Templeton Emerging Markets Regulatory News (TEM)

Stock Exchange Announcement

Statement of Annual Results

TEMPLETON EMERGING MARKETS INVESTMENT TRUST PLC

("TEMIT" or "the Company")

Legal Entity Identifier 5493002NMTB70RZBXO96

Company Overview

Launched in June 1989, Templeton Emerging Markets Investment Trust PLC ("TEMIT" or the "Company") is an investment trust that invests principally in emerging markets companies with the aim of delivering capital growth to shareholders over the long term. While the majority of the Company's shareholders are based in the UK, shares are traded on both the London and New Zealand Stock Exchanges.

The Company is governed by a Board of Directors who are committed to ensuring that shareholders' best interests, taking into account the wider community of stakeholders, are at the forefront of all decisions. Under the guidance of the Chairman, the Board of Directors is responsible for the overall strategy of the Company and monitoring its performance.

TEMIT's research-driven investment approach and strong long-term performance has helped it to grow to be the largest emerging markets investment trust in the UK, with assets of £1.8 billion as at 31 March 2020.

Since launch to 31 March 2020, TEMIT's net asset value ("NAV") total return was +2,963.9% compared to the benchmark total return of +1,308.7%.

TEMIT at a glance

For the year to 31 March 2020

(a) A glossary of alternative performance measures is included on page 113 of the full Annual Report.

(b) Source: MSCI. The Company's benchmark is the MSCI Emerging Markets Index, with net dividends reinvested.

(c) An annual ordinary dividend of 19.00 pence per share for the year ended 31 March 2020 has been proposed. This comprises the interim dividend of 5.00 pence per share paid by the Company on 15 January 2020 and the proposed final dividend of 14.00 pence per share. In addition, a special dividend of 2.60 pence per share was paid by the Company on 15 January 2020.

Strategic Report

The Directors present the Strategic Report for the year ended 31 March 2020, which incorporates the Chairman's Statement, and has been prepared in accordance with the Companies Act 2006.

The aim of the Strategic Report is to provide shareholders with the ability to assess how the Directors have performed in their duty to promote the success of the Company for shareholders' collective benefit and having regard for the interests of all stakeholders, by bringing together in one place key information about the Company's strategy, the risks that it faces, how it is performing and the outlook.

Financial Summary



Source: Franklin Templeton and FactSet.

(a) A glossary of alternative performance measures is included on page 113 of the full Annual Report.

(b) An annual ordinary dividend of 19.00 pence per share for the year ended 31 March 2020 has been proposed. This comprises the interim dividend of 5.00 pence per share paid by the Company on 15 January 2020 and a proposed final dividend of 14.00 pence per share.

(c) Special dividend of 2.60 pence per share paid by the Company on 15 January 2020.

(d) The revenue, capital and total earnings per share figures are shown in the Statement of Comprehensive Income on page 77 of the full Annual Report and Note 7 of the Notes to the Financial Statements.

Ten Year Record

2010-2020



Ten year growth record

(rebased to 100.0 at 31 March 2010)

2010-2020



Source: Franklin Templeton and FactSet.

(a) A glossary of alternative performance measures is included on page 113 of the full Annual Report.

(b) 11 months to 31 March 2010.

(c) An annual ordinary dividend of 19.00 pence per share for the year ended 31 March 2020 has been proposed. This comprises the interim dividend of 5.00 pence per share paid by the Company on 15 January 2020 and a final dividend of 14.00 pence per share. It excludes the special dividend of 2.60 pence per share paid by the Company on 15 January 2020.

Chairman's Statement

Market overview and investment performance

Returns for the year under review were dominated by the outbreak of the COVID-19 pandemic in the early months of 2020.

For the first nine months of the accounting year returns were positive, if at times volatile, and by the end of the nine months to the end of December 2019 our Investment Manager had achieved a NAV total return of 12.6%, which was over 6% ahead of the benchmark. This, of course, all changed in the first quarter of 2020, with March being particularly challenging. The NAV total return for the year was -11.2%, which compares with a fall of 13.2% by the benchmark.

Since the year end markets have recovered and the NAV return in the current financial year to the time of writing (21 May 2020) is 12.5%, which compares with a return of 11.5% by the benchmark.

Management arrangements

As the scale of the pandemic became apparent our Investment Manager implemented its group-wide business continuity plan, with our Portfolio Managers and the majority of staff in supporting functions working from home. As part of a global organisation with offices located around the world our Portfolio Managers were well placed to deal with remote working. They were already used to operating from multiple offices and liaising with team members regularly working remotely as they travelled to visit investee companies. While the scale of the effort behind the scenes at Franklin Templeton has been substantial, I am pleased to report that from the Board's perspective communication has remained good and the transition to a different way of working has been seamless.

Revenue, earnings and dividend

Total revenue earnings for the accounting year were 24.40 pence per share, including 2.60 pence per share received as a special dividend from Brilliance China Automotive. Excluding the amount received from Brilliance China Automotive, earnings were 21.80 pence per share, compared with 17.26 pence last year. An interim dividend of 5.00 pence and an additional special dividend of 2.60 pence per share, being the amount received from Brilliance China Automotive, were paid on 15 January 2020. The Board recommends a final dividend of 14.00 pence per share for approval at the Annual General Meeting ("AGM"), making total ordinary dividends for the year 19.00 pence and total dividends including the special dividend 21.60 pence.

Shareholders should note that the vast majority of the Company's revenues were received before the full effect of the COVID-19 pandemic became apparent. Further, as we have regularly stated in the past, the Company's investment strategy and the Investment Manager's approach to investment are focused on generating capital returns and we do not target a particular level of income. Nevertheless, the Board recognises that dividends are appreciated by many shareholders and, noting the Company's substantial revenue reserves, it is our hope at least to maintain the level of ordinary dividends for the foreseeable future.

After the end of the financial year end in April 2020 we were informed by the UK tax authorities that TEMIT was entitled to a substantial repayment amounting to 11.0 pence per share and relating to Corporation Tax which was incorrectly levied some years ago, along with associated interest. This repayment will be accounted for in the 2020/21 financial year.

Borrowing

The previous £220 million multi-currency revolving credit agreement with Scotiabank matured on 31 January 2020 and was replaced with two new debt facilities with the same bank. The previous multi-currency revolving credit facility was amended and restated with effect from 31 January 2020, for a term expiring on 31 January 2023 and with a limit on borrowings of £120 million. Interest on borrowings under this facility will be based on market rates at the time of each drawdown. In addition, the Company agreed a £100 million fixed rate loan for a five year term, maturing on 31 January 2025 at an annual interest rate of 2.089%. The £100 million fixed term loan is denominated in pounds sterling. Drawings under the £120 million revolving credit facility may be in pounds sterling, US dollars or Chinese renminbi ("CNH"). The maximum amount which may be drawn down in CNH is 45% of the combined limit of the fixed rate facility and of the revolving credit facility.

The Board reviewed the effects of borrowing with the aim of increasing investment returns. We concluded that it may be in shareholders' interests to extend the facility at a time when the outlook for emerging markets remains positive notwithstanding the challenges of the COVID-19 outbreak and when interest rates were low. The £100 million fixed rate borrowing will be in place for five years, while the Investment Manager has the discretion to make drawdowns under the revolving credit facility as investment opportunities arise, subject to overall supervision by the Board.

While the fixed rate borrowing was drawn down on 31 January and will remain in place for five years, the Investment Manager took the view in light of the level of volatility at the time not to draw any of the revolving credit facility.

The Company's investment policy which allows borrowing of up to 10% of net assets is unchanged.

The discount

As reported in the Half Yearly Report, during the first half of our accounting year the discount was relatively stable. However, the COVID-19 outbreak had a severe effect on volatility in the first quarter of 2020 and this put pressure on the discount as well as the net asset value. The Board and Investment Manager continued to focus on the discount and, following the pattern of recent years, share buybacks were used on the majority of days in the period under review with the aim of reducing the volatility of the discount. I am able to report that, while the discount ended the accounting year a little wider than at the start of the year, it has not widened by as much as might be expected in such difficult markets. The discount started the year under review at 9.1%, was as wide as 19.9% in the midst of the COVID-19 outbreak but finished the accounting year at 10.3%.

AIFM fees

The current annual management fee is 1% of net assets up to £1 billion and 0.85% of net assets above that level. With effect from 1 July 2020, the fee rate will remain at 1% of net assets up to £1 billion but will be reduced to 0.80% of net assets above that level.

Investor communications

Investor communications remain a key part of our strategy both to keep investors informed and to encourage new investment to help to control the discount.

Our website www.temit.co.uk displays the latest news, price and performance information, portfolio details, updates from the Investment Manager and a blog discussing topical issues in emerging markets. I encourage all shareholders to register on our website and make use of the facilities and materials available to help keep you informed about the Company. If you have a Twitter account, you can also follow us via our Twitter handle @TEMIT. During the COVID-19 outbreak we have continued to provide information to a wide variety of commentators and our Portfolio Manager Andrew Ness held our first public webinar on 26 March. A transcript is available on our website.

While the Investment Manager will, in most cases, be best placed to handle enquiries, I remain at your disposal to receive any questions or comments, as is the Senior Independent Director or any of the other Directors, all of whom may be reached via our brokers whose contact details are enclosed at the end of the full annual report.

The Board

Gregory Johnson will step down from the Board at this year's AGM, having represented Franklin Templeton on the Board of TEMIT since 2007. He is Executive Chairman of the Board of Franklin Resources, inc. and until February of this year was also its Chief Executive Officer. The Board is grateful to him for his invaluable contribution to the TEMIT Board. As well as bringing to the TEMIT Board the benefit of his many years of experience in the investment management industry, he has always ensured that TEMIT has a high profile within Franklin Templeton and that the service which TEMIT receives from Franklin Resources is of a high standard.

Promoting the long term success of the Company

New regulations require Directors to explain more fully how they have discharged their duties under the Companies Act 2006 in promoting the success of their companies for the benefit of "members as a whole". We have set out a detailed review starting on page 11 of the full Annual Report.

Proposed changes to the Company's Articles of Association

At this year's Annual General Meeting we are proposing a number of changes to the Company's Articles of Association, having last updated the Articles ten years ago. The principal changes are to facilitate remote attendance at meetings, including so-called "hybrid" meetings at which shareholders can attend a meeting and ask questions from another location rather than at the meeting venue and are the result of the experiences of other companies in holding general meetings during the COVID-19 outbreak. We have also introduced an upper limit on total directors' fees of £400,000 per year. This change does not affect current remuneration levels, which are described in the Directors' Remuneration Report. The other changes are minor and technical in nature, and all of the changes are designed to bring the Articles up to date and into line with currently accepted best practice.

Outlook

At the time of writing, most countries around the world are only in the earliest stages of lifting the restrictions which were put into place to manage the spread of COVID-19. Asia, where the pandemic started, is the first region to relax some controls and China and South Korea in particular are seeking to return to a more normal way of working.

Economic damage has been substantial and the true scale of this will only be apparent in years to come. Markets have recovered from the lows experienced earlier this year but we should not be complacent as there will inevitably be further periods of high volatility in share prices. Our Investment Manager has always taken a long term view of portfolio investments and sought to screen out the effects of market noise in its evaluations of companies. Clearly, the potential effects of the pandemic will require a lot of continuing analysis of the prospects of individual companies but we have the advantage of a large team of portfolio managers and analysts based on the ground all around the world. Notwithstanding the risk of further unpredictable falls in share prices in the short term, the Board remains confident in the ability of the Investment Manager to deliver above average investment returns in the longer term.

Annual General Meeting

The Board is monitoring closely developments in relation to the COVID-19 situation. The health of the Company's shareholders, as well as staff who would normally attend the meeting, is of paramount importance. The Board would normally welcome the Annual General Meeting as an opportunity to present to you on the Company's strategy and performance, and listen and respond to your questions in person. However, due to the situation at the time of the full Annual Report (including restrictions on travel and social contact), this year the Board is asking that shareholders do not attend the Meeting. The Board encourages shareholders to submit their proxies as early as possible, to enable your vote to be counted, and to follow all government guidance and requirements. In light of the evolving situation, it may in any case be necessary to change the arrangements for this year's Meeting after the date of this Notice. We encourage shareholders to monitor the Company's website, regulatory news and other published notifications for any further updates in relation to the Meeting. More details of the Meeting can be found on pages 100 to 108 of the full Annual Report.

Paul Manduca

Chairman

4 June 2020

Strategy and Business Model

Company objective, purpose and culture

TEMIT's purpose is to provide both private and institutional investors with the opportunity for capital appreciation via a professionally managed vehicle focused on listed equity investment in emerging markets.

The objective of TEMIT is to provide long-term capital appreciation for private and institutional investors seeking exposure to global emerging markets, supported by a culture of both strong customer service and corporate governance.

Investment policy

The Company seeks long-term capital appreciation through investment in companies listed in emerging markets or companies which earn a significant amount of their revenues in emerging markets but are listed on stock exchanges in developed countries.

It is intended that the Company will normally invest in equity instruments. However, the Investment Manager may invest in equity-related investments (such as convertibles) where it believes it is advantageous to do so. The portfolio may frequently be overweight or underweight in certain investments compared with the MSCI Emerging Markets Index and may be concentrated in a more limited number of sectors, geographical areas or countries than the benchmark. Investments may also be made in companies outside the benchmark that meet the investment criteria. The Company may also invest a significant proportion of its assets in the securities of one issuer, securities domiciled in a particular country, or securities within one industry. No more than 10% of the Company's assets will be invested in the securities of any one issuer at the time of investment.

The Board has agreed that TEMIT may borrow up to 10% of its net assets.

Distribution policy

The distribution policy has been approved by the Board and is published on the Company's website.

The Company will ensure that its total annual dividends will be paid out of the profits available for distribution under the provisions of the relevant laws and regulations and will be at least sufficient to enable it to qualify as an investment trust under the UK Income and Corporation Taxes Act. If the Company has received an exceptional level of income in any accounting year, the Board may elect to pay a special dividend. The primary focus of the investment policy is on generating capital returns, the Company does not target a particular level of income and there is no guarantee that dividend levels will be maintained from one year to the next.

The Company will normally pay two dividends per year, an interim dividend declared at the time that the half yearly results are announced, and a final dividend declared at the time that the annual results are announced. The final dividend will be subject to shareholder approval at the Annual General Meeting each year.

Dividends will be paid by cheque or by direct transfer to a shareholder's bank account. For UK shareholders holding shares in their own name on the Company's main register, the dividend payments can be used to purchase further shares in the Company under the Dividend Reinvestment Plan.

The Company may also distribute capital by means of share buybacks when the Board believes that it is in the best interests of shareholders to do so. The share buy back programme will be subject to shareholder approval at each Annual General Meeting.

Business model

The Company has no employees and all of its Directors are non-executive. The Company delegates its day-to- day activities to third parties.

At least quarterly, the Board reviews with Franklin Templeton International Services S.à r.l. ("FTIS", "AIFM" or the "Manager") and Franklin Templeton Emerging Markets Equity ("FTEME" or the "Investment Manager"), a wide range of risk factors that may impact the Company. Further analysis of these risks is described on pages 14 to 17 of the full Annual Report. A full risk and internal controls review is held every September at the Audit Committee meeting.

Due to the nature of the Company's business, investment risk is a key focus and is reviewed on an ongoing basis by the Investment Manager as part of every investment decision. Further information on this process is detailed on page 24 of the full Annual Report.

The Board is responsible for all aspects of the Company's affairs, including the setting of parameters for the monitoring of the investment strategy and the review of investment performance and policy. It also has responsibility for all strategic policy issues, namely dividend, gearing, share issuance and buybacks, share price and discount/premium monitoring, corporate governance matters and engagement with all of the Company's stakeholders.

Strategy

In setting the Company's overall strategy, the Directors have taken due note of the requirements of Section 172 of the Companies Act, 2006. This section sets out a duty to promote the overall success of the company, while taking account of the interests of its various stakeholders. Further details are provided on pages 11 and 12 of the full Annual Report. The Company seeks to achieve its objective by following a strategy focused on the following:

Performance

At the heart of the strategy is the appointment and retention of capable investment management professionals, who will identify value and achieve superior growth for shareholders. The Investment Manager, under the leadership of Chetan Sehgal, continues to apply the same core investment philosophy that has driven TEMIT's performance since the Company's launch. The investment team aims to achieve long-term capital appreciation for shareholders by investing in companies that they believe offer long-term sustainable growth and good value, combined with strong management and sound governance. See pages 21 to 24 of the full Annual Report for details of the investment process.

Liquidity

The shares issued by the Company are traded on the London and New Zealand Stock Exchanges. The Company has engaged Winterflood Securities as Financial Adviser and Stockbroker, and to act as a market maker in the shares of the Company.

Gearing

On 31 January 2020, the Company entered into a five year £100 million loan at a fixed rate of 2.089% with Scotiabank Europe PLC, and a three-year £120 million unsecured multi-currency revolving loan facility with The Bank of Nova Scotia, London Branch. The £100 million fixed term loan is denominated in pounds sterling. Drawings under the £120 million revolving credit facility may be in sterling, US dollars or Chinese renminbi ("CNH"). The total amount which may be drawn down in CNH is 45% of the combined limit of the fixed rate loan and of the revolving loan facility. The fixed rate loan was drawn down on 31 January 2020 and will remain in place until 31 January 2025. The Investment Manager has been granted discretion by the Board to draw down the revolving loan facility as investment opportunities arise, subject to overall supervision by the Board, and subject to an overall gearing limit of 10% of NAV.

The Company's net gearing position was 0.7% (net of cash in the portfolio) at the year-end (2019: 2.4%). The Directors' Report on page 49 of the full Annual Report includes further commentary on the gearing facility.

The Board continues to monitor the level of gearing and considers gearing of up to 10% to be appropriate.

Stability

The Company has powers to buy back its shares as a discount control mechanism when it is in the best interests of the Company's shareholders and in 2019 introduced a Conditional Tender Offer. The share price and discount are discussed under Key Performance Indicators on page 13 of the full Annual Report.

Affirmation of shareholder mandate

In accordance with the Company's Articles of Association, the Board must seek shareholders' approval every five years for TEMIT to continue as an investment trust. This allows shareholders the opportunity to decide on the long-term future of the Company. The last continuation vote took place at the 2019 AGM, when 99.95% of the votes cast were registered as votes in favour. The next continuation vote will take place at the 2024 AGM. The Board has agreed that it will hold a performance-related conditional tender offer (the "Conditional Tender Offer"). There will be no tender offer in the event that the Company's net asset value total return continues to exceed the benchmark total return (MSCI Emerging Markets Index total return) over the five year period from 31 March 2019 to 31 March 2024. However, if over the five year period the Company's net asset value total return fails to exceed the benchmark total return the Board will put forward proposals to shareholders to undertake a tender offer for up to 25 per cent of the issued share capital of the Company at the discretion of the Board. Any such tender offer will be at a price equal to the then prevailing net asset value less two per cent (less the costs of the tender offer). Any tender offer will also be conditional on shareholders approving the continuation vote in 2024 and would take place following the Company's 2024 AGM.

Communication

We ensure that investors are informed regularly about the performance of TEMIT and emerging markets through clear communication and updates.

TEMIT seeks to keep you updated on performance and investment strategy through our regular annual and half yearly reports, along with monthly factsheets. These are available on our website (www.temit.co.uk) which also contains portfolio holdings information, updates from the Investment Manager and other important documents that will help shareholders understand how their investment is managed. We also communicate via @TEMIT on Twitter and continue to develop our presence on social media.

TEMIT has an active public relations programme. Our Investment Manager provides comments to journalists and occasionally publishes articles on issues relevant to investing in emerging markets.

The Investment Manager regularly meets professional investors and analysts and at each AGM makes a presentation with the opportunity for all shareholders to ask questions. In March of this year and in reaction to the COVID-19 lock down we made available our first public webinar. As shareholders will not be able to attend in person, this year's AGM presentation will be made available on our website.

The Chairman regularly meets major shareholders to discuss investment performance and developments in corporate governance. Shareholders are welcome to contact the Chairman at any time.

The Board is fully committed to TEMIT's marketing programme. We have a substantial annual marketing budget and expenditure by TEMIT is matched by a contribution to costs from the Manager.

Service providers

The Board conducts regular reviews of the Company's primary service providers, as discussed on pages 50 and 51 of the full Annual Report, to ensure that the services provided are of the quality expected by TEMIT. The Directors also ensure that the Company's primary service providers have adopted an appropriate framework of controls, monitoring and reporting to enable the Directors to evaluate risk.

Promoting the success of the Company

New regulations (The Companies (Miscellaneous Reporting) Regulations 2018) require directors to explain more fully how they have discharged their duties under section 172(1) of the Companies Act 2006 in promoting the success of their companies for the benefit of "members as a whole" and having regard for all stakeholders.

The Board considers the main stakeholders in the Company to be its shareholders and its service providers detailed on pages 50 and 51 of the full Annual Report, the principal one of which is its Manager. A summary of the key areas of engagement undertaken by the Board with its main stakeholders in the year under review and how Directors have acted upon this to promote the long-term success of the Company are set out in the following table.

Key Performance Indicators(a)

The Board considers the following to be the key performance indicators ("KPI") for the Company:

• Net asset value total return over various periods, compared to its benchmark;

• Share price and discount;

• Dividend and revenue earnings; and

• Ongoing charges ratio.

The Ten Year Record of the KPIs is shown on pages 3 and 4 of the full Annual Report.

Net asset value performance

Net asset value performance data is presented within the Company Overview on page 1 of the full Annual Report along with the Ten Year Record on pages 3 and 4 of the full Annual Report.

The Chairman's Statement on pages 5 to 7 of the full Annual Report and the Investment Manager's Report on pages 20 to 42 of the full Annual Report include further commentary on the Company's performance.

Share price and discount

Details of the Company's share price and discount are presented within the Financial Summary on page 2 of the full Annual Report. On 21 May 2020, the latest date for which information was available, the discount had widened to 12.7%.

The Company has powers to buy back its shares as a discount control mechanism when it is in the best interests of the Company's shareholders. The Company was authorised at its AGM on 11 July 2019 to buy back up to 14.99% of the Company's issued share capital on that date. The present authority expires on the conclusion of the AGM on 9 July 2020. The Directors are seeking to renew this authority at the 2020 AGM, as further detailed in the Directors' Report on page 55 of the full Annual Report. On a daily basis, the Board ensures that the share price discount to NAV is actively monitored. Discount management is reviewed regularly by the Board to ensure that it remains effective in the light of prevailing market conditions. The Board introduced in 2019 a Conditional Tender Offer, which is described under "Affirmation of shareholder mandate" on page 10 of the full Annual Report. The introduction of the Conditional Tender Offer will not affect the Board's current approach to discount management. The Board will continue to exercise the Company's right to buy back shares when it believes this to be in shareholders' interests and with the aim of reducing volatility in the discount.

Details of share buybacks in the year can be found on pages 6, 49 and 89 of the full Annual Report.

From 1 April 2020 to 21 May 2020, 1,202,017 shares were bought back and cancelled for a total consideration of £8,344,000.

 (a) A glossary of alternative performance measures is included on page 113 of the full Annual Report.

Dividend and revenue earnings

Total income earned in the year was £75.1 million (2019: £59.7 million) which translates into net revenue earnings of 24.40 pence per share (2019: 17.26 pence per share), an increase of 41.4% over the prior year.

The Company paid an interim dividend of 5.00 pence per share and a special dividend of 2.60 pence per share, both on 15 January 2020. The Board is proposing a final dividend of 14.00 pence per share, making total ordinary dividends for the year of 19.00 pence per share and total dividends including the special dividend of 21.60 pence per share.

Ongoing charges ratio(a) ("OCR")

The OCR remained constant at 1.02% for the year ended 31 March 2020, compared to the prior year.

Costs associated with the purchase and sale of investments are taken to capital and are not included in the OCR. Transaction costs are disclosed in Note 8 of the Notes to the Financial Statements on page 88 of the full Annual Report.

Principal risks

The Board has carried out a robust assessment of the principal risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity. These are summarised in the table below. Further explanation of the monitoring of risk and uncertainties is covered within the Report of the Audit Committee on pages 65 and 66 of the full Annual Report. Information on the risks that TEMIT is subject to, including additional financial and valuation risks, are also detailed in Note 15 of the Notes to the Financial Statements.

(a) A glossary of alternative performance measures is included on page 113 of the full Annual Report.

Emerging risks

The key emerging risk faced by the Company is considered to be the ramifications of the COVID-19 pandemic. While the onset of the pandemic has set many economies into decline, it is far from clear at this stage what the full societal and economic impact from the pandemic will be. The medical and epidemiological implications of COVID-19 are yet to be fully understood; neither an effective treatment nor a vaccine are likely to be available in the short term. While many local economies are gradually reopening and business activity is resuming, a return to full capacity is unlikely to happen anytime soon. A second wave of infections or ill-judged governmental responses could result in even worse economic effects. Changing consumer behaviour, additional administrative burdens and new regulations could significantly alter and negatively affect business operations in the medium to long term, with unknown consequences for affected industries and countries.

Brexit

TEMIT is a company registered in Scotland.

TEMIT is regulated as an AIF under UK law, with its Alternative Investment Fund Manager ("AIFM") being FTIS, a Luxembourg company. In light of the UK Temporary Permissions Regime that allows up to a three-year extension of current "passporting" for the AIFM into the UK, we expect that the UK FCA will continue to recognise FTIS as TEMIT's AIFM at least until the end of 2022. The Manager has, however, developed plans which can be implemented if and when the regulatory position changes.

TEMIT invests most of its assets outside the EU and the vast majority of shareholders are based in the UK, New Zealand and the United States. In the Board's opinion the only material adverse effect of the Brexit process on TEMIT to date has been an increase in the volatility of the exchange rate of the pound sterling, which affects the value of TEMIT's assets in the hands of UK-based shareholders.

While Brexit has created a degree of uncertainty, in light of the nature of TEMIT's business and the regulatory arrangements described above, the Board has decided that Brexit is not one of the Principal Risks facing the Company. Nevertheless, the Board and AIFM continue to monitor developments closely.

Environmental, social and governance matters

As an investment trust the Company has no significant direct, environmental, social, community or employee responsibilities. Its policy is focused on making sure that its assets are properly managed and invested within guidelines approved by the Board. The Board receives regular reports on the policies and controls in place.

The Investment Manager, Franklin Templeton, embeds Environmental, Social and Governance ("ESG") considerations, best practice and analytics in its investment processes.

Recognising the importance of ESG considerations to shareholders, the Investment Manager became a signatory of the United Nations Principles for Responsible Investing ("PRI") in 2013. As a signatory, the Investment Manager reports annually on its progress and in 2019 (the latest statistics available) ranked ahead of the peer median score in all categories. A link to the PRI Transparency Report and policies relating to responsible investing are available on the Company's website - www.temit.co.uk.

The Investment Manager comments on the integral nature of ESG within the investment process and how it engages with companies to promote ESG best practices on pages 22 and 23 of the full Annual Report. It is assisted by Franklin Templeton's independent ESG specialists and risk managers.

TEMIT has no greenhouse gas emissions to report from the operations of the Company, as all of its activities are outsourced to third parties, nor does it have responsibility for any other emissions-producing sources under the Companies Act 2006 (Strategic Report and Directors' Report) Regulations 2013. On 26 March 2015, the Modern Slavery Act 2015 came into force. TEMIT has no employees and is not an organisation that provides goods or services as defined in the Act and thus the Company considers that the Act does not apply. In any event, the Company's own supply chain consists predominantly of professional services advisers.

Diversity

The Board supports the principle of diversity. The selection policy of the Board is to appoint the best qualified person for the job, by considering factors such as diversity of gender and ethnicity, thought, experience and qualification. The Board currently comprises six Directors, five male and one female.

The Investment Manager has a culture which embraces individual differences and the wealth of perspectives brought by global diversity. As a global company, Franklin Templeton believe that it benefits from the unique skills and experiences of an inclusive workforce made up of employees who span different generations, genders, preferences, capabilities and cultural identification. It also believes that an inclusive culture can drive innovation and allows the firm to deliver better client outcomes. This culture aided Franklin Templeton's inclusion, for the fourth consecutive year, in the 2020 Bloomberg Gender-Equality Index ("GEI"), which recognises diverse and equitable workplaces. Franklin Templeton sponsor thousands of volunteer activities each year through its global Involved programme which helps to provide better outcomes for local communities. In the UK, it is an active sponsor/supporter of several organisations that promote inclusion and social mobility such as the Diversity Project, Stonewall and Career Ready.

Viability Statement

The Board considers viability as part of its continuing programme of monitoring risk. In preparing the Viability Statement, in accordance with the AIC Corporate Governance Code Principle N, and Provision 33, the Directors have assessed the prospects of the Company over a longer period than the 12 months required by the 'Going Concern' provision.

The Board has considered the Company's business and investment cycles and is of the view that five years is a suitable time horizon to consider the continuing viability of the Company, balancing the uncertainties of investing in listed emerging markets securities against having due regard to viability over the longer term.

In assessing the Company's viability, the Board has performed a robust assessment of controls over the principal risks. The Board considers, on an ongoing basis, each of the principal and emerging risks as noted above and set out in Note 15 of the Notes to the Financial Statements. The Board evaluated a number of scenarios of possible future circumstances including a material increase in expenses and a continued significant and prolonged fall in equity markets as a result of the COVID-19 pandemic. The Board also considered the latest assessment of the portfolio's liquidity. Further details regarding the impact of COVID-19 on the Company are detailed within the Chairman's Statement on pages 5 to 7 of the full Annual Report and the principal risks section on page 14 of the full Annual Report. The Board monitors income and expense projections for the Company, with the majority of the expenses being predictable and modest in comparison with the assets of the Company. The Company sees no issues with meeting the obligations of the gearing facilities. A significant proportion of the Company's expenses are in ad valorem investment management fees, which would naturally reduce if the market value of the Company's assets were to fall. The Board has also taken into consideration the operational resilience of its service providers in light of COVID-19.

Taking into account the above, and with careful consideration given to the current market situation, the Board has concluded that there is a reasonable expectation that, assuming there will be a successful continuation vote at the 2024 AGM, the Company will be able to continue to operate and meet its liabilities as they fall due over the next five years.

Future strategy

The Company was founded, and continues to be managed, on the basis of a long-term investment strategy that seeks to generate superior returns from investments, principally in the shares of carefully selected companies in emerging markets. 

The Company's results will be affected by many factors including political decisions, economic factors, the performance of investee companies and the ability of the Investment Manager to choose investments successfully as well as the current challenges as the world deals with the effects of the COVID-19 pandemic.

The Board and the Investment Manager continue to believe in investment with a long-term horizon in companies that are undervalued by stock markets but which are fundamentally strong and growing. It is recognised that, at times, extraneous political, economic and company-specific and other factors will affect the performance of investments, but the Company will continue to take a long-term view in the belief that patience will be rewarded.

By order of the Board

Paul Manduca

4 June 2020

The Investment Manager

TEMIT's Investment Manager is the Franklin Templeton Emerging Markets Equity ("FTEME") team. FTEME has managed the portfolio since TEMIT's inception and are pioneers in emerging markets equity investing. They bring more than 30 years of experience and local knowledge from over 80 investment professionals, based in 16 countries around the world.

The team has a collaborative investment process where all analysts and portfolio managers are jointly tasked to contribute to investment returns. They meet regularly, both formally and informally, to debate and exchange ideas, investment themes and enrich their understanding of the markets by drawing on local insights to build a global perspective and context to their thinking. They also benefit from the broader resources available throughout Franklin Templeton.

The portfolio managers for TEMIT, Chetan Sehgal (lead) and Andrew Ness are senior executives in FTEME.

Portfolio Managers

Chetan Sehgal, CFA

Chetan is the lead portfolio manager of TEMIT, based in Singapore.

As part of his broader responsibilities within FTEME, Chetan is also the director of portfolio management. In this capacity, he is responsible for the overall Global Emerging Markets and Small Cap strategies, providing guidance and thought leadership, coordinating appropriate resources and coverage, and leveraging the group's expertise to add value across products within the strategies.

Chetan joined Franklin Templeton in 1995 from the Credit Rating Information Services of India, Ltd where he was a senior analyst.

Chetan holds a B.E. Mechanical (Hons) from the University of Bombay and a post- graduate diploma in management from the Indian Institute of Management in Bangalore, where he specialised in finance and business policy and graduated as an institute scholar. Chetan speaks English and Hindi and is a Chartered Financial Analyst ("CFA") charterholder.

Andrew Ness, ASIP

Based in Edinburgh, UK, Andrew Ness is a portfolio manager of TEMIT.

Prior to joining Franklin Templeton in September 2018, Andrew was a portfolio manager at Martin Currie, an Edinburgh based asset manager. He began his career at Murray Johnstone in 1994 and worked with Deutsche Asset Management in both London and New York before joining Scottish Widows Investment Partnership in 2007.

Andrew holds a B.A. (Hons) in Economics and an MSc in business economics from the University of Strathclyde in the UK. He is an Associate Member of the UK Society of Investment Professionals and a member of the CFA Institute.

Investment philosophy and approach

The investment team aims to capture the growth potential of emerging markets economies by employing a bottom-up stock selection process based on in-depth company research. Through this long-term approach, they focus on identifying companies with sustainable earnings power at a discount to intrinsic worth.

The team's information advantage lies in its extensive locally-based emerging markets resources, providing valuable local access to companies and expertise. This, combined with an investment approach that is robust, scalable, and continuously refined, allows the team to provide investors with access to the most attractive investment opportunities within emerging markets.

TEMIT's performance in different market environments

Given TEMIT's long-term approach and focus on identifying sustainable businesses that are mispriced by the market, the portfolio is most likely to produce superior returns in market environments that reward patience, and where company fundamentals are the primary driver of stock returns.

Investment process

The team's investment approach is bottom-up, fundamental research-driven with the focus on identifying companies demonstrating sustainable earnings power at a discount to intrinsic worth. In order to achieve this, the team has developed a rigorous and transparent investment process, as illustrated below, where risk management and stewardship are embedded at every stage of the process.

1. Idea generation

The key source of idea generation is the team of over 80 country and sector analysts and portfolio managers located around the globe. Their local presence means that they are best placed to uncover potential investments that meet the specific stock criteria used to identify sustainable earnings power. In addition, they can incorporate a deep understanding of the economic, political and cultural environment in their analysis.

Following identification of a potential investment for the portfolio, the analyst, Director of Research or Portfolio Managers will jointly agree whether a deeper analysis is warranted.

2. Stock research

In carrying out deep fundamental analysis on a stock, the team will look for the following characteristics:

Sustainability - the ability to sustain stable or growing economic profits over time. This is typically driven by a combination of a sound business model, earnings growth consistency, a sustainable competitive advantage such as strong growth opportunities, barriers to entry, and management with a strong strategic focus, among other factors.

At this stage of the investment process, there is also an analysis of a company's Environmental, Social and Governance practices, and how they might impact the business model.

FTEME's analysts conduct around 2,000-2,500 company interactions per year, meeting with company management, touring facilities, and meeting suppliers, clients and competitors-all with the aim of ascertaining the value of the company. As part of their bottom-up analysis of individual companies, our analysts routinely evaluate material ESG issues such as product safety, raw material sourcing, waste disposal, water management, labour relations, health and safety practices, community relations and numerous factors related to governance.

Whilst certain emerging markets' regulations pertaining to corruption, corporate governance, the environment and social issues-and their enforcement-may be still evolving, trends indicate that as a country develops, these safeguards become both more comprehensive and more stringently enforced. Thus, companies with strong records of governance today (which can impact management of environmental and social issues) may be better prepared for the future. A company with inadequate environmental policies not only reflects badly on existing corporate governance, it may also bode poorly for the future competitiveness of that company.

This analysis and its conclusions are incorporated into the research note that forms the basis of the fundamental research analysis and is stored and shared on a proprietary research platform.

Earnings Power - the team defines earnings power as the ability to generate sustainable economic profit into the future, including in areas that could be beyond the current scope of operations. A key element of determining earnings power is therefore assessing a company's asset quality, financial strength, and management quality.

Discount to intrinsic worth - the intrinsic worth of a company is determined through modelling the current business characteristics and changes in the business profile over time.

Company engagement

The team believes that, as co-owners of the businesses in which FTEME invests, they are responsible for engaging with companies, on behalf of shareholders, to drive better outcomes. As such, the team communicates regularly with companies to identify and promote management practices that are conducive to long-term earnings growth and sustainability. When potential corporate governance concerns arise, the team works directly with the companies in which they invest to advise and help strengthen governance. The FTEME team provides guidance to companies facing management difficulties to help them improve managerial controls and align interests, enhancing shareholder value.

When deemed necessary, to protect shareholder value, the FTEME team may escalate their engagement activities to include collaboration with other investors, public pressure via the media, and even the legal system, if appropriate.

• One such example, we initiated a legal challenge to stop the takeover of an investee company when it became clear the proposed takeover did not represent value for minority shareholders. Working in collaboration with another asset manager that was also a significant shareholder, our challenge was successful, and the courts mandated the company improve its financial reporting. This revealed a more accurate and more promising picture of the business, enabling us to successfully negotiate with the acquiring company to more than double their original offer. Ultimately, we were able to navigate these governance challenges to sell our stake at a healthy profit, allowing us to exit the position while enhancing value for our shareholders.

• When investing in partially state-owned companies the FTEME team have at times approached government representatives with potential concerns regarding the quality of management. In one such instance, this has resulted in the team identifying a suitable candidate to serve on an investee company's board where this individual provided leadership and critical guidance through a period of tremendous growth.

The above points are just a few examples of the Investment Manager's proactive approach to monitoring corporate governance practices. The investment team also scrutinises other issues, including the relationship between a company and its auditor, as well as related-party transactions, as these matters can uncover potential poor corporate governance practices.

In the past 12 months, TEMIT voted against company management recommendations over 160 times.

In addition to the comprehensive research perspectives discussed above, the Investment Manager's longstanding and global presence keeps the team at the forefront of major issues in the emerging markets, ESG issues amongst them.

3. Portfolio Construction

The Portfolio Managers aim to build a portfolio of around 70 to 100 companies that have been identified as strong investment opportunities.

Every potential company holding is considered in the context of TEMIT's full portfolio, including the marginal risk and return of adding the company to the portfolio.

To ensure diversification and to manage risk effectively, the size of each holding is carefully managed. This serves to diversify the portfolio across a wide number of investment opportunities-allowing each to contribute to the performance of the portfolio in a meaningful way-while also limiting the potential downside impact of any single security. In addition, individual stock weightings are determined by the liquidity in the stock and the respective market. While the FTEME team is comfortable investing in less liquid companies that meet TEMIT's investment criteria, the team also seeks to ensure that there is sufficient liquidity to exit the investment if the investment case changes and fundamentals deteriorate.

While the portfolio will include some overlap with the MSCI Emerging Markets Index, the Portfolio Managers do not intend to replicate the Index and the portfolio may vary considerably. TEMIT may include some companies and countries that are not included in the MSCI Emerging Markets Index. Risk considerations are embedded throughout the team's fundamental research and they are careful to ensure that the portfolio is not exposed to any unintentional risks and aim to prevent excessive exposure to any single company, industry sector, country, investment theme or to excessive volatility.

All holdings are regularly reviewed to ensure that analysts' recommendations are up-to-date and accurately reflect any changes in company fundamentals. The team's ongoing fundamental research and disciplined approach drive all buy and sell decisions.

Investment risk management

Investment in emerging markets equities inevitably involves risk in a volatile asset class, and portfolios constructed from the "bottom up" may be exposed to risks that become evident when viewed from the "top down". FTEME is one of a number of Investment Management groups within Franklin Templeton ("FT"). FT uses a comprehensive approach to managing risks within its managed portfolios and this approach is inherent in all aspects of the investment process. Investment risks are to be identified and intentional. Risk is to be optimised, not minimised.

Risk management is led first and foremost by experienced portfolio managers. It is integrated within each step of FTEME's fundamental, research-driven process, and includes formalised collaboration with FT's independent Investment Risk Management Group. The group consists of over 90 investment risk and performance professionals in 20 global locations. The group is responsible for the independent preparation and monitoring of risk management information and for the reporting of any exceptions to senior management and the Board of the Company. A monthly executive risk summary report is reviewed by FT's Executive Investment Risk Committee as an input to the senior management reporting process. The group also provides regular performance analysis versus the benchmark and peers to identify absolute and relative performance trends or outliers. Exposure and attribution analysis is another key measure to support the integration of investment risk insight into each step of the investment process.

Building from this philosophy and within the boundaries of the overall investment strategy or potential regulatory restrictions, the Investment Manager and Investment Risk Management Group will agree upon guidelines that reflect TEMIT's risk profile.

As part of the ongoing risk management, potential performance in stressed markets or under anticipated scenarios are assessed and discussed. Using their specific expertise and with an independent view, the Investment Risk Management Group can provide risk-related information to the Investment Manager that can provide valuable insight for consideration in the portfolio construction process.

For additional information with respect to the AIFM risk management framework, please read the Investor Disclosure Document on the website.

Portfolio Report

Market overview

A flight to safety driven by the COVID-19 pandemic and the oil price war led to an indiscriminate sell-off across most asset classes late in the reporting period. Earlier gains were erased, leading emerging markets to end the reporting period in negative territory. The MSCI Emerging Markets Index returned -13.2% in the year under review, while TEMIT delivered a net asset value total return of -11.2% (all figures in sterling). Full details of TEMIT's performance can be found on page 1 of the full Annual Report.

The US-China trade conflict dominated headlines early in the reporting period as several rounds of retaliatory actions raised investor concerns. Markets, however, received some good news in October, with the US and China reaching agreement on a partial trade deal. Amidst rising growth and trade concerns, the US Federal Reserve ("Fed") cut its key interest rate for the first time in a decade in July, followed by two more rate cuts in September and October, before signalling a pause. The rate cuts helped to alleviate upward pressure on the US dollar, helping emerging market currencies while also facilitating greater flexibility in emerging market monetary policy.

Investor optimism following the signing of the US-China "phase one" agreement in mid-January, however, was overshadowed by fears over the COVID-19 outbreak, which started in China, but also spread to other parts of the world with new centres of the outbreak emerging in Europe and the US. The COVID-19 outbreak was declared a pandemic by the World Health Organization on 11 March. The collapse in OPEC+(a) negotiations in early March and Saudi Arabia's subsequent, aggressive undercutting of its official oil prices sparked a price war, compounding the impact of slowing demand amidst a decline in global economic growth due to the global spread of COVID-19. Oil prices fell sharply, with the WTI(b) and Brent(c) losing about two-thirds of their value in the first three months of 2020. Though OPEC+ and other oil producers agreed to cut oil supply after the reporting period ended, demand contraction could continue to put pressure on prices. Efforts to curb the spread of COVID-19 led to severe mobility restrictions in many countries and in some cases a complete lockdown, heightening fears of a global recession as economies came to a standstill. Liquidity in global financial markets dried up with many equity markets entering bear market territory. Unprecedented fiscal and monetary stimulus globally, however, helped to stabilise markets in late-March. The US Fed cut rates to near zero in March, facilitating greater flexibility in emerging markets monetary policy, which saw most countries also cutting rates.

(a) OPEC+ is an alliance of oil producers, including members and non-members of the Organization of the Petroleum Exporting Countries.

(b) West Texas Intermediate - a benchmark market price for crude (unrefined) oil.

(c) Brent Crude - a benchmark market price for crude (unrefined) oil.

China remained TEMIT's largest market exposure but the TEMIT portfolio remained underweight relative to the benchmark. Equity prices in China edged down by less than 1% in sterling terms over the year, making it the second-best performing market in the benchmark. Chinese stocks remained under pressure in the earlier part of the reporting period, weighed down by the US-China trade dispute and concerns of slowing growth in the country. Although an agreement on a partial trade deal saw equities rebound, the outbreak of COVID-19 and subsequent lockdown in parts of China raised fears. Business activity and consumption were significantly impacted as people curtailed their movements as a preventive measure. Sectors such as travel, leisure, retail and some elements of discretionary consumption were severely impacted. Chinese equity markets, however, were resilient, as the Chinese authorities' aggressive steps to contain the spread of the virus yielded positive results. Supportive action from policymakers including monetary easing, fiscal measures and additional liquidity also helped ease investor concerns. Although there have been concerns of a second wave via imported cases from outside of China, the measures in place have, at the time of writing, been able to limit local transmission. This has allowed the government to shift its focus from containment toward economic normalisation, with restrictions gradually being relaxed and production capacity getting back online (about 80-90% at the time of writing). While Chinese economic data reported over the first quarter was some of the worst in decades, we expect to see the start of a recovery in the second quarter as the situation in the country continues to normalise and the impact of the authorities' monetary policies filters through the economy. As a net oil importer, low oil prices will also benefit the economy, acting as a direct stimulus to consumers, most businesses and the central government. We expect a rebound in domestic activity over the second half of 2020, driven by pent-up demand and government stimulus, with risks to this outlook primarily driven by halting activity in developed markets. Overall, China's market has been relatively resilient. While we continue to monitor the situation, we currently believe that the long-term growth outlook for China and Chinese equities remains unchanged.

South Korea was TEMIT's second-largest market position at the end of March and overweight versus the benchmark. The equity market remained range bound over most of 2019 as the US-China trade dispute, tensions between South Korea and Japan and North Korea's missile launches balanced a switch from hawkish to more neutral monetary policy, a record 2020 expansionary budget and improving sentiment in the global memory chips market. In early 2020, the optimism of a trade deal between the US and China was quickly overshadowed by the COVID-19 outbreak. South Korea became the first country outside of China to record more than 1,000 cases in late-February, heightening concerns of the possibility of another outbreak epicentre. Decisive and prompt actions, however, helped largely to contain the outbreak with new daily cases starting to taper off in March. As a key supplier to the global supply chain, investors grew concerned about supply side shocks. While large-scale production suspensions were not reported, some production lines were halted for safety reasons. Supply disruptions from China also had an impact. The tourism and retail sectors were, however, more severely affected. To cushion the economy, the authorities cut the benchmark interest rate to a record low and announced relief packages for households and businesses. While GDP most likely contracted in the first quarter of 2020, we believe that there could be a recovery in the latter part of 2020, supported by the government's stimulus measures, once COVID-19 is contained.

Taiwan was the only market in the MSCI Emerging Markets Index to record a positive return over the reporting period. Equities gained in 2019 on an improving global outlook for memory chips and easing US-China trade friction, which boosted market sentiment towards companies within the global technology supply chain and which favoured the Taiwanese market where technology-related stocks account for a substantial portion. The Taiwanese economy saw limited impact from COVID-19 as the island saw fewer cases than its counterparts and moved quickly to tackle the situation. While the share prices of information technology companies declined from their highs in January, the sector has been more defensive compared to those of companies related to consumers, tourism and energy that have been more severely impacted by the pandemic and oil price war. TEMIT's exposure to Taiwan was largely attributable to Taiwan Semiconductor Manufacturing Company ("TSMC"), one of the portfolio's largest holdings and the largest stock contributor to TEMIT's performance relative to the benchmark. TSMC is one of the world's leading semiconductor makers and counts major technology companies amongst its clients.

Another market that fared better than its emerging market peers was Russia. Equity prices remained on an upward trend over the reporting period, returning 45% in sterling terms at its peak in January. Heightened global uncertainty resulting from the COVID-19 outbreak, however, turned market sentiment. Multiple actions including closing its borders to China and isolating early suspected cases initially helped to curb the spread of the virus but a spike in new cases led the government to adopt more stringent measures in March. The energy-dependent market, however, fell sharply in March as the oil price war described above added to demand concerns, leading oil prices to fall to their lowest level in close to two decades. To support the economy, policy makers reduced interest rates and announced a range of measures to support households and businesses affected by COVID-19. The Russian market ended the reporting period down by 9% in sterling terms but supported by one of the highest dividend yields in the emerging market universe. Undemanding equity valuations in Russia also remained a draw for investors, while improving corporate governance standards provided investors with some assurance. Moreover, the country has little sovereign debt, twin surpluses in both current account and fiscal balance, as well as a National Wealth Fund which was created during periods of higher oil prices with the purpose of supporting the economy during a low oil price environment, an extremely enviable position to be in. While we have seen weakness in our Russian holdings, we believe that Russia is well prepared for a low oil price environment, with most oil companies' free cash flow positive even at US$20 oil price levels.

Driven by the country's promising economic reform agenda, Brazilian equities were up by 20% in sterling terms by the end of 2019. A low inflationary and interest rate environment further supported equity flows. However, a 50% decline in the first three months of 2020 made Brazil one of the worst performing emerging markets for the reporting period, in sterling terms. A considerable part of the decline came from depreciation in the Brazilian real, which fell to a historic low in March. Lower carry appeal resulting from record-low interest rates, concerns over the economic impact of COVID-19 and a sharp decline in oil prices weighed on the currency. The government announced measures to support the population and economy, while the central bank lowered its key interest rate to a record-low of 3.75% to help to mitigate the effects of the outbreak. We expect lower interest rates in Brazil to drive a reallocation of assets from cash to equities as investors seek better returns. Taking a longer-term view, we believe that the social security reform may help to stimulate investment and credit, which could help to improve economic activity and reduce Brazil's fiscal deficit. We are also of the opinion that the central bank has sufficient foreign exchange reserves to support the currency. While the short-term situation in Brazil remains uncertain regarding the COVID-19 outbreak, we remain positive on Brazil over the long term, selectively adding to our exposure during the reporting period, which remains overweight compared to the benchmark.

The Indian market remained range-bound over most of the reporting period as optimism over Prime Minister Narendra Modi's reform agenda including a meaningful reduction in corporate tax rates was offset by a continuing economic slowdown and financial sector problems. Late in the reporting period, however, Indian equities were not spared by the global flight to safety, as stock markets around the world recorded sharp declines driven by the COVID-19 pandemic. Indian equities declined by more than 20% in March alone. A crisis in a private-sector bank (not held in the portfolio), which subsequently resulted in a bail-out, further weighed on financial stocks. Efforts to contain the local transmission of COVID-19 led the government to impose a 21-day nationwide lockdown, raising concerns that the economic disruption would result in a growth shock in one of the fastest growing major economies globally. Policy makers, however, announced fiscal stimulus measures including relief for those affected by the economic disruption, reduced interest rates as well as a comprehensive package to ensure financial stability. Although the extent and duration of the virus's impact on the economy remains unknown, looking ahead, we believe that the country should benefit from the implementation of structural reforms, low interest rates and low corporate tax rates. Further, as global economies work towards diversifying their supply chains, we could see India benefit from increased foreign investment. As a net oil importer, low oil prices should also support India's fiscal position. Although India remains one of the larger positions in TEMIT, we remain underweight relative to the benchmark. A key holding in India is one of the country's largest private-sector banks, ICICI Bank. Although we expect to see some impact on the bank's loans and margins as a result of the economic disruptions caused by COVID-19 in the interim, we believe that ICICI Bank is well-capitalised with a strong deposit base and should be able to withstand the short-term impact.

Going into this oil crisis, TEMIT was neutral in the energy sector, our preferred exposure in terms of oil sensitivity was in Russia and Russian stocks, and we had no exposure to other oil-sensitive markets like Colombia, Saudi Arabia, Qatar, and the United Arab Emirates. Our preference for Russia was driven by the Russian stocks' sound fundamentals and attractive valuations. Evaluating the portfolio, we reduced exposure to oil companies that were more highly levered. The negative near-term impact upon energy companies, as well as the secondary effect on economic growth in oil-exporting countries, could be considerable. Nevertheless, the oil price crash earlier in the last decade resulted in a sustained period of company (and fiscal) deleveraging, paired with improved cost control as well as encouraging greater caution towards the sector. From a macro perspective, there are also many emerging markets - and specifically in the Asian region - that are net oil and gas importers. Lower oil prices should ultimately support downward pressure on inflation. That will help policy makers to have more flexibility, for example, in monetary easing to cushion growth particularly in countries like India, China, and the Philippines. A lower oil price, therefore, is not necessarily all bad news for emerging markets. Longer-term, we are likely to see a supply response with higher cost producers including US shale companies effectively having to shut down production. Coupled with an eventual recovery in demand, this should ultimately lead to higher oil prices in the future.

Investment Strategy, Portfolio Changes and Performance

The following sections show how different investment factors (stocks, sectors and geographies) accounted for the Company's performance over the period. We continue to emphasise our investment process that selects companies based on their individual attributes and ability to generate risk-adjusted returns for investors, rather than taking a high-level view of sectors, countries or geographic regions to determine our investment allocations.

Our investment style is centred on finding companies with sustainable earnings power and whose shares trade at a discount relative to their intrinsic worth and to other investment opportunities in the market. We also pay close attention to risks.

We continue to utilise our research-based, active approach to help us find companies which have high standards of corporate governance, respect their shareholder base and understand the local intricacies that may determine consumer trends and habits. Utilising our large team of analysts, we aim to maintain close contact with the boards and senior management of existing and potential investments and believe in engaging constructively with our investee companies.

All of these factors require us to conduct detailed analyses of potential returns versus risks with a time horizon of typically five years or more.

As active investors, we have continued to engage with companies and sought to understand both the short- and long-term impact of COVID-19 and the subsequent behavioural changes of companies. We believe this helps to ensure that our portfolios are positioned accordingly. We continue to stress the importance of being selective and undertaking due diligence in making investment decisions.

In our view, our well-resourced, locally based team remains a key competitive advantage, and it has certainly been helpful having a team on the ground in Hong Kong and Shanghai, to help our decision making during the months following the outbreak of COVID-19 in Wuhan. Our teams were able to hold a significant number of calls with companies and industry specialists.

Across the portfolio, we were and remain positioned in long-term themes including consumption premiumisation, digitalisation, healthcare and technology, with stocks reflecting our philosophy. We see leverage as a risk and continue to avoid companies with weak balance sheets.

While the immediate outlook is uncertain, this approach should help us to navigate the coming months and over time we expect the long-term fundamentals of our holdings to remain intact.

Performance attribution analysis %

Source: FactSet and Franklin Templeton.

(a) A glossary of alternative performance measures is included on page 113 of the full Annual Report.

Contributors and detractors by security

Top contributors to relative performance by security (%)(a)

(a) For the period 31 March 2019 to 31 March 2020.

(b) Security not included in the MSCI Emerging Markets Index.

Taiwan Semiconductor Manufacturing ("TSMC") is one of the world's leading semiconductor makers and counts major technology companies amongst its primary clients. The chip maker posted solid revenue and earnings growth in the third and fourth quarters of 2019 due to the rollout of premium smartphones and high-performance computing applications. As a supplier to smartphone maker Apple, TSMC also benefited from better-than-expected sales of the latest iPhone. The company's share price reached a new high in January 2020 before falling slightly as investors grew concerned about the impact of the COVID-19 outbreak on global demand. While we could see some impact on revenue in the short-term, a recovery driven by pent up demand is likely once COVID-19 is contained. In the longer term, we believe that 5G development also remains a growth opportunity for the company.

NAVER is South Korea's largest internet search engine. Shares in NAVER rose after it announced a merger of its subsidiary Line Corporation, the largest messenger app in Japan, with Yahoo Japan, a SoftBank subsidiary, on synergy expectations from business integration and growth in artificial intelligence, e-commerce, fintech and O2O (online to offline) businesses. NAVER's plan to spin off its digital payment unit, NAVER Pay, to form a financial services company, which is expected to offer a range of services, including loans and insurance, was also viewed favourably by investors. A roadmap for the monetisation of NAVER Webtoon, its webtoon (a type of digital comic that originated in South Korea) publishing portal, further drove investor confidence in the stock. While COVID-19 is expected negatively to impact NAVER's advertising business in the short term, we believe that that firm's fundamentals remain intact and NAVER's key businesses could see solid growth on increased online activity.

Tencent is one of the largest internet services companies in China. The company provides online gaming, social network, fintech, cloud and other entertainment related services. Investor concern surrounding the US-China trade dispute and mixed second- and third-quarter 2019 corporate results weighed on sentiment in the stock in first half of the reporting period. Shares subsequently rose, however, on expectations of solid growth in the mobile gaming and financial technology businesses. Tencent reported solid fourth-quarter corporate results with double-digit revenue and earnings growth driven by strong performances in its online gaming and advertising, Fintech and cloud operations. Although we expect COVID-19 to have a short-term negative impact on Tencent's advertising, payments and cloud services as a result of a decline in business activities, solid growth in its online gaming and video and social networking activities should help to mitigate the impact. As the economic situation normalises, we expect Tencent to continue to benefit from growth in its online entertainment, cloud computing and fintech businesses.

Top detractors to relative performance by security (%)(a)

(a) For the period 31 March 2019 to 31 March 2020.

(b) Security not included in the MSCI Emerging Markets Index.

While the market has been swift in discounting earnings for banks in general, we believe that the risk of systemic banking crises in Brazil and Mexico is low given reasonably strong capitalisation, robust regulatory oversight and current policy support, and less credit expansion as compared to developed markets - for example the Brazilian banks, Banco Bradesco and Itaú Unibanco have been de-risking their balance sheets for the last 5-6 years due to the recession there. Expectations that the economy could fall into a technical recession in 2020 as a result of the lockdown and economic impact from COVID-19, weighed on sentiment with shares in both banks declining significantly in line with the wider equity market. Although we expected to see some short-term impact on asset quality and revenue generation, taking a longer-term view we maintain a positive view on both banks and believe that they are well positioned to recover once the COVID-19 outbreak is contained and domestic economic activity improves. Both banks reported solid 2019 corporate results, are fundamentally sound and trade at attractive valuations with high dividend yields. We used the market fall as an opportunity to increase our positions in both banks.

Shares in one of the largest banks in Mexico, Banco Santander Mexico jumped in April following a tender offer via a share swap from the Spanish-listed parent. Over the reporting period, Banco Santander Mexico's share price largely tracked shares of its Spanish parent Banco Santander, which increased its stake in the Mexican bank to over 90% following the completion of a tender offer in September 2019. Shares fell substantially in the last two months of the reporting period as investors grew increasingly concerned about the COVID-19 pandemic. While the bank's 2019 earnings growth exceeded management guidance, we expect to see some negative impact on 2020 earnings from social distancing efforts to limit the spread of the virus and lower oil prices both weigh on economic activity in Mexico. Taking a longer-term view, we continue to favour the bank due to its strong market position, healthy balance sheet and attractive valuations.

Top contributors and detractors to relative performance by sector (%)(a)



(a) For the period 31 March 2019 to 31 March 2020.

(b) No companies held by TEMIT in this sector.

Favourable stock selection and overweight positions in the communication services and information technology sectors added to TEMIT's performance relative to the benchmark index in the review period. Selection and an underweight position to the materials sector, which underperformed its counterparts, also had a positive impact. Technology-related sectors remained resilient during the crisis period with e-commerce, internet and software companies benefiting from an increase in online activities. Major semiconductor companies in Taiwan and South Korea also reported limited supply disruption, while it is likely that pent up demand will lead to a rebound in sales as the COVID-19 situation improves. The materials sector underperformed its peers as demand shocks and a decline in commodity prices weighed on businesses in the sector.

Conversely, the financials, consumer staples and health care sectors negatively impacted relative returns. Financials remain a key area of secular growth given the low levels of credit penetration across emerging markets, and TEMIT's holdings are primarily dominant, incumbent banks with strong capitalisation levels and robust deposit franchises, which should emerge stronger post crisis. Stock selection was largely responsible for the detraction in consumer staples and health care. We reduced our holdings in the consumer staples sector during the reporting period and maintained an underweight position in health care relative to the benchmark.

Top contributors and detractors to relative performance by country (%)(a)

(a) For the period 31 March 2019 to 31 March 2020.

(b) No companies held by TEMIT in this country.

(c) No companies included in the MSCI Emerging Markets Index in this country.

Our selection of stocks in South Africa, South Korea and China, were amongst the leading contributors to TEMIT's returns relative to the benchmark index. Naspers, which tended to track the share price movements of its underlying holdings that includes Tencent and Mail.Ru, was largely accountable for TEMIT's exposure in South Africa. We reduced exposure to Naspers in favour of increasing holdings directly in Tencent, following the spin-off of its international assets (via Prosus). We added to holdings in China and South Korea during the reporting period. A key purchase was Samsung Life Insurance, the largest life insurance company in South Korea, given its attractive valuations, strong prospects of its key holding, Samsung Electronics and our expectation of an improvement in shareholder returns. We accordingly used the market fall in 2020 as an opportunity to add to our position. In contrast, relative performance was hurt by stock selection in the United States, Mexico and Thailand. TEMIT's holding in Cognizant Technology Solutions, a US-listed technology services provider that derives most of its earnings from services produced in India, was the key detractor in the United States. We reduced our position in the stock ahead of the market crisis but still maintain a sizeable position on expectations of a turnaround. We also reduced our holdings in Thailand in favour other more attractive opportunities. We maintain an underweight exposure to Mexico relative to the benchmark.

Portfolio changes by Sector

(a) The Company's net liabilities are the total of net current assets/liabilities plus non-current liabilities per the Statement of Financial Position on page 78 of the full Annual Report.

(b) The movement relates to changes in cash, receivables, payables, the loan facility and capital gains tax provision.

Portfolio changes by country

(a) The Company's net liabilities are the total of net current assets/liabilities plus non-current liabilities per the Statement of Financial Position on page 78 of the full Annual Report.

(b) The movement relates to changes in cash, receivables, payables, the loan facility and capital gains tax provision.

Portfolio investments by fair value

as at 31 March 2020

(a) Trading activity during the year: (NH) New Holding, (IH) Increased Holding, (PS) Partial Sale and (NT) No Trading.

(b) US listed American Depositary Receipt.

(c) This company, listed on a stock exchange in a developed market, has significant exposure to operations from emerging markets.

(d) Preferred shares.

(e) Company is listed on the Hong Kong and Shanghai Stock Exchanges.

(a) Trading activity during the year: (NH) New Holding, (IH) Increased Holding, (PS) Partial Sale and (NT) No Trading.

(b) US listed American Depositary Receipt.

(f) This company is listed in the Netherlands. The classification of China/Hong Kong is due to most of its revenue coming from its holding in Tencent.

(g) Company changed its name from BM&F Bovespa during the year.

(a) Trading activity during the year: (NH) New Holding, (IH) Increased Holding, (PS) Partial Sale and (NT) No Trading.

(b) US listed American Depositary Receipt.

(c) This company, listed on a stock exchange in a developed market, has significant exposure to operations from emerging markets.

(h) UK listed Global Depositary Receipt.



(a) Trading activity during the year: (NH) New Holding, (IH) Increased Holding, (PS) Partial Sale and (NT) No Trading.

(b) US listed American Depositary Receipt.

(h) UK listed Global Depositary Receipt.

(a) Trading activity during the year: (NH) New Holding, (IH) Increased Holding, (PS) Partial Sale and (NT) No Trading.

Portfolio Summary

As at 31 March 2020

All figures are in %



(a) The Company's net liabilities are the total of net current assets/liabilities plus non-current liabilities per the Statement of Financial Position on page 78 of the full Annual Report.