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Franklin Templeton Investment Funds SOCIÉTÉ D’INVESTISSEMENT À CAPITAL VARIABLE AUDITED ANNUAL REPORT JUNE 30, 2012 R.C.S. B35177 FRANKLIN TEMPLETON INVESTMENT FUNDS société d’investissement à capital variable AUDITED ANNUAL REPORT FOR THE YEAR ENDED JUNE 30, 2012 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 full prospectus and its addendum as the case may be, the relevant Key Investor Information Documents (“KIIDs”), a copy of the latest available audited report and, if published thereafter, the latest unaudited semi-annual report. The auditor’s report refers only to the full English version of the Annual Report and not to any translated versions. 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 4 Audited Annual Report www.franklintempleton.lu 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  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  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 Fund1; 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*; www.franklintempleton.lu Audited Annual Report 5 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. 1 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 , ) () 6 Audited Annual Report www.franklintempleton.lu 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: UÊ /ÊÀ>ÊÕÀ«i>ÊÀiÊÕ` UÊ /ÊÀ>ÊÕÀ«i>ÊÛ`i`ÊÕ` UÊ /ÊÀ>ÊL>ÊÛiÀÌLiÊ-iVÕÀÌiÃÊÕ` UÊ /ÊÀ>Ê/i«iÌÊL>ÊV>ÌÊÕ` UÊ /Ê/i«iÌÊvÀV>ÊÕ` UÊ /Ê/i«iÌÊL>Ê}}Ài}>ÌiÊÛiÃÌiÌÊÀ>`iÊ`ÊÕ` 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: UÊ /Ê/i«iÌÊ1°-°Ê6>ÕiÊÕ` 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: UÊ /Ê/i«iÌÊÕÀÊiÞÊ>ÀiÌÊÕ`ÊLiV>iÊ/Ê/i«iÌÊÕÀÊ-ÀÌ/iÀÊiÞÊ>ÀiÌÊÕ` UÊ /ÊÀ>Ê1-Ê1ÌÀ>-ÀÌÊ`ÊÕ`ÊLiV>iÊ/ÊÀ>Ê1°-°ÊÜÊÕÀ>ÌÊÕ` 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. www.franklintempleton.lu Audited Annual Report 7 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 8 Audited Annual Report www.franklintempleton.lu 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 () [...]... 28 Audited Annual Report www.franklintempleton.lu FRANKLIN TEMPLETON INVESTMENT FUNDS www.franklintempleton.lu Audited Annual Report 29 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 Core Fund (EUR) Franklin European Core Fund*... financial statements www.franklintempleton.lu Audited Annual Report 21 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 in securities... affect the value of investments Data source: Performance – Franklin Templeton Investments www.franklintempleton.lu Audited Annual Report 15 FRANKLIN TEMPLETON INVESTMENT FUNDS Statement of Net Assets at June 30, 2012 TOTAL (USD) Franklin Asian Flex Cap Fund (USD) Franklin Biotechnology Discovery Fund (USD) Franklin Euroland Core Fund (EUR) Franklin European Core Fund* (EUR) ASSETS Investment in securities... 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... form an integral 22 Audited Annual Report www.franklintempleton.lu 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 Emerging Markets Fund (USD) Templeton Emerging Markets Balanced Fund (USD)... (previously Templeton Euro Money Market Fund) The accompanying notes form an integral 24 Audited Annual Report www.franklintempleton.lu FRANKLIN TEMPLETON INVESTMENT FUNDS Statement of Net Assets at June 30, 2012 (continued) Templeton Euro Short-Term Money Market Fund* (EUR) Templeton Euroland Fund Templeton European Fund Templeton European Total Return Fund (EUR) Templeton Frontier Markets Fund (USD) Templeton. .. these financial statements www.franklintempleton.lu Audited Annual Report 25 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 in securities... integral 26 Audited Annual Report www.franklintempleton.lu 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 Total Return Fund (USD) Templeton Growth (Euro) Fund (USD) Templeton Global Smaller Companies Fund... integral 18 Audited Annual Report www.franklintempleton.lu 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) 317,199,017... of these financial statements www.franklintempleton.lu Audited Annual Report 19 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 in securities at market . translated versions. FRANKLIN TEMPLETON INVESTMENT FUNDS www.franklintempleton.lu Audited Annual Report 3 FRANKLIN TEMPLETON INVESTMENT FUNDS Contents General. Disclosures 307 Franklin Templeton Investments Office Directory 309 4 Audited Annual Report www.franklintempleton.lu FRANKLIN TEMPLETON INVESTMENT FUNDS société