Interim Management Statement

RNS Number : 5955M

Templeton Emerging Markets IT PLC

17 July 2014

 

Templeton Emerging Markets Investment Trust PLC ("the Company/TEMIT")

Interim Management Statement

For the three months ended 30 June 2014

The interim management statement relates to the period 1 April 2014 to 30 June 2014 and is the Company's first interim management statement for the financial year 31 March 2015, as required by the UK Listing Authority's Disclosure and Transparency Rule 4.3.

INVESTMENT OBJECTIVES

Summary of Investment Objective

TEMIT seeks long-term capital appreciation for its investors through investment in companies operating in emerging markets or whose stocks are listed in the stock markets of such countries.

Company Characteristics (as at 30/06/2014)

Pricing Information (as at 30/06/2014)

Launch Date

12/06/1989

NAV (Cum-Income)

620.3p

Benchmark

MSCI Emerging Markets (£)

NAV (Ex-Income)

616.8p

Lead Manager

Mark Mobius

Share Price

561.0p

Total Net Assets

£1,998m

Discount to NAV (Cum-Income)

9.6%

Market Capitalisation

£1,807m

Discount to NAV (Ex-Income)

9.0%

Gearing

0%

Current Yield (net)

1.3%

Invested Assets

96.8%

For the year to 30 June 2014

Ongoing Charge Ratio (OCR)

1.20%

Highest NAV (Cum-Income)

629.9p

Lowest NAV (Cum-Income)

494.4p

Highest Share Price

564.5p

Lowest Share Price

493.5p

Share price is at the UK market closing mid price.

Net asset value is based on closing bid prices.  Assets are priced at local close or adjusted for fair value at US market close.  Further information can be found at www.temit.co.uk. 

Please note that the OCR reflects the ongoing charges from 1 July 2014.  From this date the management fees paid to Franklin Templeton were reduced by 0.1% per annum.

Ratings

Morningstar^TM Workstation Category: Global Emerging Markets Equity

Morningstar^TM Overall Rating: 

Morningstar^TM Analyst Rating: Bronze

INVESTMENT PERFORMANCE

For the three months to 30 June 2014, TEMIT's share price increased by 6.5% compared with the MSCI Emerging Markets Index, which increased by 3.0%¹(both on a capital return basis). Please note that past performance is not a guide to future performance.

Cumulative Performance (Total return) (%)¹

30 June 2014

	3 Months %	6 Months %	Calendar Year to Date %	1 Year %	3 Years %	5 Years %	10 Years %	*Since 31/07/89 %
TEMIT (Share Price)    - annualised	+7.9	+7.4	+7.4	+2.7	-10.7 -3.7	+60.1 +9.9	+365.5 +16.6	+2,074.2 +13.1
TEMIT (NAV)    - annualised	+6.1	+8.1	+8.1	+1.5	-8.6 -3.0	+66.2 +10.7	+304.3 +15.0	+2,281.5 +13.6
MSCI Emerging Markets Index    - annualised	+4.0	+3.0	+3.0	+1.7	-6.3 -2.1	+52.2 +8.8	+238.3 +13.0	+982.7 +10.0

* The first available NAV was calculated as at 31/07/89.  NAV, share price and index performance are all calculated from this date.

1. Please see end of document for glossary and important information

Discrete Annual Performance (Total Return) (%)¹

To end of June each year

	Year to 30/06/14	Year to 30/06/13	Year to 30/06/12	Year to 30/06/11	Year to 30/06/10
TEMIT (Share Price)	+2.7	+5.0	-17.2	+24.1	+44.5
TEMIT (NAV)	+1.5	+8.3	-16.9	+25.9	+44.5
MSCI Emerging Markets Index	+1.7	+6.8	-13.7	+19.4	+35.9

1. Please see end of document for glossary and important information

INVESTMENT MANAGER'S MARKET COMMENTARY AND OUTLOOK

Market commentary

Several emerging markets have experienced quite volatile performance during 2014. However, the overall trend has been positive. Russia and Turkey have seen sharp market falls followed by dramatic recoveries, while India has seen a strong rally from late 2013 lows. Taking a long-term perspective, such short-term price movements can open up attractive opportunities to take positions in what we regard as strong businesses at favourableprices, or to exit from positions where short-term enthusiasm has left stocks trading at above our assessment of their intrinsic value. In our opinion, valuations of emerging markets in general, and select individual stocks even more so, remain below the levels suggested by our assessment of their longer-term potential.

During the second quarter, emerging markets outperformed developed markets with the MSCI Emerging Markets Index returning (total return) 4.0% in UK sterling terms. Key performance drivers included fading concerns about the impact of a reduction in US quantitative easing on emerging markets, declining geopolitical risks, expectations of reforms and better policy-making, implementation of stimulus measures as well as stabilisation in Chinese macroeconomic data. Fund flows into emerging markets turned positive during the second quarter, as investors focused on the attractive valuations and prospects for the asset class. Tensions in Iraq led the price of oil and gold to increase in June, while industrial metal prices rose on improving manufacturing activity in China.

Turkey was the best performer during the quarter, driven by an improvement in external balances, better than expected economic growth, lower inflation and an easing monetary policy. The Indian market rallied on the Bharatiya Janata Party's decisive election victory, while Russian equities benefited from higher oil prices and an easing of tensions in Ukraine. Taiwan's solid return was largely due to a strong performance in the technology sector. Other strong markets included Thailand, which benefited from the political stability imposed by the military coup, improving macroeconomic data and a moderately well received economic plan from the new administration, and Brazil, where relief at a successful staging of the football World Cup and reaction to a modest stimulus programme outweighed some indifferent economic data. The Chinese and South Korean markets also ended the quarter with decent returns. Qatar suffered a difficult first month (June) in the MSCI Emerging Markets Index making the market among the worst performers for the quarter. Speculative positions built up ahead of its transition from MSCI Frontier Market status unwound, with investor sentiment also affected by corruption allegations surrounding Qatar's bid to host the 2022 football World Cup.

Over the quarter to 30 June 2014, the net asset value of the Company increased by 4.8% to 620.3 pence per share. The Investment Manager (Templeton Asset Management Limited) continues to see emerging markets benefiting from relatively good growth prospects, attractive valuations and solid fundamentals and will continue to monitor the markets for favourable investment opportunities.

Outlook

Underlying conditions in emerging markets appear to be on an improving trend in our opinion. Stable global economic growth provides a benign backdrop for emerging markets while governments across Asia and elsewhere are bringing forward reform programmes aimed at making economies more responsive to market signals and less dominated by political imperatives. In addition, trade negotiations in a number of countries offer the prospect of reduced trade barriers, potentially boosting long-term economic growth. With many emerging markets already achieving much stronger economic growth than is available in most developed markets, we believe that current reforms could further strengthen economic performance, while potentially improving the profitability of many emerging market companies.

INVESTMENT PORTFOLIO

TEMIT Holdings

10 Largest Equity Issuers²

30 June 2014

Issuer	Sector	Country	Total Assets (%) 30/06/14	Total Assets (%) 31/03/14
Brilliance China Automotive	Consumer Discretionary	Hong Kong / China	10.2	9.1
Tata Consultancy Services	Information Technology	India	6.6	6.2
Itau Unibanco, ADR	Financials	Brazil	4.4	4.4
Banco Bradesco, ADR	Financials	Brazil	4.1	4.1
Dairy Farm	Consumer Staples	Hong Kong / China	4.0	3.9
Siam Commercial Bank	Financials	Thailand	3.9	3.9
Astra International	Consumer Discretionary	Indonesia	3.6	4.0
MCB Bank	Financials	Pakistan	3.5	3.1
Unilever	Consumer Staples	United Kingdom	3.3	0.2
VTech	Information Technology	Hong Kong / China	3.2	3.4

2. Please see end of document for glossary and important information

The securities above used to calculate the NAV have been valued on a bid basis. The valuation of the assets is as at each local market close or, where appropriate, adjusted for changes in the fair value of these assets at US close.

Largest Contributors and Detractors to Performance (% contribution in GBP)

31 March 2014- 30 June 2014

Top Security Contributors²

Security	Sector	Country	Contribution (%)
Brilliance China Automotive	Consumer Discretionary	Hong Kong / China	1.7
Tata Consultancy Services	Information Technology	India	0.7
MCB Bank	Financials	Pakistan	0.5
Oil & Natural Gas	Energy	India	0.5
Akbank	Financials	Turkey	0.4

2. Please see end of document for glossary and important information

Top Security Detractors²

Security	Sector	Country	Contribution (%)
Astra International	Consumer Discretionary	Indonesia	-0.2
Buenaventura, ADR	Materials	Peru	-0.2
China International Marine Containers, B	Industrials	Hong Kong / China	-0.2
Impala Platinum	Materials	South Africa	-0.2
Vale, ADR	Materials	Brazil	-0.1

2. Please see end of document for glossary and important information

Performance Attribution for the period 1 April 2014 to 30 June 2014

Leading stocks contributing to performance, relative to the benchmark MSCI Emerging Markets Index, included overweight positions in Brilliance China Automotive, MCB Bank and Oil & Natural Gas. In terms of sectors, stock selection in financials, consumer discretionary and consumer staples supported performance. Good stock selection and an overweight position in energy also generated a noteworthy contribution.  Geographically, good stock selection in China was the largest contributor to relative performance. Stock selection and an overweight position in India also had a positive impact. Overweight exposures to Thailand, Pakistan and Turkey further contributed.

In contrast, major stock detractors included overweight positions in Astra International in Indonesia, Buenaventura in Peru and China International Marine Containers in Hong Kong/China. In terms of sectors, there was a very marginal negative contribution from Industrials to performance. In terms of markets, stock selection in Indonesia and Peru, and a zero position in the outperforming Taiwanese market, were the biggest detractors.

Investment portfolio updates

Purchases

TEMIT undertook purchases in two existing holdings and a new security was added to the Company portfolio for a total consideration of £94.0 million during the quarter to 30 June 2014.

Industries Qatar (new holding) is one of the largest integrated industrial holding companies in Qatar. The company is essentially a publicly listed holding structure for the government's interests in four of the largest non-gas industrial companies in Qatar. Industries Qatar enjoys strong government support and plays an important role in the global export market. Proximity to both the East and West is another advantage from an exporting perspective.

Unilever (existing holding) is a global consumer products company with operations in foods, refreshment, home care and personal care. Reasons supporting our positive view on the company include its large exposure to emerging markets, ownership of top brands with dominant market shares and established network and partnerships with distributors.

Petroleo Brasilero, ADR (existing holding) is Brazil's national oil and gas company. The company's attractive valuations, strong expertise in deep-water exploration and production, and proven reserves support the attractiveness of this company.

Sales

TEMIT sold off entire holdings of four securities and a partial sale in one security for a total consideration of £116.6 million during the quarter to 30 June 2014.

Brilliance China Automotive (partial sale) holdings were trimmed to reduce concentration in the stock. This also allowed the Company to realise gains. Brilliance China Automotive is a major Chinese automobile manufacturer with a joint venture with BMW for the production and sale of BMW 3-series and 5-series in China. The Investment Manager is still positive on the stock and it remains TEMIT's largest holding.

Complete disposals

The Manager sold out of Sesa Sterlite, one of the biggest miners of iron ore in India, Wal-Mart de Mexico, a leading retail chain in Mexico, Anglo American, one of the largest diversified mining companies in the world, and National Aluminum, a major Indian aluminum producer, to raise funds for more attractive investment opportunities.

As a result of these changes, investments increased in the consumer staples and energy sectors and, by country, in the United Kingdom (as Unilever is listed in London), Qatar and Brazil. The majority of sales were undertaken in the materials sector and, by country, holdings were reduced in South Africa, Mexico and India. Repurchases of TEMIT's own shares were also made during the quarter.

Portfolio Turnover Rate³

Year to 30 June 2014

	Turnover Rate (%)
Portfolio Turnover Rate (annualised)	18.1

3. Please see end of document for glossary and important information

Market Capitalisation Breakdown (%)³

As at 30 June 2014

	Less than £1.5bn	£1.5bn to £5bn	Greater than £5bn	Liquid Net Assets**
Market Capitalisation	5.0	18.6	73.2	3.2

3. Please see end of document for glossary and important information

Split Between Markets⁴

30 June 2014

% Split
Emerging Markets	87.6	Frontier Markets	4.9	Developed Markets*	4.3	Liquid Net Assets**	3.2

4. Please see end of document for glossary and important information

*Developed markets exposure represented by Austria

**Liquid Net Assets are the result of sales proceeds awaiting reinvestment

Sector Information                                                                                

Sector Weightings vs. Benchmark (%)⁴                                                                 Sector Overweights/Underweights vs. Benchmark (%)⁴

As at 30 June 2014                                                                As at 30 June 2014

Sector	TEMIT (%)	MSCI Emerging Markets Index (%)		Sector	Over Benchmark (%)	Under Benchmark (%)
Financials	26.4	27.3		Energy	10.9
Energy	21.7	10.8		Consumer Discretionary	7.8
Consumer Discretionary	16.9	9.1		Materials	0.5
Information Technology	11.0	17.0		Telecommunications Services		-7.0
Materials	9.2	8.7		Information Technology		-6.0
Consumer Staples	7.7	8.3		Utilities		-3.5
Industrials	3.9	6.5		Industrials		-2.6
Healthcare	-	1.8		Health Care		-1.8
Telecommunications Services	-	7.0		Financials		-0.9
Utilities	-	3.5		Consumer Staples		-0.6

4. Please see end of document for glossary and important information

Largest Contributors and Detractors to Performance⁵ (% contribution in GBP)

31 March 2014- 30 June 2014

Top Sector Contributors                                                                     

Sector	Contribution (%)
Financials	1.9
Energy	1.8
Consumer Discretionary	1.6
Information Technology	0.7
Consumer Staples	0.5

5. Please see end of document for glossary and important information

Top Sector Detractors

There was a very marginal negative contribution on Industrial. However, all other sectors within the portfolio contributed positively to performance.

Geographic Information

10 Largest Country Weightings vs. Benchmark (%)⁴                                   Regional Weightings vs. Benchmark (%)⁴

As at 30 June 2014                                                                    As at 30 June 2014

Country	TEMIT (%)	MSCI Emerging Markets Index (%)		Region	TEMIT (%)	MSCI Emerging Markets Index (%)
Hong Kong / China	27.0	18.3		Asia	64.9	62.4
Brazil	13.8	10.9		L. America/Caribbean	15.9	19.0
Thailand	12.6	2.2		Europe	14.2	10.0
India	10.2	6.8		Mid-East/Africa	1.8	8.6
Indonesia	5.8	2.5
Turkey	5.2	1.7
Pakistan	4.8	-
Russia	4.7	5.4
South Korea	4.5	15.6
United Kingdom	3.3	-

4. Please see end of document for glossary and important information

Largest Contributor and Detractors to Performance⁵ (% contribution in GBP)

31 March 2014- 30 June 2014

Top Country Contributors                     Top Country Detractors

Country	Contribution (%)		Country	Contribution (%)
Hong Kong / China	2.5		Indonesia	-0.4
India	1.4		Peru	-0.2
Thailand	0.8		South Africa	-0.2
Turkey	0.6		Qatar	-0.1
Pakistan	0.6

5. Please see end of document for glossary and important information

Statistics⁶

Fundamental Portfolio Characteristics⁶

30 June 2014

	Price to Earnings	Price to Book Value	Price to Cash Flow	Dividend Yield	Average Market Cap (Millions)
TEMIT (Weighted Average)	13.1x	1.7x	8.1x	2.7%	£20,651
MSCI Emerging Markets Index (Weighted Average)	11.9x	1.5x	6.3x	2.6%	£25,972

6. Please see end of document for glossary and important information

Risk Statistics - TEMIT Market Value Total Return vs MSCI Emerging Markets Index⁷ (in GBP)

30 June 2014

Risk Statistics	1 Year	3 Years (annualised)		Risk Statistics	1 Year	3 Years (annualised)		Risk Statistics	1 Year	3 Years
Alpha	0.95	-1.02		R2	89.20	89.73		Maximum Gain	14.13	29.32
Beta	1.26	1.11		Sharpe Ratio	0.15	-0.23		Maximum Loss	-14.58	-23.69
Annualised Downside Risk	4.40	4.34		Annualised Tracking Error	5.89	6.02		Negative Months	4	16
Information Ratio (Relative)	0.16	-0.26		Annualised Volatility	15.43	18.07		Positive Months	8	20

7. Please see end of document for glossary and important information

Investment Style

•     The Investment Manager and his group use in-depth company research to find securities in any emerging market country or industry sector, regardless of company size, that they believe are undervalued by the market, but have the potential to increase in value over time.

•     TEMIT is actively managed, aiming to invest in those securities that the Investment Manager believes have the best potential to grow in value over a five year period. Although performance is measured against the MSCI Emerging Markets Index for reporting purposes, there is no requirement for the Investment Manager to invest in the same companies or in the same amount as the index. TEMIT's performance or portfolio positioning may therefore be very different to the Index.

•     TEMIT invests in emerging markets; these markets can experience significant and sudden changes in price and can carry a higher degree of risk than developed markets. An investment in TEMIT should be considered as long-term.

The Investment Manager takes a long-term investment view, evaluating a company's potential for earnings and growth over a five-year horizon. The investment process includes continual in-person company visits and extensive fundamental research to model a company's potential future earnings, cash flow and asset value relative to its stock price, reviewing the portfolio's stock selection and risk management on an on-going basis. 

COMPANY NEWS AND OTHER INFORMATION

Investment Manager

Mark Mobius, Ph.D., Executive Chairman

TAML, a subsidiary of Franklin Resources, is one of the world's largest asset management companies. TAML is a pioneer of emerging market investment, having created one of the first dedicated emerging market mutual funds more than 25 years ago. As of 31 March 2014, Templeton Emerging Markets Team managed US$43.8 billion in emerging markets assets for retail, institutional and professional investors across the globe.

The Templeton Emerging Markets Team, headed by Dr. Mark Mobius, is one of the largest of its kind. It includes 52 dedicated emerging markets portfolio managers, analysts and product specialists. Their on-the ground presence in 18 countries, and years of relevant industry experience, greatly assists their understanding of the companies researched for inclusion in the TEMIT portfolio. Many of the senior members of the TEMIT team, such as Allan Lam, Chetan Sehgal and Carlos Hardenberg have worked alongside Mark Mobius for many years.

Investor Suitability

TEMIT may be appropriate for investors who want to invest in emerging markets and are willing to take some risk for the potential of strong capital growth over the long-term.

Emerging market companies can be more volatile than developed markets and an investment in TEMIT could occasionally change in value significantly over the short-term. Shareholders in TEMIT should therefore consider it as a long-term financial commitment.

Please refer to the latest annual report for more details of the risks associated with an investment in TEMIT.

The Alternative Investment Fund Managers Directive (AIFMD)

As announced in the Annual Report, TEMIT implemented AIFMD on 1 July 2014 and appointed Franklin Templeton International Services S.à r.l. (FTIS) as Alternative Investment Fund Manager, Secretary and Administrator.  FTIS will delegate the portfolio management to TAML.

Fee Reduction

As also announced in the Annual Report, Franklin Templeton has reduced its fees from 1.20% to 1.10% per annum with effect from 1 July 2014.

Share Buy Backs

During the quarter, the Company bought back and cancelled 1,235,000 shares which amount to 0.4% of the issued share capital for a total consideration of £6,748,000.

Dividend

On 13 June 2014 the Company announced a proposed ordinary dividend of 7.25 pence per share. If approved by shareholders at the AGM, to be held on 18 July 2014, the dividend will be paid on 23 July 2014 to shareholders on the register at close of business on 20 June 2014.

AGM

The Company's AGM will be held on 18 July 2014 where all resolution will be tabled for approval. Details of the outcome of all resolutions and voting will be posted to the Company's website after the AGM.

Communication with shareholders

In addition to the Annual Report which was sent to investors in June, the Company has continued its efforts to keep shareholders informed about their investment in TEMIT. On a monthly basis, a factsheet and an investment commentary are posted to the Company's website - www.temit.co.uk and a link is emailed to all subscribers to the TEMIT email service. The interim management statement for the end of December was released to the London Stock Exchange on 13 February 2014 and, posted to the TEMIT website. A link to the report was also sent to those who have subscribed to the Company's email service. The website is also updated daily with the latest Stock Exchange announcements, share prices and any Company news. 

This interim management statement has been produced solely to provide additional information to shareholders of the Company to meet the relevant requirements of the UK Listing Authority's Disclosure and Transparency Rules. It should not be relied upon by any other party or for any other purposes. In addition, the views, information and data in this publication should not be deemed as a financial promotion or recommendation.

Other than described in this statement, the Board is not aware of any events during the period from 1 April 2014 to the date of this statement which would have had a material impact on the financial position of the Company.

Issued on behalf of the Board
Harold C. Nash
for and behalf of Franklin Templeton International Services S.à r.l.
Secretary

Date: 17 July 2014

End of interim management statement

For further information please contact Client Dealer Services at Franklin Templeton Investments on UK freephone 0800 305 306 or [phone] for overseas investors.

GLOSSARY OF TERMS

Alpha - Alpha measures the difference between a portfolio's actual returns and its expected performance, given its level of risk (as measured by beta). A positive alpha means that the portfolio has over performed, a negative alpha means the portfolio has underperformed; for example, an alpha of 1.0 means the portfolio outperformed the market 1.0% (On a Risk adjusted basis).

Beta - Beta is a measure of a portfolio's sensitivity to market movements. It measures the relationship between a portfolio's excess return over an investment in a risk-free investment such as cash and the excess return of the benchmark index. For TEMIT, this is the MSCI Emerging Markets Index. By definition, the beta of the benchmark (in this case, an index) is 1.00. Accordingly, a portfolio with a 1.10 beta has performed 10% better (after deducting the cash rate) than the index in up markets and 10% worse in down markets, assuming all other factors remain constant. A portfolio with a high beta will tend to move more than the benchmark, a portfolio with a low beta will tend to move less.

Contributor -The amount an individual stock, country or sector has added to the performance of the entire portfolio for a given period.

Cumulative Performance -The percentage increase or decrease of a portfolio's share price or NAV over a given time period, with net income (dividends) reinvested. The fund's performance is usually benchmarked against either a relevant index or sector.

Detractor - The amount an individual stock, country or sector has subtracted from the performance of the entire portfolio for a given period.

Discrete Annual Performance -The percentage increase or decrease of a portfolio's share price or NAV over a complete 12 month period, with net income (dividends) reinvested. The fund's performance is usually benchmarked against either a relevant index or sector.

Dividend Yield - The yield a company pays out to its shareholders in the form of dividends. It is calculated by the dividends paid per share over a year divided by the stock's price. For a vehicle like TEMIT, which invests in a number of companies, this figure represents the weighted average annual dividend paid by all of the companies in which it invests. Because of share types, fees and other considerations, the dividend yield quoted here should not be used as an indication of the income to be received from this portfolio.

Downside Risk - Downside risk is shown as the semi-deviation of monthly return below the target return, which has been set as the monthly benchmark return.

Gearing - Gearing (sometimes described as leverage) - a term used to describe the process of borrowing money for investment purposes in the expectation that the returns on the investments purchased using the borrowings exceeds the costs of those borrowings. It illustrates the effect that current prior charges may have on the value of the shareholder funds if the total assets were to rise or fall. A figure of 115 means that the shareholder funds are 15% geared and indicates the extra amount by which the shareholder funds would rise or fall if the total assets were to rise or fall. A figure of 100 means there is no gearing.

Information Ratio - The Information Ratio represents the excess of the annualised portfolio return over the annualised benchmark return, divided by the Tracking Error, or standard deviation of excess monthly return.

Market Capitalisation - The total market value of a company's shares. For a vehicle like TEMIT, which invests in a number of companies, this is calculated by the share price on a certain date multiplied by the number of shares in issue.

Market Cap (average) - The weighted average of all the companies in which it invests.

MSCI Emerging Markets Index ("MSCI") - The MSCI is a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets

NAV - Net Asset Value, or the total value of the portfolio at any one time, including all shares and cash, divided by the number of shares in issue.

Ongoing Charges Ratio ("OCR") - From the year ending 31 March 2012, the Ongoing Charges Ratio ("OCR") replaces the Total Expense Ratio. Prior year numbers have not been restated as the ratios are not materially different. The OCR represents the ongoing charges of the Company divided by the average daily net asset values of the Company for the year, and has been prepared in accordance with the AIC's recommended methodology.

Portfolio Turnover Rate- The frequency with which assets within a portfolio are bought and sold by the manager. Portfolio turnover is calculated by taking either the total amount of new securities purchased or the amount of securities sold - whichever is less - over a particular period, divided by the total Net Asset Value (NAV) of the portfolio. The measurement for a 12-month time period.  

Price to Book (P/B) - The price per share of a stock divided by its book value (i.e. net worth) per share. For a portfolio, the ratio is the weighted harmonic average price/book ratio of the stocks it holds.

Price to Cash Flow (P/CF)- Supplements price/earnings ratio as a measure of relative value; it represents a weighted harmonic average of the price/cash flow ratios for the underlying portfolio holdings.

Price to Earnings (P/E) - The share price of a stock, divided by its per-share earnings over the past year. For a portfolio, it is the weighted harmonic average P/E ratio of the stocks in the portfolio. P/E is a good indicator of market expectations about a company's prospects; the higher the P/E, the greater the expectations for a company's future growth in earnings.

R² - R² or R squared, is an indication of how closely aligned the portfolio and the benchmark index are. R² ranges between 0 and 1, with 0 indicating a lot of difference and 1 indicating a perfect match. A value of 0.7 and upwards generally suggests that a portfolio's performance is very closely linked to the performance of the benchmark index.

Share Price - The cost of a unit of ownership in a company as purchased through the stock exchange.

Sharpe Ratio - Sharpe Ratio judges whether the relationship between a portfolio's risk and its return is good or bad. The underlying assumption is that a portfolio manager could invest in a riskless asset (such as cash), therefore the return of the risk free asset is deducted from the annualised average return. This net return is then divided by the total risk (annualised volatility). The higher the ratio the better the return for investors for the risk taken.

Total Net Assets - The total value of a company's shares. For a vehicle like TEMIT, which invests in a number of companies, this is calculated by the Net Asset Value (NAV) on a certain date multiplied by the number of shares in issue.

Tracking Error - Tracking Error measures the volatility of the portfolio's excess return relative to the benchmark index. The lower the tracking error of the portfolio, the more it resembles the benchmark in terms of risk and return characteristics.

Trust - A Trust, or Investment Trust, is a closed ended vehicle investing in a wide variety of underlying investments. Investment Trusts are traded in exactly the same way as any other equity on the London Stock Exchange. The price at which they are traded (share price) depends on the demand for the shares in the investment trust and is often at a variance with the value of their underlying holdings (or NAV).

Volatility - This is a statistical measure of the amount of movement in the price of a share or portfolio over a given period of time. If a portfolio's share price hardly moves over time, it is said to have a low volatility. Volatility is a simple measure of the consistency of returns

IMPORTANT INFORMATION

1.     Source for NAV Performance: Franklin Templeton Investments as at 30/06/14. NAV Performance is calculated NAV-NAV, GBP, net of fund management fees. Source of Share price ©Morningstar as at 30/06/14. Benchmark returns are sourced from FactSet Research Systems Inc. Past performance is not a guide to future performance. Emerging markets can carry a higher degree of risk than developed markets.

2.     For the "10 Largest Equity Issuers", please note that top ten equity holdings information is historical and may not reflect current or future portfolio characteristics. All holdings are subject to change. Holdings of the same issuers have been combined. The information provided is not a recommendation to purchase, sell, or hold any particular security. The securities identified do not represent TEMIT's entire holdings and in the aggregate may represent only a small percentage of such holdings. There is no assurance that securities purchased will remain in TEMIT, or that securities sold will not be repurchased.In addition, it should not be assumed that any securities mentioned were or will prove to be profitable. Stocks mentioned in this report are not a solicitation to purchase those stocks, and are for example purposes only.
The portfolio manager for TEMIT reserves the right to withhold release of information with respect to holdings that would otherwise be included in a top 10 holdings list.
"Top Security Contributors" and "Top Security Detractors" are holdings based on the last 3 months period and are calculated gross of investment management fees. These securities do not represent all the securities purchased, sold or recommended, and the reader should not assume that investment in the security listed was or will be profitable. Holdings are subject to change, holdings of the same issuer have been combined. The information provided is not a recommendation to purchase, sell or hold any particular security.
Source for "Top Security Contributors" and "Top Security Detractors": FactSet Research System, Inc. three months as at 30/06/14. Profile data is calculated as a percentage of total. Holdings of the same issuer have been combined.

3.     Source for "Portfolio Turnover Rate" Franklin Templeton Investments as at 30/06/14. Source for MarketCapitalisationbreakdown: FactSet Research System, Inc

4.     Source for the Company's "Split Between Markets", "Geographic Information" and "Sector Information": FactSet Research System, Inc as at 30/06/14. Holdings of the same issuer have been combined. Weightings as percent of total. Source for the benchmark's "Geographic Information" and "Sector Information", MSCI, as at 30/06/14. Geographic split between "Emerging Markets", "Frontier Markets" and "Other" are as per MSCI index classifications. The MSCI Index, the primary benchmark for TEMIT, is an equity index calculated by Morgan Stanley Capital International (MSCI). The index measures the total return (gross dividends are reinvested) of equity securities available to foreign (nonlocal) investors in the relevant geographic region as reflected in the name of the index or as defined by MSCI. Securities included in the index are weighted according to their Free Float adjusted marketcapitalisation(Price*Shares outstanding*Foreign Inclusion Factor). Percentage may not equal 100% due to rounding.

5.     Source for Country and Sector "Largest Contributors and Detractors to Performance", FactSet Research System, Inc. as at 30/06/14. Profile data is calculated as a percentage of total. Holdings of the same issuer have been combined.

6.     Source for "Fundamental Portfolio Characteristics": FactSet Research System, Inc. as at 30/06/14. The Price to Earnings, Price to Cash Flow and Price to Book Value calculations shown herein use harmonic means. Market capitalisation statistics are indicated in the base currency for the portfolio presented.

7.     Source for "Risk Statistics": FactSet Research System, Inc as at 30/06/14. Total return, annualised ratios (30/06/14). Risk free rate used is the UK 3 Month T-bill rate.

Copyright © 2014 Franklin Templeton Investments. All rights reserved.

© 2014 Morningstar, Inc. All rights reserved. The information contained herein: (1) is proprietary to Morningstar; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information.

All MSCI data is provided "as is." The portfolio described herein is not sponsored or endorsed by MSCI. In no event shall MSCI, its affiliates or any MSCI data provider have any liability of any kind in connection with the MSCI data or the portfolio described herein. Copying or redistributing the MSCI data is strictly prohibited.

The price of shares in TEMIT and income from them can go down as well as up and you may not get back the full amount that you invested.  Past performance is not a guide to future performance. Currency fluctuations will affect the value of overseas investments. When investing in a fund denominated in a currency other than sterling, your performance may also be affected by currency fluctuations. In emerging markets, the risks can be greater than in developed markets. TEMIT primarily invests in equities, which may result in the returns being more volatile than other investments such as cash or bonds.

This document does not constitute or form part of an offer for shares or an invitation to apply for shares. An investment in TEMIT entails risks which are described in the current Annual Report document. Please consult your professional adviser before deciding to invest. Performance figures are not based on audited financial statements and, unless indicated otherwise, assume reinvestment of interest and dividends. Data from third party sources may have been used in its preparation and Franklin Templeton Investments has not independently verified, validated or audited such data. A copy of the latest annual report and semi-annual report, if published thereafter can be obtained, free of charge, from Franklin Templeton Investments, The Adelphi,
1-11 John Adam Street, London, WC2N 6HT.

References to indices are made for comparative purposes only and are provided to represent the investment environment existing during the time periods shown. The performance of the index does not include the deduction of expenses and does not represent the performance of any Franklin Templeton fund. The indices include a greater number of securities than those held in the portfolio.

Due to data limitations all equity holdings are assumed to be the primary equity issue (usually the ordinary or common shares) of each security's issuing company. This methodology may cause small differences between portfolio's reported characteristics and the portfolio's actual characteristics. In practice, Franklin Templeton's portfolio managers invest in the class or type of security which they believe is most appropriate at the time of purchase. The market capitalisationfigures for both the portfolio and the benchmark are at the security level, not aggregated up to the main issuer. The dividend yield quoted here should not be used as an indication of the income to be received from this portfolio.

When comparing the performance of TEMIT with the benchmark index, it is important to note that the securities in which TEMIT invests may be substantially different than those represented by the benchmark index. Furthermore, an investment in TEMIT represents an investment in a managed investment company in which certain charges and expenses, including management fees, are applicable. These charges and expenses are not applicable to indices. Lastly, please note that indices are unmanaged and are not available for direct investment. Certain data and other information shown have been supplied by outside sources. While we consider that information to be reliable, we give no assurance that such data and information is accurate or complete.

For more information, UK investors should contact: Franklin Templeton Investments, The Adelphi, 1-11 John Adam Street, London WC2N 6HT.  Telephone: [phone], Email: [e-mail]. Issued by Franklin Templeton Investment Management Limited (FTIML). FTIML is authorised and regulated by the Financial Conduct Authority.

 

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