ANNUAL REPORT - Franklin Templeton Investments

Templeton Growth Fund, Ltd.
MESSAGE TO SHAREHOLDERS
Dear Shareholder,
For the fiscal year in review the Fund delivered solid double-digit absolute returns on the back of strong stock selection
across numerous regions and sectors. In our opinion, the positive impact of stock selection, as opposed to allocations or
weightings, on performance highlights the advantages of our bottom-up, value-oriented investment process. While isolated
stock-level weakness in a handful of sectors offset some of the relative gains found elsewhere, the overall trend during the
period was one of value recognition as some of our longest-held convictions captured the bulk of relative outperformance.
This was particularly notable in light of a challenging market environment. While conditions appeared to improve as the
period progressed, the market still exhibited characteristics adverse to our style of investment. For example, investors preferred
the perceived safety of bonds to equities during the review period, and stock market correlations—the degree to which
stocks move in unison—reached record highs as equities were viewed less for their fundamentals and more as proxies for
overall risk appetite.
Risk appetite continued to fluctuate broadly as investor focus swung between optimism from aggressive central bank stimulus
and corporate earnings strength on the one hand, and skepticism stemming from anemic economic growth, political
dysfunction and fiscal imbalances on the other. Stocks entered the annual period on a weak note as a political backlash
against austerity shook confidence in European stability. However, European Central Bank President Mario Draghi’s promise
to do “whatever it takes” to preserve the euro restored order over the summer of 2012. Equities experienced another bout of
weakness in the fall of 2012 as Hurricane Sandy ravaged the US east coast and countries representing over 50% of global
gross domestic product (GDP)—including the United States, China and Japan—all underwent political election or transition
cycles. Ultimately, central bank vigilance and continued corporate earnings strength combined to sustain the global equity
rally through the winter and spring of 2013.
The main feature of the stock market rally in these final months was its growing defensiveness. Counter-cyclical sectors like
Health Care, Utilities and Consumer Staples attracted the lion’s share of investor attention. However, we view the outperformance
of some our highest conviction holdings, in a market still largely in the thrall of macroeconomic trends, as an
encouraging sign. In short, if our “bottom-up” investment theses can gain traction in a market still dominated by “top-down”
macroeconomic forces, we remain optimistic about the portfolio’s long-term potential once the market eventually reverts
back to its traditional role as value arbiter.
Our investment theses that have begun to materialize span both cyclical and defensive sectors. Consumer Discretionary and
Information Technology stocks led Fund returns: while these traditionally cyclical sectors were the Fund’s biggest relative
overweights during the period, outperformance had little to do with allocation. Stock selection, in fact, was the performance
driver. Our long-held belief that select US media companies—including cable operators like Comcast Corp. and production
studios like News Corp.—would benefit from the growing demand for premium content and high-capacity broadband access
came to fruition as these companies exceeded earnings expectations and rose to record levels. In Information Technology,
our belief that corporate customers in uncertain times would prioritize productivity—enhancing expenditures over capacityenhancing
spending also materialized, much to the benefit of firms like Accenture PLC and SAP AG. We also reaped the
benefits of our contrarian Health Care sector holdings during the fiscal year and continue to diversify into undervalued biotechnology,
specialty pharmaceutical and medical technology firms with attractive growth prospects.
In contrast, isolated weakness among overweighted Energy holdings and even-weighted Financials and Industrials stocks
detracted. Here too, we maintain a high degree of confidence in our convictions. Our integrated oil holdings are in companies
positioned for above-average production growth, while our oilfield services holdings should benefit from rising demand
for technical expertise in extracting hydrocarbons from challenging locations. In Financials, we expect our banks and
insurers to benefit as aggressive restructuring and fundamental repair restore normalized levels of profitability to the industry.
Finally, our Industrials positions offer cyclical leverage and yield opportunity at significantly more attractive valuations than
those found in other economically-sensitive sectors, like Materials.
2 Templeton Growth Fund, Ltd.