FRANKLIN TEMPLETON INVESTMENT FUNDS SOCIÉTÉ D'INVESTISSEMENT À CAPITAL VARIABLE AUDITED ANNUAL REPORT JUNE 30, 2012 FRANKLIN TEMPLETON INTERNATIONAL SERVICES S.A. 26, boulevard Royal L-2449 Luxembourg Tel: (352) 46 66 67 1 Fax: (352) 46 66 76 FTIF AR RGBR 06/12 R.C.S. B35177 FRANKLIN TEMPLETON INVESTMENT FUNDS société d’investissement à capital variable AUDITED ANNUAL REPORT FOR THE YEAR ENDED JUNE 30, 2012 385916 02 FTIF p1-p29.indd 3 03/09/2012 13:06 This report shall not constitute an offer or a solicitation of an offer to buy shares of Franklin Templeton Investment Funds (the ‘‘Company’’). Subscriptions are to be made on the basis of the current Explanatory Memorandum and its addendum accompanied by a copy of the latest available audited report and, if published thereafter, the latest unaudited semi-annual report. FRANKLIN TEMPLETON INVESTMENT FUNDS www.franklintempleton.lu Audited Annual Report 3 FRANKLIN TEMPLETON INVESTMENT FUNDS Contents General Information 4 The Board of Directors 6 Report of the Investment Managers 11 Audit Report 13 Fund Performance 14 Statement of Net Assets 16 Statement of Operations and Changes in Net Assets 30 Statistical Information 43 Notes to the Financial Statements 56 Franklin Asian Flex Cap Fund 87 Franklin Biotechnology Discovery Fund 89 Franklin Euroland Core Fund 91 Franklin European Core Fund 93 Franklin European Dividend Fund 96 Franklin European Growth Fund 98 Franklin European Small-Mid Cap Growth Fund 99 Franklin Global Convertible Securities Fund 101 Franklin Global Growth Fund 103 Franklin Global Real Estate Fund 105 Franklin Global Small-Mid Cap Growth Fund 107 Franklin Gold and Precious Metals Fund 109 Franklin High Yield Fund 111 Franklin Income Fund 116 Franklin India Fund 121 Franklin MENA Fund 123 Franklin Natural Resources Fund 125 Franklin Real Return Fund 128 Franklin Strategic Income Fund 130 Franklin Technology Fund 140 Franklin U.S. Dollar Liquid Reserve Fund 142 Franklin U.S. Equity Fund 143 Franklin U.S. Focus Fund 145 Franklin U.S. Government Fund 146 Franklin U.S. Low Duration Fund 147 Franklin U.S. Opportunities Fund 153 Franklin U.S. Small-Mid Cap Growth Fund 156 Franklin U.S. Total Return Fund 159 Franklin World Perspectives Fund 166 Franklin Mutual Beacon Fund 173 Franklin Mutual Euroland Fund 177 Franklin Mutual European Fund 179 Franklin Mutual Global Discovery Fund 182 Franklin Templeton Global Allocation Fund 186 Franklin Templeton Global Equity Strategies Fund 192 Franklin Templeton Global Fundamental Strategies Fund 197 Franklin Templeton Global Growth and Value Fund 205 Franklin Templeton Japan Fund 209 Templeton Africa Fund 211 Templeton Asian Bond Fund 213 Templeton Asian Growth Fund 215 Templeton Asian Smaller Companies Fund 217 Templeton BRIC Fund 219 Templeton China Fund 221 Templeton Eastern Europe Fund 224 Templeton Emerging Markets Fund 226 Templeton Emerging Markets Balanced Fund 229 Templeton Emerging Markets Bond Fund 231 Templeton Emerging Markets Smaller Companies Fund 235 Templeton Euro Government Bond Fund 238 Templeton Euro High Yield Fund 239 Templeton Euro Liquid Reserve Fund 242 Templeton Euro Short-Term Money Market Fund 243 Templeton Euroland Fund 244 Templeton European Fund 246 Templeton European Corporate Bond Fund 249 Templeton European Total Return Fund 251 Templeton Frontier Markets Fund 253 Templeton Global Fund 256 Templeton Global (Euro) Fund 259 Templeton Global Aggregate Bond Fund 262 Templeton Global Aggregate Investment Grade Bond Fund 264 Templeton Global Balanced Fund 265 Templeton Global Bond Fund 269 Templeton Global Bond (Euro) Fund 273 Templeton Global Equity Income Fund 275 Templeton Global High Yield Fund 277 Templeton Global Income Fund 282 Templeton Global Smaller Companies Fund 288 Templeton Global Total Return Fund 291 Templeton Growth (Euro) Fund 299 Templeton Korea Fund 302 Templeton Latin America Fund 303 Templeton Thailand Fund 305 Annex – Unaudited Additional Disclosures 307 Franklin Templeton Investments Office Directory 309 385916 02 FTIF p1-p29.indd 3 03/09/2012 13:06 All the Funds marked with “★” above are currently not authorised for public distribution in Hong Kong and are not available to Hong Kong investors. 4 Audited Annual Report www.franklintempleton.lu www.franklintempleton.lu Audited Annual Report 5 FRANKLIN TEMPLETON INVESTMENT FUNDS FRANKLIN TEMPLETON INVESTMENT FUNDS société d’investissement à capital variable 26, boulevard Royal, L-2449 Luxembourg, Grand-Duchy of Luxembourg (Registered with the registre de commerce et des sociétés, Luxembourg, under number B 35 177) G I (  J , ) BOARD OF DIRECTORS Chairman The Honorable Nicholas F. Brady Chairman and Chief Executive Ofcer CHOPTANK PARTNERS, INC. 16 North Washington Street Easton, MD 21601, U.S.A. Directors Duke of Abercorn KG Director TITANIC QUARTER Barons Court Omagh BT78 4EZ, Northern Ireland, U.K. Vijay C. Advani Executive Vice President-Global Advisory Services FRANKLIN RESOURCES, INC. One Franklin Parkway San Mateo, CA 94403-1906, U.S.A. Richard H. Frank Chief Executive Ofcer DARBY OVERSEAS INVESTMENTS, LTD 1133 Connecticut Avenue, NW, Suite 400 Washington DC 20036, U.S.A. Mark G. Holowesko President HOLOWESKO PARTNERS LTD Shipston House Box N-7776, West Bay Street, Lyford Cay, Nassau, Bahamas James J. K. Hung President and Chief Executive Officer ASIA SECURITIES GLOBAL LTD Room 63, 21st floor, New World Tower 1 18 Queen’s Road, Central Hong Kong Gregory E. Johnson President and Chief Executive Officer FRANKLIN RESOURCES, INC. One Franklin Parkway San Mateo, CA 94403-1906, U.S.A. Geoffrey A. Langlands Managing Partner LANGLANDS CONSULTORIA Ltda Avenida das Américas 500 Bloco 6, Sala 227 (Downtown) Rio de Janeiro – RJ CEP 22640-100, Brazil Gregory E. McGowan Executive Vice President and General Counsel TEMPLETON WORLDWIDE, INC. 300 S.E. 2 nd Street, 11 th Floor Fort Lauderdale, FL 33301-1923, U.S.A. Dr J. B. Mark Mobius Executive Chairman TEMPLETON EMERGING MARKETS GROUP 7 Temasek Boulevard, # 38-03 Suntec Tower One Singapore 038987 David E. Smart Director and Co-Chief Executive Officer FRANKLIN TEMPLETON INVESTMENT MANAGEMENT LIMITED The Adelphi Building, 1-11 John Adam Street London WC2N 6HT, England, U.K. The Honourable Trevor G. Trefgarne Chairman ENTREPRISE GROUP LIMITED 11 High Street Accra, Ghana CONDUCTING OFFICERS: William Lockwood 26, boulevard Royal, L-2449 Luxembourg Grand-Duchy of Luxembourg Denise Voss 26, boulevard Royal, L-2449 Luxembourg Grand-Duchy of Luxembourg REGISTERED OFFICE: 26, boulevard Royal, L-2449 Luxembourg Grand-Duchy of Luxembourg PRINCIPAL DISTRIBUTOR: TEMPLETON GLOBAL ADVISORS LIMITED P.O. Box N-7759, Lyford Cay, Nassau, Bahamas INVESTMENT MANAGERS: FRANKLIN TEMPLETON INVESTMENT MANAGEMENT LIMITED 5 Morrison Street Edinburgh EH3 8BH, Scotland U.K. Franklin Templeton Investment Management Limited manages the following Funds: Franklin Euroland Core Fund; Franklin European Core Fund; Franklin European Dividend Fund; Franklin European Growth Fund; Franklin World Perspectives Fund***; Franklin Templeton Global Allocation Fund¶; Franklin Templeton Global Equity Strategies Fund**; Franklin Templeton Global Fundamental Strategies Fund†; Templeton Euro Government Bond Fund; Templeton Euro High Yield Fund*; Templeton Euro Liquid Reserve Fund; Templeton Euro Short-Term Money Market Fund; Templeton Euroland Fund; Templeton European Fund; Templeton European Corporate Bond Fund‡; Templeton European Total Return Fund*; Templeton Global Fund; Templeton Global (Euro) Fund; Templeton Global Aggregate Bond Fund; Templeton Global Aggregate Investment Grade Bond Fund; Templeton Global Balanced Fund*; and Templeton Global Equity Income Fund. * Franklin Templeton Investment Management Limited has been appointed as Co- Investment Manager of these Funds, together with Franklin Advisers, Inc. ** Franklin Templeton Investment Management Limited has been appointed as Co- Investment Manager of this Fund, together with (i) Franklin Advisers, Inc., (ii) Franklin Mutual Advisers, LLC (iii) Templeton Asset Management Limited and (iv) Templeton Global Advisors Limited. *** Franklin Templeton Investment Management Limited has been selected and appointed by the lead Investment Manager Franklin Advisers, Inc. as Co-Investment Manager of this Fund together with (i) Franklin Templeton Investments Corp., (ii) Franklin Templeton Investments Japan Limited, (iii) Franklin Templeton Investimentos (Brasil) Ltda.and (iv) Franklin Templeton Investment Trust Management Co. Limited. ‡ Franklin Templeton Investment Management Limited has been appointed as Co- Investment Manager for this Fund, together with (i) Franklin Templeton Institutional LLC and (ii) Franklin Advisers, Inc. ¶ Franklin Templeton Investments Management Limited has been appointed as Co- Investment Manager of this Fund, together with (i) Franklin Mutual Advisers LLC, (ii) Franklin Templeton Institutional LLC, (iii) Templeton Asset Management Limited, (iv) Templeton Global Advisors Limited, (v) Templeton Investment Counsel LLC and (vi) Franklin Advisers, Inc. † Franklin Templeton Investment Management Limited has been appointed as Co- Investment Manager for this Fund, together with (i) Franklin Advisers, Inc., (ii) Templeton Global Advisors Limited and (iii) Franklin Mutual Advisers, LLC. TEMPLETON ASSET MANAGEMENT LIMITED 7 Temasek Boulevard # 38-03 Suntec Tower One Singapore 038987 Templeton Asset Management Limited manages the following Funds: Franklin Templeton Global Allocation Fund* Franklin Templeton Global Equity Strategies Fund**; Templeton Africa Fund; Templeton Asian Growth Fund; Templeton Asian Smaller Companies Fund; Templeton BRIC Fund; Templeton China Fund; Templeton Eastern Europe Fund; Templeton Emerging Markets Fund; Templeton Emerging Markets Balanced Fund†; Templeton Emerging Markets Smaller Companies Fund; Templeton Frontier Markets Fund; Templeton Korea Fund; Templeton Latin America Fund; and Templeton Thailand Fund. * Templeton Asset Management Limited has been appointed as Co-Investment Manager of this Fund, together with (i) Franklin Mutual Advisers LLC, (ii) Franklin Templeton Institutional LLC, (iii) Franklin Advisers, Inc, (iv) Templeton Global Advisors Limited, (v) Templeton Investment Counsel LLC and (vi) Franklin Templeton Investment Management Limited. ** Templeton Asset Management Limited has been appointed as Co-Investment Manager of this Fund, together with (i) Franklin Advisers, Inc., (ii) Franklin Mutual Advisers, LLC, (iii) Franklin Templeton Investment Management Limited and (iv) Templeton Global Advisors Limited. † Templeton Asset Management Limited has been appointed as Co-Investment Manager of this Fund, together with Franklin Advisers, Inc. FRANKLIN ADVISERS, INC. One Franklin Parkway San Mateo, CA 94403-1906, U.S.A. Franklin Advisers, Inc. manages the following Funds: Franklin Asian Flex Cap Fund; Franklin Biotechnology Discovery Fund; Franklin Global Convertible Securities Fund; Franklin Gold and Precious Metals Fund; Franklin High Yield Fund; Franklin Income Fund; Franklin India Fund; Franklin MENA Fund; Franklin Natural Resources Fund; Franklin Real Return Fund; Franklin Strategic Income Fund; Franklin Technology Fund; Franklin World Perspectives Fund¶; Franklin U.S. Dollar Liquid Reserve Fund; Franklin U.S. Equity Fund; Franklin U.S. Focus Fund; Franklin U.S. Government Fund; Franklin U.S. Low Duration Fund; Franklin U.S. Opportunities Fund; Franklin U.S. Small-Mid Cap Growth Fund; Franklin U.S. Total Return Fund; Franklin Templeton Global Allocation FundΩ; Franklin Templeton Global Equity Strategies Fund**; Franklin Templeton Global Fundamental Strategies Fund‡; Templeton Asian Bond Fund; Templeton Emerging Markets Balanced Fund****; Templeton Emerging Markets Bond Fund; Templeton Euro High Yield Fund*; Templeton European Corporate Bond Fund***; Templeton European Total Return Fund*; 385916 02 FTIF p1-p29.indd 4 03/09/2012 13:06 4 Audited Annual Report www.franklintempleton.lu www.franklintempleton.lu Audited Annual Report 5 FRANKLIN TEMPLETON INVESTMENT FUNDS FRANKLIN TEMPLETON INVESTMENT FUNDS Templeton Global Balanced Fund*; Templeton Global Bond Fund; Templeton Global Bond (Euro) Fund; Templeton Global High Yield Fund; Templeton Global Income Fund†; and Templeton Global Total Return Fund. * Franklin Advisers, Inc. has been appointed as Co-Investment Manager of these Funds, together with Franklin Templeton Investment Management Limited. ** Franklin Advisers, Inc. has been appointed as Co-Investment Manager of this Fund, together with (i) Franklin Mutual Advisers, LLC, (ii) Templeton Asset Management Limited, (iii) Franklin Templeton Investment Management Limited and (iv) Templeton Global Advisors Limited. *** Franklin Advisers, Inc. has been appointed as Co-Investment Manager of this Fund, together with (i) Franklin Templeton Investment Management Limited and (ii) Franklin Templeton Institutional LLC. ****Franklin Advisers, Inc. has been appointed as Co-Investment Manager of this Fund, together with Templeton Asset Management Limited. ‡ Franklin Advisers, Inc. has been appointed as Co-Investment Manager of this Fund, together with (i) Franklin Mutual Advisers, LLC, (ii) Franklin Templeton Investment Management Limited and (iii) Templeton Global Advisors Limited. ¶ Franklin Advisers, Inc. has been appointed as lead Investment Manager of this Fund and has selected and appointed as Co-Investment Managers (i) Franklin Templeton Investments Corp., (ii) Franklin Templeton Investments Japan Limited, (iii) Franklin Templeton Investimentos (Brasil) Ltda., (iv) Franklin Templeton Investment Management Limited and (v) Franklin Templeton Investment Trust Management Co. Limited. † Franklin Advisers, Inc. has been appointed as Co-Investment Manager of this Fund, together with Templeton Global Advisors Limited. Ω Franklin Advisers, Inc. has been appointed as Co-Investment Manager of this Fund, together with (i) Franklin Mutual Advisers LLC, (ii) Franklin Templeton Institutional LLC, (iii) Templeton Asset Management Limited, (iv) Templeton Global Advisors Limited, (v) Templeton Investment Counsel LLC and (vi) Franklin Templeton Investment Management Limited. FRANKLIN TEMPLETON INSTITUTIONAL LLC 600 Fifth Avenue, New York, NY 10020, U.S.A. Franklin Templeton Institutional LLC manages the following Funds: Franklin European Small-Mid Cap Growth Fund; Franklin Global Growth Fund; Franklin Global Real Estate Fund; Franklin Global Small-Mid Cap Growth Fund; Franklin Templeton Global Allocation Fund* Franklin Templeton Global Growth and Value Fund; and Templeton European Corporate Bond Fund**. * Franklin Templeton Institutional LLC has been appointed as Co-Investment Manager of this Fund, together with (i) Franklin Mutual Advisers LLC, (ii) Franklin Advisers, Inc., (iii) Templeton Asset Management Limited, (iv) Templeton Global Advisors Limited, (v) Templeton Investment Counsel LLC and (vi) Franklin Templeton Investment Management Limited. ** Franklin Templeton Institutional LLC has been appointed as Co-Investment Manager of this Fund, together with (i) Franklin Templeton Investment Management Limited and (ii) Franklin Advisers, Inc. TEMPLETON GLOBAL ADVISORS LIMITED P.O. Box N-7759 Lyford Cay, Nassau, Bahamas Templeton Global Advisors Limited manages the following Funds: Franklin Templeton Global Allocation Fund**; Franklin Templeton Global Equity Strategies Fund*; Franklin Templeton Global Fundamental Strategies Fund†; Templeton Global Income Fund***; and Templeton Growth (Euro) Fund. * Templeton Global Advisors Limited has been appointed as Co-Investment Manager of this Fund, together with (i) Franklin Mutual Advisers, LLC, (ii) Templeton Asset Management Limited, (iii) Franklin Templeton Investment Management Limited and (iv) Franklin Advisers, Inc. ** Templeton Global Advisors Limited has been appointed as Co-Investment Manager of this Fund, together with (i) Franklin Mutual Advisers LLC, (ii) Franklin Advisers, Inc., (iii) Templeton Asset Management Limited, (iv) Franklin Templeton Institutional LLC., (v) Templeton Investment Counsel LLC and (vi) Franklin Templeton Investment Management Limited. *** Templeton Global Advisers Limited has been appointed as Co-Investment Manager of this Fund, together with Franklin Advisers Inc. † Templeton Global Advisors Limited has been appointed as Co-Investment Manager of this Fund, together with (i) Franklin Mutual Advisers, LLC, (ii) Franklin Templeton Investment Management Limited and (iii) Franklin Advisers, Inc. FRANKLIN TEMPLETON INVESTMENTS CORP. 200 King Street West, Suite 1500, Toronto Ontario M5H 3T4, Canada Franklin Templeton Investments Corp. manages the following Funds: Franklin World Perspectives Fund*; and Templeton Global Smaller Companies Fund. * Franklin Templeton Investments Corp. has been selected and appointed by the lead Investment Manager Franklin Advisers, Inc. as Co-Investment Manager of this Fund together with (i) Franklin Advisers, Inc., (ii) Franklin Templeton Investments Japan Limited, (iii) Franklin Templeton Investimentos (Brasil) Ltda., (iv) Franklin Templeton Investment Management Limited and (v) Franklin Templeton Investment Trust Management Co. Limited. FRANKLIN MUTUAL ADVISERS, LLC 101 John F. Kennedy Parkway Short Hills, NJ 07078-2789, U.S.A Franklin Mutual Advisers, LLC manages the following Funds: Franklin Mutual Beacon Fund; Franklin Mutual Euroland Fund; Franklin Mutual European Fund; Franklin Mutual Global Discovery Fund; Franklin Templeton Global Allocation Fund*; Franklin Templeton Global Equity Strategies Fund†; and Franklin Templeton Global Fundamental Strategies Fund‡. * Franklin Mutual Advisers LLC has been appointed as Co-Investment Manager of this Fund, together with (i) Franklin Advisers, Inc., (ii) Franklin Templeton Institutional LLC, (iii) Templeton Asset Management Limited, (iv) Templeton Global Advisors Limited, (v) Templeton Investment Counsel LLC and (vi) Franklin Templeton Investment Management Limited. † Franklin Mutual Advisers, LLC has been appointed as Co-Investment Manager of this Fund, together with (i) Franklin Advisers, Inc., (ii) Templeton Asset Management Limited, (iii) Franklin Templeton Investment Management Limited and (iv) Templeton Global Advisors Limited. ‡ Franklin Mutual Advisers, LLC has been appointed as Co-Investment Manager of this Fund, together with (i) Franklin Advisers, Inc., (ii) Templeton Global Advisors Limited and (iii) Franklin Templeton Investment Management Limited. FRANKLIN TEMPLETON INVESTMENTS JAPAN LIMITED Kanematsu Building, 6th Floor 14-1, Kyobashi 2 – chome Chuo-Ku, Tokyo, Japan Franklin Templeton Investments Japan Limited manages the following Funds: Franklin World Perspectives Fund*; and Franklin Templeton Japan Fund. * Franklin Templeton Investments Japan Limited has been selected and appointed by the lead Investment Manager Franklin Advisers, Inc. as Co-Investment Manager of this Fund together with (i) Franklin Templeton Investments Corp., (ii) Franklin Templeton Investimentos (Brasil) Ltda., (iii) Franklin Templeton Investment Management Limited and (iv) Franklin Templeton Investment Trust Management Co. Limited. FRANKLIN TEMPLETON INVESTIMENTOS (Brasil) Ltda. Avenue Brigadeiro Faria Lima 3311, 5o andar, São Paulo 04538-133, Brazil Franklin Templeton Investimentos (Brasil) Ltda manages the following Fund: Franklin World Perspectives Fund*. * Franklin Templeton Investimentos (Brasil) Ltda. has been selected and appointed by the lead Investment Manager Franklin Advisers, Inc. as Co-Investment Manager of this Fund together with (i) Franklin Templeton Investments Corp., (ii) Franklin Templeton Investments Japan Limited, (iii) Franklin Templeton Investment Management Limited and (iv) Franklin Templeton Investment Trust Management Co. Limited. FRANKLIN TEMPLETON INVESTMENT TRUST MANAGEMENT CO. LIMITED 12 Youido-dong, Youngdungpo-gu, Seoul, Korea Franklin Templeton Investment Trust Management Co. Limited manages the following Fund: Franklin World Perspectives Fund*. * Franklin Templeton Investment Trust Management Co. Limited has been selected and appointed by the lead Investment Manager Franklin Advisers, Inc. as Co-Investment Manager of this Fund together with (i) Franklin Templeton Investments Corp., (ii) Franklin Templeton Investments Japan Limited, (iii) Franklin Templeton Investimentos (Brasil) Ltda and (iv) Franklin Templeton Investment Management Limited. TEMPLETON INVESTMENT COUNSEL, LLC 300 Southeast 2nd Street Ft. Lauderdale, FL33301, U.S.A. Templeton Investment Counsel, LLC manages the following Fund: Franklin Templeton Global Allocation Fund*. * Templeton Investment Counsel LLC has been appointed as Co-Investment Manager of this Fund, together with (i) Franklin Mutual Advisers LLC, (ii) Franklin Templeton Institutional LLC, (iii) Templeton Asset Management Limited, (iv) Templeton Global Advisors Limited, (v) Franklin Advisers, Inc. and (vi) Franklin Templeton Investment Management Limited. CUSTODIAN, LISTING AGENT AND PRINCIPAL PAYING AGENT: J.P. MORGAN BANK LUXEMBOURG S.A. European Bank and Business Centre 6 Route de Trèves, L-2633 Senningerberg Grand-Duchy of Luxembourg REGISTRAR AND TRANSFER, CORPORATE, DOMICILIARY AND ADMINISTRATIVE AGENT: FRANKLIN TEMPLETON INTERNATIONAL SERVICES S.A. 26, boulevard Royal, L-2449 Luxembourg Grand-Duchy of Luxembourg AUDITOR: PRICEWATERHOUSECOOPERS, Société coopérative 400, route d’Esch, B.P. 1443, L-1014 Luxembourg Grand-Duchy of Luxembourg LEGAL ADVISERS: ELVINGER, HOSS & PRUSSEN 2, place Winston Churchill, B.P. 425, L-2014 Luxembourg Grand-Duchy of Luxembourg G I (  J , ) () 385916 02 FTIF p1-p29.indd 5 03/09/2012 13:06 6 Audited Annual Report www.franklintempleton.lu www.franklintempleton.lu Audited Annual Report 7 FRANKLIN TEMPLETON INVESTMENT FUNDS FRANKLIN TEMPLETON INVESTMENT FUNDS T B  D Report of the Board of Directors At June 30, 2012, Franklin Templeton Investment Funds (“FTIF”, or the “Company”) had assets under management of USD 135.99 billion, a decline of 8.97% from a year earlier (when they stood at USD 149.40 billion), but 53.82% higher than assets under management at June 30, 2010 (USD 88.41 billion). The financial year was marked by the Company’s continued growth. The Company’s offer was expanded and modified in the ways detailed below. Fund Launches The following FTIF Funds were launched during the financial year: • FTIFFranklinEuropeanCoreFund • FTIFFranklinEuropeanDividendFund • FTIFFranklinGlobalConvertibleSecuritiesFund • FTIFFranklinTempletonGlobalAllocationFund • FTIFTempletonAfricaFund • FTIFTempletonGlobalAggregateInvestmentGradeBondFund Share Class Launches A number of new share class offerings for existing Funds were launched during the financial year. For the full list of share classes launched during the financial year please refer to Note 1 of the Financial Statements. Fund Closures The following fund was closed during the financial year: • FTIFTempletonU.S.ValueFund Share Class Closures Share classes for a variety of Funds were liquidated during the course of the financial year. For the full list of share classes liquidated during the financial year please refer to Note 1 of the Financial Statements. Changes in Investment Objectives Franklin Strategic Income Fund, Franklin U.S. Government Fund and Templeton Emerging Markets Bond Fund investment objectives have been clarified to add investment in asset-backed securities and mortgage-backed securities. Templeton Asian Smaller Companies Fund and Templeton Emerging Markets Smaller Companies Fund investment objectives have been modified to change the definition of the market capitalization to be in line with the US fund range. Franklin U.S. Low Duration Fund investment objective has been changed to add investment in Asset Backed Securities / Mortgage Backed Securities, financial derivatives instruments and low-rated or non-investment grade debt securities. In addition, the fund has changed its name from Franklin U.S. Ultra-Short Bond Fund. Templeton Euro Short-Term Money Market Fund investment objective has been changed to qualify the Fund as a short-term money market fund within the meaning of the CESR guidelines 10/049 dated May 19, 2010 on a common definition of European money market funds. In addition, the Fund has changed its name from Templeton Euro Money Market Fund. Franklin Real Return Fund investment objective has been changed to reflect the reduction of the scope of investment in financial derivatives instruments to hedging and efficient portfolio management. Franklin U.S. Total Return Fund investment objective has been changed to reflect the increase of the scope of investment in financial derivatives instruments for investment purposes. Templeton Emerging Markets Balanced Fund investment objective has been changed to reflect deletion of wording on currency gains and adoption of various clarifications to be in line with Hong Kong requirements. Templeton Frontier Markets Fund and Templeton Global Aggregate Bond Fund investment objectives have been changed to reflect the reduction of the scope of investment in financial derivatives instruments to hedging and efficient portfolio management. Name changes The names of the following Funds were changed during the course of the year: • FTIFTempletonEuroMoneyMarketFundbecameFTIFTempletonEuroShort-TermMoneyMarketFund • FTIFFranklinUSUltra-ShortBondFundbecameFTIFFranklinU.S.LowDurationFund Other changes The Canadian Dollar (CAD) and Czech Koruna (CZK) were added to FTIF currency share classes. A new W Share class has been created as a result of the upcoming regulatory changes under the UK Retail Distribution Review (RDR). The Company will continue to make changes to the range of Funds when this is in the best interest of investors. We remain committed to retaining investment techniques that have been shown, over time, to increase shareholder value. 385916 02 FTIF p1-p29.indd 6 03/09/2012 13:06 6 Audited Annual Report www.franklintempleton.lu www.franklintempleton.lu Audited Annual Report 7 FRANKLIN TEMPLETON INVESTMENT FUNDS FRANKLIN TEMPLETON INVESTMENT FUNDS T B  D () Report of the Board of Directors (continued) Corporate Governance The Company is committed to high standards of corporate governance. The Board of Directors of the Company (the “Board”) has adopted the ALFI Code of Conduct issued in September 2009, which sets out the principles of good governance, and considers that the Company has been in compliance with it in all material respects throughout the financial year ended June 30, 2012. Any subsequent amendment to the ALFI Code of Conduct will be considered by the Board prior to adoption and necessary disclosures will be made in the audited annual report. Thank you for investing with Franklin Templeton Investments. Please be advised that the full prospectus, the Key Investor Information Documents (KIIDs) and all Funds and share classes of FTIF may not be available in your jurisdiction. If you have any queries, comments or suggestions about your investments with us please contact your financial adviser or your local Franklin Templeton Investments office using the contact details on the last page of the report. THE BOARD OF DIRECTORS Luxembourg, July 2012 385916 02 FTIF p1-p29.indd 7 03/09/2012 13:06 8 Audited Annual Report www.franklintempleton.lu www.franklintempleton.lu Audited Annual Report 9 FRANKLIN TEMPLETON INVESTMENT FUNDS FRANKLIN TEMPLETON INVESTMENT FUNDS The Board Chairman The Honorable Nicholas F. Brady The Honorable Nicholas Brady (82) was appointed to the Board on 30 November 1994. He is founder and chairman of Darby Overseas Investments, Ltd. as well as a founding partner and current participant in Holowesko Partners Ltd. In addition, he serves as a Director of the Hess Corporation and Weatherford International Ltd. In 1988 Mr. Brady was appointed by President Reagan as the 68th Secretary of the Treasury of the United States, a post he held through the elder President Bush’s administration. In 1982 Mr. Brady was appointed a U.S. senator from the State of New Jersey. He went on to serve on five presidential commissions, chairing the Presidential Task Force on Market Mechanisms, commonly called the Brady Commission, which investigated the causes of the 1987 stock market crash and recommended a number of reforms that were subsequently adopted. In 1954, he joined Dillon, Read & Co. Inc., starting a thirty-four year career in investment banking with the firm, during which time he rose to become president, chairman of the board and for seventeen years, its chief executive officer. Directors Duke of Abercorn KG His Grace, the Duke of Abercorn KG (78) was appointed to the Board on 30 November 1994. His Grace, the Duke of Abercorn KG is presently a Director of Titanic Quarter which is Europe’s biggest waterfront redevelopment. He was formerly a Director of Northern Bank Ltd, Chairman of Laganside Corporation, Chairman of Calor Teoranta (Ireland) and a Director of Belfast International Airport Ltd. He has also previously been a Director of The Industrial Development Board for Northern Ireland as well as a Director of Balcas Timber Ltd. Vijay C. Advani Vijay Advani (51) was appointed to the Board on 25 February 2008. He is an executive vice president of Franklin Templeton Global Advisory Services. He is responsible for Franklin Templeton’s global retail and institutional distribution strategies and initiatives, including sales, marketing, client service and product development. He is an officer of Franklin Resources, Inc., a member of several Franklin Templeton committees and a board member of various Franklin Templeton subsidiaries. Mr. Advani joined the Templeton organization in 1995 as the president of Templeton Asset Management (India) Pvt. Ltd., in Mumbai (Bombay). In 2000, he moved to Singapore as the regional managing director, Product Development, Sales and Marketing for Asia, Eastern Europe and Africa. In 2002, he relocated to California and was appointed executive managing director of International Retail Development. In 2005, he took responsibility for global retail distribution and in 2008 assumed his current role. Prior to joining Franklin Resources, Mr. Advani worked at the World Bank Group in Washington, DC. His primary responsibility was providing advisory and technical assistance to government authorities on the development of securities and financial markets; structuring, establishing and financing specialized financial institutions; and mobilizing equity, quasi equity and debt financing. He worked in several emerging economies in the former Soviet Union, Asia, Middle East and Africa. Richard H. Frank Richard Frank (71) was appointed to the Board on 30 November 2000. Mr. Frank is President & Chief Executive Officer of Darby Investments/Franklin Templeton. Darby Investments is Franklin Templeton’s Private Equity arm and is a leader in private equity investment in Latin America, Asia and Central and Eastern Europe. Mr. Frank is responsible for management of firm-wide activities and Chairman on the firm’s Private Equity, Mezzanine Finance and Venture Capital Investment Committees. Mr. Frank joined Darby in July 1997 after a long and distinguished career at the World Bank and International Finance Corporation (IFC) in Washington, DC. In his last assignment he chaired the Private Sector Group, coordinating the private sector activities of the World Bank, IFC, and the Multilateral Investment Guarantee Agency (MIGA). During his career at the World Bank Group as Managing Director, Mr. Frank oversaw the South Asia and Latin America operations and chaired the Banks Finance Committee. At the IFC, Mr. Frank served as CFO leading the Corporation to become an AAA borrower and securing two capital increases. Earlier in his Bank Group career, he managed project and corporate investment operations in Latin America, Asia, Middle East and Eastern Europe. Mr. Frank is a Director of Templeton International Funds and member of Franklin Templeton Alternative Strategies Group. He has also served on the Boards of several Latin American companies and banks. Mr. Frank has served on the Board of Georgetown University and is a member of the International Strategic Board of Banco Finantia, S.A. (Portugal); Inter-American Dialogue; Institute of International Finance; Bretton Woods Committee and IBM Venture Capital Advisory Council. He holds a B.S. in mechanical engineering from the S. D. School of Mines and Technology and an M.S. from the Sloan School of Management at the Massachusetts Institute of Technology. Post graduate studies, he spent two years in Colombia as an MIT Fellow. Mr. Frank earned a Bronze Star for his service as Captain in Vietnam. T B  D () 385916 02 FTIF p1-p29.indd 8 03/09/2012 13:06 8 Audited Annual Report www.franklintempleton.lu www.franklintempleton.lu Audited Annual Report 9 FRANKLIN TEMPLETON INVESTMENT FUNDS FRANKLIN TEMPLETON INVESTMENT FUNDS Mark G. Holowesko Mark Holowesko (52) was appointed to the Board on 30 November 1994. Mark Holowesko is the founding Partner and Chief Executive Officer of Holowesko Partners Ltd (HPL). Mark launched the firm in the fall of 2000, under the name of Templeton Capital Advisors, to serve the needs of institutional and high-net-worth investors. Subsequently renamed Holowesko Partners, under Mark’s leadership HPL has enjoyed steady and consistent growth and now stands as one of the premier global equity hedge firms in the industry. Mark’s investment career began in 1985 when he joined Templeton Global Advisors as a research analyst. By 1987, he had assumed the day-to-day management of all portfolios previously managed by Sir John Templeton, including the Templeton Growth Fund and the Templeton Foreign Fund. In 1989, Mark became the Director of Research of the Templeton Global Equity Funds and later, in 1996, assumed the role of Chief Investment Officer. Mark served as a member of the Executive Committee of Templeton, Galbraith & Hansberger from 1987 to 1992 and as a member of the Executive Committee of Franklin Resources from 1992 to 2000. Mark was Director, President & Head of Investments of Templeton Global Advisors Ltd. from 1992 to 2000. Currently, Mark is Chairman of the Investment Committee of First Trust Bank, an offshore entity responsible for managing the assets of two of Sir John Templeton’s Foundations. James J.K. Hung James Hung (65) was appointed to the Board on 29 November 2002. He is the Chairman and Chief Executive Officer (“CEO”) of Xinya Investment Group, China, a real estate development and investment group in Mainland China, Hong Kong and Taiwan. He is also a director and major shareholder of Security Bank in the Philippines and the director of Franklin Templeton Fund Management Company in Shanghai, a joint venture of Franklin Templeton and the Sealand Securities Company, China. His previous experience includes working for Asia Securities Inc. (Taiwan) as the Chairman and CEO. He has also previously been the director of Yi-Min Fund Management Co., (China), H&Q Venture Capital Inc., (Taiwan), Taiwan Index Fund Inc. (Luxembourg) and Vietnam Fund Inc. (Guernsey). Gregory E. Johnson Gregory Johnson (51) was appointed to the Board on 28 November 2003. He is President and Chief Executive Officer of Franklin Resources, Inc. and serves on the Board of Directors. He is also President of Templeton Worldwide, Inc., Chief Executive Officer and President of Templeton International, Inc. and serves as a Director for a number of subsidiaries of Franklin Resources, Inc. He is a member of a number of Franklin Templeton’s international fund boards. Mr Johnson joined Franklin in 1986 after working as a senior accountant for Coopers & Lybrand. He has served as President and Chairman of the Board for Franklin Templeton Distributors, Inc., President of Franklin Investment Advisory, LLC, President of FT Trust Company, Vice President of Franklin Advisers, Inc., co-portfolio manager of Franklin Income Fund and Franklin Utilities Fund and as an investment analyst. Geoffrey A. Langlands Geoffrey Langlands (76) was appointed to the Board on 27 September 2005. He is a resident of Rio de Janeiro, Brazil, where he is currently Managing Partner of Langlands Consultoria Ltda., and a partner in Horto Consultoria Ltda., as well as participating in the Boards of Fundação Flora de Apoio à Botânica and Ser Cidadão, two non profit making institutions. He was a Director of Templeton Emerging Markets Investment Trust (1994/2005, having been Chairman 2003/4). He was an Executive Director of Santander Brasil Asset Management S/A (2000/1), Banco Bozano, Simonsen S/A (1969/2000) and Banco Geral de Investimentos S/A (1968/9). Previously, he was a Managing Partner of Organização S/N Ltda. (1960/1968) and an employee of the Schroder Group in London and Rio de Janeiro (1957/60). At Banco Bozano, Simonsen a leading Brazilian investment institution, he organized, set up and managed the bank’s asset management, stock broking, corporate finance, investment research and private equity activities. He was also a director of several companies in the Bozano, Simonsen Group. He also served on the Capital Markets Advisory Committees of the Brazilian Central Bank and the Inter-American Investment Corporation. He was a board member of ANBID (Brazilian Investment Bankers’ Association), General Accident Companhia de Seguros, and Atlantica Hotels International. Gregory E. McGowan Gregory McGowan (62) was appointed to the Board on 20 May 1994. He is executive vice president, director and general counsel of Templeton International, Inc., the organization responsible for the development and operation of Templeton businesses outside of North America and for Templeton Worldwide, Inc., the holding company of all the Templeton subsidiaries. Mr. McGowan joined the Franklin Templeton organization in 1986 and also serves as an executive vice president of Templeton Global Advisors Limited (a Bahamas corporation). Mr. McGowan serves on various Franklin Templeton boards of directors, including: Templeton Investment Counsel, L.L.C., Franklin Templeton Management Luxembourg S.A. (a Luxembourg corporation), Franklin Templeton Investments (Asia) Limited (a Hong Kong corporation), Templeton Asset Management Ltd. (a Singapore corporation), Franklin Templeton Holding Limited (a Mauritius corporation), Franklin Templeton Services Limited (an Ireland corporation) and Franklin Templeton Asset Strategies, Inc. (a U.S. corporation). Prior to joining Franklin Templeton Investments, Mr. McGowan was a senior attorney for the United States Securities and Exchange Commission. T B  D () The Board (continued) 385916 02 FTIF p1-p29.indd 9 03/09/2012 13:06 10 Audited Annual Report www.franklintempleton.lu www.franklintempleton.lu Audited Annual Report 11 FRANKLIN TEMPLETON INVESTMENT FUNDS FRANKLIN TEMPLETON INVESTMENT FUNDS T B  D () The Board (continued) Dr. J.B. Mark Mobius Dr. Mark Mobius, Ph.D. (76) was appointed to the Board at inception. He is Executive Chairman of Templeton Emerging Markets Group, currently directs analysts based in Templeton’s 18 emerging markets offices and manages the emerging markets portfolios. Dr. Mobius has spent more than 40 years working in emerging markets all over the world. He joined Franklin Templeton Investments in 1987 as president of the Templeton Emerging Markets Fund, Inc. Dr. Mobius was named by Asiamoney magazine in 2006 as one of their “Top 100 Most Powerful and Influential People.” Asiamoney said, he “ boasts one of the highest profiles of any investor in the region and is regarded by many in the financial industry as one of the most successful emerging markets investors over the last 20 years. Despite tough times during the financial crisis nine years ago, he still commands a strong following in the investment world and is influencing the direction of billions of investment dollars.” Other awards include: (1) “2010 Africa Investor Index Series Awards” by African Investor, (2) “Emerging Markets Equity Manager of the Year 2001” by International Money Marketing, (3) “Ten Top Money Managers of the 20th Century” in a survey by the Carson Group in 1999, (4) “Number One Global Emerging Market Fund” in the 1998 Reuters Survey, (5) “1994 First in Business Money Manager of the Year” by CNBC, (6) “Closed-End Fund Manager of the Year” in 1993 by Morningstar and, (7) “Investment Trust Manager of the Year 1992” by Sunday Telegraph. Dr. Mobius is also the author of the following books: Trading with China, The Investor’s Guide to Emerging Markets, Mobius on Emerging Markets, Passport to Profits, Equities – An Introduction to the Core Concepts, Mutual Funds – An Introduction to the Core Concepts, Foreign Exchange – An Introduction to the Core Concepts and Mark Mobius – An Illustrated Biography – The little Book of Emerging Markets. David E. Smart David Smart (51) was appointed to the Board on 29 November 2002. He joined the Group in 1988 as Senior Vice President and Head of Fixed Income with Fiduciary Trust in London, subsequently taking on responsibility for all fund management and institutional marketing initiatives in Europe, Middle East & Africa. In August 2008, Mr. Smart was appointed to his current position spearheading the Group’s global efforts in the sovereign fund and supranational area using his strong investment background and experience of providing strategic asset allocation advice to institutional clients. Mr. Smart also sits on a number of the Group’s subsidiary Boards. In November 2008, Mr. Smart was appointed Chairman of the National Trust Investment Committee, which oversees the $1.6 billion endowment fund of the charity which preserves many of Britain’s historic buildings and in March 2010 Mr. Smart was appointed External Advisor to Beazley plc, a publicly quoted Lloyds of London specialist insurer. Prior to joining, Mr. Smart had six years experience as an international bond manager with Baring Brothers & Company Ltd and County NatWest Investment Management. The Honourable Trevor G. Trefgarne The Honourable Trevor Trefgarne (68) was appointed to the Board of Franklin Templeton Investment Funds on 29 November 2002. He is Chairman of Enterprise Group Limited, Ghana, and has been director of a number of UK listed investment funds including Templeton Emerging Markets Investment Trust, Recovery Trust (chairman) and Gartmore High Income Trust. He has extensive experience of the management of listed companies in the UK and Africa. 385916 02 FTIF p1-p29.indd 10 03/09/2012 13:06 [...]... www.franklintempleton.lu 385916 02 FTIF p1-p29.indd 21 Audited Annual Report 21 03/09 /2012 13:06 FRANKLIN TEMPLETON INVESTMENT FUNDS Statement of Net Assets at June 30, 2012 (continued) Franklin Franklin Templeton Global Templeton Global Fundamental Growth and Value Strategies Fund Fund (USD) (USD) Franklin Templeton Japan Fund (JPY) Templeton Africa Fund* (USD) Templeton Asian Bond Fund (USD) ASSETS Investment. .. p1-p29.indd 28 www.franklintempleton.lu 03/09 /2012 13:06 FRANKLIN TEMPLETON INVESTMENT FUNDS www.franklintempleton.lu 385916 02 FTIF p1-p29.indd 29 Audited Annual Report 29 03/09 /2012 13:06 FRANKLIN TEMPLETON INVESTMENT FUNDS Statement of Operations and Changes in Net Assets For the Year ended June 30, 2012 TOTAL Franklin Asian Flex Cap Fund (USD) Franklin Biotechnology Discovery Fund (USD) Franklin Euroland... May 4, 2012 The accompanying notes form an integral 22 Audited Annual Report 385916 02 FTIF p1-p29.indd 22 www.franklintempleton.lu 03/09 /2012 13:06 FRANKLIN TEMPLETON INVESTMENT FUNDS Statement of Net Assets at June 30, 2012 (continued) Templeton Asian Growth Fund (USD) Templeton Asian Smaller Companies Fund (USD) Templeton BRIC Fund Templeton China Fund (USD) Templeton Eastern Europe Fund (EUR) Templeton. .. www.franklintempleton.lu 385916 02 FTIF p1-p29.indd 25 Audited Annual Report 25 03/09 /2012 13:06 FRANKLIN TEMPLETON INVESTMENT FUNDS Statement of Net Assets at June 30, 2012 (continued) Templeton Global (Euro) Fund (EUR) Templeton Templeton Global Global Aggregate Aggregate Investment Grade Bond Fund Bond Fund* (USD) (USD) Templeton Global Balanced Fund (USD) Templeton Global Bond Fund (USD) ASSETS Investment. .. 385916 02 FTIF p1-p29.indd 18 www.franklintempleton.lu 03/09 /2012 13:06 FRANKLIN TEMPLETON INVESTMENT FUNDS Statement of Net Assets at June 30, 2012 (continued) Franklin Natural Resources Fund (USD) Franklin Real Return Fund (USD) Franklin Strategic Income Fund (USD) Franklin Technology Fund (USD) Franklin U.S Dollar Liquid Reserve Fund (USD) Franklin U.S Equity Fund (USD) Franklin U.S Focus Fund (USD)... these financial statements www.franklintempleton.lu 385916 02 FTIF p1-p29.indd 17 Audited Annual Report 17 03/09 /2012 13:06 FRANKLIN TEMPLETON INVESTMENT FUNDS Statement of Net Assets at June 30, 2012 (continued) Franklin Gold and Precious Metals Fund (USD) Franklin High Yield Fund (USD) Franklin Income Fund Franklin India Fund Franklin MENA Fund (USD) (USD) (USD) ASSETS Investment in securities at market... launched on June 22, 2012 The accompanying notes form an integral 26 Audited Annual Report 385916 02 FTIF p1-p29.indd 26 www.franklintempleton.lu 03/09 /2012 13:06 FRANKLIN TEMPLETON INVESTMENT FUNDS Statement of Net Assets at June 30, 2012 (continued) Templeton Global Bond (Euro) Fund (EUR) Templeton Global Equity Income Fund (USD) Templeton Global High Yield Fund Templeton Global Income Fund Templeton Global... statements www.franklintempleton.lu 385916 02 FTIF p1-p29.indd 19 Audited Annual Report 19 03/09 /2012 13:06 FRANKLIN TEMPLETON INVESTMENT FUNDS Statement of Net Assets at June 30, 2012 (continued) Franklin U.S Government Fund (USD) Franklin U.S Low Duration Fund* (USD) Franklin U.S Opportunities Fund (USD) Franklin U.S Small-Mid Cap Growth Fund (USD) Franklin U.S Total Return Fund (USD) ASSETS Investment. .. integral www.franklintempleton.lu 03/09 /2012 13:07 FRANKLIN TEMPLETON INVESTMENT FUNDS Statement of Operations and Changes in Net Assets For the Year ended June 30, 2012 (continued) Franklin European Dividend Fund* (EUR) Franklin European Growth Fund (EUR) Franklin European Small-Mid Cap Growth Fund (EUR) Franklin Global Convertible Securities Fund** (USD) Franklin Global Growth Fund (USD) Franklin Global... launched on February 24, 2012 The accompanying notes form an integral 16 Audited Annual Report 385916 02 FTIF p1-p29.indd 16 www.franklintempleton.lu 03/09 /2012 13:06 FRANKLIN TEMPLETON INVESTMENT FUNDS Statement of Net Assets at June 30, 2012 (continued) Franklin European Dividend Fund* (EUR) Franklin European Growth Fund (EUR) Franklin European Small-Mid Cap Growth Fund (EUR) Franklin Global Convertible . www.franklintempleton.lu www.franklintempleton.lu Audited Annual Report 5 FRANKLIN TEMPLETON INVESTMENT FUNDS FRANKLIN TEMPLETON INVESTMENT FUNDS société. FRANKLIN TEMPLETON INVESTMENT FUNDS SOCIÉTÉ D'INVESTISSEMENT À CAPITAL VARIABLE AUDITED ANNUAL REPORT JUNE 30, 2012 FRANKLIN TEMPLETON INTERNATIONAL