printmgr file - Templeton

Franklin Templeton Investments Funds
NOTES TO FINANCIAL STATEMENTS For the periods ended December 31, 2012 and 2011 (Continued)
10. Financial Risk Management (Continued)
Sensitivity
on Net
Assets
December 31, 2012 December 31, 2011
% Impact
on Net
Assets
Sensitivity
on Net
Assets
% Impact
on Net
Assets
(000s) (000s)
Bissett Canadian Dividend Fund .............................. $34,412 4.90% $31,499 4.87%
Bissett Canadian Equity Fund ................................ 90,415 4.86% 91,334 4.81%
Bissett Canadian High Dividend Fund .......................... 34,501 4.89% 26,710 4.71%
Bissett Dividend Income Fund ................................ 24,371 3.98% 21,355 4.05%
Bissett Focus Balanced Fund ................................ 199 2.89% 147 3.13%
Bissett Microcap Fund ...................................... 8,227 4.65% 7,076 4.81%
Bissett Small Cap Fund ..................................... 26,268 4.60% 24,233 4.74%
Bissett Strategic Income Fund ................................ 3,348 4.15% 101 4.97%
Bissett U.S. Focus Fund ..................................... 7,302 4.91% 7,957 5.00%
Mutual Beacon Fund ....................................... 8,101 4.27% 12,089 4.25%
Mutual Global Discovery Fund ................................ 41,396 4.60% 43,233 4.42%
Franklin Templeton Canadian Core Equity Fund .................. 9,800 4.99% 14,861 4.90%
Franklin Templeton Canadian Large Cap Fund ................... 11,874 4.95% 10,682 6.04%
Franklin Templeton Global Blend Fund ......................... 41 5.04% 40 5.06%
(d) Liquidity risk
Liquidity risk is the risk that a Fund will not be able to meet its liabilities as they fall due. As the Funds are exposed to daily cash redemption
of units, the assets of the Funds are invested mainly in securities which are traded in active markets and can be readily disposed of. In
addition, sufficient cash and cash equivalents are maintained to meet normal operating requirements. Each Fund has the ability to borrow
up to 5% of its net assets for the purposes of funding redemptions. The Funds have a non-committed redemption line of credit agreement
with a Schedule 1 bank in Canada from which these amounts can be borrowed, if necessary. The loans are issued at prime rate and are
payable on demand. There were no loans issued or outstanding as at December 31, 2012 and December 31, 2011. All liabilities held are
payable upon demand or due within three months.
The Funds also have a policy that restricts them from holding illiquid assets that account for more than 10% of their respective net assets.
Equity-linked notes, PIK bonds and P-Notes may be more volatile and less liquid than other investments held by the Funds. The Funds’
holdings of equity-linked notes, PIK bonds and P-Notes represents less than 10% of their net asset value as at December 31, 2012 and
December 31, 2011. All liabilities held are payable upon demand or due within three months.
(e) Credit risk
Credit risk is the risk that a counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into
with a Fund. This risk is generally lower if the issuer has a high credit rating from an independent credit rating agency, while the risk is
generally higher if the issuer has a low credit rating or no credit rating. Where applicable, credit ratings have been disclosed at the end of
each Statement of Investments.
All cash and trading transactions are carried out by banks rated A or higher by Standard & Poor’s as at December 31, 2012 and
December 31, 2011.
In addition to the above, Mutual Beacon Fund and Mutual Global Discovery Fund are further exposed to credit risk, liquidity risk and interest
rate risk as these Funds may purchase the pre-default or defaulted debt of distressed companies and securities which are subject to
legal, contractual or other agreed upon restrictions on resale. Distressed companies are financially troubled and are about to be or are
already involved in financial restructuring, bankruptcy or reorganization. The distressed bonds are purchased with the expectation that they
will be converted into equity equivalents of the newly organized company in the near future. Risks associated with purchasing these securities
include the possibility that the bankruptcy or other restructuring process takes longer than expected. It is probable that income on
debt securities may not be collected. As at December 31, 2012, Mutual Beacon Fund and Mutual Global Discovery Fund held 4.01% and
2.78% (December 31, 2011: 2.60% and 1.60%), respectively, of their portfolios in distressed securities, securities with restrictions on
resale and securities for which fair value as market price are not readily available.
Franklin Templeton Investments Funds 235