Franklin Discovery Fund A (acc) USD Franklin Templeton Investment Funds Fund Manager Report Equity Product Details 1 Fund Assets $2,026,977,439.38 Fund Inception Date 03/04/2000 Number of Issuers 96 Bloomberg ISIN Base Currency Investment Style Benchmark Overall Morningstar Rating TM 3 TEMBDAI LX LU0109394709 USD NASDAQ Index Asset Allocation 2 % Equity 99.77 Cash & Cash 0.23 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. Performance Data Performance Net of Management Fees as at 31/07/2018 (Dividends Reinvested) (%) 4,5 1 Mth 3 Mths YTD 1 Yr 3 Yrs 5 Yrs 10 Yrs Since Inception (03/04/2000) A (acc) USD 2.00 8.15 4.83 4.47-4.49 9.71 13.49 6.76 NASDAQ Index 6.17 12.64 9.23 9.78-2.89 12.22 15.01 6.98 Calendar Year Returns (%) 100% 50% 0% -50% 16.93 21.06 4.93 11.42 34.70 34.32 64.27 65.97 26.81 32.29-17.87-21.68-8.53-12.56 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 9.60 12.08 17.63 15.25 10.85 15.84 A (acc) USD Past performance is not an indicator or a guarantee of future performance. Portfolio Manager Insight Performance Review ONE-MONTH KEY PERFORMANCE DRIVERS Stocks Industries Reata Pharmaceuticals (Overweight) HELPED Zogenix (Overweight) G1 Therapeutics (Substantial Overweight) Fate Therapeutics (Off-Index Exposure) (Stock Selection) HURT Array BioPharma (Substantial Overweight) Pharmaceuticals (Stock Selection) Biogen (Substantial Underweight) Life Sciences Tools & Services (Underweight) Adverse stock selection accounted for much of the fund s underperformance versus the index in July, and most of the key individual detractors were biotechnology stocks. In particular, top detractor Fate Therapeutics, a clinical-stage biotech which develops stem-cell immunotherapies for cancer and immune disorders, suffered a steep selloff as analysts began to anticipate the company would release its fourth consecutive negative quarterly earnings surprise with deeper-than-anticipated losses. Biogen was a study in opposites this month: it was the fund s third-largest detractor relative to the index and its third-largest contributor in absolute terms. The major biotech firm s stock rallied on solid second-quarter earnings and as the firm, along with Japanese partner Eisai (not a fund holding), reported positive results from the phase 2 clinical study of BAN2401, which achieved statistically significant improvement in slowing progression of Alzheimer s and reducing amyloid plaque deposits in brain cells after 18 months of treatment. Reata Pharmaceuticals share value roughly doubled in July after the firm reported encouraging mid-stage clinical trial results for a drug (bardoxolone) in development for treating rare forms of chronic kidney disease. Over 80% of patients saw a clinically meaningful and persistent improvement, plus evidence emerged showing that bardoxolone may delay or prevent kidney failure in these patients. 1. All holdings are subject to change. Holdings of the same issuers have been combined.
Franklin Discovery Fund A (acc) USD Outlook & Strategy At the end of July, we continued to overweight small- and micro-capitalisation stocks relative to the fund s benchmark index. Innovation within the biotechnology and pharmaceuticals industries has reached unprecedented levels, in our view. We are particularly interested in companies working on significant advancements in gene therapy, immuno-oncology and bispecific antibodies for cancer therapy. We are also encouraged by companies that have focused their efforts on new drug discovery platforms and novel compounds. 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. Political pressures focused on drug pricing have occasionally dampened the health care sector s performance over the past 12 18 months, and may resurface as the rest of 2018 unfolds. During the first seven months of the year, however, this topic has not been much of a factor, though discussions at the government level have been ongoing. Portfolio Characteristics 6 Portfolio Market Capitalisation (Millions in USD) 26,888 41,145 Price to Earnings Growth Ratio 1.16x 1.36x 3-Year Sales Growth 30.54% 28.78% Estimated 3-5 Yr EPS Growth 21.46% 18.80% Price to Earnings (12 Month Forward) 17.37x 15.72x Portfolio Diversification Geographic Weightings vs. 2 Sector Weightings vs. 2 NORTH AMERICA 95.62 10 Pharmaceuticals 10.11 14.15 79.90 80.80 EUROPE 3.93 Life Sciences Tools & Services Health Care Supplies 5.72 8.50 0.12 MID-EAST/AFRICA 0.22 Health Care Distributors 0.05 CASH & CASH EQUIVALENTS 0.23 Health Care Equipment Health Care Technology 0.38 0.04 0% 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 Discovery Fund Franklin Discovery Fund www.franklintempletongem.com 2
Supplemental Risk Statistics 8 3 Yrs 5 Yrs 10 Yrs Since Inception Franklin Discovery Fund A (acc) USD Top Ten Holdings 7 Top Holdings % ALEXION PHARMACEUTICALS INC 7.72 CELGENE CORP 6.93 BIOGEN INC 5.78 VERTEX PHARMACEUTICALS INC 5.50 ILLUMINA INC 5.05 REGENERON PHARMACEUTICALS INC 3.64 GILEAD SCIENCES INC 3.43 AMGEN INC 3.26 HERON THERAPEUTICS INC 2.88 ARRAY BIOPHARMA INC 2.83 Supplemental Performance Statistics Standard Deviation (%) Franklin Discovery Fund 24.06 23.25 20.94 23.74 23.13 21.76 20.80 24.37 Tracking Error (%) 5.34 5.90 5.76 6.53 Information Ratio 9-0.30-0.42-0.26-0.08 Beta 1.02 1.03 0.97 0.94 Sharpe Ratio Franklin Discovery Fund -0.22 0.40 0.63 0.24-0.16 0.54 0.71 0.25 Investment Team Portfolio Manager Years with Firm Years Experience Evan McCulloch, CFA, Director of Research - Franklin Equity Group 25 26 Steve Kornfeld, CFA, Portfolio Manager/Research Analyst 17 29 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. 8. Beta, Information Ratio and Tracking Error information are measured against the. www.franklintempletongem.com 3
Franklin Discovery Fund A (acc) USD 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: 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. 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 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. Important data provider notices and terms available at www.franklintempletondatasources.com. 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. 2018 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 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 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 www.franklintempletongem.com 2018 Franklin Templeton Investments. All rights reserved.
Franklin Discovery Fund A (acc) USD 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 The Gate, East Wing, Level 2 Dubai International Financial Centre P.O. Box 506613 Dubai, U.A.E. Tel.: +9714-4284100 Fax.: +9714-4284140 www.franklintempletongem.com 2018 Franklin Templeton Investments. All rights reserved.