Interim Results

Templeton Emerging Markets IT PLC 15 December 2006 PRELIMINARY ANNOUNCEMENT TEMPLETON EMERGING MARKETS INVESTMENT TRUST PLC ("TEMIT") ("the Company") Interim Results for the six months to 31 October 2006 The Company today announced its interim results for the period to 31 October 2006. Chairman's Statement 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 922.11% in sterling terms compared with a rise of 518.38% for the MSCI Emerging Markets Index and 510.28% for the S &P/IFC Investable Composite Index. There are however always short-term fluctuations. During the six months under review there was a significant market correction in the first few weeks and the share price fell from 310.25p at 30 April to a low of 221.5p in June. The initial fall was sharper than the peer group because the Company was overweight in oil and in Turkey and Hungary, but there has since been a recovery and on 31 October the price was 275.50p. It has since recovered further to over 300p. More detail appears in the Manager's Investment Review in this Report. At period-end, 99.5% of the Company's total assets were invested in equities, with the remaining 0.5% being held in liquid assets. The general policy of the Board is to be fully invested. At 31 October 2006, your Company had total assets of £1,683 million, compared with £1,866 million at 30 April 2006 and £1,379 million at 30 October 2005. An ordinary dividend of 2.76 pence per Ordinary Share was declared for the year ended 30 April 2006, resulting in a total dividend of £14.79 million. This was paid on 4 October 2006. With effect from 1 November 2006, the Company moved from a weekly declaration of the unaudited net asset value to a daily announcement. This will improve transparency and may help to remove a period of possible speculation. 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; it took powers once again at the 2006 AGM to buy back up to 14.99% of issued shares during the year. The Board continues to believe in a discretionary rather than a formulaic approach and has instructed the Manager to inform the Board if at any time the Manager believes that the lack of or price of investment opportunities makes buy-back appropriate. For the past three years the discount has generally been in a band of 15% to 10% trending downwards, although normally at a wider discount than its peer group, all of whom are smaller and less liquid. The Company's largest shareholder, City of London Investment Management Company Limited with some 13% of the shares, has in recent months been seeking to persuade the Board to adopt discount reduction methods without being precise about type. Consultation with other shareholders produced a divergence of opinion, both about the desirability and the method. In the circumstances the Board has maintained the policy outlined above which it believes to be consistent with the investment objective of long-term capital appreciation. This policy has now been challenged publicly by City of London. This clearly affects the future strategy of the Company and the Board therefore believes it must consult even more widely and precisely with shareholders to determine that future. This consultation will take place over the next few weeks. The Board will also be holding an open meeting at which shareholders will have the opportunity to express their views and it very much hopes that this meeting will attract smaller shareholders. This meeting will be held at the Queen Elizabeth 2nd Conference Centre in Westminster at 11.00am on Wednesday February 7th. Further details and directions will appear on our website in early January 2007. As it will not be practicable for every shareholder to attend, the Board would also welcome written views, which should be addressed to me at the Company's registered office or alternatively by e-mail to rchampel@franklintempleton.co.uk. The Board expects to be able to advise shareholders of its conclusions by the end of the first quarter of 2007. The Board welcomes Neil Collins, the former Business Editor of the Daily Telegraph, who was appointed to the Board on 28 September 2006. Sir Ronald Hampel 15 December 2006 Indices above are shown on a total return basis in GBP. Sources: Franklin Templeton Investments and Standard & Poor's Micropal. INVESTMENT REVIEW This is the semi-annual report for Templeton Emerging Markets Investment Trust PLC covering the six-month period ended 31 October 2006. Overview Ample global liquidity and a strong macroeconomic environment propelled emerging markets towards gains in the early part of 2006. However, global financial markets, with emerging markets being no exception, corrected at the beginning of the reporting period due to substantial fund outflows resulting from concerns over tightening monetary policy in the US. Attractive valuations, stabilising fund flows and strong underlying fundamentals, however, led markets to recuperate in the latter part of the period. The Federal Reserve's decision to leave interest rates unchanged from August onwards further boosted investor confidence. The news was especially positive for Asian markets, allowing them to outperform their emerging market counterparts. More importantly, it is encouraging to see accelerating reforms in some countries after they faced economic crises and other challenges in recent years. In Eastern Europe, a decline in crude oil prices during the period adversely affected the Russian market, while political unrest in Hungary led that market to correct. While the Turkish market suffered significant losses in the recent sell-off in global stock markets, a search for oversold stocks allowed the market to recover some of its losses in the latter part of the period. The South African market ended the period in negative territory mainly due to a weakening Rand. In Latin America, Mexico recorded gains, as investors remained focused on the country's improving economic fundamentals, while Brazil and Argentina experienced declines. Portfolio Changes & Investment Strategies The biggest changes in the portfolio's country weightings were in Korea (from 17.1% to 14.7%), China (from 13.3% to 15.7%) and Russia (from 5.3% to 7.9%). The decrease in Korea was largely a result of profit taking in CJ Corporation, Daewoo Shipbuilding, LG Petrochemical and Posco. The increases in China and Russia arose as a result of purchases in the shares of Guangdong Electric, Aluminium Corporation of China (Chalco), Brilliance China, Denway Motor, Gazprom and Lukoil. The Company increased its exposure to the oil and gas sector as energy stocks are expected to benefit from greater revenues and earnings as a result of relatively higher level of oil prices. The decline in commodity prices during the period provided the Company with an opportunity to build positions at cheaper prices since we expect oil prices to remain firm because of geopolitical and bottleneck problems. Key additions included Gazprom, the largest producer of gas in the world in terms of reserves and production, PTT, a major integrated gas company in Thailand, ONGC, a dominant player in the Indian upstream sector, and Petrobras, Brazil's national oil and gas company. Exposure to aluminium companies in China and India as well as Brazil's diversified metals and mining sectors was also increased. As the Company continued its search for value stocks, selective purchases were also made in Indonesia, Taiwan and China "Red-chip" shares. Significant additions included automobile manufacturers, Astra International, Denway Motors and Brilliance China, Bank International Indonesia, a major diversified bank in Indonesia, Taiwan Semiconductor Manufacturing (TSMC), the largest independent integrated circuit foundry globally, and Faraday Technology, Taiwan's largest service provider of integrated circuit design and manufacturing logistics services. The Company's weighting in China increased due to the additions referred to above as well as price appreciation. As selective stocks approached their sell targets, exposure to South Korea, Mexico and Singapore was reduced during the period. The Company's investments in the packaged foods and meats, chemicals and construction industries were trimmed via the sale of CJ Corporation, a key food producer in South Korea, LG Petrochemical, a commodity chemical producer engaged in manufacturing of ethylene and ethylene derivative products, and Daewoo Shipbuilding, a major South Korean shipbuilder. The reduction in the weighting in South Korea was the result of the above mentioned profit taking. In Mexico and Singapore, key sales included soft drinks and beer producers, Fraser & Neave and Femsa. The Company also eliminated its exposure to Croatia via the sale of pharmaceutical, Pliva, in a tender offer. Moreover, the Company's weighting in Turkey declined largely due to the reduction in the share price coupled with a devaluation in the Turkish Lira during the reporting period. Asia Minimal impact was seen in South Korea's market after news of North Korea's nuclear test in early October. While the nuclear test could raise geopolitical tensions in the region, no major impact is expected on the South Korean economy. Preliminary data released in October pointed towards a 4.6% year-on-year growth in third quarter GDP. While this was slower than the 5.2% year-on-year in the second quarter, GDP accelerated slightly on a quarter-on-quarter basis mainly due to a rebound in investment expenditure. Robust export growth and improving domestic consumption is expected to support GDP in the later half of the year. In politics, the country's main opposition, Grand National Party (GNP), won a landslide victory in the local elections on 31 May, due to public dissatisfaction of the ruling Uri Party's administration. With China growing at its fastest pace in more than ten years, the government implemented tightening measures to curb investment in certain overheated sectors of the economy during the period. These efforts bore results with third quarter GDP growth moderating to 10.4% year-on-year, slower than the 11.3% in the preceding 3-month period as fixed investment growth decelerated during the period. The central bank expects GDP to grow 10.5% this year, slightly higher than the 10.2% recorded in 2005. Inflation remained benign at 1.3% year-on-year during the quarter as the People's Bank of China raised interest rates by 27 basis points in April and August to curb excessive credit growth and keep inflationary pressures subdued. Thailand's GDP growth slowed to 4.9% year-on-year in the second quarter from 6.0% in the first quarter mainly due to sluggish domestic consumption and investment expenditure as a result of the political unrest in the country. Exports, however, remain strong, increasing 16.4% to US$95.6 billion in the first nine months of the year. After entering into an agreement with Malaysia to improve regional business relations, Thailand announced plans to sign free trade agreements (FTAs) with Japan and Pakistan in the future. In politics, Prime Minister Thaksin was overthrown in a bloodless military coup in September. The army has appointed General Surayud Chulanont as the interim prime minister. General elections are expected in late 2007 after the creation of a new constitution. Latin America Brazilian President Lula won a landslide re-election in the second round presidential elections on 29 October. No major policy changes are expected. Second quarter GDP rose by a lower than expected 1.2% year-on-year, bringing the growth for the first six months of the year to 2.2%. Remaining positive, the government maintained its 4% forecast for 2006. The central bank maintained a loosening monetary policy, reducing interest rates by 200 basis points during the period as inflationary pressures remained benign. A resumption in foreign capital inflows in the latter part of the period led net foreign direct investment to increase to US$1.8 billion in September from US$1.2 billion in August, bringing the 12-month period total to US$15.3 billion. Southern / Eastern Europe Russia held local and municipal elections in October where President Vladimir Putin's United Russia party emerged victorious, giving the pro-Kremlin party an absolute majority in the local legislature. In economics, GDP growth accelerated to 7.4% year-on-year in the second quarter from 5.5% in the preceding quarter. This brought growth for the first half of the year to 6.5%. Key drivers included high oil prices, industrial production and rising capital investment. Russia also repaid its US$24 billion debt to the Paris Club including an early prepayment premium. Gold and foreign exchange reserves have also increased significantly over the years, totalling US$269.1 billion at the end of October, the fourth largest in the world. Turkey's economy grew 7.5% year-on-year in the second quarter of 2006 mainly due to growth in industrial production and private sector consumption. After significantly increasing interest rates in the earlier part of the period, the central bank shifted to a more neutral policy by maintaining interest rates in the last three months of the period as the country's inflation outlook improved. Prime Minister Erdogan visited the US where President Bush voiced his support for Turkey's accession into the European Union. Both leaders also pledged to cooperate against terrorism. South Africa Economic growth accelerated to 4.9% in the second quarter of 2006 from 4.0% in the first three months of the year as the South African economy benefited from strong manufacturing and services sectors. As a result of the country's strong fiscal performance, the government lowered its budget deficit target for the fiscal year 2006/7 and forecasted a surplus in 2007/8. In an effort to improve trade and economic relations, South Africa signed agreements with Russia and China during the reporting period. In politics, the High Court dismissed a corruption case against Jacob Zuma, the former deputy president of the African National Congress. This could improve Zuma's chances to succeed Thabo Mbeki as president in 2009. Outlook The volatility experienced in global equity markets in the early part of the period in our view represents an investment opportunity despite possible further volatility in the short to medium term. While stock markets in the emerging markets are fundamentally sound and reasonably priced, a sharp deceleration in US economic growth, tightening liquidity and volatile oil prices could pose a risk. From an economic perspective, however, emerging market economies look good. Although share prices have increased strongly in recent years, so have earnings. The key is to find undervalued companies that are well capitalised and have a unique and competitive product range. Companies that are paying solid and sustainable dividends are especially attractive. Despite their rapid growth, many emerging markets companies are undervalued when compared to their peers in developed markets. Taking a long-term view, emerging markets continue to offer investors an attractive investment destination. Dr. Mark Mobius, Ph.D. Fund Manager 15 December 2006 TOP TWENTY HOLDINGS As at 31 October 2006 Market Value Company Country Industry £000 Hyundai Development Co. Korea (South) Construction & Engineering 97,933 Unibanco Uniao de Bancos Brasileiros SA, GDR, pfd. Brazil Diversified Banks 78,565 Banco Bradesco SA, ADR, pfd. Brazil Diversified Banks 63,165 PetroChina Co., Ltd., H China Integrated Oil & Gas 61,388 Akbank TAS Turkey Diversified Banks 56,560 China Petroleum & Chemical Corp., H China Integrated Oil & Gas 55,340 SK Corp. Korea (South) Oil & Gas Refining 53,980 & Marketing Petroleo Brasileiro SA, ADR, pfd. Brazil Integrated Oil & Gas 50,249 Richter Gedeon Nyrt. Hungary Pharmaceuticals 48,538 Companhia Paranaense de Brazil Independent Power 43,895 Energia-Copel, ADR, pfd. Producers & Energy Gazprom, ADR Russia Integrated Oil & Gas 37,639 Companhia Vale do Rio Doce, Brazil Steel 37,338 ADR, pfd., A MOL Magyar Olaj-es Gazipari Rt. Hungary Integrated Oil & Gas 36,044 Polski Koncern Naftowy Orlen SA Poland Oil & Gas Refining 35,628 & Marketing Siam Commercial Bank Public Co., Ltd., fgn. Thailand Diversified Banks 33,292 Tupras-Turkiye Petrol Rafineleri AS Turkey Oil & Gas Refining 33,105 & Marketing China Merchants Holdings China Marine Ports & Services 31,064 (International) Co., Ltd. Centrais Eletricas Brasileiras Sa (Eletrobras) Brazil Electric Utilities 30,777 China Mobile Ltd. China Wireless Telecommunication 30,211 Services Aluminium Corp. of China Ltd., H China Aluminium 29,732 Top 20 Holdings - 56.1% of Net Assets 944,443 --------- Since 1 May 2006, changes in the structure of the portfolio have resulted in Lukoil, OMV AG and Dairy Farm International Holdings dropping out of the top twenty holdings and Gazprom, China Mobile and Aluminium Corp. of China coming into it. GEOGRAPHIC ASSET ALLOCATION AS AT 31 OCTOBER 2006 AS AT 30 APRIL 2006 COUNTRY % COUNTRY % Brazil 20.12 Brazil 19.56 China 16.33 China 13.85 Korea (South) 14.62 Korea (South) 17.16 Russia 7.96 Russia 5.27 Thailand 7.69 Thailand 6.43 Turkey 6.31 Turkey 7.43 Hungary 5.11 Hungary 5.24 South Africa 4.32 South Africa 4.75 Taiwan 3.89 Taiwan 3.84 Poland 2.14 Poland 2.64 India 2.01 India 2.48 Singapore 1.70 Singapore 2.20 Malaysia 1.69 Malaysia 1.50 Austria 1.65 Austria 1.99 Mexico 1.19 Mexico 1.36 Indonesia 0.96 Indonesia 0.40 Philippines 0.57 Philippines 0.55 United Kingdom 0.45 United Kingdom 0.40 Czech Republic 0.36 Czech Republic 0.40 Greece 0.19 Greece 0.17 Sweden 0.19 Sweden 0.19 Pakistan 0.09 Pakistan 0.00 Croatia 0.00 Croatia 1.41 Liquid Assets 0.46 Liquid Assets 0.78 INCOME STATEMENT For the six months to 31 October 2006 (unaudited) Revenue Capital Total £000 £000 £000 (Losses)/gains on investments and exchange (Losses)/gains on investments at - (180,410) (180,410) fair value Losses on foreign exchange - (468) (468) --- --- --- Revenue Dividends 28,214 - 28,214 Bank interest 374 - 374 ------------- --------------- -------------- 28,588 (180,878) (152,290) -------- ----------- ----------- Expenses Investment management fee (8,127) - (8,127) Other expenses (2,888) - (2,888) --------- --------------- --------- --- --- --- Profit before taxation 17,573 (180,878) (163,305) Tax expense (5,004) - (5,004) --------- --------------- ------------- --- --- --- Profit attributable to equity holders of the Company 12,569 (180,878) (168,309) -------- ----------- ----------- Basic Earnings per Ordinary Share 2.35p (33.75)p (31.40)p --- --- --- Annualised Expense Ratio 1.33% The capital element of returns is not distributable. The total column is the Income Statement of the Company. All revenue and capital items in the above statement derive from continuing operations. Dividend Policy In accordance with the Company's stated policy, no interim dividend is declared for the period. (A dividend of 2.76 pence per Ordinary Share was paid for the year ended 30 April 2006) INCOME STATEMENT (CONTINUED) For the six months to Year to 31 October 2005 (unaudited) 30 April 2006 (audited) Revenue Capital Total Revenue Capital Total £000 £000 £000 £000 £000 £000 - 316,407 316,407 - 795,513 795,513 - (212) (212) - (535) (535) 24,581 - 24,581 49,221 - 49,221 419 - 419 676 - 676 ----------- --------------- ------------ ---------- --------------- ------------- 25,000 316,195 341,195 49,897 749,978 844,875 --------- ---------- --------- -------- --------- ---------- --- --- --- --- --- --- (6,625) - (6,625) (15,203) - (15,203) (2,780) - (2,780) (6,222) - (6,222) --------- --------------- ---------- ----------- --------------- ----------- 15,595 316,195 331,790 28,472 794,978 823,450 (4,603) - (4,603) (8,897) - (8,897) --------- --------------- ---------- --------- --------------- ---------- 10,992 316,195 327,187 19,575 794,978 814,553 -------- --------- --------- -------- --------- --------- --- --- --- --- --- --- 2.05p 58.99p 61.04p 3.65p 148.32p 151.97p 1.43% 1.41% BALANCE SHEET As at As at As at 31 October 31 October 30 April 2006 2005 2006 £000 £000 £000 (unaudited) (unaudited) (audited) Assets --- --- --- Non-current assets Investments at fair value through profit or loss 1,675,428 1,376,779 1,851,594 ----------- ----------- ----------- Current assets Trade and other receivables 4,087 2,970 9,290 Cash 14,709 8,494 25,764 ----------- -------------- ------------ 18,796 11,464 35,054 Current liabilities Trade and other payables (5,864) (4,473) (15,440) Current tax payable (4,281) (4,573) (3,309) --------- --------- --------- (10,145) (9,046) (18,749) Non-current liabilities Deferred tax liabilities (985) (364) (1,700) ------- ------- --------- --- --- --- Net assets 1,683,094 1,378,833 1,866,199 ----------- ----------- ----------- Issued share capital and reserves attributable to equity shareholders Called-up Share Capital 133,995 133,995 133,995 Share Premium Account 375,327 375,327 375,327 Capital Redemption Reserve 6,893 6,893 6,893 Capital Reserves - Realised 329,268 192,842 271,724 Capital Reserves - Unrealised 796,585 635,106 1,035,007 Revenue Reserves 41,026 34,670 43,253 ------------- ------------- ------------- Equity shareholders' funds 1,683,094 1,378,833 1,866,199 ----------- ----------- ----------- Net Asset Value per Ordinary Share (in pence) 314.02 257.25 348.18 STATEMENT OF CHANGES IN EQUITY (UNAUDITED) Capital Capital Capital Share Share Redemption Reserve - Reserve - Revenue Capital Premium Reserve Realised Unrealised Reserve Total Note £000 £000 £000 £000 £000 £000 £000 Balance at 1 133,995 375,327 6,893 183,656 328,097 37,989 1,065,957 May 2005 Profit for the - - - - - 327,187 327,187 period Equity dividends - - - - - (14,311) (14,311) Transfer to capital - - - 9,186 307,009 (316,195) - reserves ----------- ------------- ------------- ----------- --------- ----------- ------------ --- --- --- --- --- --- --- Balance at 31 133,995 375,327 6,893 192,842 635,106 34,670 1,378,833 October --------- --------- --------- --------- --------- ----------- ----------- 2005 --- --- --- --- --- --- --- Profit for the - - - - - 487,366 487,366 period Equity - - - - - - - dividends Transfer to capital - - - 78,882 399,901 (478,783) - reserves ----------- ------------ ------------- --------- --------- ----------- ------------ --- --- --- --- --- --- --- Balance at 30 133,995 375,327 6,893 271,724 1,035,007 43,253 1,866,199 April --------- --------- ------- --------- ----------- ------------ ----------- 2006 --- --- --- --- --- --- --- Profit for the - - - - - (168,309) (168,309) period Equity dividends a - - - - - (14,796) (14,796) Transfer to capital - - - 57,544 (238,422) 180,878 - reserves ----------- ------------ ------------ ---------- ----------- ----------- ------------ Balance at 31 133,995 375,327 6,893 329,268 796,585 41,026 1,683,094 October --------- --------- ------- --------- ----------- ---------- ----------- 2006 (a) The Equity dividend in respect of the year ended 30 April 2006 was paid on 4 October 2006. CASH FLOW STATEMENT For the six For the six For the year months to months to ended 30 April 31 October 2006 31 October 2005 2006 £000 £000 £000 (unaudited) (unaudited) (audited) Cash flows from operating activities (Loss)/ Profit before (163,305) 331,790 823,450 taxation Adjustments for: Losses/(gains) on investments at 180,410 (316,407) (795,513) fair value Realised loss on foreign 468 212 535 exchange Decrease in debtors 3,700 135 598 (Increase)/decrease in accrued (25) 5,789 16 income (Decrease)/increase in (99) 1,004 1,884 creditors --------------- ------------ ---------------- --- --- --- Cash generated from 21,149 22,523 30,970 operations Taxation paid (4,812) (2,847) (6,892) --------- --------- --------- --- --- --- Net cash inflow from operating 16,337 19,676 24,078 activities -------- -------- -------- Cash flows from investing activities Purchases of non-current financial (143,273) (64,268) (198,399) assets Sales of non-current financial 130,561 43,103 190,402 assets ------------ ----------- ------------ (12,712) (21,165) (7,997) ------------ ----------- ------------- Cash flows from financing activities --- --- --- Equity dividend paid (14,796) (14,311) (14,311) ---------- ---------- ---------- (14,796) (14,311) (14,311) ---------- ---------- ---------- --- --- --- Net (decrease)/increase in (11,171) (15,800) 1,770 cash Cash at start of period 25,764 24,294 24,294 Exchange gain/(loss) on 116 - (300) cash ------------- ----------------- ------------ --- --- --- Cash at end of period 14,709 8,494 25,764 ----------- ------------- ---------- ACCOUNTING POLICIES (a) Basis of preparation The financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") and where appropriate, International Accounting Standards ("IAS"), which comprise standards and interpretations approved by the International Accounting Standards Board ("IASB"), and International Accounting Standards and Standing Interpretations Committee ("IASC") that remain in effect, and to the extent that they have been adopted by the European Union. The financial statements are in compliance with IAS 34 (Interim Reporting). The financial statements have been prepared on the historical cost basis, except for the revaluation of certain financial instruments. The principal accounting policies adopted are set out below. Where presentational guidance set out in the Statement of Recommended Practice ("SORP") for investment trusts issued by the Association of Investment Companies ("AIC") in January 2003, revised December 2005, is consistent with the requirements of IFRS, the Directors have sought to prepare the financial statements on a basis compliant with the recommendations of the SORP. (b) Comparative information The financial information contained in this interim 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 2005 has not been audited. The information for the year ended 30 April 2006 has been extracted from the latest published audited financial statements. The audited financial statements for the year ended 30 April 2006 have been filed with the Registrar of Companies. The report of the independent auditors on those accounts contained no qualification, did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying the report and did not contain any statement under section 237 (2) or section 237 (3) of the Companies Act 1985. (c) Presentation of income statement In order to better reflect the activities of the Company and in accordance with guidance issued by the AIC, supplementary information, which analyses the income statement between items of a revenue and capital nature, has been presented alongside the income statement. In accordance with the Company's status as a UK investment company under section 266 of the Companies Act 1985, net capital returns may not be distributed by way of dividend. Additionally, the net revenue is the measure the Directors believe appropriate in assessing the Company's compliance with certain requirements set out in section 842 Income and Corporation Taxes Act 1988. (d) Revenue Dividends on equity investments are credited to the revenue column of the Income Statement when they are quoted ex-dividend or as soon as entitlement has been established, if later. Where the Company has elected to receive its dividends in the form of additional shares rather than in cash, the amount of the cash dividend is recognised in the revenue column of the Income Statement. Any excess in the value of the shares received over the amount of the cash dividend is recognised in the capital section of the Income Statement. Interest receivable on bank deposits is recognised on an accruals basis. (e) Expenses Transaction costs arising on the purchase of investments are included in the capital column of the Income Statement. They are also included in the transfer to 'Capital Reserve - Realised", in the Statement of Changes in Equity. All other operating expenses are accounted for on an accruals basis and are charged through the revenue column of the Income Statement. Expenses relating to the disposal of an investment, are deducted from the sales proceeds. (f) Taxation The tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on taxable profit for the period. Taxable profit differs from profit before tax as reported in the Income Statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Company's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the Balance Sheet date. In line with the recommendations of the SORP, the allocation method used to calculate tax relief on expenses presented against capital returns in the supplementary information in the Income Statement is the "marginal basis". Under this basis, if taxable income is capable of being offset entirely by expenses presented in the revenue return column of the Income Statement, then no tax relief is transferred to the capital return column. Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax basis used in the computation of taxable profit, and is accounted for using the Balance Sheet liability method. Deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period where the liability is settled or the asset is realised. Deferred tax is charged or credited in the Income Statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. Investment Trusts which have approval under Section 842 Income and Corporation Taxes Act 1988 are not liable for taxation on capital gains. Withholding tax may be suffered on dividend income received, depending on the tax regime of the countries where the investment is held. To the extent that any withholding tax is deemed recoverable, it has been recognised as a debtor in the financial statements. (g) Non-current asset investments The Company's business is investing in financial assets with a view to profiting from their total return in the form of income and capital growth. This portfolio of financial assets is managed and its performance evaluated on a fair value basis, in accordance with a documented investment strategy, and information about the portfolio is provided internally on that basis to the Company's Directors and other key management personnel. Investments are recognised and derecognised on the trade date where a purchase or sale is under a contract whose terms require delivery within the timeframe established by the market concerned. Accordingly, upon initial recognition all of the Company's non-current asset investments are designated on initial recognition as being "at fair value through profit or loss". They are included initially at fair value, which is taken to be their cost (excluding expenses incidental to the acquisition which are written off in the capital column of the Income Statement at the time of acquisition). Subsequently, the investments are valued at "fair value", which is measured as follows: (i) Securities which are listed on a stock exchange or traded on any other organised market are valued at the last bid price on such exchange or market which is normally the principal market for each security, and these securities dealt in on an over-the-counter market are valued in a manner as near as possible to that for quoted securities. (ii) Unquoted investments where there is not an active market are valued using an appropriate valuation technique so as to establish what the transaction price would have been at the balance sheet date. Gains and losses on non-current asset investments are included in the capital column of the Income Statement. (h) Foreign currencies Transactions involving foreign currencies are translated to Sterling (the Company's functional currency) at the spot exchange rate ruling on the date of the transaction. Assets and liabilities in foreign currencies are translated at the rate of exchange at the balance sheet date. Foreign currency gains and losses are included in the Income Statement and allocated as capital or income dependent on the nature of the transaction giving rise to the gain or loss. Foreign currency gains and losses allocated as capital are included in the transfer to 'Capital reserve - Realised' or 'Capital reserve - Unrealised' (as appropriate) in the Statement of Changes in Equity. (i) Cash Cash comprises cash at bank and in hand. (j) Reserves Share Premium Account - represents the amount paid on the share capital in excess of the shares' nominal value. Capital Redemption Reserve - represents the nominal value of shares repurchased. Capital Reserves - the Company's Articles of Association preclude it from making any distribution of capital profits. Income recognised in the Income Statement is allocated to applicable reserves in the Statement of Changes in Equity. Revenue Reserves - represents net revenue income earned during the period that has not been distributed to shareholders. 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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