WHAT IS AN “EVENT DRIVEN”

HEDGE STRATEGY?
Alternative Intelligence for Individual Investors

Event driven strategies are exactly what they sound like. They focus on companies that are facing some type of change
“event,” like a merger or a bankruptcy. Managers will research the circumstances around a particular event and try to identify
potential opportunities that might result. For example, in a merger, there could be the potential to take advantage of price
dynamics for both the acquiring company and the company being purchased. Or in a bankruptcy reorganization, there might be
the opportunity to buy the debt of a company relatively cheaply and then profit if the company is successful in reorganizing itself.
A merger example is shown below.

The performance of these strategies tends to track the manager’s level of success in being able to identify and take advantage
of events impacting individual securities. As a result, strategy results are often independent of broad market performance.
Thus, these strategies can provide potential diversification benefits when added to portfolios where overall performance is
primarily driven by market results.

Hypothetical Example: An Educated Bet on a Deal Getting Done

When a merger is announced, the price of the company being acquired tends to trade lower than the proposed merger price, due
to the risk the merger deal will not be completed. If a manager believes the deal will occur, s/he typically will buy stock in the
company to be acquired while selling short (selling borrowed shares of) stock in the acquiring company, if the acquiring company
uses its stock to fund the acquisition. This short stock position may provide the portfolio an additional benefit of helping reduce
the impact should the broader stock market experience losses during the period the manager has this trade strategy in place.

SITUATION ACTION POTENTIAL RESULT

Profit
Company A Short Position Manager profits if
announces it will Manager sells stock in Company A. acquisition occurs at
use shares of its
stock acquisition price.
stock to acquire AND
Company B. Company B
stock price rises Long Position
immediately
after acquisition
Manager buys stock in Company B at $45
per share because manager’s research on
$50
COMPANY A announcement. the deal drives strong confidence that the
acquisition will occur.

COMPANY B
COMPANY A
PER E $45
$50 SHAR

Acquisition
of Company
B occurs.

$25

Company B stock price

The illustration above shows a hypothetical example of the kinds of trades used by managers following this type of hedge strategy. While the
potential result shown here is profitable, there is no assurance that such trades will always be so. It is always possible that any trade could
generate a loss if the manager’s expectations do not come to pass.

Not FDIC Insured | May Lose Value | No Bank Guarantee

EVENT DRIVEN STRATEGIES HAVE PROVIDED EQUITY-LIKE PERFORMANCE WITH LESS RISK
Risk vs. Return1
20 Years Ended November 30, 2020

Returns
12%

9%

Event Driven Strategies Global Equities

6%

Global Fixed Income

3%
3% 6% 9% 12% 15% 18%
Risk (Standard Deviation)

Past performance is not an indicator or a guarantee of future performance. The indexes above do not represent the performance of any
Franklin Templeton fund.
1. Source: FactSet, HFR, MSCI, Bloomberg. See www.franklintempletondatasources.com for additional data provider information. Event Driven Strategies are represented by the HFRI Event Driven (Total)
Index. Global Equities are represented by the MSCI World Index. Global Fixed Income is represented by the Bloomberg Barclays Global Aggregate Index. Indexes are unmanaged and one cannot invest directly
in an index. They do not reflect any fees, expenses or sales charges. Unlike most asset class indexes, HFR Index returns reflect fees and expenses. Returns data represents average annual total returns and
assumes reinvestment of interest or dividends. Risk is measured by the annualized standard deviation of monthly total returns.

KEY CHARACTERISTICS—EVENT DRIVEN

Primary Drivers of Return Market Environment Common Investments Major Sub-Strategies
Circumstances of a company’s Generally this strategy has Stocks Merger arbitrage
specific situation benefitted when the economy Bonds Special situations
is strong and corporate
Equity & credit derivatives Distressed/Restructure
activity is high
Activist

For more information on alternative strategies like this one, including how it might fit in your portfolio, talk to your financial
professional, call us at (800) DIAL BEN/342-5236 or visit franklintempleton.com.

IMPORTANT LEGAL INFORMATION

All investments involve risks, including possible loss of principal. Investments in alternative strategies are speculative
investments, entail significant risk and should not be considered a complete investment program.

Investors should carefully consider a fund’s investment goals, risks, charges and expenses before investing. To obtain
a summary prospectus and/or prospectus, which contains this and other information, talk to your financial professional, call us at
(800) DIAL BEN/342-5236 or visit franklintempleton.com. Please carefully read a prospectus before you invest or send money.

Franklin Templeton Distributors, Inc.

One Franklin Parkway
San Mateo, CA 94403-1906
(800) DIAL BEN® / 342-5236
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