THE TRUTH ABOUT EUROPE Finding Opportunities with European Companies

“ If you want to have a better performance than the crowd, you must do things differently from the crowd.”

—Sir John Templeton

Where the Crowd is Not—Europe And it’s no wonder why. The majority of news coming out of Europe the past couple of years has been pretty dismal. In fact, in a recent survey of Canadian investors conducted by Franklin Templeton, only 4% of survey respondents1 believed that Western Europe would provide the best equity opportunities in the year ahead, despite the many positive economic signs we have seen in the region.1 What is often overlooked is that despite the region’s challenges, crisis in European countries does not necessarily mean crisis in European companies. The following pages outline recent facts about Europe that may be positive signs for investors.

1. 2015 Franklin Templeton Global Investor Sentiment Survey: Conducted in partnership with ORC International from February 12, 2015 to February 26, 2015. It included 502 online responses from participants aged 25 and older in Canada. franklintempleton.ca

The Truth About Europe—Finding Opportunities with European Companies

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Facts about Europe You May Not Know While Government Debt Has Increased, Corporate Debt Has Decreased EUROZONE GOVERNMENT DEBT VS. EUROPEAN CORPORATE DEBT2 September 30, 2008 to September 30, 2015 95%

Many European companies have successfully reduced their debt and increased their cash levels by paying down high interest rate loans and replacing them with lower interest rate debt.

90% 85% 80% 75% 70% 65% 60% 09/08

09/09

09/10

09/11

European Corporate Total Debt/Total Capital (%)

09/12

09/13

09/14

09/15

Eurozone Sovereign Debt/GDP (%)

European Companies Are Export Powerhouses EXPORTS BY REGION, IN BILLIONS (USD) As of September 30, 20153

$439 South America $3,076 North America

European exporters will likely continue to benefit from a weaker Euro.

$5,777 Europe $5,812 Asia

2. Sources: European Corporate Total Debt/Total Capital (%) Data: © 2016 FactSet Research Systems Inc. All Rights Reserved. The information contained herein: (1) is proprietary to FactSet Research Systems Inc. and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither FactSet Research Systems Inc. nor its content providers are responsible for any damages or losses arising from any use of this information. Most recent data available. Eurozone Government Debt/GDP (%) Data: European Central Bank. Most recent data available. 3. Source: © 2016 FactSet Research Systems Inc. Europe category is formed by combining Europe Developed and Europe Emerging categories, as defined by FactSet. Most recent data available. 2

The Truth About Europe—Finding Opportunities with European Companies

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Some European Companies Appear Attractively Priced vs. the Index 1-YEAR FORWARD PRICE-TO-EARNINGS (P/E) RATIOS4 As of December 31, 2015 20.9

12.6

MSCI Europe Index

12.5

Telefonica

Shell

11.7

10.5

Michelin

ING

An assessment of a particular security is not intended as an investment recommendation, nor does it constitute investment advice.

Price-to-Book (P/B) Ratios Have Been Lower at a Sector Level AVERAGE P/B RATIOS OF EUROPEAN STOCKS BY SECTOR VS. 20-YEAR AVERAGES5 As of December 31, 2015

Information Technology

24%

LOWER

3.72 vs. 4.90

Financials

43%

LOWER

0.98 vs. 1.72

Energy

59%

LOWER

P/B ratio is another form of stock valuation. These European stock sectors all have P/B ratios that have recently been lower than their 20-year average.

0.94 vs. 2.27

4. Sources: © 2016 FactSet Research Systems Inc. and © 2016 MSCI. Indexes are unmanaged and one cannot invest directly in an index. Logos are trademarks of their respective owners. Logos are used to identify their respective companies and should not be construed as an endorsement of, or affiliation with, Franklin Templeton Investments. 5. Sources: © 2016 FactSet Research Systems Inc. and © 2016 MSCI. Sector level percentage lower price-to-book values based on a comparison of P/B ratios as of December 31, 2015 to the 20-year average P/B ratio of the MSCI Europe Index. Indexes are unmanaged and one cannot invest directly in an index. franklintempleton.ca

The Truth About Europe—Finding Opportunities with European Companies

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European Stocks Have Recently Offered Higher Yields on Average AVERAGE YIELDS As of December 31, 2015

3.4% 2.7%

2.6%

Dividend-paying European stocks have recently generated higher yields than other stocks.

2.9%

2.1%

U.S. Stocks6

Global Stocks7

Asian Stocks7

Canadian Stocks7

European Stocks7

This chart is for illustrative purposes only and does not reflect the performance of any Franklin, Templeton, Franklin Mutual Series or Franklin Bissett fund. Past performance does not guarantee future results.

European Earnings May Offer Catch Up Potential EARNINGS PER SHARE (EPS) OF STOCKS IN THE MSCI EUROPE INDEX VS. THE 7-YEAR AVERAGE8 As of December 31, 2015 $200

The gap between the current EPS and the 7-year average may indicate the potential for earnings to return or surpass the average.

$180 $160 $140 $120

$120.36

$100

$101.34

$80 01/09 EPS

01/10

01/11

01/12

01/13

01/14

01/15

12/15

Seven-Year Average EPS

6. Data is from Robert J. Shiller, Irrational Exuberance, 2nd Edition, 2005, as updated by author. 7. Sources: © 2016 FactSet Research Systems Inc. and © 2016 MSCI. Indexes are unmanaged and one cannot invest directly in an index. U.S. Stocks are represented by the S&P 500 Index, Asian Stocks are represented by the MSCI All Country Asia Pacific Index, Canadian Stocks are represented by the S&P/TSX Composite Index, European Stocks are represented by the MSCI Europe Index and Global Stocks are represented by the MSCI All Country World Index. 8. Sources: © 2016 FactSet Research Systems Inc., © 2016 Calculations not produced, reviewed or approved by MSCI. Indexes are unmanaged and one cannot directly invest in an index. 4

The Truth About Europe—Finding Opportunities with European Companies

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Franklin Templeton Investments Gain From Our Perspective®

At Franklin Templeton Investments, we’re dedicated to one goal: delivering exceptional asset management for our clients. By bringing together multiple world-class investment teams in a single firm, we’re able to offer specialized expertise across styles and asset classes, all supported by the strength and resources of one of the world’s largest asset managers. This has helped us to become a trusted partner to individual and institutional investors across the globe.

Focus on Investment Excellence At the core of our firm, you’ll find multiple independent investment teams—each with a focused area of expertise— from traditional to alternative strategies and multi-asset solutions. And because our portfolio groups operate autonomously, their strategies can be combined to deliver true style and asset class diversification. All of our investment teams share a common commitment to excellence grounded in rigorous, fundamental research and robust, disciplined risk management. Decade after decade, Franklin Templeton has applied consistent, research-driven processes seeking to deliver strong, long-term results for our clients.

Global Perspective Shaped by Local Expertise In today’s complex and interconnected world, smart investing demands a global perspective. Franklin Templeton pioneered international investing over 60 years ago, and

*As of December 31, 2015. Clients are represented by the total number of unitholder accounts.

our expertise in emerging markets spans more than a quarter of a century. Today, our investment professionals are on the ground across the globe, spotting investment ideas and potential risks firsthand. These locally-based teams bring in-depth understanding of local companies, economies and cultural nuances, and share their best thinking across our global research network.

Strength and Experience Franklin Templeton is a global leader in asset management, serving clients in over 150 countries.* We run our business with the same prudence we apply to asset management, staying focused on delivering relevant investment solutions, strong long-term results and reliable, personal service. This approach, focused on putting clients first, has helped us to become one of the most trusted names in financial services.

Is Your Portfolio as European as It Should Be? Crisis in European countries does not necessarily mean crisis in European companies, and some European equities may represent a compelling opportunity for investors. Talk to your investment advisor about Franklin Templeton mutual funds that offer exposure to European equities. An investment advisor can prove invaluable in helping you define your needs and narrowing the search for investments suitable to your unique objectives. At Franklin Templeton Investments, we’re dedicated to one goal: delivering exceptional asset management for our clients. By bringing together multiple world-class investment teams in a single firm, we’re able to offer specialized expertise across styles and asset classes, all supported by the strength and resources of one of the world’s largest asset managers. This has helped us to become a trusted partner to individual and institutional investors across the globe.

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Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.

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