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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
Franklin Templeton Investments Funds NOTES TO FINANCIAL STATEMENTS For the periods ended December 31, 2012 and 2011 (Continued) 10. Financial Risk Management (Continued) (f) Fair value estimation The Funds classify fair value measurements of investments held using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels: Level 1 — quoted prices (unadjusted) in active markets for identical assets or liabilities Level 2 — inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (prices) or indirectly (derived from prices) Level 3 — inputs for the asset or liability that are not based on observable market data (unobservable inputs) The determination of what constitutes “observable” requires significant judgment by the Manager. The Manager considers observable data to be market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market. Financial instruments that trade in markets that are not considered to be active but are valued based on quoted market prices, dealer quotations or alternative pricing sources supported by observable inputs are classified within Level 2. Investments classified within Level 3 have significant unobservable inputs, as they trade infrequently. These may include private equity and corporate debt securities. As observable prices are not available for these securities, the Manager has used valuation techniques to derive the fair value. The following tables show the classification of the Funds’ financial assets and liabilities measured at fair value as at December 31, 2012 and 2011. Templeton Asian Growth Fund December 31, 2012 December 31, 2011 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total (000s) (000s) (000s) (000s) (000s) (000s) (000s) (000s) Equities — Long ....... $273,231 $38,756 $ — $311,987 $173,285 $ — $ — $173,285 Total Investments ....... $273,231 $38,756 $ — $311,987 $173,285 $ — $ — $173,285 Templeton Canadian Balanced Fund December 31, 2012 December 31, 2011 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total (000s) (000s) (000s) (000s) (000s) (000s) (000s) (000s) Equities — Long ....... $70,952 $ — $ — $70,952 $82,807 $ — $ — $ 82,807 Bonds ............... — 25,476 — 25,476 — 29,691 — 29,691 Short-term securities .... — 1,100 — 1,100 — 2,557 — 2,557 Total Investments ....... $70,952 $26,576 $ — $97,528 $82,807 $32,248 $ — $115,055 Templeton Canadian Stock Fund December 31, 2012 December 31, 2011 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total (000s) (000s) (000s) (000s) (000s) (000s) (000s) (000s) Equities — Long ....... $87,714 $ — $ — $87,714 $102,831 $ — $ — $102,831 Short-term securities .... — 400 — 400 — 900 — 900 Total Investments ....... $87,714 $400 $ — $88,114 $102,831 $900 $ — $103,731 236 Franklin Templeton Investments Funds
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FOR THE YEAR ENDED DECEMBER 31, 201
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STATEMENTS OF NET ASSETS As at Dece
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STATEMENT OF INVESTMENTS As at Dece
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Templeton Canadian Balanced Fund ST
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Templeton Global Balanced Fund (for
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Templeton Global Bond Fund STATEMEN
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Franklin High Income Fund STATEMENT
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Franklin Strategic Income Fund STAT
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Franklin U.S. Core Equity Fund STAT
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Franklin U.S. Rising Dividends Fund
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Franklin U.S. Rising Dividends Fund
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Bissett All Canadian Focus Fund STA
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Bissett Bond Fund STATEMENT OF INVE
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Bissett Bond Fund STATEMENT OF INVE
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Bissett Canadian Balanced Fund STAT
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Bissett Canadian Equity Fund STATEM
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Bissett Canadian Short Term Bond Fu
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Bissett Corporate Bond Fund STATEME
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Bissett Dividend Income Fund STATEM
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Bissett Dividend Income Fund STATEM
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Bissett Focus Balanced Fund STATEME
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Bissett Microcap Fund STATEMENTS OF
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Bissett Strategic Income Fund STATE
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Mutual Beacon Fund STATEMENT OF INV
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Mutual Beacon Fund STATEMENT OF INV
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Mutual Beacon Fund STATEMENTS OF CH
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Mutual Global Discovery Fund (forme
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Page 191 and 192: STATEMENTS OF NET ASSETS As at Dece
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Page 205 and 206: STATEMENTS OF NET ASSETS As at Dece
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Page 255 and 256: MANAGEMENT’S RESPONSIBILITY FOR F
Page 257 and 258: INDEPENDENT AUDITOR’S REPORT (Con
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