templeton emerging markets fund annual report · 2017. 6. 24. · annual report templeton emerging...

TempletonEmerging Markets Fund

AUGUST 31, 2011

ANNUAL REPORT

I NTE RNAT IONAL

Franklin Templeton InvestmentsGain From Our Perspective®

Franklin Templeton’s distinct multi-manager structure combines thespecialized expertise of three world-class investment management groups—Franklin, Templeton and Mutual Series.

Each of our portfolio management groups operates autonomously, relying on its own research and staying true to the unique investment disciplines that underlie its success.

Franklin. Founded in 1947, Franklin is a recognized leader in fixed income investingand also brings expertise in growth- and value-style U.S. equity investing.

Templeton. Founded in 1940, Templeton pioneered international investing and, in 1954, launched what has become the industry’s oldest global fund. Today, withoffices in over 25 countries, Templeton offers investors a truly global perspective.

Mutual Series. Founded in 1949, Mutual Series is dedicated to a unique style of value investing, searching aggressively for opportunity among what it believes are undervalued stocks, as well as arbitrage situations and distressed securities.

Because our management groups work independently and adhere to differentinvestment approaches, Franklin, Templeton and Mutual Series funds typicallyhave distinct portfolios. That’s why our funds can be used to build trulydiversified allocation plans covering every major asset class.

At Franklin Templeton Investments, we seek to consistently provide investors with exceptional risk-adjusted returns over the long term, as well as the reliable,accurate and personal service that has helped us become one of the most trustednames in financial services.

TRUE DIVERSIFICATION

RELIABILITY YOU CAN TRUST

SPECIALIZED EXPERTISE

MUTUAL FUNDS | RETIREMENT PLANS | 529 COLLEGE SAVINGS PLANS | SEPARATE ACCOUNTS

Not part of the annual report

Annual Report

Templeton Emerging Markets FundYour Fund’s Goal and Main Investments: Templeton Emerging Markets Fund seeks

long-term capital appreciation by investing, under normal market conditions, at least 80% of its net

assets in emerging country equity securities.

The dollar value, number of shares or principal amount, and names of all portfolio holdings are listed in theFund’s Statement of Investments (SOI). The SOI begins on page 8.

Contents

Geographic BreakdownBased on Total Net Assets as of 8/31/11

Asia

Latin America & Caribbean

Europe

Middle East & Africa

Short-Term Investments & Other Net Assets

62.5%

19.2%

17.1%

0.5%

0.7%

Annual Report

Templeton Emerging Markets Fund . . . . . . . . . . . . . 1

Performance Summary . . . . . . 5

Important Notice to Shareholders . . . . . . . . . . . . . 6

Financial Highlights and Statement of Investments . . . . 7

Financial Statements . . . . . . . 11

Notes to Financial Statements . . . . . . . . . . . . . . . 14

Report of Independent Registered Public Accounting Firm . . . . . . . . . . . 21

Tax Designation . . . . . . . . . . . 22

Annual Meeting of Shareholders . . . . . . . . . . . . . . 24

Dividend Reinvestment and Cash Purchase Plan . . . . . . . . 25

Board Members and Officers . . 27

Shareholder Information . . . . . 32

Dear Shareholder:

We are pleased to bring you Templeton Emerging Markets Fund’s annual reportfor the fiscal year ended August 31, 2011.

Economic and Market Overview

Emerging market stocks started the fiscal year under review with strongperformances, but turned downward as investors shifted their focus from solidequity fundamentals to social unrest in the Middle East and North Africa regionsand the earthquake and tsunami in Japan. The eurozone’s debt restructuringissues also remained at the forefront for a large part of the year, leading investorsto remain cautious. Subsequently, U.S. debt concerns combined with independentcredit rating agency Standard & Poor’s downgrade of the U.S.’s long-term creditrating to AA+ from AAA in early August 2011 created significant confusionand volatility in global financial markets. Global growth concerns, risinginflationary pressures and a lack of major fiscal stimulus measures also weighedon investor sentiment. Central banks in Brazil and Turkey, however, surprisedinvestors by lowering interest rates toward period-end to support their economies.

The fundamental and financial strength of emerging markets was evident duringthe reporting period as many emerging countries maintained lower debt-to-gross

Annual Report | 1

Top 10 CountriesBased on Equity Investments as of 8/31/11

% of TotalNet Assets

China 20.6%

Brazil 17.2%

Thailand 10.0%

India 9.9%

Indonesia 8.5%

Russia 7.1%

Hong Kong 5.9%

South Korea 5.8%

Turkey 5.8%

Mexico 2.0%

domestic product ratios and larger foreign reserves than many developed countries.In this environment, the MSCI Emerging Markets Index, which measures stockmarket performance in global emerging markets, returned +9.40% in U.S.dollar terms for the 12 months ended August 31, 2011, partly due to strongerlocal currencies.1

On a regional basis, Eastern Europe was the best performing region in thereporting period, as bargain hunters searched for undervalued stocks trading atattractive valuations due to widespread panic selling rather than a deteriorationof fundamentals. Resource-rich countries such as Russia and South Africa alsooutperformed due to higher commodity prices. Turkey, however, lagged its peersbecause of growth concerns and a weak lira. Higher commodity prices andstronger local currencies supported equity prices in Latin America. In Asia, withthe exception of China and India, which suffered from inflationary concerns,key regional markets recorded double-digit returns in U.S. dollar terms.

Investment Strategy

Our investment strategy employs a fundamental, value-oriented, long-termapproach. We focus on the market price of a company’s securities relative toour evaluation of the company’s long-term earnings, asset value and cash flowpotential. As we look for investments, we focus on specific companies andundertake in-depth research to construct an action list from which we make ourbuy decisions. Before we make a purchase, we look at the company’s potentialfor earnings and growth over a five-year horizon. During our analysis, we alsoconsider the company’s position in its sector, the economic framework andpolitical environment.

Performance Overview

Templeton Emerging Markets Fund delivered cumulative total returns of +10.17%based on market price and +12.56% based on net asset value for the 12 monthsunder review.

Manager’s Discussion

During the 12-month reporting period, top contributors to the Fund’s absoluteperformance included Brilliance China Automotive Holdings, a major Chinese

1. Source: © 2011 Morningstar. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstarand/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete ortimely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use ofthis information. Past performance is no guarantee of future results. The index is unmanaged and includes reinvesteddividends. One cannot invest directly in an index and an index is not representative of the Fund’s portfolio.

2 | Annual Report

automobile manufacturer; Astra International, Indonesia’s leading car andmotorcycle company; and SK Innovation (formerly, SK Energy), a major oilrefinery and service station operator in South Korea. Brilliance China has a jointventure with BMW for the production and sale of BMW 3-series and 5-seriesmodels in China. Its share price surged as the company benefited from demandgrowth for automobiles and government stimulus measures in the sector. AstraInternational’s share price appreciated due to strong corporate results supportedby greater domestic demand for motor vehicles and higher profits from its heavyequipment and palm oil businesses. The company benefited from Indonesia’srobust economic growth, higher incomes and affordable credit. SK Innovation’sshare price rose due to improved refining margins as South Korea’s largest oilrefiner benefited from increased demand and higher product prices followingthe political unrest in the Middle East and North Africa, which threatened oilsupply from the region, and the strongest earthquake on record in Japan, whichdisrupted output from the country’s petrochemical plants and refineries. Consis-tent with our long-term investment strategy, we hold a positive outlook on theenergy and consumer discretionary sectors.2

In contrast, key detractors from absolute performance included Akbank, oneof Turkey’s biggest commercial banks; Sesa Goa, India’s leading iron ore minerand exporter; and Victory City International Holdings, a Hong Kong-basedintegrated group of textile manufacturing companies with operations in HongKong, China, the U.S. and Canada. Shares of these companies ended the report-ing period with double-digit declines. Akbank’s share price suffered a setback dueto narrower net interest margins, which affected the bank’s net interest income.Nonetheless, we continued to consider the bank’s valuations attractive andmaintained a positive long-term outlook on Akbank due to its high-qualityassets and relatively strong market position. Shares of Sesa Goa declined invalue as a result of a possible increase in iron ore export taxes and a generalcorrection in the Indian stock market. In our view, low valuations and highprofitability could benefit Sesa Goa in the long term. Victory City was hurt byconcerns of slowing growth in developed markets such as the U.S., which couldsubsequently impact export orders. According to our analysis, the companycould have favorable prospects because it trades at what we consider an attrac-tive valuation, has an extensive clientele and could benefit from the possibilityof industry consolidation in China.

It is important to recognize the effect of currency movements on the Fund’sperformance. In general, if the value of the U.S. dollar goes up compared witha foreign currency, an investment traded in that foreign currency will go downin value because it will be worth fewer U.S. dollars. This can have a negative

2. The energy sector comprises oil, gas and consumable fuels and energy equipment and services in the SOI. Theconsumer discretionary sector comprises automobiles and textiles, apparel and luxury goods in the SOI.

Annual Report | 3

Top 10 Holdings8/31/11

Company % of TotalSector/Industry, Country Net Assets

Brilliance China Automotive Holdings Ltd. 9.8%Automobiles, China

Vale SA 6.3%Metals & Mining, Brazil

Petrobras (Petroleo Brasileiro SA) 4.5%Oil, Gas & Consumable Fuels, Brazil

PT Astra International Tbk 4.4%Automobiles, Indonesia

Akbank TAS 3.7%Commercial Banks, Turkey

PT Bank Central Asia Tbk 3.7%Commercial Banks, Indonesia

Tata Consultancy Sevices Ltd. 3.5%IT Services, India

Sesa Goa Ltd. 3.5%Metals & Mining, India

Banco Bradesco SA 3.4%Commercial Banks, Brazil

Dairy Farm International Holdings Ltd. 3.4%Food & Staples Retailing, Hong Kong

effect on Fund performance. Conversely, when the U.S. dollar weakens in relationto a foreign currency, an investment traded in that foreign currency will increasein value, which can contribute to Fund performance. For the 12 months endedAugust 31, 2011, the U.S. dollar declined in value relative to most currencies.As a result, the Fund’s performance was positively affected by the portfolio’sinvestment predominantly in securities denominated in currencies with non-U.S. exposure. However, one cannot expect the same result in future periods.

During the reporting period, we continued to search for undervalued stockstrading at what we considered attractive valuations and made key purchases inHong Kong, Indonesia and South Africa. We also added to our investments inRussia, Pakistan and Poland. Subsequently, we invested in construction andengineering, diversified banks, consumer electronics, and metals and mineralscompanies. Some of the largest additions included Hyundai Development, oneof South Korea’s leading residential property developers; Bank Danamon, amajor Indonesian bank; and Hong Kong-based VTech Holdings, a marketleader in the global cordless phone market. Conversely, we made some sales inThailand and South Korea and eliminated our exposure to Taiwan. The Fundundertook five sales during the reporting period as stocks reached their selltargets and we raised funds for income distribution. We reduced our holdingsin SK Innovation and Dairy Farm and divested our investments in Taiwaneseintegrated circuit design company MediaTek and Thai industrial real estatecompanies Amata and Hemaraj Land and Development.

Thank you for your continued participation in Templeton Emerging MarketsFund. We look forward to serving your future investment needs.

Sincerely,

Mark MobiusExecutive ChairmanTempleton Emerging Markets Group

The foregoing information reflects our analysis, opinions and portfolio holdings as of August 31, 2011, the end ofthe reporting period. The way we implement our main investment strategies and the resulting portfolio holdingsmay change depending on factors such as market and economic conditions. These opinions may not be reliedupon as investment advice or an offer for a particular security. The information is not a complete analysis ofevery aspect of any market, country, industry, security or the Fund. Statements of fact are from sources consid-ered reliable, but the investment manager makes no representation or warranty as to their completeness oraccuracy. Although historical performance is no guarantee of future results, these insights may help you under-stand our investment management philosophy.

4 | Annual Report

Endnotes

Special risks are associated with foreign investing, including currency volatility, economic instability and political developments of countrieswhere the Fund invests. Emerging markets involve heightened risks related to the same factors, in addition to those associated with theirrelatively small size and lesser liquidity. The Fund is actively managed but there is no guarantee that the manager’s investment decisions willproduce the desired results.

1. Total return calculations represent the cumulative and average annual changes in value of an investment over the periods indicated.

2. Assumes reinvestment of distributions based on net asset value.

3. Assumes reinvestment of distributions based on the dividend reinvestment and cash purchase plan.

Performance Summary as of 8/31/11

Price and Distribution Information

Symbol: EMF Change 8/31/11 8/31/10

Net Asset Value (NAV) +$2.32 $21.97 $19.65

Market Price (NYSE) +$1.78 $20.57 $18.79

Distributions (9/1/10–8/31/11)

Dividend Income $0.1489

Your dividend income will vary depending on dividends or interest paid by securities in the Fund’sportfolio, adjusted for operating expenses. Capital gain distributions are net profits realized fromthe sale of portfolio securities. Total return reflects reinvestment of the Fund’s dividends and capitalgain distributions, if any, and any unrealized gains or losses. Total returns do not reflect any salescharges paid at inception or brokerage commissions paid on secondary market purchases. Theperformance table does not reflect any taxes that a shareholder would pay on Fund dividends,capital gain distributions, if any, or any realized gains on the sale of Fund shares.

Performance

1-Year 5-Year 10-Year

Cumulative Total Return1

Based on change in NAV2 +12.56% +74.89% +383.11%

Based on change in market price3 +10.17% +80.28% +388.48%

Average Annual Total Return1

Based on change in NAV2 +12.56% +11.83% +17.06%

Based on change in market price3 +10.17% +12.51% +17.19%

Performance data represent past performance, which does not guarantee future results. Investment return and principalvalue will fluctuate, and you may have a gain or loss when you sell your shares. Current performance may differ from figures shown.

Annual Report | 5

6 | Annual Report

Share Repurchase Program

The Fund’s Board previously authorized management to implement an open-market share repurchase program pursuant to which the Fund may purchaseFund shares, from time to time, in open-market transactions, at the discretionof management. This authorization remains in effect.

Important Notice to Shareholders

Templeton Emerging Markets FundFinancial Highlights

Annual Report | The accompanying notes are an integral part of these financial statements. | 7

Year Ended August 31,2011 2010 2009 2008 2007

Per share operating performance(for a share outstanding throughout the year)

Net asset value, beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . $19.65 $15.68 $19.11 $23.14 $20.56

Income from investment operations:

Net investment incomea . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.22 0.15 0.19 0.30 0.37

Net realized and unrealized gains (losses) . . . . . . . . . . . . . . . . . . . 2.25 3.96 (2.18) (2.16) 7.47

Total from investment operations . . . . . . . . . . . . . . . . . . . . . . . . . . 2.47 4.11 (1.99) (1.86) 7.84

Less distributions from:

Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.15) (0.14) (0.30) (0.34) (0.64)

Net realized gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — (1.14) (1.83) (4.62)

Total distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.15) (0.14) (1.44) (2.17) (5.26)

Net asset value, end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $21.97 $19.65 $15.68 $19.11 $23.14

Market value, end of yearb . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $20.57 $18.79 $15.02 $17.63 $20.56

Total return (based on market value per share) . . . . . . . . . . . . . . . . . 10.17% 26.00% (1.27)% (6.16)% 41.62%

Ratios to average net assets

Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.46% 1.55%c 1.55%c 1.55%c 1.55%c

Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.93% 0.78% 1.55% 1.28% 1.86%

Supplemental data

Net assets, end of year (000’s) . . . . . . . . . . . . . . . . . . . . . . . . . . . . $397,288 $355,286 $283,401 $345,403 $418,213

Portfolio turnover rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.62% 1.94% 13.03% 9.33% 33.15%

aBased on average daily shares outstanding.bBased on the last sale on the New York Stock Exchange.cBenefit of expense reduction rounds to less than 0.01%.

Industry Shares Value

Common Stocks 85.1%Austria 1.0%OMV AG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Oil, Gas & Consumable Fuels 97,112 $ 3,837,223

Brazil 3.0%Itau Unibanco Holding SA, ADR . . . . . . . . . . . . . . . . . Commercial Banks 666,033 12,095,159

China 20.6%Aluminum Corp. of China Ltd., H . . . . . . . . . . . . . . . . Metals & Mining 9,792,000 6,552,398Anhui Tianda Oil Pipe Co. Ltd., H . . . . . . . . . . . . . . . . Energy Equipment & Services 7,714,000 1,684,301

a Brilliance China Automotive Holdings Ltd. . . . . . . . . . . Automobiles 32,040,000 39,093,746China Petroleum and Chemical Corp., H . . . . . . . . . . . Oil, Gas & Consumable Fuels 7,136,000 7,038,940Chiwan Wharf Holdings Ltd., B . . . . . . . . . . . . . . . . . . Transportation Infrastructure 2,126,967 2,633,474Guangzhou Automobile Group Co. Ltd., H . . . . . . . . . . Automobiles 10,518,034 11,374,645PetroChina Co. Ltd., H . . . . . . . . . . . . . . . . . . . . . . . . Oil, Gas & Consumable Fuels 9,248,000 11,877,882Win Hanverky Holdings Ltd. . . . . . . . . . . . . . . . . . . . . Textiles, Apparel & Luxury Goods 13,416,000 1,395,723

81,651,109

Hong Kong 5.9%Dairy Farm International Holdings Ltd. . . . . . . . . . . . . Food & Staples Retailing 1,606,800 13,320,372Victory City International Holdings Ltd. . . . . . . . . . . . . Textiles, Apparel & Luxury Goods 29,379,107 3,546,971VTech Holdings Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . Communications Equipment 568,600 6,565,348

23,432,691

Hungary 1.1%a MOL Hungarian Oil and Gas Nyrt. . . . . . . . . . . . . . . . . Oil, Gas & Consumable Fuels 45,775 4,234,926

India 9.9%National Aluminium Co. Ltd. . . . . . . . . . . . . . . . . . . . . Metals & Mining 2,660,120 3,693,966Oil & Natural Gas Corp. Ltd. . . . . . . . . . . . . . . . . . . . . Oil, Gas & Consumable Fuels 1,083,180 6,223,555Peninsula Land Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . Real Estate Management & Development 1,391,390 1,398,985Sesa Goa Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Metals & Mining 2,716,280 13,883,868Tata Consultancy Services Ltd. . . . . . . . . . . . . . . . . . . IT Services 617,600 14,032,195

39,232,569

Indonesia 8.5%PT Astra International Tbk . . . . . . . . . . . . . . . . . . . . . Automobiles 2,195,000 17,607,311PT Bank Central Asia Tbk . . . . . . . . . . . . . . . . . . . . . . Commercial Banks 15,134,500 14,599,328PT Bank Danamon Indonesia Tbk . . . . . . . . . . . . . . . . Commercial Banks 2,632,500 1,655,034

33,861,673

Mexico 2.0%Wal-Mart de Mexico SAB de CV, V . . . . . . . . . . . . . . . . Food & Staples Retailing 3,022,000 8,103,189

Pakistan 1.8%a Faysal Bank Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commercial Banks 16,225,701 1,685,377MCB Bank Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commercial Banks 2,811,279 5,424,880

7,110,257

Templeton Emerging Markets FundStatement of Investments, August 31, 2011

8 | Annual Report

Industry Shares Value

Common Stocks (continued)Poland 0.1%Polnord SA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Construction & Engineering 114,592 $ 598,934

Russia 7.1%Gazprom, ADR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Oil, Gas & Consumable Fuels 540,444 6,566,395

b LUKOIL Holdings, ADR . . . . . . . . . . . . . . . . . . . . . . . Oil, Gas & Consumable Fuels 101,006 6,030,058b LUKOIL Holdings, ADR (London Stock Exchange) . . . . . Oil, Gas & Consumable Fuels 36,510 2,196,076Mining and Metallurgical Co. Norilsk Nickel . . . . . . . . . Metals & Mining 44,679 11,160,272OAO TMK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Energy Equipment & Services 660,934 2,083,353

28,036,154

South Africa 0.5%Impala Platinum Holdings Ltd. . . . . . . . . . . . . . . . . . . Metals & Mining 79,050 2,031,949

South Korea 5.8%Avista Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Textiles, Apparel & Luxury Goods 347,028 1,955,271Hyundai Development Co. . . . . . . . . . . . . . . . . . . . . . . Construction & Engineering 310,080 7,264,998Neopharm Co. Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . Personal Products 302,793 1,896,544SK Innovation Co. Ltd. . . . . . . . . . . . . . . . . . . . . . . . . Oil, Gas & Consumable Fuels 75,756 12,022,503

23,139,316

Thailand 10.0%Kasikornbank PCL, fgn. . . . . . . . . . . . . . . . . . . . . . . . Commercial Banks 2,251,200 9,550,773Kiatnakin Bank PCL, fgn. . . . . . . . . . . . . . . . . . . . . . . Commercial Banks 8,084,600 9,317,478Land and Houses PCL, fgn. . . . . . . . . . . . . . . . . . . . . Real Estate Management & Development 8,514,132 2,062,050PTT Exploration and Production PCL, fgn. . . . . . . . . . . Oil, Gas & Consumable Fuels 1,226,600 7,170,703PTT PCL, fgn. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Oil, Gas & Consumable Fuels 578,000 6,352,497Siam Cement PCL, fgn. . . . . . . . . . . . . . . . . . . . . . . . Construction Materials 415,120 5,241,869

39,695,370

Turkey 5.8%Akbank TAS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commercial Banks 3,936,307 14,830,382Tupras-Turkiye Petrol Rafinerileri AS . . . . . . . . . . . . . . Oil, Gas & Consumable Fuels 427,186 8,186,134

23,016,516

United Kingdom 2.0%Anglo American PLC . . . . . . . . . . . . . . . . . . . . . . . . . Metals & Mining 191,995 8,013,587

Total Common Stocks(Cost $194,453,140) . . . . . . . . . . . . . . . . . . . 338,090,622

Preferred Stocks 14.2%Brazil 14.2%Banco Bradesco SA, ADR, pfd. . . . . . . . . . . . . . . . . . . Commercial Banks 755,308 13,482,248Petroleo Brasileiro SA, ADR, pfd. . . . . . . . . . . . . . . . . Oil, Gas & Consumable Fuels 670,320 17,864,028Vale SA, ADR, pfd., A . . . . . . . . . . . . . . . . . . . . . . . . . Metals & Mining 966,300 24,959,529

Total Preferred Stocks (Cost $18,224,142) . . . 56,305,805

Templeton Emerging Markets FundStatement of Investments, August 31, 2011 (continued)

Annual Report | 9

Shares Value

Total Investments before Short Term Investments (Cost $212,677,282) . . . . . . . . $394,396,427

Short Term Investments (Cost $2,798,218) 0.7%

Money Market Funds 0.7%United States 0.7%

a,c Institutional Fiduciary Trust Money Market Portfolio . . . 2,798,218 2,798,218

Total Investments (Cost $215,475,500) 100.0% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 397,194,645

Other Assets, less Liabilities 0.0%† . . . . . . . . . 93,595

Net Assets 100.0% . . . . . . . . . . . . . . . . . . . . . . $397,288,240

See Abbreviations on page 20.

†Rounds to less than 0.1% of net assets.aNon-income producing.bAt August 31, 2011, pursuant to the Fund’s policies and the requirements of applicable securities law, the Fund may be restricted from trading these securities for a limited orextended period of time due to ownership limits and/or potential possession of material non-public information.cSee Note 7 regarding investments in the Institutional Fiduciary Trust Money Market Portfolio.

Templeton Emerging Markets FundStatement of Investments, August 31, 2011 (continued)

10 | The accompanying notes are an integral part of these financial statements. | Annual Report

Statement of Assets and LiabilitiesAugust 31, 2011

Assets:Investments in securities:

Cost - Unaffiliated issuers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $212,677,282Cost - Sweep Money Fund (Note 7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,798,218

Total cost of investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $215,475,500

Value - Unaffiliated issuers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $394,396,427Value - Sweep Money Fund (Note 7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,798,218

Total value of investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 397,194,645Foreign currency, at value (cost $9,527) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,527Receivables:

Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,316,724Foreign tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,607

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 398,533,503

Liabilities:Payables:

Investment securities purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,527Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 415,907

Deferred tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 702,659Accrued expenses and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117,170

Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,245,263

Net assets, at value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $397,288,240

Net assets consist of:Paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $212,488,706Undistributed net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,937,278Net unrealized appreciation (depreciation) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 181,017,499Accumulated net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (155,243)

Net assets, at value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $397,288,240

Shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,085,107

Net asset value per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $21.97

Templeton Emerging Markets FundFinancial Statements


Statement of Operationsfor the year ended August 31, 2011

Investment income:Dividends (net of foreign taxes of $1,090,623) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10,124,033

Expenses:Management fees (Note 3a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,071,688Administrative fees (Note 3b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 634,415Transfer agent fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62,921Custodian fees (Note 4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 239,159Reports to shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,608Registration and filing fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,006Professional fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59,675Trustees’ fees and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,773Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,250

Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,182,495

Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,941,538

Realized and unrealized gains (losses):Net realized gain (loss) from:

Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,992,275Foreign currency transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,787)

Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,989,488

Net change in unrealized appreciation (depreciation) on:Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,459,571Translation of other assets and liabilities denominated in foreign currencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,802

Change in deferred taxes on unrealized appreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (702,659)

Net change in unrealized appreciation (depreciation) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,763,714

Net realized and unrealized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,753,202

Net increase (decrease) in net assets resulting from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $44,694,740

Templeton Emerging Markets FundFinancial Statements (continued)

12 | The accompanying notes are an integral part of these financial statements. | Annual Report

Statements of Changes in Net Assets

Year Ended August 31,2011 2010

Increase (decrease) in net assets:Operations:

Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,941,538 $ 2,692,212Net realized gain (loss) from investments and foreign currency transactions . . . . . . . . . . . 4,989,488 1,426,996Net change in unrealized appreciation (depreciation) on investments, translation of other

assets and liabilities denominated in foreign currencies and deferred taxes . . . . . . . . . . 35,763,714 70,072,348

Net increase (decrease) in net assets resulting from operations . . . . . . . . . . . . . . . . 44,694,740 74,191,556

Distributions to shareholders from net investment income . . . . . . . . . . . . . . . . . . . . . . . . (2,692,868) (2,542,876)

Capital share transactions (Note 2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 236,892

Net increase (decrease) in net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42,001,872 71,885,572Net assets:

Beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 355,286,368 283,400,796

End of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $397,288,240 $355,286,368

Undistributed net investment income included in net assets:End of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,937,278 $ 2,691,396

Templeton Emerging Markets FundFinancial Statements (continued)


1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Templeton Emerging Markets Fund (Fund) is registered under the Investment Company Act of1940, as amended, (1940 Act) as a closed-end investment company.

The following summarizes the Fund’s significant accounting policies.

a. Financial Instrument Valuation

The Fund’s investments in securities and other financial instruments are carried at fair valuedaily. Fair value is the price that would be received to sell an asset or paid to transfer a liabilityin an orderly transaction between market participants on the measurement date. Under proceduresapproved by the Fund’s Board of Trustees, the Fund may utilize independent pricing services,quotations from securities and financial instrument dealers, and other market sources to deter-mine fair value.

Equity securities listed on an exchange or on the NASDAQ National Market System are valuedat the last quoted sale price or the official closing price of the day, respectively. Foreign equitysecurities are valued as of the close of trading on the foreign stock exchange on which the securityis primarily traded, or the NYSE, whichever is earlier. The value is then converted into its U.S.dollar equivalent at the foreign exchange rate in effect at the close of the NYSE on the day thatthe value of the security is determined. Over-the-counter securities are valued within the rangeof the most recent quoted bid and ask prices. Securities that trade in multiple markets or onmultiple exchanges are valued according to the broadest and most representative market. Certainequity securities are valued based upon fundamental characteristics or relationships to similarsecurities. Investments in open-end mutual funds are valued at the closing net asset value.

The Fund has procedures to determine the fair value of securities and other financial instrumentsfor which market prices are not readily available or which may not be reliably priced. Underthese procedures, the Fund primarily employs a market-based approach which may use relatedor comparable assets or liabilities, recent transactions, market multiples, book values, and otherrelevant information for the investment to determine the fair value of the investment. The Fundmay also use an income-based valuation approach in which the anticipated future cash flows ofthe investment are discounted to calculate fair value. Discounts may also be applied due to thenature or duration of any restrictions on the disposition of the investments. Due to the inherentuncertainty of valuations of such investments, the fair values may differ significantly from thevalues that would have been used had an active market existed.

Trading in securities on foreign securities stock exchanges and over-the-counter markets may becompleted before the daily close of business on the NYSE. Occasionally, events occur between thetime at which trading in a foreign security is completed and the close of the NYSE that mightcall into question the reliability of the value of a portfolio security held by the Fund. As a result,differences may arise between the value of the Fund’s portfolio securities as determined at the

Templeton Emerging Markets FundNotes to Financial Statements

14 | Annual Report

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

a. Financial Instrument Valuation (continued)

foreign market close and the latest indications of value at the close of the NYSE. In order tominimize the potential for these differences, the investment manager monitors price movementsfollowing the close of trading in foreign stock markets through a series of country specific marketproxies (such as baskets of American Depositary Receipts, futures contracts and exchange tradedfunds). These price movements are measured against established trigger thresholds for eachspecific market proxy to assist in determining if an event has occurred that may call into questionthe reliability of the values of the foreign securities held by the Fund. If such an event occurs, thesecurities may be valued using fair value procedures, which may include the use of independentpricing services. At August 31, 2011, a market event occurred resulting in a portion of the secu-rities held by the Fund being valued using fair value procedures.

b. Foreign Currency Translation

Portfolio securities and other assets and liabilities denominated in foreign currencies are translatedinto U.S. dollars based on the exchange rate of such currencies against U.S. dollars on the dateof valuation. The Fund may enter into foreign currency exchange contracts to facilitate transactionsdenominated in a foreign currency. Purchases and sales of securities, income and expense itemsdenominated in foreign currencies are translated into U.S. dollars at the exchange rate in effecton the transaction date. Portfolio securities and assets and liabilities denominated in foreigncurrencies contain risks that those currencies will decline in value relative to the U.S. dollar.Occasionally, events may impact the availability or reliability of foreign exchange rates used toconvert the U.S. dollar equivalent value. If such an event occurs, the foreign exchange rate will bevalued at fair value using procedures established and approved by the Fund’s Board of Trustees.

The Fund does not separately report the effect of changes in foreign exchange rates from changesin market prices on securities held. Such changes are included in net realized and unrealized gainor loss from investments on the Statement of Operations.

Realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains orlosses realized between the trade and settlement dates on securities transactions and the differencebetween the recorded amounts of dividends, interest, and foreign withholding taxes and the U.S.dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gainsand losses arise from changes in foreign exchange rates on foreign denominated assets and liabilities other than investments in securities held at the end of the reporting period.

c. Income and Deferred Taxes

It is the Fund’s policy to qualify as a regulated investment company under the Internal RevenueCode. The Fund intends to distribute to shareholders substantially all of its taxable income andnet realized gains to relieve it from federal income and excise taxes. As a result, no provision forU.S. federal income taxes is required. The Fund files U.S. income tax returns as well as tax returns

Templeton Emerging Markets FundNotes to Financial Statements (continued)

Annual Report | 15


c. Income and Deferred Taxes (continued)

in certain other jurisdictions. The Fund records a provision for taxes in its financial statementsincluding penalties and interest, if any, for a tax position taken on a tax return (or expected tobe taken) when it fails to meet the more likely than not (a greater than 50% probability) thresh-old and based on the technical merits, the tax position may not be sustained upon examinationby the tax authorities. As of August 31, 2011, and for all open tax years, the Fund has determinedthat no provision for income tax is required in the Fund’s financial statements. Open tax yearsare those that remain subject to examination and are based on each tax jurisdiction statute of limitation.

The Fund may be subject to foreign taxation related to income received, capital gains on thesale of securities and certain foreign currency transactions in the foreign jurisdictions in which it invests. Foreign taxes, if any, are recorded based on the tax regulations and rates that exist inthe foreign markets in which the Fund invests. When a capital gain tax is determined to applythe Fund records an estimated deferred tax liability for unrealized gains on these securities in anamount that would be payable if the securities were disposed of on the valuation date.

d. Security Transactions, Investment Income, Expenses and Distributions

Security transactions are accounted for on trade date. Realized gains and losses on security trans-actions are determined on a specific identification basis. Estimated expenses are accrued daily.Dividend income is recorded on the ex-dividend date except that certain dividends from foreignsecurities are recognized as soon as the Fund is notified of the ex-dividend date. Distributions toshareholders are recorded on the ex-dividend date and are determined according to income taxregulations (tax basis). Distributable earnings determined on a tax basis may differ from earningsrecorded in accordance with accounting principles generally accepted in the United States ofAmerica. These differences may be permanent or temporary. Permanent differences are reclassi-fied among capital accounts to reflect their tax character. These reclassifications have no impacton net assets or the results of operations. Temporary differences are not reclassified, as they mayreverse in subsequent periods.

e. Accounting Estimates

The preparation of financial statements in accordance with accounting principles generallyaccepted in the United States of America requires management to make estimates and assumptionsthat affect the reported amounts of assets and liabilities at the date of the financial statementsand the amounts of income and expenses during the reporting period. Actual results could differfrom those estimates.

f. Guarantees and Indemnifications

Under the Fund’s organizational documents, its officers and trustees are indemnified by the Fundagainst certain liabilities arising out of the performance of their duties to the Fund. Additionally,


16 | Annual Report


f. Guarantees and Indemnifications (continued)

in the normal course of business, the Fund enters into contracts with service providers thatcontain general indemnification clauses. The Fund’s maximum exposure under these arrangementsis unknown as this would involve future claims that may be made against the Fund that have notyet occurred. Currently, the Fund expects the risk of loss to be remote.

2. SHARES OF BENEFICIAL INTEREST

At August 31, 2011, there were an unlimited number of shares authorized (without par value).Transactions in the Fund’s shares were as follows:

Year Ended August 31,2011 2010

Shares Amount Shares AmountShares issued in reinvestment of distributions . . . — $— 12,074 $236,892

The Fund’s Board of Trustees previously authorized an open-market share repurchase programpursuant to which the Fund may purchase, from time to time, Fund shares in open-markettransactions, at the discretion of management. This authorization remains in effect. During theyears ended August 31, 2011 and August 31, 2010, there were no shares repurchased.

3. TRANSACTIONS WITH AFFILIATES

Franklin Resources, Inc. is the holding company for various subsidiaries that together are referredto as Franklin Templeton Investments. Certain officers and trustees of the Fund are also officersand/or directors of the following subsidiaries:

Subsidiary AffiliationTempleton Asset Management Ltd. (TAML) Investment managerFranklin Templeton Services, LLC (FT Services) Administrative manager

a. Management Fees

Effective May 1, 2011, the Fund pays an investment management fee to TAML based on theaverage daily net assets of the Fund as follows:

Annualized Fee Rate Net Assets

1.100% Up to and including $1 billion1.050% Over $1 billion, up to and including $5 billion1.000% Over $5 billion, up to and including $10 billion0.950% Over $10 billion, up to and including $15 billion0.900% Over $15 billion, up to and including $20 billion0.850% In excess of $20 billion


Annual Report | 17

3. TRANSACTIONS WITH AFFILIATES (continued)

a. Management Fees (continued)

Prior to May 1, 2011, the Fund paid fees to TAML based on the average daily net assets of theFund as follows:

Annualized Fee Rate Net Assets

1.250% Up to and including $500 million1.200% Over $500 million, up to and including $3 billion1.150% Over $3 billion, up to and including $4 billion1.100% Over $4 billion, up to and including $15 billion1.050% Over $15 billion, up to and including $20 billion1.000% In excess of $20 billion

b. Administrative Fees

The Fund pays an administrative fee to FT Services of 0.15% per year of the average daily netassets of the Fund.

4. EXPENSE OFFSET ARRANGEMENT

The Fund has entered into an arrangement with its custodian whereby credits realized as a resultof uninvested cash balances are used to reduce a portion of the Fund’s custodian expenses. Duringthe year ended August 31, 2011, there were no credits earned.

5. INCOME TAXES

During the year ended August 31, 2011, the Fund utilized $3,946,208 of capital loss carryforwards.

The tax character of distributions paid during the years ended August 31, 2011 and 2010, wasas follows:

2011 2010

Distributions paid from ordinary income . . . . . . $2,692,868 $2,542,876

At August 31, 2011, the cost of investments, net unrealized appreciation (depreciation), undistrib-uted ordinary income and undistributed long term capital gains for income tax purposes were asfollows:

Cost of investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $216,676,811

Unrealized appreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . $204,904,208Unrealized depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . (24,386,374)

Net unrealized appreciation (depreciation) . . . . . . . . . . . . . . . $180,517,834

Undistributed ordinary income . . . . . . . . . . . . . . . . . . . . . . . $ 3,937,278Undistributed long term capital gains . . . . . . . . . . . . . . . . . . 1,046,066

Distributable earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,983,344


18 | Annual Report

5. INCOME TAXES (continued)

Differences between income and/or capital gains as determined on a book basis and a tax basisare primarily due to differing treatment of wash sales.

6. INVESTMENT TRANSACTIONS

Purchases and sales of investments (excluding short term securities) for the year ended August 31,2011, aggregated $10,995,895 and $11,675,449, respectively.

7. INVESTMENTS IN INSTITUTIONAL FIDUCIARY TRUST MONEY MARKET PORTFOLIO

The Fund invests in the Institutional Fiduciary Trust Money Market Portfolio (Sweep MoneyFund), an open-end investment company managed by Franklin Advisers, Inc. (an affiliate of theinvestment manager). Management fees paid by the Fund are reduced on assets invested in theSweep Money Fund, in an amount not to exceed the management and administrative fees paidby the Sweep Money Fund.

8. CONCENTRATION OF RISK

Investing in foreign securities may include certain risks and considerations not typically associatedwith investing in U.S. securities, such as fluctuating currency values and changing local andregional economic, political and social conditions, which may result in greater market volatility.In addition, certain foreign securities may not be as liquid as U.S. securities.

9. FAIR VALUE MEASUREMENTS

The Fund follows a fair value hierarchy that distinguishes between market data obtained fromindependent sources (observable inputs) and the Fund’s own market assumptions (unobservableinputs). These inputs are used in determining the value of the Fund’s investments and are sum-marized in the following fair value hierarchy:

• Level 1 – quoted prices in active markets for identical securities

• Level 2 – other significant observable inputs (including quoted prices for similar securities,interest rates, prepayment speed, credit risk, etc.)

• Level 3 – significant unobservable inputs (including the Fund’s own assumptions in deter-mining the fair value of investments)


Annual Report | 19

9. FAIR VALUE MEASUREMENTS (continued)

The inputs or methodology used for valuing securities are not an indication of the risk associatedwith investing in those securities.

For movements between the levels within the fair value hierarchy, the Fund has adopted a policyof recognizing the transfers as of the date of the underlying event which caused the movement.

The following is a summary of the inputs used as of August 31, 2011, in valuing the Fund’s assetsand liabilities carried at fair value:

Level 1 Level 2 Level 3 TotalAssets:

Investments in Securities:

Equity Investments:a

Indonesia . . . . . . . . . . . . . . . . $ — $33,861,673 $— $ 33,861,673

Turkey . . . . . . . . . . . . . . . . . . . — 23,016,516 — 23,016,516

All Other Equity Investmentsb . . . 337,518,238 — — 337,518,238

Short Term Investments . . . . . . . . 2,798,218 — — 2,798,218

Total Investments in Securities . . . . . . . . . . . . . . . $340,316,456 $56,878,189 $— $397,194,645

aIncludes common and preferred stocks.bFor detailed categories, see the accompanying Statement of Investments.

10. NEW ACCOUNTING PRONOUNCEMENTS

In May 2011, the Financial Accounting Standards Board (FASB) issued Accounting StandardsUpdate (ASU) No. 2011-04, Fair Value Measurement (Topic 820): Amendments to AchieveCommon Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. Theamendments in the ASU will improve the comparability of fair value measurements presentedand disclosed in financial statements prepared in accordance with U.S. GAAP (Generally AcceptedAccounting Principles) and IFRS (International Financial Reporting Standards) and include newguidance for certain fair value measurement principles and disclosure requirements. The ASU iseffective for interim and annual periods beginning after December 15, 2011. The Fund is currentlyevaluating the impact, if any, of applying this provision.

11. SUBSEQUENT EVENTS

The Fund has evaluated subsequent events through the issuance of the financial statements anddetermined that no events have occurred that require disclosure.

ABBREVIATIONS

Selected Portfolio

ADR - American Depositary Receipt


20 | Annual Report

Annual Report | 21

Templeton Emerging Markets FundReport of Independent Registered Public Accounting Firm

To the Board of Trustees and Shareholders of Templeton Emerging Markets Fund

In our opinion, the accompanying statement of assets and liabilities, including the statement ofinvestments, and the related statements of operations and of changes in net assets and the financialhighlights present fairly, in all material respects, the financial position of Templeton EmergingMarkets Fund (the “Fund”) at August 31, 2011, the results of its operations for the year thenended, the changes in its net assets for each of the two years in the period then ended and thefinancial highlights for each of the five years in the period then ended, in conformity with account-ing principles generally accepted in the United States of America. These financial statements andfinancial highlights (hereafter referred to as “financial statements”) are the responsibility of theFund’s management. Our responsibility is to express an opinion on these financial statementsbased on our audits. We conducted our audits of these financial statements in accordance with thestandards of the Public Company Accounting Oversight Board (United States). Those standardsrequire that we plan and perform the audit to obtain reasonable assurance about whether thefinancial statements are free of material misstatement. An audit includes examining, on a testbasis, evidence supporting the amounts and disclosures in the financial statements, assessing theaccounting principles used and significant estimates made by management, and evaluating theoverall financial statement presentation. We believe that our audits, which included confirma-tion of securities at August 31, 2011 by correspondence with the custodian and brokers,provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

San Francisco, CaliforniaOctober 19, 2011

22 | Annual Report

Templeton Emerging Markets FundTax Designation (unaudited)

Under Section 854(b)(2) of the Internal Revenue Code (Code), the Fund designates the maximumamount allowable but no less than $6,498,332 as qualified dividends for purposes of the maxi-mum rate under Section 1(h)(11) of the Code for the fiscal year ended August 31, 2011.Distributions, including qualified dividend income, paid during calendar year 2011 will bereported to shareholders on Form 1099-DIV in January 2012. Shareholders are advised to checkwith their tax advisors for information on the treatment of these amounts on their individualincome tax returns.

At August 31, 2010, more than 50% of the Fund’s total assets were invested in securities offoreign issuers. In most instances, foreign taxes were withheld from income paid to the Fund onthese investments. As shown in the table below, the Fund designates to shareholders the foreignsource income and foreign taxes paid, pursuant to Section 853 of the Code. This designation willallow shareholders of record on December 16, 2010, to treat their proportionate share of foreigntaxes paid by the Fund as having been paid directly by them. The shareholder shall considerthese amounts as foreign taxes paid in the tax year in which they receive the Fund distribution.

The following table provides a detailed analysis of foreign tax paid, foreign source income, andforeign qualified dividends as designated by the Fund to shareholders of record.

Foreign Tax Paid Foreign Source Income Foreign QualifiedPer Share Per Share Dividends Per Share$0.0421 $0.1910 $0.1211

Foreign Tax Paid Per Share (Column 1) is the amount per share available to you, as a tax credit(assuming you held your shares in the Fund for a minimum of 16 days during the 31-day periodbeginning 15 days before the ex-dividend date of the Fund’s distribution to which the foreigntaxes relate), or, as a tax deduction.

Foreign Source Income Per Share (Column 2) is the amount per share of income dividendsattributable to foreign securities held by the Fund, plus any foreign taxes withheld on thesedividends. The amounts reported include foreign source qualified dividends that have not beenadjusted for the rate differential applicable to such dividend income.1

Foreign Qualified Dividends Per Share (Column 3) is the amount per share of foreign sourcequalified dividends, plus any foreign taxes withheld on these dividends. These amounts represent

1Qualified dividends are taxed at reduced long term capital gains tax rates. In determining the amount of foreign tax credit that may be appliedagainst the U.S. tax liability of individuals receiving foreign source qualified dividends, adjustments may be required to the foreign tax credit limita-tion calculation to reflect the rate differential applicable to such dividend income. The rules however permit certain individuals to elect not to applythe rate differential adjustments for capital gains and/or dividends for any taxable year. Please consult your tax advisor and the instructions to Form1116 for more information.

Annual Report | 23

Templeton Emerging Markets FundTax Designation (unaudited) (continued)

the portion of the Foreign Source Income reported to you in column 2 that were derived fromqualified foreign securities held by the Fund.1

In January 2011, shareholders received Form 1099-DIV which included their share of taxes paidand foreign source income distributed during the calendar year 2010. The Foreign Source Incomereported on Form 1099-DIV has not been adjusted for the rate differential on foreign sourcequalified dividend income. Shareholders are advised to check with their tax advisors for informa-tion on the treatment of these amounts on their 2010 individual income tax returns.

24 | Annual Report

The Annual Meeting of Shareholders of the Fund was held at the Fund’s offices, 500 EastBroward Boulevard, Fort Lauderdale, Florida, on February 25, 2011. The purpose of the meetingwas to elect four Trustees of the Fund and to ratify the selection of PricewaterhouseCoopers LLPas the independent registered public accounting firm for the Fund for the fiscal year endingAugust 31, 2011. At the meeting, the following persons were elected by the shareholders to serveas Trustees of the Fund: Harris J. Ashton, Frank J. Crothers, Edith E. Holiday and J. MichaelLuttig.* Shareholders also ratified the selection of PricewaterhouseCoopers LLP as the independentregistered public accounting firm for the Fund for the fiscal year ending August 31, 2011. Noother business was transacted at the meeting.

The results of the voting at the Annual Meeting are as follows:

1. The election of four Trustees:

% of % ofShares Shares

% of Present % of PresentOutstanding and Outstanding and

Term Expiring 2014 For Shares Voting Withheld Shares Voting

Harris J. Ashton . . . . . . . . . . . . 13,720,975 75.87% 96.79% 454,584 2.51% 3.21%Frank J. Crothers . . . . . . . . . . . 13,756,013 76.06% 97.04% 419,546 2.32% 2.96%Edith E. Holiday . . . . . . . . . . . . 13,278,904 73.42% 93.67% 896,655 4.96% 6.33%J. Michael Luttig . . . . . . . . . . . 13,760,491 76.09% 97.07% 415,068 2.30% 2.93%

2. The ratification of the selection of PricewaterhouseCoopers LLP as the independent regis-tered public accounting firm for the Fund for the fiscal year ending August 31, 2011:

% of Shares

% of PresentShares Outstanding andVoted Shares Voting

For . . . . . . . . . . . . . . . . . . . . . 13,987,542 77.34% 98.67%Against . . . . . . . . . . . . . . . . . . 78,513 0.43% 0.56%Abstain . . . . . . . . . . . . . . . . . . 109,504 0.61% 0.77%Total . . . . . . . . . . . . . . . . . . . . 14,175,559 78.38% 100.00%

*Ann Torre Bates, Charles B. Johnson, Gregory E. Johnson, David W. Niemiec, Frank A. Olson, Larry D. Thompson, Constantine D. Tseretopoulos andRobert E. Wade are Trustees of the Fund who are currently serving and whose terms of office continued after the Annual Meeting of Shareholders.

Templeton Emerging Markets FundAnnual Meeting of Shareholders, February 25, 2011 (unaudited)

Annual Report | 25

The Fund offers a Dividend Reinvestment and Cash Purchase Plan (the “Plan”) with the followingfeatures:

Shareholders must affirmatively elect to participate in the Plan. If you decide to use this service,share dividends and capital gains distributions will be reinvested automatically in shares of theFund for your account. BNY Mellon Shareowner Services, P.O. Box 358015, Pittsburgh, PA15252-8015, will provide additional Plan information upon request.

Whenever the Fund declares dividends in either cash or shares of the Fund, if the market price isequal to or exceeds net asset value at the valuation date, the participant will receive the divi-dends entirely in new shares at a price equal to the net asset value, but not less than 95% of thethen current market price of the Fund’s shares. If the market price is lower than net asset valueor if dividends and/or capital gains distributions are payable only in cash, the participant willreceive shares purchased on the New York Stock Exchange or otherwise on the open market.

A participant has the option of submitting additional cash payments to the Plan Administrator,in any amounts of at least $100, up to a maximum of $5,000 per month, for the purchase ofFund shares for his or her account. These payments can be made by check or money orderpayable to The Bank of New York Mellon (the “Plan Administrator”) and sent to BNY MellonShareowner Services, P.O. Box 382009, Pittsburgh, PA 15250-8009, Attention: TempletonEmerging Markets Fund. The Plan Administrator will apply such payments (less a $5.00 servicecharge and less a pro rata share of trading fees) to purchases of Fund shares on the open market.

The automatic reinvestment of dividends and/or capital gains does not relieve the participant ofany income tax that may be payable on dividends or distributions.

Whenever shares are purchased on the New York Stock Exchange or otherwise on the open mar-ket, each participant will pay a pro rata portion of trading fees. Trading fees will be deductedfrom amounts to be invested. The Plan Administrator’s fee for a sale of shares through the Planis $15.00 per transaction plus a $0.12 per share trading fee.

A participant may withdraw from the Plan without penalty at any time by written notice to thePlan Administrator sent to BNY Mellon Shareowner Services, P.O. Box 358015, Pittsburgh, PA15252-8015. Upon withdrawal, the participant will receive, without charge, share certificatesissued in the participant’s name for all full shares held by the Plan Administrator; or, if theparticipant wishes, the Plan Administrator will sell the participant’s shares and send the pro-ceeds to the participant, less a service charge of $15.00 and less trading fees of $0.12 per share.The Plan Administrator will convert any fractional shares held at the time of withdrawal to cashat the current market price and send a check to the participant for the net proceeds.

Templeton Emerging Markets FundDividend Reinvestment and Cash Purchase Plan

26 | Annual Report

Templeton Emerging Markets Fund

Transfer AgentBNY Mellon Shareowner ServicesP.O. Box 358015Pittsburgh, PA 15252-80151-800-416-5585www.bnymellon.com/shareowner/equityaccess

Direct Deposit Service for Registered ShareholdersCash distributions can now be electronically credited to a checking or saving account at anyfinancial institution that participates in the Automated Clearing House (“ACH”) system.The Direct Deposit service is provided for registered shareholders at no charge. To enroll inthe service, access your account online by going to www.bnymellon.com/shareowner/equityaccessor dial 1-800-416-5585 (toll free) and follow the instructions. Direct Deposit will begin with thenext scheduled distribution payment date following enrollment in the service.

Direct RegistrationIf you are a registered shareholder of the Fund, purchases of shares of the Fund can be electronicallycredited to your Fund account at BNY Mellon Shareowner Services through Direct Registration.This service provides shareholders with a convenient way to keep track of shares through bookentry transactions, electronically move book-entry shares between broker-dealers, transferagents and DRS eligible issuers, and eliminate the possibility of lost certificates. For additionalinformation, please contact BNY Mellon Shareowner Services at 1-800-416-5585.

Shareholder InformationShares of Templeton Emerging Markets Fund are traded on the New York Stock Exchange underthe symbol “EMF.” Information about the net asset value and the market price is published eachMonday in the Wall Street Journal, weekly in Barron’s and each Saturday in The New York Timesand other newspapers. Daily market prices for the Fund’s shares are published in the “New YorkStock Exchange Composite Transactions” section of newspapers.

For current information about dividends and shareholder accounts, call 1-800-416-5585.Registered shareholders can access their Fund account on-line with Investor ServiceDirect®.For information go to BNY Mellon Shareowner Services’ web site atwww.bnymellon.com/shareowner/equityaccess and follow the instructions.

The daily closing net asset value as of the previous business day may be obtained when availableby calling Franklin Templeton Fund Information after 7 a.m. Pacific time any business day at 1-800/DIAL BEN® (1-800/342-5236). The Fund’s net asset value and dividends are also listedon the NASDAQ Stock Market, Inc.’s Mutual Fund Quotation Service (“NASDAQ MFQS”).

Shareholders not receiving copies of reports to shareholders because their shares are registered in the name of a broker or a custodian can request that they be added to the Fund’s mailing list,by writing Templeton Emerging Markets Fund, 100 Fountain Parkway, P.O. Box 33030, St. Petersburg, FL 33733-8030.

Annual Report | 27

Templeton Emerging Markets FundBoard Members and Officers

Number of Portfolios inName, Year of Birth Length of Fund Complex Overseenand Address Position Time Served by Board Member* Other Directorships Held

The name, year of birth and address of the officers and board members, as well as their affiliations, positions held withthe Fund, principal occupations during the past five years and number of U.S. registered portfolios overseen in theFranklin Templeton Investments fund complex are shown below. Generally, each board member serves a three-year termthat continues until that person’s successor is elected and qualified.

Independent Board Members

Bar-S Foods (meat packing company)(1981-2010).

Trustee Since 1992 131

Principal Occupation During Past 5 Years:Director of various companies; and formerly, Director, RBC Holdings, Inc. (bank holding company) (until 2002); and President, Chief ExecutiveOfficer and Chairman of the Board, General Host Corporation (nursery and craft centers) (until 1998).

SLM Corporation (Sallie Mae), AresCapital Corporation (specialty financecompany) and Allied Capital Corporation(financial services) (2003-2010).


Principal Occupation During Past 5 Years:Independent strategic and financial consultant; and formerly, Executive Vice President and Chief Financial Officer, NHP Incorporated (managerof multifamily housing) (1995-1997); and Vice President and Treasurer, US Airways, Inc. (until 1995).

Frank J. Crothers (1944)300 S.E. 2nd Street Fort Lauderdale, FL 33301-1923


Principal Occupation During Past 5 Years:Director and Vice Chairman, Caribbean Utilities Company, Ltd.; director of various other private business and nonprofit organizations; andformerly, Chairman, Atlantic Equipment and Power Ltd. (1977-2003).

Harris J. Ashton (1932)300 S.E. 2nd Street Fort Lauderdale, FL 33301-1923

Ann Torre Bates (1958)300 S.E. 2nd Street Fort Lauderdale, FL 33301-1923

Fortis, Inc. (utility holding company) andAML Foods Limited (retail distributors).

Principal Occupation During Past 5 Years:Director or Trustee of various companies and trusts; and formerly, Assistant to the President of the United States and Secretary of the Cabinet(1990-1993); General Counsel to the United States Treasury Department (1989-1990); and Counselor to the Secretary and Assistant Secretaryfor Public Affairs and Public Liaison – United States Treasury Department (1988-1989).

Hess Corporation (exploration andrefining of oil and gas), H.J. HeinzCompany (processed foods and alliedproducts), RTI International Metals,Inc. (manufacture and distribution oftitanium), Canadian National Railway(railroad) and White MountainsInsurance Group, Ltd. (holding company).

Edith E. Holiday (1952)300 S.E. 2nd Street Fort Lauderdale, FL 33301-1923

LeadIndependentTrustee

Trustee since1996 and LeadIndependentTrusteesince 2007

131

28 | Annual Report


Principal Occupation During Past 5 Years:John A. Sibley Professor of Corporate and Business Law, University of Georgia School of Law (2011); and formerly, Senior Vice President –Government Affairs, General Counsel and Secretary, PepsiCo, Inc. (consumer products) (2004-May 2011); Senior Fellow of The BrookingsInstitution (2003-2004); Visiting Professor, University of Georgia School of Law (2004); and Deputy Attorney General, U.S. Department of Justice (2001-2003).

Principal Occupation During Past 5 Years:Chairman Emeritus, The Hertz Corporation (car rental) (since 2000) (Chairman of the Board (1980-2000) and Chief Executive Officer(1977-1999)); and formerly, Chairman of the Board, President and Chief Executive Officer, UAL Corporation (airlines).

Principal Occupation During Past 5 Years:Executive Vice President, General Counsel and member of Executive Council, The Boeing Company; and formerly, Federal Appeals CourtJudge, U.S. Court of Appeals for the Fourth Circuit (1991-2006).

Boeing Capital Corporation (aircraftfinancing).

J. Michael Luttig (1954)300 S.E. 2nd Street Fort Lauderdale, FL 33301-1923


Hess Corporation (exploration andrefining of oil and gas).

Frank A. Olson (1932)300 S.E. 2nd Street Fort Lauderdale, FL 33301-1923


Cbeyond, Inc. (business communica-tions provider), The Southern Company(energy company) and The WashingtonPost Company (education and mediaorganization).

Larry D. Thompson (1945)300 S.E. 2nd Street Fort Lauderdale, FL 33301-1923


Principal Occupation During Past 5 Years: Advisor, Saratoga Partners (private equity fund); and formerly, Managing Director, Saratoga Partners (1998-2001) and SBC Warburg DillonRead (investment banking) (1997-1998); Vice Chairman, Dillon, Read & Co. Inc. (investment banking) (1991-1997); and Chief FinancialOfficer, Dillon, Read & Co. Inc. (1982-1997).

Emeritus Corporation (assisted living)(1999-2010) and OSI Pharmaceuticals,Inc. (pharmaceutical products) (2006-2010).

David W. Niemiec (1949)300 S.E. 2nd Street Fort Lauderdale, FL 33301-1923


Principal Occupation During Past 5 Years:Attorney at law engaged in private practice (1973-2009) and member of various boards.

Principal Occupation During Past 5 Years:Physician, Chief of Staff, owner and operator of the Lyford Cay Hospital (1987-present); director of various nonprofit organizations; and formerly,Cardiology Fellow, University of Maryland (1985-1987); and Internal Medicine Resident, Greater Baltimore Medical Center (1982-1985).

NoneConstantine D. Tseretopoulos(1954)300 S.E. 2nd Street Fort Lauderdale, FL 33301-1923


El Oro Ltd (investments).Robert E. Wade (1946)300 S.E. 2nd Street Fort Lauderdale, FL 33301-1923


Annual Report | 29

Principal Occupation During Past 5 Years:Chairman of the Board, Member – Office of the Chairman and Director, Franklin Resources, Inc.; and officer and/or director or trustee, as thecase may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 41 of the investment companies in Franklin TempletonInvestments.

None**Charles B. Johnson (1933)One Franklin Parkway San Mateo, CA 94403-1906

Trustee,Chairman ofthe Board andVice President

Trustee andChairman of theBoard since 1995and Vice Presidentsince 1992

131

Principal Occupation During Past 5 Years:Director, President and Chief Executive Officer, Franklin Resources, Inc.; and officer and/or director or trustee, as the case may be, of someof the other subsidiaries of Franklin Resources, Inc. and of 33 of the investment companies in Franklin Templeton Investments.

None**Gregory E. Johnson (1961)One Franklin Parkway San Mateo, CA 94403-1906


Principal Occupation During Past 5 Years:Senior Associate General Counsel, Franklin Templeton Investments; officer of 45 of the investment companies in Franklin TempletonInvestments; and formerly, Litigation Associate, Steefel, Levitt & Weiss, LLP (2000-2004).

Principal Occupation During Past 5 Years:Senior Vice President, Franklin Templeton Services, LLC; officer of 45 of the investment companies in Franklin Templeton Investments; andformerly, Director and member of Audit and Valuation Committees, Runkel Funds, Inc. (2003-2004); Assistant Treasurer of most of theinvestment companies in Franklin Templeton Investments (1997-2003); and Vice President, Franklin Templeton Services, LLC (1997-2003).

Principal Occupation During Past 5 Years: Director, Global Compliance, Franklin Resources, Inc.; and officer of 45 of the investment companies in Franklin Templeton Investments.

Not ApplicableJames M. Davis (1952)One Franklin Parkway San Mateo, CA 94403-1906

ChiefComplianceOfficer andVice President– AMLCompliance

Chief ComplianceOfficer since 2004and Vice President– AML Compliancesince 2006

Not Applicable

Not ApplicableLaura F. Fergerson (1962)One Franklin ParkwaySan Mateo, CA 94403-1906

Chief ExecutiveOfficer –Finance andAdministration

Since 2009 Not Applicable

Not ApplicableAliya S. Gordon (1973)One Franklin ParkwaySan Mateo, CA 94403-1906

Vice President Since 2009 Not Applicable

Interested Board Members and Officers


Principal Occupation During Past 5 Years:Senior Associate General Counsel, Franklin Templeton Investments; and officer and/or director, as the case may be, of some of the othersubsidiaries of Franklin Resources, Inc. and of 45 of the investment companies in Franklin Templeton Investments.

Not ApplicableDavid P. Goss (1947)One Franklin Parkway San Mateo, CA 94403-1906


30 | Annual Report


Principal Occupation During Past 5 Years:Vice Chairman, Member – Office of the Chairman and Director, Franklin Resources, Inc.; Director, Franklin Advisers, Inc.; Senior Vice President,Franklin Advisory Services, LLC; and officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources,Inc. and of 25 of the investment companies in Franklin Templeton Investments.

Not ApplicableRupert H. Johnson, Jr. (1940)One Franklin Parkway San Mateo, CA 94403-1906


Principal Occupation During Past 5 Years:Director, Global Fund Accounting Operations, Franklin Templeton Investments; and officer of 14 of the investment companies in FranklinTempleton Investments.

Not ApplicableMark H. Otani (1968)One Franklin ParkwaySan Mateo, CA 94403-1906

Treasurer,Chief FinancialOfficer andChiefAccountingOfficer

Since 2009 Not Applicable

Not ApplicableSteven J. Gray (1955)One Franklin Parkway San Mateo, CA 94403-1906


Principal Occupation During Past 5 Years:Senior Associate General Counsel, Franklin Templeton Investments; Vice President, Franklin Templeton Distributors, Inc.; and officer of 45 ofthe investment companies in Franklin Templeton Investments.

Principal Occupation During Past 5 Years:Portfolio Manager of various Templeton advisory affiliates; Executive Chairman, Templeton Emerging Markets Group; and officer and/or director,as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of six of the investment companies in Franklin TempletonInvestments.

Not ApplicableMark Mobius (1936)17th Floor,The Chater House8 Connaught Road CentralHong Kong

President andChief ExecutiveOfficer –InvestmentManagement

President since1987 and ChiefExecutive Officer –InvestmentManagementsince 2002

Not Applicable

Principal Occupation During Past 5 Years:Senior Associate General Counsel, Franklin Templeton Investments; Assistant Secretary, Franklin Resources, Inc.; Vice President and Secretary,Templeton Investment Counsel, LLC; Vice President, Secretary and Trust Officer, Fiduciary Trust International of the South; and officer of 45 ofthe investment companies in Franklin Templeton Investments.

Not ApplicableRobert C. Rosselot (1960)300 S.E. 2nd StreetFort Lauderdale, FL 33301-1923

Secretary andVice President

Secretary since2004 and VicePresidentsince 2009

Not Applicable

Annual Report | 31

Not ApplicableLori A. Weber (1964)300 S.E. 2nd StreetFort Lauderdale, FL 33301-1923

Vice President Since May 2011 Not Applicable


Not ApplicableKaren L. Skidmore (1952)One Franklin Parkway San Mateo, CA 94403-1906


Principal Occupation During Past 5 Years:Senior Associate General Counsel, Franklin Templeton Investments; and officer of 45 of the investment companies in Franklin TempletonInvestments.

Not ApplicableCraig S. Tyle (1960)One Franklin Parkway San Mateo, CA 94403-1906


Principal Occupation During Past 5 Years:General Counsel and Executive Vice President, Franklin Resources, Inc.; officer of some of the other subsidiaries of Franklin Resources, Inc.and of 45 of the investment companies in Franklin Templeton Investments; and formerly, Partner, Shearman & Sterling, LLP (2004-2005); andGeneral Counsel, Investment Company Institute (ICI) (1997-2004).

*We base the number of portfolios on each separate series of the U.S. registered investment companies within the Franklin Templeton Investments fund complex. These portfolioshave a common investment manager or affiliated investment managers.

**Charles B. Johnson is considered to be an interested person of the Fund under the federal securities laws due to his position as officer and director and major shareholder ofFranklin Resources, Inc. (Resources), which is the parent company of the Fund’s investment manager. Gregory E. Johnson is considered to be an interested person of the Fund underthe federal securities laws due to his position as officer and director of Resources.

Note 1: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers and the father and uncle, respectively, of Gregory E. Johnson.

Note 2: Officer information is current as of the date of this report. It is possible that after this date, information about officers may change.

The Sarbanes-Oxley Act of 2002 and Rules adopted by the U.S. Securities and Exchange Commission require the Fund to disclose whether the Fund’s Audit Committee includesat least one member who is an audit committee financial expert within the meaning of such Act and Rules. The Fund’s Board has determined that there is at least one suchfinancial expert on the Audit Committee and has designated each of Ann Torre Bates and David W. Niemiec as an audit committee financial expert. The Board believes thatMs. Bates and Mr. Niemiec qualify as such an expert in view of their extensive business background and experience. Ms. Bates has served as a member of the Fund AuditCommittee since 2008. She currently serves as a director of SLM Corporation and Ares Capital Corporation and was formerly a director of Allied Capital Corporation from2003 to 2010, Executive Vice President and Chief Financial Officer of NHP Incorporated and Vice President and Treasurer of US Airways, Inc. Mr. Niemiec has served as amember of the Fund Audit Committee since 2005, currently serves as an Advisor to Saratoga Partners and was formerly its Managing Director from 1998 to 2001. Mr. Niemiecwas formerly a director of Emeritus Corporation from 1999 to 2010 and OSI Pharmaceuticals, Inc. from 2006 to 2010, Managing Director of SBC Warburg Dillon Read from1997 to 1998, and was Vice Chairman from 1991 to 1997 and Chief Financial Officer from 1982 to 1997 of Dillon, Read & Co. Inc. As a result of such background and experi-ence, the Board believes that Ms. Bates and Mr. Niemiec have each acquired an understanding of generally accepted accounting principles and financial statements, thegeneral application of such principles in connection with the accounting estimates, accruals and reserves, and analyzing and evaluating financial statements that present abreadth and level of complexity of accounting issues generally comparable to those of the Fund, as well as an understanding of internal controls and procedures for finan-cial reporting and an understanding of audit committee functions. Ms. Bates and Mr. Niemiec are independent Board members as that term is defined under the applicableU.S. Securities and Exchange Commission Rules and Releases or the listing standards applicable to the Fund.

Principal Occupation During Past 5 Years:Associate General Counsel, Franklin Templeton Investments; Assistant Secretary, Franklin Resources, Inc.; Vice President and AssistantSecretary, Templeton Investment Counsel, LLC; and officer of 45 of the investment companies in Franklin Templeton Investments.

32 | Annual Report

Templeton Emerging Markets FundShareholder Information

Board Review of Investment Management Agreement

At a meeting held May 17, 2011, the Board of Trustees (Board), including a majority of non-interestedor independent Trustees, approved renewal of the investment management agreement for the Fund.In reaching this decision, the Board took into account information furnished throughout the yearat regular Board meetings, as well as information prepared specifically in connection with theannual renewal review process. Information furnished and discussed throughout the year includedinvestment performance reports on the Fund, information on its share price discount to net assetvalue, and other related financial information, as well as periodic reports on expenses, legal,compliance, pricing, brokerage commissions and execution and other services provided by theInvestment Manager (Manager) and its affiliates. Information furnished specifically in connectionwith the renewal process included a report prepared by Lipper, Inc. (Lipper), an independentorganization, as well as additional material, including a Fund profitability analysis prepared bymanagement. The Lipper reports compared the Fund’s investment performance and expenses withthose of other funds deemed comparable to the Fund as selected by Lipper. The Fund profitabilityanalysis discussed the profitability to Franklin Templeton Investments from its overall U.S. fundoperations, as well as on an individual fund-by-fund basis. Additional material accompanying suchprofitability analysis included information on a fund-by-fund basis listing portfolio managers andother accounts they manage, as well as information on management fees charged by the Managerand its affiliates to U.S. funds and other accounts, including management’s explanation of differenceswhere relevant. Such material also included a memorandum prepared by management describingproject initiatives and capital investments relating to the services provided to the Fund by theFranklin Templeton Investments organization, as well as a memorandum relating to economiesof scale.

In considering such materials, the independent Trustees received assistance and advice from and metseparately with independent counsel. In approving continuance of the investment managementagreement for the Fund, the Board, including a majority of independent Trustees, determined thatthe existing management fee structure was fair and reasonable and that continuance of the invest-ment management agreement was in the best interests of the Fund and its shareholders. Whileattention was given to all information furnished, the following discusses some primary factorsrelevant to the Board’s decision.

NATURE, EXTENT AND QUALITY OF SERVICE. The Board was satisfied with the natureand quality of the overall services provided by the Manager and its affiliates to the Fund and itsshareholders. In addition to investment performance and expenses discussed later, the Board’sopinion was based, in part, upon periodic reports furnished it showing that the investment policiesand restrictions for the Fund were consistently complied with as well as other reports periodicallyfurnished the Board covering matters such as the compliance of portfolio managers and othermanagement personnel with the code of ethics adopted throughout the Franklin Templeton fundcomplex, the adherence to fair value pricing procedures established by the Board, and the accuracyof net asset value calculations. Favorable consideration was given to management’s continuousefforts and expenditures in establishing back-up systems and recovery procedures to function in the

Annual Report | 33

Templeton Emerging Markets FundShareholder Information (continued)

Board Review of Investment Management Agreement (continued)

event of a natural disaster, it being noted that such systems and procedures had functioned smoothlyduring the Florida hurricanes and blackouts experienced in previous years. Among other factorstaken into account by the Board were the Manager’s best execution trading policies, including afavorable report by an independent portfolio trading analytical firm. Consideration was also givento the experience of the Fund’s portfolio management team, the number of accounts managed andgeneral method of compensation. In this latter respect, the Board noted that a primary factor inmanagement’s determination of the level of a portfolio manager’s bonus compensation was therelative investment performance of the funds he or she managed and that a portion of such bonuswas required to be invested in a predesignated list of funds within such person’s fund managementarea so as to be aligned with the interests of shareholders. Particular attention was given to man-agement’s conservative approach and diligent risk management procedures, including continuousmonitoring of counterparty credit risk and attention given to derivatives and other complex instruments.The Board also took into account, among other things, the strong financial position of the Manager’sparent company and its commitment to the fund business as evidenced by its subsidization of moneymarket funds.

INVESTMENT PERFORMANCE. The Board placed significant emphasis on the investmentperformance of the Fund in view of its importance to shareholders. While consideration was givento performance reports and discussions with portfolio managers at Board meetings during the year,particular attention in assessing performance was given to the Lipper reports furnished for theagreement renewal. The Lipper report for the Fund showed its investment performance for theone-year period ended February 28, 2011, as well as the previous 10 years ended that date incomparison to a performance universe consisting of the Fund and all other closed-end, nonleveraged,emerging markets funds as selected by Lipper. Such report considers total return on a net asset valuebasis without regard to market discounts or premiums to accurately reflect investment performance.On a comparative basis, the Lipper report showed the Fund’s total return for the one-year periodto be in the second-highest quintile of the performance universe, and on an annualized basis to be inthe highest or best performing quintile of such universe for the previous three- and five-year periods,and the second-highest quintile of such universe for the previous 10-year period. The Board wassatisfied with such comparative performance.

COMPARATIVE EXPENSES. Consideration was given to a comparative analysis of the manage-ment fee and total expense ratio of the Fund compared with those of a group of other funds selectedby Lipper as its appropriate Lipper expense group. Lipper expense data is based upon informationtaken from each fund’s most recent annual report, which reflects historical asset levels that may bequite different from those currently existing, particularly in a period of market volatility. Whilerecognizing such inherent limitation and the fact that expense ratios generally increase as assetsdecline and decrease as assets grow, the Board believed the independent analysis conducted byLipper to be an appropriate measure of comparative expenses. In reviewing comparative costs,Lipper provides information on the Fund’s investment contractual management fee rate in comparisonwith the investment contractual management fee rate that would have been charged by the other

34 | Annual Report



funds within the Lipper expense group assuming they were similar in size to the Fund, as well asthe actual total expense ratio of the Fund in comparison with those of such other funds. The Lippercontractual investment management fee analysis considers administrative fees to be part of manage-ment fees. The Lipper expense group was composed of six funds, including the Fund, and the resultsof such expense comparison showed the Fund’s investment contractual management fee rate to bethe highest in such expense group, and its actual total expense ratio to be the second highest ofsuch group, but within one basis point of the group median. While acknowledging the Fund’s goodinvestment performance and cost factors relating to the Fund’s operation, such as the backgroundand experience of its portfolio managers and research staff and the Manager’s physical presenceand coverage in the geographical areas in which the Fund invests, the Board believed it appropriateto reduce the Fund’s investment management fee and negotiated with the Manager downwardreductions in such fee as discussed under “Economies of Scale.”

MANAGEMENT PROFITABILITY. The Board also considered the level of profits realized by theManager and its affiliates in connection with the operation of the Fund. In this respect, the Boardreviewed the Fund profitability analysis that addresses the overall profitability of Franklin Templeton’sU.S. fund business, as well as its profits in providing management and other services to each of theindividual funds during the 12-month period ended September 30, 2010, being the most recent fiscalyear-end for Franklin Resources, Inc., the Manager’s parent. In reviewing the analysis, attentionwas given to the methodology followed in allocating costs to the Fund, it being recognized thatallocation methodologies are inherently subjective and various allocation methodologies may eachbe reasonable while producing different results. In this respect, the Board noted that, while beingcontinuously refined and reflecting changes in the Manager’s own cost accounting, the allocationmethodology was consistent with that followed in profitability report presentations made in prioryears and that the Fund’s independent registered public accounting firm had been engaged by theManager to review the reasonableness of the allocation methodologies solely for use by the Fund’sBoard in reference to the profitability analysis. In reviewing and discussing such analysis, manage-ment discussed with the Board its belief that costs incurred in establishing the infrastructure necessaryfor the type of fund operations conducted by the Manager and its affiliates may not be fully reflectedin the expenses allocated to the Fund in determining its profitability, as well as the fact that the levelof profits, to a certain extent, reflected operational cost savings and efficiencies initiated by manage-ment. In addition, the Board considered a third-party study comparing the profitability of theManager’s parent on an overall basis to other publicly held managers broken down to showprofitability from management operations exclusive of distribution expenses, as well as profitabilityincluding distribution expenses. The Board also considered the extent to which the Manager andits affiliates might derive ancillary benefits from fund operations, as well as potential benefitsresulting from allocation of fund brokerage and the use of commission dollars to pay for research.Based upon its consideration of all these factors, the Board determined that the level of profits real-ized by the Manager and its affiliates from providing services to the Fund was not excessive inview of the nature, quality and extent of services provided.

Annual Report | 35



ECONOMIES OF SCALE. The Board also considered whether the manager realizes economies ofscale as the Fund grows larger and the extent to which any such benefit is shared with the Fund andits shareholders. The Board believed that a manager’s ability to realize economies of scale and thesharing of such benefit is a more relevant consideration in the case of an open-end fund whose sizeincreases as a result of the continuous sale of its shares. A closed-end investment company such asthe Fund does not continuously offer shares, and growth following its initial public offering willprimarily result from market appreciation, which benefits its shareholders. The Fund’s investmentmanagement advisory fee schedule provides a rate of 1.25% on the first $500 million of Fund netassets, and 1.20% on the next $2.5 billion of Fund net assets, with additional breakpoints thereafter.The Fund is also charged a separate fee of 0.15% at all asset levels for administrative services. At theend of 2010, the Fund’s net assets were approximately $433 million, and while believing economiesof scale to be less of a factor for closed-end funds, the Board negotiated with management down-ward revisions to the investment management advisory fee effective May 1, 2011, so as to be at therate of 1.10% on the first $1 billion of Fund net assets; 1.05% on the next $4 billion of Fund netassets; 1.00% on the next $5 billion of Fund net assets; 0.95% on the next $5 billion of Fund netassets; 0.90% on the next $5 billion of Fund net assets; and 0.85% on Fund net assets in excessof $20 billion.

Proxy Voting Policies and Procedures

The Fund’s investment manager has established Proxy Voting Policies and Procedures (Policies) thatthe Fund uses to determine how to vote proxies relating to portfolio securities. Shareholders mayview the Fund’s complete Policies online at franklintempleton.com. Alternatively, shareholders mayrequest copies of the Policies free of charge by calling the Proxy Group collect at (954) 527-7678or by sending a written request to: Franklin Templeton Companies, LLC, 300 S.E. 2nd Street,Fort Lauderdale, FL 33301, Attention: Proxy Group. Copies of the Fund’s proxy voting records arealso made available online at franklintempleton.com and posted on the U.S. Securities and ExchangeCommission’s website at sec.gov and reflect the most recent 12-month period ended June 30.

Quarterly Statement of Investments

The Fund files a complete statement of investments with the U.S. Securities and Exchange Commissionfor the first and third quarters for each fiscal year on Form N-Q. Shareholders may view the filedForm N-Q by visiting the Commission’s website at sec.gov. The filed form may also be viewed andcopied at the Commission’s Public Reference Room in Washington, DC. Information regarding theoperations of the Public Reference Room may be obtained by calling (800) SEC-0330.

36 | Annual Report


Certifications

The Fund’s Chief Executive Officer – Finance and Administration is required by the New York StockExchange’s Listing Standards to file annually with the Exchange a certification that she is not awareof any violation by the Fund of the Exchange’s Corporate Governance Standards applicable to theFund. The Fund has filed such certification.

In addition, the Fund’s Chief Executive Officer – Finance and Administration and Chief FinancialOfficer and Chief Accounting Officer are required by the rules of the U.S. Securities and ExchangeCommission to provide certain certifications with respect to the Fund’s Form N-CSR and FormN-CSRS (which include the Fund’s annual and semiannual reports to shareholders) that are filedsemiannually with the Commission. The Fund has filed such certifications with its Form N-CSRSfor the six months ended February 28, 2011. Additionally, the Fund expects to file, on or aboutOctober 31, 2011, such certifications with its Form N-CSR for the year ended August 31, 2011.

Franklin Templeton FundsLiterature Request. To receive a summary prospectus and/or prospectus, please call us at (800) DIAL BEN/342-5236 or

visit franklintempleton.com. Investors should carefully consider a fund’s investment goals, risks, charges and expenses

before investing. The prospectus contains this and other information. Please carefully read a prospectus before investing.

To ensure the highest quality of service, we may monitor, record and access telephone calls to or from our service

departments. These calls can be identified by the presence of a regular beeping tone.

VALUEFranklin All Cap Value FundFranklin Balance Sheet Investment FundFranklin Large Cap Value FundFranklin MicroCap Value Fund1

Franklin MidCap Value FundFranklin Small Cap Value FundMutual Beacon FundMutual Quest FundMutual Recovery Fund2

Mutual Shares Fund

BLENDFranklin Focused Core Equity FundFranklin Large Cap Equity FundFranklin Rising Dividends Fund

GROWTHFranklin DynaTech FundFranklin Flex Cap Growth FundFranklin Growth FundFranklin Growth Opportunities FundFranklin Small Cap Growth FundFranklin Small-Mid Cap Growth Fund

SECTORFranklin Biotechnology Discovery FundFranklin Global Real Estate FundFranklin Gold & Precious Metals FundFranklin Natural Resources FundFranklin Real Estate Securities FundFranklin Utilities FundMutual Financial Services Fund

GLOBALFranklin World Perspectives FundMutual Global Discovery FundTempleton Global Opportunities TrustTempleton Global Smaller Companies FundTempleton Growth FundTempleton World Fund

1. The fund is closed to new investors. Existing shareholders and select retirement plans cancontinue adding to their accounts.2. The fund is a continuously offered, closed-end fund. Shares may be purchased daily; thereis no daily redemption. However, each quarter, pending board approval, the fund will authorizethe repurchase of 5%–25% of the outstanding number of shares. Investors may tender all ora portion of their shares during the tender period.3. Effective 7/1/11, Templeton Income Fund changed its name to Templeton Global BalancedFund. Additionally, the fund changed its goal and pricing structure. Under normalcircumstances, the fund will invest: at least 25% of its assets in fixed income senior securities

and at least 25% of its assets in equity securities; at least 40% of its assets in non-U.S.investments; and in issuers located in at least three different countries (including the U.S.).4. An investment in the fund is neither insured nor guaranteed by the U.S. government or byany other entity or institution.5. For investors subject to the alternative minimum tax, a small portion of fund dividends maybe taxable. Distributions of capital gains are generally taxable.6. The fund invests primarily in insured municipal securities.7. The funds of the Franklin Templeton Variable Insurance Products Trust are generally availableonly through insurance company variable contracts.

AlabamaArizonaCalifornia (4 funds)ColoradoConnecticutFloridaGeorgiaKentuckyLouisianaMarylandMassachusettsMichigan

MinnesotaMissouriNew JerseyNew York (2 funds)North CarolinaOhioOregonPennsylvaniaTennesseeVirginia

INSURANCE FUNDSFranklin Templeton Variable Insurance Products Trust7

10/11 Not part of the annual report

INTERNATIONALFranklin India Growth FundFranklin International Growth FundFranklin International Small Cap Growth FundMutual European FundMutual International FundTempleton Asian Growth FundTempleton BRIC FundTempleton China World FundTempleton Developing Markets TrustTempleton Emerging Markets Small Cap FundTempleton Foreign FundTempleton Foreign Smaller Companies FundTempleton Frontier Markets Fund

HYBRIDFranklin Balanced FundFranklin Convertible Securities FundFranklin Equity Income FundFranklin Income FundTempleton Emerging Markets Balanced FundTempleton Global Balanced Fund3

ASSET ALLOCATIONFranklin Templeton Corefolio® Allocation FundFranklin Templeton Founding Funds Allocation FundFranklin Templeton Conservative Allocation FundFranklin Templeton Growth Allocation FundFranklin Templeton Moderate Allocation FundFranklin Templeton 2015 Retirement Target FundFranklin Templeton 2025 Retirement Target FundFranklin Templeton 2035 Retirement Target FundFranklin Templeton 2045 Retirement Target FundFranklin Templeton Global Allocation Fund

FIXED INCOMEFranklin Adjustable U.S. Government Securities Fund4

Franklin Floating Rate Daily Access FundFranklin High Income Fund

Franklin Limited Maturity U.S. GovernmentSecurities Fund4

Franklin Low Duration Total Return FundFranklin Real Return FundFranklin Strategic Income FundFranklin Strategic Mortgage PortfolioFranklin Templeton Hard Currency FundFranklin Total Return FundFranklin U.S. Government Securities Fund4

Templeton Global Bond FundTempleton Global Total Return FundTempleton International Bond Fund

TAX-FREE INCOME5

NationalDouble Tax-Free Income FundFederal Tax-Free Income FundHigh Yield Tax-Free Income FundInsured Tax-Free Income Fund6

Limited-/ Intermediate-TermCalifornia Intermediate-Term Tax-Free Income FundFederal Intermediate-Term Tax-Free Income FundFederal Limited-Term Tax-Free Income FundNew York Intermediate-Term Tax-Free Income Fund

State-Specific

© 2011 Franklin Templeton Investments. All rights reserved. TLEMF A 10/11

Annual Report

Templeton Emerging Markets Fund

Investment ManagerTempleton Asset Management Ltd.

Transfer AgentBNY Mellon Shareowner ServicesP.O. Box 358015Pittsburgh, PA 15252-8015Toll free number: (800) 416-5585Hearing Impaired phone number: (800) 231-5469Foreign Shareholders phone number: (201) 680-6578www.bnymellon.com/shareowner/equityaccess

Fund Information(800) 342-5236

VALUE BLEND GROWTH SECTOR GLOBAL I NTERNAT IONAL HYBRID ASSET ALLOCAT ION F IXED INCOME TAX-FREE INCOME

Investors should be aware that the value of investments made for the Fund may go down as well as up. Like anyinvestment in securities, the value of the Fund’s portfolio will be subject to the risk of loss from market, currency,economic, political and other factors. The Fund and its investors are not protected from such losses by theinvestment manager. Therefore, investors who cannot accept this risk should not invest in shares of the Fund.

To ensure the highest quality of service, telephone calls to or from our service departments may be monitored, recorded andaccessed. These calls can be identified by the presence of a regular beeping tone.

< GAIN FROM OUR PERSPECTIVE® >

templeton emerging markets fund annual report · 2017. 6. 24. · annual report templeton emerging...

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