Templeton Euroland Fund A (acc) EUR

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1 Templeton Euroland Fund A (acc) EUR Franklin Templeton Investment Funds Fund Manager Report Value Equity Product Details 1 Fund Assets Fund Inception Date 08/01/1999 Number of Issuers 65 Bloomberg Base Currency Investment Style Benchmark Morningstar Category Overall Morningstar Rating TM 3 TEMGROA LX EUR Value Eurozone Large-Cap Equity Asset Allocation 2 % Equity Cash & Cash 4.70 Equivalents Fixed Income Fund Description The Fund aims to achieve long-term capital appreciation by investing primarily in equity and debt securities of European Monetary Union member country governments and companies with at least 75% of its total assets in equity securities issued by companies which have their head office in the European Union. Key Points European equities declined in February amid resurgent volatility and rising concerns that stronger global economic data would cause central banks to accelerate policy tightening. The fund performed better than its benchmark in February, primarily due to stock selection in the financials, industrials and consumer discretionary sectors. Stock selection in the information technology and telecommunication services sectors detracted from relative performance for the month. Performance Data Discrete Annual Performance (%) as at 28/02/2018 2/17-2/18 2/16-2/17 2/15-2/16 2/14-2/15 2/13-2/14 A (acc) EUR MSCI EMU Index EUR Performance Net of Management Fees as at 28/02/2018 (Dividends Reinvested) (%) 4 1 Mth 3 Mths YTD 1 Yr 3 Yrs 5 Yrs 10 Yrs Since Inception (08/01/1999) A (acc) EUR Calendar Year Returns (%) 50% 0% -50% % A (acc) EUR Past performance is not an indicator or a guarantee of future performance. Portfolio Manager Insight Market Review European equities declined in February amid resurgent volatility and rising concerns that stronger global economic data would cause central banks to accelerate policy tightening. Volatility originated in US markets, with the Dow Jones Industrial Average charting its biggest one-day points decline ever at the beginning of the period and 10-year Treasury yields rising to a four-year high. The volatility quickly spread to Europe, with the FTSE 100 Index falling the most since the Brexit referendum and Continental European equities also tracking sharply lower. Stocks rebounded through the middle of the month before again drifting lower in the final days of trading. The US dollar rose versus the euro, buoyed by the more aggressive interest rate outlook and a widespread flight to safety. Inflation data further supported the more hawkish bias, with US consumer prices rising by an annualised 2.1%, more than forecast (though wage inflation remained subdued). The Bank of England also pointed to rising inflationary pressures as a reason it may raise interest rates somewhat earlier and by a somewhat greater extent than initially expected. Elsewhere in Europe, campaigning continued ahead of Italy s March 4 general election, which polls suggested could end in a hung parliament, while in Germany the two main political parties agreed on a framework for a grand coalition similar in form to the government 1. All holdings are subject to change. Holdings of the same issuers have been combined.

2 that prevailed before Angela Merkel s Christian Democrats failed to win a majority in last year s federal election. In Asia, China s Communist party proposed the abolition of term limits for the posts of President and Vice President, paving the way for Xi Jinping to govern indefinitely, and raising doubts about the sincerity of China s promises to liberalise markets and allow limited forms of democracy. Performance Review The fund performed better than its benchmark in February, primarily due to stock selection in the financials, industrials and consumer discretionary sectors. Dutch firm Flow Traders, which offers a technology platform used by companies in high-speed trading, was the fund s top contributor and one of the few beneficiaries of enhanced volatility during the month. The shares surged by two-thirds in February, benefitting from a spike in trading volumes that led to record monthly income. We remain positive on the stock at these levels. After an unusually quiet period, we expect higher volatility going forward as central banks wind down bond purchases and raise interest rates. The firm also stands to benefit from structural growth opportunities as the market for exchange traded funds matures and Flow Traders develops its business in new regions like the United States and Asia. Finally, new European regulations (MiFID II) that require all exchange-traded fund (ETF) trading volume to be conducted on lit (i.e., transparent) exchanges should further increase volumes for Flow Traders, which has a reputation for best-in-class trade executions. In the consumer discretionary sector, the shares of Spanish hotelier Melia Hotels International rallied after the firm reported better-than-expected fullyear earnings and guided for a significant improvement in 2018 margins. While the stock is no longer an outright bargain, in our assessment, it still trades at a meaningful discount to net asset value and we believe it should offer additional upside as an improving economy in Spain (where the firm sources 40% of revenues) and disruptions elsewhere in the Mediterranean drive revenue growth. We have also been encouraged by management s success deleveraging the balance sheet through bond conversions and organic free cash flow generation. We will continue to monitor the investment closely and look to benefit as the macro cycle matures and valuation discount narrows further. Stock selection in the information technology and telecommunication services sectors detracted from relative performance for the month. Germanybased Jenoptik, a global leader in photonics (the application of light in combination with electronics to create solutions for industrial or personal applications), was a significant detractor. Jenoptik has focused on several products within this large industry and typically has market-leading positions. We believe the company will continue to benefit from improvements in cash flow, earnings growth and order intake. In telecommunication services, the shares of Telefonica Deutschland, the largest mobile network operator in Germany, fell after the company reported a net loss for the fourth quarter. We believe the company s ability to generate modest but steady free cash flow and dividend growth over the longer term is underappreciated by the market. Portfolio Positioning During the period, the fund was overweight relative to the benchmark in the health care, energy and financials sectors and underweight in the consumer staples, consumer discretionary and industrials sectors, with no exposure to real estate. Outlook & Strategy As we have argued in the past, the combination of economic optimism, easy monetary policy and sustained low market volatility created a complacency that left investors vulnerable as valuations rose and policy shifted. After years of official stimulus, central bankers led by the US Federal Reserve are raising interest rates and tapering bond purchases. After years of tranquility, volatility is awakening. After decades of proglobalisation development, economic nationalism is on the ascent. After a long period of low inflation, low global growth and ultra-low interest rates, inflationary forces are stirring, growth is accelerating and bond yields are picking up. As these key underpinnings of global financial markets change, so too will the characteristics and leadership of those markets. We believe that contrarian investors prepared to selectively hunt for bargains in the least favoured segments of the market may be best positioned for the transitions ahead. The leaders of the last cycle US equities, growth stocks, and consumer and internet plays are now priced at levels that dramatically increase the likelihood of subpar returns in the future. However, shifting conditions may facilitate the passing of the performance baton to the laggards of the last cycle: European equities and value stocks across a range of out-of-favour sectors like health care, energy and financials. In an otherwise expensive market, these are the stocks that we believe are bestpositioned for long-term outperformance. Portfolio Characteristics 5,6 Portfolio Price to Earnings (12 Month Trailing) 15.14x 18.50x Price to Book Value 1.59x 1.70x Price to Cash Flow 7.82x 9.01x Market Capitalisation (Millions in EUR) 26,331 46,487 Dividend Yield 2.74% 3.06% Portfolio Diversification Top Sector Contributors 7 Total Sector Effect (%) Financials 1.53 Industrials 0.97 Health Care 0.36 Consumer Discretionary 0.36 Utilities 0.33 Top Sector Detractors 7 Total Sector Effect (%) Information Technology Telecommunication Services Energy - franklintempleton.lu 2

3 Top Security Contributors 7,8 Security Total Effect (%) FLOW TRADERS 0.98 OUTOKUMPU TECHNOLOGY 0.51 INTERTRUST NV 0.35 ARCADIS NV 0.22 LIVANOVA PLC 0.18 Contributors/detractors data shown is for the period from 01/02/2018 to 28/02/2018. Past performance is not an indicator or a guarantee of future performance. Geographic Weightings vs. 2 Germany Netherlands France Italy Spain Finland United Kingdom 3.83 Belgium Ireland Portugal Denmark Austria Luxembourg Sweden Cash & Cash Equivalents % 25% 50% Top Security Detractors 7,8 Security Total Effect (%) JENOPTIK AG NOKIA CORP EUROPEAN AERONAUTIC DEFENSE & SPACE CO ELRINGKLINGER AG GERRESHEIMER AG Sector Weightings vs. 2 Financials Health Care Industrials Energy Consumer Discretionary Materials Information Technology Utilities Telecommunication Services Consumer Staples Real Estate 1.71 Cash & Cash Equivalents % 5% 10% 15% 20% 25% Templeton Euroland Fund Templeton Euroland Fund Top Ten Holdings 9 Top Holdings Sector Country % OUTOTEC OYJ Capital Goods Finland 2.46 TENARIS SA Energy Italy 2.43 MORPHOSYS AG Pharmaceuticals, Biotechnology & Life Germany 2.33 Sciences UNICREDIT SPA Banks Italy 2.21 AEGON NV Insurance Netherlands 2.14 FLOW TRADERS Diversified Financials Netherlands 2.11 CIE DE SAINT-GOBAIN Capital Goods France 2.08 KONINKLIJKE DSM NV Materials Netherlands 2.07 CRH PLC Materials Ireland 2.06 ARCADIS NV Capital Goods Netherlands 1.98 franklintempleton.lu 3

4 Supplemental Performance Statistics 3 Yrs 5 Yrs 10 Yrs Since Inception Standard Deviation (%) Templeton Euroland Fund Tracking Error (%) Information Ratio Beta Sharpe Ratio Templeton Euroland Fund Investment Team Portfolio Manager Years with Firm Years Experience Dylan Ball, EVP, Portfolio Manager, Research Analyst Heather Arnold, CFA, EVP, Director of Research, Portfolio Manager, Research Analyst Peter Moeschter, CFA, EVP, Portfolio Manager, Research Analyst Templeton Global Equity Team Number of Members Average Years Experience Portfolio Managers/Analysts Research Analysts What Are the Key Risks? The value of shares in the Fund and income received from it can go down as well as up and investors may not get back the full amount invested. Performance may also be affected by currency fluctuations. Currency fluctuations may affect the value of overseas investments. The Fund invests mainly in equity securities of companies located in or doing significant business in euroland countries. Such securities have historically been subject to significant price movements that may occur suddenly due to market or company-specific factors. As a result, the performance of the Fund can fluctuate significantly over relatively short time periods. Other significant risks include: currency risk, liquidity risk. For full details of all of the risks applicable to this Fund, please refer to the Risk Considerations section of the Fund in the current prospectus of Franklin Templeton Investment Funds. 10. Beta, Information Ratio and Tracking Error information are measured against the. franklintempleton.lu 4

5 Important Legal Information This document does not constitute legal or tax advice nor is it investment advice or an offer for shares of Franklin Templeton Investment Funds (the Fund ). Subscriptions to shares of the Fund can only be made on the basis of the current prospectus and, where available, the relevant Key Investor Information Document, accompanied by the latest available audited annual report and the latest semi-annual report accessible on our website or which can be obtained, free of charge, from Franklin Templeton International Services, S.à r.l. - 8A, rue Albert Borschette, L-1246 Luxembourg. Past performance is not an indicator or a guarantee of future performance. The value of shares in the Fund and income received from it can go down as well as up, and investors may not get back the full amount invested. Investment in the Fund entails risks which are described in the Fund s prospectus and, where available, in the relevant Key Investor Information Document. Special risks may be associated with a Fund s investment in certain types of securities, asset classes, sectors, markets, currencies or countries and in the Fund s possible use of derivatives. References to particular industries, sectors or companies are for general information and are not necessarily indicative of a fund s holdings at any one time. Currency fluctuations may affect the value of overseas investments. When investing in a fund denominated in a foreign currency, your performance may also be affected by currency fluctuations. Where a Fund invests in emerging markets, this investment can be more risky than an investment in developed markets. No shares of the Fund may be directly or indirectly offered or sold to residents of the United States of America. Shares of the Fund are not available for distribution in all jurisdictions and prospective investors should confirm availability with their local Franklin Templeton Investments representative before making any plans to invest. 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. In addition, it should not be assumed that any securities mentioned were or will prove to be profitable. Stocks mentioned in this report are not a solicitation to purchase those stocks, and are examples of some stocks which performed well. Not all stocks in the portfolio performed as well. For the most current information on the fund, please contact your Franklin Templeton marketing representative. Performance figures are not based on audited financial statements and assume reinvestment of interest and dividends. When comparing the performance of Franklin Templeton Investment Funds (the Fund ) with a benchmark index, it is important to note that the securities in which Franklin Templeton Investment Funds invests may be substantially different than those represented by the benchmark index. Furthermore, an investment in Franklin Templeton Investment Funds represents an investment in a managed investment company in which certain charges and expenses, including management fees, are applicable. These charges and expenses are not applicable to indices. Lastly, please note that indices are unmanaged and are not available for direct investment. Certain data and other information shown have been supplied by outside sources. While we consider that information to be reliable, we give no assurance that such data and information is accurate or complete. References to indexes are made for comparative purposes only and are provided to represent the investment environment existing during the time periods shown. The indices include a greater number of securities than those held in the Fund. An index is unmanaged and one cannot invest directly in an index. The performance of the index does not include the deduction of expenses and does not represent the performance of any Franklin Templeton fund. Past performance is not an indicator or a guarantee of future performance. CFA and Chartered Financial Analyst are trademarks owned by CFA Institute. MSCI makes no warranties and shall have no liability with respect to any MSCI data reproduced herein. No further redistribution or use is permitted. This report is not prepared or endorsed by MSCI. Important data provider notices and terms available at 2. 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 Morningstar, Inc. All rights reserved. The information contained herein is proprietary to Morningstar and/or its content providers; may not be copied or distributed; and is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. 4. Source for all information is Franklin Templeton Investments. Benchmark related data provided by FactSet. Past performance is not an indicator or a guarantee of future performance. Periods greater than one year are shown as average annual total returns. Fund performance data include reinvested dividends, and is net of management fees. Sales charges, other commissions, taxes and other relevant costs to be paid by the investor are not included. The fund offers other share classes subject to different fees and expenses, which will affect their performance. Please see the prospectus for details. 5. 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 capitalisation 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. 6. The dividend yield quoted here is the yield on securities within the portfolio and should not be used as an indication of the income received from this portfolio. 7. 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. 8. Top Security Contributors and Top Security Detractors are holdings based on the last one month period for rolling months or on the last three months period for quarter end months. These securities do not represent all the securities purchased, sold or recommended for advisory clients, and the reader should not assume that investment in the security listed was or will be profitable. Holdings are subject to change, holdings of the same issuer have been combined. The information provided is not a recommendation to purchase, sell or hold any particular security. The security identified does not represent the Fund s entire holdings and in the aggregate, may represent a small percentage of such holdings. There is no assurance that security purchased Franklin Templeton International Services, S.à r.l. 8A, rue Albert Borschette L-1246 Luxembourg franklintempleton.lu 2018 Franklin Templeton Investments. All rights reserved.

6 will remain in the Fund, or that security sold will not be repurchased. 9. 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 securities identified do not represent the fund s entire holdings and in the aggregate may represent only a small percentage of such holdings. There is no assurance that securities purchased will remain in the fund, or that securities sold will not be repurchased. The portfolio manager for the fund reserves the right to withhold release of information with respect to holdings that would otherwise be included. 11. 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). Franklin Templeton International Services, S.à r.l. 8A, rue Albert Borschette L-1246 Luxembourg franklintempleton.lu 2018 Franklin Templeton Investments. All rights reserved.