Franklin Technology Fund A (acc) USD

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1 Franklin Fund A (acc) USD Franklin Templeton Investment Funds Fund Manager Report Equity Product Details 1 Fund Assets $3,075,494, Fund Inception Date Number of Issuers 78 Bloomberg TEMTECI LX ISIN LU Base Currency USD Investment Style Benchmark MSCI World Information Index Morningstar Category Sector Equity Asset Allocation 2 % Equity Cash & Cash 4.47 Equivalents Fixed Income 0.00 Overall Morningstar Rating TM 3 Effective 29 September 2017, Franklin Fund changed its benchmark to the MSCI World Information Index, following the discontinuation of the BofAML 100 Index. Fund Description The fund aims to achieve capital appreciation by investing at least two-thirds of its assets in equity securities of companies expected to benefit from the development, advancement and use of technology. Performance Data Performance Net of Management Fees as at (Dividends Reinvested) (%) 4,5 1 Mth 3 Mths YTD 1 Yr 3 Yrs 5 Yrs 10 Yrs Since Inception ( ) A (acc) USD MSCI World Information Index Calendar Year Returns (%) 200% 100% 0% -100% A (acc) USD MSCI World Information Index Portfolio Manager Insight Performance Review QUARTERLY KEY PERFORMANCE DRIVERS Past performance is not an indicator or a guarantee of future performance Stocks Industries Application Software (Stock Selection, Facebook (Underweight) Overweight) Integrated Device (Off- HELPED Semiconductors (Stock Selection) Benchmark Exposure) Internet services and Infrastructure (Stock Amazon.com (Off-Benchmark Exposure) Selection) Hardware, Storage & Apple (Substantial Underweight) Peripherals (Stock Selection, Underweight) Alibaba Group Holding (Off-Benchmark Systems Software (Stock Selection, HURT Exposure) Underweight) Tencent Holdings (Off-Benchmark Semiconductor Equipment (Overweight) Exposure) The fund s relative outcome was enhanced by a strategic underweighting in Facebook, which delivered a disappointing earnings report and this summer posted the largest single-day loss in stock market history, erasing roughly US$120 billion in market capitalisation. Costs, up roughly 50% from a year earlier, have been rising faster than revenue, resulting in operating income and profit margins being squeezed. The firm has said it will invest a lot more in safety and security following various scandals and government inquiries into misinformation on the platform and alleged abuse of user data. Apple was the fund s top contributor on an absolute basis, but it was also our biggest detractor relative to the benchmark index, due to a much lighter-than-index portfolio exposure (3.6% of total net assets for the fund versus 13.4% for the index). Apple shares surged this quarter based in part on strong sales and forward guidance. 1. All holdings are subject to change. Holdings of the same issuers have been combined.

2 Our off-index investments in major China-based IT companies such as Alibaba and Tencent were a modest trouble spot amidst setbacks related to actions by Chinese regulators and worsening US-China trade relations. Tencent, in particular, posted a rare profit decline and lower-thanexpected sales, as government regulators were making it harder for the Chinese technology giant to make money off its most popular video games. ONE-MONTH KEY PERFORMANCE DRIVERS HELPED HURT Stocks Integrated Device (Off-Benchmark Exposure) Facebook (Underweight) Salesforce.com (Overweight) 2U (Off-Benchmark Exposure) Alibaba Group Holding (Significant Off-Index Exposure) Monolithic Power Systems (Off-Benchmark Exposure) Industries Interactive Media and Services (Stock Selection, Underweight) Internet Services and Infrastructure (Stock Selection) Electronic Components Systems Software (Stock Selection, Underweight) Semiconductor Equipment (Overweight) Internet and Direct Marketing Retail (Overweight) Analog mixed-signal technology firm Integrated Device (sold by period-end) underwent a major rally as it was set to be acquired by Japan s Renesas Electronics (not a fund holding) for US$49 per share in cash, or roughly US$6.7 billion. Prior to the buyout bid on September 11, IDT s shares were trading slightly below the takeout price, which suggests the market saw at least some risk that the deal might not go through. The acquisition is expected to close in the first half of 2019 following various approvals, including from Japanese regulators. 2U provides a cloud-based software-as-a-service platform for non-profit colleges and universities to deliver education to qualified students. 2U underwent a solid rally in August, when the shares surged by about 18%, but gave up most of those gains in September. Given the lack of negative company-specific news during the month, this may have simply been a wave of profit-taking by investors. Monolithic Power Systems provides semiconductor-based power solutions for systems found in industrial applications, telecom infrastructures, cloud computing, automotive and consumer applications. The stock has been volatile in recent months and declined in September as certain industry analysts turned negative on the stock, having deemed the mid-cap company overvalued compared to the semiconductor industry as a whole. In general, investors are wary about economic output from the semiconductor space, which continues to expand but at a slower rate than we saw in early Outlook & Strategy Ongoing market volatility aside, we believe the remainder of 2018 will be good for IT sector fundamentals (growing revenue, growing earnings per share, increased dividends) based on the digital transformation (DT) theme, lower taxes, and the need for increased productivity in a tightening labour market. Some investors have begun to voice their concerns about the risks associated with rising interest rates and technology stocks. While periods of rising interest rates typically create new places to get yield, we continue to believe such environments are indicative of strengthening economic fundamentals, and which will also help to sustain technology spending growth, especially after many years of subdued investment and the need for investment in DT initiatives. We continue to invest in what we believe are high quality, underappreciated emerging leaders levered to the most attractive, multi-year technology themes around digital transformation, including artificial intelligence (AI) and machine learning (ML), 5G (the next generation of mobile networks), SaaS (software-as-a-service), cloud computing, e-commerce, fintech (technology-driven financial products and services, including digital payments), cybersecurity, autonomous vehicles, increasingly sophisticated robotics and the Internet of Things (IoT). It is our firm belief that a widening array of industries that were previously quite distant from pure technology are responding to an opportunity for and a threat to their core businesses brought about by hyper-connected consumers who are able to engage with companies and each other. Today s progressively sophisticated technology and software also allow companies to provide products and services that seemed impossible even 10 years ago. In particular, we believe the transition to technology-on-demand will be integrated into day-to-day life in the years ahead. In the near future, all software applications and smart devices across all industries are likely to feature some form of embedded AI in them. Without a doubt, the rapid advancement in AI supported by a large base of always-connected consumers, high-speed internet access and expanding global cloud-computing infrastructure is ushering in a radical technological transformation that is permeating all areas of the global economy. Companies will likely have to keep up or be left behind as machine- and deep-learning take hold and become more prevalent. On a cautionary note, we see growing regulatory risks for the data-rich consumer internet platforms, particularly in relation to user privacy and data sharing with companies and government entities. While headline risks are on the rise, we believe that engagement and advertising productivity on platforms like Facebook can remain high, which should keep advertisers engaged and revenue flowing. Portfolio Characteristics 6 MSCI World Information Portfolio Sector Market Capitalisation (Millions in USD) 247, ,338 Price to Earnings Growth Ratio 1.90x 1.66x 3-Year Sales Growth 22.15% 11.96% Estimated 3-5 Yr EPS Growth 22.17% 14.67% Price to Earnings (12 Month Forward) 30.51x 20.77x 2

3 Portfolio Diversification Top Ten Holdings 7 Top Holdings % AMAZON.COM INC 4.14 MICROSOFT CORP 3.93 APPLE INC 3.87 SALESFORCE.COM INC 3.83 ALIBABA GROUP HOLDING LTD 3.76 ALPHABET INC 3.71 SERVICENOW INC 3.23 FACEBOOK INC 2.73 NVIDIA CORP 2.61 WORKDAY INC 2.33 Sector Weightings vs. MSCI World Information Index 2 Application Software Semiconductors Systems Software Interactive Media & Services Data Processing & Outsourced Se Internet & Direct Marketing Retail Hardware, Storage & IT Consulting & Other Services Semiconductor Equipment Specialized REITs Communications Equipment Internet Services & Infrastructure Electronic Components Movies & Entertainment Research & Consulting Services Electrical Components & Equipment Interactive Home Entertainment Electronic Equipment & Instruments Other Diversified Financial Services Financial Exchanges & Data Health Care Equipment Automobile Manufacturers Asset Management & Custody Ban Diversified Capital Markets Casinos & Gaming Auto Parts & Equipment Advertising Distributors Integrated Telecommunication Ser Electronic Manufacturing Services Broadcasting % 5% 10% 15% 20% 25% Franklin Fund MSCI World Information Index Supplemental Performance Statistics 3 Yrs 5 Yrs 10 Yrs Since Inception Standard Deviation (%) Franklin Fund MSCI World Information Index Beta (%) Information Ratio Beta Sharpe Ratio Franklin Fund MSCI World Information Index Investment Team Portfolio Manager Years with Firm Years Experience Jonathan T. Curtis, Portfolio Manager/Research Analyst John Scandalios, Portfolio Manager/Research Analyst James Cross, 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 technology companies worldwide. 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: 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. 8. Beta, Information Ratio and Tracking Error information are measured against the MSCI World Information Index. 3

4 Important Legal Information Collective Investment Schemes in Securities (CIS) are generally medium to long term investments. The value of participatory interests may go down as well as up and past performance is not necessarily a guide to the future. Fluctuations or movements in exchange rates may cause the value of underlying international investments to go up or down. CIS are traded at ruling prices and can engage in borrowing and scrip lending. A schedule of fees and charges and maximum commissions is available on request from Franklin Templeton International Services S.à r.l., 8A rue Albert Borschette, L-1246 Luxembourg. Commission and incentives may be paid and if so, would be included in the overall costs. Franklin Templeton Investment Funds ( FTIF ) are priced on a forward basis and prices are calculated daily. FTIF does not provide any guarantee either with respect to the capital or the return of a portfolio. FTIF is regulated in Luxembourg and the FTIF sub-funds available for public sale in South Africa are approved by the Financial Services Board. Investments in foreign securities may expose the fund to risks such as potential constraints on liquidity and repatriation of funds, macroeconomic, political, foreign exchange, tax, settlement and potential limitations on the availability of market information. For full information on all the risks applicable to this fund, please refer to the fund s prospectus. Franklin Templeton Investments SA (PTY) Ltd ( FTISA ) is an authorised Financial Services Provider. FTISA is a Member of the Association for Savings & Investment SA (ASISA). Copies of the latest prospectus, Minimum Disclosure Document (MDD) and the latest annual and semi-annual reports of FTIF are available on the website or may be obtained free of charge from Franklin Templeton International Services S.à r.l., 8A rue Albert Borschette, L-1246 Luxembourg or your local FTI representative. Performance is calculated as a lump-sum and is quoted in USD or in the base currency of the fund and its respective share classes currencies. Performance is calculated for the portfolio, individual investor performance may differ as a result of initial fees, the actual investment date, the date of reinvestment and dividend withholding tax. Annualised performance is the fund s total return expressed as an annual equivalent percentage rate over the time period listed. 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. In emerging markets, the risks can be greater than in developed markets. Investments in derivative instruments entail specific risks that may increase the risk profile of the fund. Past performance is not an indicator or a guarantee of future performance. 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 the Fund 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. The index data referenced herein is the property of Intercontinental Exchange ( ICE ) and/or its licensors and has been licensed for use by Franklin Templeton. ICE and its licensors accept no liability in connection with this use. See for a full copy of the Disclaimer. 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. When performance for either the portfolio or its benchmark has been converted, different foreign exchange closing rates may be used between the portfolio and its benchmark. 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 Franklin Templeton Investments Kildare House The Oval, 1 Oakdale Road Newlands, Cape Town, 7700 South Africa Tel.: +27 (21) Fax.: +27 (21) Franklin Templeton Investments. All rights reserved.

5 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. 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. 9. 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 Kildare House The Oval, 1 Oakdale Road Newlands, Cape Town, 7700 South Africa Tel.: +27 (21) Fax.: +27 (21) Franklin Templeton Investments. All rights reserved.