Franklin Templeton Investment Funds Templeton Africa Fund Equity LU0727123662 30 September 2017 Fund Manager Report Fund Characteristics Base Currency USD Total Net Assets (USD) 80,657,349 Fund Inception Date 04.05.2012 Number of Issuers 32 Primary Benchmark: Dow Jones Africa Titans 50 Index Bloomberg Code - A(acc) FTAFAAU LX Fund Management Carlos Hardenberg: United Kingdom Overview African equity markets moved higher over the third quarter, in US-dollar terms. The fund advanced strongly over the quarter as all sectors contributed to absolute performance, led by consumer staples, followed by financials and telecommunication services. All markets also contributed to absolute performance, especially Zimbabwe, Kenya, Egypt and South Africa. However, select individual holdings detracted from returns. Performance (As of 30 September 2017) Cumulative Performance (%) 1 Mth 3 Mths YTD 1 Yr 3 Yrs 5 Yrs Since Incept (04.05.12) Templeton Africa Fund - A(acc) USD NAV 6.12 14.27 26.28 21.53-24.74-13.16-6.30 Dow Jones Africa Titans 50 Index -1.77 7.05 12.42 9.88-18.74-15.38-9.95 Morningstar Category Africa Equity Quartile 1 1 1 1 2 2 2 Calendar Year Returns (%) Templeton Africa Fund - A(acc) USD NAV Dow Jones Africa Titans 50 Index 29 14-1 -16-31 26.28 12.42 17.08 9.63-9.07-27.08-29.40-10.69-11.81 2.24 YTD 2017 2016 2015 2014 2013 Portfolio Allocation (%) Geographic Breakdown (% of Total) Sector Breakdown (% of Total) 0 20 40 60 80 100 Equity 82.81 0 5 10 15 20 25 South Africa 22.19 Zimbabwe 17.01 Kenya 12.74 Egypt 11.82 Senegal 4.31 Other 14.74 0 5 10 15 20 25 30 35 40 Consumer Staples 37.83 Financials 18.69 Telecommunication Services 13.87 Consumer Discretionary 8.12 Health Care 3.32 Industrials 0.97 Materials Energy Real Estate For information related to the headings Fund Characteristics, Portfolio Allocation, Sector Breakdown, Geographic Breakdown, Templeton Africa Fund A(acc) - USD NAV, please see note regarding Fund Characteristics data and Fund Ratings on back page. Source: Franklin Templeton Investments, 30 September 2017. Past performance is not an indicator or a guarantee of future performance. The fund offers other share classes subject to different fees and expenses, which will affect their performance. Please see the prospectus for details. Source for benchmark returns: FactSet Research System, Inc., as of 30 September 2017. For Professional investor use only. Not for distribution to retail investors. 1
Market Review Emerging-market (EM) equities significantly outperformed their developedmarket counterparts over the third quarter, driven by a strong rebound in global commodity prices, generally encouraging economic data from China, and EM currency strength against the weaker US dollar. Equity markets in Africa also gained in the third quarter, helped by strong performance in Kenya. Although South Africa rose, it underperformed its global peers as it continued to be impacted by weakness in the rand, political uncertainty and investor outflows. Meanwhile, Nigeria lost ground, affected by the naira s sharp devaluation in August. At a sector level, energy and materials advanced the most, followed by consumer discretionary. Industrials weakened substantially, but it was the only sector to lose ground in the benchmark index. Performance Review and Contributors to Performance The fund advanced over the quarter as all sectors contributed to absolute performance, led by consumer staples, followed by financials and telecommunication services. All markets also contributed to absolute performance, especially Zimbabwe, Kenya, Egypt and South Africa. In consumer staples, Zimbabwe-based brewer Delta Corporation was the strongest contributor amidst a significant bounce in its share price. In Kenya, East African Breweries was strong. Notable detractors in the consumer staples sector included South Africa-based food and staples retailers Pick N Pay Stores and Massmart, as well as Nigeria-based food products company UAC of Nigeria, but their impacts were not enough to substantially weaken the overall sector contribution. Amongst telecommunication services holdings, Kenya-based Safaricom was the key contributor. In the financials sector, Kenya-based KCB Group and Nigeria-based Guaranty Trust Bank were strong performers. However, South Africa-based Standard Bank Group detracted somewhat from returns in the financials sector. Meanwhile, in the health care space, Egyptian International Pharmaceutical Industries aided returns. Elsewhere, amongst consumer discretionary positions, South Africa-based media conglomerate Naspers advanced over the quarter, while multiline retailer Woolworths retreated. Portfolio Positioning Our fund portfolios are constructed using stock-by-stock fundamental analysis. During the third quarter, the portfolio s most substantial country weightings were in South Africa, Kenya and Egypt. The largest sector exposures were to consumer staples, financials and telecommunication services. Top Sector Contributors Sector Consumer Staples Financials Telecommunication Services Top Security Contributors Security DELTA CORPORATION LIMITED SAFARICOM LIMITED KCB GROUP LIMITED EGYPTIAN INTERNATIONAL PHARMACEUTICAL INDUSTRIES CO GUARANTY TRUST BANK PLC EAST AFRICAN BREWERIES LIMITED NASPERS LIMITED CLASS N FIRSTRAND LIMITED MTN GROUP LIMITED EASTERN COMPANY Top Security Detractors Security PICK N PAY STORES LIMITED UAC OF NIGERIA PLC MASSMART HOLDINGS LIMITED WOOLWORTHS HOLDINGS LIMITED STANDARD BANK GROUP LIMITED REMGRO LIMITED LETSHEGO HOLDINGS LIMITED BRAIT SE GLOBAL TELECOM HOLDING SAE Source for Top Sector Contributors : FactSet Research System, Inc. as of 30 September 2017. Profile data is calculated as a percentage of total. Holdings of the same issuer have been combined. Source for Top Security Contributors and Top Security Detractors : FactSet Research System, Inc. as of 30 September 2017. Profile data is calculated as a percentage of total. Holdings of the same issuer have been combined. For Professional investor use only. Not for distribution to retail investors. 2
Portfolio Diversification (As of 30 September 2017) Geographic Weightings vs. Benchmark (% of Total) Templeton Africa Fund Sector Weightings vs. Benchmark (% of Total) Dow Jones Africa Titans 50 Index South Africa Zimbabwe Kenya Egypt Senegal United Republic of Tanzania Mauritius Nigeria Botswana Malawi United Kingdom Canada Morocco Germany Cash & Cash Equivalents 17.01 12.74 5.64 11.82 7.71 4.31 4.04 3.93 3.74 10.39 1.92 0.97 13.74 11.60 1.58 17.19 22.19 23.02 26.32 Consumer Staples Financials Telecommunication Services Consumer Discretionary Health Care Industrials Materials Energy Real Estate Cash & Cash Equivalents 3.32 1.14 0.97 1.34 1.45 7.65 18.69 13.87 8.16 8.12 10.17 8.18 17.19 26.07 37.83 35.84 0 6 12 18 24 30 0 8 16 24 32 40 Top Ten Holdings Security Industry % of Total DELTA CORP LTD Food Beverage & Tobacco 17.01 MTN GROUP LTD Telecommunication Services 5.99 SONATEL Telecommunication Services 4.31 EAST AFRICAN BREWERIES LTD Food Beverage & Tobacco 4.28 TANZANIA BREWERIES LTD Food Beverage & Tobacco 4.04 KCB GROUP LTD Banks 3.43 FIRSTRAND LTD Diversified Financials 3.27 COMMERCIAL INTERNATIONAL BANK EGYPT SAE Banks 3.23 EASTERN TOBACCO Food Beverage & Tobacco 2.84 MCB GROUP LTD Banks 2.84 Total 51.25 Portfolio Characteristics Price to Earnings (12-mo Trailing) Price to Book Price to Cash Flow Dividend Yield Market Cap (USD Millions) Templeton Africa Fund 17.20x 3.17x 9.76x 3.72% 7,411 Dow Jones Africa Titans 50 Index 14.00x 1.56x 6.65x 2.34% 15,371 Source for the Fund s Geographic Weightings and Sector Weightings above: Franklin Templeton Investments as of 30 September 2017. Holdings of the same issuer have been combined. For the Top Ten Holdings above, please note that top ten holdings information is historical and may not reflect current or future fund characteristics. All holdings are subject to change. Holdings of the same issuers have been combined. 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 in the top 10 holdings list. For information related to the heading Portfolio Characteristics above, please see note regarding Fund Characteristics data on back page. Source: Franklin Templeton Investments, 30 September 2017. Past performance is not an indicator or a guarantee of future performance. For Professional investor use only. Not for distribution to retail investors. 3
Investment Outlook We remain attracted to African markets as we believe they have the potential for strong economic growth over the long term. In turn, this growth can produce an environment favourable to corporate profitability and earnings development. In our view, the investment opportunity is bolstered by market valuations for African corporations that often stand below those of their peers in more developed markets. In addition, continued progress towards corporate governance reforms, helped by active shareholders pushing for positive change, may also add to the appeal of the region s equities. In our view, Africa has demonstrated encouraging macroeconomic signs with strong potential for continued improvement. In particular, we are increasingly positive on Nigeria from a macroeconomic perspective as a better oil price, steadying inflation and the currency floatation improve prospects. One-Month Performance Review The fund advanced in September, driven primarily by positions in Zimbabwe. Conversely, South Africa and Kenya detracted the most from absolute returns. In sector terms, consumer staples contributed most to performance. In contrast, financials, telecommunication services and consumer discretionary detracted. Investment Objective The Fund s investment objective is to provide long-term capital appreciation by investing principally in equity and equity-related securities of companies across the market capitalisation spectrum which are (i) incorporated or listed in African countries, and/or (ii) listed or incorporated elsewhere in the world but have their principal business activities in African countries. Investment Philosophy The foundation of the Templeton Emerging Markets Team s investment philosophy value-oriented, patient, bottom-up, global investing has remained consistent for several decades. Its strategy is grounded in patience and the belief that on a short-term basis, stocks overreact to news and noise. On a long-term basis, markets are efficient and patience will reward those who have identified undervalued stocks. Through proprietary research, Templeton seeks to identify quality investments in frequently unfashionable and undervalued stocks. Portfolio Management Team Carlos von Hardenberg is executive vice president and managing director for the Templeton Emerging Markets Group. In this capacity, he is responsible for setting the overall strategy for his respective area, providing guidance and thought leadership, coordinating appropriate resources and coverage, and leveraging the group's expertise to add value across products within the strategy. In addition, he is the portfolio manager for the Templeton Emerging Markets Investment Trust PLC, and collaborates on the Global Emerging Markets strategies. Prior to joining Franklin Templeton in 2002, Mr. von Hardenberg was an analyst in the Corporate Finance Department for Bear Stearns International in London. He entered the financial services industry in 1999. Mr. von Hardenberg holds a M.Sc., with distinction, in investment management from London City University Business School (UK) and a B.Sc., with honors, in business studies from the University of Buckingham (UK). He speaks German, English and Spanish. For Professional investor use only. Not for distribution to retail investors. 4
Explanatory Notes Fund Characteristics: Source: FactSet. Price ratio calculations for the weighted average use harmonic means. Any exceptions to this are noted. Market capitalisation statistics are indicated in the base currency for the portfolio presented. Yield figures quoted should not be used as an indication of the income to be received. Fund Ratings: Morningstar, Inc. All rights reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) 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. 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. Disclaimers: 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 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 the security level, not aggregated up to the main issuer. The dividend yield quoted here should not be used as an indication of the income to be received from this portfolio. 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. Securities mentioned in this report are not a solicitation to purchase those securities, and are examples of some securities which performed well. Not all securities in the portfolio performed well. 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. 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. The indices are provided only to show the investment environment during the specific periods shown. The performance of each index does not include the deduction of expenses and does not represent the performance of any Franklin Templeton fund. 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. Past performance is not an indicator or a guarantee of future performance. In addition, it should not be assumed that any securities mentioned were or will prove to be profitable. For the most current information on the fund, please contact your Franklin Templeton marketing representative. 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. 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 the Luxembourg-domiciled SICAV Franklin Templeton Investment Funds (the Fund ). Nothing in this document should be construed as investment advice. 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. 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. Past performance is not an indicator or a guarantee of future performance. 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 and are more fully 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. 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. Opinions expressed are the author s at publication date and they are subject to change without prior notice. Any research and analysis contained in this document has been procured by Franklin Templeton Investments for its own purposes and is provided to you only incidentally. A copy of the latest prospectus, the annual report and semi-annual report, if published thereafter can be found on our website: www.franklintempletongem.com 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 506613, Dubai, U.A.E., Tel.: +9714-4284100 Fax:+9714-4284140. For Professional investor use only. Not for distribution to 2017 retail Franklin investors. Templeton Investments. All rights reserved. 5