FRANKLIN TEMPLETON INVESTMENT FUNDS: SOCIÉTÉ D'INVESTISSEMENT À CAPITAL VARIABLE 2012

AUDITED ANNUAL REPORT JUNE 30, 2012 R.C.S. B35177 FRANKLIN TEMPLETON INVESTMENT FUNDS SOCIÉTÉ D`INVESTISSEMENT À CAPITAL VARIABLE 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 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 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 All the Funds marked with “ ” above are currently not authorised for public distribution in Hong Kong and are not available to Hong Kong investors. www.franklintempleton.lu Audited Annual Report 3 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 Officer 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 Officer 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. 2nd Street, 11th 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 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*; 4 Audited Annual Report www.franklintempleton.lu FRANKLIN TEMPLETON INVESTMENT FUNDS G I ( J , ) () 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. www.franklintempleton.lu 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 Audited Annual Report 5 ... - --nqh--