Franklin Biotechnology Discovery Fund A (acc) USD

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1 Franklin Biotechnology Discovery Fund A (acc) USD Franklin Templeton Investment Funds Fund Manager Report Biotechnology Equity Product Details 1 Fund Assets $2,175,158, Fund Inception Date 03/04/2000 Number of Issuers 98 Bloomberg ISIN Base Currency Investment Style Benchmark Overall Morningstar Rating TM 4 TEMBDAI LX LU USD Biotechnology NASDAQ Biotechnology Index Asset Allocation 2,3 Percent of Total % Equity Cash & Cash 2.06 Equivalents Fixed Income Fund Description The fund aims to achieve capital appreciation by investing principally in equity securities of biotechnology companies and discovery research firms located mainly in the US. Key Points The US stock market stumbled in the first quarter of 2018 even as earnings reports showed many US companies posting their best results in years. Health care equities posted overall declines during the period, but fared better than seven out of 10 other major equity sectors. Returns in the biotechnology and pharmaceuticals industries diverged biotech companies came under mild selling pressure while pharmaceuticals advanced amidst a wide dispersion of returns for individual companies. The fund had a slight three-month decline that was in line with the benchmark NASDAQ Biotechnology Index. Biotechnology holdings were the major contributors to relative performance, due to favourable stock selection. To a much lesser extent, stock selection also lifted our quarterly results in the life science tools and services industry. Stock selection in the pharmaceuticals industry, however, worked against the fund s results versus the benchmark, as did several individual biotechnology holdings. Performance Data Performance Net of Management Fees as at 31/03/2018 (Dividends Reinvested) (%) 5 1 Mth 3 Mths YTD 1 Yr 3 Yrs 5 Yrs 10 Yrs Since Inception (03/04/2000) A (acc) USD NASDAQ Biotechnology Index Calendar Year Returns (%) 100% 50% 0% -50% A (acc) USD NASDAQ Biotechnology Index Past performance is not an indicator or a guarantee of future performance. Portfolio Manager Insight Market Review The US stock market stumbled in the first quarter of 2018 even as earnings reports showed many US companies posting their best results in years. Following a robust January rally, stocks briefly entered a correction in February and fell again in March. Nine out of 11 S&P 500 sectors traded lower overall, with the steepest declines in the telecommunication services, consumer staples and energy sectors. Information technology (IT) and consumer discretionary equities were the two positive outliers despite selling off broadly in March. Small-capitalisation stocks generally held up better than those in the mid- and large-cap universes, though all three tiers retreated. By investment style, gains in growth equities were countered by declines for their value-oriented counterparts, regardless of company size. On a global basis, US equities fared better than most other developed markets in Europe and Asia. In US-dollar terms, widespread gains in frontier and emerging markets broadly outperformed that of the United States. Investor worries were initially driven by speculation the US Federal Reserve (Fed) would quicken the pace of interest-rate hikes in response to higher wage growth, which sparked long-dormant inflation fears and a jump in bond yields. Indeed, most inflationary measures rose during the period. Investor sentiment was further rattled by the possibility of an escalating trade skirmish, 1. All holdings are subject to change. Holdings of the same issuers have been combined.

2 primarily with China. A selloff in technology firms also occurred due to concerns about consumer data privacy and potentially tighter regulatory controls in the sector. On the upside, markets were aided by strong corporate guidance for the remainder of A spate of upward revisions to earnings estimates indicated a boost from recently enacted tax cuts. Although job creation remained solid, echoing ongoing expansion in the manufacturing and services sectors, retail sales ebbed and housing market data reflected some weakness. Despite flagging consumer spending signals, a key gauge of consumer confidence has increased since year-end 2017, though it eased a little in March after attaining an 18-year high in February. At its March monetary policy meeting, the Fed raised its benchmark interest rate. It also lifted its 2018 US growth forecast but maintained its projection of three rate hikes this year. Performance Review The fund s collection of biotechnology stocks advanced as a whole, and added the most to its absolute returns. Biotechnology companies tracked by benchmark index, meanwhile, declined in value. In relative terms, as host of our overweighted and off-index biotechnology stocks enjoyed double- or triple-digit percentage returns due to positive company-specific news. The largest contributor was Heron Therapeutics, which is one of the portfolio s larger off-index holdings. Heron focuses on developing medicines to address unmet medical needs. The company s product candidates utilise its proprietary technology, which delivers therapeutic levels of a range of short-acting pharmacological agents over a period from days to weeks with a single subcutaneous injection. Heron has an expanding product portfolio and its stock has continued to rally since it received a key US Food and Drug Administration (FDA) approval for a novel compound called Cinvanti in November. Cinvanti is a neurokinin-1 receptor antagonist for the prevention of chemotherapy-induced nausea and vomiting. The company has a couple of new products on the market and another that could see an NDA (new drug application) filed for it later this year. Additional support for the company s stock price stemmed from positive Phase 3 clinical trial data for HTX-011. HTX-011 is the first longacting anaesthetic that is designed to address both post-operative pain and accompanying inflammation by combining the local anaesthetic bupivacaine and the anti-inflammatory meloxicam into a single administration, utilising Heron s proprietary Biochronomer drug delivery technology. An impressive rally for our heavily-overweighted stake in Iovance Biotherapeutics (formerly, LION Biotechnologies) resulted in an outsized, tripledigit percentage return. Iovance is focused on the development of cellular immunotherapies for optimised, tumour-directed cancer treatment. The company is currently conducting three Phase 2 clinical trials to assess the efficacy and safety of autologous Tumour Infiltrating Lymphocytes (or TIL, which is a type of immune cell that attacks tumours) for treatment of patients with metastatic melanoma, squamous cell carcinoma of the head and neck, and cervical cancer. During January, the company announced a pipeline update and positive preliminary results from trials evaluating one of its lead drug candidates as a potential treatment for head, neck and cervical cancers. Essentially, the TIL-based treatment reduced tumour sizes in several patients by at least 30%. The manufacturing and clinical processes for TILs are similar to those utilised by chimeric antigen receptor T-cell (CAR-T) immunotherapies, in which the target immune cells are extracted from a patient s body, grown in the lab, and then re-administered in higher number and potency. Array BioPharma was another top contributor, rallying solidly during a period when we held more than six times the index s equity weighting in the company. Array BioPharma shares continued to garner investor interest into March, following positive clinical trial results released in late January. Array, which makes drugs focused on the treatment of cancer and inflammatory diseases, released improved data on a Phase 3 trial in BRAFmutant colorectal cancer that showed an overall response rate of 48% and progression-free survival of eight months. This represented a large improvement over the current standard of care, and we expect this trial to show positive data when the randomised portion reads out in This drug candidate, which has been well tolerated by patients, could unlock a US$500 to US$750 million opportunity for Array, and may have positive implications for ongoing trials in the broader colorectal cancer population. We also remain optimistic about the rest of the company s growing pipeline is poised to be a transformative year for Array both binimetinib and encorafenib are currently pending regulatory review in the United States and Europe as a treatment for BRAF-mutant metastatic melanoma. The share price of Fate Therapeutics, which is not tracked by the NASDAQ Biotechnology Index, skyrocketed as the company continued to build on the momentum it established in the previous five months. The latest catalyst for Fate was its announcement about an early-stage clinical study. Its lead pipeline candidate is FATE-NK100, a natural killer (NK) cell cancer therapy. On 20 February, Fate announced that the first patient had been treated in a Phase 1 study combining FATE-NK100 with either Herceptin or Erbitux in treating advanced solid tumours. Both of these other drugs are monoclonal antibody chemotherapies commonly used in cancer treatment. Fate received an unusually strong stock-market bump on news stemming from an early stage study, probably because investors are excited about the potential for FATE-NK100. The immunotherapy is also in a couple of other clinical studies targeting treatment of acute myelogenous leukaemia and ovarian cancer. Although in the initial stages of study, FATE-NK100 appears to hold considerable promise in treating cancer, especially for patients who have failed monoclonal antibody therapy. The combination of the NK cell cancer therapy with monoclonal antibody drugs could be more effective than single-drug treatments. Although less impactful than the investments mentioned above, the fund held a long list of other biotechnology contributors. This group was led higher by exceptional rallies in G1 Therapeutics, CRISPR Therapeutics, ChemoCentryx, ImmunoGen and TG Therapeutics; all except TG were substantially overweighted versus the index, while TG was not an index component stock. We also fared well in relative terms by underweighting industry giant Biogen, which suffered a substantial loss during the quarter; Biogen was, however, one of the largest detractors on an absolute basis. In particular, our position in pre-clinical-stage biotech CRISPR shares nearly doubled in value over the January March span. CRISPR is a start-up firm using its eponymous gene-editing technology to develop new therapies, and has been creating quite a buzz in the industry lately. In January, investors digested a report in the Wall Street Journal that suggested Chinese scientists started testing drugs made with the CRISPR technology on humans years ago. It appears scientists in China have been genetically altering cells belonging to cancer and HIV patients with CRISPR-Cas9 technology since Although no scientific papers have been published, investors are taking the news of at least 86 patients involved as a good sign, since therapies being developed by CRISPR Therapeutics will be using similar technology. In the United States, CRISPR Therapeutics and its peers are still awaiting regulatory reviews that would allow them to begin human testing with their first new therapy candidates. The company s first candidate, CTX001, is expected to enter human trials later on this year. In February, specific comments from the management team at biotech bellwether Gilead Sciences (also a fund holding) implied that the potential for future merger-and-acquisition (M&A) deal activity might eventually target CRISPR, which in turn extended the company s remarkable rally. Gilead announced its intentions to assemble gene editing capabilities to support a major push into oncology. Investors believe one crucial missing piece in Gilead s endeavour is the promising (and proprietary) CRISPR- Cas9 technology for creating gene-based cancer therapies. CRISPR Therapeutics expects to file an application with the FDA later this year that could allow the company to begin human trials before the end of The fund s favourable relative outcome in the life sciences tools and services industry was due entirely to our avoidance of several poor-performing index component stocks that declined sharply. The best of these contributors of omission were Syneos Health and PRA Health Sciences. 2

3 Conversely, stock selection in the pharmaceuticals industry worked against the fund s relative performance, as did several individual biotechnology holdings. Amongst pharmaceuticals stocks, Nektar Therapeutics was a key contributor to the fund s standalone returns as its share price appreciated by nearly a third. Unfortunately, our lighter-than-index weighting also made it one of the fund s biggest detractors on a relative basis. The other notable pharmaceuticals detractors possessed the less desirable combination of absolute and relative declines amidst steep, double-digit percentage losses for our overweighted stakes in Dermira, Aclaris Therapeutics, TherapeuticsMD and a handful of others. Key detractor Dermira, which had a much larger share-price decline than any other pharmaceutical detractor held in the portfolio, is a biopharmaceutical firm focused exclusively on medical dermatology. In particular, the company s efforts are dedicated to the development of treatments covering a range of skin conditions such as hyperhidrosis, psoriasis and acne. Dermira s shares dropped sharply in March after a surprise acne clinical trial failure in its late stages. Dermira expected to discontinue development of the therapy, olumacostat glasaretil, which was intended for moderate-to-severe acne. The therapy, applied topically, aimed to cut down on the oily skin that is often connected to acne. If it were approved, the drug would have been the first topical acne treatment to work in this way. Dermira does have other drugs. One, glycopyrronium tosylate, intended for excessive sweating, is expected to score an FDA approval this year; there is also the atopic dermatitis drug lebrikizumab currently in development. In the biotechnology industry, our absolute and relative gains were pared by several holdings that suffered company-specific setbacks and doubledigit declines in the equity market, none more so than our overweighted position in Clovis Oncology. As it name suggests, Clovis Oncology also develops anti-cancer agents. Its marketed product, Rubraca, seeks to treat patients with deleterious BRCA mutation associated advanced ovarian cancer, and who have already been treated with two or more chemotherapies. It has other product candidates in its pipeline, namely Rociletinib and Lucitanib. Clovis had a volatile 2017 but its stock closed the year up more than 50% as Rubraca as a secondary treatment in ovarian cancer maintenance showed a strong profile versus rivals from AstraZeneca (not a fund holding) and Tesaro (held by the fund) in clinical trials. Recently, however, the stock has been selling off on competitive concerns in the ovarian cancer space. Rubraca belongs to a class of drugs called PARP inhibitors, which work to block an enzyme tied to several types of cancer. Our analysis indicates Clovis could take off again in The FDA is expected to approve Rubraca in April. Clovis is also likely to unveil data from a Phase 2 trial in metastatic prostate cancer. Off-index exposure to Edge Therapeutics also hurt performance as most of its share value vanished in the latter half of March. Edge seeks to develop novel, hospital-based therapies capable of transforming treatment paradigms in the management of acute, life-threatening neurological conditions for which limited or no current therapies exist. The company s Phase 3 trial for EG-1962 in subarachnoid (brain) haemorrhage was halted due to futility during an interim analysis. This means there was a low probability of achieving a statistically significant improvement over the current standard of care on the primary endpoint. The programme has been discontinued in all indications. The company was founded solely to develop EG- 1962, and there are no other products in human clinical trials. With the discontinuation of EG-1962 there is no pathway forward for significant value creation, in our analysis. Thus, we sold the fund s remaining investment in Edge by quarter-end. Double-digit percentage declines were also evident in some of our overweighted biotech holdings, namely Puma Biotechnology and ACADIA Pharmaceuticals. The fund also suffered by not owning several index component stocks that rallied solidly; for example, Bioverativ and Juno Therapeutics, which are not owned by the fund, nearly doubled in value on the NASDAQ Biotechnology Index. In particular, Puma Biotechnology, a development-stage biopharmaceutical company that acquires and develops innovative products for the treatment of various forms of cancer, shed nearly a third of its share value during the quarter. On 23 January, the European Union (EU) drug regulator signalled it will likely vote against approval on Puma s breast cancer drug, Nerlynx (also called neratinib); Puma shares fell on the unexpected news and subsequent analyst downgrades. The FDA approved Nerlynx in 2017 as a treatment to prevent an aggressive form of breast cancer from recurring in patients following chemotherapy, and gave it a cleaner label than most company watchers anticipated. The EU market is cut off for now given this regulatory setback, but the US market remains a vast opportunity, according to our analysis, and the shares looked quite attractive to us after the recent price drop. ACADIA, which reported disappointing fourth-quarter 2017 revenues, focuses on the development and commercialisation of innovative medicines to address unmet medical needs in central nervous system disorders. Revenues on Nuplazid, the first and only medication approved by the FDA for the treatment of hallucinations and delusions associated with Parkinson s disease psychosis, were US$43.6 million, slightly below consensus of US$45.2 million. This signalled a deceleration from the prior three quarters, but what is more concerning is that result included the effect of two price increases during the fourth quarter. A large portion of the stock s valuation has been, and is still, attributable to additional indications for Nuplazid. Along those lines, we are most interested in the expansion into dementia-related psychosis. Though the company s organic growth compressed in the quarter, for the longer-term we remain optimistic its Phase 3 trial in dementia-related psychosis will be positive and drive significant value, but that data will not read out until Portfolio Positioning The fund is constructed on a bottom-up basis by evaluating individual company fundamentals, estimating fair value for businesses, comparing that estimate to current market valuations and investing in companies we believe have both a positive fundamental outlook and a stock trading at a significant discount to fair value. We have continued to broaden our holdings in small- and micro-capitalisation biotechnology stocks, an area in which we have been seeing the most opportunity. We also seek to initiate positions in companies with shares that have lagged and valuations that appear attractive to us. At the end of March, we continued to overweight small- and micro-capitalisation stocks relative to the fund s benchmark index. Outlook & Strategy We believe biotechnology and pharmaceutical industry fundamentals have remained strong despite the recent equity volatility and political uncertainty within the health care sector. Although investor interest in the sector has been challenged at times since late 2016, due mainly to concerns about drug pricing, competition and valuation, we believe the long-term growth prospects for the biotechnology and pharmaceutical industries have not changed. Political pressures have occasionally taken the air out of the health care sector s performance over the past year, and may resurface as the rest of 2018 unfolds. During the first three months of the year, however, this topic has not been much of a factor though discussions at the government level have been ongoing. Uncertainty about the ultimate impact of legislative changes arising from recurring Republican efforts to repeal and replace the Affordable Care Act has at times depressed sentiment and sparked an exodus of investment capital from the health care and biotechnology spaces. Although US President Donald Trump repeated his previously stated dissatisfaction with the high price of prescription drugs during his State of the Union address in late January, we believe the administration s health care policy may ultimately be surprisingly benign. While it is hard not to sympathise with his outrage, it is also tough to pinpoint a solution unless the FDA wants to get into the business of setting prices. Ultimately, we think there is no use in investors panicking about drug price legislation until a credible plan is put forth. 3

4 Recent reform proposals have focused on initiatives like reducing the personal out-of-pocket drug costs and exploring value-based pricing models that reimburse drug-makers based on the efficacy of their medicines. These proposals enjoy wide support in the pharmaceutical and biotechnology industries. In March, a panel that advises the White House on cancer policy said urgent action was needed to curb a dramatic rise in the price of cancer drugs, which can cost more than US$100,000 a year and entail thousands of dollars in out-of-pocket payments for many patients. Members of the President s Cancer Panel believed many new drugs do not provide benefits commensurate with their prices. The panel, which dates back to the Nixon administration, broadly recommended that companies should be paid based on the value of drugs to patients, but did not outline concrete actions for policymakers to take. Similar to recent White House rhetoric, they stop short of a step that some public-interest groups contend could have an impact: the direct negotiation of prices by the federal Medicare programme. This is something Mr. Trump advocated as a candidate but has not pursued in office. The panellists who worked on the current report and proposal stressed that the drug business should be more transparent, so that consumers can know the price and can evaluate the value of products and therapies they buy. The report said pricing based on patients outcomes should be explored. Looming policy uncertainty further complicates the 2018 outlook for biotechnology M&A deals. Shifting corporate tax rates, aforementioned uncertainties about health-care policy and the stance on high prescription-drug prices gave acquirers pause in 2017, and we believe a similar atmosphere may linger throughout Elsewhere on the regulatory front, we do not anticipate major changes coming from the FDA, which continues to work closely with the biotechnology and pharmaceutical industries and seems more committed than ever to getting important new drugs to patients quickly. Beyond the regulatory front, we are looking ahead to a potentially long innovation cycle for biotechnology. Innovation within the industry has reached unprecedented levels, in our view. We are particularly interested in the significant advancements in gene therapy, immuno-oncology and bispecific antibodies. We are encouraged by companies that have focused their efforts on new drug discovery platforms and novel compounds. There also are several big-picture trends we continue to think support health care and biotechnology. One relates to demographics. The world s populations are aging (particularly in developed markets), and the elderly as a group consume significantly more health care products and services than younger generations. At the individual company level, we continue to see big research advancements in areas such as gene therapy and immune-cell therapies for cancer. Major waves of innovation are reflecting the exponential leaps in basic research and understanding of human biology that are now bearing fruit. In particular, one of the most interesting advancements in medicine is the potential to edit genes to cure illnesses, and this is the year that US scientists are finally expected to embark on human trials to test their theories. In our view, gene therapy is nearing a major breakthrough. Though gene-editing technology was developed in the West, it is already being tested in China. As we discussed earlier, CRISPR-Cas9 uses a bacterial protein, Cas9, as if it were a pair of scissors. It cuts strands of DNA in a specific space so that scientists can replace an unwanted gene with a corrected gene. Human tests using this gene-altering method are expected to soon get underway at the University of Pennsylvania and the Parker Institute for Cancer Immunotherapy. The trial is likely to be small, with up to 18 patients suffering from various types of cancer, including multiple myeloma, sarcoma, and melanoma. The gene editing will occur outside the body. In this trial, CRISPR will make two genetic changes in patients immune cells, the first removing gene coding for a certain checkpoint protein (called PD-1) that allows cancer cells to evade detection, and the second replacing a regular receptor molecule with a chimeric receptor that detects cancer cells. The FDA also approved a trial by Novartis and Kite Pharmaceuticals neither of which are held by the fund for a procedure that will change a patient s own immune system to target and kill cancerous cells. Earlier this month, researchers announced they d discovered a new CRISPR system that targets RNA instead of DNA. The new system would allow doctors to reverse edits. Using this method, the Salk Institute claims to have discovered Cas13d, which corrects protein expression associated with dementia. US trials are still awaiting FDA approvals, but recent estimates suggest there are 11 human trials going on in China, where there is far less regulation. As it pertains to related equities, the stocks of three small companies specialising in CRISPR gene editing including our investment in CRISPR Therapeutics have undergone very sharp rallies over the past year. While cutting-edge developments are exciting, we remain disciplined and highly selective in our investment approach. Regardless of the political and regulatory landscape, we will continue with our adherence to the fund s specialised investment mandate and intend to explore opportunities across all market-capitalisation sizes in biotechnology, emerging pharmaceutical and life sciences tools companies. In doing so, we will augment our own company-by-company analysis and rigorous stock selection techniques with insight from Franklin s varied and experienced research team. One-Month Performance Review In March, both the fund and the index declined, and the fund fared worse than the index. This was mainly due to adverse stock selection in the pharmaceuticals industry. None of our industry allocations contributed substantially to the one-month outcome, though several individual biotechnology holdings were supportive, leading to a slight measure of overall outperformance versus the index in the biotechnology industry. Portfolio Characteristics 6 Portfolio NASDAQ Biotechnology Index Market Capitalisation (Millions in USD) 23,805 37,181 Price to Earnings Growth Ratio 1.14x 1.32x 3-Year Sales Growth 50.15% 30.90% Estimated 3-5 Yr EPS Growth 16.54% 23.90% Price to Earnings (12 Month Forward) 16.88x 14.60x 4

5 Portfolio Diversification Top Sector Contributors 7 Total Sector Effect (%) Biotechnology 2.75 Life Sciences Tools & Services 0.06 Top Security Contributors 7,8 Security Total Effect (%) Heron Therapeutics Inc 1.10 Iovance Biotherapeutics Inc 0.79 Array Biopharma Inc 0.57 Fate Therapeutics Inc 0.54 G1 Therapeutics Inc 0.50 Top Sector Detractors 7 Total Sector Effect (%) Pharmaceuticals Health Care Equipment & Supplies Health Care Providers & Services Health Care Technology - Top Security Detractors 7,8 Security Total Effect (%) Clovis Oncology Inc Bioverativ Inc Nektar Therapeutics Juno Therapeutics Inc Puma Biotechnology Inc Past performance is not an indicator or a guarantee of future performance. Contributors/detractors data shown is for the period from 01/01/2018 to 31/03/2018. Geographic Weightings vs. NASDAQ Biotechnology Index 2,3 Percent of Total Sector Weightings vs. NASDAQ Biotechnology Index 2,3 Percent of Total NORTH AMERICA Biotechnology Pharmaceuticals EUROPE 2.91 Life Sciences Tools & Services Health Care Equipment 0.27 MID-EAST/AFRICA 0.15 Health Care Supplies Health Care Technology 0.05 CASH & CASH EQUIVALENTS Health Care Distributors % 25% 50% 75% 100% 125% 0% 5%10% 15% 20%25% 30% 35%40% 45% 50%55% 60% 65%70% 75% 80%85% 90% Franklin Biotechnology Discovery Fund NASDAQ Biotechnology Index Franklin Biotechnology Discovery Fund NASDAQ Biotechnology Index Top Ten Holdings 9 Percent of Total Top Holdings % ALEXION PHARMACEUTICALS INC 6.92 CELGENE CORP 6.68 VERTEX PHARMACEUTICALS INC 4.87 BIOGEN INC 4.62 ILLUMINA INC 3.80 REGENERON PHARMACEUTICALS INC 3.79 GILEAD SCIENCES INC 3.36 NEUROCRINE BIOSCIENCES INC 3.29 AMGEN INC 3.10 HERON THERAPEUTICS INC

6 Supplemental Risk Statistics 10 3 Yrs 5 Yrs 10 Yrs Since Inception Franklin Biotechnology Discovery Fund A (acc) USD Supplemental Performance Statistics Standard Deviation (%) Franklin Biotechnology Discovery Fund NASDAQ Biotechnology Index Tracking Error (%) Information Ratio Beta Sharpe Ratio Franklin Biotechnology Discovery Fund NASDAQ Biotechnology Index Investment Team Portfolio Manager Years with Firm Years Experience Evan McCulloch, CFA, Director of Research - Franklin Equity Group Steve Kornfeld, CFA, Portfolio Manager/Research Analyst 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 biotechnology companies. Such securities have historically been subject to significant price movements that may occur suddenly due to market, sector or company-specific factors. As a result, the performance of the Fund can fluctuate significantly over relatively short time periods. Other significant risks include: 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 NASDAQ Biotechnology Index. 6

7 Important Legal Information This document is intended to be of general interest only and does not constitute legal or tax advice nor is it an offer for shares or invitation to apply for shares of any of the Luxembourg-domiciled SICAV Franklin Templeton Investment Funds (the Fund ). Given the rapidly changing market environment, Franklin Templeton Investments disclaims responsibility for updating this material. Subscriptions to shares of the Fund can only be made on the basis of the current prospectus of the Fund, accompanied by the latest available audited annual report and the latest semi-annual report if published thereafter. An investment in the Fund entails risks which are described in the Fund s prospectus. If the fund invests in a specific sector or geographical area, the returns may be more volatile than a more diversified fund. A copy of the latest prospectus, the annual report and semi-annual report, if published thereafter can be found on our website: or can be obtained, free of charge, from the address below. Issued by Franklin Templeton Investments (ME) Limited, authorized and regulated by the Dubai Financial Services Authority. Dubai office: Franklin Templeton Investments, The Gate, East Wing, Level 2, Dubai International Financial Centre, P.O. Box , Dubai, U.A.E., Tel.: Fax: 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. 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. 3. The negative cash position reflects a temporary position that is a result of a delay in securities settlement transactions 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. 5. 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. 6. 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. The Estimated 3-5 Year EPS Growth uses simple weighted average means. There can be no assurance that the Estimated 3-5 Year EPS Growth will be realised. Information is historical and may not reflect current or future portfolio characteristics. All holdings are subject to change. 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 Franklin Templeton Investments The Gate, East Wing, Level 2 Dubai International Financial Centre P.O. Box Dubai, U.A.E. Tel.: Fax.: Franklin Templeton Investments. All rights reserved.

8 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 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 Investments The Gate, East Wing, Level 2 Dubai International Financial Centre P.O. Box Dubai, U.A.E. Tel.: Fax.: Franklin Templeton Investments. All rights reserved.