2013 investment forum materials / not for public...

2013 Investment Forum Materials / Not for Public Distribution

Franklin Equity GroupInternational Small Cap Update

EDWIN LUGO, CFASenior Vice President, Portfolio ManagerFranklin Equity Group

Franklin Templeton Institutional, LLC

June 5, 2013

2013 Investment Forum Materials / Not for Public Distribution 4

• Organization

• Where are the Best Opportunities?

• Example

Agenda


Equities Look Attractive To Us Compared to Bonds Citigroup World Government Bond Index Yield vs. MSCI World Index Dividend Yield

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Citigroup WGBI (20+YTM) MSCI World Index- Div. Yield

Sources: © 2013 FactSet Research Systems Inc. All Rights Reserved, © 2013 Morgan Stanley Capital Index (MSCI), Reuters. As of 3/31/2013. Chart is for illustrative and discussion purposes only. Past performance does not guarantee future results.

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Small Caps Have Outperformed Long-TermPerformance of MSCI Small Cap Total Return Index and MSCI EAFE Total Return Index (4/1/03- 3/28/13)

Source: © 2013 FactSet Research Systems Inc. All Rights Reserved, © 2013 Morgan Stanley Capital Index (MSCI). Chart is for illustrative and discussion purposes only. Past performance does not guarantee future results.

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MSCI EAFE TR Index MSCI EAFE SC TR Index

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MSCI EAFE Small Cap Total Return Index Price

MSCI EAFE Total Return Index:112.57% Gain

MSCI EAFE Small Cap Total Return Index:189.95% Gain


Small Cap Valuations Generally Remain Attractive

Source: © 2013 FactSet Research Systems Inc. All Rights Reserved, © 2013 Morgan Stanley Capital Index (MSCI). Chart is for illustrative and discussion purposes only. Past performance does not guarantee future results.

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MSCI EAFE Small Cap MSCI EAFE

Forward P/E Comparison: MSCI EAFE Small Cap and MSCI EAFE Indices


Index PE 2013E PBV 2012

MSCI World Index 13.3 1.7

MSCI USA Index 13.4 2.0

MSCI Europe Index 11.8 1.5

MSCI Pacific Index ex-Japan 12.4 1.6

MSCI Japan Index 19.2 1.1

Source: © 2013 Morgan Stanley Capital Index (MSCI), Bloomberg as of 1/15/13. E= estimates for 2013. There is no assurance that any projection, estimate or forecast will be realized.

Europe Is Attractive To Us Versus Other Markets


Company Balance Sheets Are in Good Shape

Source: MSCI, Worldscope, Institutional Brokers Estimate System, Morgan Stanley Research. Note: Data excludes financials sector. e= IBES estimates for 2012, 2013 and 2014. There is no assurance that any projection, estimate or forecast will be realized. Chart is for illustrative and discussion purposes only.

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Net Debt to Equity %

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Sector Allocations Franklin International Small Cap Growth Equity Composite vs. MSCI EAFE Small Cap Index

Information is supplemental to the Historical Performance page and the accompanying full performance presentation prepared in accordance with the GlobalInvestment Performance Standards (GIPS®). Please also see the Important Information page in the Appendix. Percentages may not equal 100% due to rounding. Figuresrepresent percent of equity. Sector and industry group diversification information is historical and may not reflect current or future portfolio characteristics of the composite.

Portfolio % Index % Over/UnderAs of March 31, 2013Portfiolio % Index % Over/Under

Industrials 35.5 21.4 14.1Capital Goods 25.0 14.2 10.8Commercial & Professional Services 6.6 3.8 2.9Transportation 3.9 3.4 0.5

Financials 23.9 21.0 2.9Insurance 10.6 2.2 8.4Real Estate 8.1 10.0 -1.9Diversified Financials 5.2 4.6 0.6Banks 0.0 4.2 -4.2

Consumer Discretionary 19.5 19.2 0.3Retailing 9.1 5.3 3.8Consumer Durables & Apparel 5.1 4.5 0.6Media 2.9 3.5 -0.7Consumer Services 2.4 3.9 -1.5Automobiles & Components 0.0 2.0 -2.0

Consumer Staples 13.9 6.0 7.9Household & Personal Products 5.6 0.7 4.9Food Beverage & Tobacco 4.2 3.8 0.4Food & Staples Retailing 4.0 1.5 2.5

Information Technology 4.1 8.9 -4.8Technology Hardware & Equipment 2.3 4.4 -2.0Software & Services 1.8 3.5 -1.7Semiconductors & Semiconductor Equip. 0.0 1.1 -1.1

Materials 3.2 10.1 -7.0Utilities 0.0 1.6 -1.6Telecommunication Services 0.0 1.3 -1.3HealthCare 0.0 5.7 -5.7

Health Care Equipment & Services 0.0 2.5 -2.5Pharma Biotech & Life Sciences 0.0 3.2 -3.2

Energy 0.0 4.8 -4.8

0% 10% 20% 30% 40%

Industrials

Financials

Consumer Discretionary

Consumer Staples

Information Technology

Materials

Utilities

Telecommunication Services

HealthCare

Energy

Franklin International Small Cap Growth Equity CompositeMSCI EAFE Small Cap Index


Geographical Allocations

Portfolio % Index % Over/UnderEurope 46.7 34.7 12.1

Ireland 15.2 1.4 13.8France 9.2 3.9 5.3Italy 4.2 3.0 1.2Netherlands 4.0 1.7 2.3Finland 3.5 1.5 2.0Greece 3.3 2.7 1.6Spain 3.1 1.5 1.6Belgium 2.6 1.3 1.3Austria 1.6 .9 .7Denmark 0.0 1.8 -1.8Germany 0.0 6.0 -6.0Norway 0.0 2.2 -2.2Sweden 0.0 3.6 -3.6Switzerland 0.0 3.7 -3.7

United Kingdom 30.8 21.9 8.9Japan 13.6 28.0 -14.4North America 6.3 0.0 6.3

United States 4.0 0.0 4.0Canada 2.3 0.0 2.3

Asia/Pacific Ex Japan 2.6 15.5 -12.9Singapore 2.6 2.9 -.3Australia 0.0 8.8 -8.8Hong Kong 0.0 3.0 -3.0

Other 0.0 2.2 -2.2

Information is supplemental to the Historical Performance page and the accompanying full performance presentation prepared in accordance with the Global Investment Performance Standards (GIPS®). Please also see the Important Information page in the Appendix. Percentages may not equal 100% due to rounding. Figures represent percent of equity. Geographic diversification information is historical and may not reflect current or future portfolio characteristics of the composite.

Franklin International Small Cap Growth Equity Composite vs. MSCI EAFE Small Cap IndexAs of March 31, 2013

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Europe

United Kingdom

Japan

North America

Asia/Pacific Ex Japan

Franklin International Small Cap Growth Equity CompositeMSCI EAFE Small Cap Index


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Case Study: Carpetright PLC

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The following case study shown represents an example of the investment managers’ best performing investments and other investments made by the investment manager which were not as successful or that lost money are not shown. The investment may or may not be currently held by funds managed by the investment manager. This case study is not representative of the overall performance of the funds managed by the investment manager as is demonstrated by those funds’ past performance numbers. Past performance does not guarantee future results and results may differ over future time periods. This case study is being shown only as example of what the investment manager is seeking to achieve in managing the fund, but is not necessarily indicative of what has actually been achieved with all of the investments or will be achieved going forward. This is not a complete analysis of every material fact regarding an industry, security or investment and should not be viewed as an investment recommendation. The actions taken with respect to this investment, and its performance, may not be representative of other advice or investments. Factual statements are taken from sources considered reliable, but have not been independently verified for completeness or accuracy by the fund’s manager or its affiliates. These opinions may not be relied upon as investment advice or an offer for a particular security or as an indication of trading intent for any fund. Holdings are subject to change.Logos are trademarks of their respective owners and are used for illustrative purposes and should not be construed as an endorsement or sponsorship of Franklin Templeton Investments.

UK’s leading specialist carpet retailerQuality• Strong balance sheet – low levels of net debt and strong

cash generation indicates it can take advantage of competitors under financial stress to take market share.

• CEO has been in the industry for over 50 years.• Return on equity has averaged 75% over the last decade.

Valuation / Risk• We view the recent share price, and broader weakness in

the sector, as an opportunity to purchase shares at a discount, as investors have fled consumer discretionary stocks reliant on the UK housing market.

• Based on our research, we believe the company could generate £40-60m of free cashflow per year.

• Combined with the strong competitive position and balance sheet, we believe this should protect us from the risk of a prolonged downturn.

• Ultimately, we feel Carpetright will exit the recession with an even more dominant position.

Long term competitive advantage• Carpetright dominant 32% market share in the UK gives

them buying power over the fragmented carpet manufacturing industry.

• These economies of scales lead to higher margins and lower prices for consumers driving market share gains.

• Carpetright shows superior service over its competitors –they control the majority of the carpet fitters leading to shorter waiting times between ordering and fitting.


Market Cap Breakdown (%)1 and Top 10 Equity Holdings

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Source: FactSet Research Systems, Inc.

Market Capitalization Analysis1

(figures in $USD)Top 10 Holdings2

(as of 3/31/13)

Name of Issuer Total

Grafton Group PLC 4.40%

Euler SA 4.00%

Diabiru Corp. 4.00%

Prysmian SPA 3.90%

C&C Group PLC 3.90%

Sligro Food Group NV 3.70%

Arch Capital Group Ltd 3.70%

Aderans Co. Ltd 3.60%

DCC PLC 3.60%

Savills PLC 3.50%

TOTAL 38.30%

$1.5Bn-$2Bn10.7%

$500m-$1Bn20%

Information is supplemental to the Historical Performance page and the accompanying full performance presentation prepared in accordance with the Global Investment Performance Standards (GIPS®). Please also see the Important Information page in the Appendix. Top ten equity holdings information is historical and may not reflect current or future composite characteristics. All holdings are subject to change. Holdings of the same issuers have been combined.The information provided is not a recommendation to purchase, sell, or hold any particular security. The securities identified do not represent the composite’s entire holdings and in the aggregate may represent only a small percentage of such holdings. There is no assurance that securities purchased will remain in the composite, or that securities sold will not be repurchased. Top ten holdings may differ for individual accounts within the composite. In addition, it should not be assumed that any securities mentioned were or will prove to be profitable. For the most current information on the composite, please contact your Franklin Templeton institutional marketing representative at 1.800.321.8563. 1. Total may not equal 100% due to rounding. 2. Based on representative portfolio taken from the Franklin International Small Cap Growth Equity Composite. Information is historical and is subject to change

Franklin International Small Cap Growth Equity Composite


Franklin International Small Cap Growth Equity Composite

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Historical PerformanceAs of March 31, 2012

1 Yr 3 Yr 5 Yr 10 Yr

Since Inception11/30/02

Franklin International Small Cap Growth Equity Composite – Gross of Fees (USD) 22.1 12.5 8.9 19.4 18.2

Franklin International Small Cap Growth Equity Composite – Net of Fees (USD) 21.2 11.5 7.9 18.2 17.1

MSCI EAFE Small Cap Index 13.7 8.8 2.4 13.6 12.6

Annualized Total Returns (%)

Past performance does not guarantee future results and results may differ over future time periods. Please see accompanying full performance presentation prepared in accordance with the Global Investment Performance Standards (GIPS®). Please also see the Important Information page in the Appendix.Total returns are presented inclusive of commissions and transaction costs, and assume reinvestment of any dividends, interest income, capital gains, or other earnings.


Important Information

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The information provided during this conference is not a complete analysis of every material fact regarding any market,industry sector, security, or portfolio. Statements of fact cited by the presenters have been obtained from sources consideredreliable but no representation is made as to their completeness or accuracy. Because market and economic conditions aresubject to rapid change, opinions provided are valid only as of the date of the material and are subject to change withoutnotice. The manager’s opinions are intended solely to provide insight into how the manager analyzes securities and are notintended as a recommendation or individual investment advice for any particular security, strategy, or investment product.Indexes are for illustrative purposes only. One cannot invest directly in an index. For more information on Franklin Templetonproducts or services, please contact your local Franklin Templeton representative at (800) 321-8563.This presentation is provided by Franklin Templeton Institutional for informational purposes only. This information isconsidered proprietary and shall be treated as confidential. It shall not be distributed or otherwise communicated to thirdparties. While every effort has been made to ensure the accuracy of the information contained within these materials, we donot guarantee such accuracy.

Additional Information© 2013 Morgan Stanley Capital Index (MSCI). All MSCI data is provided “as is.” The Fund described herein is not sponsoredor endorsed by MSCI. In no event shall MSCI, its affiliates or any MSCI data provider have any liability of any kind inconnection with the MSCI data or the Fund described herein. Copying or redistributing the MSCI data is strictly prohibited.Indexes are unmanaged and one cannot invest directly in an index.

© 2013 FactSet Research Systems Inc. All Rights Reserved. The information contained herein: (1) is proprietary to FactSetResearch Systems Inc. and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to beaccurate, complete or timely. Neither FactSet Research Systems Inc. nor its content providers are responsible for anydamages or losses arising from any use of this information.

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Important InformationFranklin claims compliance with the Global Investment Performance Standards (GIPS®). Please see accompanying full performance presentation prepared in accordance with the Global Investment Performance Standards (GIPS®).

Franklin (the “firm”) encompasses the equity, fixed income and balanced accounts managed by Franklin Advisers, Inc., and related Franklin affiliates, including, effective January 1, 2007, the equity accounts managed by the institutional investment teams of Franklin Templeton Institutional, LLC under the former firm name of Fiduciary Global Advisors. The combined equity assets of Franklin and Fiduciary Global Advisors form the Franklin Global Advisers unit of Franklin going forward. Effective January 1, 2006, the fixed income assets managed from that date forward by Franklin Templeton Institutional, LLC (“FTI”) or its related affiliates (managed previously by Fiduciary Trust Company International - Institutional Division or “FTCI’s Institutional Division”) that went through the institutional portfolio review process were combined with the fixed income assets of Franklin to form the Franklin Templeton Fixed Income unit of Franklin. The primary reason for these changes to the firm definition was to consolidate equity and fixed income asset management for Franklin (as previously defined), Fiduciary Global Advisors (institutional equities) and FTCI’s Institutional Division (institutional fixed income) under one firm, Franklin. Wrap-fee and non wrap-fee accounts managed by Franklin Portfolio Advisors (formerly the Franklin Private Client Group) and multi-strategy asset allocation portfolios managed by Franklin Templeton Multi-Asset Strategies (FTMAS) are not included in the firm definition.

Total firm assets prior to January 1, 2006, are for the predecessor firm, Fiduciary Trust Company International - Institutional Division. As a result of the transfer of the fixed income assets of the Institutional Division on that date to the Franklin Templeton Fixed Income unit of Franklin, total firm assets for calendar year 2006 are only for the equity and private equity real estate assets that comprise Fiduciary Global Advisors. Effective January 1, 2007, the assets of Fiduciary Global Advisors have been redefined, as noted above, with the result that its equity assets (excluding global REITs) became part of the Franklin Global Advisers unit of Franklin and its global REIT and private equity real estate assets were reconstituted as Franklin Templeton Real Estate Advisors.

The Franklin International Small Cap Growth Equity Composite consists of a single pooled investment vehicle managed on a fully discretionary basis with an investment objective that seeks an above-average total return by investing in non-U.S. smaller capitalization growth-oriented equities. Total returns are presented in U.S. dollars both gross and net of investment advisory fees, are inclusive of commissions and transaction costs and assume reinvestment of any dividends, interest income, capital gains or other earnings. The performance returns for the composite are in compliance with GIPS® since inception. The primary benchmark of the composite is the MSCI EAFE Small Cap Index. The benchmark is free float adjusted market capitalization weighted and is composed of equity securities comprising MSCI’s developed market country-specific indexes, excluding the U.S. and Canada. Additional information regarding the firm’s policies for valuing portfolios, calculating performance, and preparing compliant presentations are available upon request. As a firm with many mutual funds with unique investment objectives that are subject to varying regulatory requirements based on domicile of jurisdiction, the firm considers many of its mutual funds to be single account composites, for which the objective is as stated in each respective fund’s prospectus. To receive a complete list and description of the firm’s composites (including any single account mutual fund composite) contact your Franklin Templeton representative at 1.800.321.8563. This publication is intended only as a general overview of the Franklin International Small Cap Growth Equity management team and philosophy and is for informational purposes only. It has been prepared solely for the use of the person to whom it has been delivered and may not be reproduced or used for any other purpose. It is intended only for institutional investment consultants or institutional investors. It is not meant for the general public. For specific information on our products or services, please contact your local Franklin Templeton Institutional office. The information contained in this piece is not a complete analysis of every material fact regarding the market and any industry sector, a security, or a portfolio. Statements of fact cited by the manager have been obtained from sources considered reliable but no representation is made as to the completeness or accuracy. Because market and economic conditions are subject to rapid change, opinions provided are valid only as of the date of the material. Portfolio holdings and the manager’s analysis of these issuers, market sectors, and of the economic environment may have changed since the date of the material. The manager’s opinions are intended solely to provide insight into how the manager analyzes securities and are not a recommendation or individual investment advice for any particular security, strategy, or investment product. This presentation contains certain performance and statistical information. There is no assurance that employment of any of the strategies will result in the investment objectives or intended results being achieved.

Past performance does not guarantee future results and results may differ over future time periods. Indices are unmanaged and one cannot invest directly in an index. The performance of an individual portfolio may differ from that of a benchmark, representative account or composite included herein for various reasons, including but not limited to, the objectives, limitations or investment strategies of a particular portfolio. Management fees will reduce the rate of return on any particular account or portfolios.

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Franklin International Small Cap Growth Equity CompositeAll Returns and Asset Figures in USD

1. Franklin claims compliance with the Global Investment Performance Standards (GIPS®) and has prepared and presented this report in compliance with the GIPS standards. Franklin has been independently verified for the periods 31 December 2006 through 31 December 2011. The verification report is available upon request. Verification assesses whether (1) the firm has complied with all the composite construction requirements of the GIPS standards on a firm-wide basis and (2) the firm’s policies and procedures are designed to calculate and present performance in compliance with the GIPS standards. Verification does not ensure the accuracy of any specific composite presentation.

2. Past performance does not guarantee future results and results may differ over future time periods.3. Prior to 1 January 2007, firm assets under management do not include composites that transferred from Fiduciary Global Advisers, due to changes in the firm definition, as more fully

explained in footnotes a and b. Please see additional notes to this performance presentation starting on page 2. 4. Benchmark returns and the benchmark annualized three year standard deviation for all periods are not covered by the Report of Independent Accountants. In addition, the composite gross

annualized three year standard deviation for periods before 2011 is not covered by the Report of Independent Accountants.

N/A = Not Available* Year to Date reflects performance through 3/31/2013 and composite composition as of 3/31/2013Primary Benchmark: MSCI EAFE Small Cap Index.

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Disclosures

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A. Firm Definition - Franklin (the "firm") encompasses the equity, fixed income and balanced accounts managed by Franklin Advisers, Inc., and related Franklin affiliates, including, effective 1 January 2007, the equity accounts managed by the institutional investment teams of Franklin Templeton Institutional, LLC under the former firm name of Fiduciary Global Advisors. The combined equity assets of Franklin and Fiduciary Global Advisors form the Franklin Equity Group (formerly Franklin Global Advisers prior to 30 June 2010) unit of Franklin. Effective 1 January 2006, the fixed income assets managed from that date forward by Franklin Templeton Institutional, LLC ("FTI") or its related affiliates (managed previously by Fiduciary Trust Company International - Institutional Division or "FTCI’s Institutional Division") that went through the institutional portfolio review process were combined with the fixed income assets of Franklin to form the Franklin Templeton Fixed Income unit of Franklin. The primary reason for these changes to the firm definition was to consolidate equity and fixed income asset management for Franklin (as previously defined), Fiduciary Global Advisors (institutional equities) and FTCI’s Institutional Division (institutional fixed income) under one firm, Franklin. The firm definition for Franklin does not include multi-strategy asset allocation portfolios managed by Franklin Templeton Multi-Asset Strategies (FTMAS) and the wrap-fee and non wrap-fee accounts managed by Franklin Separately Managed Accounts (formerly Franklin Portfolio Advisors). Figures for total firm assets are impacted by the changes to the firm definition effective 1 January 2006 and 1 January 2007, as firm assets for prior periods have not been restated. Total firm assets prior to 1 January 2006 are for Franklin prior to the inclusion of the fixed income assets from the predecessor firm, Fiduciary Trust Company International - Institutional Division. Total firm assets for calendar year 2006 include Franklin legacy equity assets plus Franklin Templeton Fixed Income, including both Franklin and Fiduciary legacy fixed income assets. Effective 1 January 2007, Franklin's assets also include the equity assets of the former firm Fiduciary Global Advisors, which were combined with Franklin's equity assets on that date to form the Franklin Global Advisers unit of Franklin.

B. Composite Description - The Franklin International Small Cap Growth Equity Composite consists of all portfolios managed on a fully discretionary basis with an investment objective that seeks to outperform its benchmark on a gross of fees basis by investing in non-U.S. smaller capitalization equities. Franklin employs a bottom-up fundamental approach to stock selection, utilizing in-depth analysis to select companies based on growth, quality and valuation investment criteria. Franklin seeks to invest in those sectors and companies that are expected to grow at a faster rate than the market overall, likely benefiting from secular and cyclical trends in both U.S. and non-U.S. markets. Franklin does not employ leverage or use derivatives in any account in the composite except for the use of foreign currency forward contracts in conjunction with the normal settlement of security trades in currencies other than the base currency of each account. Smaller-company stocks have historically exhibited greater price volatility than larger-company stocks, particularly over the short term. The base currency of the composite is U.S.Dollars(USD). The inception date for the composite is 30 November 2002. The composite creation date is 1 April 2004. The firm claims compliance with GIPS since January 1, 2000. The performance for the period prior to 1 January 2007 represents the performance of the composite when the constituent accounts were part of the firm Fiduciary Global Advisors (previously, FTCI -Institutional Division), which also claimed compliance with GIPS® from 1 January 2000 forward. That performance is linked to the ongoing performance of the composite following the consolidation of the Fiduciary equity team into the Franklin Global Advisers unit of Franklin. The figures for composite assets shown in the table provided were not part of Franklin’s historical assets under management prior to 1 January 2007. As a result, the assets under management for the firm represent the assets of Franklin without giving effect to changes in the firm definition, as more fully described in footnote a. In addition to pooled investment vehicles, Franklin may manage separate accounts pursuing the same strategy, utilizing the same research and investment advisory team. Separate accounts pursuing the same strategy may nevertheless show different performance results as they are not subject to frequent capital flows due to redemptions and subscriptions or to diversification requirements that can vary by jurisdiction depending upon the domicile of registration. As a result, separate accounts pursuing the same strategy are or will be placed in a separate composite as they come in to the firm. Eligible new accounts and eligible accounts that have changed to this mandate are added to the composite after one full month of performance, excluding any first partial month following inception or notification of mandate change. Accounts are removed from the composite if they breach the minimum account size for two consecutive months based on beginning market value for the month or if they become non-discretionary due to client-directed restrictions according to the firm’s definition of what constitutes discretion. Prior to 1 January 2006, this composite was referred to as the FTCI Non-U.S. Small Cap Growth Equity Composite, as the name of the firm changed from FTCI - Institutional Division to Fiduciary Global Advisors ("FGA") on that date. Effective 1 January 2007, the composite name was changed from Fiduciary Intl Small Cap Growth Composite to Franklin International Small Cap Growth Equity Composite due to the integration of Fiduciary Global Advisors into the Franklin Global Advisers unit of Franklin.


DisclosuresC. Basis of Presentation and Calculation Methodology - Gross Total Returns are presented gross of investment advisory fees, and Net Total Returns are presented net of investment advisory fees.

Gross and Net Total Returns are calculated net of brokerage commissions and other expenses a client would have paid and assume reinvestment of any dividends, interest income, capital gains or other earnings. Dividends, interest income, and capital gains are net of any applicable withholding taxes. Both gross and net performance results are time-weighted rates of return, including realized and unrealized gains and losses. For separate accounts and commingled trust accounts, gross of fee performance is presented before investment management fees but after the deduction of trading expenses. Gross of fee returns for pooled investment vehicles are calculated by adding back 1/12 of the pooled investment vehicle’s total annual expense ratio to the monthly returns which are based on the net asset values for the primary share class. The total expense ratio reflects the investment management fees, administrative fees and all other pooled vehicle-related expenses for the primary share class but do not include any sales charges. For separate accounts, net performance reflects actual investment management fees charged, assessed quarterly in arrears, and actual performance fees if applicable. For all pooled investment vehicles (including commingled trust accounts), third party administered accounts, including accounts that use custodian market values where actual fees are not available, or accounts which are otherwise not charged a fee or benefit from fee waivers, net performance is reduced by performance fees if applicable and investment management fees by applying the highest breakpoint from the standard institutional fee schedule to the gross monthly returns regardless of asset size. For performance periods prior to 1 January 2012, net performance presented for pooled investment vehicles with expense ratios were based on actual net asset value returns for the primary share class before sales charges and for commingled trusts, net performance presented was based on fund expenses and actual investment management fees charged assessed quarterly in arrears. There may also be some pooled investment vehicles included in the composite where net performance for some historical performance periods was calculated by applying the standard fee schedule with applicable breakpoints to the gross monthly returns. Monthly composite returns are calculated by weighting each account’s monthly return by its beginning market value as a percent of the total composite beginning market value. Quarterly and annual returns are calculated by linking the monthly returns through compounded multiplication. Returns for periods of less than one year are not annualized. Account portfolios are valued daily at fair market value on a trade date basis, with adjustment for all cash flows, and market values include accrued income for fixed income securities and accrued dividends for equity securities based on ex-dividend date. Where market quotations are readily available, securities are valued thereon (using closing quotations when available), provided such quotations adequately reflect, in the judgment of the firm, the fair value of the securities. Positions for which no quotation is readily available are valued at fair market value using quotations from brokers or using Franklin Templeton's own assessment of fair market value based on fundamental analysis (earnings multiples, price to cash flow analysis), discounts from market prices of similar securities, or matrix pricing, among other methods. Securities not in the base currency of the portfolio have (since 1 September 2004) generally been valued using foreign exchange rates obtained through Reuters, using 4:00 PM (New York time) foreign exchange (FX) rates. Effective June 2006, Franklin began to revert to the use of London FX rates for selected separate accounts and, if approved by the respective boards, selected mutual funds (generally offshore funds), due to requests from clients and in order to move toward industry practice of utilizing London FX rates. Accounts in this composite may include accounts that have reverted to the use of London FX rates. Prior to 1 September 2004, rates were pulled from WM/Reuters at midday New York time for initial review, then FX rates were pulled in again at 3:30 PM EST. These rates were compared against the rates pulled in at mid-day and, if rates had moved by 1% or more, the 3:30 PM rates were used (rates prior to 1 September 2004 are referred to as "hybrid FX" rates). While valuations for individual security positions began using the New York close effective 1 September 2004, the asset-weighted composite calculation continued to use London close until 31 December 2004 for purposes of translating non-base account market values and returns for accounts in currencies other than the base currency of the composite before changing to the use of New York close on 1 January 2005. Effective 1 January 2008, the asset-weighted composite calculation reverted to using London close once again. Past performance does not guarantee future results and results may differ over future time periods.

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DisclosuresD. Description of Index - The primary benchmark is MSCI EAFE Small Cap. The MSCI EAFE Small Cap Index is a free float-adjusted market capitalization weighted equity index comprised of

equity securities in MSCI's developed market country-specific indexes, excluding the U.S. and Canada, with a market cap defined as small cap by MSCI. Prior to 1 April 2008, the benchmark was S&P/Citigroup EPAC <$2 Billion Index. The benchmark was changed due to S&P/Citigroup EPAC <$2b having different country weightings, including sizeable positions in the Emerging Markets, that are typically not part of the investment universe for this composite. Returns for the benchmark include dividends and income (if applicable) not adjusted for foreign withholding taxes (the "gross of dividends" series of MSCI) and are based on foreign exchange rates established at the London close (or mid-day New York time). FX rates used by index vendors are obtained from their respective FX vendors and may differ slightly from the FX rates used by Franklin, which (effective 1 September 2004) for individual security valuations and (effective 1 January 2005) for translating non-base account market values to the base currency of the composite began to use 4:00 PM (New York time) rates. Beginning with the third quarter of 2008, Franklin reverted to the use of London FX rates for all time periods back to inception for converting composite base currency returns into other currencies and for reporting benchmark returns, in order to conform to more common industry practice. The benchmark, which is not managed, is used for comparative purposes only and is provided to represent the investment environment existing during the time periods shown. All MSCI data is provided "as is". The composite described herein is not sponsored or endorsed by MSCI. In no event shall MSCI, its affiliates or any MSCI data provider have any liability of any kind in connection with the MSCI data or the composite described herein. Copying or redistributing MSCI data is strictly prohibited.

E. Minimum Account Size - The minimum account size required to be included in this composite is USD $5,000,000.

F. Standard Fee Schedule - The standard investment management fee schedule has breakpoints depending on asset size, with the result that accounts with higher asset levels will pay a lower fee. Investment management fees are negotiable, so some clients may be able to negotiate a fee that is less than the standard fee schedule at a given breakpoint. For pooled investment vehicles such as mutual funds that may be in the composite, the total expense ratio may higher than the standard fee schedule for separate accounts, depending on the total expenses for that vehicle which includes management fees, administrative fees, and other expenses. The fee schedule is presented in USD.

G. Measure of Dispersion - Dispersion represents the consistency of Franklin’s results with respect to individual portfolio returns within the composite. The dispersion of annual returns is measured by the standard deviation of equal-weighted returns for those accounts that were in the composite for each full calendar year, or partial year for the most recent year-to-date. Dispersion is not meaningful when there are five or fewer accounts in a given year or time period, so is not presented for this composite for periods when this is applicable, in accordance with GIPS guidelines.

H. Additional Information - The firm’s policies for valuing portfolios, calculating performance, and preparing compliant presentations are available upon request. Franklin manages many portfolios with unique investment objectives and considers these accounts to be single account composites for which the objective is stated in the prospectus, private placement memorandum or investment management agreement. To receive a complete list and description of Franklin composites (including a list of single account composite) contact your Franklin Templeton representative at 1.800.321.8563.

I. Significant Event - The portfolio manager who has historically managed the Franklin International Small Cap Growth Equity strategy left Fiduciary Global Advisors in June of 2006, taking with her several members of her supporting staff. The firm has appointed a new portfolio manager from within its staff to assume management of the strategy and believes that it has ample depth of research coverage to support the strategy going forward.

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Breakpoints Separate AccountsFirst $25,000,000 0.95%Next $25,000,000 0.85%Next $50,000,000 0.75%Over $100,000,000 0.65%

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