Franklin Templeton Investment Funds

Equity LU0122612848 30 November 2016

Franklin European Growth Fund Fund Manager Report

Fund Characteristics

Overview

Base Currency Total Net Assets (EUR) Fund Inception Date Number of Issuers Primary Benchmark: Bloomberg Code - A(acc)

EUR 633,759,923 29.12.2000 32 MSCI Europe Index FRAEGFA LX

Fund Management Uwe Zoellner, CFA: Germany Robert Mazzuoli, CFA: Germany

• European equity markets, supported by strength in the United Kingdom, rose modestly in November, while bond yields increased and the euro fell against the US dollar. • The fund underperformed its benchmark, as negative stock selection, notably in the financials sector, detracted from relative returns. A handful of defensive consumer staples stocks also detracted. • In terms of sector allocations, a lack of exposure to the utilities and telecommunication services sectors contributed to relative performance. An underweight in financials detracted from relative performance.

Ratings - A(acc) EUR



Overall Morningstar Rating™:

Performance (As of 30 November 2016) Cumulative Performance (%) 1 Mth

3 Mths

YTD

1 Yr

3 Yrs

5 Yrs

10 Yrs

Since Incept (29.12.00)

Franklin European Growth Fund - A(acc) EUR—NAV

0.61

1.23

-1.26

-4.86

2.42

64.58

71.21

48.61

MSCI Europe Index

1.11

0.28

-2.49

-7.62

15.11

65.39

34.85

51.96

2

2

2

2

4

3

1

3

Morningstar Category—Europe Flex-Cap Equity Quartile

Calendar Year Returns (%) Franklin European Growth Fund - A(acc) EUR—(NAV)

49.91

51 27 3

MSCI Europe Index

-1.26 -2.49

6.67 8.78

YTD 2016

2015

-2.55

7.40

24.61 20.51

25.08

18.09

-7.29 -7.51

20.00

32.55 11.75

-37.63 -43.29

-1.87 3.17

2008

2007

21.66 20.18

-21 -45 2014

2013

Portfolio Allocation (%)

0

20

40

Equity Cash & Cash Equivalents

2012

2011

2010

2009

Sector Breakdown (% of Total)

60

80

100 96.00 4.00

0

8

16

Industrials Health Care Energy Financials Consumer Discretionary Consumer Staples Materials Information Technology Telecommunication Services Utilities Real Estate Cash & Cash Equivalents

2006

Geographic Breakdown (% of Total)

24

32 31.77 14.80 12.74 9.51 8.96 8.87 7.81 1.55 0.00 0.00 0.00 4.00

0

6

12

United Kingdom Spain France Germany Switzerland Other Cash & Cash Equivalents

18

24

30 23.39 13.50 11.50 10.39 10.16 27.06 4.00

For information related to the headings “Fund Characteristics”, “Portfolio Allocation”, “Sector Breakdown”, “Geographic Breakdown”, “Franklin European Growth Fund - A(acc) EUR—NAV”, please see note regarding Fund Characteristics data and Fund Ratings on back page. Source: Franklin Templeton Investments, 30 November 2016. 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 MSCI benchmark returns: FactSet Research System, Inc., as of 30 November 2016.

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Franklin European Growth Fund Market Review European equity markets, supported by strength in the United Kingdom, rose modestly in November, while bond yields increased and the euro fell against the US dollar. European economic data have been solid in recent months, and the November drop in the euro currency should benefit Eurozone exporters. Both suggest that ongoing regional central bank support is having a modestly positive effect on economic growth. However, political concerns, most immediately the December Italian constitutional referendum, kept a lid on European equities. Italian banks also weighed on markets ahead of the Italian referendum, as a handful of Italian lenders continue to need capital to shore up their balance sheets. A subsequent “no” vote on reforms is likely to result in a new Italian government, potentially upending recent reform efforts. The 2017 French presidential elections are also on the horizon for markets. The greater potential for a US rate hike in December, given the robust economic data, and stronger oil prices after the Organization of the Petroleum Exporting Countries (OPEC) agreed to production cuts also influenced European trading in November.

Performance Review and Contributors to Performance During the month, the fund underperformed its benchmark, as negative stock selection, notably in the financials sector, detracted from relative returns. A handful of defensive consumer staples stocks also detracted. UK-based financials stock Ashmore Group, an emerging markets debt fund manager, detracted from relative returns in the wake of the US presidential election. The rise in the US dollar and higher global bond yields after the election could lure investors out of emerging markets in favour of the United States. Rising US yields could reduce inflows for emerging-market asset managers such as Ashmore Group. However, we believe that despite potential near-term volatility, we believe Ashmore has a strong product lineup, and the company’s high level of institutional clients should limit outflows. Additionally, Ashmore’s strong balance sheet and low fixed costs should support margins and cash flows. Industrials stock bpost, the Belgian postal service, detracted from relative performance after it made a bid to acquire Dutch rival PostNL (not a fund holding). bpost sweetened its initial bid after the Dutch company rejected the offer as inadequate and raised concerns about the Belgian government’s stake in a combined company. In the consumer discretionary sector, Germany-based business-to- business mail-order company TAKKT detracted from relative returns. The company reported robust results for the first nine months of the year, but saw a slowdown in the third quarter as Brexit-related uncertainty made customers more hesitant to make purchases. TAKKT also expects restrained growth to continue in the final quarter of 2016. Tobacco companies Imperial Brands, which is based in the United Kingdom, and Scandinavian Tobacco Group, which is based in Denmark, were consumer staples sector detractors as more defensive stocks underperformed during the month. Imperial Brands reported a drop in net profits and said it was looking for £300 million in cost savings over the next four years as it contends with increasing regulations.

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30 November 2016

New portfolio holding Scandinavian Tobacco Group is one of the largest cigar and pipe tobacco makers in the world, and it faces few risks of new entrants, given declining tobacco volumes and the costs required to build a supply chain and distribution network. Additionally, the company can gain share from competitors and should benefit from ongoing cost- cutting initiatives, and could also build its business through bolt-on acquisitions. Conversely, in materials, UK-based specialty chemicals company Elementis was a contributor after it reaffirmed its full-year earnings expectations last month. The company’s specialty products have been strong, but the chromium business remains challenged. Nonetheless, we believe the chromium business has high barriers to entry, and the company’s strong market share in the United States gives it a cost advantage, while environmental regulations deter new entrants. The company’s structural growth drivers include market share gains for hectorite (a mineral used in cosmetics), an aging population that will support personal care product growth, and fracking. John Wood Group, a UK-based oilfield services company, was an energy sector contributor as oil prices climbed late in the month following the OPEC production deal. John Wood Group has strong expertise in the early and detailed design work for upstream offshore and, in particular, the subsea platform and pipeline segment, where it is twice as large as its next competitor. In addition, it has a leading position in the service of oilfield production. This business has an element of stability, in our view, given its longer contracts and that it is focused more on operating expenses than on capital expenditures. Industrials stock Mears Group, a UK-based social housing services provider, contributed to relative performance. We view Mears as a market leader, with a strong balance sheet, good cash generation and attractive long-term growth prospects. Health care stock Sanofi, a French drug maker, was another contributor, as the stock bounced back from recent weakness. Following the US election, concerns about pressure on drug pricing abated, boosting many drug and biotechnology names. In the consumer discretionary sector, SAF-Holland, a Germany-based manufacturer and supplier of truck components, contributed to relative returns. We expect a SAF-Holland to continue to gain share in the US axle market, and with the expansion of the installed base, the company’s higher-margin aftermarket parts business should benefit. In terms of sector allocations, a lack of exposure to the utilities and telecommunication services sectors contributed to relative performance. An underweight in financials detracted from relative performance.

Portfolio Positioning We utilise a bottom-up, long-term strategy, and therefore try to take advantage of market volatility to gain exposure to companies that exhibit what we view as strong and sustainable competitive advantages, solid balance sheets and substantial cash generation. We tend to be contrarian in our style, and our philosophy and process often lead us to segments of the market that are out of favour with other investors.

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Franklin European Growth Fund

30 November 2016

Portfolio Diversification (As of 30 November 2016) Top Sector Contributors

Top Sector Detractors Sector

Top Sector Overweights Total Effect (%)

Sector

Total Effect (%)

Energy

1.86

Materials

-1.01

Industrials

Industrials

1.38

Consumer Staples

-0.70

Energy

5.32

Consumer Staples

-5.24

Consumer Disc.

1.09

Real Estate

-0.56

Health Care

1.94

Telecom Services

-4.19

Top Security Contributors

Sector

Top Sector Underweights Relative to Index (%) 18.82

Sector

Relative to Index (%)

Financials

-10.71

Top Security Overweights

Security

Total Effect (%)

Security

Relative to Index (%)**

JOHN WOOD GROUP

1.17

BRAAS MONIER BUILDING GROUP SA

4.10

IMPERIAL BRANDS PLC

0.89

TECNICAS REUNIDAS SA

3.81

SCHNEIDER ELECTRIC SA

0.82

ELEMENTIS PLC

3.74

BERNDORF AG

0.79

SCHNEIDER ELECTRIC SE

3.61

BRAAS MONIER BUILDING GROUP SA

0.74

APPLUS SERVICES SA

3.49

Top Security Detractors

Top Security Underweights

Security

Total Effect (%)

Security

Relative to Index (%)**

INTERNATIONAL PERSONAL FINANCE

-0.73

NESTLE SA*

-3.02

BERENDSEN PLC

-0.68

HSBC HOLDINGS PLC*

-2.09

COUNTRYWIDE PLC

-0.64

ROYAL DUTCH SHELL PLC CLASS A*

-1.45

ASSICURAZIONI GENERALI SPA

-0.60

BP PLC*

-1.42

ROYAL DUTCH SHELL PLC*

-0.55

TOTAL SA*

-1.42

Geographic Weightings vs. Benchmark (% of Total)

Sector Weightings vs. Benchmark (% of Total) Franklin European Growth Fund 23.39

United Kingdom Spain

13.50

4.85

11.50

France Germany

10.39

Switzerland

10.16

Italy

3.09

29.37

Sweden Austria Denmark Norway Netherlands Finland Cash & Cash Equivalents 0

6

Industrials

15.96

Energy

14.47

7.41 9.51

Financials

13.96

Consumer Staples Materials 1.55 4.23 0.00 4.19 0.00 3.49 0.00 1.39 4.00 0.00

Information Technology Telecommunication Services Utilities Real Estate Cash & Cash Equivalents 12

18

24

30

20.22

8.96 10.74 8.87 14.11 7.81 8.40

Consumer Discretionary

9.19

31.77

12.95 14.80 12.86 12.74

Health Care

5.87 1.98 3.30 4.51 3.21 0.32 2.70 2.57 2.20 1.07 0.59 5.34 0.00 1.52 4.00 0.00

Belgium

MSCI Europe Index

0

8

16

24

32

40

*Security not held in the portfolio at the end of the reporting period. **Average weighting compared to index during November 2016. Source for the above figures: FactSet Research System, Inc. as of 30 November 2016. Index statistics calculated by FactSet Research Systems, Inc. Profile data is calculated as a percentage of total. Contributors and Detractors are relative to the Index. Source for the Fund’s “Geographic Weightings” and “Sector Weightings” above: Franklin Templeton Investments as of 30 November 2016. Holdings of the same issuer have been combined. Source for the benchmark’s “Geographic Weightings” and “Sector Weightings” above: MSCI, as of 30 November 2016. The above MSCI Index, the primary benchmark for this fund, is an equity index calculated by Morgan Stanley Capital International (MSCI). The index measures the total return (gross dividends are reinvested) of equity securities available to foreign (nonlocal) investors in the relevant geographic region as reflected in the name of the index or as defined by MSCI. Securities included in the index are weighted according to their Free Float adjusted market capitalisation (Price*Shares outstanding*Foreign Inclusion Factor).

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Franklin European Growth Fund

30 November 2016

Portfolio Diversification (continued) Top Ten Holdings Security

Industry

% of Total

NOVARTIS AG

Pharmaceuticals, Biotechnology & Life Sciences

5.08

ROCHE HOLDING AG

Pharmaceuticals, Biotechnology & Life Sciences

5.08

SANOFI

Pharmaceuticals, Biotechnology & Life Sciences

4.64

BRAAS MONIER BUILDING GROUP SA

Materials

4.32

SCHNEIDER ELECTRIC SE

Capital Goods

4.19

TECNICAS REUNIDAS SA

Energy

3.91

APPLUS SERVICES SA

Commercial & Professional Services

3.70

ELEMENTIS PLC

Materials

3.49

PRYSMIAN SPA

Capital Goods

3.42

CIA DE DISTRIBUCION INTEGRAL LOGISTA HOLDINGS SA

Transportation

3.42

Total

41.25

Portfolio Characteristics Portfolio

Benchmark

Historical 3 Yr Sales Growth

1.85%

0.81%

Estimated 3-5 Yr EPS Growth

5.62%

9.91%

Price to Earnings (12-mo Forward)

15.56x

15.56x

P/E to Growth

1.91x

1.66x

Investment Outlook

Investment Philosophy

We expect the current “Goldilocks” scenario of moderate growth and still accommodative monetary policy to continue into the end of the year, providing a positive backdrop for European equity markets. We anticipate ongoing steady economic growth in Europe, as well as the United States and China. However, growth is unlikely to be fast enough to prompt central banks to move to tighten monetary policy. While the US Federal Reserve may raise interest rates in December, we expect the European Central Bank to continue to buy corporate bonds, and the Bank of Japan to continue targeting the yield curve. The Bank of England also pledged to loosen policy should Brexit have negative repercussions for the domestic economy. Politics are also likely remain at the forefront.

Our investment philosophy is based on a belief that companies with longterm sustainable competitive advantages, which are able to generate cash flows, strong return on investment, and have low downside risk, can create shareholder value and deliver alpha over a full market cycle. The investment team uses disciplined, fundamental bottom-up research to identify high quality companies whose potential has not yet been fully recognized by the market. We seek to build a concentrated portfolio of companies that have sustainable competitive advantages and trade at attractive valuations.

Investment Objective The Fund aims to achieve long-term capital appreciation by investing principally in equity and/or equity-related securities of companies of any market capitalisation in European countries.

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 November 2016. Past performance is not an indicator or a guarantee of future performance.

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Franklin European Growth Fund

30 November 2016

Portfolio Management Team Uwe Zoellner is head of Franklin European Equity. He joined Franklin Templeton Investments in 2001, and in 2008 was given responsibility to oversee the development of the European Equity Team, which locally manages Pan-European equity strategies. He is the lead portfolio manager of the Franklin European Growth Fund and Franklin European Dividend Fund. Prior to his current role, Mr. Zoellner was executive vice president and portfolio manager for Templeton Global Equity Group from September 2001 to October 2007. He was in charge of a number of global and European accounts and also had research responsibility for industrials. Before that, he was a manager for European equities at Credit Suisse Asset Management in Frankfurt from 1999 to 2001, covering the energy, telecom and media sectors. Prior to joining Credit Suisse Asset Management, Mr. Zoellner was with Sal. Oppenheim KAG in Cologne, serving as portfolio manager for global equity mandates, as well as two funds specializing in commodity stocks. Mr. Zoellner holds a diploma in business administration and economics from the University of Cologne (Germany). He is a Chartered Financial Analyst (CFA) charterholder. Mr. Zoellner is also a founding member and former treasurer of the German CFA Society.

Robert Mazzuoli is a portfolio manager and research analyst responsible for European stocks and has over 11 years of investment experience. He is a portfolio manager on the Franklin European Growth Fund. Prior to joining Franklin Templeton Investments in 2010, Mr. Mazzuoli most recently worked as a sell side analyst covering insurance stocks at Landesbank Baden-Wurttemberg (LBBW) in Mainz. Prior to that, he was an analyst for the Boston Consulting Group as well as a sell side analyst at BHF-Bank, covering Italian and German banks. Mr. Mazzuoli holds a degree in business administration from the Frankfurt School of Finance and Management and is a Chartered Financial Analyst (CFA) Charterholder.

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Franklin European Growth Fund

30 November 2016

Explanatory Notes CFA® and Chartered Financial Analyst® are trademarks owned by CFA Institute. Fund Characteristics: Source: FactSet. Price to Earnings (12-mo Forward) measures the price to earnings ratio (P/E) using the forecasted earnings for the next 12 months. Price to Earnings and the Price/Earnings to Growth ratio calculations use harmonic means. The IBES Estimated 3-5 Year EPS Growth uses simple weighted average means; there can be no assurance that the estimated figure will be realised. 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. 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 (FTIF). Nothing in this document should be construed as investment advice. Opinions expressed are the author’s at publication date and they are subject to change without prior notice. Given the rapidly changing market environment, Franklin Templeton Investments disclaim responsibility for updating this material. Subscriptions to shares of FTIF can only be made on the basis of the current prospectus and where available, the relevant Key Investor Information Document, accompanied by the latest available audited annual report and the latest semi-annual report if published thereafter. The value of shares in FTIF 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. An investment in FTIF entails risks which are described in FTIF’s prospectus and where available, in the relevant Key Investor Information Document. No shares of FTIF may be directly or indirectly offered or sold to nationals or residents of the United States of America. Shares of FTIF 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. 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. References to particular industries, sectors or companies are for general information and are not necessarily indicative of a fund’s holding at any one time. References to indices are made for comparative purposes only and are provided to represent the investment environment existing during the time periods shown. 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. A copy of the latest prospectus and where available, the relevant Key Investor Information Document, the annual report and semi-annual report, if published thereafter can be found, on our website www.ftidocuments.com or can be obtained, free of charge, from Franklin Templeton International Services S.A. - Professional of the Financial Sector under the supervision of the Commission de Surveillance du Secteur Financier - 8A, rue Albert Borschette, L-1246 Luxembourg- Tel: +352-46 66 67-1 - Fax: +352-46 66 67. In the U.S., this publication is made available to you for informational purposes only by Templeton/Franklin Investment Services, Inc. 100 Fountain Parkway, St. Petersburg, Florida 33716. Tel: (800) 239- 3894 (USA Toll-Free), (877) 389-0076 (Canada Toll-Free), and Fax: (727) 299-8736. Investments are not FDIC insured; may lose value; and are not bank guaranteed. Distribution outside the U.S. may be made by Templeton Global Advisors Limited or other sub-distributors, intermediaries, dealers or professional investors that have been engaged by Templeton Global Advisors Limited to distribute shares of the Fund in certain jurisdictions. This is not an offer to sell or a solicitation of an offer to purchase securities in any jurisdiction where it would be illegal to do so. © 2016 Franklin Templeton Investments. All rights reserved.

2016 Franklin Templeton Investments. All rights reserved. For Professional investor use only. Not for distribution© to retail investors.

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