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For Professional Investor Use Only. Not for Distribution to Retail Investors. David Zahn Manager, Templeton Strategic Bond Fund Franklin Templeton Funds Meeting the Income Challenge

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Page 1: Franklin templeton investments

For Professional Investor Use Only. Not for Distribution to Retail Investors.

David Zahn Manager, Templeton Strategic Bond Fund

Franklin Templeton Funds

Meeting the Income Challenge

Page 2: Franklin templeton investments

For Professional Investor Use Only. Not for Distribution to Retail Investors.

Franklin Templeton Fixed Income Group

Global Investment Professionals

1. 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. 2. Investment professionals include portfolio managers, analysts and traders. As of 30 September 2012.

MEETING THE INCOME CHALLENGE 2

Page 3: Franklin templeton investments

For professional investors only. Not for distribution to retail investors.

3

Franklin Templeton Fixed Income Group Overview

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

3 MEETING THE INCOME CHALLENGE

Broad Capabilities and Deep Resources in One Platform

• Global platform with more than 30 years of investment experience

• Pursuit of diversified sources of potential alpha across securities, sectors and global markets

Multiple Sources of Expertise

• More than 100 investment professionals globally seek return opportunities across sectors around the

world1

Franklin Templeton Fixed Income Group Overview

Top Down Bottom-Up Quantitative

Dedicated team builds

proprietary risk models to

identify potential alpha

opportunities

Dedicated sector teams

strive to add value through

security- and sector- specific

insights

Senior leaders seek to

capitalise on global

economic trends

Combination of Expertise Aiming to Build:

Diverse Portfolios of Low-correlated Positions

Page 4: Franklin templeton investments

For Professional Investor Use Only. Not for Distribution to Retail Investors.

An Opportunistic and Flexible Approach

Global Investment Opportunities

Greater value can be found by looking globally rather than by just investing in a single market or

currency

Flexible approach

• No set limits in terms of where you can invest and in which sectors.

• Positioned to exploit the best opportunities.

Experienced and stable team

More than 100 investment professionals based in ten different locations globally.

Multiple areas of expertise

A multi-sector investment approach combines a global presence and top-down expertise with

bottom-up sector specialist teams.

4 MEETING THE INCOME CHALLENGE

Page 5: Franklin templeton investments

For professional investors only. Not for distribution to retail investors.

5

Source: Bank of England as of 30 November 2012

• As with many other central banks across the globe, the BoE has indicated that interest rates

will remain at current levels for the mid-term

• In May 2012, the The International Monetary Fund (IMF) urged the BoE to cut rates to even

lower levels

• Investors are therefore looking to compensate a lack of return from deposits by increasingly

turning to income generating investments

Interest Rates Are Expected to Remain Low

MEETING THE INCOME CHALLENGE

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Page 6: Franklin templeton investments

For professional investors only. Not for distribution to retail investors.

6

Looking Beyond the UK has Become Increasingly Important

Source: © 2012 Bloomberg L.P. All rights reserved as of 30 November 2012.

Gilt yields have been trending down for the last 20 years

MEETING THE INCOME CHALLENGE

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Page 7: Franklin templeton investments

For Professional Investor Use Only. Not for Distribution to Retail Investors.

Evaluating a Broader Investment Universe

With the aim of generating attractive and consistent yields the fund looks to:

• Invest in a broader investment universe than traditional strategic bond funds, allowing the team to

tap into high yielding securities

• Use its permitted allocation (20%) to hard currencies beyond GBP and local currencies in order to

maximise yields and returns.

Source: Franklin Templeton Investments as of 30 September 2012.

40%

30%

30%

Typical Templeton Strategic Bond Fund Asset Allocation by Region

UK

EM

Global

5%

60%15%

20%

Typical Templeton Strategic Bond Fund Asset Allocation by Sector

Cash

Corporate Bonds

Govt & GovtRelated Bonds

Sovereign Bonds

7

A closer look at sector allocation

Sovereign Bonds – primarily emerging market sovereign bonds.

Corporate Bonds – a diversified mix of investment grade and high yield names. UK names will

feature heavily.

Government & Government Related Bonds – typically bonds of Euro periphery countries e.g. Italy

and Poland.

MEETING THE INCOME CHALLENGE

Page 8: Franklin templeton investments

For professional investors only. Not for distribution to retail investors.

8

G3 Markets Continue to Fall Behind

Source: Copyright © 2012, The International Monetary Fund (IMF), World Economic Outlook as of 30 October 2012.

MEETING THE INCOME CHALLENGE

Page 9: Franklin templeton investments

For Professional Investor Use Only. Not for Distribution to Retail Investors.

Many of the top funds in the

sector are yielding less than

the Templeton Strategic Bond

Fund (4.94%) but appear to

be taking roughly the same

amount of risk.

Source: Financial Express as of 30 November 2012. Does not include fund of funds.

Being More Strategic than its Competitors?

9

Region %

UK 61.89

Developed Europe (ex UK) 21.32

North America 8.21

Cash and Equivalents 3.57

Non-Classified 2.07

South & Central America 0.63

Australia & New Zealand 0.37

Middle East & Africa 0.35

Emerging Europe 0.00

Developed Asia 1.59

Emerging Asia 0.02

Average Regional Breakdown of Top 10 Funds in IMA's £ Strategic Bond

Sector

Developed Markets

Emerging Markets

Cash

Non Classified

Region %

UK 34.75

Developed Europe (ex UK) 27.74

North America 6.61

Cash and Equivalents 1.39

Non-Classified 0.00

South & Central America 12.95

Australia & New Zealand 0.00

Middle East & Africa 1.65

Emerging Europe 13.48

Developed Asia 0.00

Emerging Asia 1.44

MEETING THE INCOME CHALLENGE

Page 10: Franklin templeton investments

For Professional Investor Use Only. Not for Distribution to Retail Investors.

Appendix

Page 11: Franklin templeton investments

For Professional Investor Use Only. Not for Distribution to Retail Investors.

Templeton Strategic Bond Fund

Fund Details

Fund Managers David Zahn, John Beck

Asset Category Fixed Income

IMA Sector IMA £ Strategic Bond

Benchmark BofA Merrill Lynch Sterling Broad Market Index

Launch Date 02/06/2008

Number of Positions 90

Portfolio Size £6.72 million

Distribution Yield 4.94%

11

Source: Franklin Templeton Investments, as at 30 November 2012. Past performance does not guarantee future results. The Distribution Yield reflects the amounts that may be

expected to be distributed over the next 12 months as a percentage of the mid-market unit price of the fund as at the date shown. It does not include any preliminary charge and

investors may be subject to tax on distributions.

MEETING THE INCOME CHALLENGE

Page 12: Franklin templeton investments

For Professional Investor Use Only. Not for Distribution to Retail Investors.

Templeton Strategic Bond Fund – A New Beginning

Source: Franklin Templeton Investments as of 30 November 2012.

Changes made Summer 2012

A new lead portfolio manager

David Zahn was appointed the portfolio manager on 1 August 2012. David has been with the

firm since 2006 and manages a range global funds as well as several separate accounts

Greater focus on yield

The team is now positioning the fund with the aim of generating a higher yield. Consequently

the team has increased exposure to high yield corporate bonds and emerging market

sovereign debt.

More strategic approach to asset allocation

Given the investment team’s global experience and expertise, the fund will now have greater

exposure to markets and sectors which many traditional strategic bond funds have overlooked.

Whilst the team will maintain a core of UK corporate bonds, it will also look to add value by

holding select positions in markets less familiar to many peer group portfolios, e.g. Brazilian

Index Linked Bonds

MEETING THE INCOME CHALLENGE 12

Page 13: Franklin templeton investments

13

Portfolio Characteristics Templeton Strategic Bond Fund vs. BofA Merrill Lynch Sterling Broad Market Index

As of 30 November 2012

Quality Allocation

AA- A+ A A- BBB+ BBB BBB- BB+ BB- B+ B B- CCC NR 0%

15%

30%

4.44 4.62 6.24

12.86 11.33

20.61

12.78

6.25 5.36 7.06 3.83 1.52 1.85 1.24

* The Distribution Yield reflects the amounts that may be expected to be distributed over the next 12 months as a percentage of the mid-market unit price of the fund as at the date shown. It does not

include any preliminary charge and investors may be subject to tax on distributions.

Past performance does not guarantee future results. Where a fund invests in emerging markets, this investment can be more risky than an investment in developed markets.

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

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 to be received. 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. If listed, 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 and equivalents (defined as bonds with stated maturities, or that can be redeemed at intervals, of seven days or less) as well as derivatives are excluded

from this breakdown. As a result, the chart does not reflect the fund's total net assets.

Weightings as percent of total. Percentage may not equal 100% due to rounding.

For professional investors only. Not for distribution to retail investors.

Portfolio Index

Average Credit Quality BBB A

Average Duration 5.98 Yrs 9.40 Yrs

Average Weighted Maturity 7.60 Yrs 13.65 Yrs

Current Yield 5.81% 3.90%

Distribution Yield* 4.94% N/A

MEETING THE INCOME CHALLENGE

Page 14: Franklin templeton investments

14

Top Ten Holdings Templeton Strategic Bond Fund

As of 30 November 2012

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

For professional investors only. Not for distribution to retail investors.

MEETING THE INCOME CHALLENGE

Security Name Country Industry % of Total

1. Nota Do Tesouro Nacional, Index Linked, 6.00%, 5/15/15 Brazil Government Securities 5.21

2. HSBC Holdings PLC, senior note, 6.50%, 5/20/24 United Kingdom Banks 2.69

3. Italy Treasury Bond, 5.50%, 9/01/22 Italy Government Securities 2.65

4. GE Capital UK Funding, senior bond, 5.125%, 5/24/23 Ireland Diversified Financials 2.61

5. Government of Mexico, 6.75%, 2/06/24 Mexico Government Securities 1.94

6. RZD Capital Ltd., senior secured note, Reg S, 7.487%, 3/25/31 Russia Transportation 1.85

7. WM Morrison Supermarkets PLC, Reg S, 4.625%, 12/08/23 United Kingdom Food & Staples Retailing 1.74

8. Svenska Handelsbanken AB, senior note, Reg S, 4.00%, 1/18/19 Sweden Banks 1.70

9. Boparan Finance PLC, senior note, Reg S, 9.875%, 4/30/18 United Kingdom Food Beverage & Tobacco 1.66

10. Motability Operations Group PLC, senior note, Reg S, 4.375%,

2/08/27 United Kingdom Diversified Financials 1.66

Total 23.71

Page 15: Franklin templeton investments

15

Management Profile

For professional investors only. Not for distribution to retail investors.

DAVID ZAHN, CFA, FRM

Senior Vice President

Portfolio Manager

Franklin Templeton Fixed Income Group

Franklin Templeton Investment Management Limited

London, England, United Kingdom

David Zahn, senior vice president, is responsible for managing the UK Templeton Strategic Bond Fund and the Global

Aggregate and Euro Aggregate fixed income strategies. He is a member of the Fixed Income Policy Committee and is a

portfolio manager for many of the European Franklin Templeton fixed income funds.

Prior to joining Franklin Templeton in 2006, Mr. Zahn was a senior portfolio manager at Citigroup Asset Management.

Mr. Zahn holds a B.S. in business administration from the University of Maine and an M.B.A in finance from the University of

Connecticut. He is a Chartered Financial Analyst (CFA) Charterholder and is a qualified Financial Risk Manager (FRM).

MEETING THE INCOME CHALLENGE

Page 16: Franklin templeton investments

16

Important Information

For professional investors only. Not for distribution to retail investors.

Source: Franklin Templeton Investments, unless stated otherwise. Fund specific information - performance details provided are in the Fund currency, include reinvested dividends

and are net of management fees. Sales charges and other commissions, taxes and other relevant costs to be paid by an investor are not included in the calculations. Past

performance is not an indicator nor a guarantee of future performance.

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.

This document is intended to be of general interest only and does not constitute legal or tax advice nor is it an offer for shares or invitation to apply for shares of the UK-domiciled

OEIC, Franklin Templeton Funds (“the Fund”). Nothing in this document should be construed as investment advice. Opinions expressed within the promotion are subject to change

without prior notice.

Subscriptions to shares of the Fund can only be made on the basis of the current prospectus, the relevant Key Investor Information Document, accompanied by the latest available

audited annual report and the latest semi-annual report if published thereafter, which can be found on our website or requested from the address below.

An investment in the Fund entails risks which are described in the Fund’s prospectus and the relevant Key Investor Information Document. 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. Currency fluctuations may affect the value of overseas investment. In

emerging markets, the risks can be greater than in developed markets. Investments in derivative instruments entail specific risks that may increase the risk profile of the fund and are

more fully described in the Fund’s prospectus.

No shares of the Fund may be directly or indirectly offered or sold to nationals or residents of the United States of America. Shares of the Fund are not available for distribution in all

jurisdictions and prospective investors should confirm availability with their local Franklin Templeton Investments representative before making any plans to invest.

For a free copy of latest prospectus, the relevant Key Investor Information Document, the annual report and semi-annual report, if published thereafter or for more information about

any Franklin Templeton Investments’ fund, please contact: Franklin Templeton Investments, Telephone: 0800 305 306, Email: [email protected] or write to us at the

address below.

Issued by Franklin Templeton Investment Management Limited (FTIML). Registered office: The Adelphi, 1-11 John Adam Street, London WC2N 6HT. FTIML is authorised and

regulated by the Financial Services Authority.

© 2012 Franklin Templeton Investments. All rights reserved.

MEETING THE INCOME CHALLENGE