Franklin K2 Long Short Credit Fund

Important Legal Information

• Most Franklin Templeton funds offer multiple share classes. Share classes are subject to different fees and expenses, which will affect their performance. In general, Class A/A1 have a maximum initial sales charge; Class C/C1 shares have a 1% contingent deferred sales charge; Class Z, Advisor Class and Class R6 shares have no sales charges nor Rule 12b-1 fees; Class R shares have no sales charges, but do have a Rule 12b-1 fee.
• 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.
• For more information on any of our funds, contact your financial professional or download a prospectus. Investors should carefully consider a fund's investment goals, risks, sales charges and expenses before investing. The prospectus contains this and other information. Please read the prospectus carefully before investing or sending 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.

Footnotes

1. Portfolio holdings are subject to change.
2. 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.
3. Public Offering Price — Purchase price for each share of the fund on a given day. It includes the maximum initial sales charge, if any.
4. Net Asset Value — The amount per share you would receive if you sold shares that day.
5. Gross Exposure: Gross exposure is the sum of the absolute value of all exposures, directly or through derivatives, as a percentage of total assets. The sum of the percentage of long positions and short (in absolute terms) positions.
6. Net Exposure: Net exposure is the sum of the total value of all exposures, directly or through derivatives, as a percentage of total assets. The percentage value of the long positions less the percentage value of the short positions.
7. Long Exposure: Sum of the long exposures, directly or through derivatives, as a percentage of the total assets.
8. Short Exposure: Sum of the short exposures, directly or through derivatives, as a percentage of total assets.
9. Manager roster includes managers that have been appointed as sub-advisors or managers of investment funds. K2 may determine in its sole discretion not to allocate to one or more of the managers and or to add new managers. Accordingly, the manager roster is presented for illustrative purposes only, and should not be viewed as predictive of the ongoing composition of the Fund's portfolio, which may change at any time.
10. Source: Hedgemark. Average Duration: 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. The figure shown reflects certain derivatives held in the portfolio (or their underlying reference assets).
11. Source: Hedgemark. Actual Allocation is a percentage of invested capital into fund managers (sub-advisors or co-managers) as of the end of the period. Percentage may not total 100% due to rounding. Target Allocations reflect end of period target allocations. The Fund may shift allocations among strategies at any time. Further, K2 may determine in its sole discretion not to allocate to one or more of the strategies and or to add new strategies. Accordingly the above target allocations are presented for illustrative purposes only, and should not be viewed as predictive of the ongoing composition of the fund's portfolio (and its managers), which may change at any time.
12. Source: Hedgemark. Figures shown reflect certain derivatives held in the portfolio (or their underlying reference assets) and may not total 100% or may be negative due to rounding, use of derivatives, unsettled trades or other factors.
13. Source: Hedgemark. Weightings as percent of invested capital into fund managers (sub-advisors or co-managers). Percentage may not total 100% due to rounding. Manager allocation includes managers that have been appointed as sub-advisors or managers of investment funds. K2 may determine in its sole discretion not to allocate to one or more of the managers and/or to add new managers. Accordingly, the manager allocation is presented for illustrative purposes only, and should not be viewed as predictive of the ongoing composition of the Fund's portfolio, which may change at any time.
14. 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.
15. 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.
16. Includes distribution and service (12b-1) fees; acquired fund fees and expenses; and other expenses of the fund or the subsidiary.
17. 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.
18. Includes distribution and service (12b-1) fees; acquired fund fees and expenses; and other expenses of the fund or the subsidiary.
19. 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.
20. 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.
21. 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.
22. 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.
23. 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.
24. 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.
25. Indices are unmanaged and one cannot invest directly in them. Index returns do not reflect any fees, expenses or sales charges.
26. 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.