or losses resulting from forward foreign exchange contracts are recognised in the “Statement of Operations and Changesin Net Assets”.

(d) IncomeInterest income is accrued on a daily basis.

Where applicable, dividends are credited to income on their ex-dividend date.

(e) Charges and expensesAll expenses are estimated and accrued daily in the calculation of the Net Asset Value of each Fund.

(f) Formation expensesFormation expenses associated with the launch of new Funds are expensed as incurred.

(g) Senior Floating Rate InterestSenior secured corporate loans pay interest at rates which are periodically reset by reference to a base lending rate plus a spread. These baselending rates are generally the prime rate offered by a designated U.S. bank or the London InterBank Offered Rate (LIBOR). Senior securedcorporate loans often require prepayment of principal from excess cash flows or at the discretion of the borrower. As a result, actual maturitymay be substantially less than the stated maturity.

Senior secured corporate loans in which Franklin Floating Rate II Fund, Franklin Upper Tier Floating Rate Fund or Franklin Multi-Sector CreditIncome Fund invest are generally readily marketable, but may be subject to some restrictions on resale.

(h) Foreign exchange transactionsTransactions expressed in currencies other than each Fund’s currency are translated into each Fund’s currency at the exchange ratesapplicable on the transaction dates.

Assets and liabilities denominated in currencies other than each Fund’s currency are translated into each Fund’s currency at the appropriateexchange rates ruling at the period-end. Gains and losses on foreign exchange transactions are recognised in the “Statement of Operationsand Changes in Net Assets” in determining the results for the accounting year.


Notes to Financial Statements (continued)At October 31, 2019



(h) Foreign exchange transactions (continued)The reference currency of the Company as reflected in the financial statements is U.S. dollar. The principal exchange rates applied as atOctober 31, 2019 are as follows:

Australian Dollar 1.4504315British Pound Sterling 0.7719325Euro 0.8966197Japanese Yen 107.9850000Swiss Franc 0.9864500

(i) Interest Rate Swap contractsInterest rate swap contracts are used to hedge the risk of changes in interest rates and are agreements between two parties to exchange cashflows based on a notional principal amount. The net interest received or paid on interest rate swap contract agreements is accrued daily asinterest income/expense.

Interest rate swap contracts are marked to market daily based upon quotations from the market makers and the change, if any, is recorded asan unrealised gain or loss in the �Statements of Operations and Changes in Net Assets�. When the swap is terminated early, the Fund records arealised gain or loss equal to the difference between the current net present value and the executed net present value. Any outstanding interestaccrual is recorded as either a net receivable or net payable.

The risks of interest rate swap contracts include changes in market conditions and the possible inability of the counterparty to fulfill itsobligations under the agreement.

(j) Credit Default Swap contractsA Credit Default Swap contract is a credit derivative transaction in which two parties enter into an agreement, whereby one party pays the othera fixed periodic payment for the specified life of the agreement. The other party makes no payments unless a credit event, relating to apredetermined reference asset, occurs. If such an event occurs, the party will then make a payment to the first party, and the swap willterminate. The value of the underlying securities shall be taken into account for the calculation of the investment and borrowing powersapplicable to individual users.

Credit default swap contracts are marked to market daily based upon quotations from the market makers and the change in value, if any, isrecorded as an unrealised gain or loss in the “Statement of Operations and Changes in Net Assets”. Any payment received or paid to initiate acontract is recorded as a liability or asset in the “Statement of Net Assets”. When the swap contract is terminated early, the Fund records arealised gain or loss for any payments received or paid.

The risks of credit default swap contracts include unfavorable changes in interest rates, an illiquid secondary market and the possible inability ofthe counterparty to fulfill its obligations under the agreement, which may be in excess of the amount reflected in the “Statement of Net Assets”.

(k) Financial Future contractsThe Company may enter into financial future contracts to gain exposure to market changes. A financial future contract is an agreement betweentwo parties to buy or sell a security for a set price on a future date. Required initial margin deposits of cash or securities are maintained by abroker in a segregated account. Subsequent payments, known as variation margin, are made or received by the Company depending on thefluctuations in the value of the underlying securities. Such variation margin is accounted for as unrealised gains or losses until the contract isclosed, at which time the gains or losses are reclassified to realised gains or losses. Realised and unrealised gains and losses are included inthe “Statement of Operations and Changes in Net Assets”.

(l) Cross Currency swap contractsA cross currency swap is an agreement between two parties to exchange interest payments and principals denominated in two differentcurrencies. Cross currency swap contracts are marked to market daily based upon quotations from the market makers and the change in value,if any, is recorded as an unrealised gain or loss in the “Statement of Operations and Changes in Net Assets”.

When the swap contract is terminated early, the Fund records a realised gain or loss equal to the difference between the current net presentvalue and the executed net present value. Any outstanding interest accrual is recorded as either a net receivable or net payable.

The risks of cross currency swap contracts include changes in market conditions and the possible inability of the counterparty to fulfill itsobligations under the agreement.

(m) Total Return Swap contractsA total return swap is an agreement in which one party makes payments based on a set rate, either fixed or variable, while the other partymakes payments based on the return of an underlying asset, which includes both the income it generates and any capital gains.

Total return swap contracts are marked to market daily based upon quotations from the market makers and the change in value, if any, isrecorded as an unrealised gain or loss in the “Statement of Operations and Changes in Net Assets”.

When the swap contract is terminated early, the Fund records a realised gain or loss equal to the difference between the current net presentvalue and the executed net present value. Any outstanding interest accrual is recorded as either a net receivable or net payable.

The risks of total return swap contracts include changes in market conditions and the possible inability of the counterparty to fulfill itsobligations under the agreement.





(n) Cross fund investmentsAs at October 31, 2019, the following Fund held shares issued by another Fund of the Company.

Currency

Investment in securitiesat market value as

per Statement of Net AssetsMarket value of

Cross Funds investments

Investment in securitiesat market value after deduction

of Cross Funds investments

Franklin Multi-Sector Credit Income Fund USD 14,287,156 1,535,562 12,751,594

The total combined net assets of the Company at year-end without Cross Funds investments would amount to USD 1,292,151,029

(o) Combined financial statementsThe accounts of the Company are expressed in U.S. dollars and the accounts of the Funds are kept in the currency of each Fund. Thecombined “Statement of Net Assets” and the combined “Statement of Operations and Changes in Net Assets” are the sum of the “Statement ofNet Assets” and the “Statement of Operations and Changes in Net Assets” of each Fund converted into the currency of the Company usingexchange rates prevailing at year-end. Currency translation adjustment presented on the “Statement of Operations and Changes in Net Assets”are the sum of exchange differences arising on translation of each Fund “Net assets at the beginning of the year” into the currency of theCompany using exchange rates prevailed at previous and current year-end reporting periods.

(p) Swing pricingA Fund may suffer dilution of the net asset value per share due to investors buying or selling shares in a Fund at a price that does not reflectdealing and other costs that arise when security trades are undertaken by the Investment Manager to accommodate cash inflows or outflows.

In order to counter this impact, a swing pricing mechanism may be adopted to protect the interests of Shareholders of the Fund. If on anyvaluation date, the aggregate net capital activity of a Fund exceeds a pre-determined threshold, as determined and reviewed for each Fund ona periodic basis, the net asset value per share will be adjusted upwards or downwards to reflect net capital inflows or net capital outflowsrespectively.

The net capital inflows and net capital outflows will be determined based on the latest available information at the time of calculation of the netasset value per share. The swing pricing mechanism may be applied across all Funds. The extent of the price adjustment is set to reflectdealing and other costs. Such adjustment may vary from Fund to Fund and will not exceed 2% of the original net asset value per share.

In the case of a swing pricing event on the last day of the annual/semi-annual period, the net assets as disclosed in the “Statement of NetAssets”, exclude the swing pricing adjustment, however, the net asset value per share as at annual/semi-annual period end, as disclosed in theStatistical Information, would include the swing pricing adjustment.

During the year ended October 31, 2019, swing pricing adjustments affected the net asset value per share of the following Funds:

- Franklin Floating Rate II Fund

- Franklin Emerging Market Corporate Debt Fund

- Franklin Upper Tier Floating Rate Fund

- Franklin Multi-Sector Credit Income Fund

Note 3 — Investment management feesThe Management Company receives from the Company a monthly investment management fee equivalent to a certain percentage per annum(as detailed below) of each Fund’s adjusted daily net assets during the year. The Investment Managers will be remunerated by the ManagementCompany out of the investment management fee received from the Company. The following percentages apply in respect of the followingFunds as at October 31, 2019.

No management fee is payable by an investor on the acquisition of Class X and Class Y shares, instead a fee is paid to the Investment Manageror affiliates under a separate agreement.

Class A Class I Class W

Franklin Floating Rate II Fund 0.60% 0.40% 0.40%Franklin Emerging Market Investment Grade Debt Fund - 0.65% 0.65%Franklin Emerging Market Corporate Debt Fund - 0.80% 0.80%Franklin Emerging Market Debt Opportunities II Fund - 0.70% 0.70%Franklin Upper Tier Floating Rate Fund* - 0.40% -Franklin Multi-Sector Credit Income Fund 0.80% 0.60% 0.60%

*Effective August 1, 2019, this sub-fund’s investment management fee discontinued




Note 4 — Forward foreign exchange contractsAs at October 31, 2019, the Company had entered into the following outstanding contracts:


Purchases Sales MaturityDate

Unrealisedprofit/(loss)

USD

Forward foreign exchange contracts used for share class hedging:CHF 94,538 USD 95,608 12-Nov-19 314EUR 27,325,542 USD 30,093,035 12-Nov-19 406,756GBP 107,840 USD 131,949 12-Nov-19 7,804USD 580,647 EUR 523,164 12-Nov-19 (3,289)

411,585

The above contracts were open with the following counterparties:

Bank of America 91,257Barclays 5,848BNP Paribas 12,559Citigroup 69,599Credit Suisse 6,625Goldman Sachs 53,645HSBC 27,847JPMorgan 49,393Morgan Stanley 23,042UBS 71,770

411,585




USD

Forward foreign exchange contracts used for share class hedging:EUR 10,974,382 USD 12,085,742 12-Nov-19 163,471


Bank of America 17,451Barclays 18,598Citigroup 19,946Credit Suisse 14,284HSBC 12,034JPMorgan 23,994Morgan Stanley 22,814Toronto–Dominion Bank 3,696UBS 30,654

163,471




USD

Forward foreign exchange contracts used for share class hedging:EUR 227,830 USD 250,899 12-Nov-19 3,396

Forward foreign exchange contracts used for efficient portfolio management:USD 355,387 EUR 320,000 03-Dec-19 (2,294)

1,102




Note 4 — Forward foreign exchange contracts (continued)

Franklin Emerging Market Corporate Debt Fund (continued)


USDThe above contracts were open with the following counterparties:

Bank of America 123Barclays (2,294)BNP Paribas 145Credit Suisse 390JPMorgan 734Morgan Stanley 754The Bank of New York Mellon 243UBS 1,007

1,102




EUR

Forward foreign exchange contracts used for share class hedging:AUD 143,990 EUR 88,348 15-Nov-19 614USD 99,042 EUR 89,708 15-Nov-19 (990)

(376)

Forward foreign exchange contracts used for efficient portfolio management:EUR 13,417,341 JPY 1,600,000,000 03-Dec-19 135,093EUR 576,192,994 USD 639,700,000 03-Dec-19 3,885,753USD 12,400,000 EUR 11,132,633 03-Dec-19 (38,980)

3,981,866

3,981,490


Barclays 754,532BNP Paribas 14Citigroup 877,374Deutsche Bank 748,849Morgan Stanley 828,734RBC Capital Markets 772,348UBS (361)

3,981,490

Franklin Upper Tier Floating Rate Fund*



USD

Forward foreign exchange contracts used for share class hedging:CHF 3,633,944 USD 3,659,831 15-Nov-19 28,070EUR 373,814 USD 412,959 15-Nov-19 4,358USD 102,057 CHF 101,163 15-Nov-19 (608)USD 11,008 EUR 9,897 15-Nov-19 (41)

31,779


Bank of America 3,079Barclays 7,546BNP Paribas 484Citigroup 191JPMorgan 19,181Toronto–Dominion Bank 1,298

31,779

*This Fund was put into liquidation effective January 17, 2019







USD

Forward foreign exchange contracts used for share class hedging:AUD 835,112 USD 565,891 15-Nov-19 10,114CHF 514,041 USD 517,670 15-Nov-19 4,005EUR 1,489,675 USD 1,644,795 15-Nov-19 18,251GBP 676,065 USD 838,480 15-Nov-19 37,733

70,103

Forward foreign exchange contracts used for efficient portfolio management:JPY 50,000,000 USD 475,127 29-Jan-20 (9,241)USD 475,683 JPY 50,000,000 29-Jan-20 9,797EUR 692,539 USD 767,961 16-Mar-20 11,533USD 87,365 CHF 85,000 16-Mar-20 283USD 776,613 EUR 692,539 16-Mar-20 (2,881)

9,491

79,594


Bank of America 2,418Barclays 236BNP Paribas 724Citigroup 3,625Deutsche Bank 77Goldman Sachs 713HSBC 390JPMorgan 64,876Morgan Stanley 3,184Toronto–Dominion Bank 1,558UBS 1,793

79,594

Note 5 — Open positions on financial future contractsAs at October 31, 2019, the Company had entered into the following outstanding contracts:


Number ofcontracts

purchased/(sold)

Description Counterparty Tradingcurrency

CommitmentUSD


USD

Bond Future4 U.S. Treasury 10 Yr. Note Future, Dec. 2019 JPMorgan USD 521,188 (2,130)

Note 6 — Open positions on interest rate swap contractsAs at October 31, 2019, the Company had no open interest rate swap contracts.

Note 7 — Open positions on credit default swap contractsAs at October 31, 2019, the Company had entered into the following outstanding contracts:


Nominal Description Interestpaid/received

%

Counterparty Buy/SellProtection

Tradingcurrency

MarketvalueUSD


USD

5,828,000 CDX.NA.HY.26, Jun. 2021 5.00 JPMorgan Buy USD (215,294) 250,882




Note 7 — Open positions on credit default swap contracts (continued)


Nominal Description Interestpaid/received

%

Counterparty Buy/SellProtection

Tradingcurrency

MarketvalueUSD


USD

53,333 Government of Turkey, senior bond,11.875%, 01/15/30, Dec. 2019 1.00 Barclays Buy USD (31) (3,348)

30,000 BNP Paribas Bespoke Bordeaux 7-10%Tranche, Jun. 2020 2.10 BNP Paribas Sell USD 285 285

20,000 BNP Paribas Bespoke Rodez2 5-7%Mezz Tranche, Dec. 2020 3.20 BNP Paribas Sell USD 409 410

39,946 Citibank Bespoke 0-3% Tranche CDXIndex, Jun. 2020 - Citigroup Sell USD (5,090) 5,056

500,000 Citibank Bespoke Bogota 7-10%Tranche Index, Jun. 2020 1.35 Citigroup Sell USD 1,705 1,705

130,400 Citibank Bespoke Cambridge 0-3%Equity Tranche Index, Dec. 2019 - Citigroup Sell USD (11,645) 9,088

60,000 Citibank Bespoke Lima 5-7% TrancheIndex, Dec. 2019 2.13 Citigroup Sell USD (144) (144)

50,000 Citibank Bespoke Phoenix 5-7%Tranche, Dec. 2021 2.90 Citigroup Sell USD 1,201 1,201

50,000 Citibank Bespoke Singapore 0-3%Tranche CDX Index, Jun. 2020 - Citigroup Sell USD (5,296) 4,414

114,100 Citibank Bespoke Verona Index, Dec.2019 - Citigroup Sell USD (1,578) 26,377

600,000 Citibank Bespoke Verona Index, Dec.2019 0.40 Citigroup Sell USD 204 204

210,000 Government of Argentina, senior note,7.50%, 04/22/26, Dec. 2021 5.00 Citigroup Sell USD (125,933) (5,208)

125,000 ITRX.EUR.XOVER.31, Jun. 2024 5.00 Citigroup Sell EUR 13,096 (521)50,000 Morgan Stanley Bespoke Pecan 5-10%

Mezz Trach CDX, Dec. 2021 4.10 Morgan Stanley Sell USD 1,253 1,25350,000 Morgan Stanley Bespoke Pecan 5-10%

Mezz Trach CDX, Dec. 2021 3.98 Morgan Stanley Sell USD 1,032 1,032

(130,532) 41,804

Note 8 — Open positions on cross currency swap contractsAs at October 31, 2019, the Company had entered into the following outstanding contracts:


Description Notionalamount

Counterparty Maturitydate

Tradingcurrency


USD

Receiving floating rate 3-month USD BBA LIBOR +2.87% 232,400 USDPaying fixed rate 2.50% 200,000 Citigroup 04-May-21 EUR 9,012

Note 9 — Open positions on total return swap contractsAs at October 31, 2019, the Company had entered into the following outstanding contracts:


Tradingcurrency

Notionalamount

Fund receives Fund pays Counterparty Maturitydate


USD

USD 900,000 Performance of Markit iBoxx USD LiquidLeveraged Loans Index Series 1 Version1

3-month USD BBA LIBOR Goldman Sachs 20-Mar-20 17,219

USD 100,000 Performance of Markit iBoxx USD LiquidLeveraged Loans Index Series 1 Version1

3-month USD BBA LIBOR Morgan Stanley 20-Dec-19 1,705

18,924




Note 10 — Time depositsAs at October 31, 2019, the Company held no time deposits.

Note 11 — Unfunded loan commitmentsFranklin Floating Rate II Fund, Franklin Upper Tier Floating Rate Fund and Franklin Multi-Sector Credit Income Fund may enter into certaincredit agreements, all or a portion of which may be unfunded. It is obliged to fund these loan commitments at the borrowers’ discretion. Fundedportions of credit agreements are presented on the Schedule of Investments.

As at October 31, 2019 the Funds did not have any unfunded commitments.

Note 12 — Securities lendingAs at October 31, 2019, the Company was not involved in any securities lending programs.

Note 13 — TaxationUnder current laws and practice, the Company is not liable in the Grand Duchy of Luxembourg to any tax on its profits or income and is notsubject to the Grand Duchy of Luxembourg’s net wealth tax. In addition, no capital gains tax is payable in the Grand Duchy of Luxembourg onthe realised or unrealised capital appreciation of the assets of the Company.

The Company is liable in the Grand Duchy of Luxembourg to a tax of 0.05% per annum, such tax being paid quarterly, and calculated on thenet asset value of each Fund at the end of each relevant quarter. This tax is not applicable for the portion of the assets of a Fund invested inother Undertakings for Collective Investment that have already been subject to such tax. Class I, X and Y shares may benefit from a reducedrate of 0.01% per annum if all shareholders of these share classes are institutional investors.

Investment income received or capital gains realised by the Company may be subject to tax in the countries of origin. All liabilities in respect oftaxes payable on unrealised capital gains on investments are provided for as soon as there is a reasonable certainty that a liability willcrystallise.

No stamp duty or other tax is payable in the Grand Duchy of Luxembourg on the issue of shares in the Company. A EUR 75 registration duty isto be paid upon incorporation and each time the Articles of the Company are amended.

The Company is registered for Value Added Tax in the Grand Duchy of Luxembourg and subject to account for Value Added Tax in accordancewith current laws.

Note 14 — Statement of changes in the investment portfolioA list, specifying for each Fund total purchases and sales transacted during the year under review, may be obtained free of charge, uponrequest, at the registered office of the Company.

Note 15 — EqualisationThe Funds use an accounting practice known as equalisation, by which a portion of the proceeds from issues and the costs of sale of shares,equivalent on a per share basis to the amount of undistributed net investment income on the date of the transaction, is credited or charged toundistributed income. As a result, undistributed net investment income per share is unaffected by issues or redemptions of shares. However, inrespect of any Fund offering only accumulation shares, the Board of Directors reserves the right not to apply equalisation.

Note 16 — Classes of shares: A(acc), A(dis), I(acc), I(dis), W(acc), W(dis), X(dis), Y(acc), Y(dis) and alternative currency hedgedclass of sharesClass A(acc) Shares: Shares offered at the applicable net asset value, plus an entry charge of up to 6.50% of the total amount invested. Inaddition, a maintenance charge of up to 0.40% per annum of the applicable average net asset value per share of the relevant Fund is deductedand paid to the Principal Distributor. This charge is accrued daily and is deducted and paid monthly to the Principal Distributor. In relation toqualified investments of USD 1 million or more, the entry charge may be waived and a contingent deferred sales charge of up to 1.00% mayapply if an investor sells shares within 18 months after each investment. No distribution of dividends will be made but the net incomeattributable will be reflected in the increased value of the shares.

Class A(dis) Shares: Distribution of dividend will be made monthly, quarterly or annually (depending on the frequency of the share class). Allother terms and conditions are the same as those which apply for Class A(acc) shares.

Class I(acc) Shares: Shares offered to institutional investors as more fully described in the current Prospectus of the Company. No distributionof dividends will be made but the net income attributable will be reflected in the increased value of the shares. Class I(acc) shares are notsubject to an entry charge, contingent deferred sales charge nor any maintenance charge. Class I shares benefit from a reduced InvestmentManagement fee (note 3).

Class I(dis) Shares: Shares offered to institutional investors as more fully described in the current prospectus of the Company. Purchases ofClass I (dis) shares are not subject to an entry charge, contingent deferred sales charge nor any maintenance charge. Class I shares benefitfrom a reduced Investment Management fee (note 3). Distribution of dividend will be made monthly, quarterly or annually (depending on thefrequency of the share class).

Class W(acc) Shares: No distribution of dividends will be made but the net income attributable will be reflected in the increased value of theshares. Class W shares are not subject to an entry charge, contingent deferred sales charge nor any maintenance charge. Class W(acc) sharesmay be offered in certain limited circumstances as more fully described in the current prospectus of the Company.

Class W(dis) Shares: are not subject to an entry charge, contingent deferred sales charge nor any maintenance charge. Class W(dis) sharesmay be offered in certain limited circumstances as more fully described in the current prospectus of the Company.




Note 16 — Classes of shares: A(acc), A(dis), I(acc), I(dis), W(acc), W(dis), X(dis),Y(acc),Y(dis) and alternative currency hedgedclass of shares (continued)

Class X(dis) Shares: are not subject to an entry charge, contingent deferred sales charge nor any maintenance charge. Class X Shares aredesigned to accommodate an alternative charging structure whereby a fee covering the investment management fees is levied and collected bythe Management Company directly from the Investors who are clients of Franklin Templeton Investments and who enter into a specificagreement with the Management Company. These fees will therefore not be payable out of the net assets of the relevant Fund attributable toClass X Shares. Class X Shares may only be offered to Institutional Investors in certain limited circumstances, at the discretion of theManagement Company or the Investment Manager and its affiliates, as more fully described in the current prospectus of the Company.

Class Y(acc) and Y(dis) Shares: are not subject to an entry charge, contingent deferred sales charge nor any maintenance charge. Class Yshares are designed to accommodate an alternative charging structure whereby a fee covering the investment management and the registrar,transfer, corporate, domiciliary and administration fees is levied and collected by the Management Company directly from the Investors who areclients of Franklin Templeton Investments and who enter into a specific agreement with the Management Company. These fees will thereforenot be payable out of the net assets of the relevant Fund attributable to Class Y Shares. Class Y Shares may only be offered to InstitutionalInvestors in certain limited circumstances, at the discretion of the Management Company and/or its affiliates, as more fully described in thecurrent prospectus of the Company.

Alternative currency hedged share classes: Shareholders of the hedged share class may be exposed to fluctuations in the Net Asset Value perShare reflecting the gains/losses on and the costs of the relevant financial instruments. The gains/losses and the costs of the relevant financialinstruments will accrue solely to the relevant hedged share class.

The above mentioned distributing share classes may have different frequencies: (Mdis) share classes distribute monthly, (Qdis) share classesdistribute quarterly and (Ydis) share classes distribute annually.

Note 17 — Connected party transactionsCertain directors of the Company are or may also be officers and/or directors of the Management Company, i.e. Franklin TempletonInternational Services S.à r.l. or of the Investment Managers, among others, Franklin Advisers Inc., Franklin Templeton Institutional, LLC orFranklin Templeton Investment Management Limited. All transactions with connected parties were entered into in the ordinary course ofbusiness and under normal commercial terms.

The investment managers will be remunerated by the Management Company out of the investment management fee received from theCompany, as more fully detailed in note 3 to the financial statements.

There are no connected brokers in Franklin Templeton, and no transactions were entered into with connected brokers during the year endedOctober 31, 2019.

The Company accrued fees in respect of Franklin Templeton International Services S.à r.l. as the Management Company and as the PrincipalDistributor of the Funds from November 1, 2018 to October 31, 2019.

Note 18 — Expense reimbursementFor the year ended October 31, 2019, the following expenses have been either reimbursed in the first instance by the Administrative Agent,Franklin Templeton International Services S.à r.l., or in the event that the expense exceeded the Administration fee, by the Funds’ individualInvestment Manager as detailed on page 4.

In the event that the expenses exceeded the Administration and Investment Management fees, they have been reimbursed by FranklinTempleton International Services S.à r.l.

Franklin Floating Rate II Fund USD 270,933Franklin Emerging Market Investment Grade Debt Fund USD 14,829Franklin Emerging Market Corporate Debt Fund USD 35,350Franklin Emerging Market Debt Opportunities II Fund EUR 423,069Franklin Multi-Sector Credit Income Fund USD 96,039

Note 19 — Total Expense RatioThe Total Expense Ratio (‘’TER”), expressed as a percentage, represents how the total expenses of the Funds relate to the average net assetsof the Funds for the year ended October 31, 2019. The total expenses comprise the investment management fees, the administration andtransfer agency fees, the depositary fees and other charges as summarised in the �Statement of Operations and Changes in Net Assets�.




Note 20 — Annual and Interim dividends distributed per share for the year ended October 31, 2019Annual

DistributionNov-2018

Nov-2018

Dec-2018

Jan-2019

Feb-2019

Mar-2019

Apr-2019

May-2019

Jun-2019

Jul-2019

Aug-2019

Sep-2019

Oct-2019


A (Mdis) USD1 0.449 0.073 0.077 0.090 0.092 0.090I (Mdis) USD 0.036 0.040 0.042 0.043 0.042 0.047 0.047 0.046 0.045 0.046 0.045 0.044I (Qdis) EUR-H1 0.121 0.127 0.139 0.142I (Ydis) USD 0.524I (Ydis) CHF-H1 0.518I (Ydis) EUR-H1 0.535W (Qdis) USD 0.128 0.142 0.154 0.156Y (Mdis) USD 0.041 0.046 0.049 0.050 0.048 0.054 0.054 0.053 0.052 0.054 0.052 0.051


Y (Mdis) USD 0.043 0.039 0.039 0.037 0.046 0.044 0.041 0.040 0.036 0.042 0.042 0.041


Y (Mdis) EUR 0.052 0.053 0.047 0.042 0.046 0.048 0.051 0.049 0.044 0.049 0.047 0.048


I (Ydis) EUR 0.545X (Ydis) EUR 0.692

Franklin Upper Tier Floating Rate Fund2

I (Qdis) USD3 0.130 0.115 0.105I (Qdis) USD SP4 0.115 0.159 -I (Qdis) CHF-H13 0.110 0.102 0.098I (Qdis) CHF-H1 SP4 0.106 0.148 -I (Qdis) EUR-H13 0.110 0.110 0.100I (Qdis) EUR-H1 SP4 0.108 0.151 -Y (Qdis) USD3 0.067 0.123 0.111Y (Qdis) USD SP4 0.122 0.169 -


I (Qdis) EUR-H1 0.126 0.122 0.133 0.194I (Ydis) USD 0.555I (Ydis) EUR 0.549I (Ydis) EUR-H1 0.557I (Ydis) GBP-H1 0.5711On May 17, 2019, this share class dividend distribution frequency changed from annual to monthly, consequently class name changed: Franklin Floating Rate II Fund A (Ydis) is renamed as FranklinFloating Rate II Fund A (Mdis)2This Fund was put into liquidation effective January 17, 20193This share class was closed on August 19, 20194This share class was launched on November 28, 2018

Note 21 — Audited annual reports and unaudited semi-annual reportsThe audited annual reports and unaudited semi-annual reports will be available on the local Franklin Templeton Investments website,www.franklintempleton.lu or may be obtained, free of charge, on request at the registered office of the Company; they are only distributed toregistered shareholders in those countries where local regulation so requires. The complete audited annual reports and unaudited semi-annualreports are available at the registered office of the Company.

Note 22 — Portfolio Turnover RatioThe portfolio turnover ratio, expressed as a percentage, is equal to the total of purchases and sales of securities netted against the total ofsubscriptions and redemptions over average net assets of the Fund for the year. It is effectively a measure of how frequently a fund buys or sellssecurities other than required to support subscriptions and redemptions.

Note 23 — Credit FacilitiesEffective February 8, 2019, the Company together with other European and U.S. registered investment funds managed by Franklin TempletonInvestments (individually, Borrower; collectively, Borrowers), entered into a joint syndicated revolving senior unsecured credit facility totallingUSD 2,000 million (Global Credit Facility) with a group of banks to provide a source of funds to the Borrowers for temporary and emergencypurposes, including the ability to meet future unanticipated or unusually large redemption requests.




Note 23 — Credit Facilities (continued)

Under the terms of the Global Credit Facility, a Borrower shall, in addition to interest charged on any borrowings and other costs incurred by theBorrower, pay its share of fees and expenses incurred in connection with the implementation and maintenance of the Global Credit Facility,based upon its relative share of the aggregate net assets of all of the Borrowers, including an annual commitment fee based upon the unusedportion of the Global Credit Facility.

The “Global Line of Credit Committee” met and authorized a drawdown of USD 23.5 million on September 18, 2019 to cover the expectedoverdraft on the Franklin Floating Rate II Fund as trades were settling to meet Fund redemptions. This USD 23.5 million drawdown was repaid in3 instalments with the final payment being made on October 16, 2019. The interest paid by the Franklin Floating Rate II Fund on that drawdownwas USD 46,522.22.

Note 24 — Transaction costsTransaction costs are costs incurred to acquire financial assets or liabilities. They include fees and commissions paid to agents, brokers anddealers. For debt securities and derivative, transaction costs are not separately identifiable from the purchase price of the security and thereforecannot be disclosed separately.

Note 25 — Subsequent eventsThere have been no subsequent events since the period end.




Number of sharesor face value Description

Countrycode

Tradingcurrency

Marketvalue

% of netassets

TRANSFERABLE SECURITIES DEALT IN ON ANOTHER REGULATED MARKETSHARESDiversified Support Services

294,867 Remington Outdoor Co. Inc. USA USD 294,867 0.14

Oil & Gas Exploration & Production53,083 Samson Resources II LLC USA USD 1,141,285 0.54

TOTAL SHARES 1,436,152 0.68

BONDSIndustrial Machinery

3,076,070 Onsite Rental Group Operations Pty. Ltd., secured note, PIK, 6.10%, 10/26/23‡ AUS USD 2,845,365 1.34

TOTAL BONDS 2,845,365 1.34

TOTAL TRANSFERABLE SECURITIES DEALT IN ON ANOTHER REGULATED MARKET 4,281,517 2.02

TRANSFERABLE SECURITIES LISTED ON A STOCK EXCHANGE OR OTHERORGANISED MARKETSSENIOR FLOATING RATE INTERESTAerospace & Defense

4,388,305 Doncasters U.S. Finance LLC, Term B Loans, 5.604%, 04/09/20 USA USD 3,093,755 1.462,822,889 Doncasters U.S. Finance LLC, Second Lien Term Loans, 10.354%, 10/09/20 USA USD 762,180 0.36

3,855,935 1.82

Air Freight & Logistics1,435,000 XPO Logistics Inc., Refinanced Term Loan, 3.786%, 02/24/25 USA USD 1,439,285 0.68

Airlines1,592,000 Allegiant Travel Co., Class B Term Loans, 6.709%, 02/05/24 USA USD 1,597,970 0.751,431,031 Air Canada, Term Loan, 3.805%, 10/06/23 CAN USD 1,438,186 0.68

946,685 Kestrel Bidco Inc & WestJet, Term Loan B, 6.99%, 08/08/26 CAN USD 952,432 0.45

3,988,588 1.88

Apparel Retail3,066,825 Ascena Retail Group Inc., Tranche B Term Loan, 6.313%, 08/21/22 USA USD 1,695,700 0.80

Auto Parts & Equipment2,374,561 TI Group Automotive Systems LLC, Initial US Term Loan, 4.286%, 06/30/22 USA USD 2,359,350 1.112,029,427 Panther BF Aggregator 2 LP, Initial Dollar Term Loan, 5.30%, 04/30/26 USA USD 2,004,035 0.951,741,485 Adient U.S. LLC, Initial Term Loans, 6.459% - 6.889%, 05/06/24 USA USD 1,704,478 0.80

510,849 American Axle & Manufacturing Inc., Tranche B Term Loan, 4.08% - 4.19%, 04/06/24 USA USD 488,499 0.23

6,556,362 3.09

Automobile Manufacturers665,678 Thor Industries Inc., Initial USD Term Loans, 5.813%, 02/01/26 USA USD 650,284 0.31

Broadcasting3,308,087 Sinclair Television Group Inc., Tranche B Term Loans, 4.04%, 01/03/24 USA USD 3,309,119 1.563,012,946 Gray Television Inc., Term B-2 Loan, 4.261%, 02/07/24 USA USD 3,019,539 1.422,116,732 Nexstar Broadcasting Inc., Term A-4 Loan, 3.532%, 10/26/23 USA USD 2,104,392 0.991,651,540 Nexstar Broadcasting Inc., Term B-3 Loan, 4.05%, 07/17/24 USA USD 1,655,049 0.781,286,725 Diamond Sports Group LLC, Term Loan, 5.08%, 08/24/26 USA USD 1,294,606 0.61

328,170 Mission Broadcasting Inc., Term B-3 Loan, 4.282%, 01/17/24 USA USD 328,867 0.1658,585 WXXA-TV LLC and WLAJ-TV LLC, Term A-4 Loan, 3.532%, 10/26/23 USA USD 58,243 0.03

11,769,815 5.55

Building Products1,480,769 Resideo Funding Inc., Tranche A Term Loan, 4.11%, 10/25/23 USA USD 1,481,658 0.70

388,414 Resideo Funding Inc., Tranche B Term Loan, 4.11%, 10/25/25 USA USD 387,605 0.18

1,869,263 0.88

Cable & Satellite2,942,828 CSC Holdings LLC, March 2017 Incremental Term Loans, 4.171%, 07/17/25 USA USD 2,932,711 1.38

486,231 Charter Communications Operating LLC (CCO Safari), Term B-2 Loan, 3.58%, 02/01/27 USA USD 488,723 0.23

3,421,434 1.61


Schedule of InvestmentsAs of October 31, 2019


(Currency — USD)




Countrycode

Tradingcurrency

Marketvalue

% of netassets

Casinos & Gaming2,810,732 Caesars Resort Collection LLC, Term B Loans, 4.536%, 12/22/24 USA USD 2,773,183 1.312,639,307 Station Casinos LLC, Term B Facility Loans, 4.29%, 06/08/23 USA USD 2,645,641 1.241,818,169 Boyd Gaming Corp., Refinancing Term B Loans, 3.96%, 09/15/23 USA USD 1,823,364 0.861,692,953 Eldorado Resorts Inc., Initial Term Loan, 4.125% - 4.313%, 04/17/24 USA USD 1,692,586 0.801,133,620 Aristocrat Technologies Inc., Term B-3 Loans, 3.716%, 10/19/24 USA USD 1,137,694 0.53

567,720 Boyd Gaming Corp., Term A Loans, 3.96%, 09/15/21 USA USD 566,774 0.27

10,639,242 5.01

Coal & Consumable Fuels3,666,724 Wolverine Fuels Holding LLC, First Lien Initial Term Loan, 7.874%, 08/14/20 USA USD 3,587,277 1.69

579,222 Wolverine Fuels Holding LLC, Second Lien Initial Term Loan, 12.874%, 02/16/21 USA USD 547,847 0.26

4,135,124 1.95

Commodity Chemicals736,940 Univar USA Inc., Term B-3 Loans, 4.036%, 07/01/24 USA USD 741,546 0.35

Communications Equipment1,694,928 CommScope Inc., Initial Term Loans, 5.036%, 04/04/26 USA USD 1,670,033 0.79

Data Processing & Outsourced Services2,243,225 WEX Inc., Term B-3 Loan, 4.036%, 05/17/26 USA USD 2,254,441 1.061,735,722 Neustar Inc., TLB5, 6.286%, 08/08/24 USA USD 1,713,305 0.81

747,878 Iron Mountain Information Management LLC, Term B Loan, 3.536%, 01/26/26 USA USD 738,530 0.35836,437 West Corp., Term B Loans, 5.786% - 5.927%, 10/10/24 USA USD 701,736 0.33397,970 Neustar Inc., TLB4, 5.286%, 08/08/24 USA USD 381,752 0.18

5,789,764 2.73

Diversified Support Services2,416,220 Ventia Pty Ltd., Term B Loans, 5.604%, 05/21/26 AUS USD 2,422,261 1.14

Electric Utilities1,544,698 EFS Cogen Holdings I LLC (Linden), Term B Advance, 5.04% - 5.36%, 06/28/23 USA USD 1,542,285 0.73

Food Distributors1,470,066 Nutraceutical International Corp., Term Loan B, 5.036%, 08/22/23 USA USD 1,438,827 0.68

419,549 U.S. Foods Inc., Initial Term Loans, 3.786%, 06/27/23 USA USD 421,385 0.20

1,860,212 0.88

Food Retail5,687,500 BI-LO LLC (Southeastern Grocers), FILO Loan (ABL), 7.374%, 05/31/22 USA USD 5,701,719 2.69

457,502 Whatabrands LLC (Whataburger), Term Loan B, 5.516%, 08/02/26 USA USD 459,299 0.21

6,161,018 2.90

Forest Products4,799,746 Appvion Operations Inc., Term Loan, 8.10% - 8.22%, 06/15/26 USA USD 4,847,743 2.28

General Merchandise Stores3,741,720 99 Cents Only Stores, First Lien Term Loan, PIK, 8.535% - 8.604%, 01/13/22‡ USA USD 3,077,565 1.45

Health Care Distributors794,644 Mallinckrodt International Finance SA & Mallinckrodt CB LLC, 2017 Term B Loans, 4.854%,

09/24/24 LUX USD 624,789 0.29

Health Care Services2,147,779 Air Medical Group Holdings Inc., 2018 New Term Loans, 6.036%, 03/14/25 USA USD 1,929,779 0.91

766,162 DaVita Inc., Term Loan B, 4.036%, 08/12/26 USA USD 769,370 0.36711,766 National Mentor Holdings Inc., Initial Term Loans, 6.04%, 03/08/26 USA USD 713,694 0.33566,255 Catalent Pharma Solutions Inc., Dollar Term B-2 Loan, 4.036%, 05/17/26 USA USD 567,784 0.2739,437 National Mentor Holdings Inc., Initial Term C Loans, 6.04%, 03/08/26 USA USD 39,544 0.02

4,020,171 1.89

Health Care Technology2,560,417 IQVIA Inc., Term B-1 Dollar Loans, 4.104%, 03/07/24 USA USD 2,572,686 1.21


Schedule of Investments (continued)As of October 31, 2019


(Currency — USD)




Countrycode

Tradingcurrency

Marketvalue

% of netassets

Industrial Machinery4,745,571 Navistar Inc., Tranche B Term Loan, 5.42%, 11/06/24 USA USD 4,695,092 2.212,249,877 Onsite Rental Group Operations Pty. Ltd., Term Loan, 6.323%, 10/25/22 AUS USD 2,221,754 1.051,961,556 Harsco Corp., Term Loan B-2, 4.063%, 12/10/24 USA USD 1,967,686 0.931,812,500 RBS Global Inc. (Rexnord), Term B Loan, 3.786%, 08/21/24 USA USD 1,823,487 0.86

975,161 Altra Industrial Motion Corp., Term Loan, 3.786%, 10/01/25 USA USD 973,631 0.46

11,681,650 5.51

Integrated Telecommunication Services1,444,525 Global Tel*Link Corp., First Lien Term Loan, 6.036%, 11/29/25 USA USD 1,265,404 0.601,124,015 Global Tel*Link Corp., Second Lien Term Loan, 10.036%, 11/29/26 USA USD 1,073,435 0.51

704,279 Securus Technologies Holdings Inc., Second Lien Initial Loan, 10.036%, 11/01/25 USA USD 387,353 0.18

2,726,192 1.29

Internet Services & Infrastructure2,196,375 TIBCO Software Inc., Term B-2 Loans, 6.00%, 06/30/26 USA USD 2,189,054 1.03

993,913 LegalZoom.com Inc., 2018 Term Loans, 6.286%, 11/21/24 USA USD 995,466 0.47591,717 Carbonite Inc., Initial Term Loan, 5.677%, 03/26/26 USA USD 591,810 0.28

3,776,330 1.78

Investment Banking & Brokerage1,466,846 Russell Investments U.S. Institutional Holdco Inc., Initial Term Loan, 5.036%, 06/01/23 USA USD 1,427,119 0.67

Leisure Facilities2,047,998 24 Hour Fitness Worldwide Inc., Term Loan, 5.286%, 05/30/25 USA USD 1,590,618 0.75

984,912 Equinox Holdings Inc., Term B-1 Loans, 4.786%, 03/08/24 USA USD 982,450 0.46924,833 NASCAR Holdings Inc., Term Loan B, 4.628%, 10/18/26 USA USD 930,550 0.44

3,503,618 1.65

Life Sciences Tools & Services1,101,165 Syneos Health Inc., Initial Term B Loans, 3.786%, 08/01/24 USA USD 1,104,606 0.52

Marine827,038 International Seaways Operating Corp., Initial Term Loans, 7.79%, 06/22/22 USA USD 830,916 0.39

Mortgage REIT's190,531 Blackstone Mortgage Trust Inc., Initial Term Loans, 4.30%, 04/23/26 USA USD 191,484 0.09

Oil & Gas Exploration & Production15,387,918 Fieldwood Energy LLC, Closing Date Loans, 7.177%, 04/11/22 USA USD 12,448,825 5.875,181,105 Utex Industries Inc., First Lien Initial Term Loan, 5.786%, 05/21/21 USA USD 3,989,451 1.88

16,438,276 7.75

Oil & Gas Storage & Transportation1,918,825 Strike LLC, Term Loan, 10.064% - 10.104%, 11/30/22 USA USD 1,916,426 0.901,380,378 Centurion Pipeline Co. LLC, Initial Term Loans, 5.036%, 09/28/25 USA USD 1,382,966 0.65

799,398 Buckeye Partners LP, Initial Term Loans, 6.74%, 11/01/26 USA USD 804,020 0.38

4,103,412 1.93

Other Diversified Financial Services1,730,538 Asurion LLC, Replacement B-6 Term Loans, 4.786%, 11/03/23 USA USD 1,733,513 0.82

Packaged Foods & Meats3,143,778 JBS USA Lux SA, New Term Loans, 4.286%, 05/01/26 USA USD 3,158,749 1.491,760,301 CSM Bakery Supplies LLC, Term Loans, 6.03%, 07/03/20 USA USD 1,651,749 0.781,644,912 CSM Bakery Supplies LLC, Second Lien Term Loan, 9.78%, 07/03/21 USA USD 1,472,196 0.69

194,036 Post Holdings Inc., Series A Incremental Term Loans, 3.83%, 05/24/24 USA USD 194,659 0.09191,971 B&G Foods Inc., Term Loan B, 4.475%, 09/30/26 USA USD 192,491 0.09

6,669,844 3.14

Paper Packaging1,640,966 Berry Global Inc., Term W Loan, 3.878%, 10/01/22 USA USD 1,648,145 0.781,453,500 Berry Global Inc., Term U Loans, 4.439%, 07/01/26 USA USD 1,460,586 0.69

522,348 Reynolds Group Holdings Inc., U.S. Term Loans, 4.536%, 02/05/23 USA USD 523,066 0.24

3,631,797 1.71




(Currency — USD)




Countrycode

Tradingcurrency

Marketvalue

% of netassets

Personal Products300,000 Sunshine Luxembourg VII S.A.R.L., Facility B1 Commitments, 6.349%, 09/25/26 LUX USD 300,600 0.14

Pharmaceuticals3,463,420 Horizon Pharma Inc., Sixth Amendment Refinanced Term Loans, 4.563%, 05/22/26 USA USD 3,476,948 1.643,182,286 Grifols Worldwide Operations USA Inc., Tranche B Term Loan, 4.086%, 01/31/25 USA USD 3,190,739 1.502,729,962 Valeant Pharmaceuticals International, Initial Term Loans, 4.921%, 06/02/25 USA USD 2,742,853 1.29

801,949 Endo Luxembourg Finance Co. I S.A.R.L. and Endo LLC, Initial Term Loans, 6.063%,04/29/24 USA USD 736,934 0.35

167,680 Innoviva Inc., Initial Term Loan, 6.652%, 08/18/22 USA USD 165,164 0.08

10,312,638 4.86

Restaurants1,485,288 NPC International Inc., Second Lien Initial Term Loan, 9.427%, 04/20/25 USA USD 269,828 0.13

Semiconductor Equipment717,894 MKS Instruments Inc., Tranche B-6 Term Loan, 3.536%, 02/02/26 USA USD 720,810 0.34

Semiconductors707,279 ON Semiconductor Corp., 2019 Replacement Term B-4 Loans, 3.786%, 09/18/26 USA USD 711,353 0.34

Specialized Consumer Services2,689,487 Avis Budget Car Rental LLC, Tranche B Term Loans, 3.79%, 02/13/25 USA USD 2,695,081 1.271,521,606 NVA Holdings Inc., Term B-3 Loan, 4.536%, 02/02/25 USA USD 1,521,225 0.72

764,574 Sabre GLBL Inc., 2017 Other Term A Loans, 4.036%, 07/01/22 USA USD 766,008 0.36326,375 Sabre GLBL Inc., 2018 Other Term B Loans, 3.786%, 02/22/24 USA USD 327,278 0.15252,590 NVA Holdings Inc., Term B-4 Loan, 5.286%, 02/02/25 USA USD 252,906 0.12

5,562,498 2.62

Specialty Chemicals1,980,184 Axalta Coating Systems U.S. Holdings Inc., Term B-3 Dollar Loan, 3.854%, 06/01/24 USA USD 1,980,441 0.931,492,115 Oxbow Carbon LLC, Tranche B Term Loan, 5.536%, 01/04/23 USA USD 1,491,183 0.70

698,450 Oxbow Carbon LLC, Tranche A Term Loan, 4.286%, 01/04/22 USA USD 694,958 0.33

4,166,582 1.96

Specialty Stores4,146,196 General Nutrition Centers Inc., Tranche B-2 Term Loans, 10.54%, 03/04/21 USA USD 3,919,462 1.852,232,213 Michaels Stores Inc., 2018 New Replacement Term B Loan, 4.30% - 4.323%, 01/28/23 USA USD 2,178,081 1.031,684,256 General Nutrition Centers Inc., FILO Term Loan (ABL), 8.79%, 12/31/22 USA USD 1,686,479 0.791,761,856 Jo-Ann Stores Inc., Initial Loans, 6.934%, 10/23/23 USA USD 1,352,225 0.64

635,912 Harbor Freight Tools USA Inc., Refinancing Loans, 4.286%, 08/19/23 USA USD 623,591 0.29

9,759,838 4.60

Systems Software2,298,806 Go Daddy Operating Co. LLC, Tranche B-2 Term Loan, 3.536%, 02/15/24 USA USD 2,304,035 1.09

330,259 Dcert Buyer Inc., First Lien Term Loan, 5.786%, 10/16/26 USA USD 324,618 0.15

2,628,653 1.24

Trucking2,130,192 Hertz Corp., Tranche B-1 Term Loan, 4.54%, 06/30/23 USA USD 2,133,298 1.01

TOTAL SENIOR FLOATING RATE INTEREST 179,735,960 84.71

TOTAL TRANSFERABLE SECURITIES LISTED ON A STOCK EXCHANGE OR OTHERORGANISED MARKETS 179,735,960 84.71

TRANSFERABLE SECURITIES NOT ADMITTED TO AN OFFICIAL STOCKEXCHANGE LISTING NOR DEALT IN ON ANOTHER REGULATED MARKETSHARESDiversified Support Services

27,760 Remington Outdoor Co. Inc., Litigation Units** USA USD 0 0.00

Forest Products151,177 Appvion Operations Inc.** USA USD 2,015,567 0.95

TOTAL SHARES 2,015,567 0.95




(Currency — USD)




Countrycode

Tradingcurrency

Marketvalue

% of netassets

SENIOR FLOATING RATE INTERESTPersonal Products

9,649,906 FGI Operating Co. LLC (Freedom Group), Term Loan, PIK, 12.10%, 05/15/22‡,** USA USD 9,415,683 4.441,200,000 FGI Operating Co. LLC (Freedom Group), Term Loan FILO, 9.624% - 9.658%, 05/15/21** USA USD 1,197,657 0.56

10,613,340 5.00


TOTAL TRANSFERABLE SECURITIES NOT ADMITTED TO AN OFFICIAL STOCKEXCHANGE LISTING NOR DEALT IN ON ANOTHER REGULATED MARKET 12,628,907 5.95

TOTAL INVESTMENTS 196,646,384 92.68

‡Income may be received in additional securities and/or cash** These securities are submitted to a Fair Valuation




(Currency — USD)




Countrycode

Tradingcurrency

Marketvalue

% of netassets

TRANSFERABLE SECURITIES DEALT IN ON ANOTHER REGULATED MARKETBONDSAirport Services

236,000 Mexico City Airport Trust, senior secured bond, Reg S, 5.50%, 07/31/47 MEX USD 237,676 0.61200,000 Mexico City Airport Trust, first lien, Reg S, 4.25%, 10/31/26 MEX USD 204,897 0.52

442,573 1.13

Commodity Chemicals450,000 Alpek SAB de CV, senior note, Reg S, 4.25%, 09/18/29 MEX USD 457,720 1.17

Department Stores750,000 SACI Falabella, senior note, Reg S, 3.75%, 10/30/27 CHL USD 767,088 1.96

Diversified Banks60,000,000 HDFC Bank Ltd., senior note, Reg S, 8.10%, 03/22/25 IND INR 852,071 2.18

900,000 Yes Bank Ifsc Banking Unit Branch, senior note, Reg S, 3.75%, 02/06/23 IND USD 810,409 2.07700,000 China Construction Bank Corp., sub. note, Reg S, 3.875% to 05/13/20, FRN thereafter,

05/13/25 CHN USD 703,591 1.80400,000 Bangkok Bank PCL, senior note, Reg S, 4.05%, 03/19/24 THA USD 424,590 1.09

2,790,661 7.14

Diversified Metals & Mining1,200,000 Southern Copper Corp., senior bond, 5.25%, 11/08/42 MEX USD 1,349,963 3.45

Electric Utilities950,000 TNB Global Ventures Capital Bhd., senior note, Reg S, 3.244%, 10/19/26 MYS USD 963,661 2.47875,000 State Grid Overseas Investment 2016 Ltd., senior note, Reg S, 3.50%, 05/04/27 CHN USD 924,459 2.36800,000 Three Gorges Finance I Cayman Islands Ltd., senior note, Reg S, 2.30%, 10/16/24 CHN USD 798,092 2.04

2,686,212 6.87

Fertilizers & Agricultural Chemicals800,000 Sociedad Quimica y Minera de Chile SA, senior bond, Reg S, 4.375%, 01/28/25 CHL USD 843,000 2.16

Hypermarkets & Super Centers800,000 Cencosud SA, senior note, Reg S, 4.375%, 07/17/27 CHL USD 815,519 2.09

Independent Power Producers & Energy Traders750,000 Colbun SA, senior note, Reg S, 3.95%, 10/11/27 CHL USD 777,664 1.99

Integrated Oil & Gas775,000 Ecopetrol SA, senior bond, 4.125%, 01/16/25 COL USD 815,300 2.09

Investment Banking & Brokerage80,000,000 Development Bank of Kazakhstan JSC, senior note, Reg S, 9.50%, 12/14/20 KAZ KZT 200,013 0.51

Railroads625,000 Kazakhstan Temir Zholy Finance BV, senior bond, Reg S, 6.95%, 07/10/42 KAZ USD 846,278 2.17650,000 RZD Capital PLC, (Russian Railways), loan participation, senior bond, Reg S, 5.70%,

04/05/22 RUS USD 697,544 1.78619,268 Sparc EM SPC Panama Metro Line 2 SP, secured note, Reg S, zero cpn., 12/05/22 PAN USD 595,399 1.52

2,139,221 5.47

Real Estate Operating Companies825,000 China Overseas Finance Cayman VI Ltd., senior note, Reg S, 5.95%, 05/08/24 CHN USD 935,187 2.39

Regional Banks800,000 Banco Inbursa SA Institucion De Banca Multiple, senior note, Reg S, 4.375%, 04/11/27 MEX USD 826,300 2.11

Specialty Chemicals1,025,000 CNAC HK Finbridge Co. Ltd., senior note, Reg S, 4.875%, 03/14/25 CHN USD 1,112,514 2.85

TOTAL BONDS 16,958,935 43.38




(Currency — USD)




Countrycode

Tradingcurrency

Marketvalue

% of netassets

SUPRANATIONAL800,000 The African Export-Import Bank, senior note, Reg S, 3.994%, 09/21/29 SP USD 811,588 2.08625,000 Banque Ouest Africaine de Developpement, senior note, Reg S, 5.00%, 07/27/27 SP USD 663,681 1.70

6,900,000,000 European Bank for Reconstruction and Development, senior note, 6.85%, 06/21/21 SP IDR 492,367 1.262,700,000,000 Inter-American Development Bank, senior note, Reg S, 8.01%, 12/11/21 SP IDR 197,311 0.51

60,000,000 International Bank for Reconstruction & Development, senior note, Reg S, 9.00%, 02/26/21 SP KZT 154,216 0.39

TOTAL SUPRANATIONAL 2,319,163 5.94

GOVERNMENT AND MUNICIPAL BONDS62,740,710 Government of Uruguay, senior bond, Index Linked, 3.70%, 06/26/37 URY UYU 1,674,383 4.281,000,000 Government of Uruguay, senior bond, 4.50%, 08/14/24 URY USD 1,080,805 2.76

900,000 Government of Romania, senior bond, Reg S, 4.375%, 08/22/23 ROU USD 963,090 2.46725,000 Government of Kazakhstan, senior bond, Reg S, 4.875%, 10/14/44 KAZ USD 884,203 2.26

2,300,000,000 Government of Colombia, senior bond, 9.85%, 06/28/27 COL COP 855,549 2.192,300,000 Government of Peru, senior bond, Reg S, 6.35%, 08/12/28 PER PEN 802,193 2.05

700,000 Government of Indonesia, senior bond, Reg S, 4.35%, 01/08/27 IDN USD 764,687 1.96700,000 Government of Colombia, senior bond, 4.375%, 07/12/21 COL USD 724,675 1.85600,000 Government of Lithuania, Reg S, 6.125%, 03/09/21 LTU USD 632,748 1.62550,000 Government of Mexico, senior bond, 3.60%, 01/30/25 MEX USD 577,684 1.48

1,600,000,000 Bogota Distrito Capital, senior bond, Reg S, 9.75%, 07/26/28 COL COP 536,686 1.37500,000 Panama Notas del Tesoro, senior note, 144A, 3.75%, 04/17/26 PAN USD 519,000 1.33

27,620,000 Government of Russia, 7.00%, 08/16/23 RUS RUB 444,483 1.14329,886 Peru Enhanced Pass-Through Finance Ltd., senior secured bond, A-2, Reg S, zero cpn.,

06/02/25 PER USD 306,794 0.79

TOTAL GOVERNMENT AND MUNICIPAL BONDS 10,766,980 27.54

QUASI-SOVEREIGN AND CORPORATE BONDSDiversified Support Services

4,000,000 Red de Carreteras de Occidente Sapib de CV, senior secured bond, Reg S, 9.00%, 06/10/28 MEX MXN 214,309 0.55

Highways & Railtracks1,006,727,498 Fideicomiso PA Costera, senior secured bond, B, Reg S, Index Linked, 6.25%, 01/15/34 COL COP 330,806 0.84

Marine Ports & Services500,000 Autoridad del Canal de Panama, senior bond, Reg S, 4.95%, 07/29/35 PAN USD 577,770 1.48

Other Diversified Financial Services200,000 Fideicomiso PA Costera, senior bond, Reg S, 6.75%, 01/15/34 COL USD 225,500 0.58

Trucking426,446 Lima Metro Line 2 Finance Ltd., senior secured bond, first lien, Reg S, 5.875%, 07/05/34 PER USD 500,648 1.28

TOTAL QUASI-SOVEREIGN AND CORPORATE BONDS 1,849,033 4.73

SECURITIES MATURING WITHIN ONE YEAR397,000 Government of Mexico, senior note, M, 5.00%, 12/11/19 MEX MXN 2,058,783 5.27

4,200,000 European Bank for Reconstruction & Development, senior note, 27.50%, 09/18/20 SP TRY 825,739 2.11520,000,000 Government of Chile, 5.50%, 08/05/20 CHL CLP 720,381 1.84

700,000 Government of Indonesia, Reg S, 5.875%, 03/13/20 IDN USD 710,017 1.826,600,000,000 European Bank for Reconstruction and Development, senior note, 8.30%, 10/02/20 SP IDR 478,428 1.22

TOTAL SECURITIES MATURING WITHIN ONE YEAR 4,793,348 12.26






(Currency — USD)




Countrycode

Tradingcurrency

Marketvalue

% of netassets

TRANSFERABLE SECURITIES DEALT IN ON ANOTHER REGULATED MARKETASSET-BACKED SECURITIESConstruction & Engineering

200,000 Rutas 2 and 7 Finance Ltd., senior secured bond, first lien, Reg S, 0.00%, 09/30/36 PRY USD 131,260 0.54

Integrated Telecommunication Services250,000 Telecommunications Services of Trinidad & Tobago Ltd., senior bond, Reg S, 8.875%,

10/18/29 TTO USD 251,250 1.03

TOTAL ASSET-BACKED SECURITIES 382,510 1.57

BONDSAgricultural Products

300,000 MHP Lux SA, senior note, Reg S, 6.95%, 04/03/26 UKR USD 311,019 1.27

Airport Services200,000 Mexico City Airport Trust, senior secured bond, Reg S, 5.50%, 07/31/47 MEX USD 201,420 0.82200,000 Mexico City Airport Trust, first lien, Reg S, 3.875%, 04/30/28 MEX USD 200,805 0.82

402,225 1.64

Building Products200,000 St. Marys Cement Inc., senior bond, Reg S, 5.75%, 01/28/27 BRA USD 226,350 0.92

Commodity Chemicals400,000 Alpek SAB de CV, senior note, Reg S, 4.25%, 09/18/29 MEX USD 406,862 1.66

Construction & Engineering200,000 IHS Netherlands Holdco BV, senior note, Reg S, 8.00%, 09/18/27 NGA USD 209,500 0.86

Construction Materials400,000 Cemex SAB de CV, senior secured bond, first lien, Reg S, 5.70%, 01/11/25 MEX USD 411,272 1.68

Consumer Finance400,000 Muthoot Finance Ltd., senior secured note, Reg S, 6.125%, 10/31/22 IND USD 407,750 1.67

Department Stores300,000 SACI Falabella, senior note, Reg S, 3.75%, 10/30/27 CHL USD 306,836 1.26195,396 K2016470219 South Africa Ltd., senior secured note, Reg S, PIK, 3.00%, 12/31/22‡ ZAF USD 244 0.0046,425 K2016470260 South Africa Ltd., senior secured note, Reg S, PIK, 25.00%, 12/31/22‡ ZAF USD 232 0.00

307,312 1.26

Diversified Banks400,000 Banco de Bogota SA, sub. note, Reg S, 6.25%, 05/12/26 COL USD 453,004 1.85400,000 Yes Bank Ifsc Banking Unit Branch, senior note, Reg S, 3.75%, 02/06/23 IND USD 360,182 1.47400,000 Akbank T.A.S., sub. bond, Reg S, 6.797% to 04/27/23, FRN thereafter, 04/27/28 TUR USD 359,000 1.47300,000 Siam Commercial Bank PCL, senior note, Reg S, 3.90%, 02/11/24 THA USD 315,990 1.29300,000 Standard Bank Group Ltd., sub. bond, Reg S, 5.95% to 05/31/24, FRN thereafter, 05/31/29 ZAF USD 315,765 1.29300,000 China Construction Bank Corp., sub. note, Reg S, 4.25% to 02/26/24, FRN thereafter,

02/27/29 CHN USD 314,548 1.29300,000 Absa Group Ltd., sub. note, Reg S, FRN, 6.25%, 04/25/28 ZAF USD 314,211 1.29300,000 BDO Unibank Inc., senior note, Reg S, 2.95%, 03/06/23 PHL USD 302,930 1.24

20,000,000 HDFC Bank Ltd., senior note, Reg S, 8.10%, 03/22/25 IND INR 284,024 1.16251,000 Banco do Brasil SA/Cayman, senior note, 3.875%, 10/10/22 BRA USD 257,526 1.05200,000 Fidelity Bank PLC, senior note, Reg S, 10.50%, 10/16/22 NGA USD 225,091 0.92200,000 United Bank for Africa PLC, senior note, Reg S, 7.75%, 06/08/22 NGA USD 212,499 0.87200,000 Alfa Bank AO Via Alfa Bond Issuance PLC, sub. bond, Reg S, 5.95% to 04/15/25, FRN

thereafter, 04/15/30 RUS USD 207,000 0.85

3,921,770 16.04

Diversified Metals & Mining175,000 Southern Copper Corp., senior bond, 5.25%, 11/08/42 MEX USD 196,870 0.8152,000 First Quantum Minerals Ltd., senior note, 144A, 7.00%, 02/15/21 ZMB USD 52,357 0.21

249,227 1.02




(Currency — USD)




Countrycode

Tradingcurrency

Marketvalue

% of netassets

Electric Utilities500,000 Three Gorges Finance I Cayman Islands Ltd., senior note, Reg S, 2.30%, 10/16/24 CHN USD 498,807 2.04300,000 Energo-Pro AS, senior note, Reg S, 4.00%, 12/07/22 CZE EUR 344,209 1.41300,000 State Grid Overseas Investment 2016 Ltd., senior note, Reg S, 3.50%, 05/04/27 CHN USD 316,958 1.29300,000 TNB Global Ventures Capital Bhd., senior note, Reg S, 3.244%, 10/19/26 MYS USD 304,314 1.24200,000 CGNPC International Ltd., senior note, Reg S, 3.75%, 12/11/27 CHN USD 212,344 0.87

1,676,632 6.85

Fertilizers & Agricultural Chemicals400,000 Syngenta Finance NV, senior note, Reg S, 5.182%, 04/24/28 CHE USD 422,640 1.73200,000 Sociedad Quimica y Minera de Chile SA, senior note, 144A, 3.625%, 04/03/23 CHL USD 205,300 0.84

627,940 2.57

Hypermarkets & Super Centers400,000 Cencosud SA, senior note, 144A, 4.375%, 07/17/27 CHL USD 407,760 1.67

Independent Power Producers & Energy Traders200,000 Colbun SA, senior note, Reg S, 3.95%, 10/11/27 CHL USD 207,377 0.85

Integrated Oil & Gas400,000 Ecopetrol SA, senior bond, 4.125%, 01/16/25 COL USD 420,800 1.72275,000 Trinidad Petroleum Holdings Ltd., senior secured note, first lien, Reg S, 9.75%, 06/15/26 TTO USD 310,062 1.27

730,862 2.99

Integrated Telecommunication Services200,000 Silknet JSC, senior note, Reg S, 11.00%, 04/02/24 GEO USD 221,644 0.91200,000 MTN (Mauritius) Investments Ltd., senior bond, Reg S, 4.755%, 11/11/24 ZAF USD 205,524 0.84

427,168 1.75

Internet & Direct Marketing Retail400,000 Alibaba Group Holding Ltd., senior note, 3.40%, 12/06/27 CHN USD 416,282 1.70300,000 JD.com Inc., senior note, 3.125%, 04/29/21 CHN USD 301,730 1.24

718,012 2.94

Investment Banking & Brokerage75,000,000 Development Bank of Kazakhstan JSC, senior note, Reg S, 9.50%, 12/14/20 KAZ KZT 187,512 0.77

Marine Ports & Services400,000 ICTSI Treasury BV, senior note, Reg S, 4.625%, 01/16/23 PHL USD 417,966 1.71

Multi-Sector Holdings300,000 China Merchants Finance Co. Ltd., senior note, Reg S, 5.00%, 05/04/22 CHN USD 316,244 1.29

Oil & Gas Exploration & Production450,000 Tullow Oil PLC, senior note, Reg S, 7.00%, 03/01/25 GHA USD 464,481 1.90200,000 Medco Oak Tree Pte. Ltd., senior note, Reg S, 7.375%, 05/14/26 IDN USD 203,577 0.83

668,058 2.73

Oil & Gas Refining & Marketing100,000 Citgo Holding Inc., senior secured note, Reg S, 9.25%, 08/01/24 VEN USD 104,625 0.43

Packaged Foods & Meats300,000 China Mengniu Dairy Co. Ltd., senior note, Reg S, 4.25%, 08/07/23 CHN USD 316,707 1.29

Precious Metals & Minerals400,000 Petra Diamonds U.S. Treasury PLC, secured note, second lien, Reg S, 7.25%, 05/01/22 ZAF USD 282,000 1.15

Railroads400,000 RZD Capital PLC, (Russian Railways), loan participation, senior bond, Reg S, 5.70%,

04/05/22 RUS USD 429,258 1.75427,081 Sparc EM SPC Panama Metro Line 2 SP, secured note, Reg S, zero cpn., 12/05/22 PAN USD 410,620 1.68200,000 Kazakhstan Temir Zholy Finance BV, senior bond, Reg S, 6.95%, 07/10/42 KAZ USD 270,809 1.11

1,110,687 4.54

Real Estate Development300,000 Country Garden Holdings Co. Ltd., senior secured note, first lien, Reg S, 8.00%, 01/27/24 CHN USD 329,457 1.35300,000 O1 Properties Finance PLC, senior note, Reg S, 8.25%, 09/27/21 RUS USD 172,410 0.70

501,867 2.05




(Currency — USD)




Countrycode

Tradingcurrency

Marketvalue

% of netassets

Real Estate Operating Companies200,000 Theta Capital Pte Ltd., senior note, Reg S, 6.75%, 10/31/26 IDN USD 179,984 0.74

Regional Banks400,000 SSB #1 PLC, (OJSC State Savings Bank of Ukraine), loan participation, senior note, Reg S,

9.625%, 03/20/25 UKR USD 419,154 1.71400,000 Banco Inbursa SA Institucion De Banca Multiple, senior note, Reg S, 4.375%, 04/11/27 MEX USD 413,150 1.69300,000 Itau Unibanco Holding SA, sub. note, Reg S, 5.50%, 08/06/22 BRA USD 318,900 1.31

1,151,204 4.71

Textiles200,000 Sri Rejeki Isman Tbk PT, senior note, Reg S, 7.25%, 01/16/25 IDN USD 203,311 0.83

Wireless Telecommunication Services6,000,000 America Movil SAB de CV, senior note, 6.45%, 12/05/22 MEX MXN 303,768 1.24

300,000 Bharti Airtel Ltd., senior note, Reg S, 4.375%, 06/10/25 IND USD 302,745 1.24200,000 Digicel Ltd., senior note, 144A, 6.00%, 04/15/21 BMU USD 151,250 0.62

757,763 3.10

TOTAL BONDS 17,846,966 72.98

SUPRANATIONAL500,000 Banque Ouest Africaine de Developpement, senior note, Reg S, 5.00%, 07/27/27 SP USD 530,945 2.17

TOTAL SUPRANATIONAL 530,945 2.17

GOVERNMENT AND MUNICIPAL BONDS500,000 Provincia del Chubut Argentina, first lien, Reg S, 7.75%, 07/26/26 ARG USD 327,500 1.34300,000 Export Credit Bank of Turkey, senior note, Reg S, 8.25%, 01/24/24 TUR USD 321,225 1.31338,000 Province de Neuquen, senior secured bond, Reg S, 8.625%, 05/12/28 ARG USD 294,064 1.20255,000 Kyiv Finance PLC, (City of Kiev), loan participation, Reg S, 7.50%, 12/15/22 UKR USD 247,350 1.01200,000 Belarus Development Bank JSC, senior note, Reg S, 6.75%, 05/02/24 BLR USD 210,607 0.86400,000 Belarus Development Bank JSC, senior note, Reg S, 12.00%, 05/15/22 BLR BYN 194,698 0.80206,179 Peru Enhanced Pass-Through Finance Ltd., senior secured bond, A-2, Reg S, zero cpn.,

06/02/25 PER USD 191,746 0.78152,625 Provincia de Tierra Del Fuego Argentina, secured note, Reg S, 8.95%, 04/17/27 ARG USD 116,758 0.4888,320 Province of Salta Argentina, senior secured note, Reg S, 9.50%, 03/16/22 ARG USD 80,371 0.33


QUASI-SOVEREIGN AND CORPORATE BONDSHighways & Railtracks

560,631,843 Fideicomiso PA Costera, senior secured bond, B, Reg S, Index Linked, 6.25%, 01/15/34 COL COP 184,221 0.75

Marine Ports & Services200,000 Autoridad del Canal de Panama, senior bond, Reg S, 4.95%, 07/29/35 PAN USD 231,108 0.94

Other Diversified Financial Services400,000 Oilflow SPV 1 DAC (KRG), secured note, Reg S, 12.00%, 01/13/22 IRQ USD 417,150 1.71250,000 Rio Oil Finance Trust Series 2018-1, senior secured note, Reg S, 8.20%, 04/06/28 BRA USD 286,875 1.17

704,025 2.88

Trucking220,101 Lima Metro Line 2 Finance Ltd., senior secured bond, first lien, Reg S, 5.875%, 07/05/34 PER USD 258,399 1.06


SECURITIES MATURING WITHIN ONE YEAR400,000 Yasar Holdings SA, senior note, Reg S, 8.875%, 05/06/20 TUR USD 345,538 1.41250,000 ArdshinBank CJSC Via Dilijan Finance BV, senior note, Reg S, 12.00%, 07/29/20 ARM USD 263,750 1.08700,000 Bank of Georgia JSC, senior note, Reg S, 11.00%, 06/01/20 GEO GEL 236,758 0.97

TOTAL SECURITIES MATURING WITHIN ONE YEAR 846,046 3.46





(Currency — USD)




Countrycode

Tradingcurrency

Marketvalue

% of netassets

TRANSFERABLE SECURITIES NOT ADMITTED TO AN OFFICIAL STOCKEXCHANGE LISTING NOR DEALT IN ON ANOTHER REGULATED MARKETSHARESApparel Retail

2,465,385 K2016470219 South Africa Ltd., A ** ZAF ZAR 1,631 0.01245,340 K2016470219 South Africa Ltd., B ** ZAF ZAR 162 0.00

1,793 0.01

TOTAL SHARES 1,793 0.01

BONDSRegional Banks

500,000 International Bank of Azerbaijan OJSC, senior note, Reg S, 5.625%, 06/11/19 ^,** AZE USD 399,375 1.64

TOTAL BONDS 399,375 1.64

TOTAL TRANSFERABLE SECURITIES NOT ADMITTED TO AN OFFICIAL STOCKEXCHANGE LISTING NOR DEALT IN ON ANOTHER REGULATED MARKET 401,168 1.65


‡ Income may be received in additional securities and/or cash** These securities are submitted to a Fair Valuation^ These Bonds are currently in default




(Currency — USD)




Countrycode

Tradingcurrency

Marketvalue

% of netassets

TRANSFERABLE SECURITIES DEALT IN ON ANOTHER REGULATED MARKETWARRANTSDiversified Banks

67,000 Central Bank of Nigeria, Reg S, wts., 11/15/20 NGA USD 1,682,059 0.19

TOTAL WARRANTS 1,682,059 0.19

ASSET-BACKED SECURITIESConstruction & Engineering

8,100,000 Rutas 2 and 7 Finance Ltd., senior secured bond, first lien, Reg S, 0.00%, 09/30/36 PRY USD 4,766,457 0.54

Integrated Telecommunication Services9,200,000 Telecommunications Services of Trinidad & Tobago Ltd., senior bond, Reg S, 8.875%,

10/18/29 TTO USD 8,290,145 0.94

TOTAL ASSET-BACKED SECURITIES 13,056,602 1.48

BONDSAgricultural Products

11,200,000 MHP Lux SA, senior note, Reg S, 6.95%, 04/03/26 UKR USD 10,410,988 1.18

Airport Services6,311,000 Mexico City Airport Trust, senior secured bond, Reg S, 5.50%, 07/31/47 MEX USD 5,698,743 0.64

646,000 Mexico City Airport Trust, first lien, Reg S, 4.25%, 10/31/26 MEX USD 593,398 0.07

6,292,141 0.71

Building Products8,950,000 St. Marys Cement Inc., senior bond, Reg S, 5.75%, 01/28/27 BRA USD 9,082,006 1.03

Construction & Engineering4,400,000 IHS Netherlands Holdco BV, senior note, Reg S, 8.00%, 09/18/27 NGA USD 4,132,520 0.47

Diversified Banks10,000,000 Fidelity Bank PLC, senior note, Reg S, 10.50%, 10/16/22 NGA USD 10,091,051 1.158,200,000 Alfa Bank AO Via Alfa Bond Issuance PLC, sub. bond, Reg S, 5.95% to 04/15/25, FRN

thereafter, 04/15/30 RUS USD 7,609,611 0.86

17,700,662 2.01

Electric Utilities7,100,000 Energo-Pro AS, senior note, Reg S, 4.00%, 12/07/22 CZE EUR 7,304,125 0.83

Gas Utilities10,900,000 Southern Gas Corridor CJSC, senior note, Reg S, 6.875%, 03/24/26 AZE USD 11,418,856 1.29

Integrated Oil & Gas15,221,000 Trinidad Petroleum Holdings Ltd., senior secured note, first lien, Reg S, 9.75%, 06/15/26 TTO USD 15,387,497 1.75

Integrated Telecommunication Services37,346,000,000 Empresa de Telecommunicaciones de Bogota SA, senior note, Reg S, 7.00%, 01/17/23 COL COP 9,503,070 1.08

2,750,000 MTN (Mauritius) Investments Ltd., senior bond, Reg S, 4.755%, 11/11/24 ZAF USD 2,533,807 0.29

12,036,877 1.37

Investment Banking & Brokerage2,055,000,000 Development Bank of Kazakhstan JSC, senior note, Reg S, 9.50%, 12/14/20 KAZ KZT 4,606,680 0.52

Oil & Gas Exploration & Production9,700,000 Tullow Oil PLC, senior note, Reg S, 7.00%, 03/01/25 GHA USD 8,977,087 1.026,750,000 Medco Platinum Road Pte. Ltd., first lien, Reg S, 6.75%, 01/30/25 IDN USD 6,117,940 0.692,650,000 Medco Oak Tree Pte. Ltd., senior note, Reg S, 7.375%, 05/14/26 IDN USD 2,418,540 0.28

17,513,567 1.99

Oil & Gas Refining & Marketing2,400,000 Citgo Holding Inc., senior secured note, Reg S, 9.25%, 08/01/24 VEN USD 2,251,412 0.25

Oil & Gas Storage & Transportation8,250,000 Georgian Oil and Gas Corp., senior note, Reg S, 6.75%, 04/26/21 GEO USD 7,723,362 0.88

Other Diversified Financial Services8,500,000 Georgia Capital JSC, senior note, Reg S, 6.125%, 03/09/24 GEO USD 7,244,472 0.82




(Currency — EUR)




Countrycode

Tradingcurrency

Marketvalue

% of netassets

Precious Metals & Minerals12,800,000 Petra Diamonds U.S. Treasury PLC, secured note, second lien, Reg S, 7.25%, 05/01/22 ZAF USD 8,091,096 0.92

Railroads10,200,000 RZD Capital PLC, (Russian Railways), loan participation, senior bond, Reg S, 5.70%,

04/05/22 RUS USD 9,814,470 1.117,250,000 Kazakhstan Temir Zholy Finance BV, senior bond, Reg S, 6.95%, 07/10/42 KAZ USD 8,801,959 1.008,500,000 Kazakhstan Temir Zholy National Co. JSC, senior note, Reg S, 4.85%, 11/17/27 KAZ USD 8,774,517 1.001,900,000 Georgian Railway LLC, senior bond, Reg S, 7.75%, 07/11/22 GEO USD 1,870,409 0.21

29,261,355 3.32

Real Estate Development9,200,000 O1 Properties Finance PLC, senior note, Reg S, 8.25%, 09/27/21 RUS USD 4,740,643 0.54

Specialty Chemicals3,123,000 Braskem Finance Ltd., senior note, Reg S, 5.375%, 05/02/22 BRA USD 2,969,930 0.34

Textiles5,500,000 Sri Rejeki Isman Tbk PT, senior note, Reg S, 7.25%, 01/16/25 IDN USD 5,013,048 0.57

TOTAL BONDS 183,181,237 20.79

SUPRANATIONAL130,800,000,000 European Bank for Reconstruction and Development, senior note, 6.85%, 06/21/21 SP IDR 8,368,649 0.9585,000,000,000 Inter-American Development Bank, senior note, Reg S, 8.01%, 12/11/21 SP IDR 5,569,489 0.63

5,200,000 Banque Ouest Africaine de Developpement, senior note, Reg S, 5.00%, 07/27/27 SP USD 4,950,980 0.565,000,000 Banque Ouest Africaine de Developpement, senior bond, Reg S, 4.70%, 10/22/31 SP USD 4,527,929 0.52

1,500,000,000 International Bank for Reconstruction & Development, senior note, Reg S, 9.00%, 02/26/21 SP KZT 3,456,827 0.39

TOTAL SUPRANATIONAL 26,873,874 3.05

GOVERNMENT AND MUNICIPAL BONDS601,700,000 Government of South Africa, senior bond, 7.00%, 02/28/31 ZAF ZAR 29,788,046 3.3824,000,000 Government of El Salvador, senior bond, Reg S, 7.65%, 06/15/35 SLV USD 23,509,260 2.6723,000,000 Government of Angola, senior note, Reg S, 9.50%, 11/12/25 AGO USD 23,282,007 2.6426,200,000 Government of Iraq, Reg S, 5.80%, 01/15/28 IRQ USD 22,597,939 2.56

883,491,629 Government of Uruguay, senior bond, Index Linked, 3.70%, 06/26/37 URY UYU 21,140,538 2.4019,400,000 Government of Colombia, senior bond, 4.375%, 07/12/21 COL USD 18,007,575 2.0418,000,000 Government of Ethiopia, senior note, Reg S, 6.625%, 12/11/24 ETH USD 16,978,793 1.9316,000,000 Government of Turkey, 3.25%, 03/23/23 TUR USD 13,611,763 1.5415,982,980 Peru Enhanced Pass-Through Finance Ltd., senior secured bond, A-2, Reg S, zero cpn.,

06/02/25 PER USD 13,327,508 1.5111,100,000 Government of Indonesia, 1.75%, 04/24/25 IDN EUR 11,641,902 1.3210,700,000 Government of Cameroon, senior note, Reg S, 9.50%, 11/19/25 CMR USD 10,581,180 1.20

1,161,250,000 Kenya Infrastructure Bond, senior bond, 11.00%, 09/15/25 KEN KES 10,298,301 1.179,500,000 Government of Armenia, senior note, Reg S, 7.15%, 03/26/25 ARM USD 9,943,994 1.13

1,480,000,000 Banque Centrale de Tunisie International Bond, senior bond, 4.20%, 03/17/31 TUN JPY 9,865,505 1.1212,500,000 Province de Neuquen, senior secured bond, Reg S, 8.625%, 05/12/28 ARG USD 9,750,851 1.1110,200,000 Government of Ukraine, senior bond, Reg S, 7.375%, 09/25/32 UKR USD 9,591,502 1.0910,000,000 Government of Ghana, senior bond, Reg S, 8.125%, 01/18/26 GHA USD 9,516,273 1.0821,400,000 Belarus Development Bank JSC, senior note, Reg S, 12.00%, 05/15/22 BLR BYN 9,339,500 1.068,900,000 Government of Belarus International Bond, senior note, Reg S, 6.875%, 02/28/23 BLR USD 8,593,690 0.989,000,000 Government of Paraguay, senior note, Reg S, 4.625%, 01/25/23 PRY USD 8,537,653 0.97

500,000,000 Government of the Dominican Republic, senior note, Reg S, 8.90%, 02/15/23 DOM DOP 8,507,751 0.97489,000,000 Government of the Dominican Republic, Reg S, 9.75%, 06/05/26 DOM DOP 8,446,998 0.9626,875,000 Government of Peru, senior bond, Reg S, 6.35%, 08/12/28 PER PEN 8,404,415 0.9514,100,000 Provincia del Chubut Argentina, first lien, Reg S, 7.75%, 07/26/26 ARG USD 8,280,731 0.9452,465,000 Government of Ghana, senior note, 18.25%, 07/25/22 GHA GHS 8,242,554 0.949,000,000 Government of Costa Rica, senior bond, Reg S, 4.25%, 01/26/23 CRI USD 7,847,664 0.898,300,000 Government of Mexico, senior note, 3.75%, 01/11/28 MEX USD 7,749,221 0.887,800,000 Government of Jordan, senior bond, Reg S, 6.125%, 01/29/26 JOR USD 7,382,654 0.849,300,000 Government of Suriname, senior note, Reg S, 9.25%, 10/26/26 SUR USD 7,105,289 0.817,500,000 Government of Angola, senior note, Reg S, 8.25%, 05/09/28 AGO USD 7,049,078 0.805,900,000 Government of Jamaica, senior bond, 7.875%, 07/28/45 JAM USD 6,998,638 0.79

22,450,000,000 Bogota Distrito Capital, senior bond, Reg S, 9.75%, 07/26/28 COL COP 6,751,887 0.776,000,000 Government of Honduras, senior bond, Reg S, 7.50%, 03/15/24 HND USD 5,947,762 0.67

14,500,000 Government of Argentina, Reg S, 5.00%, 01/15/27 ARG EUR 5,565,680 0.635,000,000 Government of Kazakhstan, senior bond, Reg S, 1.50%, 09/30/34 KAZ EUR 5,000,325 0.57




(Currency — EUR)




Countrycode

Tradingcurrency

Marketvalue

% of netassets

GOVERNMENT AND MUNICIPAL BONDS (continued)457,400,000 Kenya Infrastructure Bond, senior note, 12.50%, 05/12/25 KEN KES 4,192,074 0.48

6,012,500 Provincia de Tierra Del Fuego Argentina, secured note, Reg S, 8.95%, 04/17/27 ARG USD 4,124,058 0.474,000,000 Banque Centrale de Tunisie International Bond, senior note, Reg S, 6.375%, 07/15/26 TUN EUR 3,916,500 0.44

22,040,000 Government of Ghana, 24.75%, 07/19/21 GHA GHS 3,826,533 0.43612,647 Mexican Udibonos, Index Linked, 4.50%, 12/04/25 MEX MXN 3,069,185 0.35

390,000,000 Banque Centrale de Tunisie International Bond, senior bond, 4.30%, 08/02/30 TUN JPY 2,656,881 0.3083,962,631 Government of Uruguay, senior bond, Index Linked, 4.375%, 12/15/28 URY UYU 2,139,282 0.244,545,000 Government of Bosnia & Herzegovina, senior bond, B, Reg S, FRN, 0.50%, 12/20/21 BIH DEM 2,135,115 0.24

191,300,000 Kenya Infrastructure Bond, 12.50%, 01/10/33 KEN KES 1,740,331 0.202,000,000 Government of Ukraine, senior bond, Reg S, VRI, GDP Linked Security, zero cpn. to

05/30/21, FRN thereafter, 05/31/40 UKR USD 1,689,321 0.19900,000 Government of Honduras, senior note, Reg S, 8.75%, 12/16/20 HND USD 860,015 0.10

100,000,000 Banque Centrale de Tunisie International Bond, senior bond, 3.28%, 08/09/27 TUN JPY 684,822 0.08323,840 Province of Salta Argentina, senior secured note, Reg S, 9.50%, 03/16/22 ARG USD 264,229 0.03


QUASI-SOVEREIGN AND CORPORATE BONDSConstruction & Engineering

2,910,584 Saderea DAC, senior secured bond, Reg S, 12.50%, 11/30/26 GHA USD 2,847,821 0.32

Highways & Railtracks96,000,000 Red de Carreteras de Occidente Sapib de CV, senior secured bond, Reg S, 9.00%,

06/10/28 MEX MXN 4,611,684 0.5213,006,658,738 Fideicomiso PA Costera, senior secured bond, B, Reg S, Index Linked, 6.25%, 01/15/34 COL COP 3,832,091 0.44

8,443,775 0.96

Other Diversified Financial Services17,200,000 Oilflow SPV 1 DAC (KRG), secured note, Reg S, 12.00%, 01/13/22 IRQ USD 16,083,070 1.8311,200,000 Rio Oil Finance Trust Series 2018-1, senior secured note, Reg S, 8.20%, 04/06/28 BRA USD 11,523,356 1.317,771,311 IIRSA Norte Finance Ltd., secured bond, first lien, Reg S, 8.75%, 05/30/24 PER USD 7,782,250 0.88

35,388,676 4.02


SECURITIES MATURING WITHIN ONE YEAR4,827,000 Government of Mexico, senior note, M, 5.00%, 12/11/19 MEX MXN 22,444,273 2.55

133,000,000 Government of Turkey, Strip, 09/16/20 TUR TRY 18,787,171 2.1368,300,000 Government of Poland, 1.50%, 04/25/20 POL PLN 16,076,593 1.8226,900,000 Bank of Georgia JSC, senior note, Reg S, 11.00%, 06/01/20 GEO GEL 8,157,695 0.93

156,500,000 Egypt Treasury Bill, 0.00%, 09/15/20 EGY EGP 7,708,867 0.887,450,000 Yasar Holdings SA, senior note, Reg S, 8.875%, 05/06/20 TUR USD 5,770,326 0.65

68,000,000,000 European Bank for Reconstruction and Development, senior note, 8.30%, 10/02/20 SP IDR 4,419,674 0.503,875,000 ArdshinBank CJSC Via Dilijan Finance BV, senior note, Reg S, 12.00%, 07/29/20 ARM USD 3,665,493 0.42

11,500,000 Government of Argentina, senior note, 4.50%, 02/13/20 ARG USD 3,084,934 0.3537,000,000 Government of Egypt, 18.15%, 06/13/20 EGY EGP 2,082,251 0.2431,500,000 Government of Egypt, 16.40%, 09/05/20 EGY EGP 1,763,820 0.2044,000,000 Uruguay Notas del Tesoro, senior note, 13.90%, 07/29/20 URY UYU 1,087,393 0.12

265,000 Mestenio Ltd., secured note, Reg S, 8.50%, 01/02/20 DOM USD 238,941 0.03



TRANSFERABLE SECURITIES NOT ADMITTED TO AN OFFICIAL STOCKEXCHANGE LISTING NOR DEALT IN ON ANOTHER REGULATED MARKETBONDSRegional Banks

11,700,000 International Bank of Azerbaijan OJSC, senior note, Reg S, 5.625%, 06/11/19 ^,** AZE USD 8,379,247 0.95

TOTAL BONDS 8,379,247 0.95




(Currency — EUR)




Countrycode

Tradingcurrency

Marketvalue

% of netassets

SECURITIES MATURING WITHIN ONE YEAR460,700,000 Argentina Treasury Bill, Strip, 10/29/20 ** ARG ARS 2,794,847 0.3244,300,000 Argentina Treasury Bill, Strip, 07/29/20 ** ARG ARS 334,670 0.04




^ These Bonds are currently in default** These securities are submitted to a Fair Valuation




(Currency — EUR)




Countrycode

Tradingcurrency

Marketvalue

% of netassets

TRANSFERABLE SECURITIES LISTED ON A STOCK EXCHANGE OR OTHERORGANISED MARKETSSENIOR FLOATING RATE INTERESTOil & Gas Exploration & Production

6,922,067 Fieldwood Energy LLC, Closing Date Loans, 7.177%, 04/11/22 USA USD 5,599,952 28.85



TRANSFERABLE SECURITIES NOT ADMITTED TO AN OFFICIAL STOCKEXCHANGE LISTING NOR DEALT IN ON ANOTHER REGULATED MARKETSHARESForest Products

757,301 Appvion Operations Inc.** USA USD 10,096,714 52.02

TOTAL SHARES 10,096,714 52.02



*This Fund was put into liquidation effective January 17, 2019** These securities are submitted to a Fair Valuation



Franklin Upper Tier Floating Rate Fund*

(Currency — USD)




Countrycode

Tradingcurrency

Marketvalue

% of netassets

TRANSFERABLE SECURITIES ADMITTED TO AN OFFICIAL STOCK EXCHANGE LISTINGSHARESOil & Gas Exploration & Production

462 Birch Permian Holdings Inc. USA USD 4,274 0.03


TOTAL TRANSFERABLE SECURITIES ADMITTED TO AN OFFICIAL STOCK EXCHANGELISTING 4,274 0.03

TRANSFERABLE SECURITIES DEALT IN ON ANOTHER REGULATED MARKETINVESTMENTS FUNDSOther Diversified Financial Services

152,036 FTSIIF Franklin Emerging Market Corporate Debt Fund, Class Y (acc) USD LUX USD 1,535,562 9.68

TOTAL INVESTMENTS FUNDS 1,535,562 9.68

SHARESDiversified Support Services

9,680 Remington Outdoor Co. Inc. USA USD 9,680 0.06


ASSET-BACKED SECURITIESOther Diversified Financial Services

300,000 Madison Park Funding XXIX Ltd., 2018-29A, D, 144A, FRN, 5.003%, 10/18/30 USA USD 286,668 1.81300,000 Dryden 64 CLO Ltd., 2018-64A, D, 144A, FRN, 4.653%, 04/18/31 USA USD 273,780 1.73250,000 FHLMC Structured Agency Credit Risk Debt Notes, 2015-DNA1, M3, FRN, 5.123%, 10/25/27 USA USD 265,980 1.68250,000 FHLMC Structured Agency Credit Risk Debt Notes, 2017-DNA3, M2, FRN, 4.323%, 03/25/30 USA USD 255,284 1.61250,000 Octagon Investment Partners 30 Ltd., 2017-1A, C, 144A, FRN, 5.466%, 03/17/30 USA USD 244,837 1.54170,370 FHLMC Structured Agency Credit Risk Debt Notes, 2014-DN3, M3, FRN, 5.823%, 08/25/24 USA USD 179,845 1.13157,177 FHLMC Structured Agency Credit Risk Debt Notes, 2014-DN4, M3, FRN, 6.372%, 10/25/24 USA USD 168,600 1.06140,665 FNMA Connecticut Avenue Securities, 2014-C03, 1M2, FRN, 4.823%, 07/25/24 USA USD 147,817 0.93111,963 FHLMC Structured Agency Credit Risk Debt Notes, 2014-DN1, M2, FRN, 4.023%, 02/25/24 USA USD 113,256 0.7194,755 FNMA Connecticut Avenue Securities, 2014-C02, 1M2, FRN, 4.423%, 05/25/24 USA USD 98,584 0.6282,760 FNMA Connecticut Avenue Securities, 2015-C02, 1M2, FRN, 5.823%, 05/25/25 USA USD 87,341 0.5582,021 FHLMC Structured Agency Credit Risk Debt Notes, 2016-DNA1, M2, FRN, 4.723%, 07/25/28 USA USD 82,532 0.5267,585 FNMA Connecticut Avenue Securities, 2015-C03, 1M2, FRN, 6.822%, 07/25/25 USA USD 73,015 0.4631,597 FHLMC Structured Agency Credit Risk Debt Notes, 2015-DNA2, M2, FRN, 4.423%, 12/25/27 USA USD 31,728 0.2027,649 FHLMC Structured Agency Credit Risk Debt Notes, 2015-HQA1, M2, FRN, 4.473%, 03/25/28 USA USD 27,728 0.1811,033 FNMA Connecticut Avenue Securities, 2015-C03, 2M2, FRN, 6.822%, 07/25/25 USA USD 11,737 0.08

2,348,732 14.81

TOTAL ASSET-BACKED SECURITIES 2,348,732 14.81

BONDSAirport Services

200,000 Mexico City Airport Trust, first lien, Reg S, 3.875%, 04/30/28 MEX USD 200,805 1.27

Apparel, Accessories & Luxury Goods100,000 Hanesbrands Inc., senior bond, 144A, 4.875%, 05/15/26 USA USD 106,250 0.67

Auto Parts & Equipment100,000 Allison Transmission Inc., senior note, 144A, 5.00%, 10/01/24 USA USD 102,750 0.65100,000 Adient Global Holdings Ltd., senior note, 144A, 3.50%, 08/15/24 USA EUR 93,880 0.59

196,630 1.24

Broadcasting100,000 Nexstar Broadcasting Inc., senior note, 144A, 5.625%, 08/01/24 USA USD 104,588 0.66

Building Products100,000 Beacon Roofing Supply Inc., senior note, 144A, 4.875%, 11/01/25 USA USD 98,630 0.62

Cable & Satellite100,000 CCO Holdings LLC/CCO Holdings Capital Corp., senior bond, 144A, 5.375%, 05/01/25 USA USD 104,000 0.65100,000 DISH DBS Corp., senior bond, 5.00%, 03/15/23 USA USD 101,125 0.64

205,125 1.29




(Currency — USD)




Countrycode

Tradingcurrency

Marketvalue

% of netassets

Casinos & Gaming100,000 Stars Group Holdings BV/Stars Group U.S. Co-Borrower LLC, senior note, 144A, 7.00%,

07/15/26 CAN USD 108,125 0.68100,000 Wynn Las Vegas LLC/Wynn Las Vegas Capital Corp., senior bond, 144A, 5.25%, 05/15/27 USA USD 104,375 0.66

212,500 1.34

Communications Equipment100,000 CommScope Inc., senior secured note, first lien, 144A, 6.00%, 03/01/26 USA USD 103,250 0.65

Construction Machinery & Heavy Trucks100,000 United Rentals North America Inc., senior bond, 5.875%, 09/15/26 USA USD 106,500 0.67100,000 H&E Equipment Services Inc., senior note, 5.625%, 09/01/25 USA USD 105,500 0.66100,000 Terex Corp., senior note, 144A, 5.625%, 02/01/25 USA USD 100,875 0.64

312,875 1.97

Consumer Finance100,000 Springleaf Finance Corp., senior note, 6.625%, 01/15/28 USA USD 111,000 0.70100,000 FirstCash Inc., senior note, 144A, 5.375%, 06/01/24 USA USD 104,000 0.65

215,000 1.35

Diversified Banks200,000 Akbank T.A.S., sub. bond, Reg S, 6.797% to 04/27/23, FRN thereafter, 04/27/28 TUR USD 179,500 1.13

Diversified Metals & Mining100,000 Freeport-McMoRan Inc., senior note, 4.55%, 11/14/24 USA USD 104,250 0.66100,000 HudBay Minerals Inc., senior note, 144A, 7.25%, 01/15/23 CAN USD 103,740 0.65

207,990 1.31

Electric Utilities200,000 State Grid Overseas Investment 2016 Ltd., senior note, Reg S, 3.50%, 05/04/27 CHN USD 211,305 1.33200,000 EDF SA, junior sub. note, 144A, 5.25% to 01/29/23, FRN thereafter, Perpetual FRA USD 207,312 1.31

418,617 2.64

Fertilizers & Agricultural Chemicals100,000 OCI NV, senior note, 144A, 6.625%, 04/15/23 NLD USD 104,750 0.66

Health Care Facilities100,000 HCA Inc., senior note, 5.375%, 09/01/26 USA USD 109,250 0.69100,000 CHS/Community Health Systems Inc., senior secured note, first lien, 6.25%, 03/31/23 USA USD 97,813 0.6288,000 CHS/Community Health Systems Inc., senior note, 6.875%, 02/01/22 USA USD 68,420 0.43

275,483 1.74

Health Care Services100,000 DaVita Inc., senior bond, 5.125%, 07/15/24 USA USD 102,327 0.65100,000 MPH Acquisition Holdings LLC, senior note, 144A, 7.125%, 06/01/24 USA USD 93,750 0.59

196,077 1.24

Independent Power Producers & Energy Traders100,000 Clearway Energy Operating LLC, senior note, 5.75%, 10/15/25 USA USD 103,000 0.65100,000 Calpine Corp., senior note, 5.375%, 01/15/23 USA USD 101,870 0.64100,000 Talen Energy Supply LLC, senior secured note, 144A, 7.25%, 05/15/27 USA USD 100,250 0.63

305,120 1.92

Industrial Machinery100,000 Cloud Crane LLC, secured note, second lien, 144A, 10.125%, 08/01/24 USA USD 105,875 0.67100,000 Tennant Co., senior note, 5.625%, 05/01/25 USA USD 104,250 0.66100,000 Vertiv Group Corp., senior note, 144A, 9.25%, 10/15/24 USA USD 94,562 0.59

304,687 1.92

Integrated Oil & Gas100,000 Ecopetrol SA, senior bond, 4.125%, 01/16/25 COL USD 105,200 0.66

Integrated Telecommunication Services200,000 Sprint Communications Inc., senior note, 144A, 7.00%, 03/01/20 USA USD 203,000 1.28

Managed Health Care100,000 Centene Corp., senior note, 144A, 5.375%, 06/01/26 USA USD 106,100 0.67




(Currency — USD)




Countrycode

Tradingcurrency

Marketvalue

% of netassets

Marine Ports & Services200,000 ICTSI Treasury BV, senior note, Reg S, 4.625%, 01/16/23 PHL USD 208,983 1.32

Metal & Glass Containers100,000 Ardagh Packaging Finance PLC/Ardagh MP Holdings USA Inc., senior note, 144A, 6.00%,

02/15/25 LUX USD 105,250 0.66100,000 Crown Americas LLC/Crown Americas Capital Corp. VI, senior note, 4.75%, 02/01/26 USA USD 105,250 0.66100,000 Reynolds Group Issuer Inc./Reynolds Group Issuer LLC/Reynolds Group Issuer Luxembourg

SA, senior secured note, first lien, 144A, 5.125%, 07/15/23 USA USD 102,845 0.65100,000 Mauser Packaging Solutions Holding Co., senior note, 144A, 7.25%, 04/15/25 USA USD 96,000 0.61100,000 Plastipak Holdings Inc., senior note, 144A, 6.25%, 10/15/25 USA USD 83,000 0.52

492,345 3.10

Movies & Entertainment100,000 Netflix Inc., senior bond, 3.625%, 05/15/27 USA EUR 117,895 0.74

Office Services & Supplies100,000 West Corp., senior note, 144A, 8.50%, 10/15/25 USA USD 76,000 0.48

Oil & Gas Equipment & Services100,000 Weatherford International Ltd., senior note, 8.25%, 06/15/23^ USA USD 31,000 0.20

Oil & Gas Exploration & Production58,000 WPX Energy Inc., senior note, 8.25%, 08/01/23 USA USD 64,960 0.41

100,000 California Resources Corp., secured note, second lien, 144A, 8.00%, 12/15/22 USA USD 29,500 0.19

94,460 0.60

Oil & Gas Storage & Transportation100,000 Energy Transfer Operating LP, senior note, 7.50%, 10/15/20 USA USD 104,949 0.66100,000 Crestwood Midstream Partners LP/Crestwood Midstream Finance Corp., senior note, 6.25%,

04/01/23 USA USD 102,220 0.65100,000 Martin Midstream Partners LP/Martin Midstream Finance Corp., senior note, 7.25%, 02/15/21 USA USD 90,350 0.57

297,519 1.88

Other Diversified Financial Services100,000 DAE Funding LLC, senior note, 144A, 5.00%, 08/01/24 ARE USD 104,875 0.66

Pharmaceuticals100,000 Bausch Health Cos. Inc., senior bond, 144A, 6.125%, 04/15/25 USA USD 104,063 0.66100,000 Teva Pharmaceutical Finance Netherlands IV BV, senior note, Reg S, 0.50%, 07/28/22 ISR CHF 92,384 0.58

196,447 1.24

Precious Metals & Minerals100,000 Northwest Acquisitions ULC/Dominion Finco Inc., secured note, second lien, 144A, 7.125%,

11/01/22 CAN USD 50,250 0.32

Railroads200,000 RZD Capital PLC, (Russian Railways), loan participation, senior bond, Reg S, 5.70%,

04/05/22 RUS USD 214,629 1.35

Real Estate Services100,000 MPT Operating Partnership LP/MPT Finance Corp., senior bond, 5.00%, 10/15/27 USA USD 105,750 0.67

Restaurants100,000 Golden Nugget Inc., senior note, 144A, 6.75%, 10/15/24 USA USD 103,260 0.65

Specialty Chemicals200,000 CNAC HK Finbridge Co. Ltd., senior note, Reg S, 4.625%, 03/14/23 CHN USD 210,459 1.33

Specialty Stores100,000 Party City Holdings Inc., senior note, 144A, 6.625%, 08/01/26 USA USD 97,000 0.61

Steel100,000 FMG Resources (August 2006) Pty. Ltd., senior note, 144A, 5.125%, 05/15/24 AUS USD 105,000 0.66




(Currency — USD)




Countrycode

Tradingcurrency

Marketvalue

% of netassets

Technology Hardware, Storage & Peripherals100,000 Tempo Acquisition LLC/Tempo Acquisition Finance Corp., senior note, 144A, 6.75%,

06/01/25 USA USD 103,375 0.65

TOTAL BONDS 6,771,424 42.69

SUPRANATIONAL200,000 Banque Ouest Africaine de Developpement, senior note, Reg S, 5.00%, 07/27/27 SP USD 212,378 1.34

TOTAL SUPRANATIONAL 212,378 1.34

GOVERNMENT AND MUNICIPAL BONDS200,000 Belarus Development Bank JSC, senior note, Reg S, 6.75%, 05/02/24 BLR USD 210,607 1.33100,000 U.S. Treasury Note, 3.125%, 11/15/28 USA USD 112,164 0.70

TOTAL GOVERNMENT AND MUNICIPAL BONDS 322,771 2.03


TRANSFERABLE SECURITIES LISTED ON A STOCK EXCHANGE OR OTHERORGANISED MARKETSSENIOR FLOATING RATE INTERESTAirlines

77,375 Allegiant Travel Co., Class B Term Loans, 6.709%, 02/05/24 USA USD 77,665 0.49

Auto Parts & Equipment129,675 Adient U.S. LLC, Initial Term Loans, 6.459% - 6.889%, 05/06/24 USA USD 126,919 0.8088,466 TI Group Automotive Systems LLC, Initial US Term Loan, 4.286%, 06/30/22 USA USD 87,899 0.56

214,818 1.36

Automobile Manufacturers93,195 Thor Industries Inc., Initial USD Term Loans, 5.813%, 02/01/26 USA USD 91,040 0.57

Automotive Retail53,329 Wand NewCo. 3 Inc. (Caliber Collision), Initial Term Loan, 5.286%, 02/05/26 USA USD 53,602 0.34

Broadcasting148,473 Sinclair Television Group Inc., Tranche B Term Loans, 4.04%, 01/03/24 USA USD 148,520 0.9482,049 Gray Television Inc., Term B-2 Loan, 4.261%, 02/07/24 USA USD 82,229 0.528,354 Gray Television Inc., Term C Loan, 4.511%, 01/02/26 USA USD 8,387 0.05

239,136 1.51

Cable & Satellite85,775 CSC Holdings LLC, March 2017 Incremental Term Loans, 4.171%, 07/17/25 USA USD 85,480 0.54

Casinos & Gaming75,417 Aristocrat Technologies Inc., Term B-3 Loans, 3.716%, 10/19/24 USA USD 75,688 0.4864,147 Eldorado Resorts Inc., Initial Term Loan, 4.125% - 4.313%, 04/17/24 USA USD 64,133 0.40

139,821 0.88

Coal & Consumable Fuels12,228 Wolverine Fuels Holding LLC, First Lien Initial Term Loan, 7.874%, 08/14/20 USA USD 11,963 0.08

Communications Equipment76,184 CommScope Inc., Initial Term Loans, 5.036%, 04/04/26 USA USD 75,065 0.47

Construction Machinery & Heavy Trucks87,593 United Rentals North America Inc., Initial Term Loans, 3.536%, 10/31/25 USA USD 88,068 0.56

Data Processing & Outsourced Services95,892 WEX Inc., Term B-3 Loan, 4.036%, 05/17/26 USA USD 96,372 0.61

Electric Utilities18,701 EFS Cogen Holdings I LLC (Linden), Term B Advance, 5.04% - 5.36%, 06/28/23 USA USD 18,671 0.12

Food Distributors88,750 Aramark Corp., U.S. Term B-3 Loan, 3.536%, 03/11/25 USA USD 89,027 0.56

Health Care Facilities71,349 HCA Inc., Term Loan B11, 3.536%, 03/18/23 USA USD 71,675 0.45




(Currency — USD)




Countrycode

Tradingcurrency

Marketvalue

% of netassets

Health Care Technology89,971 IQVIA Inc., Term B-2 Dollar Loans, 4.104%, 01/20/25 USA USD 90,327 0.5728,888 IQVIA Inc., Term B-3 Dollar Loans, 3.854%, 06/11/25 USA USD 28,919 0.18

119,246 0.75

Industrial Machinery86,562 RBS Global Inc. (Rexnord), Term B Loan, 3.786%, 08/21/24 USA USD 87,087 0.5580,024 Navistar Inc., Tranche B Term Loan, 5.42%, 11/06/24 USA USD 79,173 0.5023,074 Altra Industrial Motion Corp., Term Loan, 3.786%, 10/01/25 USA USD 23,038 0.1416,743 Harsco Corp., Term Loan B-2, 4.063%, 12/10/24 USA USD 16,795 0.11

206,093 1.30

Integrated Telecommunication Services38,496 Global Tel*Link Corp., First Lien Term Loan, 6.036%, 11/29/25 USA USD 33,723 0.2129,848 Securus Technologies Holdings Inc., Initial Term Loan, 6.286%, 11/01/24 USA USD 23,708 0.15

57,431 0.36

Internet Services & Infrastructure130,000 TIBCO Software Inc., Term B-2 Loans, 6.00%, 06/30/26 USA USD 129,567 0.8115,341 LegalZoom.com Inc., 2018 Term Loans, 6.286%, 11/21/24 USA USD 15,365 0.1012,179 Carbonite Inc., Initial Term Loan, 5.677%, 03/26/26 USA USD 12,180 0.08

157,112 0.99

Investment Banking & Brokerage129,332 Russell Investments U.S. Institutional Holdco Inc., Initial Term Loan, 5.036%, 06/01/23 USA USD 125,829 0.79

Life Sciences Tools & Services59,045 Syneos Health Inc., Initial Term B Loans, 3.786%, 08/01/24 USA USD 59,230 0.37

Metal & Glass Containers61,681 Crown Americas LLC, Dollar Term B Loan, 3.997%, 04/03/25 USA USD 62,144 0.39

Oil & Gas Exploration & Production67,277 Fieldwood Energy LLC, Closing Date Loans, 7.177%, 04/11/22 USA USD 54,427 0.34

Packaged Foods & Meats96,027 JBS USA Lux SA, New Term Loans, 4.286%, 05/01/26 USA USD 96,484 0.615,006 Post Holdings Inc., Series A Incremental Term Loans, 3.83%, 05/24/24 USA USD 5,022 0.03

101,506 0.64

Paper Packaging90,000 Berry Global Inc., Term W Loan, 3.878%, 10/01/22 USA USD 90,394 0.57

Pharmaceuticals190,052 Grifols Worldwide Operations USA Inc., Tranche B Term Loan, 4.086%, 01/31/25 USA USD 190,556 1.20113,306 Endo Luxembourg Finance Co. I S.A.R.L. and Endo LLC, Initial Term Loans, 6.063%,

04/29/24 USA USD 104,120 0.6578,750 Valeant Pharmaceuticals International, First Incremental Term Loan, 4.671%, 11/27/25 USA USD 78,912 0.5051,807 Valeant Pharmaceuticals International, Initial Term Loans, 4.921%, 06/02/25 USA USD 52,052 0.33

425,640 2.68

Semiconductor Equipment26,925 MKS Instruments Inc., Tranche B-6 Term Loan, 3.536%, 02/02/26 USA USD 27,035 0.17

Semiconductors60,729 ON Semiconductor Corp., 2019 Replacement Term B-4 Loans, 3.786%, 09/18/26 USA USD 61,079 0.39

Specialized Consumer Services44,418 Avis Budget Car Rental LLC, Tranche B Term Loans, 3.79%, 02/13/25 USA USD 44,510 0.28

Specialty Chemicals25,610 Oxbow Carbon LLC, Tranche A Term Loan, 4.286%, 01/04/22 USA USD 25,482 0.16




(Currency — USD)




Countrycode

Tradingcurrency

Marketvalue

% of netassets

Systems Software112,518 Go Daddy Operating Co. LLC, Tranche B-2 Term Loan, 3.536%, 02/15/24 USA USD 112,774 0.71



TRANSFERABLE SECURITIES NOT ADMITTED TO AN OFFICIAL STOCKEXCHANGE LISTING NOR DEALT IN ON ANOTHER REGULATED MARKETSHARESDiversified Support Services

911 Remington Outdoor Co. Inc., Litigation Units** USA USD 0 0.00

TOTAL SHARES 0 0.00

BONDSWireless Telecommunication Services

200,000 T-Mobile USA Inc., Escrow Account ** USA USD 0 0.00

TOTAL BONDS 0 0.00

TOTAL TRANSFERABLE SECURITIES NOT ADMITTED TO AN OFFICIAL STOCKEXCHANGE LISTING NOR DEALT IN ON ANOTHER REGULATED MARKET 0 0.00


^These Bonds are currently in default** These securities are submitted to a Fair Valuation




(Currency — USD)



Report from the Alternative Investment Fund Manager – Unaudited

The purpose of this section is to provide supplemental information to shareholders in the context of the Alternative Investment Fund ManagersDirective (“AIFMD”).

Risk profile / Risk management systemsThe potential nature of the key risks to which the Funds could be exposed as a result of the financial instruments held, are described in detailwithin the Prospectus of the Funds. The purpose of this section is to provide additional information about risk mitigation and the sensitivity ofthe Funds to certain risks.

The AIFM of the Company has established a permanent risk management function to ensure that effective risk management policies andprocedures are in place and to monitor the risks and compliance with risk limits. The AIFM has a risk management process document filed withthe regulator of the AIFM and risk management policies which cover the risks associated with the AIF. Regular reporting is prepared andreviewed by the AIFM’s Senior Management and the Board of FTSIIF SICAV is informed regularly about the risk profile, the risk measuresmonitored.

For each relevant risk area, risk limits which take into account the objectives, strategy and risk profile of the AIF are set by the AIFM. Theselimits are monitored regularly, as required by the nature of the risk area, and the sensitivity of the portfolio to key risks is undertaken periodically,as appropriate, to ascertain the impact of changes in key variables to the AIF. For the detailed risks the Funds could be exposed to please referto the investment policy as disclosed in the Funds’ prospectus.

Amongst other measures regularly considered by the Investment Manager, the AIFM is assessing and monitoring market risk through relativeValue at Risk (VaR) calculated using the Monte Carlo approach. Value at Risk (VaR) is a statistical risk measure that estimates the potentialportfolio loss from adverse market moves in an ordinary market environment. VaR analysis reflects the interdependencies between riskvariables, unlike a traditional sensitivity analysis. VaR can be defined as the predicted loss a portfolio can experience at a specified confidencelevel (e.g. 99%) over a given period of time (e.g. 20 days).

The VaR calculations are based on a confidence level of 99% with a holding period of not greater than 1 month (20 days) and a historicalobservation period of not less than 1 year (250 days). A 99% 1-month VaR means that the expectation is that 99% of the time over a 1 monthperiod the Fund will lose less than this number in percentage terms. Therefore, higher VaR numbers indicate higher risk.

It is noted that the use of this VaR methodology, as any other statistical risk measure, has limitations. There is some probability that the losscould be greater than the VaR amounts and therefore the AIFM can neither guarantee that losses will not exceed the VaR indicated, nor thatlosses in excess of the VaR amounts will not occur more frequently.

The AIFM uses the relative VaR methodology which is the absolute VaR of the portfolio divided by the absolute VaR of the benchmark. Thebenchmark that is used is the one that is most representative of the AIF’s strategy and likely risk exposures.

No risk limits have been exceeded or were likely to be exceeded during the year.

Liquidity RiskAs at October 31, 2019, remaining assets of the Franklin Upper Tier Floating Rate Fund are held in a side pocket due to their illiquid nature.

There are no new arrangements for managing the liquidity/liquidity risk of the Fund.

Leverage under AIFMD considerationsIn accordance with the EU Commission Delegated Regulation (EU) No 231/13 (the “AIFM Regulation”) leverage is any method which increasesa Fund’s exposure, including the borrowing of cash and the use of derivatives. It is expressed as a percentage of a Fund’s exposure to its netasset value and is calculated on both a gross and commitment method.

Under the gross method, exposure represents the sum of a Fund’s positions (including all holdings) after deduction of cash balances and cashequivalents, without taking account of any hedging or netting arrangements. Under the commitment method, exposure is calculated without thededuction of cash balances and cash equivalents and after certain hedging and netting positions are offset against each other if applicable.

There was no change to the maximum level of leverage applied for AIFMD monitoring and reporting purposes since October 31, 2018.

Account

Gross methodas of

October 31, 2019

Max leverageunder

gross method

Commitment methodas of

October 31, 2019

Max leverageunder

commitment method

Franklin Floating Rate II Fund 97.26% 210% 102.93% 170%

Franklin Emerging Market Investment Grade DebtFund 95.47% 210% 100.00% 170%

Franklin Emerging Market Corporate Debt Fund 99.05% 210% 100.01% 170%

Franklin Emerging Market Debt Opportunities II Fund 158.79% 210% 100.00% 170%

Franklin Multi-Sector Credit Fund 115.05% 210% 124.06% 200%

RemunerationFTIS, as AIFM, has a remuneration policy in place which applies to all Alternative Investment Funds under its management. The policy hasbeen designed to discourage excessive risk taking, integrating in its performance management systems risk criteria specific to the businessunits it covers. The policy has a governance structure aimed at preventing internal conflicts of interest.

There are defined procedures in place for the creation, update, review and approval of the policy as well as for communication andimplementation of the policy. Senior Management, Human Resources, Internal Audit and other functions are all involved in this process and thePolicy is approved by Senior Management and the Board of Directors of the Management Company.

Fixed remuneration is defined as base salary plus other benefits which may include pension contributions, life assurance premiums or privatemedical insurance premiums. Levels of fixed remuneration are set with reference to job complexity, level of responsibility, performance andmarket benchmarking data. These levels are reviewed on a regular basis.


Additional Information - Unaudited


Report from the Alternative Investment Fund Manager – Unaudited (continued)

Variable remuneration is defined as annual bonuses, long term awards in the form of performance share grants or Sales Bonus payments.Levels of variable remuneration are set with reference to overall corporate and business unit performance as well as individual performance.

Full Remuneration policy is available at the registered office of the Management Company

Quantitative information relevant to the Franklin Templeton Series II Funds is outlined below.

Total amount of fixed remuneration paid by FTIS and its delegates during the year ended September 30, 2019*,** €531,101

Total amount of variable remuneration paid by FTIS and its delegates during the year ended September 30, 2019 €466,921

Number of staff of FTIS and in its delegates as at September 30, 2019 174

Total amount of compensation paid by FTIS and its delegates to Senior managers during the year ended September 30, 2019*,** €118,614

Total amount paid by FTIS and its delegates to other members of staff who have a material impact on the profile of AIF during year ended September 30, 2019*,** € -

* The total amount of compensation paid by FTIS has been allocated to FTSIIF based on its pro rata share of the average month end total net assets of the funds undermanagement of FTIS for the year ended September 30, 2019.

** The total amount of compensation paid by the FTIS delegates has been allocated to FTSIIF based on its pro rata share of the average month end total net assets of thefunds under management of the FTIS delegates for the year ended September 30, 2019.


Additional Information - Unaudited (continued)


Securities Financing Transactions (SFTs) and Total Return Swaps (TRS)The Company does not engage in Securities Financing Transactions (as defined in Article 3 of Regulation (EU) 2015/2365, securities financingtransactions include repurchase transactions, securities or commodities lending and securities or commodities borrowing, buy-sell backtransactions or sell-buy back transactions and margin lending transactions) but it had exposure in total return swap contracts during the year.Information on total return swaps are detailed below.

Global data

FundFund

currency Gross Volume of TRS (1)

TotalTRS in

% of net assets

Franklin Multi-Sector Credit Income Fund USD 18,924 0.12

(1) absolute value of the unrealised gains/(losses)

Concentration data

Total return swaps, ten largest counterparties

FundFund

currency Counterparty

Gross Volume ofTRS (1)

in Fund currency

Franklin Multi-Sector Credit Income Fund USD Goldman Sachs 17,219Morgan Stanley 1,705


When less than 10 counterparties are disclosed, less than 10 counterparties are available.

Aggregate transaction data

Total return swaps, maturity tenor and country of incorporation

FundFund

currency MaturityCountry of incorporationof the Counterparty

Gross Volume ofTRS (1)

in Fund curency

Franklin Multi-Sector Credit Income Fund USD one to three months United States of America 1,705

three months to one year United States of America 17,219


Fund engaged in total return swap contracts utilise bi-lateral settlement and clearing with their respective counterparty.

Data on reuse of collateralThere was no collateral reuse during the year ended October 31, 2019. There was no cash collateral reinvestment during the year endedOctober 31, 2019.

Safekeeping of collateralThere was no collateral granted and received during the year ended October 31, 2019.

Data on returnThe return from total return swap contracts is accrued to the Funds.




CollateralThe following table reports the collateral held as at October 31, 2019 to reduce counterparty exposure on OTC derivatives.

Fund Counterparty Cash held ascollateral

Franklin Floating Rate II Fund Bank of America USD 100,000

Franklin Emerging Market Debt Opportunities II Fund Barclays USD 320,000Citigroup USD 470,000Deutsche Bank USD 480,000Morgan Stanley USD 410,000

As at October 31, 2019, Franklin Floating Rate II Fund and Franklin Multi-Sector Income Fund reports collateral pledge amounted to USD377,640 and USD 4,741 respectively and these balances included in the cash account.




Further information regarding Franklin Templeton Series II Funds is available from the following Franklin Templeton office:

EUROPELuxembourgFranklin Templeton International Services S.à r.l.8A, rue Albert Borschette, L-1246 LuxembourgB.P. 169, L-2011 LuxembourgGrand-Duchy of LuxembourgTel: +352 46 66 67 1 Fax: +352 46 66 76www.franklintempleton.lu


Franklin Templeton Office Directory

Please note that the website mentioned above is directed at residents within the country stated on the website. (Please refer to the website disclaimer).


http://www.franklintempleton.lu

FRANKLIN TEMPLETON INTERNATIONAL SERVICES S.à r.l.8A, rue Albert BorschetteL-1246 LuxembourgTel: +352 (46) 66- 67-1Fax: +352 (46) 66-76

FTSIIF IR RGBR 10/19

franklintempleton series ii funds · 2020. 6. 2. · audited annual report for the year ended...

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