Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria.

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2 Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria. Sir John Templeton, Templeton Funds Founder and Former Chairman iv Time to Take Stock franklintempleton.com.au

3 The pullback of the stock market in 2008 left a lasting impression on many investors. Although there s evidence that post-crisis pessimism has started to fade, billions of dollars remain sitting in low-yielding savings instruments. 1 It s time to take stock of the current situation facing investors, the human behavior that helped land us here and how investors can position their portfolios to reach their long-term goals. 1] The Investor s Dilemma See why investors today face a difficult dilemma at current yields, their investments in many traditional fixed-income vehicles are essentially at a standstill, while their long-term investment goals continue to require capital growth. 2] How We Got Here Learn about the instinctive behaviors that impact how we make decisions. Having a greater understanding of these behaviors may help you make better decisions when it comes to investing. 3] What Most Investors Are Missing While it may feel like the economy is still struggling, there are many positive developments around the globe that may surprise you. 4] Taking the Next Step Review simple strategies for getting back into the market, at your own pace, with your financial adviser using Franklin Templeton funds. 1. Source: Credit Union Savings Deposits, Online Savings Accounts, 6-Month Fixed Term Deposits, Reserve Bank of Australia, as at 31/12/14. franklintempleton.com.au Time to Take Stock 1

4 1] The Investor s Dilemma Market volatility may have led many investors to flee the stock market into fixed-income investments such as savings accounts and fixed term deposits. Relatively low interest rates, along with increased demand, has helped keep yields low. For investors, this means their investments may essentially be at a standstill, but their goals buying a home, saving for children s education, retirement and so on may still require capital growth. THE $10,000 TRUTH As at 31 December 2014, if you invested $10,000 in a credit union savings account, online savings account or a six-month fixed term deposit for one year, you would earn enough to buy the items in the chart below. Factor in inflation and taxes and these yields look even worse. After One Year, a $10,000 Investment Would Equal 2 Yields as at 31 December % 2.50% Trip to the Grocery Store Concert Tickets 0.00% Credit Union Savings Account Online Savings Account 6-Month Fixed Term Deposit This chart is for illustrative purposes only and does not reflect the performance of any Franklin Templeton fund. Past performance does not guarantee future results. 2. Source: Credit Union Savings Deposits, Online Savings Accounts, 6-Month Fixed Term Deposits, Reserve Bank of Australia, as at 31 December Time to Take Stock franklintempleton.com.au

5 2] How We Got Here WE RE ONLY HUMAN The field of behavioral finance examines the psychological and behavioral variables that can come into play with investing. As humans, our decisions can be influenced by emotions, biases and assumptions, especially when it comes to money. Recognizing you may be subject to these factors may help you make better investment decisions. AVAILABILITY BIAS Our thinking is greatly influenced by what is personally most relevant, recent or dramatic. And little has been more dramatic than the unprecedented events of the 2008/2009 global financial crisis. LINGERING PESSIMISM GUIDES PEOPLE S MONEY With the proliferation of bad news over recent years, investors are still feeling the pain, as shown below by the significant outflows from Australian equity funds over the last three years. Net Flows into Australian Equity Funds 3 As at 31 December 2014 (Billions AUD) $14.04 The investor s chief problem and even his worst enemy is likely to be himself. BENJAMIN GRAHAM $ $ $2.19 -$3.86 -$ $ Source: 2015 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. Past performance is no guarantee of future results. Source: S&P Index Data Services S&P Dow Jones Indices LLC. All rights reserved. franklintempleton.com.au Time to Take Stock 3

6 THE DISCONNECT BETWEEN PERCEPTION AND REALITY Each year since 2012, Franklin Templeton has conducted a survey to gauge investor sentiment and asked Australians how the Australian stock market finished at the end of the previous year and how they expected the stock market to perform in the following year. The percentage of respondents surveyed in 2013 and 2014 who answered that the Australian stock market was down or flat are below. PERCEPTION What Investors Believe Happened Percentage of Survey Respondents Who Said the Australian Stock Market Was Down or Flat Last Year 4 48% % 2014 Percentage of Survey Respondents Who Said the Australian Stock Market Was Going To Be Down or Flat Next Year 4 34% % 2014 REALITY How the Market Performed Investors have continued to take money out of equity funds, in part due to the belief that stock markets locally and across the globe have performed poorly in recent years. But have they? As shown in the charts below, stocks had strong returns in 2012 and 2013, indicating a misperception about the stock markets. MSCI World Index, MSCI Europe Index, S&P/ASX 200 Index and S&P 500 Index Annual Returns 5 60% 40% 20% 0% MSCI World Index MSCI Europe Index S&P/ASX 200 Index S&P 500 Index This chart is for illustrative purposes only and does not reflect the performance of any Franklin Templeton fund. Past performance does not guarantee future results. 4. The Franklin Templeton Global Investor Sentiment Survey ( ), designed in partnership with ORC International. Each survey included over 500 Australian adult respondents. 5. Source: 2015 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. Past performance is no guarantee of future results. Source: S&P Index Data Services S&P Dow Jones Indices LLC. All rights reserved. Source: MSCI. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed or produced by MSCI. 4 Time to Take Stock franklintempleton.com.au

7 LOSS AVERSION Studies have shown that the pain of a loss is much stronger than the reward felt from a gain. In fact, the desire to avoid market losses has caused many investors to move their money out of stocks and into low-yielding fixed-income vehicles, trading potential market losses for potential negative real returns once the impact of inflation is factored in. PERCEIVED SAFETY MAY COME AT A COST As investors, we may make financial decisions to avoid the pain of loss. The $534.4 billion currently sitting in cash equivalents is evidence of this behavior. 6 However, this perceived safety may come at a cost. The chart below shows the average online savings account yield over the past seven years along with the inflation-adjusted yield. Although some investors may consider online savings accounts a more secure investment option while they wait out stock market volatility, they may not be aware of the potential erosion of their purchasing power. Online Savings Accounts Average Yield Before and After Inflation 7 Period Ended 31 December % 6% 4% 2% 0% 2.50% 0.80% Inflation Adjusted -2% Online Savings Accounts Online Savings Accounts Inflation Adjusted This chart is for illustrative purposes only and does not reflect the performance of any Franklin Templeton fund. The Big Bite of Inflation. If you held your money in cash, it would take 27 years to cut its purchasing power in half (based on the 5-year average inflation rate of 2.58% as at 31 December 2014) Source: Credit Union Savings Deposits, Online Savings Accounts, 6-Month Fixed Term Deposits, Reserve Bank of Australia, as at 31/12/ Source: Reserve Bank of Australia, as at 31/12/14. Inflation is based on Australian Bureau of Statistics data and represented by year-over-year changes of the Australia Consumer Price Index plotted on a quarterly basis. 8. Source: Australian Bureau of Statistics data. Based on the 5-year average inflation rate of 2.58% as represented by the Consumer Price Index as at 31 December franklintempleton.com.au Time to Take Stock 5

8 HERDING As social animals, it s not easy to stand behind an opinion that differs from the majority. We are programmed to follow the crowd and tend to assume the consensus view to be correct. Unfortunately, when it comes to investing, herd mentality may significantly impact long-term results. THE PROBLEM OF GOING WITH THE FLOW In the chart below, the orange line represents performance of the MSCI World Index since 30 June 1999 and the green shading represents flows into global equity funds. Generally, when the MSCI World Index performed well, there was an influx of money to global equity funds (buying high) and when the market pulled back, investors withdrew their money from equities (selling low) and many rushed into bond funds. Investors Following the Herd Historically Bought High and Sold Low MSCI World Index, Global Equity Mutual Funds 9 Growth of a $10,000 Investment (AUD) vs. Total Net Flows (AUD, Billions) (Rolling 12-Month Periods as at 31 December 2014) Growth of a $10,000 Investment $18,000 Total Net Flows (Billions) $800 BUYING HIGH $12,000 $400 $6,000 $0 Global Equity Funds (RHS) MSCI World Index (LHS) SELLING LOW $ $400 This chart is for illustrative purposes only and does not reflect the performance of any Franklin Templeton fund. Past performance does not guarantee future results. 9. Source: 2015 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. Past performance is no guarantee of future results. Source: S&P Index Data Services S&P Dow Jones Indices LLC. All rights reserved. 6 Time to Take Stock franklintempleton.com.au

9 INVESTOR RETURNS HAVE BEEN SIGNIFICANTLY LOWER THAN MARKET RETURNS Herd-like behavior may have caused many investors to pull their money out of equities at the wrong time and miss some of the best days in the market. This may help explain why the 20-year average annual return of the S&P 500 Index for the period ended 31 December 2013 was higher than the average equity investor s return. Investor Returns vs. Market Returns 20-Year Period Ended 31 December % 5.0% To buy when others are despondently selling and to sell when others are buying requires the S&P 500 Index Average Equity Investor s Annualised Return This chart is for illustrative purposes only and does not reflect the performance of any Franklin Templeton fund. Past performance does not guarantee future results. greatest fortitude and pays the greatest ultimate rewards. SIR JOHN TEMPLETON 10. Source: 2015 Morningstar; Quantitative Analysis of Investor Behavior, 2014, DALBAR, Inc. (most recent data available). Indexes are unmanaged and one cannot invest directly in an index. franklintempleton.com.au Time to Take Stock 7

10 3] What Most Investors Are Missing... The truth is there are positive things happening around the globe that many investors may not realize....about THE GLOBAL ECONOMY World Gross Domestic Product Total Growth ( ) 11 $80T $75.6 Trillion World Exports Total Growth ( ) 12 $24T $23.4 Trillion $40T $11.6 Trillion $12T $2.1 Trillion $ $ THE WORLD S MIDDLE CLASS IS PROJECTED TO REACH BY THE YEAR BILLION Asia Is Leading the Way Percentage of Middle Class in the West and Asia 14 90% 60% 30% 0% 493 Million 66 Million Million 140 Million Million 278 Million Billion 1.0 Billion 2025 West Asia China Expected to Add 7 Megacities by Current Megacity (10M+ Residents) Chongqing, Beijing, Shanghai Projected Megacity Chengdu, Tianjin, Wuhan, Hangzhou, Guangzhou, Dongguan, Shenzhen 11. Source: World Bank: World Development Indicators: World Bank national account data, and OECD National Accounts data files as at 31/12/ Source: 2015 World Bank, as at 31/12/13. Most recent data available. 13. Middle Class Data: Homi Kharas, Brookings Institution, 2012; Population Data: World Bank: Health Nutrition and Population Statistics, Population estimates and projections. 14. Source: Surjit S. Bhalla, Second Among Equals: The Middle Class Kingdoms of India and China, May Source: McKinsey Global Institute, Urban World: Mapping the Economic Power of Cities, March Time to Take Stock franklintempleton.com.au

11 ...ABOUT THE GLOBAL ECONOMY A Simple but Powerful Relationship GLOBALIZATION URBANIZATION DID YOU KNOW? Asia has more consumers than Europe, North America, Latin America and Africa combined. 16 LIFESTYLE CHANGES & REPLACEMENT DEMAND Commodity Demand Large Infrastructure Projects Public Housing, Works Increase Transport Lines Sufficient Food Consumerism Rising Wages Higher Spending Power Demand for Luxury Goods...ABOUT GLOBAL STOCKS The Importance of Global Diversification: Leaders Rotate Top Performing Stock Markets of Developed Countries ( ) 17 Rank Finland Belgium Ireland Sweden Norway 2 Ireland Germany New Zealand Denmark Australia 3 USA Denmark USA Hong Kong Singapore Top Performing Stock Markets Including Developing Countries ( ) 17 Rank Greece Turkey Ireland Thailand Brazil 2 Finland Philippines Indonesia Peru Indonesia 3 Ireland Egypt New Zealand Chile Russia 16. Source: International Labour Organization. As at 31 December Consumers are represented by the economically active population of specific countries/regions as defined by the International Labour Organization. 17. Source: 2015 Morningstar, Morgan Stanley Capital International Inc. Developed countries based on the MSCI World Index and developing countries based on MSCI All Country World Index. The performance of countries and unmanaged indexes does not reflect expenses and may not correspond to performance of a mutual fund, which may be actively managed and incur expenses. MSCI makes no expressed or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed or produced by MSCI. franklintempleton.com.au Time to Take Stock 9

12 4] Taking the Next Step Volatility has kept many investors on the sidelines in low-yielding investments. While playing it safe may make sense for investors with short time horizons, this approach leaves long-term investors at risk of not achieving their investment goals. Armed with the knowledge that we make decisions based on emotion, and that there are many positive signs that point to a potentially bright future for equities, now may be a good time to talk to your financial adviser about stepping back into the stock market. STRATEGIES TO RE-ENTER THE MARKET STEP Search for Yield. If you still aren t sure about the equity market, it might make sense to search for yield through global fixed income strategies. No matter how you choose to get back into the market stepping, walking or sprinting Franklin Templeton has the funds to get you started. 10 Time to Take Stock franklintempleton.com.au

13 WALK Build a Position. Move more confidently and develop a plan to systematically move your money off the sidelines and back into the market with equity funds. SPRINT Capitalise on Opportunity. Talk to your financial adviser about ways to take advantage of potential opportunities before the rest of the herd. FIXED INCOME AND EQUITY SOLUTIONS Franklin Templeton Investments Australia Limited offers the following world-class equity and fixed income solutions for advisers and their clients: Fixed Income Franklin Templeton Multisector Bond Fund Templeton Global Bond Plus Fund Franklin Templeton Global Aggregate Bond Fund Franklin Australian Absolute Return Bond Fund Equity Franklin Global Growth Fund Franklin Templeton Australian Equity Fund Templeton Global Equity Fund franklintempleton.com.au Time to Take Stock 11

14 About Franklin Templeton Investments Franklin Templeton Investments had more than $1,077 billion (AUD) in assets under management as at 31 December 2014, and more than 9,000 employees worldwide. Franklin Templeton in Australia In 1987, Franklin Templeton Investments Australia Limited opened to serve the Australian market. We currently represent Fixed Income, Equity and Real Asset Investments to both institutional and retail investors. With offices in Sydney and Melbourne, we provide our clients with local perspective and support. Unwavering Focus on Investment Excellence Since 1947, Franklin Templeton has remained focused on one goal: delivering exceptional investment management for our shareholders. Our portfolio managers take a long-term view, leveraging disciplined, time-tested strategies and assessing risk as vigorously as they seek reward. Global Perspective with Local Expertise Our global investing perspective is built on decades of experience navigating the world s local markets. A pioneer in international investing, we have developed an extensive network of research offices, trading platforms and investment professionals that spans the globe. Strength and Stability Franklin Templeton s conservative approach to investing has helped us thrive through the many ups and downs of market cycles over the past 65 years, and has resulted in strong long-term performance of our products and the enduring financial stability of our firm. A Valued Partner We strive to be a valued partner to financial advisers and their clients by providing superior service and a comprehensive array of products that can help them achieve their long-term financial goals. 12 Time to Take Stock franklintempleton.com.au

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16 Franklin Templeton Investments Australia Limited Level Collins Street Melbourne VIC 3000 Australia Level 30, Aurora Place 88 Phillip Street Sydney NSW 2000 Australia Freecall: Franklin Templeton Investments Australia Limited (ABN ) (Australian Financial Services Licence Holder No ) issues this publication for information purposes only and not investment or financial product advice. It expresses no views as to the suitability of the services or other matters described herein to the individual circumstances, objectives, financial situation or needs of any recipient. You should assess whether the information is appropriate for you and consider obtaining independent taxation, legal, financial or other professional advice before making an investment decision. A Product Disclosure Statement (PDS) for any Franklin Templeton funds referred to in this document is available from Franklin Templeton at Level 19, 101 Collins Street, Melbourne, Victoria, 3000 or or by calling The PDS should be considered before making an investment decision Franklin Templeton Investments. All rights reserved. You may only reproduce, circulate and use this document (or any part of it) with the consent of Franklin Templeton Investments. TSAU B 03/15