Interim Results

Templeton Emerging Markets IT PLC 12 December 2007 TEMPLETON EMERGING MARKETS INVESTMENT TRUST PLC ("TEMIT") ("the Company") UNAUDITED HALF YEARLY REPORT - 31 OCTOBER 2007 CHAIRMAN'S STATEMENT Performance I am pleased to report excellent performance by the Company during the six months under review. Net asset value per share at the period end was 548.20 pence, an increase of 52.6% for the six months. This compares with benchmark returns of 34.72% for the MSCI Emerging Markets Index and 33.58% for the S&P/IFC Investable Composite Index. The Company's share price at 31 October 2007 was 479.75 pence, compared with 327.25 pence at the beginning of the financial year, an increase of 46.6%. The stated objective of the Company is to provide long-term capital appreciation for its investors and in this it has been very successful. Since launch, the net asset value of the Company has risen by 1,557.87% in Sterling terms compared with a rise of 849.66% for the MSCI Emerging Markets Index and 778.86% for the S&P/IFC Investable Composite Index. The Interim Management Report on page 4 gives a detailed analysis of the Company's performance over the period. The portfolio is managed using the value style of investing. This requires a detailed research of stocks and the Manager purchases only those trading at less than their assessed value. Asset Allocation At period-end, 100% of the Company's total assets were invested in equities. The general policy of the Board is to be fully invested. At 31 October 2007, the Company had bank borrowings to the amount of £12 million, in the form of an overdraft facility with J P Morgan which has been used to facilitate the share buy back programme and secure an orderly realisation of investments for the purpose. At 31 October 2007, the Company had total assets of £2,645 million, compared with £1,925 million at 30 April 2007 and £1,683 million at 31 October 2006. Revenue and Dividend Gross revenue for the period was £31.5 million, representing an increase of 10.5% on the corresponding period last year. An ordinary dividend of 3.13 pence per Ordinary Share was declared on 29 August 2007 for the year ended 30 April 2007, resulting in a total dividend of £15.4 million. This was paid on 3 October 2007. Discount The Board keeps the share price discount to NAV under continual review and remains prepared to buy back shares when it believes this to be in Shareholders' best interests having regard to the Company's investment objective. During the period, the Board, following consultation with Shareholders on discount control measures, took the decision to buy back shares more actively. For the six months to 31 October 2007, 53.4 million shares representing 10% of the Company's share capital had been bought back for a cost of £200.7 million. At the EGM on 27 July 2007, authority was once again granted for the Company to buy back 14.99% of the Ordinary Shares in issue at that date. As at 31 October 2007, 12.7% of this was still available to the Board. The Board The following Board changes are announced to take effect from 12 December 2007: - I am retiring as Chairman and a Director of the Board. I would like to thank Shareholders and my Board colleagues for their support during my time in office and I wish the Company every success in the future. - The Board has elected Peter Smith, the senior independent Director and Chairman of the Audit Committee to be Chairman of the Company in my place. - Charles Johnson, Chairman of Franklin Resources Inc., is also retiring from the Board after 13 years service. He has provided outstanding advice to the Board with his wide experience of investment and of fund management and I would like to thank him for his significant contribution to the development of the Company. - The Board has appointed Sir Peter Burt as the senior independent Director. The Board has elected three new Directors: - Peter Harrison, a former KPMG Senior Partner responsible for the UK Financial Services Division, joined the Board on 30 November 2007 and is succeeding Peter Smith as Chairman of the Audit Committee. - Christopher Brady, Chairman of the Chart Group, and Greg Johnson, President and Chief Executive Officer of Franklin Resources Inc., have also been appointed with effect from 12 December 2007. The Board warmly welcomes all three new Directors. Peter Harrison and Christopher Brady are independent Directors; the biographies of all three new Directors are on page 3 of this Half Yearly Report. Sir Ronald Hampel 12 December 2007 Indices above are shown on a total return basis in GBP. Sources: Franklin Templeton Investments and Standard & Poor's Micropal. 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 and regulatory risk. Currency fluctuations may affect the value of its investments and the income derived thereof, 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 may 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 2007 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. 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 2007, which have been prepared in accordance with the International Accounting Standard 34 "Interim Financial Reporting", give a true and fair view of the assets, liabilities, financial position and profit or loss of TEMIT; (b) the Half Yearly Report includes a fair review of the information required by the FSA's Disclosure and Transparency Rules 4.2.7R; and (c) the Half Yearly Report includes a fair review of the information required by the Disclosure and Transparency Rules 4.2.8R (disclosure of related party transactions and changes therein). The Half Year Report was approved by the Board on 12 December 2007 and the above responsibility statement was signed on its behalf by Sir Ronald Hampel Chairman NEW DIRECTORS' BIOGRAPHIES Peter O. Harrison Peter Harrison (55) is a Financial Services specialist, having spent most of his career with the global accountancy and advisory firm, KPMG. Peter Harrison is Vice Chairman and Chairman of the Audit Committee at the Saffron Building Society where he joined as a Non Executive Director in November 2003. He is also a Senior Advisor and consultant with KPMG. Mr Harrison was the UK Head of Financial Services at KPMG for three years and a member of the UK Management Team. He retired from full time work with KPMG in 2002 as a Senior Partner in the Financial Services Practice having thirty years' experience in the profession, twenty one of which were at KPMG with fourteen years as a partner. His client work included providing business advisory, audit and regulatory assistance to a number of global retail banks, fund managers and leasing businesses as well as an overseas Government Investment Agency. He has worked and lived in the Far East, Europe and North America. Mr Harrison is a Fellow of The Institute of Chartered Accountants (FCA) and he attended the London Metropolitan University as part of his accounting qualification and has participated in a number of professional development programmes including Cranfield and INSEAD. Mr Harrison was appointed a Freeman of the City of London in 1990 and he has various interests and involvement in charitable activities, including through two City Livery Companies in London. In making this appointment the Directors of TEMIT regard Peter Harrison as being independent. Christopher D. Brady Christopher Brady (53) is the founding partner and Chairman of The Chart Group. With over 25 years' experience in private equity, corporate finance and capital markets, Mr Brady focuses on identifying and building portfolio companies through his extensive industry relationships and perspective. Prior to Chart, Mr Brady was a partner with Lodestar Group, a merger advisory and investment firm acquired by Societe Generale; and spent eleven years in the Corporate Finance and Capital Markets Departments of Lehman Brothers and Dillon Read. Mr Brady is a Director of Bitrage, SeaMobile, U.S. Helicopter and several Chart investments and affiliates. He received a B.A. from Middlebury College and an M.B.A. from Columbia University Graduate School of Business. Mr Brady has been actively involved channelling the resources of the business community to assist with U.S. Department of Defence-related initiatives. He has organised a venture capital team with an affiliate of the US Army to commercialise their technologies; assumed a leadership role to support the Wounded Warrior Disabled Sports Project, a non profit, Disabled Sports USA program to rehabilitate severely wounded soldiers through sports; and served as a member of the Transition Team for the U.S. Army Secretary Dr. Francis Harvey. Mr Brady is the son of Nicholas Brady, a former Secretary of the Treasury in the USA, a former Chairman of TEMIT and currently Chairman of Darby Overseas Investments, Ltd., a subsidiary company of Franklin Resources. In making this appointment the Directors of TEMIT regard Christopher Brady as being independent. Greg Johnson Greg Johnson (46) is President and Chief Executive Officer of Franklin Resources, Inc. and serves on the Board of Directors. Mr Johnson is also President of Templeton Worldwide, Inc., Chief Executive Officer and President of Templeton International, Inc. and serves as a Director for a number of subsidiaries of Franklin Resources, Inc. He is a member of a number of Franklin Templeton's international fund boards. Mr Johnson joined Franklin in 1986 after working as a senior accountant for Coopers & Lybrand. He has served as President and Chairman of the Board for Franklin Templeton Distributors, Inc., President of Franklin Investment Advisory, LCC, President of FT Trust Company, Vice President of Franklin Advisers, Inc., co-- portfolio manager of Franklin Income Fund and Franklin Utilities Fund and as an investment analyst. Mr Johnson earned his B.S. in accounting and business administration in 1983 from Washington and Lee University and his Certified Public Accountant (CPA) certificate in 1985. Mr Johnson is a Board member of Jumpstart and the San Francisco Symphony. He is also a member of the Investment Company Institute's Board of Governors. He is the past Vice-Chairman of the Mutual Fund Forum, is the past Chairman of the Western district of the Securities Industry Association and is a past President of the San Francisco Bond Club. Mr Johnson is the son of Charles Johnson, a former Director of TEMIT and currently Chairman and Director of Franklin Resources, Inc., and Chairman and Director of various Franklin Templeton funds. INTERIM MANAGEMENT REPORT This is the Interim Management Report for Templeton Emerging Markets Investment Trust PLC covering the six-month period ended 31 October 2007. Overview Emerging markets were among the strongest performing markets globally despite some volatility in the latter half of the period. Markets maintained an upward trend in the first few months of the period as most economies continued to report strong macroeconomic data and strong fund inflows. However, investor confidence was rattled in late July, amid concerns regarding the subprime crisis in the U.S. as well as generally worsening credit and borrowing conditions there. Widespread concerns over the exposure of financial corporations to those US subprime mortgages resulted in the drying up of liquidity around the world and triggered some panic selling in stock and bond markets. Although the exposure of emerging markets companies to subprime loans was not significant, it did not prevent investors from selling emerging markets stocks. A decision by the US Federal Reserve to cut the discount rate by 50 basis points, from 6.25% to 5.75% eventually calmed markets. The availability of funds from the Federal Reserve to support US corporates alleviated concerns causing markets to rebound globally as investors hurried to pick up oversold stocks. Liquidity improved considerably in the later part of August and in September with markets appreciating as rapidly as they had corrected, some emerging markets reached record high levels. A brief period of volatility was, however, experienced in October due to heightened tensions between Turkey and Iraq, which subsequently also led oil prices to reach a record high level. High liquidity coupled with greater investor appetite for emerging markets equities led markets to resume their upward trend. A weaker US dollar and a 25 basis points interest rate cut in the U.S. at the end of October further supported performances. Within the emerging markets asset class, Asian markets recorded the largest gains, as investors remained confident of the developments in the region. China and India attracted substantial foreign fund flows during the period helping those markets to outperform significantly. Both countries continue to maintain strong growth momentum. The Chinese government's proposal to allow individual domestic investors to invest in the Hong Kong-listed Chinese "H" and "Red-Chip" shares led to the escalation of prices of these companies on investors' expectations of significant funds inflows from mainland China. Neighbouring markets, Indonesia, Thailand and South Korea also recorded respectable gains. Despite recording positive returns, European and African markets underperformed their emerging market peers. Turkey, however, significantly outperformed global markets as investors cheered the first interest rate cut in more than a year, as well as the completion of parliamentary and presidential elections during the period. A stronger Lira also boosted stock returns in US$ terms. In Latin America, the Brazilian market reached a record high in October as investors cheered news of accelerating economic growth, high foreign investment flows and lower interest rates. Portfolio Changes & Investment Strategies Fund-raising for share buybacks required the sale of a number of holdings during the period. These sales also allowed the Company to focus on stocks deemed to be relatively more attractively valued within our investment universe. Selective sales were thus undertaken in China "Red-chip" shares, Malaysia, Taiwan, South Africa and South Korea. These sales reduced the Company's exposure to the wireless telecommunications services, marine ports & services, semiconductors, tobacco and industrial conglomerates sectors. With commodity prices expected to stay at relatively high levels, we increased our investments in the oil & gas, metals & mining and aluminium sectors. Coupled with growing global demand, companies in the energy and metal sectors could experience higher corporate earnings which could subsequently lead to higher equity prices. Purchases included National Aluminum, India's largest alumina manufacturer, Sesa Goa, one of India's dominant iron ore exporters, SK Energy, a major player in South Korea's refining market, and PTT, a leading integrated gas company in Thailand. Additions were undertaken in Thailand, India, Indonesia and Turkey as the Company continued to search for attractively valued stocks that could benefit from the developments in emerging markets. In addition to the stocks discussed above, we also purchased Bank Central Asia, a major Indonesian bank, Akbank, one of the best-capitalised banks in Turkey, and Turkcell, a key provider of mobile communications services in Turkey. The continued liberalisation of the financial sectors in emerging markets such as Thailand and Turkey could unlock hidden value and allow banks to benefit from the growing financial needs of consumers in the region. Asia GDP growth in China eased to 11.5% year-on-year in the third quarter of 2007 from 11.9% year-on-year in the second quarter. The moderation in GDP growth mainly stemmed from relatively lower fixed investment growth. Domestic demand and trade remained key drivers of growth. The trade surplus reached a new record of US$253.8 billion in the 12 months ended September 2007. China's surging trade surplus has led foreign reserves to grow significantly, reaching US$1.4 trillion as of end-September. Foreign direct investment (FDI) inflows also grew 10.9% year-on-year to US$47.2 billion in the first nine months of the year. Aimed at increasing its investment returns, China established the China Investment Corporation, a US$200 billion sovereign wealth fund, which became the region's largest government-owned investment company. That fund is expected to invest in global markets. The People's Bank continued to raise interest rates as well as the reserve requirement ratio throughout the period in an effort to curb inflation, bank lending and rising property prices. The South Korean economy grew 5.2% year-on-year in the third quarter of the year, a slight acceleration from the 5.0% recorded in the second quarter. Private consumption and investment as well as export growth, albeit slower than the preceding quarter, supported GDP. International ratings agency, Standard & Poor's, reaffirmed the country's sovereign ratings due to improving political relations between North and South Korea and sound macroeconomic fundamentals. After raising interest rates in the earlier part of the period, the central bank left interest rates unchanged in September and October to support economic growth and domestic consumption. Aimed at improving investment returns and diversifying its asset base, the government-owned Korea Investment Corporation announced plans to invest in equities in 2008. In the area of trade, South Korea and the U.S. signed the free trade agreement (FTA) after renegotiating changes to meet the new U.S. guidelines on labor rights and the environment. South Korea also concluded its fourth round of bilateral trade negotiations with the European Union. GDP growth in Thailand accelerated to 4.4% in the second quarter from a revised 4.2% in the first three months of the year mainly due to export growth. Thailand and India aim to conclude free trade negotiations by the end of this year while the FTA signed by Thailand and Japan was officially implemented on 1 November 2007. This could further boost Thailand's exports to neighbouring economies. Expanding trade and economic relations, the country also entered into an agreement with Ukraine to increase trade and investment. In the political arena, the Cabinet approved the royal decree setting the stage for general elections on 23 December 2007. The upcoming elections could improve consumer and corporate confidence which could subsequently lead to higher domestic expenditure and investment. Latin America Higher consumer demand and corporate investment led Brazil's GDP growth to accelerate to 5.4% year-on-year in the second quarter from a revised 4.4% in the first quarter. Lower interest rates further cultivated the economic environment. However, after about two years of interest rate cuts, the Central Bank left the benchmark interest rate unchanged at 11.25% in October amid signs of inflationary pressures. In addition to strong portfolio inflows, FDI flows also continued with net inflows for the 12-month period ended September totalling US$34.9 billion. International credit rating agencies, Standard & Poor's, Moody's and Fitch, upgraded Brazil's sovereign rating as a result of the country's strong macroeconomic fundamentals, improved current and trade accounts and growing foreign reserves. Signalling greater global integration, Brazil signed a strategic association agreement with the European Union to work towards more cooperation in areas ranging from trade to human rights. President Lula also visited India in June to improve bilateral relations and study opportunities for business and investment. Eastern/Southern Europe The Russian economy continued to record robust economic growth with second quarter GDP growing 7.8%, in line with the 7.9% in the first quarter. A boom in consumer and investment demand coupled with higher incomes drove GDP growth. This led the Central Bank to upgrade its 2007 GDP growth forecast to 7.5% from 6.5%. The Central Bank of Russia lowered its minimum reserve requirement by 100 basis points in October and eased refinancing regulations to boost liquidity in the domestic markets. The global credit crunch in August triggered significant outflows in the third quarter with the Central Bank recording a net private capital outflow of US$9.4 billion. This was in contrast to the US$52.7 billion inflow registered in the second quarter. Foreign exchange reserves, however, continued to grow, totalling U$425.1 billion as of end-September. In politics, President Putin announced that he might take on the role of prime minister after his second term expires next year. According to the Russian constitution, the president is restricted to two terms in office. In Turkey, political instability in the second quarter of this year coupled with high interest rates led to lower corporate and consumer expenditure. This subsequently led GDP growth to slow to 3.9% year-on-year from 6.8% in the first quarter. The benchmark interest rate was, however, reduced by 25 basis points to 17.25% in September for the first time in more than a year due to lower inflation in recent months. This was followed by a 50 basis points cut to 16.75% in October due to weak domestic demand and easing inflationary pressures. Additionally, the International Monetary Fund completed its sixth review of the stand-by agreement and released US$1.1 billion in financing. Plans for higher public expenditure led the government to unveil a 2008 budget surplus of 5.5% of GNP, lower than the annual 6.5% target agreed upon under the existing IMF agreement which expires in May 2008. The expiry of the agreement allows the government to adopt a more flexible fiscal policy. In politics, Foreign Minister Abdullah Gul from the AKP also emerged as the country's new president in August. Gul subsequently approved the new cabinet, with Ali Babacan becoming the new Foreign Minister. He also remained chief negotiator with the European Union to ensure that accession efforts remained on track. Outlook While many emerging markets experienced high volatility and some fund outflows in August, a weak US dollar and renewed confidence in emerging markets and emerging market currencies led to a sharp rebound in fund inflows in September and October. Emerging market sovereign spreads have also remained low, reflecting investors' positive view on the asset class. We remain confident of the long-term outlook for emerging markets. However, investors should expect high volatility which is intrinsic in emerging markets that have had a bull market that has lasted for more than four years. Fundamentally, emerging markets remain strong. Most countries continue to report strong economic growth and relatively low inflation. The role of emerging markets in the global economy has also grown significantly in recent years. These countries continue to make fundamental improvements to their economies. These developments mean that emerging markets investments still contain good opportunities. Thus, we will continue to apply our proven bottom-up investment strategy and seek the best bargains to maximize the long-term total returns for our shareholders. J Mark Mobius, Ph.D. Templeton Asset Management Ltd. 12 December 2007 TOP TWENTY HOLDINGS As at 31 October 2007 % % of of Company Country Industry Issued Total Market Share Net Value Capital Assets £'000 Hyundai Development Korea Construction & 4.92 7.46 197,315 Co. (South) Engineering Companhia Vale do Rio Brazil Diversified Metals 0.54 5.92 156,506 Doce, & ADR pfd. Mining Unibanco Uniao de Brazil Diversified Banks 1.60 5.47 144,658 Bancos Brasileiros SA, GDR, pfd Akbank TAS Turkey Diversified Banks 1.04 5.16 136,393 PetroChina Co. Ltd. China Integrated Oil & 0.50 4.84 128,116 Gas Aluminium Corp. of China China Aluminium 2.06 4.21 111,371 Ltd. Banco Bradesco SA, ADR, Brazil Diversified Banks 0.67 4.18 110,492 pfd. China Petroleum and China Integrated Oil & 0.91 4.18 110,429 Chemical Corp Gas SK Energy Co. Ltd. Korea Oil & Gas Refining 1.09 4.15 109,837 (South) & Marketing Petroleo Brasileiro SA, Brazil Integrated Oil & 0.13 3.59 94,975 ADR, pfd. Gas Mining and Metallurgical Russia Diversified Metals 0.17 2.79 73,791 Co. & Norilsk Nicklel, Mining ADR Gazprom, ADR Russia Integrated Oil & 0.01 2.32 61,323 Gas SK Holdings Co. Korea Industrial 0.87 2.20 58,257 Ltd. Conglomerates (South) Tupras-Turkiye Turkey Oil & Gas Refining 1.65 2.11 55,871 Petrol Rafineleri AS & Marketing --- --- --- Lukoil Holdings ADR Russia Integrated Oil & 0.08 2.05 54,223 Gas Denway Motors Ltd. China Automobile 2.08 1.98 52,253 Manufacturers MOL Hungarian Oil Hungary Integrated Oil & 0.63 1.93 51,114 and Gas Gas Nyrt. Polski Koncern Poland Oil & Gas Refining 1.01 1.80 47,563 Naftowy Orlen SA & Marketing Siam Commercial Bank Thailand Diversified Banks 1.89 1.78 47,181 Public Co. Ltd. Kangwon Land Inc. Korea Casinos & Gaming 1.69 1.74 46,149 (South) Top 20 Holdings - 69.86% 1,847,817 of Net Assets Since 1 May 2007, changes in the structure of the portfolio have resulted in Richter Gideon, Dairy Farm International Holdings and Companhia Paranaense de Energia-Copel dropping out of the top twenty holdings and SK Energy, Lukoil and Denway Motors coming into it. GEOGRAPHIC ASSET ALLOCATION AS AT 31 OCTOBER 2007 AS AT 30 APRIL 2007 COUNTRY % COUNTRY % Brazil 22.74 Brazil 20.08 China 17.06 China 14.75 Korea (South) 15.79 Korea (South) 12.42 Turkey 9.22 Turkey 8.23 Russia 8.63 Russia 9.05 Thailand 7.64 Thailand 7.48 India 3.98 India 3.44 Hungary 3.67 Hungary 4.53 Poland 2.50 Poland 2.72 Pakistan 1.61 Pakistan 1.94 Singapore 1.57 Singapore 1.82 Austria 1.38 Austria 1.69 Indonesia 1.35 Indonesia 1.14 United Kingdom 1.02 United Kingdom 0.00 Mexico 0.67 Mexico 1.13 Taiwan 0.60 Taiwan 2.26 South Africa 0.53 South Africa 3.12 Sweden 0.19 Sweden 0.23 Greece 0.10 Greece 0.17 Philippines 0.06 Philippines 0.49 Malaysia 0.00 Malaysia 1.99 Liquid Assets (0.31) Liquid Assets 1.32 INCOME STATEMENT For the six months to 31 October 2007 (unaudited) Revenue Capital Total £000 £000 £000 Gains/(losses) on investments and exchange Gains/(losses) on investments at fair value - 922,787 922,787 Losses on foreign exchange - (361) (361) Revenue --- --- --- Dividends 30,847 - 30,847 Bank Interest 664 - 664 31,511 922,426 953,937 --- --- --- --- --- --- Expenses Investment management fee (10,601) - (10,601) Other expenses (3,934) - (3,934) --- --- --- --- --- --- Profit before taxation 16,976 922,426 939,402 Tax expense (4,530) - (4,530) --- --- --- --- --- --- Profit for the period 12,466 922,426 934,872 --- --- --- Profit attributable to equity holders of the Company 12,446 922,426 934,872 Basic Earnings per Ordinary Share 2.49p 184.62p 187.11p Annualised Expense Ratio 1.32% The capital element of returns 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. Dividend Policy In accordance with the Company's stated policy, no dividend is declared for the period. (A dividend of 3.13 pence per Ordinary Share was paid on 3 October 2007 for the year ended 30 April 2007). INCOME STATEMENT (CONTINUED) For the six months to Year to 31 October 2006 (unaudited) 30 April 2007 (audited) Revenue Capital Total Revenue Capital Total £000 £000 £000 £000 £000 £000 - (180,410) (180,410) - 52,513 52,513 - (468) (468) - (739) (739) 28,214 - 28,214 52,883 - 52,883 374 - 374 1,192 - 1,192 --- --- --- --- --- --- 28,588 (180,878) (152,290) 54,075 51,774 105,849 --- --- --- --- --- --- (8,127) - (8,127) (17,328) - (17,328) (2,888) - (2,888) (5,715) - (5,715) --- --- --- --- --- --- 17,573 (180,878) (163,305) 31,032 51,774 82,806 (5,004) - (5,004) (8,727) - (8,727) 12,569 (180,878) (168,309) 22,305 51,774 74,079 12,569 (180,878) (168,309) 22,305 51,774 74,079 2.35p (33.75)p (31.40)p 4.16p 9.66p 13.82p 1.33% 1.32% BALANCE SHEET As at As at As at 31 October 31 October 30 April 2007 2006 2007 £000 £000 £000 (unaudited) (unaudited) (audited) --- --- --- Assets Non-current assets --- --- --- Investments at fair value through profit or loss 2,654,129 1,675,428 1,903,046 Current assets --- --- --- Trade and other receivables 11,547 4,087 9,010 Cash 2,170 14,709 25,915 13,717 18,796 34,925 --- --- --- Current liabilities Bank borrowings (12,275) - - Trade and other payables (4,704) (5,864) (7,853) Current tax payable (5,160) (4,281) (2,248) --- --- --- (22,139) (10,145) (10,101) Non-current liabilities Deferred tax liabilities (717) (985) (2,386) Net assets 2,644,990 1,683,094 1,925,484 --- --- --- Issued share capital and reserves attributable to equity shareholders Called-up Share Capital 120,623 133,995 133,995 Share Premium Account 375,327 375,327 375,327 Capital Redemption Reserve 20,265 6,893 6,893 Capital Reserves - Realised 320,466 329,268 414,900 Capital Reserves - Unrealised 1,760,487 796,585 943,605 Revenue Reserves 47,822 41,026 50,764 Equity shareholders' funds 2,644,990 1,683,094 1,925,484 Net Asset Value per Ordinary Share (in pence) 548.20 314.02 359.24 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 2006 133,995 375,327 6,893 271,724 1,035,007 43,253 1,866,199 Profit for the - - - 57,544 (238,422) 12,569 (168,309) period Equity dividends - - - - - (14,796) (14,796) --- --- --- --- --- --- --- Balance at 31 October 2006 133,995 375,327 6,893 329,268 796,585 41,026 1,683,094 --- --- --- --- --- --- --- Profit for the - - - 85,632 147,020 9,738 242,390 period Equity - - - - - - - dividends --- --- --- --- --- --- --- Balance at 30 April 2007 133,995 375,327 6,893 414,900 943,605 50,764 1,925,484 --- --- --- --- --- --- --- Profit for the - - - 106,309 816,882 12,352 935,543 period Equity dividends - - - - - (15,294) (15,294) Purchase and cancellation of own (13,372) - 13,372 (200,743) - - (200,743) shares --- --- --- --- --- --- --- Balance at 31 120,623 375,327 20,265 320,466 1,760,487 47,822 2,644,990 October 2007 --- --- --- --- --- --- --- --- --- --- --- --- --- --- CASH FLOW STATEMENT For the six For the six For the year months to months to ended 30 April 31 October 2007 31 October 2006 2007 £000 £000 £000 (unaudited) (unaudited) (audited) Cash flows from operating activities Profit/(loss) before taxation 939,402 (163,305) 82,806 Adjustments for: (Gains)/losses on investments at (922,787) 180,410 (52,513) fair value Realised loss on foreign 361 468 739 exchange Decrease/(increase) in debtors 1,599 3,700 (439) Decrease/(increase) in accured income 43 (25) (56) Increase/(decrease) in 1,150 (99) (203) creditors --- --- --- Cash generated from operations 19,768 21,149 30,334 Taxation paid (3,148) (4,812) (8,878) --- --- --- Net cash inflow from operating activities 16,620 16,337 21,456 --- --- --- Cash flows from investing activities Purchases of non-current financial (57,671) (143,273) (371,610) assets Sales of non-current financial assets 221,137 130,561 364,806 --- --- --- 163,466 (12,712) (6,804) Cash flows from financing activities --- --- --- Equity dividends paid (15,294) (14,796) (14,793) Purchase and cancellation of own (200,743) - - shares --- --- --- (216,037) (14,796) (14,793) Net (decrease)/increase in (35,951) (11,171) (141) cash Cash at start of period 25,915 25,764 25,764 Exchange (loss)/gain on cash (69) 116 292 Cash at end of period (10,105) 14,709 25,915 NOTES TO THE FINANCIAL STATEMENTS 1. Basis of preparation This Half Yearly Report for the period ended 31 October 2007 has been prepared in accordance with International Accounting Standards ("IAS") 34 "Interim Financial Reporting". The accounting policies applied to this Half Yearly Report are consistent with those applied in the accounts for the year ended 30 April 2007. The financial information contained in this Half Yearly Report does not constitute statutory accounts as defined in section 240 of the Companies Act 1985. The financial information for the half years ended 31 October 2006 and 31 October 2007 has not been audited. The figures and financial information for the year ended 30 April 2007 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 section 237(2) or 237(3) of the Companies Act 1985. 2. Contingent Assets A recent European Court of Justice case has found that the management fees of investment trust companies should be exempt from VAT. The Company had previously lodged protective claims with HMRC to recover monies already paid. It is generally acknowledged that the resolution of retrospective claims is likely to be complex. The statement from HMRC was very short and contained little detail on the practicalities on it settling the retrospective claims submitted, and at this time no credit has been taken into these accounts for any amounts that may be recoverable. On the basis of the current legal position, the recovery is not expected to be more than £700,000. Due to recent favourable 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 this 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 2007 31 October 2006 30 April 2007 £'000 £'000 £'000 Revenue Return 12,446 12,569 22,305 Capital return/(loss) 922,426 (180,878) 51,774 Total 934,872 (168,309) 74,079 Weighted average number of shares 499,625,725 535,981,593 535,981,593 Revenue return per share 2.49p 2.35p 4.16p Capital return per share 184.62p (33.75)p 9.66p Total return per share 187.11p (31.40)p 13.82p 4. Shares Repurchased The shares repurchased in the period were 53,491,013 representing 10% of the Company's share capital at an average price per share of £4.04. The total cost to the Company was £200,743,717 (as at 30 April 2007 - nil). As at 31 October 2007, there were 482,490,580 (as at 30 April 2007 - 535,981,593) 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 2007 31 October 2006 30 April 2007 £'000 £'000 £'000 Purchases 353 318 925 Sales 480 219 744 833 537 1,669 Copies of the Interim Report will shortly be sent to shareholders. 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. This information is provided by RNS The company news service from the London Stock Exchange

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