Unconstrained Fixed Income Product Profile Product Details Fund Assets $139,695,848.77 Fund Inception Date 30/10/2007 Number of Securities 113 Including Cash Base Currency AUD Investment Style Unconstrained Overview 1 The Fund utilises a high alpha-seeking global strategy that uses a research-driven, valuebased approach that seeks to capitalise on global interest rates, currency and sovereign credit trends. Primary focus includes government and government-related issuance with a 25% limit on below investment-grade exposure. Seek to maintain a portfolio risk profile commensurate with the volatility of the benchmark (6% to 9% standard deviation annually under normal market conditions). The Fund is hedged into AUD against movement in the value of the U.S. dollar. Performance Data Average Annual Total Returns (Institutional, AUD %) 2 Since Inception 3 Mths YTD 1 Yr 3 Yrs 5 Yrs 10 Yrs (30/10/2007) Templeton Global 1.73 1.73 0.62 2.09 2.70 7.64 8.15 Bond Plus Fund - Gross of Fees Institutional Templeton Global 1.59 1.59 0.07 1.53 2.13 7.06 7.55 Bond Plus Fund - Net of Fees Institutional JP Morgan Global 0.45 0.45 2.99 3.01 4.68 6.60 6.86 Government Bond (Hedged into AUD) Operationally 2.21 2.21 8.05 4.35 2.86 4.65 5.71 Hedged JP Morgan GGBI (USD Returns Translated into AUD) Average Annual Total Returns (Wholesale, AUD %) 3 3 Mths YTD 1 Yr 3 Yrs 5 Yrs Since Inception (24/09/2009) Templeton Global 1.73 1.73 0.62 2.09 2.69 7.16 Bond Plus Fund - Gross of Fees Wholesale Templeton Global 1.52 1.52-0.21 1.25 6.20 Bond Plus Fund - Net of Fees Wholesale JP Morgan Global 0.45 0.45 2.99 3.01 4.68 6.29 Government Bond (Hedged into AUD) Operationally Hedged JP Morgan GGBI (USD Returns Translated into AUD) 2.21 2.21 8.05 4.35 2.86 4.42 1. There is no assurance that the fund will achieve its investment objectives. The fund is managed in a benchmarkunconstrained manner, so the expected risk and return profile is provided solely to illustrate the manager s expectations with respect to fund characteristics, based on the fund s historical experience during normal market conditions. Past performance is not an indicator or a guarantee of future performance. Thus, the characteristics do not take into account future market risks or changing economic conditions and are not a prediction or guarantee of future performance. An investor in the fund may experience significantly different risk and return characteristics including greater volatility, higher tracking error and lower returns than the expected characteristics, including the potential for loss of principal amounts invested. Risk and return characteristics do not take into account management fees or other expenses an investor would incur in the management of its account, which would reduce any returns and affect the risk characteristic measurements. 2,3. Periods of more than one year are annualised. Past performance is not an indicator or a guarantee of future performance.
10% 5% 0% -5% 1.73 1.52 2.21 1.73 1.52 2.21 0.45 0.45 0.62-0.21 8.05 7.16 6.20 6.29 4.35 4.68 4.42 2.99 2.09 3.01 2.69 2.86 1.25 3 Mths YTD 1 Yr 3 Yrs 5 Yrs Since Inception Templeton Global Bond Plus Fund - Gross of Fees Wholesale Templeton Global Bond Plus Fund - Net of Fees Wholesale JP Morgan Global Government Bond (Hedged into AUD) Operationally Hedged JP Morgan GGBI (USD Returns Translated into AUD) Calendar Year Returns (Wholesale, AUD %) Templeton Global Bond Plus Fund - Gross of Fees Wholesale Templeton Global Bond Plus Fund - Net of Fees Wholesale JP Morgan Global Government Bond (Hedged into AUD) Operationally Hedged JP Morgan GGBI (USD Returns Translated into AUD) 2017 2016 2015 2014 2013 2012 2011 2010 3.31 5.03-2.53 5.27 3.39 18.46 4.30 19.67 2.46 4.17-3.34 4.41 2.55 17.51 3.14 18.36 2.86 4.93 3.63 11.25 1.96 8.02 11.17 8.81 7.49 2.81-0.63 2.92-2.49 4.84 11.62 10.23 Portfolio Manager Insight Market Review During the first quarter, the US Federal Reserve (Fed) raised the federal funds target rate 25 basis points (bps) to a range of 1.50% to 1.75% at its March meeting and remained on course for two more rate hikes in 2018. In Europe, 10-year sovereign bond yields moderately declined in Germany while short-term yields remained negative. The euro strengthened against the US dollar during the quarter; however, we continue to expect the euro to weaken on widening rate differentials between the rising yields in the US and the low to negative yields in the eurozone. On the whole, we expect select currencies to appreciate over the medium term, particularly in countries with economic resilience and relatively higher, maintainable rate differentials. Performance Review In the first quarter of 2018, the portfolio s positive absolute performance was primarily attributable to interest-rate strategies. Sovereign credit exposures and currency positions had largely neutral effects on absolute results. The portfolio maintained a defensive approach regarding interest rates in developed markets, while holding duration exposures in select emerging markets. Select duration exposures in multiple regions contributed to absolute performance. Amongst currencies, positions in Latin America (the Mexican peso) contributed to absolute results. However, the portfolio s net-negative positions in the Japanese yen and the euro detracted from absolute performance. Outlook & Strategy Overall, we expect US Treasury (UST) yields to rise and US dollar weakness to reverse as the Fed tightens policy while US inflation pressures pick up. We expect the current glide path of expected monetary policy (i.e., three rate hikes in 2018 and balance sheet unwinding) to remain largely unchanged this year. Outside of the developed markets, we continue to see a subset of countries with domestically strong economies that have demonstrated their resilience to global shocks. In the major developed economies, we anticipate continued monetary accommodation and low rates in Japan and the eurozone while rates rise in the US. Overall, we continue to maintain low portfolio duration while aiming at a negative correlation with UST returns. franklintempleton.com.au 2
Portfolio Characteristics 4,5 JP Morgan Global Govt. Bond Portfolio (hedged in AUD) Number of Securities Including Cash 113 872 Yield to Maturity 6.84% 1.36% Average Duration -0.76 Yrs 8.00 Yrs Average Credit Quality A- AA Average Weighted Maturity 2.64 Yrs 9.96 Yrs Portfolio Diversification Geographic Allocation 6 NON-US 37.92 37.65 Geographic Weightings vs. JP Morgan Global Govt. Bond (hedged in AUD) 6 NON-US -2.32 36.30 Mexico Mexico Brazil 8.90 Brazil 8.90 Argentina 4.33 Argentina 4.33 Colombia USA 0.27 Colombia USA -38.62 11.36 33.24 EX-JAPAN 31.60 South Korea 14.76 South Korea 14.76 Indonesia Indonesia Thailand MIDDLE-EAST/AFRICA Thailand MIDDLE-EAST/AFRICA -36.65 1.24 NON-EMU -7.02 ST CASH & CASH EQUIVALENTS 26.87 Ukraine 1.24 OTHER -1.10-10% 0% 10% 20% 30% 40% 50% ST CASH & CASH EQUIVALENTS 26.87 OTHER -1.10-50% -25% 0% 25% 50% 5. The average credit quality (ACQ) rating may change over time. The portfolio itself has not been rated by an independent rating agency. The letter rating, which may be based on bond ratings from different agencies (or internal ratings for unrated bonds, cash and equivalents), is provided to indicate the average credit rating of the portfolio s underlying investments and generally ranges from AAA (highest) to D (lowest). For unrated bonds, cash and equivalents, ratings may be assigned based on the ratings of the issuer, the ratings of the underlying holdings of a pooled investment vehicle, or other relevant factors. The ACQ is determined by assigning a sequential integer to all credit ratings AAA to D, taking a simple, asset-weighted average of investments by market value and rounding to the nearest rating. The risk of default increases as a bond s rating decreases, so the ACQ provided is not a statistical measurement of the portfolio s default risk because a simple, weighted average does not measure the increasing level of risk from lower-rated bonds. The ACQ may be lower if cash and equivalents are excluded from the calculation. The ACQ is provided for informational purposes only. Derivative positions are not reflected in the ACQ. franklintempleton.com.au 3
Currency Allocation 6 US-DOLLAR NON US-DOLLAR Mexican Peso Brazilian Real Argentine Peso Colombian Peso MIDEAST/AFRICA EX-JAPAN Indonesian Rupiah Indian Rupee Thai Baht South Korean Won Australian Dollar JAPANESE YEN -32.17-37.51-60% -40% Credit Quality Ratings 7 AA A- BBB+ BBB BBB- BB- B B- NR 8 Cash & Cash Equivalents -13.76 0.06-9.42-20% 11.84 4.35 18.41 9.27 0.08 0% 20% 40% 60% 80% 4.12 4.29 3.10 9.01 9.53 8.93 40.62 14.82 108.81 20.39 149.43 100% 120% 140% 160% 180% 25.76 0% 5% 10% 15% 20% 25% 30% Currency Weightings vs. JP Morgan Global Govt. Bond (hedged in AUD) 6 US-DOLLAR NON US-DOLLAR Mexican Peso Brazilian Real Argentine Peso Colombian Peso MIDEAST/AFRICA EX-JAPAN Indonesian Rupiah Indian Rupee Thai Baht South Korean Won Australian Dollar JAPANESE YEN -113.76-81.59-109.42-32.17-37.51-150% -125% -100% -75% -50% -25% 0% 25% 50% 75% 40.62 11.84 4.35 9.27 0.08 108.81 149.43 100% 125% 150% 175% 200% Investment Grade Non-Investment Grade Cash & Cash Equivalents 7. Ratings shown are assigned by one or more Nationally Recognized Statistical Rating Organizations ( NRSRO ), such as Standard & Poor s, Moody s and Fitch. The ratings are an indication of an issuer s creditworthiness and typically range from AAA or Aaa (highest) to D (lowest). When ratings from all three agencies are available, the middle rating is used; when two are available, the lowest rating is used; and when only one is available, that rating is used. Foreign government bonds without a specific rating are assigned the country rating provided by an NRSRO, if available. If listed, the NR category consists of rateable securities that have not been rated by an NRSRO. The N/A category consists of nonrateable securities (e.g., equities). Cash includes equivalents, which may be rated. Derivatives are excluded from this breakdown. Information is historical and may not reflect current or future portfolio characteristics. All holdings are subject to change. 8. The NR category includes securities that are not rated and securities not covered by a ratings agency. The N/A category may encompass negative cash, net currency forwards, and negative derivative (market value). franklintempleton.com.au 4
Supplemental Performance Statistics Supplemental Performance Statistics (AUD) 9 3 Yrs 5 Yrs Since Inception Standard Deviation (%) Templeton Global Bond Plus Fund 6.06 5.85 7.48 JP Morgan Global Government Bond (Hedged into AUD) 3.16 3.22 - Tracking Error (%) 7.31 6.65 - Information Ratio 10-0.24-0.43-0.02 Sharpe Ratio Templeton Global Bond Plus Fund -0.29-0.25 0.29 JP Morgan Global Government Bond (Hedged into AUD) 0.14 0.50 - Investment Philosophy We believe that applying our bottom-up, research-driven approach focused on identifying potential sources of high current income worldwide and seeking to capitalise on global interest rates and currency trends provides the best potential for strong risk-adjusted returns. This is a high alphaseeking global strategy that may include allocations to both developed and emerging markets; however, below investment-grade exposure is typically limited to not more than 25% of total assets. Investment Process In-Depth Macroeconomic Fundamental Research and Analysis: Conduct independent analysis of countries, interest rates, and exchange rates using proprietary models and research. Research analysts specialise by geographic region and conduct frequent discussions with key local decision makers. The team s research drives country weightings in addition to target ranges for duration, currency, and cash. Long-Term Focused: Maintain a 12- to 18-month outlook. Portfolio Construction: Build diversified portfolios seeking the most attractive risk-return profile utilising yield curve and horizon analysis. Disciplined Approach: Adhere to long-term strategy through changing market environments, supported by analysis and monitoring from Franklin s internal risk management group. Multiple Research Lenses Can Lead to High-Conviction Opportunities 11,12 Global Research Lenses Macro Models/Analysis Three Potential Sources of Alpha Yield Curve Ideas Portfolio Construction and Implementation Risk Modelling VaR Analysis Correlation Analysis Scenario/Stress Testing In-Depth Country Analysis Currency Ideas Identification of High-Conviction Opportunities Management Team Potential Return vs. Expected Risk Global Allocations P O R T F O L I O Local Asset Management Perspective Review Sovereign Credit Ideas Review Trading Trade Structuring Market Flows Local Execution/Settlement Liquidity Analysis Review/ Performance Attribution 11. The above chart is for illustrative and discussion purposes only. The way we implement our main investment strategies and the resulting portfolio holdings may change depending on factors such as market and economic conditions. 12. The Local Asset Management Group is comprised of investment professionals located in affiliates of and joint venture partners with Franklin Templeton Investments. Investment Team Portfolio Manager Years with Firm Years Experience Michael Hasenstab, Ph. D., Executive VP & Chief Investment Officer 19 23 Sonal Desai, Ph. D., Senior VP, Portfolio Manager, Director of 8 24 Research Additional Resources Global Sovereign/EMD Local Asset Management 9. Information Ratio and Tracking Error information are displayed for the product versus the JP Morgan Global Government Bond (Hedged into AUD). franklintempleton.com.au 5
Important Legal Information Franklin (the firm ) encompasses the equity, fixed income and balanced accounts managed by Franklin Advisers, Inc., and related Franklin affiliates, including, effective 1 January 2007, the equity accounts managed by the institutional investment teams of Franklin Templeton Institutional, LLC under the former firm name of Fiduciary Global Advisors. The combined equity assets of Franklin and Fiduciary Global Advisors form the Franklin Equity Group (formerly Franklin Global Advisers prior to 30 June 2010) unit of Franklin. Effective 1 January 2006, the fixed income assets managed from that date forward by Franklin Templeton Institutional, LLC ( FTI ) or its related affiliates (managed previously by Fiduciary Trust Company International - Institutional Division or FTCI s Institutional Division ) that went through the institutional portfolio review process were combined with the fixed income assets of Franklin to form the Franklin Templeton Fixed Income unit of Franklin. The primary reason for these changes to the firm definition was to consolidate equity and fixed income asset management for Franklin (as previously defined), Fiduciary Global Advisors (institutional equities) and FTCI s Institutional Division (institutional fixed income) under one firm, Franklin. The firm definition for Franklin does not include multistrategy asset allocation portfolios managed by Franklin Templeton Multi-Asset Solutions (FTMAS), which was previously known as Franklin Templeton Solutions as well as Franklin Templeton Multi-Asset Strategies and the wrap-fee and non-wrap-fee accounts managed by Franklin Separately Managed Accounts (formerly Franklin Portfolio Advisors) or Franklin Europe which integrated into the Templeton firm definition effective 1 December 2017. Templeton Global Bond Plus Fund consists of all portfolios managed on a fully discretionary basis with an investment objective that seeks to achieve above average total return by investing principally in a portfolio of fixed or floating rate debt securities and debt obligations issued by government or government-related entities worldwide. The strategy may also purchase debt obligations issued by supranational entities organised or supported by several national governments, such as the International Bank for Reconstruction and Development or the European Investment Bank. The strategy may invest a portion in below investment grade bonds (rated below BBB-). The strategy may also utilise financial derivative instruments dealt in either regulated or over-the-counter markets for investment purposes. These financial derivative instruments which are used on a less frequent basis may include, inter alia, swaps (such as credit default swaps or total return swaps), forwards and cross forwards, futures contracts (including those on government securities), as well as options. The strategy regularly takes tactical exposure to various foreign currencies, including through the frequent use of foreign currency forward contracts and cross forwards, and, to a lesser degree, futures contracts and currency options. Total returns are presented in Australian dollars both gross and net of investment advisory fees, are inclusive of commissions and transaction costs, and assume reinvestment of any dividends, interest income, capital gains, or other earnings. Periods greater than one year are shown as average annual total returns. Performance data is shown rounded to the nearest hundredth. Past performance is not an indicator or a guarantee of future performance. The JP Morgan Global Government Bond is a market value weighted fixed income index comprised of government bonds in developed countries. The benchmark is used for comparative purposes only and is provided to represent the investment environment existing during the time periods shown. es are unmanaged, and one cannot invest directly in an index. They do not reflect any fees, expenses or sales charges. CFA and Chartered Financial Analyst are trademarks owned by CFA Institute. Important data provider notices and terms available at www.franklintempletondatasources.com. 4. Yield to Maturity, Average Duration and Average Weighted Maturity reflect certain derivatives held in Portfolio (or their underlying reference assets). 6. Figures reflect certain derivatives held in the portfolio (or their underlying reference assets) and may not total 100% or may be negative due to rounding, use of derivatives, unsettled trades or other factors. Information is historical and may not reflect current or future portfolio characteristics. All holdings are subject to change. 10. 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). This document is intended to be of general interest only, and does not constitute legal or tax advice nor is it an offer of any investment fund or service. Nothing in this document should be construed as investment advice. Investments entail risks, the value of investments can go down as well as up and investors should be aware that they might not get back the full value invested. Franklin Templeton Investments shall not be liable to any user of this document or to any other person or entity for the inaccuracy of information contained in this document or for any errors or omissions in its contents, regardless of the cause of such inaccuracy, error or omission. 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. Issuance of this document may be restricted in certain jurisdictions. This document does not constitute the issuance of any information or the making of any offer or solicitation by anyone in any jurisdiction in which such issuance or offer is not authorised or to any person to whom it is unlawful to issue such a document or make such an offer or solicitation. Australia: Issued by Franklin Templeton Investments Australia Limited (ABN 87 006 972 247) (Australian Financial Services License Holder No. 225328) to persons who are wholesale investors within the meaning of the Corporations Act 2001 (Cwlth) and/or to whom this document may otherwise lawfully be communicated to give preliminary information about the investment propositions described herein. 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Franklin Templeton Investments Australia Limited Level 19 Level 30, Aurora Place 101 Collins Street 88 Phillip Street Melbourne Vic 3000 Sydney NSW 2000 1800 673 776 1800 673 776 franklintempleton.com.au For Wholesale Clients and Sophisticated Investor Use Only. Not for Distribution to Retail Investors. 2018 Franklin Templeton Investments. All rights reserved.