Half Yearly Report

RNS Number : 3336K

Templeton Emerging Markets IT PLC

17 December 2008

 



TEMPLETON EMERGING MARKETS INVESTMENT TRUST PLC 

("TEMIT") ("the Company")

UNAUDITED HALF YEARLY REPORT - 31 OCTOBER 2008

CHAIRMAN'S STATEMENT

Performance

2008 has been a terrible year for the world's stock markets. The gradual spreading of the credit crisis from sub-prime mortgages in America to the values of almost every credit instrument has undermined confidence and made many conventional yardsticks of value appear useless.

At many stages during the six months under review, some sort of bottom appeared to have been reached, but each dawn proved to be false. The major economies of the west have entered recession, impacting on the growth rates of the developing markets in which your Company is invested. The drying up of credit almost everywhere obliged investors to liquidate where they could, and both hedge funds and open-ended investment funds experienced heavy redemptions, in turn leading to forced selling of the underlying investments.

Investment performance in the period from 30 April 2008 to 31 October 2008 can be summarised as follows:

	31 October 2008	30 April 2008	Decline
Net asset value	280.7p	484.8p	(42.1%)
Share price	252.0p	438.0p	(42.5%)

Over the same period, the MSCI Emerging Markets Index and the S & P/IFC Investable Composite Index decreased by 40.2% and 40.4% respectively.

Since 31 October 2008, market movements have resulted in net assets per share at 15 December 2008 being 286.9p and the Company's share price was 253.5p; gains of 2.2% and 0.6% respectively.

Foreign exchange reserves in developing countries, built up over many years of trade surpluses, proved little protection against a fall in the exchange rates of many currencies against the US dollar. Exchange rates in two of the largest currency exposures of your Company, US dollar and Hong Kong dollar, appreciated nearly 20% against Sterling over the period which benefited overall performance and helped to soften to some extent the decline in the value of the pound; nevertheless the fall in net asset value was severe.

At some stage, investors' confidence will return, and with it a recognition of the long-term fundamental value of many over-sold stocks. Within this environment, the Investment Manager remains committed to its investment style and will continue to apply the time-proven bottom up approach in stock selection with special emphasis on discipline and patience.

The Manager's Report gives a detailed analysis of the Company's performance over the period.

Asset allocation

At the period end, 93.2% of the Company's total assets were invested in equities, with the remaining 6.8% being held in liquid assets. The general policy of the Board is to be fully invested with no gearing.

Dividend

An ordinary dividend of 3.50 pence per share (2007: 3.13 pence) was declared on 27 August 2008 for the year ended 30 April 2008, resulting in a total payment of £11.6 million. This was paid on 1 October 2008. The Company does not pay an interim dividend.

  Tender Offer and Discount

At the EGM held on 13 June 2008, the proposals for a tender offer to purchase up to 30% of the Company's share capital were approved. The total number of shares successfully tendered was 141.8 million, at a price of 426.83 pence per share, leaving 330.9 million shares in issue. The strike price discount was set at 4% to the NAV which resulted in an uplift of 1.70% to the NAV for the benefit of continuing shareholders. £605.2 million was returned to the Company's shareholders as a result of the tender offer. The total assets of the Company at the period end were £928 million compared to £2,291 million at 30 April 2008 and £2,645 million at 31 October 2007.

Since the completion of the tender offer, the Company's discount has generally been in the range of 5% to 9%. However, due to the volatile markets, the discount has fluctuated significantly from a high of 15.6% to a premium of 1.4%. The Company's discount on 31 October was 10.3% compared to 9.6% on 30 April 2008.

Share Buy-Backs

Shareholders also voted at the EGM on 13 June 2008 in favour of granting authority to the Company to purchase up to 14.99% of the Ordinary Shares in issue on 13 June 2008, the authority to expire no later than the Annual General Meeting in 2009. The Board remains committed to utilising buybacks to control the discount where it thinks it is in the best interest of shareholders. During the period, in addition to the tender offer, a further 350,000 shares were bought back (representing 0.11% of the shares in issue at 13 June 2008) for a total cost to the Company of £1.2  million. This has contributed to an uplift to the NAV per share of 0.01%. Since 31 October 2008 a further 80,500 shares have been repurchased.

Cancellation of Reserves

We received Court of Session approval on 5 December 2008 for the cancellation of the entire share premium account and £58.2 million of the capital redemption reserve. The cancellation of these reserves was approved by shareholders at the recent AGM.

Board

As previously announced, we welcomed Hamish Buchan to the Board and to the Audit Committee on 26 June 2008 with Peter Godsoe retiring as a Director on the same date. I would like to thank Peter for his contribution to the Company over the past five years.

Outlook

The Company is committed to meeting its stated objective to provide long term capital appreciation for its investors and the Investment Manager will continue to monitor emerging markets for favourable investment opportunities during the current market volatility.

Peter A Smith

17 December 2008

Sources: Franklin Templeton Investments and Standard & Poor's.

PRINCIPAL RISKS AND UNCERTAINTIES

The Company's main risk is investment risk. This is the risk that the value of the investment holdings will fluctuate as a result of changes in market prices caused by factors other than interest rate or currency movements. Many of the companies in which TEMIT does or may invest are, by reason of the locations in which they operate, exposed to the risk of political or economic change. In addition, exchange control, tax or other regulations introduced in any country in which TEMIT invests may affect its income and the value and marketability of its investments.

Other key risks affecting the Company are currency risk, regulatory risk and counterparty risk. Currency fluctuations may affect the value of its investments and the income derived therefrom, and investors in emerging markets can face settlement and custodial problems.

Furthermore, companies in emerging markets are not always subject to accounting, auditing and financial standards which are equivalent to those applicable in the United Kingdom and there may also be less government supervision and regulation. These risks can increase the potential for losses in the Company and affect its share price.

The Board has provided the Manager with guidelines and limits for the management of these principal risks and uncertainties. Further information on these is given in the Business Review within the Annual Report and Accounts for the year ended 30 April 2008 which is available on the Company's website (www.temit.co.uk). In the view of the Board these principal risks and uncertainties are equally applicable to the remaining six months of the financial year as they were to the six months under review.

RELATED PARTY TRANSACTIONS

During the first six months of the current financial year, no transactions with related parties have taken place which have materially affected the financial position or performance of the Company during the period. Details of related party transactions are disclosed in the Annual Report for the year ended 30 April 2008.

RESPONSIBILITY STATEMENT

The Directors confirm that to the best of their knowledge:

a)        the condensed set of financial statements, for the period ended 31 October 2008, has been prepared in
accordance with the International Accounting Standard 34 ''Interim Financial Reporting'' as adopted by the
European Union and gives a true and fair view of the assets, liabilities, financial position and loss of the
Company;

b)       the Half Yearly Report includes a fair review of the information required by the FSA's Disclosure and
Transparency Rules 4.2.7R being disclosure of important events that have occurred during the first six
months of the financial year, their impact on the condensed set of financial statements and a description of
the principal risks and uncertainties for the remaining six months of the year; and

 

c)        the Half Yearly Report includes a fair review of the information required by the Disclosure and
Transparency Rules 4.2.8R being disclosure of related party transactions during the first six months of the
financial year, how they have materially affected the financial position of the Company during the period
and any changes therein.

The Half Yearly Report was approved by the Board on 17 December 2008 and the above responsibility statement was signed on its behalf by

Peter A Smith

Chairman

MANAGER'S REPORT

This is the Manager's Report for Templeton Emerging Markets Investment Trust PLC covering the six-month period ending 31 October 2008.

While Templeton always takes a long investment horizon and builds and refines its investment methodology around that value-oriented philosophy, there have been times when the sustainability of its success has been tested. Equities are intrinsically volatile and risky, so there may be prolonged periods when share prices are depressed and remain so. It is therefore important for investors to be well aware of these characteristics before they commit their savings to equities. We are of the opinion that emerging markets are in a much better position to weather the volatility than in the past due to their large fiscal reserves and relatively stronger macroeconomic trends. However, for the time being, the economic slowdown in the United States seems more severe than any crises it has faced in the past few decades. Coupled with low savings rates and poor government finances, any reforms or subsequent recoveries may be slow. While emerging markets are becoming less dependent on exports to the US, their domestic consumption may not grow fast enough to offset the abrupt declines. In addition, a possible slowdown in foreign direct investments in emerging markets may have an adverse effect on their economies.

PERFORMANCE ATTRIBUTION ANALYSIS

Half Year to 31 October 2008

Decrease in NAV	(42.1%)
Decrease in MSCI Index	(40.2%)
Relative Performance	(1.9%)
Sector allocation	(4.3%)
Stock selection	1.2%
Total equities	(3.1%)
Tender offer	1.7%
Expenses charged to capital	(0.5%)
Relative performance	(1.9%)

Overview

Emerging markets' positive performances were short-lived after most markets reached their period-highs in the first few weeks of May. Market sentiment worsened significantly in the subsequent months leading global financial markets to experience one of the most volatile periods since the 1930s. Contagion from the financial instability in the US, coupled with tightening liquidity globally, led investors to flee equity investments worldwide.

The Company's NAV decreased 42.1% whilst the MSCI Emerging Markets index benchmark ended the period down 40.2% in GBP terms. Although individual stock selection helped the Company's performance, the relative underperformance of 1.9% was mainly attributable to sector allocation (-4.3%), with overweight positions in energy and materials being the significant contributors to this result. Stock selection in the energy sector, however, was a positive contributor to relative performance. The long-term outlook for commodities remains positive with demand from emerging markets expected to support related companies. For example, infrastructure development in emerging markets such as China has led to continued demand for hard commodities such as metals. Performance was also supported by good stock selection in the banking sector. Geographically, an overweight position and good stock selection in Turkey had the largest positive attribution effects during the period. Holdings in China, however, underperformed. The Company's performance also benefited from the portfolio's predominant investment in securities with non-U.K. currency exposure. A stronger Pound Sterling in value relative to the Brazilian Real was a significant contributor. We employ a bottom-up, value oriented, long-term approach to investing. As such, the portfolio will frequently be over-weight or under-weight relative to the indices.

The unravelling of the US sub-prime mortgages, which subsequently hit companies with highly leveraged finance models in that country, resulted in a severe liquidity crisis, which ultimately led to major corporate collapses in the US. The loss of confidence spread globally resulting in a shortage of liquidity. Markets continued to plunge even further in October despite an unprecedented globally coordinated monetary policy effort, which led major banks globally to lower interest rates. Continued efforts from governments and central banks in developed as well as emerging markets globally coupled with bargain hunting, however, led investors to return to the markets. This led to a strong rebound in the last week of October.

Eastern European markets were the weakest performers during the period, as investors feared regional markets would also suffer Iceland's fate. Support from the European Union for its members and the announcement of relief packages from the International Monetary Fund (IMF) for Iceland, Hungary and Ukraine, however, eased investors' concerns. Russia was one of the worst performing emerging markets with the MSCI Russia index losing 53.8% in GBP terms as the global financial turmoil, a fall in oil prices and conflicts with Georgia led investors to exit the market.

Early gains in Latin America were overshadowed by losses in the latter part of the period as a drop in commodity prices, weaker domestic currencies and tightening global liquidity led to fund outflows. Concerns about a prolonged major downturn in the US economy and its impact on Asia, coupled with reduced liquidity led the region to end the period with declines.

Portfolio Changes & Investment Strategies

We closely monitor political and macroeconomic factors and consider the possible impact of such factors on stocks in the portfolio. For example, if there is a devaluation of the local currency, we carefully examine the effects of that on the Profit & Loss Statement and the Balance Sheet for each stock and we carry out sensitivity analysis whenever possible. The management team will have to make assumptions on average selling prices, sales volume, and cost of sales if raw materials or components need be imported, and so forth. On the balance sheet side, we will check the breakdowns of assets and liabilities by currency as well as off-balance sheet items like forward contracts.

As indicated by the low portfolio turnover, we have been applying a buy-and-hold strategy in addition to a bottom-up, value-oriented approach in stock selection. In line with Templeton's investment philosophy we are attracted to countries, sectors and companies that are out-of-favour. However, once preliminary valuation parameters are met, the analysts will prepare detailed and in-depth company documentation, which is where the bottom-up fundamental analysis begins. Once the analyst makes a buy recommendation on a stock, it will be included in the Action List so we can start investing in it. We usually hold on to the stock until it becomes fully valued and until a more promising alternative is found.

The Company undertook the sale of a number of holdings to focus on stocks deemed to be relatively more attractively valued within our investment universe. Selective sales were thus undertaken in Brazil, China ''H"  shares, South Korea, Hungary and Mexico. We also reduced our holdings in the electric utilities, coal & consumable fuels, oil & gas refining and industrial conglomerates sectors. These sales resulted in an increase in the cash level of the Company to 6.1% as of end-October from 1.1% as of end-April. We have since gradually applied the sales proceeds to new investments to take advantage of the high volatility of the market by buying into dips. The cash position has also been a positive contributor to relative performance in view of the market corrections during the period.

Key sales included Yanzhou Mining, Sinopec, and Copel. Exposure to Sinopec, a major oil manufacturer and distributor of refined oil products in China, was trimmed, allowing the Company to lock in gains and raise funds to invest in attractive stocks elsewhere. The sale of Copel, an integrated electric utility in Brazil, allowed the Company to realise gains. Yanzhou is the largest coal producer in Eastern China. The stock was sold due to concerns of regulatory risks with regards to price controls.

Conversely, additions were undertaken in India, Hong Kong, Taiwan and Indonesia as the Company continued to search for attractively valued stocks that could benefit from the developments in their respective emerging markets. Investments in consumer electronics, diversified banks, diversified metals & mining and IT consulting companies were also increased.

Major purchases included Vtech Holdings, Tata Consultancy and Sesa Goa. Vtech is a niche player with steady cash flows from cordless phone manufacturing and distribution which allows it to finance expansions into electronic learning products and others. Tata Consultancy, a major IT consulting company in India, is well positioned to benefit from the continued trend of outsourcing of services to Indian consulting companies. One of the biggest exporters of iron ore in India, Sesa Goa is a beneficiary of firm iron ore prices and the ongoing consolidation of the global mining sector.

Regional Overview

Asia

In line with the actions witnessed in many markets, the Chinese government implemented various fiscal and monetary policy measures to boost liquidity and stimulate economic growth in the last couple of months. Moreover, the country's record-high US$1.9 trillion foreign exchange reserves should put the country in a better position to weather the global credit crisis and protect its economy from any major external shocks. China grew 9.0% year-on-year in the third quarter of 2008, the slowest in five years but still much faster than its global counterparts. This brought GDP growth for the first nine months of the year to a respectable 9.9% year-on-year. Foreign direct investment (FDI) flows were up 40% year-on-year to US$74.4 billion in the first nine months of 2008 because of investments in the manufacturing and domestic demand-orientated sectors. Inflation remained on a downward trend, easing to 4.6% year-on-year in September, mainly due to lower food prices. In China, PetroChina and Sinopec began to take advantage of falling crude oil prices because their refineries no longer had to incur operating losses. On the other hand, their upstream gains were capped by windfall taxes.

In South Korea, in an effort to stimulate economic growth, the government unveiled a US$10.2 billion stimulus package and announced plans to revise its taxation system and invest US$87 billion in 22 sectors, which it believes could become growth drivers for the country, over the next five years. Several measures to boost the sluggish property market were also introduced during the period. More recently, the global credit crisis led to the implementation of a series of measures to alleviate domestic foreign exchange funding concerns in October. While the country's foreign exchange reserves declined during the period, reserves still totalled a sizeable US$239.7 billion as of end-September 2008. Moreover, the country is in a much better position to weather the current turmoil than in 1997 due to the implementation of effective structural reforms over the past decade. In line with slowing growth worldwide, GDP growth in South Korea slowed to 3.9% year-on-year in the third quarter of the year due to relatively weaker export and domestic demand. As expected, the government switched from an anti-inflationary stance to a pro-growth one. One portfolio holding, Hyundai Development, is well positioned to benefit from the recent deregulations and expansionary package.

In Thailand, in addition to the US$1.4 billion relief package announced in the earlier part of the period, the Thai government announced plans to inject another US$2.8 billion into the economy to stimulate growth and combat unemployment. Moreover, tax incentives provided to the property sector were extended by another year to March 2010. The Central Bank switched back to a neutral monetary policy in the later part of the period by leaving its benchmark interest rate unchanged at 3.75% due to slowing growth concerns. GDP growth slowed to 5.3% year-on-year in the second quarter of 2008 from 6.1% year-on-year in the first quarter. Politically, Somchai Wongsawat became the country's new Prime Minister in September after the Constitutional Court found Samak Sundaravej guilty of violating the constitution by accepting remuneration for hosting a cooking show on television and ordered him to resign. Political instability, however, continued in Thailand because of conflicts between pro and anti-government groups.

Latin America

Aimed at improving liquidity in Brazil's domestic financial markets, the Central Bank relaxed the banks' reserve requirements in September and October. This was in contrast to the aggressive 75 basis points increase in the key interest rate earlier during the period, which was aimed at slowing lending growth and curbing inflationary pressures. Access to up to US$30 billion in a US dollar to Real swap facility was also established with the US Federal Reserve if the need for additional foreign exchange rose. The government also granted a US$1.6 billion relief package to help exporters affected by the global credit crisis. FDI inflows, however, remained strong in September, totalling US$6.3 billion, bringing the total for the 12-month period to US$37.4 billion. International reserves remained high at US$205.1 billion as of mid-October. GDP growth accelerated in the second quarter to 6.1% year-on-year from a revised 5.9% in the first three months of the year. Moreover, Brazil was awarded investment grade status by two major international rating agencies, Standard & Poor's and Fitch Ratings, due to the country's solid fiscal management policies. While falling crude oil prices hurt Petrobras' profit margins, the company benefited from a weaker Real. Based on our conservative assumptions, the stock continues to be traded at deep discounts to its underlying value.

Southern/Eastern Europe

In view of the substantial volatility in the Russian market, the government announced a US$130 billion rescue package in September to stabilise the financial system and provide additional liquidity. The government also unveiled a bailout package which included US$6.7 billion for direct investments in the stock market, funds totalling US$36 billion to recapitalise the banking sector, as well as the availability of US$50 billion to banks and companies which need to refinance foreign debt in October. Foreign reserves, totalling US$484.7 billion as of 24 October, also provide the country with means to support its financial markets. Moreover, the Central Bank cut the cash reserve requirements for banks and rebalanced interest rates to provide additional liquidity into the banking sector. GDP growth remained robust at 7.5% year-on-year in the second quarter of 2008. While this was slower than the revised 8.5% year-on-year growth recorded in the first three months of the year, it is still much faster than the growth in developed economies. Politically, President Dmitry Medvedev was inaugurated in May. His predecessor, Vladimir Putin, was appointed Prime Minister. International ratings agency, Standard & Poor's reaffirmed Turkey's BB-  ­ long-term sovereign debt rating and maintained a stable outlook due to the country's sound economic and fiscal management and resilient banking sector. The IMF also visited the country to discuss the possibility of a precautionary stand-by agreement. While no conclusion has been reached thus far, talks are expected to continue. Economically, weak private consumption and a decline in government spending led to a deterioration in GDP growth in the second quarter of 2008. GDP growth slowed to 1.9% year-on-year, from a revised 6.7% year-on-year in the first quarter. Politically, the Constitutional Court rejected the chief prosecutor, Abdurrahman Yalcinkaya's petition to shut down the ruling Justice and Development Party (AKP) and impose a political ban on AKP officials including President Abdullah Gul and Prime Minister Tayyip Erdogan. Instead, the Court imposed some financial penalties as it did find the party guilty of anti-secular activities. 

The table below shows the changes in the relevant currencies versus Pound Sterling during the period. It should be noted that there were mixed results due to foreign exchange fluctuations. Although at times these changes may move together in one direction and add to the overall volatility of the portfolio, at other times these changes may just offset each other. We do not allocate assets according to country or currency outlook, but try to ensure that the management of the investee company are competent to cope with such changes and to protect the company's assets and profitability.

	*Portfolio Weighting %	+Exchange Rate vs. GBP		Appreciation/
Currency	31 October 08	30 April 08	31 October 08	(Devaluation) %
Brazilian Real	23.9	3.304	3.4708	(5)
Chinese Yuan	17.5	13.884	10.994	21
Turkish Lira	10.5	2,535,281	2,483,340	2
Thai Baht	9.6	62.745	56.329	10
Russian Ruble	9.3	46.965	43.516	7
Korean Won	8.6	1,991.6	2,074.6	(4)
Indian Rupee	6.2	80.458	79.507	1
Polish Zloty	3.3	4.4072	4.4634	(1)
Indonesia Rupiah	2.8	18,343	17,764	3
Hungarian Forint	1.9	320.96	323.20	(1)
New Taiwan Dollar	1.7	60.494	53.011	12
Pakistan Rupee	1.6	128.39	131.00	(2)
Euro	1.6	1.2734	1.2621	1
South African Rand	1.1	15.024	15.722	(5)
Mexican Peso	0.2	20.834	20.619	1
Swedish Krona	0.2	11.904	12.486	(5)

* The portfolio weightings reflect the country exposure of the Company. However, the Company invests in some of these countries through non-local denominated instruments such as ADR's.

+ Source: Bloomberg Closing Prices

Outlook

A rebound in equity prices towards the end of October was interrupted in November as investors reacted to adverse economic news in the United States and elsewhere. News of the big three American automakers facing operational concerns without support from the US government raised further concerns. Much of Europe also reported significant economic slowdowns, with Germany announcing it was officially in a recession.

Growing accustomed to bad news, investors began to shift their focus to the increasingly attractive valuations in emerging markets. Many markets were trading at single-digit price-to-earnings ratios, with many companies trading at below their net asset value. Stocks thus rebounded in the first couple of weeks in December as investors sought to benefit from the attractive investment opportunities in this asset class. Continued efforts from governments and central banks also supported domestic economies. In total, more than US$1 trillion had been pledged by global governments including China, the US, Germany, the UK, Taiwan, Spain, Japan, South Korea, Russia, France, Australia, Hong Kong, Singapore and Malaysia, to rejuvenate their domestic economies.

While we believe that the longer-term outlook for emerging markets remains positive due to the relatively strong fundamental characteristics and faster growth rate than their developed counterparts, 2009 is expected to be challenging. We can expect more volatility in view of slowing growth and recession concerns in major world economies, volatile exchange rates and commodity prices, and a continuation of the global credit crunch. Liquidity could also remain limited in the first half of 2009 as investors adapt to evolving global conditions. Easing monetary policies and fiscal stimulus measures implemented by central banks and governments globally should also support economies. Thus, we could see credit conditions recover in the short to medium term. While inflation was a major concern in 2008, a drop in commodity prices eased fuel and food prices in many economies which allowed inflation to subside in the latter part of the year. In 2009, though, we could see commodity prices rise along with inflation and consumer demand from emerging markets.

The significant correction this year has made emerging market stocks especially attractive. Valuations have come down to extremely low levels, with many markets trading at single-digit price-to-earnings ratios. While no one can predict the absolute bottom of a market, market valuations are looking increasingly attractive. History has shown us that the best time to buy is when everyone is despondently selling. This enables us to purchase stocks at lower prices.

J Mark Mobius, Ph.D.

Templeton Asset Management Ltd.

  TOP TWENTY HOLDINGS

As at 31 October 2008

			%		%
			of		of
Company	Country	Industry	Total	MSCI	Issued	Market
			Net	Index	Share	Value
			Assets	Weighting	Capital	£'000
Cia Vale do Rio Doce	Brazil	Diversified Metals &	5.8	1.4	0.4	53,478
		Mining
Unibanco Uniao De
Bancos Brasileiros Sa (Ubb)	Brazil	Diversified Banks	5.7	0.4	1.1	52,992
Banco Bradesco Sa	Brazil	Diversified Banks	5.7	0.9	0.5	52,377
Akbank	Turkey	Diversified Banks	5.1	0.2	0.8	46,856
Petroleo Brasileiro Sa
(Petrobras)	Brazil	Integrated Oil & Gas	5.0	3.9	0.2	45,903
Hyundai Development Co	Korea	Construction &
	(South)	Engineering	4.8	0.1	3.5	44,510
Petrochina Co Ltd	China	Integrated Oil & Gas	3.7	0.9	0.4	34,604
Dairy Farm International
Holdings Limited	Singapore	Food Retail	3.4	0.0	0.9	31,407
SK Energy Co Ltd	Korea	Oil & Gas Refining &	3.2	0.2	0.9	29,499
	(South)	Marketing
Siam Commercial Bank	Thailand	Diversified Banks	2.6	0.1	1.0	23,758
Denway Motors Ltd	Hong Kong	Automobile	2.5	0.1	2.1	23,488
		Manufacturers
Gazprom	Russia	Integrated Oil & Gas	2.5	2.7	0.0	22,993
Tupras-Turkiye Petrol	Turkey	Oil & Gas Refining &	2.5	0.1	1.2	22,882
Rafineleri As		Marketing
Turkcell Iletisim Hizmetleri	Turkey	Wireless	2.3	0.2	0.3	21,642
As		Telecommunication
		Services
Polski Koncern Naftowy	Poland	Oil & Gas Refining &	2.2	0.1	0.8	20,391
Orlen Sa		Marketing
China Petroleum & Chemical	China	Integrated Oil & Gas	2.2	0.6	0.3	20,344
Corp (Sinopec)
Vtech Holdings Ltd	Bermuda	Communications	2.0	0.0	3.3	18,618
		Equipment
Aluminum Corp of China Ltd	China	Aluminium	1.9	0.1	1.9	17,112
Mining and Metallurgical	Russia	Diversified Metals &	1.8	0.4	1.4	17,065
Co Norilsk Nickel		Mining
Oil & Natural Gas Corp Ltd	India	Oil & Gas Exploration	1.8	0.3	0.9	16,859
		& Production
Top 20 Holdings			66.7			616,778

Since 1 May 2008, MOL Hungarian Oil and OMV have dropped out of the top twenty holdings and Vtech Holdings and Oil & Natural Gas Corp have come into it.

GEOGRAPHIC ASSET ALLOCATION

	TEMIT	MSCI
	COUNTRY	COUNTRY	PERFORMANCE	PERFORMANCE
COUNTRY	ALLOCATION	ALLOCATION	MSCI INDEX GBP	MSCI INDEX LOCAL
Brazil	22.3%	14.2%	(46.9)	(45.5)
China	16.3%	15.3%	(43.0)	(52.0)
Turkey	9.8%	1.6%	(32.0)	(33.6)
Thailand	8.8%	1.3%	(44.9)	(50.3)
Russia	8.7%	7.4%	(53.8)	(60.4)
South Korea	8.0%	13.0%	(42.1)	(37.9)
India	5.8%	6.6%	(45.6)	(45.7)
Poland	3.1%	1.7%	(36.0)	(34.6)
Indonesia	2.6%	1.4%	(44.4)	(46.4)
Hungary	1.8%	0.7%	(45.1)	(44.1)
Taiwan	1.6%	11.6%	(35.4)	(42.9)
Austria	1.5%	0.0%	(57.0)	(57.0)
Pakistan	1.5%	0.2%	(42.4)	(40.7)
South Africa	1.0%	7.2%	(31.4)	(25.4)
Sweden	0.2%	0.0%	(39.9)	(36.2)
Mexico	0.2%	5.2%	(33.2)	(33.9)
Other Assets	6.8%

	30 April		Sales	Sales	Market	31 October	MSCI Index GBP
Country	Market Value	Purchases	Regular	Tender Offer	Movement	Market Value	Movement
	£m’s	£m’s	£m’s	£m’s	£m’s	£m’s	%
Brazil	604	-	(52)	(164)	(181)	207	(46.9)
China	334	46	(59)	(91)	(79)	151	(43.0)
South Korea	237	7	(32)	(58)	(80)	74	(42.1)
Russia	227	-	-	(72)	(74)	81	(53.8)
Thailand	205	-	-	(51)	(72)	82	(44.9)
Turkey	179	-	-	(42)	(46)	91	(32.0)
India	135	26	(5)	(36)	(66)	54	(45.6)
Other	344	47	(27)	(78)	(161)	125
Other Assets	26				37	63
Total	2,291	126	(175)	(592)	(722)	928

SECTOR ASSET ALLOCATION

	TEMIT	MSCI
	SECTOR	SECTOR	PERFORMANCE
SECTOR	ALLOCATION	ALLOCATION	MSCI INDEX GBP
Energy	33.8%	18.3%	(46.7)
Financials	21.8%	21.4%	(41.9)
Materials	17.3%	15.1%	(52.5)
Industrials	5.1%	8.4%	(50.1)
Consumer Disctretionary	4.7%	4.7%	(35.7)
Information Technology	3.6%	10.9%	(32.0)
Consumer Staples	3.4%	4.6%	(25.2)
Telecommunication Services	3.2%	11.3%	(29.0)
Utilities	0.3%	3.3%	(25.0)
Health Care	0.0%	1.8%	(3.5)
Other Assets	6.8%

	30 April		Sales	Sales	Market	31 October	MSCI Index GBP
Sector	Market Value	Purchases	Regular	Tender Offer	Movement	Market Value	Movement
	£m’s	£m’s	£m’s	£m’s	£m’s	£m’s	%
Energy	632	9	(59)	(222)	(59)	301	(46.7)
Financials	480	16	-	(128)	(140)	228	(41.9)
Materials	442	24	(5)	(121)	(207)	133	(52.5)
Industrials	126	5	(17)	(37)	(29)	48	(50.1)
Consumer Discretionary	158	13	(15)	(29)	(89)	38	(35.7)
Consumer Staples	85	1	(23)	(21)	(7)	35	(25.2)
Telecommunication Services	83	-	(6)	(20)	(21)	36	(29.0)
Other	259	58	(50)	(14)	(207)	46
Other Assets	26				37	63
Total	2,291	126	(175)	(592)	(722)	928

The Investment Manager uses a value style of investing and the constituents of the portfolio may not match those of the Index.

INCOME STATEMENT 

For the six months to

31 October 2008 (unaudited)

	Revenue	Capital	Total
	£000	£000	£000
(Losses)/gains on investments and exchange
(Losses)/gains on investments at fair value	-	(756,989)	756,989
Losses on foreign exchange	-	(556)	(556)
Revenue
Dividends	36,321	-	36,321
Bank Interest	1,490	-	1,490
	37,811	(757,545)	(719,734)
Expenses
Investment management fee	(8,707)	-	(8,707)
Other expenses	(4,191)	-	(4,191)
Profit before taxation	24,913	(757,545)	(732,632)
Tax expense	(6,463)	-	(6,463)
Profit/(loss) for the period	18,450	(757,545)	(739,095)
Profit/(loss) attributable to equity holders
of the Company	18,450	(757,545)	(739,095)
Basic Earnings per Ordinary Share	4.6p	(188.6p)	(184.0p)
Basic Earning per Ordinary Share excluding
tender costs charged to Revenue	4.9p	(188.6p)	(183.7p)
Annualised Expense Ratio			1.40%
Annualised Expense Ratio excluding tender
costs charged to Revenue			1.33%

The capital element of return is not distributable.

The total column is the Income Statement of the Company.

The supplementary revenue and capital return columns are both prepared under guidance published by the Association of Investment Companies.

All revenue and capital items in the above statement derive from continuing operations.

As stated in note 4, expenses of £1.3 million associated with the tender offer have been charged as a revenue expense in other expenses.

Dividend Policy

In accordance with the Company's stated policy, no dividend is declared for the period.

(A dividend of 3.50 pence per Ordinary Share was paid for the year ended 30 April 2008).

  INCOME STATEMENT (CONTINUED)

For the six months to	Year to
31 October 2007 (unaudited)	30 April 2008 (audited)

Revenue	Capital	Total		Revenue	Capital	Total
£000	£000	£000		£000	£000	£000
-	922,787	922,787		-	607,057	607,057
-	(361)	(361)		-	(581)	(581)
30,847	-	30,847		57,578	-	57,578
664	-	664		820	-	820
31,511	922,426	953,937		58,398	606,476	664,874
(10,601)	-	(10,601)		(22,602)	-	(22,602)
(3,934)	-	(3,934)		(8,228)	-	(8,228)
16,976	922,426	939,402		27,568	606,476	634,044
(4,530)	-	(4,530)		(7,728)	-	(7,728)
12,446	922,426	934,872		19,840	606,476	626,316
12,446	922,426	934,872		19,840	606,476	626,316
2.5p	184.6p	187.1p		4.1p	124.4p	128.5p
-	-	-		-	-	-
		1.32%				1.33%
-	-	-		-	-	-

BALANCE SHEET

	As at	As at	As at
	31 October	31 October	30 April
	2008	2007	2008
	£000	£000	£000
	(unaudited)	(unaudited)	(audited)
Assets
Non-current assets
Investments at fair value through profit or loss	864,921	2,654,129	2,264,926
Current assets
Trade and other receivables	6,096	11,547	18,961
Cash	69,035	2,170	22,605
	75,131	13,717	41,566
Current liabilities
Bank borrowings	-	(12,275)	-
Trade and other payables	(5,494)	(4,704)	(11,802)
Current tax payable	(5,258)	(5,160)	(2,778)
	(10,752)	(22,139)	(13,860)
Non-current liabilities
Deferred tax liabilities	(1,044)	(717)	(1,237)
Net assets	928,256	2,644,990	2,291,395
Issued share capital and reserves attributable
to equity shareholders
Called-up Share Capital	82,632	120,623	118,170
Share Premium Account	375,327	375,327	375,327
Capital Redemption Reserve	58,256	20,265	22,718
Capital Reserves - Realised	349,862	320,466	1,719,870
Capital Reserves - Unrealised	-	-	-
Revenue Reserves	62,179	1,760,487	55,310
Equity shareholders' funds	928,256	2,644,990	2,291,395
Net Asset Value per Ordinary Share (in pence)	280.8	548.2	484.8

STATEMENT OF CHANGES IN EQUITY (UNAUDITED)

			Capital	Capital	Capital
	Share	Share	Redemption	Reserve -	Reserve -	Revenue
	Capital	Premium	Reserve	Realised	Unrealised	Reserve	Total
	£000	£000	£000	£000	£000	£000	£000
Balance at 30 April 2007	133,995	375,327	6,893	414,900	943,605	50,764	1,925,484
Profit for the period	-	-	-	106,309	816,882	12,352	935,543
Equity dividends	-	-	-	-	-	(15,294)	(15,294)
Purchase and cancellation of
own shares	(13,372)	-	13,372	(200,743)	-	-	(200,743)
Balance at 31 October 2007	120,623	375,327	20,265	320,466	1,760,487	47,822	2,644,990
Transfer to capital reserves*	-	-	-	943,605	(1,760,487)	-	(816,882)
Profit for the period	-	-	-	500,167	-	7,488	507,655
Equity dividends	-	-	-	-	-	-	-
Purchase and cancellation of
own shares	(2,453)	-	2,453	(44,368)	-	-	(44,368)
Balance at 30 April 2008	118,170	375,327	22,718	1,719,870	-	55,310	2,291,395
Profit for the period	-	-	-	(757,545)	-	18,450	(739,095)
Equity dividends	-	-	-	-	-	(11,581)	(11,581)
Purchase and cancellation of own shares	(35,538)	-	35,538	(612,463)	-	-	(612,463)
Balance at 31 October 2008	82,632	375,327	58,256	349,862	-	62,179	928,256

* With effect from 1 May 2007, changes in fair value of investments which are readily convertible to cash, without accepting adverse terms, at the balance sheet date are included in realised, rather than unrealised, capital reserves. The balance on both capital reserves at 1 May 2007 was amended by a reserve transfer to reflect this change.

CASH FLOW STATEMENT

	For the six	For the six	For the year
	months to	months to	ended 30 April
	31 October 2008	31 October 2007	2008
	£000	£000	£000
	(unaudited)	(unaudited)	(audited)
Cash flows from operating activities
(Loss)/profit before taxation	(732,632)	939,402	634,044
Adjustments for:
Losses/(gains) on investments at fair value	756,989	(922,787)	(607,057)
Realised loss on foreign exchange	556	361	581
Decrease/(increase) in debtors	5,297	1,599	(2,934)
(Increase)/decrease in accured income	(107)	43	20
(Decrease)/increase in creditors	(5,352)	1,150	3,827
Cash generated from operations	24,751	19,768	28,481
Taxation paid	(4,175)	(3,148)	(8,160)
Net cash inflow from operating activities	20,576	16,620	20,321
Cash flows from investing activities
Purchases of non-current financial assets	(131,217)	(57,671)	(146,864)
Sales of non-current financial assets	781,133	221,137	383,616
	649,916	163,466	236,752
Cash flows from financing activities
Equity dividends paid	(11,581)	(15,294)	(15,294)
Purchase and cancellation of own shares	(612,463)	(200,743)	(245,111)
	(626,044)	(216,037)	(260,405)
Net increase/(decrease) in cash	46,448	(35,951)	(3,332)
Cash at start of period	22,605	25,915	25,915
Exchange (loss)/gain on cash	(18)	(69)	22
Cash at end of period	69,035	(10,105)	22,605

NOTES TO THE FINANCIAL STATEMENTS

1.    Basis of preparation

The Half Yearly Report for the period ended 31 October 2008 has been prepared in accordance with International Accounting Standards ("IAS") 34 "Interim Financial Reporting". 

The accounting policies applied to these half yearly accounts are consistent with those applied in the accounts for the year ended 30 April 2008.

The financial information contained in this half yearly report does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. The financial information for the half years ended 31 October 2007 and 31  October 2008 has neither been audited or reviewed by the Company's auditors. The figures and financial information for the year ended 30 April 2008 are extracted from the latest published accounts and do not constitute the statutory accounts for that year. Those accounts have been delivered to the Registrar of Companies and included the Report of the Independent Auditors, which was unqualified and did not include a statement under either section 237(2) or 237(3) of the Companies Act 1985.

2.    Contingent Assets

A European Court of Justice case has found that the management fees of investment trust companies should be exempt from VAT. Since then HMRC has accepted the Company's repayment claims for the periods 2001 to 2007 in respect of fees payable to Templeton Asset Management Ltd and the Company has received the majority of the monies due from HMRC in respect of the claims submitted directly by it. The total amount received to date is £602,000. On the basis of the current legal position a further amount of no more than £250,000 is expected from HMRC.

There are nevertheless still items to be agreed with HMRC in relation to the outstanding claims submitted in respect of fees payable to Franklin Templeton Investment Management Limited, and at this time no credit has been taken into these accounts for any amounts that may be still recoverable. On the basis of the current legal position, the recovery is not expected to be more than £200,000.

Due to recent decisions in the European Court of Justice, the taxation of overseas dividends in the UK has been subject to review. In response to decisions from the courts, the Government has issued a consultation paper on the future taxation of overseas dividends. In light of this uncertainty, the Company has not recognised the potential refund of UK corporation tax from treating these income as non-taxable.

3.    Earnings per Ordinary Share

	For the six	For the six	For the year
	months to	months to	ended
	31 October 2008	31 October 2007	30 April 2008
	£’000	£’000	£’000
Revenue Return	18,450	12,446	19,840
Capital (loss)/return	(757,545)	922,426	606,476
Total	(739,095)	934,872	626,316
Weighted average number of shares	401,712,186	499,625,725	487,398,572
Revenue return per share	4.6p	2.5p	4.1p
Capital return per share	(188.6p)	184.6p	124.4p
Total return per share	(184.0p)	187.1p	128.5p

Costs associated with the tender offer of £1.3 million were charged as a revenue expense. If these costs are excluded, then the revenue return would have been £19,729,000 with a revenue return per share of 4.9 pence per share.

4.    Shares Repurchased

The shares repurchased in the period were 142,154,364 representing 30% of the Company's share capital at an average price per share of £4.29. 

The total cost to the Company was £612.5 million (as at 30 April 2008 - £245.1 million). The total expenses relating to the tender offer were £4.3 million. Of this, £1.3 million was charged as a revenue expense with the rest taken to realised reserves. As at 31 October 2008, there were 330,526,852 (as at 30 April 2008 - 472,681,216) shares in issue.

5.    Costs of Investment Transactions

During the period, expenses were incurred in acquiring or disposing of investments. The following costs of transactions are included in the gains/(losses) on investments.

	For the six	For the six	For the year
	months to	months to	ended
	31 October 2008	31 October 2007	30 April 2008
	£’000	£’000	£’000
Purchases	235	353	594
Sales	394	480	877
	629	833	1,471

6.    Post Balance Sheet date event

On 5 December 2008, Court approval was received for the cancellation of the Share Premium Account and £58.2  million of the Capital Redemption Reserve.

  Copies of Half Yearly Report

Copies of the Half Yearly Report are available from the Company's website (www.temit.co.uk) or from Client Dealer Services at Franklin Templeton Investments on 0800 305 306 (UK only) or [phone] (for outside UK).

For information please contact Joe Winkley at UBS Limited (0207 567 8000) or Client Dealer Services at Franklin Templeton Investment Management Limited (0800 305 306).  No representation or warranty is made by UBS Limited as to the accuracy or completeness of the information contained in this announcement and no liability will be accepted for any loss arising from its use. These figures have been prepared by Franklin Templeton Investments and are their sole responsibility.

End of Announcement.

 

END

 

 

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