Product Profile Product Details 1,2 Fund Assets $1,033,530,863.57 Fund Inception Date 11/24/2000 Number of Issuers 64 Base Currency Morningstar Category Distribution Frequency CAD US Equity Annually Inception Date Series F 12/01/1984 Fund Codes 3 Series CAD USD Series F TML231 TML841 Series F ADM TML5016 TML5039 Series PF TML3909 TML3910 Series PF ADM TML5084 TML5110 Series PF (Hedged) ADM TML5131 Series PFT TML3911 Series PFT ADM TML5128 Corporate Class CAD USD Series F TML2049 TML2054 Series PF TML3742 TML3743 Beginning in January 2017, investors switching between Corporate Class funds will trigger a capital gain or loss at the time of the switch due to certain changes in the income tax laws made by the federal government in 2016. Fund Description The fund seeks long-term capital appreciation by investing primarily in American equities, with at least 80% of net assets in companies that have paid consistently rising dividends. Performance Data 4 Average Annual Total Returns 5 (%) Since Inception 3 Mths YTD 1 Yr 3 Yrs 5 Yrs 10 Yrs 20 Yrs (12/01/1984) Series F 5.25 4.95 13.37 11.34 14.88 11.49 3.50 7.33 Management Expense Ratio (as of 12/31/2017 incl. HST) 1.40% The indicated rates of return are the historical annual compounded total returns including changes in share or unit value and reinvestment of all distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any security holder that would have reduced returns. Please call Franklin Templeton Client Services at 1.800.387.0830 or visit www.franklintempleton.ca for the most recent month-end performance. 30% 20% 10% 0% Series F 5.25 4.95 13.37 11.34 3 Mths YTD 1 Yr 3 Yrs 5 Yrs 10 Yrs 20 Yrs Since Inception Calendar Year Returns (%) 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 Series F 11.63 10.48 13.68 18.09 37.71 6.74 7.49 11.38-0.01-10.20 14.88 11.49 3.50 7.33 Portfolio Manager Insight 6 Market Review The S&P 500 Index and other major US market indices rose in the second quarter, supported by robust corporate earnings and generally favourable economic data. A solid trend of upward earnings revisions amongst key domestic companies, following one of the best quarterly earnings seasons in years, was led by information technology companies. However, investors also contended with an increase in volatility, due in part to an escalation of trade-related rhetoric and tariffs imposed by the United States and its trade partners, particularly China. Rising interest rates and signs of softer economic growth in Europe and parts of Asia also tempered investor sentiment. Seven of the 11 major equity sectors within the S&P 500 Index rose, led by energy, consumer discretionary, information technology and real estate. The industrials, financials, consumer staples and telecommunication services sectors declined. 1. Series F is available to investors participating in programs that do not require Franklin Templeton to incur distribution costs in the form of trailing commissions to dealers. As a consequence, the management fee on Series F is lower than on Series A. 2. All holdings are subject to change. Holdings of the same issuers have been combined. 3. ADM refers to the Investment Advisory Services Fee purchase option for series F,FT, PF, PF(Hedged), and PFT. Please see the simplified prospectus for further details. 4. The fund offers other series subject to different fees and expenses, which will affect their performance. 5. Periods shorter than one year are shown as cumulative total returns. 6. 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.
Second-quarter US economic growth may have been the strongest quarter of the post-financial crisis expansion, according to several closely watched economic models. Spending by consumers, businesses and the government gained momentum. The Institute for Supply Management s manufacturing and non-manufacturing purchasing managers indexes pointed to solid activity, though some underlying data during the period showed a potentially mild deceleration in factory activity. The US unemployment rate fell to an 18-year low and consumer confidence levels hit 18-year highs, both of which likely contributed to stronger-than-expected retail sales. At the same time, inflation moved a little higher. Amidst this backdrop, the US Federal Reserve lifted its target range for the federal funds rate in June, marking the second such rate increase this year. Outlook & Strategy The US economy appears to have bounced back from a slow start to 2018. From our perspective, corporate and economic conditions in the United States remain positive catalysts for companies with a track record of growing their dividend. The question at this point in time is whether the US and broader global economy will settle in a sustainable pace of solid economic growth or if heightened political risks derail a promising future. If companies and consumers are allowed to carry on without disruption, we believe a virtuous cycle that extends the current economic expansion could emerge. A reduction in the US corporate tax rate, a tax break on repatriated overseas corporate earnings and other business-friendly provisions are stimulating additional capital investment, as well as boosting corporate profitability and returns to shareholders through dividend increases and share repurchases. Increased levels of capital investment can lift worker productivity over time, and early indications of improved productivity may be starting to emerge, in our assessment. As of period end, we view the economic and corporate backdrop as positive for equity markets, particularly for dividend growth stocks. Value stocks, a category that captures most dividend growers, have historically fared better when US economic growth is running at a solid yet sustainable pace, such as it has been. While growth stocks as a category have continued to perform well, the gains have been largely driven by just a few high-profile companies in the information technology and consumer discretionary sectors. We acknowledge that escalating trade tensions are a serious risk at this time. We still believe the most likely outcome will be eventual adjustments to current trade agreements without a major trade war. However, even a further ratcheting up of rhetoric and tariffs could interrupt global supply chains, curtail business investment, reduce corporate profit growth and spark more bouts of market volatility. We are closely watching events and will make adjustments based on any changes from our bottom-up fundamental analysis of individual companies. No matter the current financial market and economic climate, we firmly believe companies with consistently rising dividends should, over time, have the potential to realise stock price appreciation. We select portfolio securities based on several criteria: We seek fundamentally sound (e.g., low debt) companies that meet our standards for dividend growth consistency and magnitude, and we attempt to acquire them at what we believe are attractive prices. Portfolio Characteristics 7 Portfolio S&P 500 Index Price to Earnings (12 Month Trailing) 28.93x 22.66x Price to Book Value 3.67x 3.27x Price to Cash Flow 17.08x 12.96x Market Capitalization (Millions in CAD) 150,119 285,565 Portfolio Diversification Top Ten Holdings 8 Top Holdings Sector % MICROSOFT CORP Software & Services 5.30 ROPER TECHNOLOGIES INC Capital Goods 5.02 BECTON DICKINSON AND CO Health Care Equipment & Services 3.68 ALBEMARLE CORP Materials 3.68 ACCENTURE PLC Software & Services 3.57 STRYKER CORP Health Care Equipment & Services 3.54 TEXAS INSTRUMENTS INC Semiconductors & Semiconductor Equipment 3.46 HONEYWELL INTERNATIONAL INC Capital Goods 3.43 PRAXAIR INC Materials 3.17 ANALOG DEVICES INC Semiconductors & Semiconductor Equipment 3.10 7. The portfolio characteristics listed are based on the fund s underlying holdings, and do not necessarily reflect the fund s characteristics. Information is historical and may not reflect current or future portfolio characteristics. All holdings are subject to change. 8. 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 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. franklintempleton.ca 2
Sector Weightings vs. S&P 500 Index 9 Industrials Health Care Information Technology Materials Consumer Discretionary Consumer Staples Energy Financials Real Estate Telecommunication Services Utilities Cash & Cash Equivalents 2.60 2.23 2.86 1.99 2.95 0.85 9.51 1 9.23 6.96 7.26 6.34 11.05 19.17 14.07 16.45 12.92 13.84 23.77 25.96 0% 5% 10% 15% 20% 25% 30% Asset Allocation 10 Equity Cash & Cash Equivalents 0.85 99.15 0% 20% 40% 60% 80% 100% 120% Franklin U.S. Rising Dividends Fund S&P 500 Index (%) Financials 0.84 Health Care 0.11 Energy 0.10 Telecommunication Services 0.08 Consumer Discretionary 0.06 Contributors/detractors data shown is for the period from 04/01/2018 to 06/30/2018. (%) Industrials -0.63 Information Technology -0.33 Consumer Staples -0.09 Real Estate -0.06 Supplemental Performance Statistics 3 Yrs 5 Yrs 10 Yrs Since Inception Standard Deviation (%) 10.41 9.73 10.44 13.36 Tracking Error (%) 3.09 2.77 4.18 7.81 Information Ratio -0.81-1.34-0.36-0.50 Beta 0.91 0.93 0.86 0.83 Sharpe Ratio 1.03 1.45 1.02 0.21 The indicated rates of return are the historical annual compounded total returns including changes in share or unit value and reinvestment of all distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any security holder that would have reduced returns. Please call Franklin Templeton Client Services at 1.800.387.0830 or visit www.franklintempleton.ca for the most recent month-end performance. 9,10. 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. 11,12. Past performance is not an indicator or a guarantee of future performance. Information is historical and may not reflect current or future portfolio characteristics. All holdings are subject to change. Source: FactSet. Important data provider notices and terms available at www.franklintempletondatasources.com. Total Effect represents the excess return by sector as compared to the index. Performance attribution is calculated in the base currency of the fund. 13. Beta, Information Ratio and Tracking Error information are measured against the S&P 500 Index. 14. 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). franklintempleton.ca 3
Investment Philosophy and Process Investment Criteria The Fund Invests Primarily in Companies that Have: The Successful Rising Dividends Pattern Consistent dividend increases At least 8 out of 10 years No dividend decreases during that time Substantial dividend increases At least double over last 10 years Reinvested earnings Paid out less than 65% of current earnings in dividends Strong balance sheets Long-term debt less than 50% of total capitalization Investment-grade senior debt Attractive prices Prices at the time of purchase either in the lower half of the stock s Price/Earnings ratio range for the past 10 years or less than the average current market Price/Earnings ratio of the stocks comprising the Standard & Poor s 500 Stock Index Investment Team Portfolio Manager Years with Firm Years Experience Donald Taylor, CIO Rising Dividends Strategies 22 36 Nicholas Getaz, CFA, Portfolio Manager/Research Analyst 7 17 Glossary Beta: A measure of the magnitude of a portfolio s past share-price fluctuations in relation to the ups and downs of the overall market (or appropriate market index). The market (or index) is assigned a beta of 1.00, so a portfolio with a beta of 1.20 would have seen its share price rise or fall by 12% when the overall market rose or fell by 10%. Information Ratio: In investing terminology, the ratio of expected return to risk. Usually, this statistical technique is used to measure a manager s performance against a benchmark. This measure explicitly relates the degree by which an investment has beaten the benchmark to the consistency by which the investment has beaten the benchmark. Market Capitalisation: A determination of a company s value, calculated by multiplying the total number of company stock shares outstanding by the price per share. Market capitalisation is expressed in millions of CAD. Price to Book Value: The price per share of a stock divided by its book value (i.e., net worth) per share. For a portfolio, the value represents a weighted average of the stocks it holds. Price to Cash Flow: Supplements price/earnings ratio as a measure of relative value for a stock. For a portfolio, the value represents a weighted average of the stocks it holds. Price to Earnings (12-mo Trailing): The share price of a stock, divided by its per-share earnings over the past year. For a portfolio, the value represents a weighted average of the stocks it holds. Sharpe Ratio: To calculate a Sharpe ratio, an asset s excess returns (its return in excess of the return generated by risk-free assets such as Treasury bills) are divided by the asset s standard deviation. Standard Deviation: A measure of the degree to which returns vary from the average of its previous returns. The larger the standard deviation, the greater the likelihood (and risk) that performance will fluctuate from the average return. Tracking Error: Measure of the deviation of the return of a product compared to the return of a benchmark over a fixed period of time. Expressed as a percentage. The more passively the investment is managed, the smaller the tracking error. franklintempleton.ca 4
What Are The Risks? Important Legal Information CFA and Chartered Financial Analyst are trademarks owned by CFA Institute. Standard & Poor s, S&P and S&P 500 are registered trademarks of Standard & Poor s Financial Services LLC. S&P does not sponsor, endorse, sell or promote and S&P index-based product. Important data provider notices and terms available at: www.franklintempletondatasources.com Indexes are unmanaged, and one cannot invest directly in an index. They do not reflect any fees, expenses or sales charges. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus or fund facts document before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Franklin Templeton Investments Canada is a business name used by Franklin Templeton Investments Corp. Franklin Templeton Investments Canada 200 King Street West, Suite 1500 Toronto, ON M5H 3T4 Tel: 800.387.0830 Fax: 866.850.8241 franklintempleton.ca 2018 Franklin Templeton Investments. All rights reserved. 231 PPE 06/18