VALUE BLEND GROWTH SECTOR GLOBAL INTERNATIONAL HYBRID ...

“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

Not FDIC Insured | May Lose Value | No Bank Guarantee

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, trillions
of dollars remain 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

There are many positive developments in the U.S. and around the globe that may surprise you.

4] Taking the Next Step

Review simple strategies for getting back into the stock market, at your own pace, with your
financial advisor using Franklin Templeton funds.

1. Source: Money Market Accounts and CDs (Time Deposits at FDIC-insured commercial banks & savings institutions): FDIC. As of 3/31/15 (most recent data available).

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1] The Investor’s Dilemma

Market volatility may have led many investors to flee the stock market into fixed-income investments
such as money market accounts, CDs and Treasuries. The historically low Fed Funds rate, 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 college, retirement and so on—may still
require capital growth.

THE $10,000 TRUTH

As of June 30, 2015, if you invested $10,000 in a money market account, a one-year CD or 10-year
Treasuries for one year, you would earn enough to buy the items in the chart below. Factor in inflation
and taxes and these meager yields look even worse.

After One Year, a $10,000 Investment Would Have Grown By2
Yields as of June 30, 2015

2.36%

0.02% Cup of 0.09% Movie Trip to the
Coffee One-Year CDs Ticket Grocery Store
10-Year Treasuries
Money Market Accounts

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.

It’s important to note that money market accounts and CDs are insured by the Federal Deposit Insurance Corporation (FDIC) for up to $250,000
and CDs offer a fixed rate of return.

Treasuries, if held to maturity, offer a fixed rate of return and fixed principal value; their interest payments and principal are guaranteed. Fund
investment returns and share prices will fluctuate with market conditions, and investors may have a gain or a loss when they sell their shares.

2. Sources: Money Market Accounts and One-Year CDs: BanxQuote. © 2015 BanxCorp. 10-Year Treasuries: The Federal Reserve H.15 Report.

2 Time to Take Stock franklintempleton.com

2] How We Got Here

WE’RE ONLY HUMAN
The field of behavioral finance examines the psychological and behavioral variables that can come
in to 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 financial crisis.

POST-CRISIS PESSIMISM TAKES TIME TO FADE

Evidence that post-crisis pessimism started to fade has only become
apparent more recently, as shown below by the positive flows into
equity funds since 2013.

Net Flows into Equity Funds3 $160 Billion
As of June 30, 2015

$25 Billion $18 Billion “The investor’s chief
problem—and even
2008 2009 2010 2011 2012 his worst enemy—is
likely to be himself.”
-$2 Billion 2013 2014 2015
-$24 Billion (YTD) —BENJAMIN GRAHAM

-$129 Billion
-$153 Billion

-$229 Billion

3. Source: Investment Company Institute, Washington, DC, 2014, as of June 30, 2015. Time to Take Stock 3
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THE DISCONNECT BETWEEN PERCEPTION AND REALITY

Each year since 2009, Franklin Templeton has conducted a survey to gauge investor sentiment and
asked Americans how the stock market finished at the end of the previous year. The percentage of
respondents for each survey who answered that the stock market was down or flat is shown below.

PERCEPTION— What Investors Believe Happened

Percentage of Survey Respondents Who Said the Stock Market Was Down or Flat4

66% 49% 70% 31% 16% 13%

2009 2010 2011 2012 2013 2014

REALITY— How the Market Performed
Up until 2013, investors took money out of equity funds at a rapid pace, in part due to the belief
that the stock market was performing poorly. But was it? As shown in the chart below, while U.S.
stocks experienced a severe downturn in 2008, the next six years were positive, indicating
a misperception by some about the stock market’s performance.

S&P 500 Index Annual Returns5

26.5% 32.4%
2013
15.1% 16.0% 13.7%
2012 2014
2008 2009 2010 2.1%
2011

-37.0%
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 (2010–2015), designed in partnership with ORC International (2010, 2011, 2013, 2014 and 2015), Dan Ariely and Qualtrics (2012). Each survey
included over 500 U.S. adult respondents.

5. Source: © 2015 Morningstar. See www.franklintempletondataresources.com for additional data provider information. Indexes are unmanaged and one cannot invest directly in an index.

4 Time to Take Stock franklintempleton.com

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 $6.56 trillion
currently sitting in cash equivalents is evidence of this behavior.6

However, this perceived safety may come at a cost. The chart below shows that over the past
10 years, average money market account yields on an after-inflation basis were only positive for
a total of 17 months. And the “positive” yields in 2009 and recently were largely due to periods
of deflation.

Money Market Accounts’ Average Yield Before and After Inflation7
10-Year Period Ended June 30, 2015

2%

0.02%

0%

-0.18%

-2% In ation-Adjusted

-4%

-6%

2005 2007 2009 2011 2013 2015

This chart is for illustrative purposes only and does not reflect the performance of any Franklin Templeton fund.
It’s important to note that money market accounts are insured by the Federal Deposit Insurance Corporation
(FDIC) for up to $250,000.

The Big Bite of Inflation. If you held your money in cash, it would
take 26 years to cut its purchasing power in half (based on the
30-year average inflation rate as of June 30, 2015).8

6. Source: Money Market Accounts and CDs (Time Deposits at FDIC-insured commercial banks and savings institutions): FDIC. As of 3/31/15 (most recent data available).
7. Sources: BanxQuote and U.S. Bureau of Labor Statistics. Inflation is represented by year-over-year changes of the Consumer Price Index (CPI) plotted on a monthly basis.
8. Source: U.S. Bureau of Labor Statistics. Based on the 30-year average inflation rate of 2.69% as represented by the Consumer Price Index (CPI) as of June 30, 2015.

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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 December 31, 2014, was higher than the average
equity investor’s return.

Investor Returns vs. Market Returns
20-Year Period Ended December 31, 201410

9.9%

5.2% “To buy when others
are despondently
S&P 500 Index Average Equity selling and to sell
Investor’s Annualized Return when others are
buying requires the
This chart is for illustrative purposes only and does not reflect the performance of any greatest fortitude
Franklin Templeton fund. Past performance does not guarantee future results. and pays the greatest
ultimate rewards.”

—SIR JOHN TEMPLETON

10. Sources: Morningstar; “Quantitive Analysis of Investor Behavior, 2014”, DALBAR, Inc. (most recent data available). Indexes are unmanaged and one cannot invest directly in an index.

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...ABOUT THE GLOBAL ECONOMY THE WORLD’S

World Exports MIDDLE CLASS
IS PROJECTED
Total Growth (1984–2014)14
TO REACH
$23.6 Trillion
3.8 BILLION
$24T
BY THE YEAR 202515
$12T $2.2 Trillion

$0 1994 2004 2014
1984

...ABOUT STOCKS

S&P 500 INDEX Corporate Cash Near All-Time High

COMPANIES’ DIVIDEND S&P 500 Index Companies' Total Cash as a Percentage of Total Assets

PAYOUT POTENTIAL 15.00
APPEARS STRONG.
28.04 13.8%
CURRENT PAYOUT
12/31/99 June 30, 2015
RATIO (42% AS OF 6/30/15)
10.00 10.0%
IS WELL BELOW THE
Average
30-YEAR AVERAGE (51%).16
5.00

0.00

1977 1984 1992 1999 2007 2015

© 2015 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved.
See NDR Disclaimer at www.ndr.com/copyright.html. For data vendor disclaimers refer to www.ndr.com/vendorinfo/.

14. Source: World Bank, as of 12/31/14. Most recent data available. 16. Source: Compustat via FactSet. © 2015 FactSet Research Systems Inc. All rights reserved. See
www.franklintempletondataresources.com for additional data provider information. Past performance
15. Middle Class Data: Homi Kharas, Brookings Institution, 2012; Population Data: World Bank: Health is no guarantee of future results. Indexes are unmanaged, and one cannot invest directly in an index.
Nutrition and Population Statistics: Population estimates and projections. There is no assurance that
any projection, estimate or forecast will be released.

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