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Franklin Templeton Investment Funds

Franklin High Yield Fund - A (acc) USD

Franklin Templeton Fixed Income Group

Data as of 31 March 2018

Franklin High Yield Fund

2

Table of Contents

Investment Capabilities Overview............................................................................................3

Who Is Franklin Templeton Investments?................................................................................4

Franklin Templeton Fixed Income—Global Investment Professional Presence.......................... 5

Franklin Templeton Fixed Income Group—Investment Process Overview................................. 6

Franklin Templeton Fixed Income............................................................................................7

Franklin Templeton Fixed Income—Deep and Experienced Capabilities................................... 8

Investment Philosophy and Process........................................................................................9

Corporate Credit Research Team..........................................................................................10

Franklin High-Yield Management Resources......................................................................... 11

Investment Process Overview............................................................................................... 12

High-Yield Research Process................................................................................................13

Security Selection: Synthesizing Views from Multiple Sources................................................17

Portfolio Construction............................................................................................................18

Portfolio Construction and Multi-Level Risk Management.......................................................19

Quantitative Portfolio Management Team...............................................................................20

Investment Risk Management at Franklin Templeton.............................................................21

Risk Management Tools....................................................................................................... 22

Franklin High-Yield Advantage.............................................................................................. 23

Summary..............................................................................................................................24

What are the Key Risks?......................................................................................................25

Portfolio Characteristics........................................................................................................26

Geographic Allocation...........................................................................................................27

Sector Allocation...................................................................................................................28

Quality Allocation..................................................................................................................29

Maturity Allocation................................................................................................................30

Top Ten Holdings..................................................................................................................31

Discrete Performance........................................................................................................... 32

Historical Performance..........................................................................................................33

Calendar Year Returns......................................................................................................... 34

Performance Risk Statistics.................................................................................................. 35

Glossary...............................................................................................................................36

Management Profile..............................................................................................................37

Important Disclosures...........................................................................................................40

Source: Franklin Templeton Investments (FTI), as of 31 March 2018, based on latest available data. Total combined Assets Under Management (Total AUM) combines U.S. and non-U.S. AUM of the investment management subsidiaries of the parent

company, Franklin Resources, Inc. (FRI) [NYSE: BEN], a global investment management organisation operating as FTI. Only selected business entities within FTI claim compliance with the GIPS standards as described in the table of contents if

applicable. Total and platform AUM includes discretionary and non-discretionary accounts, including pooled investment vehicles, separate accounts and other vehicles. Total and platform AUM may also include advisory accounts with or without trading

authority. In addition, assets for which certain FTI advisers provide limited asset allocation advisory services, and assets that are not allocated to FTI products are not included in the AUM figures shown. Franklin Templeton Multi-Asset Solutions may

invest in various investment platforms advised by a number of investment advisory entities within FTI. Platform AUM reported for FT Multi-Asset Solutions therefore may include certain AUM separately reported under each utilised investment platform.

Total AUM also includes assets managed by certain FTI advisers that do not form part of the selected investment platforms shown. As a result, the combined platform AUMs may not equal Total AUM and may be calculated and reported separately for

regulatory or other purposes under each investment adviser. Each local asset manager may be considered as an entity affiliated with or associated to FTI by virtue of being a direct or indirect wholly-owned subsidiary of FRI, an entity or joint venture in

which FRI owns a partial interest, which may be a minority interest, or a third party asset management company to which investment advisory services have been delegated by an FTI adviser.

3


Investment Capabilities Overview

FRANKLIN TEMPLETON INVESTMENTS

Total Combined Assets Under Management : US$737.5 Billion

2

Equity

5

Fixed Income

8

Multi-Asset Solutions

11

Alternatives

AUM

US$315.0 Billion US$290.0 Billion US$124.0 Billion US$16.2 Billion

CAPABILITIES

•

Value

•

Government

•

Income

•

Commodities

•

Deep Value

•

Municipals

•

Real Return

•

Infrastructure

•

Core Value

•

Corporate Credit

•

Balanced/Hybrid

•

Real Estate

•

Blend

•

Bank Loans

•

Total Return

•

Hedge Funds

•

GARP

•

Securitised

•

Target Date/Risk

•

Private Equity

•

Growth

•

Multi-Sector

•

Absolute Return

•

Convertibles

•

Currencies

•

Tactical Asset Allocation

•

Sector

•

Sukuk

•

Managed Volatility

•

Shariah

•

Smart Beta

INVESTMENT

•

Templeton Global Equity Group (1940)

•

Franklin Templeton Fixed Income Group (1970)

•

Franklin Templeton Multi-Asset Solutions (1996)

•

Franklin Real Asset Advisors (1984)

TEAMS

•

Franklin Equity Group (1947)

•

Templeton Global Macro (1986)

•

Franklin SystematiQ (2011)

•

Darby Overseas Investments (1994)

•

Franklin Mutual Series (1949)

•

Franklin LAM-Fixed Income (1993)

•

K2 Advisors (1994)

•

Franklin Templeton Emerging Markets Equity

(1987)

•

Pelagos Capital Management (2005)

Who Is Franklin Templeton Investments?

An Investment Management Organisation• Focusing on research and investment management with more than 600

investment professionals covering all major asset classes

• Serving the needs of investors worldwide with a dedicated team of investment professionals

• Providing the resources, expertise, experience and commitment to ensure outstanding service to our clients

• Offering a broad range of investment strategies and vehicles

Franklin Templeton Investments total firm assetsUS$737.5 billion as of 31 March 20182018

Bissett Investment Management joins Franklin Templeton Investments2000

Franklin Resources, Inc. (BEN), stock is added to S&P 500 Index1998

Mutual Series joins Franklin Templeton Investments1996

Templeton joins Franklin Templeton Investments1992

Franklin Resources, Inc., stock listed and begins trading on New York Stock Exchange1986

Franklin Resources, Inc., moves offices from New York to California1973

Franklin Resources, Inc., formed as a holding company going public as BEN1971

Franklin Distributors, Inc., introduces its first mutual funds1947

Fiduciary Trust Company International joinsFranklin Templeton Investments2001

0718


4

Investment professionals include portfolio managers, analysts and traders.

As of 31 March 2018.

Who Is Franklin Templeton Investments?

Franklin Templeton Fixed Income―Global Investment Professional Presence

Over 180 global fixed income investment professionals3

provide broad coverage of potential alpha opportunities across sectors and around the world.

■ Global Fixed Income Offices Fixed Income Local Asset

Management (LAM) Offices1

■ San Mateo

■ New York

■ London

Dubai

Mumbai

São Paulo

Kuala Lumpur

Seoul

Shanghai2

■ Singapore

Calgary

Mexico City

Melbourne

Warsaw

Hyderabad

0299

Buenos Aires


5

1. This unit is comprised of investment professionals located in affiliates of and joint venture partners with Franklin Templeton Investments. Reference to Local Asset Management is in relation to fixed income teams (excluding equity).

2. Includes individuals that are not employees of Franklin Resources, Inc. (FRI) or wholly owned subsidiaries of FRI. However, these individuals are part of our joint venture or strategic partnership relationships worldwide and are an integral component

of our overall fixed income research efforts.

3. Investment professionals include portfolio managers, analysts and traders.


Franklin Templeton Fixed Income—Global Investment Professional Presence

Franklin Templeton Fixed Income Group—Investment Process Overview

0300

Top-Down Macro Analysis Bottom-Up Sector Analysis Quantitative AnalysisFixed Income Policy Committee (FIPC)

and Macro StrategistsSenior leaders seek to capitalise on

global economic trends

Sector Allocation/SpecialistsDedicated sector teams strive to add value through security- and sector-

specific insights

Quantitative AnalystsDedicated team builds proprietary risk

models to identify potential alpha opportunities

• Country Duration• Currency• Yield Curve• Volatility

• Corporate Credit• Sovereigns• Securitised• Bank Loans• Municipals

• Relative Value Analysis• Derivatives• Long/Short• Risk Arbitrage/Mispricing

Combination of Skill and Expertise with a Wide Breadth of Independent Opportunities

Goal Is to Create Diverse Portfolios of Low-Correlated Positions

Portfolio Construction

Expected Risk/ReturnCorrelation Analysis

Position SizingOptimisation


6

For illustrative purposes only. Our investment process is dynamic and subject to change.

Franklin Templeton Fixed Income Group—Investment Process Overview

Franklin Templeton Fixed Income

Quantitative: David Yuen, CFA, FRM, 7 Professionals

Corporate Credit

Global Sovereign/ Emerging Markets

Mortgages Bank Loans Municipals Local Asset Management1

Glenn Voyles, CFAMatt Fey, CFA

John BeckWilliam Ledward, Ph.D.

Roger Bayston, CFA Mark Boyadjian, CFA Sheila AmorosoRafael Costas

Australia, Brazil, Canada, China,2 India, Korea, Malaysia, Mexico and UAE

33 Investment Professionals






Global Macro

Global Sovereign Local Emerging Market Debt


Fixed Income Policy Committee | Co-Chairs: Christopher Molumphy and Michael Materasso

Michael Hasenstab, Ph.D.Chief Investment Officer

Christopher Molumphy, CFAChief Investment Officer

180+ Dedicated Fixed Income Investment Professionals3

59CFA Charterholders

14 Ph.D.s

62 M.B.A.s

0301


7

1. This unit is comprised of investment professionals located in affiliates of and joint venture partners with Franklin Templeton Investments. Reference to Local Asset Management is in relation to fixed income teams (excluding equity).



3. Investment professionals include portfolio managers, analysts and traders.

CFA® and Chartered Financial Analyst® are trademarks owned by CFA Institute.


Franklin Templeton Fixed Income

Franklin Templeton Fixed Income—Deep and Experienced Capabilities

Experience and History

• Senior professionals have been with the firm over 21 years on average• More than 40 years of research, portfolio management and trading experience

Multiple Sources of Expertise

• Top-down, bottom-up and quantitative techniques provide a broad spectrum of opportunities that aim to add value in a consistent, systematic fashion

• Research capabilities integrated across equity and fixed income platforms are designed to achieve thorough company and sector coverage from multiple viewpoints

Global Scale and Resources

• With more than 180 dedicated fixed income investment professionals and US$290.0 billion in fixed income assets under management, Franklin Templeton provides broad coverage of alpha opportunities across sectors and around the world

• Deep and experienced sector teams conduct rigorous proprietary security analysis– Dedicated teams draw on Franklin Templeton’s risk management, legal and operational resources

• Access to business leaders, central bankers and government officials• Value-added trading platform that includes our ability to structure new issuance and trade in local markets

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Franklin Templeton Fixed Income—Deep and Experienced Capabilities

Investment Philosophy and Process

Philosophy

We believe that strong high-yield returns can be best captured through the disciplined application of a research-based approach that capitalises on inefficiencies across the high-yield market. Through rigorous bottom-up research, we seek to identify compelling income and total return opportunities with the potential to add value over a three- to five-year horizon.

Process

Fundamental Analysis• Conduct independent, bottom-up analysis focusing on critical factors that affect a company’s long-term performance, such as

financial structure, cash flow and earnings prospects, products, market share and strategic positioning

Long-Term Outlook• Analyse securities whose projected return over three to five years surpasses the potential risk of adverse price movements

or default

Seek Valuation Inefficiencies• Invest opportunistically in companies and sectors that are infrequently followed or are out of favour with the marketplace

Disciplined Approach• Adhere to a long-term strategy through changing market environments, supported by separate in-house risk management and

quantitative research groups

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9

Investment Philosophy and Process

Corporate Credit Research Team

Comprehensive Coverage• Globally integrated team of experienced credit analysts fosters

intensive industry and issuer coverage

• Global coverage facilitates cross-currency investment analysis and relative value assessment

Research Orientation• Consistent credit process emphasises in-depth fundamental analysis,

with analysts taking a proactive, forward-looking approach

• Joint investment-grade/high-yield team approach

• Collaboration, as permitted by confidentiality agreements, between global equity analysts, fixed income Local Asset Management (LAM) teams1 and the Floating Rate Debt Group

– Joint company visits

– Shared coverage responsibilities

– Ongoing dialogue

Market Presence • Franklin Templeton’s depth and breadth as a large company allows

for potential opportunities to access sell side resources and new issues

0307

Matt Fey, CFADirector of Research, Corporate Bonds

24 Credit Research AnalystsLocated in San Mateo,

New York, London and Singapore

Equity AnalystsProvide Additional Perspective

on Companies Globally

Floating Rate Debt Group18 Dedicated Professionals

23 Fixed Income Local Asset Management AnalystsProvide Local Perspective

Located in Calgary, Dubai, Hyderabad, Kuala Lumpur, Melbourne, Mexico City, Mumbai, Sao Paulo, Seoul


10



Analysts include research analysts and research associates.



Corporate Credit Research Team

Franklin High-Yield Management Resources

0762

Investment Risk Management Group

Quantitative Portfolio Management Group

Portfolio Management

Name TitleYears Experience

Eric Abrahamson Director, High Yield Fixed Income Trading 34

John Hanley Trader 33

Name TitleYears Experience

Christopher Molumphy, CFA CIO of Franklin Templeton Fixed Income Group, Portfolio Manager

31

Glenn Voyles, CFA Director of Portfolio Management, Corporate Bonds,Portfolio Manager

25

Piero Del Monte Portfolio Manager/Analyst 19

Betsy Hofman, CFA Portfolio Manager 35

Jeff Holbrook, CFA Portfolio Manager/Analyst 30

Patricia O’Connor, CFA Portfolio Manager 22

Trading

Credit ResearchName Industry Coverage

Years Experience

Matt Fey, CFA Director of Research, Corporate Bonds, Retail, Supermarkets

23

Aleck Beach, CFA Automotive, Technology 20

Jonathan Belk, CFA Industrials, Media 13

Eric Chipin, CFA Energy, Health Care, Paper & Forest Products 4

Benjamin Cryer, CFA Asian Corporates, Home Building, Broadcasting 11

Piero Del Monte European High Yield 19

Bryant Dieffenbacher, CFA Chemicals, Energy 11

Brian French Health Care 15

Bob Groenke Lodging & Leisure, Gaming, Consumer Products 5

Jeff Holbrook, CFA Metals & Mining, Wireless Telecom 30

Elspeth Huscher Wireline Telecom 1

Gary Kiang, CFA Utilities, Containers & Packaging, Pipelines, Shipping, Trucking/Railroads

10

S. James McGiveran III, CFA, CPA

Food & Beverage, Restaurants, Aerospace & Defence, Airlines

11

Latika Signorelli Financials, Retail 12

Christine Villaluz Pay Television, Wireline Telecom 21

Ray Xu Supermarkets 2

LegalInternal Corporate Counsel

Risk Management and Quantitative


11



Franklin High-Yield Management Resources

Investment Process Overview

1 IdentifyBest Opportunities 2 Construct and

Manage Portfolio 3 Conduct Ongoing Portfolio Review

• Collaborative idea generation

• Analysts develop Buy List and industry recommendations

• Security selection• Sector allocation• Portfolio structure• Benchmark analysis

• Risk management systems• Portfolio Review Committee• Holdings surveillance

0763


12

Investment Process Overview

High-Yield Research Process

Buy List• Changes in rationale communicated in daily morning meetings and electronically

• Recommendations stored in online document repository and performance quantitatively tracked

Investability Screen

Snapshot Financial Screen

Fundamental Screen Buy List

Initial universe of 1,000+ issuers, screened for:

• Size and liquidity• US$100–US$150 million

hurdle

50–75 companies per industry, screened for:

• Capital structure• Cash flow stability

over time• Earnings prospects

Close analysis of 10–25 companies per industry for:

• Management team• Product lineup• Strategic positioning• Sensitivity analysis and

long-term forecasting• Downside asset protection• Industry dynamic

100–150 companies with favourable fundamental characteristics:

• Total return potential• Measured risk• Attractive valuation• Sound structure

0764


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High-Yield Research Process

High-Yield Research Process (continued)

New Issue Analysis: New Issue Write Up • Issue write-up provides information such as structure, pricing expectation

and covenant analysis

• Key credit ratios, issuer capitalisation, senior management team assessment and liquidity outlook highlighted

• Fundamental assessment includes key credit strengths and weaknesses as well as overall investment recommendation, including relative value analysis

The above example is for illustration only, and any information may not be current and should not be relied upon. The illustration is only one example of aspects of our analytical process in evaluating securities. The characteristics and resulting analysis of individual securities will vary depending on the security, date of analysis, prevailing market or economic conditions and other factors. The illustration is not intended to reflect any specific security held in a Franklin Templeton Investments managed account or fund. Such security or securities may or may not be in one or more Franklin Templeton Investments managed account(s) or fund(s), from time to time. The illustration is not a recommendation to buy, sell or hold any security and is not investment advice.

0764


14


New Issue Analysis: Proprietary Models • Shows current data as well as analyst projections

(up to five years going forward)

• Comprised of multiple inputs which can be “dialed” up or down to provide an analyst with sensitivity analysis

The above example is for illustration only, and any information may not be current and should not be relied upon. The illustration is only one example of aspects of our analytical process in evaluating securities. The characteristics and resulting analysis of individual securities will vary depending on the security, date of analysis, prevailing market or economic conditions and other factors. The illustration is not intended to reflect any specific security held in a Franklin Templeton Investments managed account or fund. Such security or securities may or may not be in one or more Franklin Templeton Investments managed account(s) or fund(s), from time to time. The illustration is not a recommendation to buy, sell or hold any security and is not investment advice.

0764


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Industry Recommendations• Analysts develop industry recommendations

• Ideas discussed in weekly sector meetings

Industry Factors Recommendations

• Cyclical factors• Earnings/performance trends• Key fundamental drivers• Value considerations• Structural issues

• Over/underweights by industry• Positioning within industry

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Portfolios of Active Positions• Analysts, portfolio managers and traders work together seeking to develop

optimal portfolio positions

• Formal interactions structured to foster the development and debate of investment ideas

• Ongoing informal discussions add a further level of insight

Security Selection: Synthesising Views from Multiple Sources

CREDIT ANALYSTS• Conduct fundamental

analysis• Meet with companies• Recommend securities

and industries

PORTFOLIOMANAGERS• Select securities• Monitor sector weightings• Facilitate peer review• Oversee risk management

TRADERS• Monitor market flows and valuations• Identify trends in issuance and

market activity• Watch portfolio “wish list”

PortfolioIdeas

0514


17

Security Selection: Synthesizing Views from Multiple Sources


All information provided on this slide is for illustrative purposes only. Specific portfolio processes may wary due to a variety of factors.

• Ongoing assessment of opportunities in light of their total return potential and portfolio risk impact

BUY DECISION

• Strong financials and risk-adjusted total return potential,

• Financial structure, cash flow and earnings prospects, products, market share, strategic positioning,

• Sensitivity analysis and long-term forecasts,• Downside asset support,• Strong management team, and/or• Valuation

SELL DECISION

Warning signs:

• Deterioration in financials,

• Decline in earnings trends or liquidity ratios,

• Management team becomes less disciplined, and/or

• Steady growth no longer probable

Current industry positioning

Positioning versus benchmark

Negative changes in industry fundamentals

Security exceeds fair value price target

Other opportunities become more compelling

VERSUS

RISKRETURN

0515


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Portfolio Construction and Multi-Level Risk Management

Internal risk controls and external review systems boost transparency and insight

Security Selection• Thorough evaluation of downside risk

• Emphasis on downside asset support

Portfolio Construction• Diversification

• Benchmarking

• Adherence to sell discipline

• Position sizing

Ongoing Surveillance• Fundamentals monitored by analysts

• Trading levels and market insights from trading desk

• Trading and portfolio compliance

– Dedicated compliance personnel on trading desk

– Charles River trading and portfolio management system

Risk Management/Attribution• Dedicated team

• Ongoing risk monitoring using:

– Barclays POINT system

– Proprietary quantitative credit database

– Internal Bond/CDS/Equity/Loan Pricing Database

Portfolio Review Committee• Portfolio managers and senior analysts meet regularly to

review portfolios

• Discussion and debate regarding portfolio holdings and positioning relative to benchmark

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Portfolio Construction and Multi-Level Risk Management

Quantitative Portfolio Management Team

Functions That Can Add Value• Analytical tools

– Individual position sizing

– Allocations of risk capital

• Alpha generation potential sought

– Sector allocations and portfolio optimisations

Original Research Supports Idea Generation• Team contributes active alpha ideas for portfolio consideration

• Topics may include:

– Quantitative credit modelling (default and recovery)

– Capital structure opportunities (loan, bond, convertible, preferred, hybrid, equity)

– Credit curve dynamics

– Long-short basis opportunities

– Credit derivative and hedging strategies

– Volatility and correlation

– Loan prepayment model

0309

Anthony PecorePortfolio Construction, Hedging

Factor Modelling, Statistical and Risk Analyses

David Luria, CFACredit and Currency Derivatives,Basis Trades, Long/Short Credit

Patrick Klein, Ph.D.Securitised and Structured Products,

Inflation, Portfolio Construction, Quant Modelling

William Chong, CFA, FRMCurrency and Rates Derivatives,

Cross Border Arbitrage

David Yuen, CFA, FRMSenior Vice President

Tina ChouCredit Derivatives, Basis Trades,

Long/Short Credit

Rick Li, Ph.D.Macro-econometrics, Rates and Currencies


20

Professionals include portfolio managers, analysts and traders.



Quantitative Portfolio Management Team

As investors and stewards of our clients’ capital, we are constantly searching for greater transparency into the drivers of investment risk in our strategies and assuring alignment with investment team convictions and client expectations.

Investment risk management at Franklin Templeton:


Investment Risk Management at Franklin Templeton

• Begins with the portfolio

management team’s research

process and the assessment of

market and active risk

• Is supported by integrated risk

analytics for the portfolio

management team’s use

• Is strengthened by the independent

Investment Risk Management

Group that reports directly to

the CEO

• Serves multiple stakeholders

including investors, portfolio

managers, fund boards and

regulators

• Is powered by actionable insights

from 20+ risk consultants with an

average of 10 years experience and

75+ risk analysts located around

the globe

• Combines a mosaic of analytics,

oversight protocols and

collaborative consultation with

portfolio managers

Integrated Independent Insightful

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21

Investment Risk Management at Franklin Templeton

FTIF Franklin High Yield Fund1 vs. Credit Suisse High Yield IndexAs of 31 March 2018

Risk Management Tools

• Customised Barclays POINT risk and benchmarking system provides key risk statistics for portfolio analysis

• Focus of quantitative analysis is to highlight key drivers for risk/tracking error to verify consistency with desired active risk positions

• Broad account versus benchmark comparisons provide indications for the portfolio’s beta positioning based on various metrics (YTW, OAD, TE volatility, beta, duration by ratings), as illustrated in the example below:

Parameter Portfolio Benchmark

Positions 195 1,300Issuers 129 906Currencies 3 1Coupon (%) 6.13 6.45Average Life (Yr) 6.31 5.80Yield to Worst (%) 6.17 6.33ISMA Yield (%) 6.49 6.90OAS (bps) 341 358OAD (Yr) 3.91 3.77Total TE Volatility 90.00

Systematic Volatility 240.38 242.90Non-systematic Volatility 60.27 46.57Default Volatility 174.67 182.48Total Volatility 303.19 307.35

Global Risk Factor Percentage of Tracking Error

Systematic 13.35

Foreign Exchange 0.00

FX Other 0.00

Curve 2.47

YC USD—Yield/Swap Curve 2.47

Swap Spreads 0.15

Volatility -0.04

Yield Curve -0.04

Spread Credit and EMG 8.31

Credit Investment Grade 4.37

Credit High Yield 3.73

Emerging Markets 0.21

Equity 2.46

Sector 2.14

Fundamental 0.37

Technical -0.05

Idiosyncratic 51.61

Credit Default 35.04

0771


22

Source: Franklin Templeton Investments.

Information shown is based on FTIF Franklin High Yield Fund. Percentages may not equal 100% due to rounding. The information is historical, may not reflect current or future portfolio characteristics. The information is shown solely to illustrate

aspects of our risk management analysis. All portfolio holdings are subject to change. Coupon, Average Life, Yield to Worst, ISMA Yield, OAS and OAD figures reflect certain derivatives held in the portfolio (or their underlying reference assets).

Risk Management Tools

Franklin High-Yield Advantage

Long-Term Fundamental ApproachFacilitates contrarian positioning and lower turnover

Experience in Key Functions over Multiple Market Cycles

Large Team Supported by Deep Resources

Thorough Company and Sector Coverage from Multiple Viewpoints

Quality Execution, Senior Management Contact,

and Deal Structuring Capabilities

Consistent, Disciplined InvestmentPhilosophy and Application

ExperienceMore than 40 years of high-yield research, portfolio management, and trading experience

ScaleDedicated team draws on Franklin Templeton’s risk management, legal and operational resources

Integrated High-Yield Research CapabilitiesHigh-yield analysts leverage insights of equity and fixed income platforms

Market PositionLeverage size and market relationships and insights

0766


23


Franklin High-Yield Advantage


24

Fund Identifiers

ISIN Code LU0131126228

SEDOL Code 7165872

Bloomberg Code TEMFHAC LX


As of 31 March 2018

Summary

Portfolio Manager(s)

Betsy Hofman, CFA United States

Glenn Voyles, CFA United States

Fund Ratings (31 March 2018)

Overall Morningstar Rating™

«

Summary of Investment Objective

The Fund aims to earn a high level of current income and seeks capital appreciation

when consistent with its principal objective of high current income, by principally

investing either directly or through the use of financial derivative instruments in Fixed

Income debt Securities of US or Non-US issuers of any credit ratings, if issued by US

issuers, or, if issued by Non-US issuers or unrated, their equivalent.

Morningstar Category™ USD High Yield Bond

Investment Style Fixed Income - High Yield

Fund Inception Date 1 March 1996

Share Class Inception Date 2 July 2001

Benchmark Credit Suisse High Yield Index

Base Currency for Fund USD

Base Currency for Share Class USD

Total Net Assets (USD) 2,035,528,721.64

Asset Allocation Fixed Income: 95.59%

Cash & Cash Equivalents: 3.62%

Equity: 0.79%

Number of Holdings 193

Total Expense Ratio 1.53%

© Morningstar, Inc. 2018. All rights reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither

Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information.

Information is historical and may not reflect current or future portfolio characteristics. All portfolio holdings are subject to change.

Asset Allocation figures reflect certain derivatives held in the portfolio (or their underlying reference assets) and may not total 100% or may be negative due to rounding, use of any derivatives, unsettled trades or other factors.

The fund offers other share classes subject to different fees and expenses, which will affect their performance. Please see the prospectus for details.

Past performance is not an indicator or a guarantee of future performance.


25

The value of shares in the Fund and income received from it can go down as well as up and investors may not get back the full amount invested.

Performance may also be affected by currency fluctuations. Currency fluctuations may affect the value of overseas investments.

The Fund invests mainly in debt securities of any quality issued principally by corporations located in the U.S. Such securities have historically been subject to price

movements, generally due to interest rates or movements in the bond market. As a result, the performance of the Fund can fluctuate over time.

The Fund may distribute income gross of expenses. Whilst this might allow more income to be distributed, it may also have the effect of reducing capital.

Other significant risks include: credit risk, derivatives risk, liquidity risk.

For full details of all of the risks applicable to this Fund, please refer to the “Risk Considerations” section of the Fund in the current prospectus of Franklin Templeton

Investment Funds.

What are the Key Risks?


26

Portfolio Characteristics


vs. Credit Suisse High Yield Index

As of 31 March 2018


Average Duration, Average Weighted Maturity, Yield to Maturity and Yield to Worst reflect certain derivatives held in the portfolio (or their underlying reference assets).

Source: Franklin Templeton Investments. The average credit quality (ACQ) rating may change over time. The portfolio itself has not been rated by an independent rating agency. The letter rating, which may be based on bond ratings from different

agencies, is provided to indicate the average credit rating of the portfolio’s underlying bonds and generally ranges from AAA (highest) to D (lowest). The ACQ is determined by assigning a sequential integer to all credit ratings AAA to D, taking a simple,

asset-weighted average of debt holdings by market value and rounding to the nearest rating. The risk of default increases as a bond’s rating decreases, so the ACQ provided is not a statistical measurement of the portfolio’s default risk because a simple,

weighted average does not measure the increasing level of risk from lower rated bonds. The ACQ is provided for informational purposes only. Derivative positions and unrated securities are not reflected in the ACQ.

Yield figures quoted should not be used as an indication of the income that has or will be received. Yield figures are based on the portfolio's underlying holdings and do not represent a payout of the portfolio.

Portfolio Index

Average Credit Quality B+ B+

Average Duration 3.96 Yrs 3.76 Yrs

Average Weighted Maturity 4.83 Yrs 4.80 Yrs

Yield to Maturity 6.33% 6.33%

Yield to Worst 6.15% 6.65%


Figures reflect certain derivatives held in the portfolio (or their underlying reference assets) and may not total 100% or may be negative due to rounding, use of any derivatives, unsettled trades or other factors.

ST Cash and Cash Equivalents

Australia / New Zealand

Asia ex-Japan

Latin America / Caribbean

Middle East / Africa

Non-EMU Europe

EMU Europe

Canada

United States

0% 25% 50% 75% 100%


Credit Suisse High Yield Index


27

Geographic Allocation



As of 31 March 2018

Portfolio % Index % Over/Under %

NORTH AMERICA 83.44 100.00 -16.56

UNITED STATES 80.47 100.00 -19.53

CANADA 2.96 0.00 2.96

EUROPE 6.89 0.00 6.89

EMU EUROPE 4.98 0.00 4.98

Luxembourg 2.05 0.00 2.05

Netherlands 1.10 0.00 1.10

Germany 0.92 0.00 0.92

Ireland 0.91 0.00 0.91

NON-EMU EUROPE 1.91 0.00 1.91

United Kingdom 1.63 0.00 1.63

Norway 0.28 0.00 0.28

MIDDLE EAST / AFRICA 2.61 0.00 2.61

Zambia 1.63 0.00 1.63

United Arab Emirates 0.98 0.00 0.98

LATIN AMERICA / CARIBBEAN 1.80 0.00 1.80

Mexico 1.02 0.00 1.02

Bermuda 0.78 0.00 0.78

ASIA 0.85 0.00 0.85

ASIA EX-JAPAN 0.85 0.00 0.85

Macau 0.85 0.00 0.85

AUSTRALIA / NEW ZEALAND 0.80 0.00 0.80

Australia 0.80 0.00 0.80

ST CASH AND CASH EQUIVALENTS 3.62 0.00 3.62

28



As of 31 March 2018

Sector Allocation




Energy 14.95 14.48 0.47

Cable Satellite 9.48 5.36 4.12

Health Care 8.92 8.22 0.71

Finance 8.81 7.91 0.89

Technology 8.01 7.89 0.12

Metals & Mining 6.17 4.60 1.58

Utility 5.75 2.37 3.38

Packaging 5.10 2.60 2.50

Wireless 4.39 3.54 0.85

Media Non Cable 4.20 4.57 -0.37

Food & Beverage 3.88 2.16 1.72

Industrial 3.08 4.93 -1.85

Building 2.99 3.58 -0.58

Restaurants 2.02 1.26 0.76

Gaming 1.84 3.03 -1.19

Chemicals 1.71 3.31 -1.60

Retailers 1.50 3.35 -1.86

Treasury & Govt. Related 0.98 0.53 0.44

Automotive 0.96 2.52 -1.56

Consumer Cyclical Services 0.74 2.53 -1.79

Leisure 0.45 1.25 -0.80

Wired 0.38 2.51 -2.12

Paper 0.07 0.68 -0.62

Aerospace & Defence 0.00 1.58 -1.58

Consumer Products 0.00 1.89 -1.89

Lodging 0.00 0.65 -0.65

Others 0.00 0.07 -0.07

Supermarkets 0.00 0.82 -0.82

Transportation 0.00 1.83 -1.83

Cash & Cash Equivalents 3.62 0.00 3.62


Cash & Cash Equivalents

Transportation

Supermarkets

Others

Lodging

Consumer Products

Aerospace & Defence

Paper

Wired

Leisure

Consumer Cyclical Services

Automotive

Treasury & Govt. Related

Retailers

Chemicals

Gaming

Restaurants

Building

Industrial

Food & Beverage

Media Non Cable

Wireless

Packaging

Utility

Metals & Mining

Technology

Finance

Health Care

Cable Satellite

Energy

0% 4% 8% 12% 16% 20%



Cash

N/A

NR

D

C

CC

CCC

B

BB

BBB

0% 15% 30% 45% 60%




29

Weightings as percent of total. Percentage may not equal 100% due to rounding. Information is historical and may not reflect current or future portfolio characteristics. All portfolio holdings are subject to change.

Ratings shown are assigned by one or more Nationally Recognized Statistical Rating Organizations ('NRSRO'), such as Standard & Poor's, Moody's and Fitch. The ratings are an indication of an issuer's creditworthiness and typically range from AAA or

Aaa (highest) to D (lowest). When ratings from all three agencies are available, the middle rating is used; when two are available, the lowest rating is used; and when only one is available, that rating is used. Foreign government bonds without a specific

rating are assigned the country rating provided by an NRSRO, if available. The NR category consists of rateable securities that have not been rated by an NRSRO. The N/A category consists of nonrateable securities (e.g., equities). Cash includes

equivalents, which may be rated. Derivatives are excluded from this breakdown.



As of 31 March 2018

Quality Allocation


BBB 1.60 0.00 1.60

BB 40.09 28.49 11.61

B 37.43 44.07 -6.64

CCC 16.05 18.95 -2.90

CC 0.17 1.65 -1.49

C 0.00 0.76 -0.76

D 0.00 0.21 -0.21

NR 0.27 5.87 -5.60

N/A 0.77 0.00 0.77

Cash 3.62 0.00 3.62

Investment Grade

1.60 0.00 1.60

Non-Investment Grade

94.01 100.00 -5.99

N/A

0.77

0.00 0.77

Cash

3.62 0.00 3.62

30


Maturity Allocation



As of 31 March 2018

N/A

30+ Years

20 to 30 Years

15 to 20 Years

10 to 15 Years

7 to 10 Years

5 to 7 Years

3 to 5 Years

2 to 3 Years

1 to 2 Years

0 to 1 Year

0% 10% 20% 30% 40%






0 to 1 Year 8.28 8.10 0.18

1 to 2 Years 5.67 8.94 -3.28

2 to 3 Years 7.94 12.49 -4.55

3 to 5 Years 27.95 27.96 -0.01

5 to 7 Years 30.21 20.01 10.20

7 to 10 Years 19.15 20.62 -1.47

10 to 15 Years 0.00 0.96 -0.96

15 to 20 Years 0.00 0.10 -0.10

20 to 30 Years 0.00 0.77 -0.77

30+ Years 0.01 0.03 -0.03

N/A 0.79 0.00 0.79

31

The Ten Largest Holdings represent the ten largest holdings of the fund as of the date indicated. These securities do not represent all of the securities purchased, sold or recommended for advisory clients, and the reader should not assume that

investment in the securities listed was or will be profitable. All portfolio holdings are subject to change.

The portfolio manager for the fund reserves the right to withhold release of information with respect to holdings that would otherwise be included in the top 10 holdings list.

Top Ten Holdings


As of 31 March 2018


Issuer Name % of Total

SPRINT COMMUNICATIONS INC 2.16

NAVIENT CORP 1.86

HCA INC 1.80

FIRST QUANTUM MINERALS LTD 1.62

FIRST DATA CORP 1.51

T-MOBILE USA INC 1.45

CCO HOLDINGS LLC / CCO HOLDING 1.43

DYNEGY INC 1.42

CHENIERE CORPUS CHRISTI HOLDIN 1.36

COTT HOLDINGS INC 1.36

Total 15.97


32

Discrete Performance

Discrete Annual Performance (%)

Inception

Date

03/17

03/18

03/16

03/17

03/15

03/16

03/14

03/15

03/13

03/14

Franklin High Yield Fund - A (acc) USD—Net of Fees 2.7.2001 1.60 19.14 -12.29 -2.80 7.05

Credit Suisse High Yield Index 3.68 17.40 -4.32 1.39 7.67

All performance data shown is in the Fund currency stated and net of management fees. Sales charges and other commissions, taxes and other relevant costs paid by the investor are not included in the calculations.

Performance data may represent blended share class performance, e.g., hybrid created from an A (dis) share class which was converted to A (acc).


The value of shares in the Fund and income received from it can go down as well as up, and investors may not get back the full amount invested. Past performance is not an indicator

or a guarantee of future performance. Current performance may differ from figures shown. Currency fluctuations may affect the value of overseas investments. When investing in a fund

denominated in a foreign currency, performance may also be affected by currency fluctuations. Please visit franklintempleton.lu for current performance.


As of 31 March 2018

Annualised Total Returns (%)

Inception

Date 1 Yr 3 Yrs 5 Yrs 10 Yrs

Since

Incept

Franklin High Yield Fund - A (acc) USD—Net of Fees 2.7.2001 1.60 2.02 2.02 4.96 5.17

Credit Suisse High Yield Index 3.68 5.21 4.92 7.83 8.00


Historical Performance


As of 31 March 2018







33

Cumulative Performance (%)

Inception

Date 1 Mth 3 Mths YTD 1 Yr 3 Yrs 5 Yrs 10 Yrs

Since

Incept

Franklin High Yield Fund - A (acc) USD—Net of Fees 2.7.2001 -1.01 -1.77 -1.77 1.60 6.18 10.49 62.20 132.44

Credit Suisse High Yield Index -0.63 -0.85 -0.85 3.68 16.46 27.14 112.42 262.80


34







Calendar Year Returns


As of 31 March 2018

YTD 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008

-28%

-7%

14%

35%

56%

-1.77 -0.85

6.12

7.03

17.58

18.39

-12.10 -4.90 -1.26

1.86

6.53

7.53

14.17

14.71

3.79

5.47

12.26

14.42

42.25

54.22

-26.38 -26.17

Franklin High Yield Fund - A (acc) USD—Net of Fees Credit Suisse High Yield Index


35

The base currency of a fund determines the risk-free rate index used in calculating certain risk statistics on this page. A fund that is based in USD uses the US T-Bill Index as the risk free rate return, a EUR-based fund uses the Euro 3-Month T-Bill

Index, a GBP-based fund uses the UK Treasury Bills 3 Month Index, a JPY-based fund uses the Japan Financing Bill 3 Month Index, and an AUD-based fund uses the Australia T-Note 3 Month Index.

^^Measured against the Credit Suisse High Yield Index.

*Annualised.

Past performance is not an indicator or a guarantee of future performance.

As of 31 March 2018

Performance Risk Statistics

1 Yr 3 Yrs* 5 Yrs* 10 Yrs* 15 Yrs*

Standard Deviation (%):

Franklin High Yield Fund - A (acc) USD 2.60 7.38 6.82 10.71 9.30

Credit Suisse High Yield Index 2.16 5.62 5.29 9.76 8.44

Tracking Error (%)^^ 0.80 2.14 1.92 1.98 1.81

Information Ratio^^ -2.60 -1.49 -1.52 -1.45 -1.39

Beta^^ 1.15 1.29 1.27 1.08 1.08

Sharpe Ratio 0.18 0.20 0.25 0.43 0.48


Performance Risk Statistics

Glossary


36

Average Credit Quality: The credit rating of a bond is an assessment of the creditworthiness of individuals and corporations. It is based upon the history of borrowing and repayment,

as well as the availability of assets and extent of liabilities. The average credit quality of a fund reflects the holdings of the underlying issues, based on the size of each holding. Usually

we quote the average credit quality as per Standard & Poor's or Moody's credit rating agencies.

Average Duration: A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. Duration is expressed as a number of

years.

Average Weighted Maturity: An estimate of the number of years to maturity, taking the possibility of early payments into account, for the underlying holdings.

Beta: A measure of the magnitude of a portfolio's past share-price fluctuations in relation to the ups and downs of the overall market (or appropriate market index). The market (or index)

is assigned a beta of 1.00, so a portfolio with a beta of 1.20 would have seen its share price rise or fall by 12% when the overall market rose or fell by 10%.

Information Ratio: In investing terminology, the ratio of expected return to risk. Usually, this statistical technique is used to measure a manager's performance against a benchmark.

This measure explicitly relates the degree by which an investment has beaten the benchmark to the consistency by which the investment has beaten the benchmark.

Sharpe Ratio: To calculate a Sharpe ratio, an asset's excess returns (its return in excess of the return generated by risk-free assets such as Treasury bills) are divided by the asset's

standard deviation.

Standard Deviation: A measure of the degree to which a fund's return varies from the average of its previous returns. The larger the standard deviation, the greater the likelihood (and

risk) that a fund's performance will fluctuate from the average return.

Tracking Error: Measure of the deviation of the return of a fund compared to the return of a benchmark over a fixed period of time. Expressed as a percentage. The more passively the

investment fund is managed, the smaller the tracking error.

Yield to Maturity: Yield to Maturity ('YTM') also known as the 'Gross Redemption Yield' or 'Redemption Yield'. The rate of return anticipated on a bond if it is held until the maturity date.

YTM is considered a long-term bond yield expressed as an annual rate. The calculation of YTM takes into account the current market price, par value, coupon interest rate and time to

maturity. It is also assumed that all coupons are reinvested at the same rate.

Yield to Worst: The yield to maturity if the worst possible bond repayment takes place. If market yields are higher than the coupon, the yield to worst would assume no prepayment. If

market yields are below the coupon, the yield to worst would assume prepayment. In other words, yield to worst assumes that market yields are unchanged. Normally this value is not

aggregated since it varies but if a weighted average value is used for a Fund then the figure will reflect the values of the underlying issues, based on the size of each holding.

CHRISTOPHER J. MOLUMPHY, CFAExecutive Vice PresidentChief Investment OfficerFranklin Templeton Fixed Income GroupFranklin Advisers, Inc.San Mateo, California, United States

Christopher J. Molumphy is executive vice president and chief investment officer of the Franklin Templeton Fixed Income Group. In this role, Mr. Molumphy oversees Franklin's Municipal, High Yield, Investment Grade, Global (including Emerging Markets), Money Market, Floating Rate and Local Asset Management-Fixed Income teams, and Co-Chairs the Group's Fixed Income Policy Committee. He is a member of Franklin Resources' executive committee, asmall group of the company's top leaders responsible for shaping the firm's overall strategy. In addition, he serves on the firm's management and investment committees.

Mr. Molumphy is also named portfolio manager to a number of institutional separate accounts and funds, including Franklin Strategic Income Fund, Franklin High Income Fund and Franklin Total Return Fund.

Mr. Molumphy joined Franklin Templeton Investments as an analyst in 1988 and has served as a portfolio manager since 1991. Prior to assuming his current role in 2000, he served as director of Franklin's High Yield and Investment Grade teams since 1994.

Mr. Molumphy earned his bachelor's degree in economics from Stanford University and an M.B.A. in finance from the University of Chicago Graduate School ofBusiness. He is a Chartered Financial Analyst (CFA) charterholder, as well as a member of the Security Analysts of San Francisco (SASF), the CFA Institute, the Stanford Institute for Economic Policy Research (SIEPR), and the San Francisco Bond Club.


37

Management Profile

BETSY HOFMAN, CFAVice President and Portfolio ManagerFranklin Templeton Fixed IncomeFranklin Advisers, Inc.San Mateo, California, United States

Betsy Hofman is a vice president and portfolio manager for the Franklin Templeton Fixed Income Group. She manages multiple US and global high yield funds, as well as high yield allocations for several multi-sector funds.

Ms. Hofman began her career in the accounting department at Franklin Templeton Investments in 1981. She worked on the equity-trading desk for two years and was a securities analyst prior to becoming a portfolio manager.

Ms. Hofman holds a B.S. in finance and an M.B.A. with an emphasis in finance, both from the College of Notre Dame in Belmont, California. Ms. Hofman is a Chartered Financial Analyst (CFA) charterholder and a member of the CFA Institute and the CFA Society of San Francisco.


Management Profile

38

GLENN VOYLES, CFASenior Vice PresidentDirector of Portfolio Management, Corporate BondsFranklin Templeton Fixed Income GroupFranklin Advisers, Inc.San Mateo, California, United States

Glenn Voyles is a senior vice president and the Director of Portfolio Management, Corporate Bonds. In addition to overseeing the corporate credit portfolio management team, Mr. Voyles' is the lead or co-portfolio manager of various US and global high yield accounts. Additionally, Mr. Voyles is a member of the firm's Fixed Income Policy Committee (FIPC).

Mr. Voyles joined Franklin Templeton in 1993. Prior to being appointed the Director of Portfolio Management, he was a high yield portfolio manager and research analyst with primary coverage of the energy sector.

Mr. Voyles holds a B.A. in economics from Stanford University. He is a Chartered Financial Analyst (CFA) charterholder, a member of Security Analysts of SanFrancisco (SASF), and the CFA Institute.


Management Profile

39

Important Disclosures


40

References to indices are made for comparative purposes only and are provided to represent the investment environment existing during the time periods shown. An index is unmanaged and

one cannot invest directly in an index. The performance of the index does not include the deduction of expenses and does not represent the performance of any Franklin Templeton fund.

© 2018 Franklin Templeton Investments. All rights reserved.


Indexes are unmanaged, and one cannot invest directly in an index. They do not reflect any fees, expenses or sales charges.

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