franklin templeton international presentation (2)

For Professional Investor Use Only. Not for Distribution to Retail Investors.

From Small Acorns…

The Case for UK Smaller Companies

Paul Spencer Co-Manager, Franklin UK Smaller Companies Fund


FRANKLIN TEMPLETON INVESTMENTS

• Formerly the Hoare Govett Smaller Companies Index

• Bottom 10% of the Main UK Listed Market by Value (rebalanced annually)

• 80% FTSE 250, 15% FTSE Small Cap and 5% Others

• c.400 Companies (excluding investment trusts)

• £1.3bn Largest Market Cap (as at 30 September cut-off point)

The Numis Smaller Companies Index?

1

Source: Franklin Templeton Investments as at 30/09/12.

1



Numis Smaller Companies Index

Sector Breakdown

Source: Franklin Templeton Investments as at 30/09/12.

2 2

Sector Index (%)

Basic Materials 7.54%

Consumer Goods 7.98%

Consumer Services 20.95%

Financials 16.16%

Healthcare 3.56%

Industrials 26.68%

Oil & Gas 6.57%

Technology 7.00%

Telecommunications 3.03%

Utilities 0.52%



Small Cap Out-Performance Over the Last 10 Years

Source: Morningstar Direct®. © 2012 Morningstar UK. All rights reserved as at 30/09/12, total return in GBP over 10 years.


Perf

orm

ance in

GB

P (

rebased to 1

00)

0

50

100

150

200

250

300

350

400

Sep-02 Sep-03 Sep-04 Sep-05 Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11

NCSX EXCl. Investment Trusts TR Index FTSE 100

Sep-12


FRANKLIN TEMPLETON INVESTMENTS 4

Why Allocate to UK Smaller Companies?

• Large investment universe

• Diverse industry exposure

• High growth companies

• Strong balance sheets

• Rating anomalies


Franklin UK Smaller Companies Fund

A New Beginning


6

Restructuring Strategy

• Paul Spencer & Richard Bullas appointed co-managers on 25 June 2012

• Initiated an Immediate Portfolio Review

• Refocus the portfolio

• Appropriate balance of risk/reward

• Invest in long term quality UK small caps

• Selling

• Mining, oil & gas stocks (high risk)

• <1% weightings (low conviction)

• <£50m market cap (illiquid, unprofitable)

• Equates to 35% AUM and 28 stocks

• Buying

• Adding to positions in stocks we know & like

• Investing in new companies with appropriate profiles



7

Restructuring Strategy – Stocks Bought Sector Stocks Bought

House Goods & Cons. Bovis #

Travel & Leisure Restaurant Group

Support Services RPS Group #

Howden Joinery #

Mears Group

RWS Group

Softw. & Comp. Serv. Anite

Iomart

SDL

General Retail Ted Baker

Financial Services Polar Capital

Media Euromoney

Entertainment One

Aerospace & Defence Senior

Avon Rubber

Chemicals Yule Catto #

Real Estate Unite Group # # Stock also held in the Franklin UK Mid Cap Fund

Source: Franklin Templeton Investments as at 30/09/12. Information is historical and may not reflect current or future portfolio characteristics. All portfolio holdings are subject to change.



8

Restructuring progress so far…

25 June

2012

30 Sept

2012

NSC Index

Weight

FTSE 250 23.3% 48.1% 80.8%

FTSE SmallCap 14.9% 15.5% 14.4%

FTSE Fledgling 3.34% 0% 1.2%

AIM 42.1% 25.9% -

Unclassified 9.0% 5.4% 3.5%

Oil & Gas 6.1% 2.5% 6.2%

Basic Materials 17.5% 8.3% 7.1%

Stocks to sell 28 1

AUM to sell 35% 0.7%

No. of stocks 59 40

Source: Franklin Templeton Investments as at 30/09/12. Information is historical and may not reflect current or future portfolio characteristics. All portfolio holdings are subject to change.



9

Proof of Concept

Source: Franklin Templeton Investments and Morningstar as at 30/09/12. © 2012 Morningstar, Inc. All rights reserved. Performance details provided are in GBP, include the

reinvested dividends net of basic rate UK tax and are net of management fees. The Franklin UK Mid Cap Fund launched on 17/10/11 to receive the assets of Rensburg UK Mid

Cap Growth Trust, a unit trust. Fund performance data is based on the mid price of the Rensburg UK Mid Cap Growth Trust from its launch on 12/07/1999 to 30/09/2011 and the

net asset value of the Franklin UK Mid Cap Fund A(inc) shares thereafter. Past performance is no guarantee of future performance.

The Franklin UK Mid Cap Fund has been managed using

a similar strategy since February 2006

1 Year 3 Years 5 Years 10 Years

Franklin UK Mid Cap Fund A(inc) 30.03% 54.91% 58.14% 373.72%

FTSE 250 Ex Investment Trusts Index 25.50% 41.97% 26.93% 278.66%

IMA UK All Companies Sector 17.90% 25.59% 6.65% 120.61%

Quartile 1 1 1 1

Fund Performance as at 30 September 2012



FRANKLIN TEMPLETON INVESTMENTS 10

Current Opportunities Include Companies With…

• Attractive end markets

• Stable performance

• Reliable growth

• Robust balance sheet

• Highly regarded management


Appendix


Franklin UK Smaller Companies Fund

Fund Details

Management Paul Spencer, Richard Bullas

Asset Category UK Equity

Investment Style Blend

IMA sector IMA UK Smaller Companies

Benchmark Numis Smaller Companies Ex. Investment Trusts TR Index

Launch Date 17/10/2011

Number of Positions 40

Portfolio Size £17.78 million

12

Source: Franklin Templeton Investments, as at 30/09/12. The Franklin UK Smaller Companies Fund launched on 17 October 2011 to receive the assets of Rensburg UK Smaller Companies

Trust, a unit trust. All fund performance data is based on the mid price of the Rensburg UK Smaller Companies Trust from its launch on 01/07/1991 to 17/10/2011 and the net asset value of

the Franklin UK Smaller Companies Fund A(inc) shares thereafter. Past performance does not guarantee future results.

Holdings of the same issuer have been combined.


13

Investment Strategy

• To create a high conviction portfolio of undervalued companies by primarily investing in the constituents of the Numis Smaller Companies Index (NSCI)*.

• To have a portfolio of around 40/45 investments over the longer term.

• Minimum size investment c.1.5% and a maximum position of c.5% of the funds AUM

• Concentrate on investments with a market cap of between £100m & £1bn.


*Excluding investment trusts.


14

Portfolio Positioning

Top Ten Sector Top Ten Holdings

As at 30 September 2012

Stock Fund

Overweight

NCC Group PLC 3.8%

Polar Capital Holdings PLC 3.6%

Lavendon PLC 3.3%

Scapa Group PLC 3.2%

Paragon Group Cos. PLC 3.1%

Laird PLC 3.0%

Anite PLC 3.0%

IQE PLC 3.0%

Restaurant Group PLC 3.0%

RPS PLC 2.9%

Sector Fund

Weighting Relative to NSCI

Software & Comp. Services 16.19% +11.44%

Financial Services 9.37% +2.42%

Technology Hardware 8.79% +6.55%

Chemicals 8.67% +5.79%

Elect. & Electrical Equip. 4.96% +1.91%

Aerospace & Defence 4.88% +2.37%

Industrial Engineering 4.51% +2.79%

Real Estate 4.45% +0.91%

Pharma. & Biotechnology 4.42% +1.50%

Personal Goods 2.68% +2.13%

Source: Franklin Templeton Investments as at 30/09/12. Weightings as percent of total. Percentage may not equal 100% due to rounding. Information is historical and may not reflect current

or future portfolio characteristics. All portfolio holdings are subject to change.

The Ten Largest Holdings represent the ten largest holdings of the fund as of the date indicated. These securities do not represent all of the securities purchased, sold or recommended for

advisory clients, and the reader should not assume that investment in the securities listed was or will be profitable. All portfolio holdings are subject to change. Holdings of the same issuer

have been combined. Weightings as a percentage of total. The portfolio manager for the fund reserves the right to withhold release of information with respect to holdings that would otherwise

be included in a top ten holdings list.





Fund Manager Biography

Mr Spencer is Lead Manager of the Franklin UK Mid Cap Fund, co-manager of the Franklin UK Smaller

Companies Fund and co-manager of the Franklin UK Managers’ Focus Fund. A member of the Franklin UK

Equity Team, he specialises in UK mid-cap equity analysis and investment.

Paul joined Franklin Templeton Investments when it acquired Rensburg Fund Management in January 2011.

Paul started his investment career in 1987, when he joined BWD Rensburg. Within the next eight years, Paul

progressed through the ranks becoming Head of Research. In 1991, he assumed responsibility for the BWD UK

Smaller Companies Trust leaving in 1995 to join Granville Davies Limited as a Director and Small and Mid Cap

analyst. In 1999, Paul joined TD Waterhouse where he was Head of Research, specialising in small and mid-

cap investment analysis. He returned to Rensburg in 2006 to manage the Rensburg UK Mid Cap Growth Trust,

now called the Franklin UK Mid Cap Fund.

During his tenure as Fund Manager of this Fund, he has received a number of awards for investment excellence

including the Moneywise Best UK All Companies Fund in 2008, 2009, 2010, an award from Money Observer for

the Best UK Small/Mid Cap Fund 2009 and Best UK All Companies Fund over three years from Lipper in 2009.

Paul holds a BA (Hons) Economics from Nottingham University. He is a Fellow of the Securities Institute (FSI).

Paul Spencer

Vice President, Fund Manager

Franklin Templeton Fund Management Limited

Location: Leeds, UK

15 15



Fund Manager Biography

Richard Bullas, Research Analyst and Fund Manager is co-manager of the Franklin UK Smaller Companies

Fund. He is also a co-manager of the Franklin UK Managers’ Focus Fund and assists on a number of other UK

equity funds.

Richard joined Franklin Templeton Investments when it acquired Rensburg Fund Management in January 2011,

having previously worked at Rensburg Fund Management for over 11 years (joining Rensburg in January 2000).

Prior to joining Rensburg, Richard worked at AVIVA as a Market Analyst in the life and pensions team.

Richard holds a B.Sc (Hons) degree in business and management studies from Bradford University School of

Management. He holds the IMC (Investment Management Certificate) and is a Chartered MCSI (Chartered

Institute for Securities and Investment)

Richard Bullas

Research Analyst, Fund Manager

Franklin Templeton Fund Management Limited

Location: Leeds, UK

16



Important Information

17 17

For professional investor use only, this document is not aimed at, nor intended for use by retail investors.

Copyright © 2012 Franklin Templeton Investments. All rights reserved.

This document is intended to be of general interest only and does not constitute legal or tax advice nor is it an offer for shares or invitation to apply for shares of the UK-domiciled OEIC,

Franklin Templeton Funds (“the Fund”). Nothing in this document should be construed as investment advice.

Subscriptions to shares of the Fund can only be made on the basis of the current prospectus, the relevant Key Investor Information Document, accompanied by the latest available

audited annual report and the latest semi-annual report if published thereafter, which can be found on our website or requested from the address below.

An investment in the Fund entails risks which are described in the Fund’s prospectus and the relevant Key Investor Information Document.

The value of shares in the Fund and income received from it can go down as well as up, and investors may not get back the full amount invested. Currency fluctuations may affect the

value of overseas investment. An investment in the Fund entails risks which are described in the Fund’s prospectus and in the relevant Key Investor Information Document. The Fund

invests in a specific sector or geographical area and the returns may be more volatile than a more diversified fund.

No shares of the Fund may be directly or indirectly offered or sold to nationals or residents of the United States of America. Shares of the Fund are not available for distribution in all

jurisdictions and prospective investors should confirm availability with their local Franklin Templeton Investments representative before making any plans to invest.

Opinions expressed are the author's at publication date and they are subject to change without prior notice. Performance details provided are in GBP, include the reinvested dividends

net of basic rate UK tax and are net of management fees. The Franklin UK Mid Cap Fund launched on 17/10/11 to receive the assets of Rensburg UK Mid Cap Growth Trust, a unit trust.

Fund performance data is based on the mid price of the Rensburg UK Mid Cap Growth Trust from its launch on 12/07/1999 to 30/09/2011 and the net asset value of the Franklin UK Mid

Cap Fund A(inc) shares thereafter. Sales charges and other commissions, other taxes and relevant costs to be paid by an investor are not included in the calculations. Past

performance is no guarantee of future performance.

© 2012 Morningstar, Inc. All rights reserved. The information contained herein: (1) is proprietary to Morningstar; (2) may not be copied or distributed; an (3) is not warranted to be

accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information.

References to indices are made for comparative purposes only and are provided to represent the investment environment existing during the time periods shown. An index is

unmanaged and one cannot invest directly in an index. The performance of the index does not include the deduction of expenses and does not represent the performance of any

Franklin Templeton Group fund.

For a free copy of the latest prospectus, the relevant Key Investor Information Document, the annual report and semi-annual report, if published thereafter or for more information about

any Franklin Templeton Investments’ fund, please contact: Franklin Templeton Investments, Telephone: 0800 305 306, Email: [email protected] or write to us at the

address below.

Issued by Franklin Templeton Investment Management Limited (FTIML) Registered office: The Adelphi, 1-11 John Adam Street, London WC2N 6HT. FTIML is authorised and regulated

by the Financial Services Authority.

franklin templeton international presentation (2)

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