United States
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Effective 3/1/19, the maximum initial sales charge for purchases of less than $100,000 of Franklin Templeton’s long-term fixed income funds (Class A and A1 shares) was lowered to 3.75%. Please see the prospectus supplement for more information. If you have any questions, please contact your financial professional or call Shareholder Services.
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Beginning on 10/19/18, Class C shares held for 10 years or more will automatically convert to Class A shares. Thereafter, Class C shares held for 10 years or more will automatically convert to Class A shares on a monthly basis. This conversion allows shareholders to take advantage of the lower expenses offered by Class A shares. Please see the prospectus supplement for more information. If you have any questions, please contact your financial professional or call Franklin Templeton.
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Class A shares (NASDAQ: FHAIX) were renamed Class A1 and closed to new investors. Existing Class A1 shareholders may continue to add money to their accounts. A new Class A share (NASDAQ: FHQRX) launched with a different expense structure, in which new shareholders can invest. The fund also changed certain sales charges and commissions paid to dealers on Class A and A1 shares. Please see the prospectus supplement for more information. If you have additional questions, please contact your financial professional or call Franklin Templeton.
New investors must invest in new Class A shares. This A1 share class is available only for existing investors as of 9/7/18.
Fund Description
The fund seeks a high level of current income, with a secondary focus on capital appreciation, by investing predominantly in higher-yielding, lower-rated corporate bonds.
Strategy Statement
"The fund focuses on higher-yielding, lower-rated corporate bonds. We examine financial structure, cash flow, earnings prospects, market share and strategic positioning."
Management
Glenn Voyles, CFA®
- Joined Franklin Templeton in 1993
- Managed Fund Since 2015
Bryant Dieffenbacher, CFA®
- Joined Franklin Templeton in 2009
- Managed Fund Since 2020
S. James McGiveran III, CFA®
- Joined Franklin Templeton in 2006
- Managed Fund Since 2020
Patricia O'Connor, CFA®
- Joined Franklin Templeton in 1997
- Managed Fund Since 2020
INVESTMENT PHILOSOPHY, STRATEGY AND APPROACH
Investment Philosophy
Franklin Templeton Fixed Income believes that integrating top-down macroeconomic views, bottom up fundamental research, and quantitative science provides us with a competitive edge to navigate challenging investment environments, pursue consistent alpha, and better serve our clients.
Fundamental Credit Research Process
Our corporate credit strategies apply a research-driven approach to investing, relying primarily on bottom-up, fundamental analysis to identify corporate fixed income securities with the potential to offer high yield without excessive risk.
Credit research is conducted by a team of global corporate credit analysts who conduct in-depth fundamental and technical research on individual corporate issuers, as well as make macro-based industry evaluations. Organized regionally, analysts specialize by industry sector, covering investment grade and high yield issuers. This joint credit quality structure affords a more comprehensive industry view that facilitates a deeper understanding of the relevant risk factors in each broad sector and permits analysts to conduct more accurate relative value analysis when comparing credit spreads.
The team may also leverage macroeconomic views from the Fixed Income Research and Strategy Team (FIRST). FIRST includes all Franklin Templeton Fixed Income investment professionals and representatives from other Franklin Templeton investment teams. The Quarterly Research and Strategy Forum allows FIRST to present and debate independently derived macro, fundamental, and quantitative research.
Screening Process
The research process begins with an investment universe of approximately 1,000 issuers that analysts screen to remove smaller, less liquid issuers, resulting in a focus group of 50-75 companies per industry. These companies are further screened with a fundamental focus on financial strength to compile a select list of companies within each industry. Analysts perform rigorous company and industry research on this focus list, producing and maintaining detailed financial models and analysis of each company’s financial structure, earnings and cash flow projections, business and financial risk factors, and any other pertinent company information. This research relies on a combination of financial statement analysis and direct contact with company management. Analysts develop industry-specific buy/hold/sell ratings for the companies on the focus list, which is updated regularly.
Buy List
Issuers with favorable fundamental characteristics are compiled into an industry-specific Buy List based on a number of factors, including, but not limited to:
- Total return potential
- Measured risk
- Attractive valuation
- Sound structure
Buy List recommendations reflect our analysts’ views of fundamental trends and relative valuations versus the broad high yield market, as well as industry recommendations, and are updated on an ongoing basis. Analysts discuss their recommendations and the underlying rationale with portfolio managers who make the security selection and positioning decisions for the portfolio. Corporate credit portfolios are well-diversified, typically with exposure to issuers across all major industries; industry, issuer and issue level diversification naturally reduces the potential negative impact that any one company or industry may have on the portfolio’s overall performance. The fundamental research process that results in our Buy List is illustrated in the below charts. Given their understanding of the fundamental drivers for assigned industries, analysts also make recommendations on the expected performance of an industry versus the broad credit market (over-, under-, or market-weight).
Footnote: Diversification does not assure a profit or protect against loss.
Rating
Overall Morningstar Rating As of 12/31/2020
Rating Category: High Yield Bond
Morningstar Style Box As of11/30/2020
Table Legend
- Current
- Historical
| High | Quality | |||
|---|---|---|---|---|
| Medium | ||||
| Historical Style Current Style | Low | |||
| Ltd | Mod | Ext | ||
| Duration | ||||
Strategy, Benefits, Results
Strategy
- We conduct independent, bottom-up analysis focusing on critical factors that affect a company's long-term performance.
- We seek to opportunistically invest in companies and sectors that are infrequently followed or are out of favor with the marketplace.
- We adhere to a long-term disciplined approach through changing market environments, supported by separate risk management and quantitative research groups.
Benefits
- Diversified Portfolio. We invest in hundreds of securities representing various industries, thereby helping to reduce the potential negative impact any one security or sector may have on the fund's overall performance.
- Proven Track Record. With performance dating back to 1969, our fund has successfully navigated a variety of economic environments.
- Global Fixed Income Expertise. Investors have full access to the research resources of the Franklin Templeton Fixed Income Group®.
Performance data represents past performance, which does not guarantee future results. Current performance may differ from figures shown. Investment return and principal value will fluctuate with market conditions, and you may have a gain or loss when you sell your shares.
Important Legal Information
- CFA® and Chartered Financial Analyst® are trademarks owned by CFA Institute.
- Indexes are unmanaged, and one cannot invest directly in an index. Index returns do not reflect any fees, expenses or sales charges.
- Total Returns include change in share price, assume reinvestment of all distributions, and reflect the deduction of fund expenses and applicable fees. Total Returns With Sales Charge: returns reflect the deduction of the stated sales charge. Total returns, distribution rate, and yields reflect any applicable expense reductions, without which the results for those impacted funds would have been lower.
- All investments involve risks, including possible loss of principal. The risks associated with higher-yielding, lower-rated securities include higher risk of default and loss of principal. Changes in the financial strength of a bond issuer or in a bond's credit rating may affect its value. In addition, interest rate movements will affect the fund's share price and yield. Bond prices generally move in the opposite direction of interest rates. Thus, as the prices of bonds in the fund adjust to a rise in interest rates, the fund's share price may decline. Investment in foreign securities also involves special risks, including currency fluctuations, and political and economic uncertainty. These and other risk considerations are discussed in the fund's prospectus.
- Your clients should carefully consider a fund's investment goals, risks, charges and expenses before investing. Download a prospectus, which contains this and other information. Your clients should read the prospectus carefully before they invest or send money.
- Effective 9/10/18 Class A shares closed to new investors and were renamed Class A1 shares. This share class is only available for shareholders who purchased prior to to the close of market on 9/7/18.
Footnotes
- A statistical measurement of the range of a fund's total returns. In general, a higher standard deviation means greater volatility. Based on the fund's monthly returns over the 3-year period ended as of the date of the calculation.
- A statistical measurement of a fund's historical risk-adjusted performance. It is calculated by taking a fund's excess return over that of the three-month Treasury bill divided by its standard deviation. Higher values generally indicate better historical risk-adjusted performance. Based on the 3 years ended as of the date of the calculation.
- The annualized percentage difference between a fund's actual returns and its expected performance given its level of market risk, as measured by beta. Based on the 3-year period ended as of the date of the calculation.
- Percentage of the fund's returns explained by movements in the Credit Suisse High Yield Index. 100 equals perfect correlation to the index. Based on the 3-year period ended as of the date of the calculation.
- A measure of the fund's volatility relative to the market, as represented by the ICE BofAML US High Yield Constrained Index. A beta greater than 1.00 indicates volatility greater than the market. Based on the 3-year period ended as of the date of the calculation.
- The fund's 30-Day Standardized Yield is calculated using the net income (interest and dividends) per share earned over a trailing 30-day period (annualized), divided by the fund's share price at the end of that period. It may not equal the fund's actual income distribution rate, which reflects the fund's past dividends paid to shareholders.
- Public Offering Price — Purchase price for each share of the fund on a given day. It includes the maximum initial sales charge, if any.
- Net Asset Value — The amount per share you would receive if you sold shares that day.
- Source: Morningstar®. The style box reveals a fund's investment style. For credit quality of the bonds owned, Morningstar combines credit rating information provided by the fund companies (only using ratings assigned by a Nationally Recognized Statistical Rating Organization - "NRSRO") with an average default rate calculation to come up with a weighted-average credit quality. The weighted-average credit quality is currently a letter that roughly corresponds to the scale used by a leading NRSRO. Funds with a low credit quality style box placement are those whose weighted-average credit quality is less than BBB-; medium are those less than AA- but greater or equal to BBB-; and high are those of AA- or higher. When classifying a bond portfolio, Morningstar first maps the NRSRO credit ratings of the underlying holdings to their respective default rates (as determined by Morningstar's analysis of actual historical default rates). Morningstar then averages these default rates to determine the average default rate for the entire bond fund. Finally, Morningstar maps this average default rate to its corresponding credit rating along a convex curve. For interest-rate sensitivity, Morningstar obtains from fund companies the average effective duration. Generally, Morningstar classifies a fixed-income fund's interest-rate sensitivity based on effective duration of the Morningstar Core Bond Index (MCBI), which is currently three years. The classification of Limited will be assigned to those funds whose average effective duration is between 25% to 75% of MCBI's average effective duration; average effective duration between 75% to 125% of the MCBI will be classified as Moderate; and those at 125% or greater of the MCBI will be classified as Extensive. Shaded areas show the past 3 years of quarterly data. Past performance does not guarantee future results.
- Source: Morningstar®. For each mutual fund and exchange traded fund with at least a 3-year history, Morningstar calculates a Morningstar Rating based on how a fund ranks on a Morningstar Risk-Adjusted Return measure against other funds in the same category. This measure takes into account variations in a fund's monthly performance, and does not take into account the effects of sales charges and loads, placing more emphasis on downward variations and rewarding consistent performance. The top 10% of funds in each category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars and the bottom 10% receive 1 star. The weights are: 100% 3-year rating for 36-59 months of total returns, 60% 5-year rating/40% 3-year rating for 60-119 months of total returns, and 50% 10-year rating/30% 5-year rating/20% 3-year rating for 120 or more months of total returns. While the 10-year overall star rating formula seems to give the most weight to the 10-year period, the most recent 3-year period actually has the greatest impact because it is included in all three rating periods. Morningstar Rating is for the named share class only; other classes may have different performance characteristics. Past performance is not an indicator or a guarantee of future performance.
- ©2020 Morningstar, Inc. All rights reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information.
- The Gross Expense Ratio does not include a fee reduction related to the Fund's investment in a Franklin Templeton money fund and/or other Franklin Templeton fund, contractually guaranteed through 9/30/20. Fund investment results reflect the fee reduction; without this reduction, the results would have been lower. Please see the prospectus for additional information.
- For net asset value (NAV) purchases, a 1% contingent deferred sales charge (CDSC) may apply to shares redeemed within 18 months.
- Indices are unmanaged and one cannot invest directly in them. Index returns do not reflect any fees, expenses or sales charges. The index data referenced herein is the property of Intercontinental Exchange ("ICE") and/or its licensors and has been licensed for use by Franklin Templeton. ICE and its licensors accept no liability in connection with this use. See www.franklintempletondatasources.com for a full copy of the Disclaimer.
- For performance reporting purposes, the inception date for Classes A/A1, R, R6, Z, and Advisor Class shares of all Franklin Templeton Funds is the date of effectiveness of the fund's registration statement or the first day the fund commenced operations. For Class C shares, generally the inception date is the first day the fund commenced offering such shares. Exceptions: Templeton Global Balanced Fund Classes A and C use the inception date of the old Class A and C shares, renamed Class A1 and Class C1. For Franklin Mutual Series Funds and Franklin International Small Cap Growth Fund, the inception date for Classes A, C, R and R6 shares is the funds' oldest class', Z or Advisor, inception date. Franklin U.S. Government Money Fund Class R6 inception date is the first day it commenced offering such shares.
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