Half Yearly Report

RNS Number : 6909X

Templeton Emerging Markets IT PLC

21 November 2014

TEMPLETON EMERGING MARKETS INVESTMENT TRUST PLC

("TEMIT") ("the Company")

UNAUDITED HALF YEARLY REPORT TO 30 SEPTEMBER 2014

CHAIRMAN'S STATEMENT

Continuation Vote

I would like to start the half year review by thanking shareholders for their overwhelming vote in favour of continuation at the Annual General Meeting in July. The next continuation vote is due in 2019. All other proposals were also approved at the AGM.

Overview

The markets in which TEMIT invests continue to be dominated by economic and geopolitical events.

While investors have had some time to come to terms with the ending of the quantitative easing programme in the US, it remains apparent that markets as a whole have become quite dependent on an excess of cash available for investment. Further complicating this picture are moves by Japan to inject cash into the system and, more recently, an increased likelihood that Europe will be required to maintain an easy money policy for some considerable time.

There are several causes for concern in the political arena. The growth of IS in Syria and Iraq, Russia's annexation of the Crimea and continuing activity in the rest of the Ukraine are sources of instability and distraction for politicians. Russia falls into TEMIT's investment universe and we have a thorough process for reviewing investments in that country to ensure that we do not fall foul of sanctions. Currently, continuing protests in Hong Kong are causing difficulties for a Chinese government that, with the rise of the internet, is gradually losing its ability to control all internal messages. In Thailand, we have a military government which ironically is seen in some quarters as good for stability. Against this, and more positively, India has elected a more business-friendly government, as has Indonesia. Brazil's President Dilma Rousseff has recently won a further period in office by a narrow margin. Markets initially reacted badly to the news, with a sharp fall in Brazilian shares.

Quantitative easing is partly a reaction to poor economic growth in developed economies and in the meantime our Investment Manager is seeking to take advantage of the superior growth being experienced by emerging economies. Furthermore, our Investment Manager invests in companies, not economies per se, and continues to seek sound businesses with the prospect of exceptional growth. The Investment Manager invests for the long term and portfolio turnover is generally low compared with other investment companies. Good companies can still take advantage of the positive demographic and consumer trends and there has been a little more activity this half year as opportunities became available. These are explained more fully in the Investment Manager's Review.

Investment Performance

The half year to 30 September 2014 started well for TEMIT and our net asset value per share increased in each of the first five months April to August. However, September was more difficult with both the market (as measured by the MSCI Emerging Markets Index) and our Net Asset Value falling by circa 5% but still leaving us in positive territory for the half year. The overall result was good and TEMIT's NAV increased over the six months by 8.2%, out-performing the MSCI Emerging Markets Index return of 6.1% (both on a total return basis in sterling terms). Our discount reduced in September, cushioning some of the fall in NAV, with the result that the share price total return performance over the half year was even stronger than the NAV total return. Returns are summarised in the table below:-

	30 September	31 March	Capital		Total
	2014	2014	Return		return
NAV
(cum income)	632.8	591.8	+ 6.9	%	+8.2	%
Share Price	582.0	527.0	+10.4	%	+11.9	%
MSCI Emerging
Markets Index	-	-	+3.9	%	+6.1	%

The Company's primary objective is to seek long-term capital appreciation. The long term performance to 30 September 2014 is summarised in the table below (figures in brackets are annualised):-

					Since
	5 Years		10 Years		launch
	%		%		%
Net asset value
(cum income)*	33	(5.9)	273	(11.7)	2,329	(13.5)
Share price*	32	(5.8)	340	(12.6)	2,156	(13.1)
MSCI Emerging
Markets Index*	24	(4.5)	218	(9.5)	1,012	(10.0)

*Total return in Sterling terms

On 14^th November 2014, the latest date for which information was available, the NAV per share had fallen by 0.4% to 630.1 pence and the share price by 1.5% to 573.0 pence.

Asset allocation and gearing

The general policy of the Company is to be fully invested and the Investment Manager normally runs the portfolio with only a small cash balance. As at 30 September 2014, 93.1% of TEMIT's net assets were invested in equities (31 March 2014: 96.9%) with a larger cash balance arising from realisations awaiting re-investment.

Your Board regularly reviews its policy on gearing and we continue to take a cautious stance, reflecting the periods of volatility that are a feature of emerging equity markets and are generally unpredictable in both timing and extent. Our policy remains that in exceptional circumstances, and for short periods, TEMIT may borrow up to 10% of its net assets. Borrowing facilities were not used during the six months to 30 September 2014, nor in the previous two financial years.

Dividend

A dividend of 7.25 pence per share for the year ended 31 March 2014 was paid on 23 July 2014. The Company does not pay an interim dividend.

Discount and Share Buy Backs

During the half year to 30 September 2014, the Company's shares traded at discounts between 7.9% and 12.0% of NAV with an average of 10.1% and at the end of the period the discount stood at 8.0%.

Your Board monitors the share price discount to net asset value and exercises its right to buy back shares when the Board considers that it is in shareholders' interests to do so. Our brokers continue to monitor the discount every working day and we use share buy backs actively but selectively. In consequence, during the half year, some 1,730,500 shares were bought back at a total cost of £9.6 million.

Regulation

I reported in the last annual report on the implementation of the European Union's Alternative Investment Fund Managers Directive ("AIFMD"), which came into force on 22 July 2013 with a transition period to 22 July 2014. I am pleased to report that all of the necessary changes were in place by the due date and that the new arrangements are working well. I would like to thank the team at Franklin Templeton for their commitment and diligence in what has been a long process.

The ever-changing regulatory environment will inevitably produce further challenges and costs. In particular, we are aware that some proposals for the implementation of the European Union's MiFID 2 regulations would make it very difficult for investment trusts to operate in their current form but we remain hopeful that common sense will prevail.

The Board

As indicated in the last Annual Report, Sir Peter Burt retired at this year's AGM in July after 10 years as a Director. I would like once again to thank him for his contribution.

In line with the UK Corporate Governance Code issued by the Financial Reporting Council in September 2012, all Directors are required to retire each year and may then stand for re-election. Beatrice Hollond was appointed as a Director on 1 April 2014 and was elected as a Director at the AGM. With the exception of Sir Peter Burt, all of the other Directors were re-elected at the AGM for a further year.

Neil Collins has become our Senior Independent Director.

Investor communications

The Board and Manager aim to keep shareholders informed about the Company as well as seeking feedback and comment from investors. We hold investor briefings and discussions. We send out the Annual and Half Yearly Report, as well as notices of any significant Company events to registered shareholders. We also release information through the stock exchanges on which we are listed. Our website (www.temit.co.uk) displays the latest news, price and performance information, portfolio details, quarterly web updates from the Investment Manager and a blog dealing with topical issues in emerging markets. You can also ask to have the latest Company information e-mailed direct to you via the website. I encourage all shareholders to register on our website and make full use of the facilities and materials available to help keep you informed about your Company.

Day to day contact is best handled through our Manager as set out above. If, however, shareholders wish to contact me, the Senior Independent Director Neil Collins or any other Director in private, our brokers Winterflood Securities will also be pleased to help.

Interim Management Statements

Following changes in UK regulatory requirements, the Company will now no longer release to the stock exchanges Interim Management Statements (IMS) as at the end of the first and third quarters of the Company's financial year.

The quarterly Manager Commentary, containing the information that was previously included with the IMS, will continue to be available on the Company's website during the month after each quarter end.

Scottish Independence Referendum

Your Company is incorporated in Scotland. Shareholders will be aware that the referendum on Scottish independence from the United Kingdom resulted in a vote against full independence but that the UK Government committed to devolve substantial further powers to the Scottish Government. Your Board will continue to monitor the situation closely.

Outlook

As set out in the Investment Manager's Review, emerging market economies in general have continued to grow at a faster rate than their developed counterparts. For the global economy, the effects of quantitative easing by various governments around the world are likely to be a dominant factor both with the provision of exceptional levels of liquidity by governments and the largely unknown effects of the ending of this experiment. Emerging markets were not as significantly affected by the financial crisis and have continued to perform relatively well. As set out in the Investment Manager's Review, China has been an engine of growth and, while this has slowed somewhat, it is encouraging to see government policy stimulating domestic demand. We see the growth of such demand as the key to the future in many countries. As investors adjust to continuing difficulties in parts of the world and to the eventual end of quantitative easing, your Board and Investment Manager believe that a focused portfolio of emerging markets companies which are fundamentally strong and growing and that are undervalued by stock markets should serve shareholders well.

Peter Smith

Chairman

21^st November 2014

INTERIM MANAGEMENT REPORT

Principal risks and uncertainties

The Company invests, where possible, directly in the stock markets of emerging countries. Its principal risks and uncertainties are therefore:

• Investment and concentration risk

• Market risk

• Foreign currency risk

• Credit risk

• Operational and custody risk

• Key personnel

• Diversity

• Regulatory risk

The Board has provided the Investment Manager with guidelines and limits for the management of these principal risks and uncertainties. Further information on these is given in the Strategic Report within the Report and Accounts for the year ended 31 March 2014 which is available on the Company's website (www.temit.co.uk). In the Board's view, 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

The following principal service providers to the Company are considered to be related parties:

- Templeton Asset Management Ltd. ("TAML") who acted as Investment Manager until 1 July 2014.

- Franklin Templeton Investment Management Limited ("FTIML") who acted as Secretary and Administrator until 1 July 2014.

- Franklin Templeton International Services S.à r.l. (FTIS) who has acted as the Alternative Investment Fund Manager from 1 July 2014.

During the first six months of the current financial year, there were no significant changes, other than those detailed above in the terms and conditions of the related party agreements, that have materially affected the financial position or performance of the Company.

Going concern

The Directors are satisfied that the Company has adequate resources to continue in operational existence for the foreseeable future and, as such, a going concern basis is appropriate in preparing the financial statements.

Statement of Directors' Responsibilities

The Directors confirm that to the best of their knowledge:

(a) the condensed set of financial statements, for the period ended 30 September 2014, has been prepared in accordance with the International Accounting Standard 34 ''Interim Financial Reporting'' as adopted by the EU;

(b) the Half Yearly Report includes a fair review of the information required by the FCA'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 Year Report was approved by the Board on 21 November 2014 and the above responsibility statement was signed on its behalf by

Peter Smith

Chairman

21 November 2014

INVESTMENT MANAGER'S REPORT & PORTFOLIO REVIEW

30 September 2014

Market Overview

The global economy grew moderately during the six months under review as many emerging markets continued to grow and many developed markets continued to recover. Although several emerging market countries faced headwinds such as soft domestic demand, weak exports and geopolitical crises, emerging market economies overall continued to grow faster than developed market economies. China's economic growth stabilised in the second half of the period as the government's stimulus measures gained traction. Domestic demand accounted for a greater portion of gross domestic product, indicating progress in policymakers' efforts to make China's economy more consumer driven. China's manufacturing sector improved during the period, suggesting that the country's economy remained in an expansionary mode. India's and Thailand's economies were also among those with indications of strengthening economic recovery, while others - including Turkey, South Africa, South Korea, Russia and Mexico - showed signs of slowing. Following contraction in the second quarter, there was evidence of improvement in the Brazilian economy at the period end as services sector strength offset manufacturing weakness.

Central bank actions varied across emerging markets. Several, including those of Brazil, South Africa and Russia, raised interest rates in response to rising inflation and weakening currencies. In contrast, several others, including those of Turkey and South Korea, lowered interest rates in an effort to promote economic growth. The People's Bank of China implemented monetary stimulus measures and reduced the cash reserve requirement ratio for banks serving rural borrowers and smaller companies in order to stimulate lending to targeted sectors and support economic expansion.

For the six months ended 30 September, 2014, emerging market stocks, as measured by the MSCI Emerging Markets Index, posted a 6.1% total return in sterling terms.

Emerging market stocks outperformed their developed market counterparts during the six-month period, as many investors were encouraged by generally positive global economic data and they seemed to focus on the relatively attractive valuations of many emerging market stocks. Emerging markets performed well during most of the period as countries such as India and Indonesia were buoyed by investors' optimism for potential economic reforms suggested by national election outcomes.

Further support for emerging market stocks came in the form of China's implementation of additional stimulus measures, the European Central Bank's monetary easing and investors' fading concerns about the impact of the end of US quantitative easing on emerging markets. However, renewed concerns about the future course of US monetary policy, uncertainty about the presidential election in Brazil (which was ultimately won by the incumbent Dilma Rousseff in October), less robust Chinese economic data, continued geopolitical tensions in Ukraine and the Middle East, and pro-democracy protests in Hong Kong weighed on emerging markets toward the end of the six month period.

Performance Attribution

Performance

Performance Attribution Analysis %
Six months to 30 September 2014
Total Return (Net)¹	8.2
Expenses²	0.6
Total Return (Gross)³	8.8
Benchmark Total Return⁴	6.1
Excess Return⁵	2.7
Sector Allocation	(1.3	)
Stock Selection	3.0
Currency	1.2
Residual⁶	(0.2	)
Total Portfolio Manager Contribution	2.7

Notes

¹Total Return (Net) is the NAV return inclusive of dividends reinvested.

² Expenses incurred by the Company for the six months to 30 September 2014.

³ Gross return is Total Return (Net) plus Expenses. Gross of fee performance is preferable for attribution and other value-added reporting as it evaluates the contribution of the Investment Manager.

⁴ MSCI Emerging Markets (Total Return) Index, inclusive of dividends reinvested. Indices are comparable to gross returns as they include no expenses.

⁵ Excess return is the difference between the gross return of the portfolio and the return of benchmark.

⁶ The "Residual" represents the difference between the actual excess return and the excess return explained by the attribution model. This amount results from several factors, most significantly the difference between the actual trade price of securities included in actual performance and the end of day price used to calculate attribution.

Source: FactSet and Franklin Templeton Investments.

Largest company relative contributors and detractors to performance (%)

	Contribution
	to Relative		Share Price
Top Contributors	Performance		Total Return
Tata Consultancy Services	1.2		31.0
Brilliance China Automotive	1.0		17.5
Hyundai Development	0.9		47.7
Kasikornbank	0.6		34.7
Samsung Electronics*	0.6		(8.9		)

	Contribution
	to Relative			Share Price
Top Detractors	Performance			Total Return
SK Innovation	(0.7	)	(31.0		)
Vale	(0.5	)	(17.4		)
Astra International	(0.4	)	(6.5		)
China Mobile*	(0.4	)	34.7
Impala Platinum	(0.3	)	(30.6		)

For the period 1 April 2014 to 30 September 2014.

* Company not held by TEMIT

At the company level, the top three contributors to relative performance were overweight positions in Tata Consultancy Services in India, Brilliance China Automotive in China, and Hyundai Development in South Korea.

One of India's largest and oldest IT consulting companies, Tata Consultancy Services, remains a beneficiary of improving trends in global IT outsourcing. We believe that IT outsourcing is a growing business, and Tata is well placed to benefit from this growth due to its extensive global exposure and comprehensive range of services. In addition to benefiting from the strong performance of the Indian market as a whole, strong second quarter results and indications of growth in both demand from international customers and Tata's market share further supported the share price. We are of the opinion that India has a major competitive advantage in the provision of outsourcing services due to a combination of available technological expertise and relatively low labour costs.

Brilliance China Automotive is a Chinese car maker noted for its joint venture with German luxury car maker BMW. Resilient sales of luxury cars in China drove strong earnings with BMW cars taking an increasing share of the market segment. News of an extension of the joint venture agreement between Brilliance China and BMW to 2026 also buoyed the share price. We believe that Brilliance China's capacity expansion plans coupled with its strong brand recognition and execution could allow the company to continue enjoying growing demand and rising market share. We remain confident in the superior engineering of the German partner, BMW, as well as the brand's increasing popularity in China. Of the approximately 18 million private cars sold in 2013 in China, less than 2% of them were BMW. We believe that the long-term demand growth is intact and the management of Brilliance and its joint venture company are capable of executing their business plans to gain further market share.

Hyundai Development is one of the leading residential property developers in Korea. With a strong brand name - "I-Park" the company is estimated to have the largest market share in the residential construction business. Measures taken by the South Korean authorities to stimulate the housing market by easing mortgage lending regulations, encouraging the redevelopment of older apartment complexes and reducing the role of the state housing company in favour of private developers, all boosted investor sentiment during the reporting period. We believe that the residential property market has strong long-term prospects as consumer wealth in South Korea grows, and residents look to upgrade their accommodation.

In terms of individual companies, the Company's positions in SK Innovation in South Korea, Vale in Brazil and Astra International in Indonesia were among the largest detractors.

South Korea's largest oil refiner, SK Innovation, reported disappointing second quarter results due to a decline in refining margins resulting from lower oil prices and demand, the shutdown of one of its gasoline-making residue fluidised catalytic crackers for maintenance, foreign exchange losses due to a stronger won, and lower profits from the petrochemical division as a result of weak paraxylene prices. Taking a longer term view, the company is trading at attractive valuations, and is well positioned to benefit from a recovery in product prices as well as product demand due to its dominant market position. An expansion of petrochemical and lubricant capacity could also result in better earnings in the longer term. SK Innovation is ahead of regional competitors in the conversion capacity of its refineries and is able to derive better refining margins than those competitors. As the demand for high grade and environmentally friendly products increases, SK Innovation is well positioned to meet that demand.

Vale is a major mining company based in Brazil with ownership of very large reserves of iron ore and nickel as well as transport and logistics assets. We believe that demand for steel, and as a consequence iron ore, is on a long term uptrend and that companies such as Vale with abundant, low cost assets represent an attractive investment opportunity. However, a decline in iron ore prices during the period impacted Vale's share price, as increased supply - notably from Australian producers - failed to be absorbed fully by the somewhat subdued steel industry demand. As Vale is one of the world's lowest-cost producers, we expect it to be competitive in the medium to long term.

Astra International is one of the market leaders in Indonesia's motor vehicle industry, and has alliances with manufacturers such as Toyota, Honda, Peugeot, BMW, Isuzu and Daihatsu. It also maintains a strong market position in heavy equipment in the distribution of Komatsu products. Indonesian stocks including Astra performed very well in the first quarter of 2014 in anticipation of political change, and experienced some profit-taking in subsequent months. The victory of reformist candidate, Joko Widodo as President, however, was cheered by investors, and supported equity prices. In our opinion, the company's dominant position, and extensive distribution and service networks in the local market put it in an attractive position to benefit from the growth of the Indonesian economy and in particular, the consumer sector.

Largest sector relative contributors and detractors to performance (%)

Top Contributors	Contribution to Relative Performance	MSCI Emerging Markets Index Total Sector Return	Factors affecting performance
Financials	1.5	7.2	Stock selection
Information Technology	1.0	7.4	Stock selection
Consumer Discretionary	0.9	0.3	Stock selection
Industrials	0.9	4.6	Stock selection
Energy	0.1	4.8	Overweight

Top Detractors	Contribution to Relative Performance		MSCI Emerging Markets Index Total Sector Return		Factors affecting performance
Telecommunication Services*	(0.6	)	15.4		Sector not held by TEMIT
Materials	(0.3	)	(1.9	)	Stock selection
Heath Care*	(0.3	)	22.1		Sector not held by TEMIT
Utilities*	(0.1	)	9.5		Sector not held by TEMIT
Consumer Staples	(0.1	)	4.5		Stock selection

*No companies held by TEMIT in this sector.

The MSCI Emerging Markets Index Total Return shows the total return of the sector within the Index in sterling terms.

Largest country relative contributors and detractors to performance (%)

Top Contributors	Contribution to Relative Performance	MSCI Emerging Markets Index Total Return		Factors affecting performance
Thailand	1.5	19.4		Strong stock selection and Overweight
India	1.1	18.6		Strong stock selection and Overweight
South Korea	0.8	1.5		Strong stock selection and Underweight
Russia	0.5	(3.2	)	Strong stock selection and Underweight
Hong Kong / China	0.4	10.4		Strong stock selection and Underweight

Top Detractors	Contribution to Relative Performance		MSCI Emerging Markets Index Total Return	Factors affecting performance
Indonesia	(0.6	)	7.2	Stock selection
Taiwan=	(0.4	)	10.1	Country not held by TEMIT
Peru	(0.3	)	9.8	Stock selection
Austria+	(0.3	)	-	Overweight
Mexico	(0.2	)	11.9	Underweight

= No companies held by TEMIT in this country.

+ No companies held by the MSCI Emerging Markets Index in these countries.

The MSCI Emerging Markets Index Total Return shows the total return of the country within the Index in sterling terms.

Portfolio Changes & Investment Strategies

New Holding
Security	Country	Amount (£m)
Kumba Iron Ore	South Africa	19
Industries Qatar	Qatar	16
Inner Mongolia Yitai Coal	Hong Kong/China	2
Total		37

Increased Holding
Security	Country	Amount (£m)
Unilever	United Kingdom	61
Petroleo Brasileiro, ADR	Brazil	17
Impala Platinum	South Africa	3
Total		81

Partial Sale
Security	Country	Amount (£m)
Tata Consultancy Services	India	25
Norilsk Nickel, ADR	Russia	23
Tupras-Turkiye Petrol	Turkey	9
Oil & Natural Gas	India	7
Brilliance China Automotive	Hong Kong/China	5
Total		69

Total Sale
Security	Country	Amount (£m)
Sesa Sterlite	India	39
Wal-Mart de Mexico	Mexico	37
Anglo American	South Africa	29
Industries Qatar	Qatar	17
Norilsk Nickel*	Russia	9
National Aluminium	India	8
Total		139

*Ordinary shares

During the reporting period, TEMIT added two new companies to the portfolio: Kumba Iron Ore in South Africa and Inner Mongolia Yitai Coal in China, while it purchased and subsequently sold shares in a third company, Industries Qatar.

Kumba Iron Ore is a South Africa based iron ore mining company, majority owned by Anglo American. The company runs the port operations at Saldanha Bay, from where its iron ore is shipped to various destinations. The stock was added to the portfolio due to its attractive valuations, strong balance sheet and high profit margins along with a high dividend pay-out ratio. While some investors may be concerned about a prolonged slowdown in China's economy and its impact on iron ore demand and iron ore prices, China's GDP growth rate remains robust at above 7% and we believe that part of that relatively strong economic growth is derived from investment and infrastructure development. The long-term demand for steel is thus expected to remain robust with ongoing project development in the cities across China requiring steel products. Over the long term, access to abundant minable resources with stable grades, and stable government policies should allow some iron ore producers to continue to generate superior returns on capital.

Inner Mongolia Yitai Coal is one the largest coal producers in China. The company produces high quality thermal coal, and also has coal-to-oil technology, railway transportation, pharmaceuticals and solar power generation businesses. High quality coal reserves, high profit margins and a strong balance sheet bode well for the company. As well as moves to reduce CO2 emissions, coal is currently the main source of energy for China, accounting for about 70% of the country's energy needs. Economic growth and the growing need for energy in the country lead us to believe that demand for good quality coal will remain high for some years.

Additional purchases were made in three companies that remained relatively attractive to us. These were Unilever - a UK listed company which derives a substantial portion of its revenues from emerging markets, Petroleo Brasileiro (Petrobras) - Brazil's national oil and gas company, and Impala Platinum - a leading global platinum producer.

Industries Qatar, an industrial company with interests in petrochemicals, fertilisers and steel, was added to the portfolio and subsequently sold during the reporting period for a small profit. While we do not typically hold shares for such a short period of time, we take a flexible approach.

Holdings in Tata Consultancy Services and Brilliance China Automotive were trimmed as part of efforts to reduce concentration in these stocks. The two companies remain the Company's top two holdings, signalling our continued confidence in them. Holdings in Norilsk Nickel, Tupras-Turkiye Petrol, and Oil & Natural Gas (ONGC) were also reduced.

Our holdings in Wal-Mart de Mexico, Sesa Sterlite and National Aluminum were sold.

The above purchase and sale transactions in aggregate resulted in an increase in the Company's positions in the materials, information technology and consumer discretionary sectors.

Some of the cash raised from sales was also used to repurchase a number of TEMIT's own shares for cancellation during the reporting period.

Outlook

A number of weaker than expected monthly indicators such as retail sales and industrial production from China, lower commodity prices and speculative flows into US dollar assets caused nervousness and volatility in emerging markets towards the end of the reporting period. However, we believe that a growing US economy, substantial monetary easing in Europe and Japan, and strengthening domestic factors in many emerging markets could present an attractive opportunity for investors. We remain of the opinion that longer term trends in emerging markets such as investor-friendly reforms in a number of countries (including China, India, South Korea and Mexico), moves to reduce trade barriers, major strides in technological expertise within emerging market economies, and the rapid growth in the numbers and spending power of middle class consumers all provide the basis for sustained economic growth and rising corporate profitability across many emerging markets. Meanwhile, we continue to identify individual emerging market companies that we believe trade at relatively attractive valuations.

Moreover, it is important to remember that emerging market countries now represent a large share of world economic activity and equity market capitalisation. The news that a BRICS development bank is being established is a demonstration of the increasing economic strength of emerging market nations. Many investors are underweight in emerging markets and are realising that this could represent a risk. As a result, emerging markets reported significant fund inflows during the second half of the period. The long-term investment case for emerging markets has not changed. Three key themes remain in place: emerging markets' economic growth rates in general continue to be markedly faster than those of developed markets; emerging markets have much greater foreign reserves than developed markets; and the debt-to-GDP ratios of emerging market countries generally remain much lower than those of developed markets.

J Mark Mobius, Ph.D.

Templeton Asset Management Ltd.

21 November 2014

PORTFOLIO HOLDINGS

As at 30 September 2014

Geographical analysis (by country of incorporation)

						% of
		Fair		MSCI		Issued
		Value	^(a)	Index		Share	% of
Country	Sector	£'000		Weighting	^(b)	Class	net assets

AUSTRIA
OMV^(c)	Energy	16,353		N/A		0.2	0.8
		16,353					0.8
BRAZIL
Banco Bradesco ADR^(d)(e)(f)	Financials	84,328		1.0		0.5	4.1
Itau Unibanco, ADR^(e)(f)	Financials	88,653		1.0		0.4	4.4
Petroleo Brasileiro, ADR^(d)(e)(f)	Energy	48,207		1.3		0.1	2.4
Vale, ADR^(d)(e)(f)	Materials	50,955		0.8		0.4	2.5
		272,143					13.4
HONG KONG/CHINA
Aluminum Corp. of China, H^(g)	Materials	25,835		-		2.6	1.3
Brilliance China Automotive	Consumer Discretionary	198,804		0.1		3.7	9.8
China International Marine Containers, B^(h)	Industrials	16,270		-		0.9	0.8
China Petroleum and Chemical, H^(g)	Energy	35,362		0.6		0.3	1.7
Dairy Farm	Consumer Staples	74,391		N/A		0.9	3.7
Guangzhou Automobile, H^(g)	Consumer Discretionary	46,441		0.1		3.5	2.3
Inner Mongolia Yitai Coal	Energy	2,487		-		0.1	0.1
PetroChina, H^(g)	Energy	61,803		0.7		0.4	3.0
Victory City International	Consumer Discretionary	10,748		N/A		6.7	0.5
VTech	Information Technology	63,209		N/A		3.3	3.1
		535,350					26.3
INDIA
Infosys Technologies	Information Technology	26,817		0.7		0.1	1.3
Oil & Natural Gas	Energy	35,201		0.1		0.1	1.7
Peninsula Land	Financials	5,195		N/A		5.6	0.3
Tata Consultancy Services	Information Technology	125,819		0.5		0.2	6.2
		193,032					9.5
INDONESIA
Astra International	Consumer Discretionary	71,040		0.3		0.5	3.5
Bank Central Asia	Financials	21,553		0.3		0.1	1.1
Bank Danamon Indonesia	Financials	26,672		-		1.4	1.3
		119,265					5.9

(a) Fair value represents the bid value of a security as required by International Financial Reporting Standards (IFRS).

(b) N/A: These stocks are not held by the MSCI Emerging Markets Index.

(d) pfd: preferred shares.

(e) US Listed Stocks.

(f) American Depositary Receipt.

(g) Shares eligible for foreign investment on Chinese stock exchange.

(h) Shares eligible for foreign investment on Hong Kong stock exchange.

						% of
		Fair		MSCI		Issued
		Value	^(a)	Index		Share	% of
Country	Sector	£'000		Weighting	^(b)	Class	net assets

JORDAN
Arab Potash	Materials	941		N/A		0.1	-
		941					-
PAKISTAN
MCB Bank	Financials	66,047		N/A		3.5	3.2
Oil & Gas Development	Energy	25,877		N/A		0.4	1.3
		91,924					4.5
PERU
Buenaventura ADR^(e)(f)	Materials	42,550		0.1		2.2	2.1
		42,550					2.1
RUSSIA
Gazprom, ADR^(e)(f)	Energy	39,131		1.0		0.0	2.0
Norilsk Nickel, ADR^(e)(f)	Materials	7,896		0.3		0.4	0.4
OAO TMK	Energy	9,045		N/A		0.2	0.4
		56,072					2.8
SOUTH AFRICA
Impala Platinum	Materials	17,816		0.1		0.6	0.9
Kumba Iron Ore	Materials	15,347		-		0.3	0.7
		33,163					1.6
SOUTH KOREA
Hyundai Development	Industrials	65,862		0.1		3.5	3.2
SK Innovation	Energy	29,511		0.1		0.7	1.5
		95,373					4.7
THAILAND
Kasikornbank	Financials	73,516		0.3		0.7	3.6
Kiatnakin Bank	Financials	18,050		N/A		2.7	0.9
Land and Houses	Financials	18,668		N/A		0.9	0.9
Land and Houses (warrants)	Financials	2,405		N/A		0.9	0.1
PTT	Energy	35,781		0.2		0.2	1.8
PTT Exploration and Production	Energy	35,187		0.2		0.3	1.7
Siam Cement	Materials	3,615		0.1		0.0	0.2
Siam Commercial Bank	Financials	88,317		0.2		0.8	4.3
Univanich Palm Oil	Consumer Staples	9,332		N/A		5.0	0.5
		284,871					14.0

(a) Fair value represents the bid value of a security as required by International Financial Reporting Standards (IFRS).

(b) N/A: These stocks are not held by the MSCI Emerging Markets Index.

(e) US Listed Stocks.

(f) American Depositary Receipt.

						% of
		Fair		MSCI		Issued
		Value	^(a)	Index		Share	% of
Country	Sector	£'000		Weighting	^(b)	Class	net assets

TURKEY
Akbank	Financials	59,970		0.1		0.7	3.0
Tupras-Turkiye Petrol	Energy	28,610		0.1		0.9	1.4
		88,580					4.4

UNITED KINGDOM
Unilever^(c)	Consumer Staples	63,892		N/A		0.2	3.1
		63,892					3.1
TOTAL INVESTMENTS		1,893,509					93.1
OTHER NET ASSETS		141,677					6.9
TOTAL NET ASSETS		2,035,186					100.0

(a) Fair value represents the bid value of a security as required by International Financial Reporting Standards (IFRS).

(b) N/A: These stocks are not held by the MSCI Emerging Markets Index.

GEOGRAPHIC ASSET ALLOCATION

As at 30 September 2014

			Performance*
COUNTRY	TEMIT	MSCI Emerging Markets Index	MSCI Emerging Markets Index Local		MSCI Emerging Markets Index GBP
Hong Kong/China	26.3%	19.2%	10.4		7.4
Thailand	14.0%	2.4%	19.4		16.0
Brazil	13.4%	10.3%	1.2		6.8
India	9.5%	7.1%	18.6		19.2
Indonesia	5.9%	2.7%	7.2		11.8
South Korea	4.7%	15.0%	1.5		(2.2	)
Pakistan	4.5%	0.0%	-		-
Turkey	4.4%	1.6%	4.7		8.5
United Kingdom	3.1%	0.0%	-		-
Russia	2.8%	4.7%	(3.2	)	3.4
Peru	2.1%	0.4%	9.8		6.8
South Africa	1.6%	7.4%	0.6		5.1
Austria	0.8%	0.0%	-		-
Other Assets	6.9%	0.0%	-		-
			-		-

								Movement in period			*
Country	31 Mar 14 Market Value	Additions	Sales		Market Movement		30 Sep 14 Market Value	TEMIT GBP		MSCI Emerging Markets Index GBP
	£m's	£m's	£m's		£m's		£m's	%		%
Hong Kong/China	496	2	(5	)	42		535	8.5		7.4
Thailand	241	-	-		44		285	18.3		16.0
Brazil	254	17	-		1		272	0.4		6.8
India	228	-	(79	)	44		193	29.5		11.8
Indonesia	126	-	-		(7	)	119	(5.6	)	(2.2	)
Other	509	99	(124	)	5		489	-		-
Other Assets	60	-	-		82		142	-		-
Total	1,914	118	(208	)	211		2,035

* Figures based on total return.

SECTOR ASSET ALLOCATION

As at 30 September 2014

			Performance* MSCI Emerging Markets Index
SECTOR	TEMIT	MSCI Index	GBP
Financials	27.2%	27.8%	7.2
Energy	19.8%	10.2%	4.8
Consumer Discretionary	16.1%	9.0%	0.3
Information Technology	10.6%	16.4%	7.4
Materials	8.1%	8.3%	(1.9	)
Consumer Staples	7.3%	8.3%	4.5
Industrials	4.0%	6.6%	4.6
Other Assets	6.9%	0.0%	-

								Movement in period			*
Sector	31 Mar 14 Market Value	Additions	Sales		Market Movement	30 Sep 14 Market Value		TEMIT GBP		MSCI Emerging Markets Index GBP
	£m's	£m's	£m's		£m's		£m's	%		%
Financials	499	-	-		54		553	10.8		7.2
Energy	388	19	(16	)	12		403	3.2		4.8
Consumer Discretionary	310	-	(5	)	22		327	7.1		0.32
Information Technology	207	-	(25	)	34		216	18.5		7.43
Materials	265	22	(108	)	(14	)	165	(6.7	)	(1.9	)
Other	185	77	(54	)	21		229	-		-
Other Assets	60	-	-		82		142	-		-
Total	1,914	118	(208	)	211		2,035

* Figures based on total return with in the Index and TEMIT in sterling terms.

INCOME STATEMENT

For the six months to 30 September 2014

		For the six months to
		30 September 2014 (unaudited)
		Revenue		Capital		Total
	£'000			£'000		£'000
Gains/(losses) on investments and foreign exchange
Gains/(losses) on investments at fair value		-		131,122		131,122
Gains/(losses) on foreign exchange		-		614		614

Revenue
Dividends		37,973		-		37,973
Bank and deposit interest		144		-		144
		38,117		131,736		169,853
Expenses
AIFM fee		(5,748	)	-		(5,748	)
Investment management fee		(4,944	)	-		(4,944	)
Other expenses		(1,915	)	-		(1,915	)
Profit/(loss) before taxation		25,510		131,736		157,246

Tax expense		(3,086	)	417		(2,669	)
Profit/(loss) for the period		22,424		132,153		154,577

Profit/(loss) attributable to equity holders of the Company		22,424		132,153		154,577

Earnings per share		6.96	p	41.02	p	47.98	p

Ongoing Charges Ratio						1.20	%

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.

There is no other income for this year and therefore no separate statement of comprehensive income has been presented.

The Ongoing Charges Ratio (OCR) represents the annualised ongoing charges of the Company divided by the average of the daily net assets of the Company for the year, and has been prepared in accordance with the AIC's recommended methodology. From 1 July 2014, Franklin Templeton's fees have been reduced by 0.10% per annum.

Dividend Policy

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

An ordinary dividend of 7.25 pence per share for the year ended 31 March 2014, was paid on 23 July 2014.

For the six months to						Year ended
30 September 2013 (unaudited)						31 March 2014 (audited)
Revenue		Capital		Total		Revenue		Capital		Total
£'000		£'000		£'000		£'000		£'000		£'000

-		(353,459	)	(353,459	)	-		(372,663	)	(372,663	)
-		(192	)	(192	)	-		(202	)	(202	)

39,744		-		39,744		60,227		-		60,227
39		-		39		141		-		141
39,783		(353,651	)	(313,868	)	60,368		(372,865	)	(312,497	)

-		-		-		-		-		-
(10,310	)	-		(10,310	)	(19,870	)	-		(19,870	)
(3,044	)	-		(3,044	)	(6,068	)	-		(6,068	)
26,429		(353,651	)	(327,222	)	34,430		(372,865	)	(338,435	)
(2,964	)	(527	)	(3,491	)	(4,660	)	(721	)	(5,381	)
23,465		(354,178	)	(330,713	)	29,770		(373,586	)	(343,816	)
23,465		(354,178	)	(330,713	)	29,770		(373,586		(343,816	)
7.18	p	(108.36	)p	(101.18	)p	9.14	p	(114.65	)p	(105.51	)p
				1.30	%					1.30	%

BALANCE SHEET

As at 30 September 2014

	As at		As at		As at
	30 September		30 September		31 March
	2014		2013		2014
	£'000		£'000		£'000
	(unaudited)		(unaudited)		(audited)
ASSETS
Non-current assets
Investments at fair value through profit or loss	1,893,509		1,913,798		1,853,554
Current Assets
Trade and other receivables	16,148		6,574		7,421
Cash	127,923		24,428		56,281
Current tax recoverable	-		-		-
	144,071		31,002		63,702
Current Liabilities
Trade and other payables	(2,090	)	(3,736	)	(2,970	)
Capital gains tax provision	(304	)	(527	)	(721	)
	(2,394	)	(4,263	)	(3,691	)
NET ASSETS	2,035,186		1,940,537		1,913,565
ISSUED SHARE CAPITAL AND RESERVES ATTRIBUTABLE TO EQUITY SHAREHOLDERS
Equity Share Capital	80,405		81,494		80,837
Capital Redemption Reserve	2,264		1,175		1,832
Special Distributable Reserve	433,546		433,546		433,546
Capital Reserve	1,421,045		1,331,819		1,298,542
Revenue Reserve	97,926		92,503		98,808
EQUITY SHAREHOLDERS' FUNDS	2,035,186		1,940,537		1,913,565
Net Asset Value per share (in pence)	632.8		595.3		591.8

STATEMENT OF CHANGES IN EQUITY

For the six months to 30 September 2014 (unaudited)

	Equity		Capital	Special
	Share		Redemption	Distributable	Capital		Revenue
	Capital		Reserve	Reserve	Reserve		Reserve		Total
	£'000		£'000	£'000	£'000		£'000		£'000
Balance at 31 March 2013	81,969		700	433,546	1,697,011		89,494		2,302,720
Profit/(Loss) for the period	-		-	-	(354,178	)	23,465		(330,713	)
Equity dividends	-		-	-	-		(20,456	)	(20,456	)
Purchase and cancellation of
own shares	(475	)	475	-	(11,014	)	-		(11,014	)
Balance at 30 September 2013	81,494		1,175	433,546	1,331,819		92,503		1,940,537
Profit/(Loss) for the period	-		-	-	(33,277	)	6,305		(26,972	)
Purchase and cancellation of
own shares	(657	)	657	-	-		-		-
Balance at 31 March 2014	80,837		1,832	433,546	1,298,542		98,808		1,913,565
Profit/(Loss) for the period	-		-	-	132,153		22,424		154,577
Equity dividends	-		-	-	-		(23,373	)	(23,373	)
Unclaimed Distributions	-		-	-	-		67		67
Purchase and cancellation of
own shares	(432	)	432	-	(9,650	)	-		(9,650	)
Balance at 30 September 2014	80,405		2,264	433,546	1,421,045		97,926		2,035,186

CASH FLOW STATEMENT

For the six months to 30 September 2014

	For the six		For the six		For the
	months to		months to		year to
	30 September		30 September		31 March
	2014		2013		2014
	£'000		£'000		£'000
	(unaudited)		(unaudited)		(audited)
Cash flows from operating activities
Profit/(loss) before taxation	157,246		(327,222	)	(338,435	)
Adjustments for:
(Gains)/losses on investments at fair value	(131,122	)	353,459		372,663
Realised (Gains)/losses on foreign exchange	(614	)	192		202
Stock dividends received in year/period	-		(469	)	(704	)
Increase/(decrease) in debtors	3,407		2,940		1,871
Increase/(decrease) in creditors	(358	)	1,718		(365	)
Cash generated from operations	28,559		30,618		35,232
Taxation paid	(3,086	)	(2,964	)	(4,660	)
Net cash inflow from operating activities	25,473		27,654		30,572
Cash flows from investing activities
Purchases of non-current financial assets	(117,953	)	(81,051	)	(142,342	)
Sales of non-current financial assets	197,600		89,040		192,614
	79,647		7,989		50,272
Cash flows from financing activities
Equity dividends paid	(23,373	)	(20,456	)	(20,456	)
Unclaimed Distribution	67		-		-
Purchase and cancellation of own shares	(10,172	)	(11,014	)	(24,362	)
	(33,478	)	(31,470	)	(44,818	)
Net increase in cash	71,642		4,173		36,026
Cash at the start of year/period	56,281		20,255		20,255
Cash at the end of year/period	127,923		24,428		56,281

NOTES TO THE FINANCIAL STATEMENTS

For the six months to 30 September 2014

1. Basis of preparation

The Half Yearly Report for the period ended 30 September 2014 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 twelve months ended 31 March 2014.

The financial information contained in this interim statement does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. The financial information for the half years ended 30 September 2014 and 30 September 2013 has not been audited. The figures and financial information for the year ended 31 March 2014 are extracted from the latest published accounts and do not constitute the statutory accounts for that period. 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 sections 498(2) or 498(3) of the Companies Act 2006.

The Directors have a reasonable expectation that the Company has sufficient resources to continue in operational existence for the foreseeable future. Accordingly the financial statements have been prepared on a going concern basis.

2. Earnings per share

	For the six		For the six		For the twelve
	months to		months to		months to
	30 September		30 September		31 March
	2014		2013		2014
	£'000		£'000		£'000
Revenue return	22,424		23,465		29,770
Capital return/(loss)	132,153		(354,178	)	(373,586	)
Total	154,577		(330,713	)	(343,816	)

Weighted average number of shares in issue	322,181,862		326,841,479		325,840,591

Revenue return per share	6.96	p	7.18	p	9.14	p
Capital Return per share	41.02	p	(108.36	)p	(114.65	p)
Total return per share	47.98	p	(101.18	)p	(105.51	p)

3. Shares repurchased

During the period to 30 September 2014 the Company bought back 1,730,500 shares for cancellation for a total consideration of £9,650,000. In the six months to 30 September 2013 the Company bought back 1,899,000 shares for cancellation for a total consideration of £11,014,000. For the twelve months to 31 March 2014 a total of 4,525,000 shares were bought back for cancellation at a cost of £24,884,000.

4. Taxation

The total tax expense of £2.6m consists of a revenue tax expense of £3m relating to irrecoverable overseas tax on dividends and a capital tax credit of £0.4m arising from the decrease in the provision for deferred tax on capital gains recognised in relation to short-term unrealised gains on Indian holdings.

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 twelve
	months to	months to	months to
	30 September	30 September	31 March
	2014	2013	2014
	£'000	£'000	£'000
Purchase expenses	592	198	347
Sales expenses	521	308	583
	1,113	506	930