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Not FDIC Insured | May Lose Value | No Bank Guarantee
Q4 2016
INVESTING FOR WHAT’S NEXT™
BOND FUND INVESTORS CAN’T STAY ON AUTOPILOT
• Market Insights
• Strategies for What’s Next
– Unconstrained global fixed income
– High quality (investment grade) fixed income
2
AgendaBond Fund Investors Can't Stay on Autopilot
The information provided is not a complete analysis of every material fact regarding any country, region, market, investment, or strategy. Because market and economic conditions are subject to change, comments, opinions and analyses are rendered as of October 31, 2016, and may change without notice. Opinions are intended to provide insight on macroeconomic issues and commentary is not intended as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy.
0%
3%
6%
9%
1/93 5/95 9/97 1/00 5/02 9/04 1/07 5/09 9/11 1/14 5/16
Rising Rate Period Fed Funds Target 10-Year US Treasury
3
10-Year US Treasury Yield vs. Fed Funds Target RateJanuary 31, 1993–September 30, 2016
Interest Rates Are Low
Past performance does not guarantee future results.
Treasuries, if held to maturity, offer a fixed rate of return and fixed principal value; their interest payments and principal are
guaranteed.
Sources: Bloomberg, Federal Reserve H.15 Report.
9/93–12/94 9/98–1/00 5/03–6/06 12/08–4/10 7/12–1/14
MARKET INSIGHTS
9/16
0%
5%
10%
15%
20%
1980 1985 1990 1995 2000 2005 2010 2015
Bloomberg BarclaysUS Aggregate Index YTW
SubsequentRolling 5-Year Return
9/16
4
1.96
9/16
%
Bonds May Face Uphill Battle for Returns
1 = Perfect Positive Correlation; 0 = No Correlation; -1 = Perfect Negative Correlation
This chart is for illustrative purposes only and does not reflect the performance of any Franklin Templeton fund.
Past performance does not guarantee future results.
1. Sources: FactSet, Bloomberg Barclays. Indexes are unmanaged and one cannot invest directly in an index. Index returns do not reflect any fees, expenses or sales charges.
Please see appendix for descriptions of indexes shown.
2. Yields are represented by Yield-to-Worst, the yield if the worst-possible repayment scenario takes place. This yield is determined by taking the lower of the yield-to-maturity
or yield-to-call, depending on whether current market yields are higher or lower than the coupon rate on the bond.
3. Correlation is a statistical measure of how two investments move in relation to each other.
Historically, Yields Have Been a Strong Signal of Future Bond Market Returns
Bloomberg Barclays US Aggregate Index Yield-to-Worst (YTW) vs. Subsequent 5-Year Return1,2
December 31, 1980–September 30, 2016
Fixed income
investors may not
receive the historical
returns they have
become accustomed
to in the past
A record of high correlation between current yields and future returns3
0.97
As of 9/30/16
Yield-to-Worst
MARKET INSIGHTS
8.01
5.51
3.50
4.50
5.50
6.50
7.50
8.50
1/08 1/09 2/10 3/11 3/12 4/13 4/14 5/15 6/16
Citigroup WGBI Index Bloomberg Barclays US Aggregate Index
5
Citigroup World Government Bond Index (WGBI) and
Bloomberg Barclays US Aggregate Index Duration ComparisonJanuary 31, 2008–September 30, 2016
Higher Index Durations May Warrant Caution
Sources: Citigroup, Bloomberg Barclays. Indexes are unmanaged and one cannot invest directly in an index. Please see appendix for descriptions of indexes shown. Duration
is 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.
Years
9/16
MARKET INSIGHTS
6
US Treasury: 36%
US Mortgage-Backed Securities: 28%
Corporate: 26%
Other (Government-Related): 8%
Other (Securitized): 2%
Breakdown of Bloomberg Barclays US Aggregate Index CompositionAs of September 30, 2016
72% of the Bloomberg Barclays US Agg is
Government-Related
This chart is for illustrative purposes only and does not reflect the composition of any Franklin Templeton fund .
Source: Bloomberg Barclays Live. Indexes are unmanaged and one cannot invest directly in an index. Please see appendix for description of index shown.
MARKET INSIGHTS
7
Breakdown of Citigroup World Government Bond Index Composition1
As of September 30, 2016
88% of the Citi World Government Bond Index is in Three Regions
This chart is for illustrative purposes only and does not reflect the composition of any Franklin Templeton fund.
1. Source: Citigroup. Indexes are unmanaged and one cannot invest directly in an index. Please see appendix for description of index shown.
MARKET INSIGHTS
CITIGROUP WORLD
GOVERNMENT BOND INDEX
88%IN 3 REGIONS US, Japan & Eurozone(as of 9/30/16)
8
Correlations of Key Sectors to 10-Year US Treasury Bonds20-Year Period Ended September 30, 2016
Fixed Income Diversification Is Key
Past performance does not guarantee future results.
Treasuries, if held to maturity, offer a fixed rate of return and fixed principal value; their interest payments and principal are
guaranteed.
Source: © 2016 Morningstar. 10-Year US Treasuries represented by the Citigroup 10-Year Treasury Benchmark; US Agencies represented by the Bloomberg Barclays US
Agency Index, Mortgage-Backed Securities represented by Bloomberg Barclays US Mortgage-Backed Securities Index; Short-term Government Bonds represented by
Bloomberg Barclays US Government 1-2 Year Treasury Index; Global Bonds represented by Citi World Government Bond Index; Investment-Grade Corporate Bonds
represented by Bloomberg Barclays US Aggregate Credit – Corporate – Investment Grade Index; Municipal Bonds represented by Bloomberg Barclays Municipal Bond Index;
International Bonds represented by Citi World Government Bond Index (Non USD); Asset-Backed Securities represented by Bloomberg Barclays Asset-Backed Securities
Index; Emerging Markets Debt represented by JP Morgan Emerging Market Bond Index; High Yield Bonds represented by Credit Suisse High Yield Bond Index, Hedge
Strategies represented by HFRI Fund Weighted Composite Index, US Stocks represented by S&P 500 Index, Floating-Rate Loans represented by Credit Suisse Leveraged
Loan Index. Indexes are unmanaged and one cannot invest directly in an index. Please see appendix for descriptions of indexes shown.
US
Agencies
Mortgage-
Backed
Securities
Short-
Term
Gov't
Bonds
Invest.-
Grade
Corporate
Bonds
Global
Bonds
Municipal
Bonds
Int’l.
Bonds
Asset-
Backed
Securities
Emerging
Markets
Debt
High Yield
Bonds
US
Stocks
Hedge
Strategies
Floating-
Rate
Loans
0.91 0.81 0.63 0.61 0.59 0.57 0.46 0.36 0.11 -0.19 -0.25 -0.26 -0.35
1 = Perfect Positive Correlation; 0 = No Correlation; -1 = Perfect Negative Correlation
More Correlated Less Correlated
MARKET INSIGHTS
9
The Fixed Income Universe Traditional vs. Non-Traditional Fixed Income (% of Total + Sector Breakdown)As of September 30, 2016
Time to Expand the Opportunity Set?
This chart is for illustrative purposes only and does not reflect the composition of any Franklin Templeton fund.
Treasuries, if held to maturity, offer a fixed rate of return and fixed principal value; their interest payments and principal are
guaranteed.
Sources: FactSet, Bloomberg Barclays, Credit Suisse. US Treasuries are represented by Bloomberg Barclays US Aggregate Government - Treasury Index; US Investment-Grade
Corporate Bonds are represented by Bloomberg Barclays US Aggregate Credit - Corporate – Investment Grade Index; US MBS are represented by Bloomberg Barclays US Aggregate
Securitized – MBS Index; Bank Loans are represented by Credit Suisse Leveraged Loan Index; High Yield Corporate Bonds are represented by Bloomberg Barclays Global High
Yield Corporate Index; Municipal Bonds are represented by Bloomberg Barclays Municipal Bond Index; Emerging Market Local Currency is represented by Bloomberg
Barclays Emerging Market Local Currency Government Index; Emerging Market Hard Currency is represented by Bloomberg Barclays Emerging Markets Hard Currency
Aggregate Index; Global Government Bonds (ex-US) are represented by Bloomberg Barclays Global Treasury (ex-US) Index; Global Corporate Bonds (ex-US) are represented
by Bloomberg Barclays Global Aggregate - Corporates (ex-US) Index. Indexes are unmanaged and one cannot invest directly in an index. Please see appendix for descriptions of
indexes shown.
MARKET INSIGHTS
36%TRADITIONAL
64%NON-TRADITIONAL
US MBS: 11.0%
US Investment-Grade Corporate Bonds: 10.4%
US Treasuries: 14.5%
36%TRADITIONAL
Bank Loans: 2.0%
High Yield Corporate Bonds: 3.9%
Municipal Bonds: 2.9%
EM Local Currency: 4.0%
EM Hard Currency: 3.9%
Global Government Bonds (ex-US): 39.4%
Global Corporate Bonds (ex-US): 8.1%
64%NON-TRADITIONAL
10
Strategies for What’s Next:
Unconstrained Global Fixed Income
11
2- and 10-Year Government Bond YieldsAs of September 30, 2016
Unconstrained Global Fixed IncomeHigher Yields Can Be Found Outside of the Major Developed Markets
This chart is for illustrative purposes only and does not reflect the performance or portfolio composition of any Franklin Templeton fund.
Past performance does not guarantee future results.
Higher risks are associated with investing in emerging market debt including heightened risks associated with currency fluctuations and
economic and political uncertainties. Higher yielding, lower rated bonds are generally subject to higher risk of default and loss of principal.
Source: Bloomberg.
11.8%
6.7% 6.6%5.5%
3.6%2.7%
1.8% 1.6% 1.3% 1.2%
0.8% 0.6% 0.1% -0.3% -0.7% -0.7%
11.6%
7.2% 7.1%
6.1%
4.2%3.6%
2.9%
1.9%1.4%
3.6%
1.6%1.2%
0.8%-0.1% 0.2% -0.1%
Brazil India Indonesia Mexico Chile Malaysia Poland Australia S. Korea Philippines US Norway UK Japan Sweden Germany
2-Year Nominal Yield 10-Year Nominal Yield
12
Historic Country Allocation of Templeton Global Bond Fund vs.
Citigroup World Government Bond Index1
June 30, 2005–September 30, 2016
Templeton Global Bond Fund An Unconstrained World View
1. Source: Citigroup. Portfolio holdings are subject to change and may not represent current or future portfolio composition. Indexes are unmanaged and one cannot invest
directly in an index. Please see appendix for description of index shown.
CITIGROUP WORLD
GOVERNMENT BOND INDEX
25 COUNTRY EXPOSURE
88%IN 3 REGIONS US, Japan & Eurozone(as of 9/30/16)
TEMPLETON
GLOBAL BOND FUND
50 COUNTRY EXPOSURE
13
Templeton Global Bond FundIdentify Opportunities Across Three Sources of Potential Alpha
CREDITCURRENCYCURVE (Duration)
THE THREE Cs
14
-0.04
8.01
Templeton Global Bond Fund Citigroup WGBI¹
Templeton Global Bond Fund Average Duration vs.
Citigroup World Government Bond Index (in years)As of September 30, 2016
The Fund’s Average Duration Has Been Significantly Lower Than the Benchmark
Figures reflect certain derivatives held in the portfolio (or their underlying reference assets).
All portfolio holdings are subject to change.
1. Source: Citigroup. Indexes are unmanaged and one cannot invest directly in an index. Please see appendix for description of index shown. Duration is 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.
All investments involve risks, including loss of principal. Currency rates may fluctuate significantly over shorter periods of time, and can reduce returns. Derivatives, including currency management strategies, involve costs and can create economic leverage in the portfolio which may result in significant volatility and cause the fund to participate in losses (as well as enable gains) on an amount that exceeds the fund's initial investment. The fund may not achieve the anticipated benefits, and may realize losses when a counterparty fails to perform as promised. The markets for particular securities or types of securities are or may become relatively illiquid. Reduced liquidity will have an adverse impact on the security's value and on the fund's ability to sell such securities when necessary to meet the fund's liquidity needs or in response to a specific market event. Foreign securities involve special risks, including currency fluctuations and economic and political uncertainties. Investments in emerging markets involve heightened risks related to the same factors, in addition to those associated with these markets' smaller size and lesser liquidity. Investments in lower-rated bonds include higher risk of default and loss of principal. Changes in interest rates will affect the value of the fund's portfolio and its share price and yield. Bond prices generally move in the opposite direction of interest rates. As the prices of bonds in the fund adjust to a rise in interest rates, the fund's share price may decline. The fund is also non-diversified, which involves the risk of greater price fluctuation than a more diversified portfolio. Changes in the financial strength of a bond issuer or in a bond's credit rating may affect its value. These and other risk considerations are discussed in the fund's prospectus.
15
Risk Discussion
Templeton Global Bond Fund
16
Strategies for What’s Next:
High-Quality Fixed Income
17
High-Quality Fixed Income Remains Essential to Help Lessen the Impact of Equity Volatility
This chart is for illustrative purposes only and does not reflect the performance of any Franklin Templeton fund .
Past performance does not guarantee future results.
Stocks historically have offered the highest return potential but also have tended to be the most volatile. Municipal bonds are debt securities
issued by state and local governments. They offer income and typically have lower capital appreciation potential than stocks.
Source: © 2016 Morningstar. Stocks are represented by the S&P 500 Index. Municipal Bonds are represented by Bloomberg Barclays Municipal Bond Index. Indexes are unmanaged and
one cannot invest directly in an index. Index returns do not reflect any fees, expenses or sales charges. Please see appendix for descriptions of indexes shown.
Stocks vs. Municipal BondsBest and Worst Monthly Rolling Period Performance
January 1996–September 30, 2016
54%
15%
30%
10%
23%
8% 9% 6%
-43%
-4%
-16%
2%-7%
3% -3% 4%
-60%
-30%
0%
30%
60%
Best Rolling Performance Worst Rolling Performance
10-Year5-Year3-Year1-Year
Stocks Municipal
Bonds
Stocks Municipal
Bonds
Stocks Municipal
Bonds
Stocks Municipal
Bonds
18
Muni Bond vs. Treasury and Muni Taxable Equivalent Yield CurvesAs of September 30, 2016
Municipal BondsMunis Have Been Offering Attractive Taxable Equivalent Yields
This chart is for illustrative purposes only and does not reflect the performance of any Franklin Templeton fund. Past performance does not guarantee future results.Treasuries, if held to maturity, offer a fixed rate of return and fixed principal value; their interest payments and principal are guaranteed. Source: Bloomberg. Municipal Bonds are represented by Bloomberg Valuation AAA Benchmark Municipal Yields. Treasury data from US Department of the Treasury Daily Treasury
Yield Curve Rates, as of 9/30/16. Muni AAA Taxable Equivalent is based on 43.4% maximum total tax rate equaling a tax rate of 39.6% (maximum US tax rate) plus the 3.8% tax from
the Affordable Care Act. For investors subject to the alternative minimum tax, a small portion of fund dividends may be taxable. Distributions of capital gains are generally taxable.
0%
1%
2%
3%
4%
Muni AAA Treasuries Taxable Equivalent Muni AAA
2.69%
3.76%
3.22%
0%
1%
2%
3%
4%
US Treasuries Munis(AAA Rated)
A RatedCorporate Bonds
Munis(A Rated)
US Bonds US CorporateBonds
Munis
1.61%
1.52%
2.56%
2.13%
1.96%
2.85%
1.82%
0%
1%
2%
3%
4%
US Treasuries Munis(AAA Rated)
A RatedCorporate Bonds
Munis(A Rated)
US Bonds US CorporateBonds
Munis
19
Municipal Bond Yields vs. Other Types of Bonds
Yield-to-Worst as of September 30, 2016
Municipal BondsMunis Have Provided a Higher Taxable Equivalent Yield
Than Most Other Types of Bonds
This chart is for illustrative purposes only and does not reflect the performance of any Franklin Templeton fund.
Past performance does not guarantee future results.
Treasuries if held to maturity, offer a fixed rate of return and fixed principal value; their interest payments and principal are guaranteed.
Municipal bonds are issued by state and local governments. Corporate bonds are issued by corporations. Bonds with lower credit ratings
(and higher risk of default) typically offer higher interest rates to compensate investors for the greater risk associated with these investments.
Source: Factset. US Treasuries are represented by the BofA Merrill Lynch Current US Treasury (10-Y) Index; Munis (AAA Rated) are represented by the Bloomberg Barclays Municipal
Bond (AAA) Index; A Rated Corporate Bonds are represented by the Bloomberg Barclays US Aggregate Corporate (A) Index; Munis (A Rated) are represented by the Bloomberg Barclays
Municipal Bond (A) Index; US Bonds are represented by the Bloomberg Barclays US Aggregate Index; US Corporate Bonds are represented by the BofA Merrill Lynch US Corporate Index;
Munis are represented by the Bloomberg Barclays Municipal Bond Index. Indexes are unmanaged and one cannot invest directly in an index. Index returns do not reflect any fees, expenses
or sales charges. Please see appendix for descriptions of indexes shown.
1. Yields are represented by Yield-to-Worst, the yield if the worst-possible repayment scenario takes place. This yield is determined by taking the lower of the yield-to-maturity or yield-to-call,
depending on whether current market yields are higher or lower than the coupon rate on the bond.
2. Taxable equivalent yield assumes a 43.4% maximum total tax rate equaling a tax rate of 39.6% (maximum US tax rate) plus the 3.8% ACA tax.
Yield1 Taxable Equivalent Yield2
20
After-Tax Total Returns vs. Risk20-Year Period Ended September 30, 2016
This chart is for illustrative purposes only and does not reflect the performance of any Franklin Templeton fund.
Past performance does not guarantee future results.
Treasuries if held to maturity, offer a fixed rate of return and fixed principal value; their interest payments and principal are guaranteed.
Stocks historically have offered the greatest potential for returns but also have tended to be more volatile. Municipal bonds are issued by
state and local governments and are typically exempt from regular federal and state and local personal income taxes for residents in the
state where the bond was issued. Corporate bonds are issued by corporations. Bonds with higher credit risk (risk of default) typically offer
higher interest rates to compensate investors for the higher risk associated with the investment.
Source: © 2016 Morningstar. Equities are represented by the S&P 500 Index; Municipal Bonds are represented by the Bloomberg Barclays Long-Term Municipal Bond Index; US Treasuries
are represented by the Bloomberg Barclays Long-Term Treasury Bond Index and Corporate Bonds are represented by the Bloomberg Barclays Long-Term US Credit Index. Indexes are
unmanaged and one cannot invest directly in an index. Index returns do not reflect any fees, expenses or sales charges. Please see appendix for descriptions of indexes shown. Risk is
measured by standard deviation.
After-tax returns assume a 20% annual turnover rate, transacted monthly. Investment income and capital gains are taxed at marginal historical federal tax rates consistent with those
experienced by individuals earning $100,000 annually. Capital losses are carried forward to offset capital gains in future months. For investors subject to federal or state alternative minimum
tax, all or a portion of the tax-free income may be subject to such tax, depending on the investment. Distributions of capital gains if any, are generally taxable. Long-term capital gains tax
effective rates are as follows: 1996-April ‘97 = 28%, May ‘97-May ‘03 = 20%, June ‘03-present = 15%.
6.55% 6.20% 5.98% 5.68%
15.29%
10.17%
6.24%
8.87%
0%
6%
12%
18%
Equities US Treasuries Municipals Corporates
Return Risk
Municipal BondsA Record of Compelling After-Tax Total Returns with Less Risk
21
Muni Correlations with Various Asset Classes
5-Year Period Ending September 30, 2016
Past performance does not guarantee future results.
Treasuries if held to maturity, offer a fixed rate of return and fixed principal value; their interest payments and principal are
guaranteed.
Source: © 2016 Morningstar. US Stocks are represented by the S&P 500 Index; Commodities are represented by the Bloomberg Commodity Index; US Treasuries are
represented by the BofA Merrill Lynch Current US Treasury (10-Y) Index; US Corporate Bonds are represented by the BofA Merrill Lynch US Corporate Index; US Bonds are
represented by the Bloomberg Barclays US Aggregate Index. Municipal Bonds are represented by the Bloomberg Barclays Municipal Bond Index. Indexes are unmanaged
and one cannot invest directly in an index. Please see appendix for descriptions of indexes shown.
Municipal BondsMunis May Add an Additional Layer of Diversification
0.54
US Treasuries
0.79
US Bonds
-0.10 0.00
US Stocks Commodities
0.67
US Corporate Bonds
1 = Perfect Positive Correlation; 0 = No Correlation; -1 = Perfect Negative Correlation
• 30+ tax-free income funds1
• $71 billion in tax-free fixed-income assets under management2
• Conservative, “plain-vanilla” income-oriented approach
• Seek high-quality, undervalued bonds
• Buy and hold for the long term
• Tenured investment team with expertise across market cycles
Franklin Tax-Free Income FundsInvest with a Tax-Free Leader
1. For investors subject to the alternative minimum tax, a small portion of fund dividends may be taxable. Distributions of capital gains are generally taxable.
2. As of 9/30/16. Municipal bond assets under management figure includes US retail municipal bond fund assets and separately managed accounts. 22
All investments involve risks, including possible loss of principal. Because municipal bonds are sensitive to interest rate movements, a fund's yield and share price will fluctuate with market conditions. Bond prices generally move in the opposite direction of interest rates. Thus, as prices of bonds in a fund adjust to a rise in interest rates, a fund's share price may decline. Puerto Rico municipal bonds have been impacted by adverse economic and market changes, which may cause a fund's share price to decline. Changes in the credit rating of a bond, or in the credit rating or financial strength of a bond's issuer, insurer or guarantor, may affect the bond's value. A fund may invest a significant part of its assets in municipal securities that finance similar types of projects, such as utilities, hospitals, higher education and transportation. A change that affects one project would likely affect all similar projects, thereby increasing market risk.
Please consult a fund prospectus for a complete discussion of a fund’s risks.
23
Risk Discussion
Franklin Templeton Distributors, Inc.
Franklin Tax-Free Income Funds
• Market Insights
– Consider expanding your fixed income opportunity set
24
SummaryBond Fund Investors Can't Stay on Autopilot
.
1. Fund dividends are generally subject to state and local income taxes, if any. For investors subject to the alternative minimum tax, a small portion of fund dividends may be
taxable. Distributions of capital gains are generally taxable.
2. Securities owned by the fund, but not shares of the fund, are guaranteed by the US government, its agencies or instrumentalities as to timely payment of principal and interest.
Unconstrained Fixed Income
• Templeton Global Bond Fund (TPINX)
• Templeton Global Total Return Fund (TGTRX)
• Franklin Flexible Alpha Bond Fund (FABFX)
Strategies for What’s Next:
High Quality Income/Add Balance to Stock Portfolio
• Franklin Federal Int-Term Tax-Free Income Fund (FKITX)1
• Franklin Federal Tax-Free Income Fund (FKTIX)1
• Franklin Total Return Fund (FKBAX)
• Franklin U.S. Government Securities Fund (FKUSX)2
All investments involve risks, including possible loss of principal. Bond prices generally move in the opposite
direction of interest rates. Thus, as the prices of bonds in a fund adjust to a rise in interest rates, a fund’s share
price may decline. Changes in the financial strength of a bond issuer or in a bond's credit rating may affect the
bond’s value.
Franklin Flexible Alpha Bond Fund, Franklin Total Return Fund, Templeton Global Total Return Fund
Floating-Rate Loans/High-Yield Bonds: Investing in higher-yielding, lower-rated, floating-rate loans and high-
yield debt securities involves greater risk of default, which could result in loss of principal—a risk that may be
heightened in a slowing economy.
Franklin Total Return Fund
Foreign: Foreign securities involve special risks, including currency fluctuations and economic and political
uncertainty.
Franklin Flexible Alpha Bond Fund, Templeton Global Bond Fund, Templeton Global Total Return Fund
Foreign/ Emerging Markets: Foreign securities involve special risks, including currency fluctuations and
economic and political uncertainty. Investments in emerging markets involve heightened risks related to the
same factors, in addition to those associated with these markets' smaller size and lesser liquidity.
Franklin Flexible Alpha Bond Fund, Templeton Global Bond Fund, Templeton Global Total Return Fund
Derivatives: Derivatives, including currency management strategies, involve costs and can create economic
leverage in the portfolio which may result in significant volatility and cause the fund to participate in losses (as
well as enable gains) on an amount that exceeds the fund’s initial investment. The fund may not achieve the
anticipated benefits and may realize losses when a counterparty fails to perform as promised.
25
Risk Discussion
Templeton Global Total Return Fund, Templeton Global Bond Fund
Liquidity: The markets for particular securities or types of securities are or may become relatively illiquid.
Reduced liquidity will have an adverse impact on the security’s value and on the fund’s ability to sell such
securities when necessary to meet the fund’s liquidity needs or in response to a specific market event.
Franklin Federal Intermediate-Term Tax-Free Income Fund, Franklin Federal Tax-Free Income Fund
Puerto Rico: The fund holds a small portion of its assets in Puerto Rico municipal bonds that have been
impacted by recent adverse economic and market changes, which may cause the fund’s share price to
decline.
Franklin U.S. Government Securities Fund
Mortgage Prepayments: The fund's share price and yield will be affected by mortgage prepayments.
Please consult a fund prospectus for a complete discussion of a fund’s risks.
26
Risk Discussion
• Bank of America Merrill Lynch Current 10 Year US Treasury Index is a
one-security index comprised of the most recently issued 10-year US Treasury
note.
• Bank of America Merrill Lynch US Corporate Index - is comprised of U.S.
dollar denominated investment grade corporate debt securities publicly issued
in the U.S. domestic market with at least one year remaining term to final
maturity.
• Bloomberg Barclays Asset-Backed Securities (ABS) Index is the ABS
component of the Bloomberg Barclays U.S. Aggregate Index and includes
credit and charge card, auto, and utility loans.
• Bloomberg Barclays Emerging Markets Hard Currency Aggregate Index
includes USD, EUR, and GBP-denominated debt from sovereign, quasi-
sovereign, and corporate EM issuers.
• Bloomberg Barclays Emerging Markets Local Currency Government
Index measures the performance of local currency Emerging Markets (EM)
debt. Classification as an EM is rules-based and reviewed annually using
World Bank income group, International Monetary Fund (IMF) country
classification and additional considerations such as market size and
investability.
• Bloomberg Barclays Global Aggregate – Corporates (ex US) Index
provides a broad-based measure of the global investment grade corporate
fixed income markets (ex US).
• Bloomberg Barclays Global High Yield Corporate Index provides a broad-
based measure of the global high-yield corporate fixed income markets. It
represents the union of the U.S. High-Yield, Pan-European High-Yield, U.S.
Emerging Markets High-Yield, CMBS High-Yield, and Pan-European
Emerging Markets High-Yield Indices.
• Bloomberg Barclays Global Treasury (ex US Index) is composed of those
securities included in the Bloomberg Barclays Global Aggregate Index that are
Treasury securities, with the US excluded.
• Bloomberg Barclays Long-Term Municipal Bond Index is the long (22+
years) component of the Bloomberg Barclays Municipal Bond Index.
• Bloomberg Barclays Long-Term Treasury Bond Index is the long
component of the Bloomberg Barclays U.S. Treasury Index and covers public
obligations of the U.S. Treasury with a remaining maturity of 10 years or more.
• Bloomberg Barclays Long-Term U.S. Credit Index measures the
performance of the long term sector of the United States investment grade
bond market, which includes investment grade corporate debt and sovereign,
supranational, local authority and non-U.S. agency bonds that are dollar
denominated and have a remaining maturity of greater than or equal to 10
years.
• Bloomberg Barclays Municipal Bond Index is a market-value-weighted
index engineered for the long-term tax-exempt bond market.
• Bloomberg Barclays Municipal Bond (AAA) Index is a market-value-
weighted index engineered for the highest rated (AAA) long-term tax-exempt
bond market.
• Bloomberg Barclays Municipal Bond (A) Index is a market-value-weighted
index engineered for investment- grade, long-term tax-exempt bonds with a
credit rating of A or higher.
• Bloomberg Barclays U.S. Agency Index is the U.S. Agency component of
the Bloomberg Barclays U.S. Government/Credit Index and includes publicly
issued debt of U.S. Government agencies, quasi-federal corporations, and
corporate or foreign debt guaranteed by the U.S. Government.
27
Appendix Index Descriptions
• Bloomberg Barclays U.S. Aggregate Index is a market-capitalization
weighted index representing the U.S. investment grade fixed rate taxable
bond market.
• Bloomberg Barclays U.S. Aggregate Corporate (A) Index is a market-
value weighted index representing the U.S. investment grade fixed rate
taxable bond market for bonds with a credit rating of A or higher.
• Bloomberg Barclays U.S. Aggregate Government – Treasury represents
the Treasury component of the US Aggregate Government Index.
• Bloomberg Barclays U.S. Aggregate Credit – Corporate – Investment
Grade is the U.S. Corporate component of the Bloomberg Barclays U.S.
Credit Index and covers USD-denominated, investment-grade, fixed-rate,
taxable securities sold by industrial, utility, and financial institution issuers.
• Bloomberg Barclays US Government 1-2 Year Treasury Index-
represents Securities in the U.S. Government Index with a maturity from 1
up to (but not including) 2 years.
• Bloomberg Barclays U.S. Mortgage-Backed Securities (MBS) Index is
the MBS component of the Bloomberg Barclays U.S. Aggregate Index and
covers agency mortgage-backed pass-through securities issued by Ginnie
Mae (GNMA), Fannie Mae (FNMA), and Freddie Mac (FHLMC).
• Bloomberg Barclays U.S. Aggregate Securitized - MBS Index represents
the MBS subset of the Bloomberg Barclays US Aggregate Securitized Index.
• Bloomberg Commodity Index -is a highly liquid and diversified benchmark
for the global commodities market.
• Citigroup World Government Bond Index (WGBI) is a market
capitalization weighted index consisting of investment-grade world
government bonds.
• Citigroup World Government Bond Index (Non USD) is a market
capitalization weighted index consisting of investment-grade world
government bonds issued by governments outside the U.S.
• Credit Suisse High Yield Bond Index is designed to mirror the investible
universe of the U.S. dollar-denominated high yield debt market.
• Credit Suisse Leveraged-Loan Index is designed to mirror the investible
universe of the U.S. dollar denominated leveraged loan market.
• HFRI Fund Weighted Composite Index - is a global, equal-weighted index
of over 2,000 single-manager hedge funds that report to HFR Database.
• J.P. Morgan Emerging Market-Bond Index measures the total return
performance of international government bonds issued by emerging market
countries that are considered sovereign (issued in something other than
local currency) and that meet specific liquidity and structural requirements.
• Payden & Rygel 10-Year U.S. Treasury Bond Index is a total return index
based on secondary market yields of 10-year U.S. Treasury Bonds.
• S&P 500 Index is a market capitalization-weighted index of 500 stocks
designed to measure total U.S. equity market performance.
28
Appendix Index Descriptions
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