Franklin U.S. Small Cap Growth Equity Composite

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1 Franklin U.S. Equity Composite Growth Equity Product Profile Product Details Strategy Assets $2,721,231, Inception Date 02/29/1992 Base Currency USD Investment Style Growth Overview Franklin seeks long-term capital growth. The strategy is managed using a bottomup research-driven, fundamental approach to build a growth-oriented, small capitalization portfolio. Growth for our strategy is not defined by an index, but rather by our broad search across industries for companies with sustainable business models and attractive free cash flow characteristics that we believe will foster their ability to grow faster than their peers over a multi-year horizon. Portfolio managers work continuously with analysts to evaluate securities upside potential and downside risks, seeking to maintain a rewarding portfolio. Performance Data Average Annual Total Returns (USD %) 1 Since Inception 3 Mths YTD 1 Yr 3 Yrs 5 Yrs 10 Yrs 20 Yrs (02/29/1992) Franklin U.S GROSS Franklin U.S NET Russell Growth Index 30% 20% 10% 0% Mths YTD 1 Yr 3 Yrs 5 Yrs 10 Yrs 20 Yrs Since Inception Franklin U.S. - GROSS Franklin U.S. - NET Calendar Year Returns (USD %) Franklin U.S GROSS Franklin U.S NET Russell 2000 Growth Index 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. 1. Periods of more than one year are annualized. Past performance is not an indicator or a guarantee of future performance.

2 Nine out of 11 S&P 500 sectors traded lower, with the steepest declines in the telecommunication services, consumer staples and energy sectors. Information technology and consumer discretionary equities were the two positive outliers despite selling off broadly in March. Small-capitalization stocks 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. 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 inflation fears and a jump in bond yields. At its March monetary policy meeting, the Fed raised its benchmark interest rate and lifted its 2018 US growth forecast, but maintained its projection of three rate hikes this year. Outlook & Strategy Since the beginning of the year, we have seen a pickup in market volatility fueled by worries over rising inflation and interest rates and fears that restrictive trade policies could disrupt global economic growth. Despite these concerns, we see the US economy as maintaining its current path of respectable but not overly robust growth. Underlying fundamentals and economic momentum remain constructive, while we do not foresee an acceleration in growth to a level that would swiftly create inflationary pressures, despite a likely short-term boost from the recent tax policy changes. At the core of our investment strategy is the pursuit of equity securities of quality companies that we believe are leaders in their industries, have the potential to benefit from multi-year secular tailwinds and can generate solid risk-adjusted investment performance over a long-term horizon. Franklin Equity Group continues to focus on the theme of innovation as we pursue promising investment opportunities. We apply our disciplined, bottom-up research process to identify companies that show compelling growth possibilities based on innovation, whether in technology or market approach. Portfolio Characteristics 2 Portfolio Market Capitalization (Millions in USD) 2,684 2,971 Number of Issuers Return on Equity -2.56% 5.76% Price to Earnings Growth Ratio 1.35x 1.39x Historical 3-Year EPS Growth 18.44% 21.59% Estimated 3-5 Yr EPS Growth 14.29% 15.36% Price to Earnings (12 Month Forward) 21.00x 20.41x 3. Based on a representative portfolio in the composite. Securities will vary among individual accounts in the composite. ftinstitutional.com 2

3 Portfolio Diversification Sector Weightings vs. 4 Percent of Total Information Technology Health Care Industrials Consumer Discretionary Financials Consumer Staples Energy Real Estate Materials Telecommunication 0.73 Utilities 0.62 Cash & Cash Equivalents % 5% 10% 15% 20% 25% 30% 35% Top Ten Holdings 5 Percent of Total Top Holdings Sector % NEVRO CORP Health Care Equipment & U INC Software & 1.80 MERCURY SYSTEMS Capital Goods 1.79 INC US ECOLOGY INC Commercial & 1.71 Professional DEXCOM INC Health Care Equipment & 1.71 INTEGRATED DEVICE TECHNOLOGY INC Semiconductors & Semiconductor Equipment Health Care Equipment & 1.68 IRHYTHM 1.56 TECHNOLOGIES INC ALLEGIANT TRAVEL CO Transportation 1.54 ZENDESK INC Software & 1.53 INPHI CORP Semiconductors & 1.44 Semiconductor Equipment Franklin U.S. Supplemental Performance Statistics 3 Yrs 5 Yrs 10 Yrs Since Inception Standard Deviation (%) Franklin U.S Tracking Error (%) Information Ratio Beta Sharpe Ratio Franklin U.S Investment Philosophy The Franklin Equity Group philosophy holds that companies with the potential for long-term sustainable growth can provide significant opportunities for investors. Market participants can have a short-term perspective and may under appreciate the potential for value created by sustainable growth. We believe that we have the potential to deliver superior risk-adjusted returns by identifying companies with potential for sustainable growth which we believe is not reflected in current prices. Investment Process Within a collaborative environment, our team utilizes fundamental, bottom-up research to focus on companies that we believe have sustainable growth characteristics meeting our criteria of Growth, Quality and Valuation. 6. Risk statistics are calculated using gross of fees composite performance. 7. Beta, Information Ratio and Tracking Error information are measured against the. ftinstitutional.com 3

4 Growth Quality Valuation Focus on companies with potential to produce Seek companies with strong and improving Consider a range of potential outcomes based on sustainable earnings and cash flow growth Evaluate the long-term market opportunity and competitive positions in attractive markets Identify experienced and talented management an assessment of multiple scenarios Evaluate whether, in our view, security prices fully competitive structure of the industry seeking to identify target leaders and emerging leaders teams as well as financial strength reflected in the capital structure, gross and operating margins, free cash flow generation, and returns on capital reflect the balance of the sustainable growth opportunities relative to the business and financial risks Investment Team Franklin U.S. Equity Management Team Years with Firm Years Experience Michael McCarthy, CFA, EVP, CIO Franklin Equity Group Brad Carris, CFA, Portfolio Manager/Research Analyst Additional Resources Investment Risk Management Group Franklin Global Large Cap Team Franklin US Equity Team Global Portfolio Compliance Global Trading Platform Product Managers Years with Firm Years Experience Renee Elizabeth Anderson, CFA 5 20 Timothy P. Ramsey, CFA 4 17 ftinstitutional.com 4

5 Important Legal Information Franklin claims compliance with the Global Investment Performance Standards (GIPS ). Franklin (the firm ) encompasses the equity, fixed income and balanced accounts managed by Franklin Advisers, Inc., and related Franklin affiliates, including, effective 1 January 2007, the equity accounts managed by the institutional investment teams of Franklin Templeton Institutional, LLC under the former firm name of Fiduciary Global Advisors. The combined equity assets of Franklin and Fiduciary Global Advisors form the Franklin Equity Group (formerly Franklin Global Advisers prior to 30 June 2010) unit of Franklin. Effective 1 January 2006, the fixed income assets managed from that date forward by Franklin Templeton Institutional, LLC ( FTI ) or its related affiliates (managed previously by Fiduciary Trust Company International - Institutional Division or FTCI s Institutional Division ) that went through the institutional portfolio review process were combined with the fixed income assets of Franklin to form the Franklin Templeton Fixed Income unit of Franklin. The primary reason for these changes to the firm definition was to consolidate equity and fixed income asset management for Franklin (as previously defined), Fiduciary Global Advisors (institutional equities) and FTCI s Institutional Division (institutional fixed income) under one firm, Franklin. The firm definition for Franklin does not include multi-strategy asset allocation portfolios managed by Franklin Templeton Multi-Asset Solutions (FTMAS), which was previously known as Franklin Templeton Solutions as well as Franklin Templeton Multi-Asset Strategies and the wrap-fee and non-wrap-fee accounts managed by Franklin Separately Managed Accounts (formerly Franklin Portfolio Advisors) or Franklin Europe which integrated into the Templeton firm definition effective 1 December Franklin U.S. consists of all fully discretionary portfolios managed by Franklin with an investment objective that seeks capital appreciation by investing in small capitalization growth-oriented equities. No accounts in the composite use leverage or derivatives. Total returns are presented in U.S. dollars both gross and net of investment advisory fees, are inclusive of commissions and transaction costs, and assume reinvestment of any dividends, interest income, capital gains, or other earnings. Periods greater than one year are shown as average annual total returns. Performance data is shown rounded to the nearest hundredth. Past performance is not an indicator or a guarantee of future performance. The is a float-adjusted market capitalization weighted equity index comprised of securities of small-cap U.S. companies with high price-to-book ratios and high forecasted growth values. The benchmark is used for comparative purposes only and is provided to represent the investment environment existing during the time periods shown. Indexes are unmanaged, and one cannot invest directly in an index. They do not reflect any fees, expenses or sales charges. To receive a complete list and description of Franklin composites (including any single account mutual fund composite) and/or a presentation that adheres to the GIPS standards for any composite, contact your Franklin Templeton institutional representative at (800) Intended for Recipient only. FTI has provided these materials to you with the understanding that you have or control more than $50 million in assets under management (if this is not correct please let FTI promptly know). FTI is not undertaking to provide impartial advice. Nothing herein is intended to provide fiduciary advice. FTI has a financial interest. CFA and Chartered Financial Analyst are trademarks owned by CFA Institute. Frank Russell Company is the source and owner of the trademarks, service marks and copyrights related to the Russell Indexes. Russel is a trademark of Frank Russell Company. Important data provider notices and terms available at 2. Source: FactSet. Price ratio calculations for weighted average use harmonic means. Any exceptions to this are noted. 4. 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. 5. 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. 8. 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). This piece is intended for institutional investment management consultants or investors interested in institutional products and services available through Franklin Templeton Institutional and its affiliates. Various account minimums or other eligibility qualifications apply depending on the investment strategy or vehicle. 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