Franklin K2 Long Short Credit Fund

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.
• All investments involve risks, including possible loss of principal. The market values of securities owned by the Fund will go up or down, sometimes rapidly or unpredictably. The Fund's performance depends on the manager's skill in selecting, overseeing, and allocating Fund assets to the sub-advisors. The Fund is actively managed and could experience losses if the manager's and sub-advisors' judgment about particular Fund portfolio investments prove to be incorrect. Some sub-advisors may have little or no experience managing the assets of a registered investment company. Bond prices generally move in the opposite direction of interest rates. Changes in the financial strength of a bond issuer or in a bond's credit rating may affect its value. Lower-rated or high yield debt securities ("junk bonds") involve greater credit risk, including the possibility of default or bankruptcy. Liquidity risk exists when securities become more difficult to sell, or are unable to be sold, at the price at which they've been valued. Investments in derivatives involve costs and create economic leverage, which may result in significant volatility and cause the Fund to participate in losses (as well as gains) that significantly exceed the Fund's initial investment. The Fund may make short sales of securities, which involves the risk that losses may exceed the original amount invested. Please see the prospectus and summary prospectus for information on these as well as other risk considerations, including the risks of foreign investments.
• 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.
• 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.
• 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.
• Performance data represents past performance, which does not guarantee future results. Current performance may differ from figures shown. The fund's investment return and principal value will change with market conditions, and an investor may have a gain or a loss when they sell their shares.
• 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.

Footnotes

1. The Gross Expense Ratio does not include an expense reduction contractually guaranteed through 9/30/20. Fund investment results reflect the expense reduction ("Total Annual Operating Expenses with Waiver"); without this reduction, the results would have been lower. Please see the prospectus for additional information.
2. Public Offering Price — Purchase price for each share of the fund on a given day. It includes the maximum initial sales charge, if any.
3. Net Asset Value — The amount per share you would receive if you sold shares that day.
4. The investment manager has contractually agreed to waive or assume certain expenses so that the total annual fund operating expenses (excluding 12b-1 fees; acquired fund fees and expenses; expenses related to securities sold short; and certain non-routine expenses) for each class of the fund do not exceed (and could be less than) 1.95% until September 30, 2018. This rate differs from the fund's "Net Expense Ratio," which reflects the full costs associated with an investment in the fund minus the contractual waivers/reductions, and is the figure that is used to calculate a fund's total returns.
5. Source: Hedge Fund Research, Inc. www.hedgefundresearch.com. The HFR indices are being used under license from Hedge Fund Research, Inc., which does not endorse or approve of any of the contents of this report. Unlike most asset class indexes, HFR Index returns reflect fees and expenses.
6. Costs associated with the fund's short positions. The fund's manager and sub-advisors use short positions in an attempt to either protect against losses or provide an additional source of returns versus long-only strategies. There is no guarantee that these positions will perform as the fund's manager or sub-advisors intended, and losses may occur.
7. Includes distribution and service (12b-1) fees; acquired fund fees and expenses; and other expenses of the fund or the subsidiary.
8. Costs associated with the fund's short positions. The fund's manager and sub-advisors use short positions in an attempt to either protect against losses or provide an additional source of returns versus long-only strategies. There is no guarantee that these positions will perform as the fund's manager or sub-advisors intended, and losses may occur.
9. Includes distribution and service (12b-1) fees; acquired fund fees and expenses; and other expenses of the fund or the subsidiary.
10. For net asset value (NAV) purchases, a 1% contingent deferred sales charge (CDSC) may apply to shares redeemed within 18 months.
11. Prior to 9/10/18, these shares were offered at a higher initial sales charge of 5.75%; thus actual returns would have differed. Total returns with sales charges have been restated to reflect the current maximum initial sales charge of 5.50%.
12. A measure of the fund's volatility relative to the market, as represented by the Bloomberg Barclays Global Aggregate 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.
13. Reference Benchmark: The Bloomberg Barclays Global Aggregate Index is solely utilized as a reference benchmark to illustrate difference in behavior between global fixed income markets and the fund. However, the Bloomberg Barclays Global Aggregate Index is not fully reflective of the risk profile of the fund, which is not limited to investing solely for long global fixed income market exposures.
14. 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.
15. 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.
16. Percentage of the fund's returns explained by movements in the Bloomberg Barclays Global Aggregate Index. 100 equals perfect correlation to the index. Based on the 3-year period ended as of the date of the calculation.
17. Standard deviation is a statistical measurement of the dispersion of historical returns. A higher standard deviation means greater volatility. Calculated by annualizing the standard deviation of the fund's daily returns over the 1-year period ended as of the date of the calculation.
18. Indices are unmanaged and one cannot invest directly in them. Index returns do not reflect any fees, expenses or sales charges.
19. 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, Franklin International Small Cap Growth Fund and Franklin Pelagos Commodities Strategy 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. For Franklin California Ultra-Short Tax-Free Income Fund Classes A1 and Advisor Class use the inception date of its predecessor, Franklin California Tax-Exempt Money Fund.