79 years of bulls and bears

8/7/2019 79 Years of Bulls and Bears

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79 Yearsof Bulls and Bears


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Create a Plan Thats Right for You

YOUVE HEARD THESE EXPRESSIONS BEFORE:

NO PAIN, NO GAIN NO GUTS, NO GLORY NO RISK, NO REWARD

In the world of investing, a direct relationship has historically existed between the

potential for total returns and the amount of risk one is willing to assume. But it doesnt

necessarily follow that you must throw caution to the wind to be a successful investor.

It does mean, however, that its important to determine what kind of investor you are,

how much risk youre willing to assume and the length of your investment horizon

before selecting investments that match your personal style. An experienced financial

advisor can help you understand and make these decisions and assist you in establishing

an appropriate investment plan.

This brochure introduces asset allocation, a time-tested strategy to diversify your

portfolio. Youll follow five hypothetical asset allocation portfolios, ranging from

conservative to aggressive, through eight decades, beginning with the 1930s and

continuing through December 2008. See how various portfolios would have fared over

the long term, through wars, recessions, political changes, economic bumps and slumps,

and human triumphs and tragedies. Youll find that long-term investors have been

rewarded, and investment success depends more on time in the market than timing

the market.

And, as another old adage suggests: Nothing ventured, nothing gained.


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20%20%

CashEquivalents

60%

Bonds

Stocks

20%

CashEquivalents

40%Stocks

40%

Bonds

40% Bonds60%Stocks

20%

Bonds

80%

Stocks

100% Stocks

Asset allocation is the process of diversifying financial resourcesamong various asset classes such as stocks, bonds and cash

equivalents. Well be discussing hypothetical portfolios that represent

five general allocation plans, covering a variety of risk/reward

scenarios. Stocks are represented by the Standard & Poors 500 Index

(S&P 500), bonds by long-term U.S. government bonds and cash

equivalents by U.S. Treasury bills.1

Keep in mind that the portfolios to the right are only hypothetical

examples of asset allocation plans. You can allocate your own portfolioin many ways, even within the individual asset classes of stocks, bonds

and cash equivalents. For example, an investor interested in stocks

could choose from foreign and domestic securities, small-, mid- and

large-capitalization stocks, and value and growth equities. We suggest

consulting your financial advisor to see which allocation approach may

work best for you.2

These five asset allocation portfolios are for illustrative purposes only,

dont represent the performance of any Franklin Templeton fund and

arent intended as investment advice. As you read through this

brochure, remember that past performance does not guarantee future

results. Investments offering the potential for higher rates of return

also involve a higher degree of risk to principal. Please keep in mind,

average annual returns and hypothetical investment values do

not reflect the fees and charges associated with specific investment

products; if included, the results would be lower.

1. Source: 2009 Morningstar, Inc. All rights reserved. The information contained herein: (1) is proprietary toMorningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to beaccurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages orlosses arising from any use of this information. Indexes are unmanaged and include reinvested dividends orinterest. One cannot invest directly in an index.

2. In selecting an asset allocation plan to meet your individual situation, you should consider a variety of factors,including your assets, income, age, investment objectives and risk tolerance. Diversification does not assure aprofit or guarantee against a loss.

AGGRESSIVE GROWTH

GROWTH

MODERATE GROWTH

CONSERVATIVE GROWTH

INCOME

A Closer Look at

Hypothetical Asset Allocation Portfolios

1

Not FDIC Insured | May Lose Value | No Bank Guarantee


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30sThe

Great

Depression

During his 1933 inaugural

address, Franklin Delano

Roosevelt proclaimed, The

only thing we have to fear is

fear itself. He later pledged

a New Deal to aid the economy,

introducing unemployment

insurance and a new Social

Security program that

guaranteed income for

retired Americans. Radio

and Hollywood movies grew

in popularity as entertainment

provided people an escape

from hard times.


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conomic distress swept the nation after the October 1929 stock market crash.

The Great Depression, which lasted from 1930 to 1936, bottomed in 1933 when

one-fourth of the civilian labor force was unemployed. Each of the five asset allocation

portfolios reflects meager market gains during this decade. The Income portfolio, with limited

exposure to stocks, would have performed the best among the five hypothetical portfolios

during this decade and was the least volatile based on standard deviation of returns.

3 0 S T H E G R E A T D E P R E S S I O N

E

3. Sources for S&P 500, Long-term U.S. government bonds and U.S. Treasury bills: 2009 Morningstar. Source for short-term interest rates: Bloomberg.Short-term interest rates represented by the prime rate. Date range for 1930s includes 19341939 (data unavailable prior to 1934). Source for annualinflation rate: 2009 Morningstar (U.S. Bureau of Labor Statistics). Source for unemployment rate: U.S. Bureau of Labor Statistics. Indexes are unmanagedand include reinvested dividends or interest.

4. See page 1 of this brochure for percentage breakdowns of each asset allocation portfolio.

Average Annual Total Return

S&P 500 -0.05%

Long-term U.S. government bonds 4.88%

U.S. Treasury bills 0.55%

Average

Short-term interest rates 1.50%

Annual inflation rate -2.05%

Unemployment rate 18.23%

12/391/30 12/31 12/33 12/35 12/37

Aggressive Growth

Growth

Moderate Growth

Conservative Growth

Income

Asset Allocation Portfolios

$1,500

$1,000

$500

$0

$1,499$1,436$1,416

$1,219

$995

Growth of a $1,000 Investment4

1/1/3012/31/39

3

Decade at a Glance3 1/1/3012/31/39


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apans attack on Pearl Harbor on December 7, 1941, thrust the United States into

World War II and a wartime economy. In the midst of price controls and consumer goods

shortages, upward trends dominated the stock market from 1943 to 1946, with a vigorous

bull market in 1945 as the war ended. Each of the five asset allocation portfolios, shown in the

chart below, reflects wartime market gains during this decade. The Aggressive Growth portfolio,

with 100% exposure to stocks, outperformed the other hypothetical portfolios during this

decade, while the Income portfolio was the least volatile based on standard deviation of returns.


S&P 500 9.17%



Average


Annual inflation rate 5.41%


5. See footnote 3 on page 3 of this brochure for source information.


4 0 S A N E C O N O M Y S P U R R E D B Y W A R

J

12/491/40 12/41 12/43 12/4712/45

Aggressive Growth

Growth

Moderate Growth

Conservative Growth

Income



1/1/4012/31/49

$2,500

$2,000

$1,500

$1,000

$500

$2,405

$2,193

$1,980

$1,677

$1,485

5



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Rosa Parks refused to give

up her seat, sparking

the Montgomery, Alabama,

bus boycott and focusing

the nations attention on

civil rights. Howdy Doody,

Mickey Mouse and Roy Rogers

were childrens favorites.

Elvis rocked the world, and

automobiles and television

sets swept the country.

As Americans tried to keep

up with the Joneses,

consumerism flourished.

50sThe

Eisenhower

Years


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hile President Eisenhower guided America through the early years of the cold war,

the stock market made gains and by year-end 1954, stock prices had reached their

highest levels since 1929. This exuberance was followed by a bear market lasting 18 months,

from April 1956 through October 1957, during which the S&P 500 declined 19.4%.7 Market

gains during this decade led to growth in each of the five asset allocation portfolios, shown in the

chart below. The Aggressive Growth portfolio, with 100% exposure to stocks, performed the

best among the five hypothetical portfolios. The Income portfolio returned less but was the least

volatile based on standard deviation of returns.


S&P 500 19.35%

Long-term U.S. government bonds -0.07%


Average




7. Source: Ned Davis Research, Inc.



5 0 S T H E E I S E N H O W E R Y E A R S

12/591/50 12/51 12/53 12/55 12/57

Aggressive Growth

Growth

Moderate Growth

Conservative Growth

Income



1/1/5012/31/59

$5,865

$4,177

$2,952

$2,149

$1,496

$6,000

$4,000

$2,000

$0

W

7



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Although America mourned

the loss of John F. Kennedy,

his goal of putting a man

on the moon lived on when

Neil Armstrong arrived

there and took one small

step for man and one giant

leap for mankind.

Martin Luther King Jr.s

I Have a Dream speech in

1963 inspired the civil rights

movement. In November 1963,

the U.S. sent some 16,000

military personnel to Vietnam.

At home, it was a volatile

time of protests and

televised war.

60s

Conformity

Gives Way

to SocialRevolution


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12/691/60 12/61 12/63 12/6712/65

Aggressive Growth

Growth

Moderate Growth

Conservative Growth

Income



1/1/6012/31/69

$2,121

$1,904

$1,698

$1,577

$1,389

$2,500

$2,000

$1,500

$1,000

$500

merican culture, long restrained by the sense of team spirit and conformity induced

by the crises of depression, war and the ongoing cold war, broke loose in a multitude of

swift changes. The economy was equally turbulent, and the stock market recorded three

bear markets.10 The overall performance of the S&P 500, on which the Aggressive Growth

portfolio is based, netted a 7.81% average annual total return during the decade.

This portfolio had the highest return, while the Income portfolio was the least volatile based on

standard deviation of returns.


S&P 500 7.81%



Average







6 0 S C O N F O R M I T Y G I V E S W A Y T O S O C I A L R E V O L U T I O N

A

9



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U.S. soldiers came home from

the Vietnam War to a different

America. President Nixon

profoundly changed U.S. foreign

policy with visits to China and

Russia in 1972. The very next

year, his administration fell

into disgrace with the stunning

events of the Watergate

scandal, causing Americans

to question U.S. leadership.

On the business landscape,

Apple and Commodore began

producing the first personal

computers, and the number of

women entering the workforce

increased rapidly.

70s

Energy Crisis

Sparks

EconomicCrisis


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12/791/70 12/71 12/73 12/7712/75

Aggressive Growth

Growth

Moderate Growth

Conservative Growth

Income



1/1/7012/31/79

$1,812$1,789$1,786$1,785$1,767

$1,800

$1,500

$1,200

$900

$600

hen the Organization of the Petroleum Exporting Countries (OPEC) quintupled

oil prices in 1973, a deep recession hit America. The stock market plunged 45.1%

from January 1973 through December 1974.13 Unemployment reached 8.7% in March 1975,

the highest level since 1941 and in 1979, commercial banks raised their prime rates to a

whopping 15.7%. An investment in the Conservative Growth portfolio, with 40% exposure to

stocks, performed the best among the five hypothetical portfolios, while the Income portfolio

was the least volatile based on standard deviation of returns.


S&P 500 5.86%



Average




7 0 S E N E R G Y C R I S I S S P A R K S E C O N O M I C C R I S I S

W




11



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The U.S. space shuttle

Columbia, the worlds first

reusable spacecraft, landed

after completing 36 orbits.

Judge Sandra Day OConnor

became the first woman

associate justice of the

U.S. Supreme Court. Soviet

leader Mikhail Gorbachev

agreed to arms reduction

talks with the U.S.

80sReaganomics


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12/891/80 12/81 12/83 12/85 12/87

Aggressive Growth

Growth

Moderate Growth

Conservative Growth

Income



1/1/8012/31/89

$5,037

$4,748

$4,415

$3,809

$3,466

$5,000

$4,000

$3,000

$2,000

$1,000

$0

resident Reagan signed extensive budget- and tax-cutting legislation in 1981, and

sweeping tax-reform legislation in 1986. The Black Monday stock market crash of

October 19, 1987, became the largest one-day stock market decline on record, as the

Dow Jones Industrial Average fell an astounding 22.6%. Even with this major one-day sell-off,

the S&P 500s total returns averaged 17.55% annually over the decade. The Aggressive Growth

portfolio performed the best during this decade while the Conservative Growth portfolio



S&P 500 17.55%



Average






8 0 S R E A G A N O M I C S

P

13



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The World Wide Web

experienced explosive

growth. The United States,

Mexico and Canada signed

the North American Free

Trade Agreement (NAFTA).

In 1994, Republicans won

both houses of Congress for

the first time in 40 years. The

Dow Jones Industrial Average

jumped to its first close above

10,000 on March 29, 1999.

90sThe Longest

Bull Market

in History


17/24

rom October 1990 through mid-1998, stock market investors were rewarded by the

longest bull market in history.18 The Asian economic crisis briefly shook U.S. investor

confidence as the Dow Jones Industrial Average experienced its single biggest point loss to date

on October 27, 1997. The decade ended with technology stocks fueling the NASDAQ Index

to its highest close to date on December 31, 1999. As shown in the chart below, the Aggressive

Growth portfolio performed the best of the five hypothetical portfolios with an average annual

total return of 18.20% through December 31, 1999, while the Income portfolio was the least

volatile based on standard deviation of returns.


S&P 500 18.20%



Average




9 0 S T H E L O N G E S T B U L L M A R K E T I N H I S T O R Y

12/991/90 12/91 12/93 12/95 12/97

Aggressive Growth

Growth

Moderate Growth

Conservative Growth

Income


$5,324

$4,573

$3,900

$3,083

$2,596

$5,000

$4,000

$3,000

$2,000

$1,000

$0


1/1/9012/31/99

F

15

18. Source: Dow Jones & Company, Ned Davis Research, Inc.



Decade at a Glance 19 1/1/9012/31/99


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At the beginning of the 21st

century, George W. Bush was

elected president after one of

the closest presidential races

in U.S. history. The EconomicGrowth and Tax Relief

Reconciliation Act of 2001

offered some of the largest tax

cuts in 20 years.

The war in Iraq continued, and

oil prices reached an all-time

high of over $145 per barrel

on July 3, 2008.21

In 2008, financial markets

around the world plunged,

triggered by a credit crunch

which compounded the

effects of a global economic

slowdown.

Unprecedented actions were

taken by governments around

the world to address thefinancial crisis.

Barack Obama was elected to

be the 44th U.S. President.

2000The World

Greets a New

Millennium and beyond


19/24

he first nine years of the new millennium may be remembered as some of the most volatile

for major market indexes. The deflation of the Internet bubble led to one of the most

severe bear markets in years. Even as markets began to recover, investors remained cautious

in the wake of corporate scandals, blue-chip bankruptcies and hostilities in the Middle East.

Concerns about the housing markets in 2007 turned into a full-blown recession in 2008,

when a global credit crunch heightened volatility in both equity and fixed income markets,

and led to the second severe bear market of the decade. As shown in the chart below, a

$1,000 investment in the Income portfolio would have performed the best among the five

hypothetical asset allocation portfolios during these years. In addition, the Income portfolio


2 0 0 0 A N D B E Y O N D T H E W O R L D G R E E T S A N E W M I L L E N N I U M


S&P 500 -3.60%



Average




12/081/00 12/02 12/05

Aggressive Growth

Growth

Moderate Growth

Conservative Growth

Income



1/1/0012/31/08

$1,757

$1,388

$1,234

$950

$719

$2,000

$1,600

$1,200

$800

$400

T

21. Source: Bloomberg, L.P.



17

9 Years at a Glance 22 1/1/0012/31/08


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Asset Allocation: The Key to Long-Term Planning

This brochure demonstrates differences in long-term performance based on five selected

hypothetical asset allocation portfolios.

As shown in the charts in this brochure, the Aggressive Growth portfolio was the best

performing over the long term but along the way, it was more volatile based on standard

deviation of returns. The Income portfolio was the least volatile over the decades but returned

less to investors. However, no matter which portfolio you examine, all provided average annual

total returns of at least 6.4% over the 79-year period. Please remember, however, that past

performance does not guarantee future results.

12/081/30 12/45 12/61 12/77 12/93

Aggressive Growth

Growth

Moderate Growth

Conservative Growth

Income



1/1/3012/31/08

$1,000,000

$100,000

$10,000

$1,000

$100

$1,013,260

$782,634

$533,974

$240,970

$130,637

Asset Allocation Portfolios Growth of a $1,000 Investment Cumulative Total Return Average Annual Total Return

I Aggressive Growth $1,013,260 101,226.0% 9.2%

I Growth $782,634 78,163.4% 8.8%

I Moderate Growth $533,974 53,297.4% 8.3%

I Conservative Growth $240,970 23,997.0% 7.2%

I Income $130,637 12,963.7% 6.4%


Performance Summary 1/1/3012/31/08


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Asset Allocation Can Help You:

Improve Your Chances for More Consistent Returns over Time. By investing in several asset

classes, you can improve your chances of participating in market gains and lessen the

impact of poor-performing asset categories on your overall portfolio returns.

Reduce Overall Risk. Portfolio diversification can reduce the volatility you experience

by simultaneously spreading market risk across many different asset classes.

Stay Focused on Your Objectives. A well-allocated portfolio alleviates the need to

constantly adjust investment positions to chase market trends and can help reduce

the urge to buy or sell in response to short-term market ups and downs.

SO THE QUESTION REMAINS:

HOW DO YOU DETERMINE YOUR RISK TOLERANCE?

When it comes to their money, investors can have a difficult time being objective

and unemotional. Thats why we believe in working with a financial advisor. An

experienced financial advisor can help you identify your own financial personality,

then assist in developing an asset allocation plan designed to help you achieve your

investment objectives.

Investors should carefully consider a funds investment goals, risks, charges

and expenses before investing. To obtain a prospectus, which contains this and

other information, talk to your financial advisor, call us at (800) DIAL BEN /

(800) 342-5236, or visitfranklintempleton.com. Please carefully read the prospectus

before you invest or send money.

Note: All historical, non-economic-related references were obtained from The Grolier Multimedia Encyclopedia,

World Wide Web.


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Franklin Templeton InvestmentsGain From Our Perspective

Franklin Templetons distinct multi-manager structure combines the

specialized expertise of three world-class investment management groups

Franklin, Templeton and Mutual Series.

Each of our portfolio management groups operates autonomously, relying

on its own research and staying true to the unique investment disciplines that

underlie its success.

Franklin. Founded in 1947, Franklin is a recognized leader in fixed income investing

and also brings expertise in growth- and value-style U.S. equity investing.

Templeton. Founded in 1940, Templeton pioneered international investing and,in 1954, launched what has become the industrys oldest global fund. Today, with

offices in over 25 countries, Templeton offers investors a truly global perspective.

Mutual Series. Founded in 1949, Mutual Series is dedicated to a unique style of

value investing, searching aggressively for opportunity among what it believes

are undervalued stocks, as well as arbitrage situations and distressed securities.

Because our management groups work independently and adhere to different

investment approaches, Franklin, Templeton and Mutual Series funds typically

have distinct portfolios. Thats why our funds can be used to build truly

diversified allocation plans covering every major asset class.

At Franklin Templeton Investments, we seek to consistently provide investors

with exceptional risk-adjusted returns over the long term, as well as the reliable,

accurate and personal service that has helped us become one of the most trusted

names in financial services.

TRUE DIVERSIFICATION

RELIABILITY YOU CAN TRUST

SPECIALIZED EXPERTISE

M U T U A L F U N D S | R E T I R E M E N T P L A N S | 5 2 9 C O L L E G E S A V I N G S P L A N S | S E P A R AT E A C C O U N T S


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< GAIN FROM OUR PERSPECTIVE >


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Franklin Templeton Investments

Your Source for:

Mutual Funds

Retirement Plans

529 College Savings Plans

Separate Accounts

Investors should carefully consider a funds investment goals, risks, charges and expenses before

investing. To obtain a prospectus, which contains this and other information, talk to your financia

advisor, call us at (800) DIAL BEN/(800) 342-5236, or visitfranklintempleton.com. Please carefully

Franklin Templeton Distributors, Inc.

One Franklin Parkway, San Mateo, CA 94403-1906

(800) DIAL BEN (800) 342-5236

TDD/Hearing Impaired (800) 851-0637

franklintempleton.com

< GAIN FROM OUR PERSPECTIVE >

V A L UE B LE ND G RO WT H S EC TO R G LO BA L I N TE RN AT IO NA L H YB RI D A S SE T A L LO CAT IO N F IX ED I NC OM E T A X- FR EE I NC

79 years of bulls and bears

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