Franklin Gold and Precious Metals Fund Class A, C

Transcription

1 Franklin Gold and Precious Metals Fund Class A, C Precious Metals Equity Product Profile Product Details 1 Fund Assets $1,020,810, Fund Inception Date 05/19/1969 Number of Issuers 66 Investment Style Benchmark Lipper Classification Morningstar Category Dividend Frequency Precious Metals S&P 500 Index;FTSE Gold Mines Index Precious Metals Equity Funds Equity Precious Metals Annually in December Inception Date Class A 05/19/1969 Class C 05/01/1995 CUSIP NASDAQ Symbol Class A FKRCX Class C FRGOX Class A Class C Maximum Sales Charges 5.75% initial sales charge 1.00% contingent deferred sales charge (CDSC) in the first year only Total Annual Operating Expenses Class A 0.98% Class C 1.73% Fund Description The fund seeks capital appreciation by investing at least 80% of its net assets in the securities of companies around the world that mine, process or deal in gold or other precious metals such as platinum, palladium and silver. The fund has a secondary goal of current income. Performance Data 2,3 Average Annual Total Returns 4,5 (%) 3 Mths YTD 1 Yr 3 Yrs 5 Yrs 10 Yrs 20 Yrs Since Inception Class A - With Sales Charges Class A - Without Sales Charges Class C - With Sales Charges Class C - Without Sales Charges S&P 500 Index FTSE Gold Mines Index 40% 20% 0% -20% Mths YTD 1 Yr 3 Yrs 5 Yrs 10 Yrs 20 Yrs Since Inception Class A - With Sales Charges Class A - Without Sales Charges S&P 500 Index FTSE Gold Mines Index 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 you may have a gain or a loss when you sell your shares. Please call Franklin Templeton Investments at (800) DIAL BEN/ or visit franklintempleton.com for the most recent month-end performance. Calendar Year Returns (% Without Sales Charges) Class A Class C S&P 500 Index FTSE Gold Mines Index If the sales charge had been included, the returns would have been lower. 1. All holdings are subject to change. Holdings of the same issuers have been combined. 2. Effective 05/01/1994, the fund implemented a Rule 12b-1 plan, which affects subsequent performance. Class A: Prior to 08/03/1998, these shares were offered at a lower initial sales charge; thus actual returns may differ. Class C: Prior to 01/01/2004, these shares were offered with an initial sales charge; thus actual returns may differ. The fund offers other share classes subject to different fees and expenses, which will affect their performance. Please see the prospectus for details. 3. Source for Index: FactSet. Indexes are unmanaged, and one cannot invest directly in an index. They do not reflect any fees, expenses or sales charges. 4. Periods shorter than one year are shown as cumulative total returns. 5. Since inception return for the benchmark is calculated to the fund inception date. Not FDIC Insured May Lose Value No Bank Guarantee

2 Portfolio Manager Insight 6 Market Review Despite initially falling to a five-month low in early December, gold spot prices ended 2017 on a strong note that allowed the metal to advance 2.2% for the month, 1.8% for the quarter, and 13.1% for the year, marking its second consecutive annual gain and best result since 2010; its year-end value stood at US$1,303 per troy ounce. 7 Gold s advance aided primarily by the slumping US dollar (-1.0% according to the US Dollar Index, and capping a steep full-year 2017 decline of 9.9%), intermittent geopolitical concerns and a potential demand boost from changes to US tax policy was restrained by investor concerns over the willingness of the US federal Reserve to hike rates ahead of inflation. 7 The ongoing rally in global equity markets and positive global economic growth outlook also limited investors appetite for perceived haven assets such as gold, triggering a retreat from its 2017 high of US$1,349 reached in early September. 7 Gold also faced a new rival as investor enthusiasm for digital currencies like bitcoin ramped up to a fevered pitch. Among other precious metals, palladium climbed 5.3% in December, 13.6% in the fourth quarter and more than 56% in 2017 (to US$1,064 an ounce) as consumption of the precious metal used to curb pollution from gasoline-fueled vehicles continued to outstrip supplies. 7 Silver and platinum, meanwhile, saw more subdued annual gains: Silver capped its 6.4% 2017 advance with gains of 3.1% and 1.7% in December and the fourth quarter, rising to US$16.94 an ounce; platinum, which fell 1.3% in December (to US$930), posted small fourth-quarter and 2017 gains of 2.0% and 3.0%. 7 In the base metals markets, copper futures tracked by the London Metal Exchange outperformed most other metals in their eighth consecutive quarterly gain (+11.8% to US$7,247 per metric ton), the longest winning streak in more than a decade, and traded nearly 31% higher in 2017 (the most since 2009) as prices approached a four-year peak. 8 Performance Review Amid widespread declines for gold-focused holdings, the fund s negative fourth quarter returns also underperformed the benchmark FTSE Gold Mines Index, based largely on stock selection in the gold industry and sharp declines for some of our non-gold-focused investments. These disappointing quarterly results weakened what was nonetheless a very strong year of absolute returns for All of the fund s holdings in the off-index precious metals and minerals industry shed considerable value during the quarter, as most related companies were contending with lower platinum and palladium prices. Platinum Group Metals (PGM) and Impala Platinum Holdings were the major detractors among them. PGM shares lost almost half of their value over the October-December span. In addition to lower metals prices, the company announced a US$40 million secondary stock offering that further weighed on the value of its outstanding shares, following delays with the ramp up at its Maseve mine in South Africa. Though its timeline towards full production has been extended, current mining has broadly delivered on expectations from the feasibility study for the Maseve ore body. In a separate encouraging release, PGM published a pre-feasibility study for its Waterberg project that showed it held the potential to be a very large, low-cost operation. Impala, meanwhile, delivered mixed third-quarter results, confirming that the operating environment in South Africa remains quite challenging amid low platinum and palladium prices. There is some investor concern that Impala might need additional funding if conditions do not improve. Impala also announced a new chief executive officer (CEO) who is a seasoned industry veteran, and we believe he may be able to better address some of the operating issues Impala has been dealing with lately. Most of the fund s other major detractors were gold-focused miners, the strongest of which was an off-index position in Perseus Mining as its share-price decline was more than double the index s. Perseus is a West Africa-focused gold production, development and exploration company. Its guidance for fullyear 2016 came in very weak, in our view, including downgrades to second-half 2016 production from 90,000 ounces to 75,000 ounces, due in part to extended mill maintenance downtime and lower-than-expected grade, which pushed up all-in sustaining costs. The mill is now back up and running and management expects better grades and a higher output rate in With its acquisition of Amara Mining in April of this year, we believe Perseus has built a solid portfolio, comprising the Edikan Gold Mine in Ghana which has produced approximately 200,000 ounces of gold per year since 2012 as well as the Sissingué and Yaoure projects under development in Côte d Ivoire. Unfortunately, management also announced a 20% reduction in the reserve profile at Sissingué late in the quarter. Perseus is striving to become West Africa s next multi-mine gold producer. Even though Perseus s all-in sustaining costs remained above the recent price of gold, operating results and plant improvements have been supporting our view that the processing of higher-grade ore in 2017 should result in higher production and dramatically lower production costs at Edikan. St. Barbara Limited remained as one of the fund s higher-conviction overweighted gold holdings for the longer term, but it was a substantial fourth quarter detractor. Aside from the negative impact of lower precious metals prices, we believe the stock might have dipped merely on speculation or profit-taking after a strong run-up in the third quarter. Moreover, its third-quarter results (announced in October) were fairly strong and in line with consensus expectations, delivering strong cash generation and debt repayment. St. Barbara also completed the strategic review of its Simberi mine and sulfide project in Papua New Guinea, deciding to keep the operation as part of the company rather than divest it. It also continued to buy back debt throughout the fall months, and by the end of 2016 the company was net cash positive. Acacia Mining was overweighted in the portfolio and lost nearly a third of its share value. In the absence of any major setbacks, Acacia may have suffered from speculative trading to the downside; Barrick Gold (also a fund holding) owns a 64% stake in Acacia, and there was some speculation that it may become more aggressive in divesting some of its interest in Acacia. The company has, however, been driving stronger performance at its North Mara operations in Tanzania, and it increased full-year guidance by 5% while all-in sustaining costs were lowered to the bottom of its stated range. Acacia also continued to make headway on its exploration properties in Kenya. The stock of South Africa-based AngloGold, in which we held an overweighting versus the index, also declined by roughly one-third after it reported higher cost guidance, lower full-year 2016 production guidance and somewhat disappointing earnings results for the third quarter. As an overall higher-cost producer, AngloGold is quite sensitive to lower gold prices. We believe AngloGold continues to operate a world-class portfolio of operations and projects the company has 17 gold mines in nine countries, as well as several exploration programs in both established and new gold-producing regions. Additionally, a December update on its Tropicana gold mine in Australia revealed a 45% increase in the mine s forward reserve estimate. Elsewhere, the fund s off-index stake in Primero Mining declined more than 50%. The company recently lowered its full-year production guidance for the third time this year as mine results were negatively impacted by lower grades at San Dimas (Mexico) and Black Fox (Canada). Primero s guidance is now targeting 170,000 to 190,000 ounces of gold equivalent versus 195,000 to 215,000 previously and an early-2016 projection of 230,000 to 250,000. High costs were placing additional pressure on the company as it has been eying a total cash cost of US$1,350 to US$1,400 per ounce of gold. Some of our other key detractors stemmed from our substantial underweightings of large-capitalization gold miners that declined less than the FTSE Gold Mines index, namely Barrick Gold and Newmont Mining. franklintempleton.com 2

3 On the upside, the fund s off-index allocations in the diversified metals and mining; and copper industries supported relative performance, as did our small cash position amid the broad-based selloff. Underweightings in several stocks that declined well in excess of the index also proved beneficial, as was the case with key relative contributors such as Gold Fields (gold industry) and Fresnillo (silver industry). In the same vein, the fund benefitted from our avoidance of several index stocks that suffered notable three-month declines, including Sibanye Gold, Yamana Gold, Kinross Gold and Harmony Gold Mining. We actively exited the fund s positions in Yamana and Kinross earlier in the year, ahead of these precipitous declines. Relative performance gains in the diversified metals and mining industry relied on several key contributors, the best of which were Ivanhoe Mines and Nevsun Resources. Ivanhoe is in the process of building the Platreef platinum/palladium mine in South Africa, as well as two other development projects in the Democratic Republic of Congo (DRC) that are focused on copper and zinc, and its shares rallied during the autumn months. Higher copper and zinc prices were primary catalysts for its share-price increase even though the company is still in the pre-production phase. Ivanhoe announced continued success at a copper discovery in the DRC called Kakula, following some high-grade drill intercepts in a separate ore body not far from its Kamoa project. Ivanhoe released a preliminary economic assessment of Kakula, and included combined mining scenarios with nearby Kamoa (they are separated by about 15 kilometers), but as the ore body continues to grow from drilling success there are likely further optimization gains to be realized in the region. Our stake in mid-tier miner Nevsun Resources also increased in value as it benefitted from higher zinc prices and enjoyed a solid November gain. The company recently began to produce and ship zinc from its Bisha open pit mine in Eritrea, having worked through the ore body s gold and copper layers. Furthermore, initial drilling results at its Timok copper/gold project in Serbia confirmed the high-grade nature of that ore body. In the copper industry, Sandfire Resources was the main contributor. Pricing fundamentals were the primary catalyst, with the stock logging a modest three-month gain as it tracked copper prices higher. In the gold industry, only a handful of contributors enjoyed what turned out to be a rare combination of positive returns and outperformance versus the benchmark index, led by advance-stage gold explorer and developer Continental Gold, the shares of which climbed nearly 8%. The company took a step forward when it received the long-awaited environmental permit for its Buriticá project in Colombia, clearing a major hurdle on the way towards construction. The site feasibility study indicates that the Buriticá project will be a lowest-quartile cost producer and an economically robust gold mine. Most other gold industry contributors were overweighted or off-index holdings that declined less than the index. For example, OceanaGold s much shallower-than-index decline was highly supportive of relative performance. Heightened political scrutiny over mining rights and inspections in the Philippines had been pressuring OceanaGold s shares in recent months as the new administration, under President Rodrigo Duterte, initiated a countrywide audit of all mining operations. OceanaGold operates the Didipio mine, a high-grade gold/copper mine located on the Philippine island of Luzon, along with mines in New Zealand and the soon-to-be-completed Haile gold mine in South Carolina in the United States. Overall investor sentiment towards OceanaGold improved in November, with growing confidence that Didipio would not be closed and that the company could work with the government to resolve any issues. We visited Didipio earlier this year and believe it is a well-run and environmentally sound operation. In November Didipio won the country s Presidential Mineral Industry Environmental Award for the second year in a row, recognizing its exemplary effort towards responsible mining, which lent further credence to the idea that the mine was unlikely to be shut down. The stock received an additional boost in December when management announced that the Haile gold mine had commenced milling, on-schedule for the planned ramp up to full commercial production in the first half of Our overweighted position in B2Gold declined roughly half as much as the index. B2Gold announced record gold production and revenue for the third quarter and first nine months of 2016, and it lifted annual production guidance for several mines, while operating and all-in sustaining costs were expected to be below or near the low end of the company s annual cost guidance range. Adding to B2Gold s rally was an update showing construction of its Fekola mine (located in Mali) was progressing well, on schedule and on budget, and is expected to commence production in 2017 s fourth quarter. We visited the mine site in October and met with B2Gold management to confirm the company s progress. We held an overweighted position in Centamin, which delivered a smaller-than-average share-price decline for several reasons. Centamin, which operates the Sukari gold mine in Egypt, reported solid third-quarter earnings that were well above consensus estimates and prior guidance. The company is producing more gold at a lower cost than previously forecast, and although it maintained its full-year 2016 production guidance, many analysts felt the company could exceed guidance given the strong results so far this year. Centamin s management also highlighted interesting exploration potential near a new underground decline ramp that, if successful, could further improve Sukari s production profile. Portfolio Positioning The fund s strategy is to seek capital appreciation by investing at least 80% of its net assets in the securities of companies around the world that mine, process or deal in gold and other precious metals such as silver, platinum and palladium. Outlook & Strategy Gold prices moved sideways for much of October and November, then sold off in early December only to rally back into the end of the year. The fund broadly followed this trend, but with a wider dispersion of returns. Although there were a few exceptions, the latest quarterly financial results from goldfocused mining companies were generally well-received by investors. However, forward guidance was a little light for some firms and government-company relations continued to present challenges in several corners of the world, manifesting itself in higher levels of perceived risk which in some cases resulted in depressed valuations that we do not believe were entirely justified in some cases. Mid-capitalization gold producers operating in less-established jurisdictions seemed to continue their recent lagging trend, even if their operations and government relations were faring well. Assets in physical gold exchange-traded funds (ETFs) were up slightly (to 318,000 ounces) for fourth quarter of 2017, bringing the total gold held by ETF s to 71.5 million ounces. 7 The modest increase reflected the limited investor interest in the sector as general equity markets continued to push higher. Fundamental trends in the gold industry appear healthy to us, and the gold price has remained at supportive levels while many gold miners persist in their hesitancy to invest, thereby limiting future gold supplies. Rising gross domestic product forecasts globally, combined with the stimulative effects of the announced changes to US tax policy, have increased the dialogue about the potential for inflationary pressures to return, which could provide further support to precious metals and related equities. The World Gold Council s latest quarterly report, which covered the third quarter of 2017, highlighted a 9% decline in gold demand compared to the third quarter of Jewelry demand for gold was down 3% year on year but demonstrated highly divergent trends, with India s demand ebbing 25% while China s grew 13%. 9 In our analysis, India s weakness was mainly due to a new tax regime and government regulations that weighed on demand. Central bank demand rose modestly in the third quarter compared to 2016, while gold bar and coin demand continued to show good uptake as it rose 17% from year-ago levels. 9 Gold used in technology applications increased for the fourth consecutive quarter as demand for memory chips continued to rise. 9 franklintempleton.com 3

4 The performance of gold and gold-mining equities occasionally diverged in 2017, but overall equities continue to show high sensitivity to shifts in metal prices and outlook, although the final results for the year were disappointing as the equities in general failed to keep up with the rise in physical gold prices. Unlike previous years where this type of performance could be attributed to rising capital costs that eroded profit margins, 2017 s underperformance was more of a valuation contraction as investors seemed to focus on other even better-performing segments of the market. Looking forward, we continue to expect gold stocks to show high gearing to movements in physical gold prices, as even a relatively small price move in physical gold can drive a significant change in cash flow and outlook for a company. Capital spending across the metals and mining sector has continued its multi-year downtrend. We believe the lack of investment and limited exploration is apt to foster lower gold production in the coming years. Notably, October data showed global gold mine production in the third quarter of 2017 fell 1% year over year. 9 Even if gold prices move higher, we think cautious management teams and a desire to increase dividend payments for many of the world s largest gold miners make it unlikely that they will aggressively pursue new projects as they may focus first on repairing their balance sheets and restoring investor confidence. Despite this trend, we continue to see opportunity for high quality, moderate capital-cost projects to move forward. After several years of successful cost reduction, the industry faced a number of upward input costs in 2017 and current spending levels appear unsustainably low to us following several years of cutbacks, while substantial cost reductions are becoming harder for most gold-mining companies to identify. Structurally, we believe many of the major mining companies have been underinvesting in long-lead projects required to maintain their current production profiles. Against this backdrop, mergers and acquisitions offer the potential to rebuild their asset bases while reducing overhead and driving efficiencies of scale. Risk-sharing for large projects has also emerged as a theme for gold companies seeking to move projects forward. As a prime example of this type of activity, Goldcorp entered into a 50/50 joint venture with Barrick Gold on its Cerro Casale project in Chile at the end of March. In May, Newmont s investment of a 19.9% stake in Continental Gold, which allows it to participate in the construction of one of the first modern gold mines in Colombia, is another example of this type of risk-sharing for new projects. Inflation concerns, global trade disputes, tensions in the Middle East and North Korea, the impact of changing political leadership and policies around the world, and record high stock market index levels underscored some of the key discussion points facing the global economy as we moved into We believe many of these issues will be successfully navigated, but all of them present potential stumbling blocks that could act as a trigger to drive further investment in gold. The world s financial system is increasingly complex and seems to be moving into untested waters given the unprecedented amount of fiscal stimulus over the past decade, combined with very low interest-rate policies and growing trade tensions. An investment in the gold industry is based, in part, on the fundamental belief that new forces may weigh on global markets and in some cases may act as a positive catalyst for commodities such as gold. We continue to see attractive investment opportunities in gold and precious metals equities, with many companies trading with enterprise values below what it would cost to build their existing mines today. We also believe many gold companies are well positioned to survive another downturn in prices if it should occur, and yet they offer significant upside potential if prices move higher. Furthermore, mining companies have maintained focus on improving the cost structure of their operations, debt repayment and asset rationalization, which we believe should result in improved performance potential and is conducive to equity-price appreciation, especially in a rising gold-price environment. Gold and gold equities remain valuable tools for portfolio diversification, in our view, as they generally do not correlate significantly with the prices of non-gold equities, bonds or other commodities, and serve as a potential hedge against geopolitical instability, inflation, US-dollar depreciation and stock market volatility. 6. The information provided is not a complete analysis of every material fact regarding any country, market, industry, security or fund. Because market and economic conditions are subject to change, comments, opinions and analyses are rendered as of the date of this material and may change without notice. A portfolio manager s assessment of a particular security, investment or strategy is not intended as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy; it is intended only to provide insight into the fund s portfolio selection process. Holdings are subject to change. Portfolio Characteristics 10,11 Portfolio FTSE Gold Mines Index Market Capitalization (Millions in USD) 4,050 12,385 Return on Equity 2.70% 6.40% Historical 3-Year EPS Growth 1.11% 9.04% Estimated 3-5 Yr EPS Growth 16.39% 14.70% Price to Earnings (12 Month Forward) 24.01x 24.68x 10. The portfolio characteristics listed are based on the fund s underlying holdings, and do not necessarily reflect the fund s characteristics. Due to data limitations all equity holdings are assumed to be the primary equity issue (usually the ordinary or common shares) of each security s issuing company. This methodology may cause small differences between the portfolio s reported characteristics and the portfolio s actual characteristics. In practice, Franklin Templeton s portfolio managers invest in the class or type of security which they believe is most appropriate at the time of purchase. The market capitalization figures for both the portfolio and the benchmark are at the security level, not aggregated up to the main issuer. Source: Factset. Price ratio calculations for weighted average use harmonic means. Any exceptions to this are noted. Information is historical and may not reflect current or future portfolio characteristics. All holdings are subject to change. 11. Source for Index: FactSet. Indexes are unmanaged, and one cannot invest directly in an index. They do not reflect any fees, expenses or sales charges. franklintempleton.com 4

5 Portfolio Diversification Top Ten Holdings 12 Percent of Total Top Holdings Country % B2GOLD CORP Canada 6.40 NEWCREST MINING LTD Australia 5.53 ANGLOGOLD ASHANTI LTD South Africa 5.27 ALAMOS GOLD INC Canada 3.98 BARRICK GOLD CORP Canada 3.71 CENTAMIN PLC Egypt 3.68 GUYANA GOLDFIELDS INC Canada 3.60 IVANHOE MINES LTD Canada 3.30 ST BARBARA LTD Australia 3.30 DETOUR GOLD CORP Canada 3.26 Geographic Weightings vs. FTSE Gold Mines Index 13,14 Percent of Total Sector Weightings vs. FTSE Gold Mines Index 15,16 Percent of Total Canada Long Life Gold Mines Australia Medium Life Gold Mines South Africa Gold Exploration & Development United States Egypt United Kingdom Peru Philippines Cash & Cash Equivalents % 25% 50% 75% Precious Metals & Minerals Diversified Metals & Mining Copper Silver Cash & Cash Equivalents % 5%10% 15% 20%25% 30% 35%40% 45% 50%55% 60% 65%70% 75% 80%85% 90% Franklin Gold and Precious Metals Fund FTSE Gold Mines Index Franklin Gold and Precious Metals Fund FTSE Gold Mines Index Smallest Sector Contributors vs. FTSE Gold Mines Index 17 Total Sector Effect (%) Gold Precious Metals & Minerals Holdings of the same issuers have been combined. Top ten holdings information is historical and may not reflect current or future portfolio characteristics. All holdings are subject to change. The information provided is not a recommendation to purchase, sell, or hold any particular security. The portfolio manager for the fund reserves the right to withhold release of information with respect to holdings that would otherwise be included. 13,15. Information is historical and may not reflect current or future portfolio characteristics. Percentage may not equal 100% due to rounding. All holdings are subject to change. 14,16. Source for Index: FactSet. Indexes are unmanaged, and one cannot invest directly in an index. They do not reflect any fees, expenses or sales charges. 17. Past performance is not an indicator or a guarantee of future performance. Information is historical and may not reflect current or future portfolio characteristics. All holdings are subject to change. Source: FactSet. Important data provider notices and terms available at Total Effect represents the excess return by sector as compared to the index. Performance attribution is calculated in the base currency of the fund. franklintempleton.com 5

6 Asset Allocation 18 Percent of Total EQUITY CASH & CASH EQUIVALENTS % 20% 40% 60% 80% 100% 120% Supplemental Performance Statistics Supplemental Risk Statistics 19,20 Class A 3 Yrs 5 Yrs 10 Yrs Standard Deviation (%) Tracking Error (%) Information Ratio Beta Sharpe Ratio 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 you may have a gain or a loss when you sell your shares. Please call Franklin Templeton Investments at (800) DIAL BEN/ or visit franklintempleton.com for the most recent month-end performance. Investment Strategy & Process Actively managed with a long-term focus Research driven Top down/bottom-up approach Valuation discipline Diversified globally across precious metals Look to maintain a stable risk profile over time Top-Down Macro Analysis to determine industry weightings (Supply & Demand, Commodity Cycles) Integrate macro view seeking to identify companies that have outperform potential Portfolio of Our Best Ideas Micro level feedback to refine macro models Bottom-Up In-Depth Fundamental Research seeking to identify the most attractive investment opportunity 18. Information is historical and may not reflect current or future portfolio characteristics. Percentage may not equal 100% due to rounding. All holdings are subject to change. 19. Information Ratio and Tracking Error information are displayed for the product versus the FTSE Gold Mines Index. 20. Information Ratio is a way to evaluate a manager s ability to outperform a benchmark in relation to the risk that manager is assuming, with risk defined as deviation from the benchmark. This measure is calculated by dividing the portfolio s excess return (portfolio return less the benchmark return) by the tracking error (derived by taking the standard deviation of the monthly differences between the portfolio return and the benchmark return over time). franklintempleton.com 6

7 Investment Team Portfolio Manager Years with Firm Years Experience Steve Land, CFA, Portfolio Manager/Research Analyst Fred Fromm, CFA, Portfolio Manager/Research Analyst Glossary Beta: A measure of the magnitude of a portfolio s past share-price fluctuations in relation to the ups and downs of the overall market (or appropriate market index). The market (or index) is assigned a beta of 1.00, so a portfolio with a beta of 1.20 would have seen its share price rise or fall by 12% when the overall market rose or fell by 10%. Estimated 3-5 Year EPS Growth: An estimated measure of the growth of earnings per share over a forward-looking period. For a portfolio, the value represents a weighted average of the stocks it holds. Historical 3-Year EPS Growth: A measure of the growth of earnings per share over a trailing 3 year period. For a portfolio, the value represents a weighted average of the stocks it holds. Information Ratio: In investing terminology, the ratio of expected return to risk. Usually, this statistical technique is used to measure a manager s performance against a benchmark. This measure explicitly relates the degree by which an investment has beaten the benchmark to the consistency by which the investment has beaten the benchmark. Market Capitalization: A determination of a company s value, calculated by multiplying the total number of company stock shares outstanding by the price per share. Market capitalization is expressed in millions of USD. Price to Earnings (12-mo Trailing): The share price of a stock, divided by its per-share earnings over the past year. For a portfolio, the value represents a weighted average of the stocks it holds. Return on Equity: A measure of a corporation s profitability that reveals how much profit a company generates with the money shareholders have invested. For a portfolio, the value represents a weighted average of the stocks it holds. Sharpe Ratio: To calculate a Sharpe ratio, an asset s excess returns (its return in excess of the return generated by risk-free assets such as Treasury bills) are divided by the asset s standard deviation. Standard Deviation: A measure of the degree to which a fund s returns varies from the average of its previous returns. The larger the standard deviation, the greater the likelihood (and risk) that a fund s performance will fluctuate from the average return. Tracking Error: Measure of the deviation of the return of a fund compared to the return of a benchmark over a fixed period of time. Expressed as a percentage. The more passively the investment fund is managed, the smaller the tracking error. franklintempleton.com 7

8 What Are The Risks? All investments involve risks, including possible loss of principal. The fund concentrates in the precious metals sector which involves fluctuations in the price of gold and other precious metals and increased susceptibility to adverse economic and regulatory developments affecting the sector. In times of stable economic growth, the prices of gold and other precious metals may be adversely affected. In addition, the fund is subject to the risks of currency fluctuation and political uncertainty associated with foreign investing. Investments in emerging and frontier markets involve heightened risks related to the same factors, in addition to those associated with their relatively small size and lesser liquidity. The fund may also heavily invest in smaller companies, which can be particularly sensitive to changing economic conditions, and their prospects for growth are less certain than those of larger, more established companies. Investing in a non-diversified fund involves the risk of greater price fluctuation than a more diversified portfolio. These and other risks are described more fully in the fund s prospectus. Important Legal Information 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 advisor, call us at (800) DIAL BEN/ or visit franklintempleton.com. Please carefully read a prospectus before you invest or send money. Source: FTSE International Limited ( FTSE ) FTSE FTSE is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under licence. All rights in the FTSE indices and / or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and / or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE s express written consent. Standard & Poor s, S&P and S&P 500 are registered trademarks of Standard & Poor s Financial Services LLC. S&P does not sponsor, endorse, sell or promote and S&P index-based product. Important data provider notices and terms available at: 7. Source: Bloomberg, L.P. 8. Source: London Metal Exchange. 9. Source: World Gold Council. Franklin Templeton Distributors, Inc. One Franklin Parkway San Mateo, CA (800) DIAL BEN/ franklintempleton.com 2018 Franklin Templeton Investments. All rights reserved. 132 PP 12/17