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FTIF - Franklin NextStep Funds MONTHLY PORTFOLIO UPDATE 30 September 2016 The Simple Way to Invest: Franklin NextStep Funds Simplicity All-in-one portfolios targeted to three levels of risk. Diversification
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FTIF - Franklin NextStep Funds MONTHLY PORTFOLIO UPDATE 30 September 2016 The Simple Way to Invest: Franklin NextStep Funds Simplicity All-in-one portfolios targeted to three levels of risk. Diversification A broad mix of funds invested across fund managers, asset classes and countries. Expertise Professionally managed to navigate the ups and downs of the market. Key Highlights Outlook & Strategy Franklin NextStep Stable, Balanced and Dynamic Growth Funds underperformed their benchmark indices in the third quarter of The funds underweight allocation to equities and exposure to cash weighed on relative performance to a notable extent. Other allocation effects were quite modest. Fund selection within equities was a contributor in all funds and within fixed income was a contributor for NextStep Stable Growth, whereas for NextStep Balanced and Dynamic Growth Funds it was a detractor. The funds off-benchmark cash positions reflect our cautious view of many financial assets amid what we viewed as expensive valuations, limited options for developed-market central banks and a pullback in global financial conditions. We adopted a favourable view of emerging-market equities and an unfavourable view of developed-market equities. This view reflects our comparative analysis of economic trends, flexibility in monetary policy, corporate fundamentals and valuations. Low yields for non-us, developed-market government bonds offered little value potential, in our assessment. Instead, US inflation-protected assets remained attractive to us. From our perspective, the US Treasury market has been excessively pricing in sluggish growth and a conservative path of interestrate hikes in the medium term. Therefore, we view valuations for US Treasury Inflation-Protected Securities as attractive. At period-end, we held a neutral view of corporate bonds and alternatives. We held a modestly negative view of equities and a favourable view of cash. Fund selection in equity strengthened relative results, particularly in non-asian emerging markets. Comgest Growth Emerging Markets Fund contributed to performance generally, whereas exposure to Stewart Investors Asia Pacific Leaders Fund was a drag on returns in the Pacific ex Japan region. Performance in US equity was mixed, with Franklin U.S. Equity Fund boosting relative returns, while Delaware Investments U.S. Large Cap Value Fund hindered results. Sovereign bond funds were prominent amongst the holdings that hurt relative performance, including ishares 7-10 Year Treasury Bond ETF and ishares Global Government Bond ETF. On a fund basis, Templeton Asian Bond Fund detracted from relative performance, whereas Standard Life Investments European Corporate Bond Fund boosted performance, most notably for NextStep Stable Growth. During September, all funds outperformed their benchmark indices. Fund selection in Pacific ex Japan was the main contributor to relative results, as Templeton Asian Smaller Companies Fund, amongst others, performed well. Three Portfolios Aligned to Relative Risk/Return Levels Franklin NextStep Stable Growth Fund Franklin NextStep Balanced Growth Fund Franklin NextStep Dynamic Growth Fund For investors seeking to reduce market volatility or who have a shorter time period to invest. For investors seeking long-term growth and a balanced approach to total return and risk. For investors who want strong long-term return potential and are more comfortable with a higher level of volatility. LOWER RISK AND RETURN POTENTIAL MODERATE RISK AND RETURN POTENTIAL HIGHER RISK AND RETURN POTENTIAL Equity Funds Bond Funds The Franklin NextStep Funds is a collective term used to reference Franklin NextStep Balanced Growth Fund, Franklin NextStep Dynamic Growth Fund and Franklin NextStep Stable Growth Fund, all being sub-funds of the Luxembourg-domiciled Franklin Templeton Investment Funds. Diversification does not guarantee a profit or protect against a loss. Fund allocations are provided for illustrative purposes only and the categorization of the funds as stable growth, balanced growth and dynamic growth is relative to each other. There is no guarantee that the Franklin NextStep Funds will be allocated in a similar manner. Franklin NextStep Funds Performance 30 September 2016 Portfolio Performance Details Franklin NextStep Stable Growth Fund 1-month Before 5% Sales Charge 3-month 6-month Average Annual Since Incep (05/02/2016) 1-month After Sales Charge* 3-month 6-month Average Annual Since Incep (05/02/2016) A(acc)SGD-H1 0.56% 2.18% 2.96% 8.00% -4.47% -2.93% -2.19% 2.60% A(Mdis)SGD-H1 0.56% 2.15% 3.04% 8.09% -4.47% -2.96% -2.11% 2.68% A(acc)USD 0.56% 2.08% 2.95% 8.10% -4.47% -3.03% -2.19% 2.70% A(Mdis)USD 0.56% 2.06% 2.94% 8.09% -4.47% -3.04% -2.21% 2.68% A(acc)HKD 0.56% 2.09% 2.96% 7.70% -4.47% -3.02% -2.18% 2.32% A(Mdis)HKD 0.56% 2.06% 2.94% 7.67% -4.46% -3.04% -2.21% 2.29% Franklin NextStep Balanced Growth Fund A(acc)SGD-H1 0.90% 3.90% 4.28% 12.00% -4.14% -1.30% -0.93% 6.40% A(Mdis)SGD-H1 0.90% 3.87% 4.30% 12.02% -4.15% -1.33% -0.91% 6.42% A(acc)USD 0.99% 3.89% 4.27% 12.20% -4.06% -1.31% -0.94% 6.59% A(Mdis)USD 0.90% 3.86% 4.19% 12.11% -4.15% -1.34% -1.02% 6.50% A(acc)HKD 0.90% 3.91% 4.30% 11.70% -4.14% -1.29% -0.92% 6.12% A(Mdis)HKD 0.99% 3.86% 4.30% 11.70% -4.06% -1.33% -0.92% 6.12% Franklin NextStep Dynamic Growth Fund A(acc)SGD-H1 1.42% 5.14% 5.43% 14.50% -3.65% -0.11% 0.16% 8.77% A(Mdis)SGD-H1 1.50% 5.21% 5.48% 14.56% -3.58% -0.05% 0.21% 8.83% A(acc)USD 1.50% 5.22% 5.51% 14.80% -3.57% -0.04% 0.24% 9.06% A(Mdis)USD 1.49% 5.21% 5.47% 14.76% -3.58% -0.05% 0.20% 9.02% A(acc)HKD 1.51% 5.25% 5.54% 14.30% -3.57% -0.01% 0.26% 8.59% A(Mdis)HKD 1.50% 5.13% 5.50% 14.26% -3.57% -0.13% 0.22% 8.54% Benchmark Returns 1 Bloomberg Barclays Multiverse (USD Hedged) Index MSCI AC Asia Pacific Ex Japan Index JP Morgan GBI-EM Broad Diversified Asia Index MSCI ACWI Index 1-Month 0.03% 1.81% 0.99% 0.66% 3-Month 0.77% 9.79% 3.28% 5.43% Year-to-Date 6.82% 12.53% 10.33% 7.09% 1-Year 6.92% 18.40% 13.97% 12.60% 5-Year 4.44% 6.94% 2.54% 11.23% 10-Year 4.85% 6.02% 5.62% 4.90% *After Sales Charge: Calculated based on initial sales charge of 5%; or 0% for Money Market Funds. Source for all information is Franklin Templeton Investments. Benchmark-related data provided by FactSet. Fund performance computed in share class currency, on NAV- NAV basis and dividends reinvested. Past performance is no guarantee of future results. Portfolio holdings are subject to change. 1. Performance figures for periods less than one year are cumulative total returns. 2. Management has contractually agreed to waive or assume certain expenses so that total annual fund operating expenses (excluding 12b-1 fees, acquired fund fees and expenses and certain non-routine expenses) for the Stable Growth Fund do not exceed (and could be less than) 0.10%, until September 30, Contractual fee waiver and/or expense reimbursement agreements may not be changed or terminated during the time periods set forth above. Sources for indexes: FactSet. Indexes are unmanaged and one cannot invest directly in an index. They do not reflect any fees, expenses or sales charges. All MSCI data is provided as is. The fund described herein is not sponsored or endorsed by MSCI. In no event shall MSCI, its affiliates or any MSCI data provider have any liability of any kind in connection with the MSCI data or the Fund described herein. Copying or redistributing the MSCI data is strictly prohibited. Maximum Sales Charges and Total Annual Operating Expenses Franklin NextStep Stable Growth Fund A(acc)SGD-H1 A(Mdis)SGD-H1 A(acc)USD A(Mdis)USD A(acc)HKD A(Mdis)HKD Franklin NextStep Balanced Growth Fund A(acc)SGD-H1 A(Mdis)SGD-H1 A(acc)USD A(Mdis)USD A(acc)HKD A(Mdis)HKD Franklin NextStep Dynamic Growth Fund A(acc)SGD-H1 A(Mdis)SGD-H1 A(acc)USD A(Mdis)USD A(acc)HKD A(Mdis)HKD Maximum Sales Charge Currently 5.0% (Up to 5.75%) Currently 5.0% (Up to 5.75%) Currently 5.0% Management & Maintenance Fee % 1.25% (Up to 5.75%) 1.35% Franklin NextStep Funds 2 Franklin NextStep Funds Diversification 30 September 2016 Asset Allocation Range: Target 1 vs. Actual Adapting to Opportunities and Risks STABLE GROWTH BALANCED GROWTH DYNAMIC GROWTH Target 1 Actual Target 1 Actual Target 1 Actual Equity Funds 10-30% 23.17% 45-65% 55.25% 60-80% 70.43% Bond Funds 70-90% 72.97% 35-55% 40.36% 20-40% 26.72% Cash and Others % % % Geographic Allocation Geographic Breakdown STABLE GROWTH BALANCED GROWTH DYNAMIC GROWTH Asia Ex-Japan 27.15% 38.31% 41.89% North America 34.31% 29.80% 26.39% Japan 0.50% 1.63% 2.13% Global % 10.84% 9.83% Europe 11.59% 10.19% 8.86% Emerging Markets 2.19% 4.84% 8.06% Cash & Cash Equivalents 3.87% 4.39% 2.85% Portfolio holdings are subject to change. The asset class and geographic breakdown of each underlying fund is based on its predominant investments under normal market conditions. Figures shown 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. 1.These asset allocations may move out of these ranges or the ranges themselves may change from time to time based on market conditions and the Investment Managers' strategic tactical asset allocation views. 2. Global pertains to funds that fall under more than one geographic region or do not fall under one of the designated categories. Franklin NextStep Funds 3 30 September 2016 Portfolio Composition As of 30/09/2016 Franklin NextStep Stable Growth Fund Franklin NextStep Balanced Growth Fund Franklin NextStep Dynamic Growth Fund North America Equity Funds 4.63% 13.92% 16.19% Delaware Investment US Large Cap Value Fund 1.15% 3.45% 4.03% Franklin US Equity Fund 1.86% 4.84% 5.65% ishares Core S&P 500 UCITS ETF 1.62% 3.54% 4.10% Pioneer Funds US Fundamental Growth % 2.42% Asia Equity Funds 14.64% 30.97% 39.53% ishares Core MSCI Pacific ex Japan UCITS ETF 3.84% 8.03% 9.46% MAN GLG Investments PLC-GLG Japan Coreaplha Equi % 0.85% Polar Capital Funds PLC-Japan Fund 0.50% 0.98% 1.28% SPDR MSCI EM Asia UCITS ETF 4.67% 9.77% 9.79% Stewart Investors Asia Pacific Leaders Fund 2.81% 5.78% 10.75% Templeton Asian Smaller Companies Fund 2.82% 5.77% 7.39% Global Equity Funds 3.89% 10.36% 14.70% Comgest Growth PLC Emerging Markets 1.09% 2.35% 3.15% Db X-Trackers Euro Stoxx 50 UCITS ETF 1C % 1.01% Franklin European Small Mid Cap Growth Fund % 1.00% Franklin Mutual European Fund 0.85% 2.76% 3.33% ishares Core MSCI Emerging Markets IMI UCITS ETF 1.11% 2.49% 4.91% Jupiter JGF European Opportunities 0.84% 1.09% 1.32% North America Fixed Income Funds 35.69% 18.68% 12.18% Delaware Investment Corporate Bond Fund 6.02% 2.81% 1.99% Franklin US Total Return Fund 13.80% 8.41% 7.51% ishares USD TIPS UCITS ETF USD 6.00% 2.23% -- ishares USD Treasury Bond 7-10 Year UCITS ETF USD 9.89% 5.24% 2.68% Asia Fixed Income Funds 13.01% 8.96% 4.49% Templeton Asian Bond Fund 13.01% 8.96% 4.49% Global Fixed Income Funds 24.26% 12.71% 10.05% ishares Global Government Bond UCITS ETF USD 9.87% 6.35% 7.83% Robeco Capital Growth Funds High Yield Bonds 4.50% 1.68% -- Standard Life Investments Global SICAV - European Corporate Bond Fund Capitalisation D 9.89% 4.68% 2.21% Cash and Cash Equivalents 3.87% 4.39% 2.85% Fund allocations are a percentage of investments in asset categories as of the end of the period. The fund may shift allocations among asset classes at any time. The asset category of each underlying fund is based on its predominant investments under normal market conditions. Percentage may not equal 100% due to rounding. Franklin NextStep Funds 4 Franklin NextStep Funds Overview 30 September 2016 Fund Information Fund Name Share Class Bloomberg ISIN Franklin NextStep Stable Growth Fund A(acc)SGD-H1 FRNSAAS LX LU Franklin NextStep Stable Growth Fund A(Mdis)SGD-H1 FRNSAMS LX LU Franklin NextStep Stable Growth Fund A(acc)USD FRNSAAU LX LU Franklin NextStep Stable Growth Fund A(Mdis)USD FRNSAMU LX LU Franklin NextStep Stable Growth Fund A(acc)HKD FRNSAAH LX LU Franklin NextStep Stable Growth Fund A(Mdis)HKD FRNSAMH LX LU Franklin NextStep Balanced Growth Fund A(acc)SGD-H1 FRNBAAS LX LU Franklin NextStep Balanced Growth Fund A(Mdis)SGD-H1 FRNBAMS LX LU Franklin NextStep Balanced Growth Fund A(acc)USD FRNBAAU LX LU Franklin NextStep Balanced Growth Fund A(Mdis)USD FRNBAMU LX LU Franklin NextStep Balanced Growth Fund A(acc)HKD FRNBAAH LX LU Franklin NextStep Balanced Growth Fund A(Mdis)HKD FRNBAMH LX LU Franklin NextStep Dynamic Growth Fund A(acc)SGD-H1 FRNDAAS LX LU Franklin NextStep Dynamic Growth Fund A(Mdis)SGD-H1 FRNDAMS LX LU Franklin NextStep Dynamic Growth Fund A(acc)USD FRNDAAU LX LU Franklin NextStep Dynamic Growth Fund A(Mdis)USD FRNDAMU LX LU Franklin NextStep Dynamic Growth Fund A(acc)HKD FRNDAAH LX LU Franklin NextStep Dynamic Growth Fund A(Mdis)HKD FRNDAMH LX LU About Franklin Templeton Solutions Franklin NextStep Funds are managed by the Franklin Templeton Solutions (FTS). FTS leverages the insights and investment strategies from Franklin Templeton s various investment management groups and employs both strategic and tactical asset allocation to create diversified outcome-oriented portfolios focused on risk-adjusted performance and tailored to client needs. An integrated global investment platform, FTS has assembled a team of over 80 dedicated investment professionals with more than 10 years of experience managing multi-asset and multi-style portfolios, with approximately $40 billion USD in assets under management as of 30 September Portfolio Management 1 Thomas Nelson, CFA Years of Experience: 25 years in industry, 9 years with Franklin Templeton Stephen Lingard, MBA, CFA Years of Experience: 22 years in industry, 9 years with Franklin Templeton John Levy, CFA Years of Experience: 11 years in industry, 10 years with Franklin Templeton 1. As of 30 September Franklin NextStep Funds 5 A Few More Words About Asset Allocation While an asset allocation plan can be a valuable tool to help reduce overall volatility, all investments involve risks, including possible loss of principal. Because these funds invest in underlying funds, which may engage in a variety of investment strategies involving certain risks, the Franklin NextStep Funds are subject to those same risks. In addition, shareholders of the NextStep Funds will indirectly bear the fees and expenses of the underlying funds. The risks described herein are the principal risks of the Franklin NextStep Funds and the underlying funds. Typically, the more aggressive the investment, or the greater the potential return, the more risk involved. Generally, investors should be comfortable with some fluctuation in the value of their investments, especially over the short term. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions. Bond prices generally move in the opposite direction of interest rates. Thus, as the prices of bonds in a fund adjust to a rise in interest rates, that fund s share price may decline. Foreign investing carries additional risks such as currency and market volatility and political or social instability; risks which are heightened in developing countries. Investments in derivatives involve costs and create economic leverage, which may result in significant volatility and cause the funds to participate in losses (as well as gains) that significantly exceed the funds initial investment. These risks are described in the funds prospectus. Investors should consult their financial advisor for help selecting the appropriate fund of funds, or fund combination, based on an evaluation of their investment objectives and risk tolerance. Important Information This document is for information only and does not constitute investment advice or a recommendation and was prepared without regard to the specific objectives, financial situation or needs of any particular person who may receive it. Any research and analysis contained in this presentation has been procured by Franklin Templeton Investments for its own purposes and may be acted upon in that connection and, as such, is provided to you incidentally. Any views expressed are the views of the fund manager and do not constitute investment advice. The underlying assumptions and these views are subject to change. Franklin Templeton Investments accepts no liability whatsoever for any direct or indirect consequential loss arising from the use of this commentary or any information, opinion or estimate herein. The value of investments and the income from them can go down as well as up and you may not get back the full amount that you invested. Any prediction, projection or forecast on the economy, stock market, bond market or the economic trends of the markets is not necessarily indicative of the future or likely performance. Past performance or any prediction or forecast is not necessarily indicative of future performance of the Funds. The Funds may use financial derivative instruments for foreign exchange hedging purposes only. Subscriptions may only be made on the basis of the most recent Prospectus and Product Highlights Sheet which is available at Templeton Asset Management Ltd or our authorised distributors. Potential investors should read the details of the Prospectus and Product Highlights Sheet before deciding to subscribe for or purchase the Funds. This shall not be construed as the making of any offer or invitation to anyone in any jurisdiction in which such offer is not authorised or in which the person making such offer is not qualified to do so or to anyone to whom it is unlawful to make such an offer. In particular, these Funds are not available to U.S. Persons and Canadian residents. Investors may wish to seek advice from a financial adviser before making a commitment to invest in shares of the Funds. In the event an investor chooses not to seek advice from a financial adviser, he/she should consider whether the Funds are suitable for him/her. Copyright 2016 Franklin Templeton Investments. All rights reserved. Issued by Templeton Asset Management Ltd. Registration No. (UEN) E CFA and Chartered Financial Analyst are trademarks owned by CFA Institute. NextStepFunds.com franklintempletoninstitutonal.com 2016 Franklin Templeton Investments. All rights reserved. NSA COMM 10/16
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