Introducing FTF Latin America Fund

In recent times, the Latin American story is almost synonymous to the growth of renewable energy and energy efficiency industries. According to data released by the United Nations Environment Program, investment capital flow into renewable energy such as biofuels increased from US$80 billion in 2005 to a record US$100 billion in 2006.

Biofuels account for less than 2% of the world?s energy market and could potentially account for 20% to 30% of the total energy market share in the future, with Brazil currently the world?s top ethanol exporter .

The Franklin Templeton Funds (FTF) ? Latin America Fund seeks long-term capital appreciation through investing primarily in equity of companies incorporated or having their principal business activities in the Latin America region.

In terms of geographical allocation, the FTF ? Latin America Fund which invests all or substantially all its assets in the Luxembourg-domiciled Franklin Templeton Investment Funds (FTIF) ? Templeton Latin America Fund (the ?Underlying Fund?), has about 55.5% of its holdings in Brazil as at 31 May 2007.

As of 31 May 2007, the FTF ? Latin America Fund returned 29.4% since its inception on 1 November 2006 and 15.6% year-to-date [1].

The Latin America region has had several factors going for it in recent years. It is a major beneficiary of favourable prices for key commodity exports and strong domestic demand. Sound fiscal discipline in many countries and low inflation have helped maintain economic expansion in the region, according to Inter-American Development Bank . Improving corporate governance standards also meant easier access to capital and higher company valuations.

?In general, the Latin America region is stronger economically than at the beginning of this decade. The main reason to think in this way is how the region has reduced leverage dramatically,? said Dr. Mark Mobius, portfolio manager of the FTF ? Latin America Fund.

?Three years ago, the region had DEBT/GDP ratios substantially above today's levels and this is evidently recognized in the sovereign spreads of the different Latin American countries, which have narrowed considerably. Nowadays it is discussed that Brazil, the largest economy in the region, might reach investment grade status within a 12 month period. This is a remarkable event. At the same time, the region has experienced growth with a reasonable level of inflation (with some exceptions). This is another significant highlight.?

Brazil recently revised its historical GDP growth numbers since 2000, leading observers to conclude that the economy has been growing faster than anticipated. The economy grew a revised 3.7% year-on-year in 2006, supported by robust demand, particularly household consumption and investment.

Brazil?s strong macroeconomic fundamentals, improved current and trade accounts and growing foreign reserves have significantly reduced the country?s vulnerability to external shocks. Standard & Poor?s and Fitch upgraded Brazil?s sovereign rating to BB+, one level below investment grade. The Brazilian central bank maintained a loose monetary policy on moderate inflation outlook, cutting the benchmark rate by 50 basis points to 12.0% in June, the 16th rate reduction in the past 21 months .

Reflecting the country?s improving fundamentals, the Sao Paulo Bovespa index gained 329% (in USD terms) over the 3-year period as of 31 May 2007. This is helped by the strength of the Brazilian Real, which gained 61% against the US Dollar over the same period .

The FTF ? Latin America Fund?s second largest geographical holding as of 31 May 2007 are in Mexico. ?We believe that with the combination of stronger domestic demand, lower interest rates and increased investments in infrastructure, there are still significant growth opportunities in the region,? said Dr. Mobius. ?The Brazilian equity market remains one of the cheapest in the world while the Mexican stock market is sustained by healthy earnings growth.?

?We believe that sectors that are geared towards direct consumption will continue to benefit from the higher disposable income per capita in Latin American markets. Continued high commodity prices are expected to support good profits in those sectors. We think the region still offers some of the best-valued investment options in the emerging markets universe.?

On the risks of investing in Latin America, Dr. Mobius highlighted that it would be more political in nature at the moment.

?A change in policies towards ideas that we thought the world left behind many years ago are re-surfacing again vigorously in places like Venezuela and Bolivia and moderately in places like Ecuador or Argentina. I hope, authorities will realise their mistakes and go back to the right track to promote market based economies in their countries. Without market based economies the outlook for those countries is very bad.?

Dr. Mobius continued, ?The global environment is so favorable that sometimes disguises the mistakes in political economy. But those mistakes are paid dearly when the favorable conditions are no longer there. Responsible governments should prepare during the times of plenty for the times of scarcity.?

Franklin Templeton is recognised globally as a pioneer in emerging markets investing with over 20 years of experience. Dr. Mobius leads the Templeton Emerging Markets Investment Team of 38 portfolio managers/analysts across 13 offices globally.

The team uses the same ground-up, long-term value approach to investing instituted by Sir John Templeton over 60 years ago. The group employs a bottom-up, value approach to emerging markets investing. The investment methodology is highly disciplined with the single objective of achieving superior returns entirely through stock selection.

A testament of the group?s efforts is that Dr. Mobius and his team have received more than 100 prestigious awards globally. International entities, such as Lipper, Standard & Poor?s, Morningstar, CNBC, Reuters, as well as national institutions and publications in countries such as the US, Canada, UK, Germany, Belgium, Italy, India, Singapore and Hong Kong have honoured the team.

Source: Franklin Templeton Investments
[1]: Morningstar, cumulative returns in SGD, based on NAV-NAV, dividends reinvested.