N-CSRS 1 temfsemiannualrpt204.txt EMFSEMIANNUAL REPORT DTD 2/29/04 FILING UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSRS CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-4985 ---------- TEMPLETON EMERGING MARKETS FUND -------------------------------------- (Exact name of registrant as specified in charter) 500 EAST BROWARD BLVD., FORT LAUDERDALE, FL 33394-3091 -------------------------------------------------------- (Address of principal executive offices) (Zip code) MURRAY L. SIMPSON, ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906 ----------------------------------------------------------------- (Name and address of agent for service) Registrant's telephone number, including area code: (954) 527-7500 -------------- Date of fiscal year end: 8/31 ---- Date of reporting period: 2/29/04 ------- ITEM 1. REPORTS TO STOCKHOLDERS FEBRUARY 29, 2004 [photo omitted] SEMIANNUAL REPORT AND SHAREHOLDER INFORMATION INTERNATIONAL TEMPLETON EMERGING MARKETS FUND [graphic omitted] [franklin templeton logo omitted] FRANKLIN[R] TEMPLETON[R] INVESTMENTS Franklin o TEMPLETON o Mutual Series PAGE Franklin Templeton Investments GAIN FROM OUR PERSPECTIVE SPECIALIZED EXPERTISE TRUE DIVERSIFICATION RELIABILITY YOU CAN TRUST Franklin Templeton's distinct multi-manager structure combines the specialized 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 leader in tax-free investing and a driving force in fixed income investing around the globe. They also bring 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, with research offices in over 25 countries, they offer investors the broadest global reach in the industry. MUTUAL SERIES. Established in 1949, Mutual Series is dedicated to a unique style of value investing, searching aggressively for opportunity among undervalued stocks, arbitrage situations and distressed companies. Because our management groups work independently and adhere to distinctly different investment approaches, Franklin, Templeton and Mutual Series funds typically have a low overlap of securities. That's why our funds can be used to build truly diversified portfolios 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 account services that have helped us become one of the most trusted names in financial services. MUTUAL FUNDS | RETIREMENT PLANS | 529 COLLEGE SAVINGS PLANS | SEPARATE ACCOUNTS [photo omitted] Not part of the semiannual report PAGE Contents Important Notice to Shareholders .......................................... 1 SEMIANNUAL REPORT Templeton Emerging Markets Fund ........................................... 2 Performance Summary ....................................................... 6 Financial Highlights and Statement of Investments .................................................. 7 Financial Statements ...................................................... 14 Notes to Financial Statements ............................................. 17 Annual Meeting of Shareholders ............................................ 22 Dividend Reinvestment and Cash Purchase Plan ............................................................. 23 Proxy Voting Policies and Procedures ...................................... 25 -------------------------------------------------------------------------------- Semiannual Report Templeton Emerging Markets Fund YOUR FUND'S GOAL AND PRIMARY 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. -------------------------------------------------------------------------------- GEOGRAPHIC DISTRIBUTION Based on Total Net Assets as of 2/29/04 [PIE CHART OMITTED] Asia ....................................................... 55.7% Europe ..................................................... 16.6% Middle East & Africa ....................................... 12.7% Latin America .............................................. 12.1% Short-Term Investments & Other Net Assets ........................................... 2.9% -------------------------------------------------------------------------------- Dear Shareholder: We are pleased to bring you Templeton Emerging Markets Fund's semiannual report for the period ended February 29, 2004. PERFORMANCE OVERVIEW For the six months ended February 29, 2004, Templeton Emerging Markets Fund delivered a +24.86% cumulative total return based on market price and +30.88% based on net asset value, as shown in the Performance Summary on page 6. The Morgan Stanley Capital International (MSCI) Emerging Markets Index and Standard & Poor's/International Finance Corporation (S&P/IFC) Investable Composite Index posted 28.55% and 28.76% cumulative total returns for the THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE SOI BEGINS ON PAGE 8. 2 | Semiannual Report PAGE same period. 1 We are pleased with our long-term results, as well, which you will find in the Performance Summary. For example, for the 10-year period ended February 29, 2004, the Fund delivered a +52.64% cumulative total return based on market price and a +64.76% cumulative total return based on net asset value, compared to the MSCI Emerging Market Index's 10.31% cumulative return for the same period. 1 ECONOMIC AND MARKET OVERVIEW Most emerging markets recorded good stock market performances over the six-month reporting period as investors regained confidence. Of the four primary emerging markets regions, Latin America performed best as political and financial issues that engulfed the region during 2003 subsided. Brazil and Argentina experienced renewed investor interest as their governments strived to implement key structural reforms and sealed agreements with the International Monetary Fund. Asian markets benefited from strong macroeconomic data and diminished investor concerns over the avian flu outbreak. South Africa's economy expanded at a 1.9% rate in 2003. 2 The U.S. dollar's decline contributed to the South African rand's strength, which helped contain inflation. Eastern European markets continued an upward trend as European Union candidates within the region worked toward the fulfillment of accession goals. To the south, investor confidence in Turkey seemed to remain unshaken despite November's terrorist attacks. In fact, Turkey was the top-performing emerging market during the six months under review. INVESTMENT STRATEGY Our investment strategy employs a bottom-up, value-oriented, long-term approach. We focus on the market price of a company's securities relative to our evaluation of the company's long-term earnings, asset value and cash flow potential. As we look for investments, we focus on specific companies and undertake in-depth research to construct an action list from which we make our buy decisions. Before we make a purchase, we examine the company's potential for earnings and growth over a five-year horizon. During our analysis, we also consider the company's position in its sector, the economic framework and political environment. TOP 10 COUNTRIES Based on Equity Investments as of 2/29/04 ---------------------- % OF TOTAL NET ASSETS ---------------------- South Korea 13.1% South Africa 12.5% Taiwan 11.1% Hong Kong 9.3% China 7.5% Singapore 6.3% Brazil 6.1% Mexico 5.2% Hungary 3.2% India 2.5% 1. Source: Standard & Poor's Micropal. The MSCI Emerging Markets Index is a free float-adjusted, market capitalization-weighted index designed to measure equity market performance in global emerging markets. The S&P/IFCI Composite Index is a market capitalization-weighted index designed to measure performance of emerging market stocks. It tracks approximately 2,000 securities in countries such as Brazil, Mexico, China and South Korea. Performance represents total return in $US. The indexes are unmanaged and include reinvested dividends. One cannot invest directly in an index, nor is an index representative of the Fund's portfolio. 2. Source: Statistics South Africa, 2/24/04. Semiannual Report | 3 PAGE TOP 10 HOLDINGS 2/29/04 ----------------------------------------------------------- COMPANY % OF TOTAL SECTOR/INDUSTRY, COUNTRY NET ASSETS ----------------------------------------------------------- Anglo American PLC 4.5% METALS & MINING, SOUTH AFRICA SABMiller PLC 2.8% BEVERAGES, SOUTH AFRICA China Mobile (Hong Kong) Ltd., fgn. 2.6% WIRELESS TELECOMMUNICATION SERVICES, HONG KONG Lukoil Holdings, ADR 2.3% OIL & GAS, RUSSIA Citic Pacific Ltd. 2.2% INDUSTRIAL CONGLOMERATES, HONG KONG Hyundai Motor Co. Ltd. 2.2% AUTOMOBILES, SOUTH KOREA Telefonos de Mexico SA de CV (Telmex), L, ADR 1.8% DIVERSIFIED TELECOMMUNICATION SERVICES, MEXICO Kimberly Clark de Mexico SA de CV, A 1.8% HOUSEHOLD PRODUCTS, MEXICO Fraser & Neave Ltd. 1.7% BEVERAGES, SINGAPORE Keppel Corp. Ltd. 1.6% INDUSTRIAL CONGLOMERATES, SINGAPORE MANAGER'S DISCUSSION The Fund's underweighted positions relative to the MSCI Emerging Markets Index in South Korean and Malaysian companies, as well as its overweighted positions in Turkish and Austrian companies, contributed to the Fund's performance. However, the Fund's underweighting in Mexican companies was detrimental to its overall results. In line with our investment strategy, we did not invest in what we considered were expensively valued stocks such as LG Electronics (South Korea) and Taiwan Semiconductor Manufacturing (Taiwan), decisions that contributed positively to performance. By industry, the Fund's holdings in the diversified telecommunication services, and oil and gas industries yielded the greatest contribution relative to the MSCI Emerging Markets Index during the period. Strong contributors in the diversified telecommunication services industry included PT Indosat (Indonesia) and Singapore Telecommunications (Singapore). In the oil and gas industry, the Fund's overweighted positions in SK Corp. (South Korea) and PTT Exploration & Production Public (Thailand) contributed the greatest returns relative to the index. Alternatively, the Fund's underweighted position in the metals and mining industry worked against it as many such companies performed well during the reporting period. During the period, we made investments mainly in Asia and Europe as we continued to find stocks that, in our view, were trading at attractive valuations, consistent with our strategy. In Asia, we made purchases in Hong Kong, Taiwan, and among China's H and Red Chip shares. Key additions included China Mobile (Hong Kong) and China Telecom, China's dominant wireless and diversified telecommunication services providers, respectively; Acer (Taiwan), a major player in the global personal computer market; and HSBC Holdings (U.K.), one of the world's largest emerging markets banking and financial services organizations. Conversely, we undertook selective sales in Indonesia and Singapore as some stocks became expensive, in our view, according to our value investing criteria. In Latin America, we repositioned our holdings in Brazil and Mexico to some degree. We increased our position in Telefonos de Mexico, the country's largest diversified telecommunication services provider, and purchased Brazil's Cia De Bebidas Das American (Ambev), one of the world's largest beer and soft drink producers. Meanwhile, we reduced the Fund's exposure to Petroleo Brasileiro and Cia Vale do Rio Doce (Brazil) and divested our interests in Cemex (Mexico), allowing the Fund to realize gains and enhancing its total return during the period. Our European additions were mainly in Greece, the Czech Republic and Poland, while we sold holdings in Austria and Denmark. Key buys included telecommunications operators such as Telecomunikacja Polska (Poland), Hellenic 4 | Semiannual Report PAGE Telecommunications Organization (Greece) and Cesky Telecom (Czech Republic). As a result of these purchases and investments in Asian telecommunication companies, the Fund's exposure to the diversified telecommunication services sector increased during the period. To the south, we sold some of our Turkish positions, locking in gains. In South Africa, we eliminated our exposure to Barloworld as it reached our sale target. We thank you for your interest in Templeton Emerging Markets Fund and look forward to serving your future investment needs. Sincerely, [photo of mark mobius omitted] /s/Mark Mobius Mark Mobius President and Chief Executive Officer -- Investment Management Templeton Emerging Markets Fund THIS DISCUSSION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS AS OF FEBRUARY 29, 2004, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT OUR MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE DEPENDING ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE OPINIONS MAY NOT BE RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A PARTICULAR SECURITY. THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET, COUNTRY, INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED RELIABLE, BUT THE INVESTMENT MANAGER MAKES NO REPRESENTATION OR WARRANTY AS TO THEIR COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR INVESTMENT MANAGEMENT PHILOSOPHY. Semiannual Report | 5 PAGE Performance Summary as of 2/29/04 Your dividend income will vary depending on dividends or interest paid by securities in the Fund's portfolio, adjusted for operating expenses. Capital gain distributions are net profits realized from the sale of portfolio securities. Total return reflects the Fund's dividend income, capital gain distributions, if any, and any unrealized gains or losses. All total returns include reinvested distributions according to the terms specified in the Fund's dividend reinvestment and cash purchase plan and do not reflect any sales charges paid at inception or brokerage commissions paid on secondary market purchases. The performance table does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the sale of Fund shares. PRICE AND DISTRIBUTION INFORMATION -------------------------------------------------------------------------------- CHANGE 2/29/04 8/31/03 -------------------------------------------------------------------------------- Net Asset Value (NAV) +$3.07 $13.89 $10.82 Market Price (NYSE) +$2.66 $14.50 $11.84 DISTRIBUTIONS (9/1/03-2/29/04) Dividend Income $0.2319 PERFORMANCE -------------------------------------------------------------------------------- 6-MONTH 1-YEAR 5-YEAR 10-YEAR -------------------------------------------------------------------------------- Cumulative Total Return 1 Based on change in NAV +30.88% +66.22% +73.58% +64.76% Based on change in market price +24.86% +85.26% +57.55% +52.64% Average Annual Total Return 1 Based on change in NAV +30.88% +66.22% +11.66% +5.12% Based on change in market price +24.86% +85.26% +9.51% +4.32% ENDNOTES PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. ONGOING MARKET VOLATILITY CAN SIGNIFICANTLY AFFECT SHORT-TERM PERFORMANCE; MORE RECENT RETURNS MAY DIFFER FROM THOSE SHOWN. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE WITH MARKET CONDITIONS. SPECIAL RISKS ARE ASSOCIATED WITH FOREIGN INVESTING, INCLUDING CURRENCY VOLATILITY, ECONOMIC INSTABILITY AND SOCIAL AND POLITICAL DEVELOPMENTS OF COUNTRIES WHERE THE FUND INVESTS. EMERGING MARKETS INVOLVE HEIGHTENED RISKS RELATED TO THE SAME FACTORS, IN ADDITION TO THOSE ASSOCIATED WITH THEIR RELATIVELY SMALL SIZE AND LESSER LIQUIDITY. YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. 1. Total return calculations represent the cumulative and average annual changes in value of an investment over the periods indicated. Six-month return has not been annualized. FOR MOST RECENT MONTH-END PERFORMANCE FIGURES, CALL FRANKLIN TEMPLETON INVESTMENTS AT 1-800/342-5236. 6 | Past performance does not guarantee future results. | Semiannual Report PAGE Templeton Emerging Markets Fund FINANCIAL HIGHLIGHTS
-------------------------------------------------------------------------- SIX MONTHS ENDED FEBRUARY 29, 2004 YEAR ENDED AUGUST 31, (UNAUDITED) 2003 2002 2001 2000 1999 -------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the period) Net asset value, beginning of period ........... $10.82 $8.76 $8.86 $11.44 $11.60 $10.85 -------------------------------------------------------------------------- Income from investment operations: Net investment income a ....................... .03 .18 .15 .12 .13 .13 Net realized and unrealized gains (losses) .... 3.27 2.03 (.14) (2.60) (.16) 5.17 -------------------------------------------------------------------------- Total from investment operations ............... 3.30 2.21 .01 (2.48) (.03) 5.30 -------------------------------------------------------------------------- Less distributions from: Net investment income ......................... (.23) (.15) (.11) (.10) (.10) (.29) Net realized gains ............................ -- -- -- -- (.03) (4.26) -------------------------------------------------------------------------- Total distributions ............................ (.23) (.15) (.11) (.10) (.13) (4.55) -------------------------------------------------------------------------- Net asset value, end of period ................. $13.89 $10.82 $8.76 $8.86 $11.44 $11.60 -------------------------------------------------------------------------- Market value, end of period b .................. $14.50 $11.84 $8.00 $8.35 $9.313 $12.25 ========================================================================== Total return (based on market value per share) c 24.86% 50.83% (2.82)% (9.17)% (23.10)% 99.91% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000's) .............. $245,601 $191,076 $154,640 $156,378 $201,965 $204,804 Ratios to average net assets: Expenses ...................................... 1.65% d 1.84% 1.64% 1.67% 1.68% 1.63% Net investment income ......................... 0.50% d 1.94% 1.67% 1.28% 1.09% 1.18% Portfolio turnover rate ........................ 25.33% 48.69% 65.13% 63.64% 81.66% 45.00%
aBased on average daily shares outstanding. bBased on the last sale on the New York Stock Exchange. cTotal return is not annualized for periods less than one year. dAnnualized. Semiannual Report | See notes to financial statements. | 7 PAGE Templeton Emerging Markets Fund STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (UNAUDITED)
------------------------------------------------------------------------------------------------------------------------------------ INDUSTRY SHARES VALUE ------------------------------------------------------------------------------------------------------------------------------------ COMMON STOCKS 93.2% ARGENTINA .8% Tenaris SA ................................... Energy Equipment & Services 3 $ 10 Tenaris SA, ADR .............................. Energy Equipment & Services 56,970 1,974,011 --------------- 1,974,021 --------------- AUSTRIA 2.3% a Bank Austria Creditanstalt, Reg S ............ Commercial Banks 44,500 2,377,521 OMV AG ....................................... Oil & Gas 20,708 3,338,423 --------------- 5,715,944 --------------- BELGIUM .3% Interbrew .................................... Beverages 24,400 733,670 --------------- BRAZIL 2.3% Centrais Eletricas Brasileiras SA ............ Electric Utilities 67,922,000 760,260 Embraer-Empresa Brasileira de Aeronautica SA . Aerospace & Defense 405,729 2,344,521 Souza Cruz SA ................................ Tobacco 156,986 1,649,364 Unibanco Uniao de Bancos Brasileiros SA, GDR . Commercial Banks 32,852 747,383 --------------- 5,501,528 --------------- CHINA 7.5% Beijing Enterprises Holdings Ltd. ............ Industrial Conglomerates 812,000 1,048,402 China International Marine Containers Co., Ltd., B ..................................... Machinery 118,800 221,762 China Petroleum & Chemical Corp., H .......... Oil & Gas 8,322,000 3,501,423 China Resources Enterprise Ltd. .............. Distributors 1,974,000 2,789,622 China Telecom Corp. Ltd., H .................. Diversified Telecommunication Services 6,554,000 2,547,049 China Travel International Investment Hong Kong Ltd. ................................... Hotels Restaurants & Leisure 5,488,000 1,106,928 Cofco International Ltd. ..................... Food Products 302,000 182,352 Huadian Power International Corp Ltd. ........ Electric Utilities 3,706,000 1,452,148 PetroChina Co. Ltd., H ....................... Oil & Gas 5,748,000 3,083,037 TCL International Holdings Inc. .............. Household Durables 3,270,000 1,491,357 Tingyi (Cayman Islands) Holding Corp. ........ Food Products 2,064,000 623,136 Travelsky Technology Ltd., H ................. IT Services 334,000 356,148 --------------- 18,403,364 --------------- CROATIA .8% Pliva D D, GDR, Reg S ........................ Pharmaceuticals 116,900 1,908,977 --------------- CZECH REPUBLIC .9% a Cesky Telecom AS ............................. Diversified Telecommunication Services 88,350 1,086,777 CEZ AS ....................................... Electric Utilities 175,500 1,205,141 --------------- 2,291,918 --------------- EGYPT .2% Commercial International Bank Ltd. ........... Commercial Banks 149,376 549,285 --------------- GREECE 1.7% Coca-Cola Hellenic Bottling Co., SA .......... Beverages 57,994 1,369,091 Hellenic Telecommunications Organization SA (OTE) .................................... Diversified Telecommunication Services 129,200 1,974,529 8 | Semiannual Report PAGE Templeton Emerging Markets Fund STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (UNAUDITED) (CONTINUED) ------------------------------------------------------------------------------------------------------------------------------------ INDUSTRY SHARES VALUE ------------------------------------------------------------------------------------------------------------------------------------ COMMON STOCKS (CONT.) GREECE (CONT.) Titan Cement Co. ............................. Construction Materials 19,860 $ 864,648 --------------- 4,208,268 --------------- HONG KONG 9.3% Cheung Kong Holdings Ltd. .................... Real Estate 254,000 2,422,901 Cheung Kong Infrastructure Holdings Ltd. ..... Construction Materials 288,000 734,444 China Mobile (Hong Kong) Ltd., fgn. .......... Wireless Telecommunication Services 1,835,500 6,496,531 a China Oriental Group Co. Ltd. ................ Metals & Mining 70,000 24,731 Citic Pacific Ltd. ........................... Industrial Conglomerates 1,781,000 5,502,810 Dairy Farm International Holdings Ltd. ....... Food & Staples Retailing 320,200 633,996 Guoco Group Ltd. ............................. Diversified Financial Services 118,000 894,416 Hang Lung Group Ltd. ......................... Real Estate 667,000 1,045,421 Henderson Investment Ltd. .................... Real Estate 1,100,000 1,413,183 Hong Kong Land Holdings Ltd. ................. Real Estate 319,000 606,100 a Hopewell Highway Infrastructure Ltd, wts., 8/05/2006 ................................... Transportation Infrastructure 14,300 2,664 MTR Corp. Ltd. ............................... Road & Rail 688,193 1,091,900 Shanghai Industrial Holdings Ltd. ............ Industrial Conglomerates 658,000 1,728,720 Tack Fat Group International Ltd. ............ Specialty Retail 2,466,000 262,952 VTech Holdings Ltd. .......................... Communications Equipment 13,000 23,632 --------------- 22,884,401 --------------- HUNGARY 3.2% Egis RT ...................................... Pharmaceuticals 21,281 1,091,864 Gedeon Richter Ltd. .......................... Pharmaceuticals 17,251 1,962,242 Matav RT ..................................... Diversified Telecommunication Services 431,639 1,692,295 MOL Magyar Olaj-Es Gazipari RT ............... Oil & Gas 96,780 3,185,407 --------------- 7,931,808 --------------- INDIA 2.5% Ashok Leyland Ltd. ........................... Machinery 13,000 75,511 Hero Honda Motors Ltd. ....................... Automobiles 96,300 1,049,859 Hindustan Petroleum Corp. Ltd. ............... Oil & Gas 169,735 1,706,918 Mahanagar Telephone Nigam Ltd. ............... Diversified Telecommunication Services 760,205 2,293,135 Nestle India Ltd. ............................ Food Products 5,047 67,535 Tata Tea Ltd. ................................ Food Products 58,015 458,310 Union Bank of India Ltd. ..................... Commercial Banks 475,741 501,666 --------------- 6,152,934 --------------- INDONESIA 1.8% PT Gudang Garam TBK .......................... Tobacco 272,500 454,435 PT Indosat (Persero) TBK ..................... Diversified Telecommunication Services 1,182,500 2,552,410 a PT Perusahaan Gas Negara ..................... Gas Utilities 752,500 137,951 a PT Perusahaan Gas Negara, 144A ............... Gas Utilities 290,000 53,164 PT Telekomunikasi Indonesia TBK, B ........... Diversified Telecommunication Services 1,414,530 1,221,297 --------------- 4,419,257 --------------- ISRAEL Elbit Systems Ltd. ........................... Aerospace & Defense 4,639 87,220 Semiannual Report | 9 PAGE Templeton Emerging Markets Fund STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (UNAUDITED) (CONTINUED) ------------------------------------------------------------------------------------------------------------------------------------ INDUSTRY SHARES VALUE ------------------------------------------------------------------------------------------------------------------------------------ COMMON STOCKS (CONT.) MALAYSIA .9% Golden Hope Plantations Bhd. ................. Food Products 20,000 $ 19,684 Petronas Dagangan Bhd. ....................... Oil & Gas 9,000 17,408 Resorts World Bhd. ........................... Hotels Restaurants & Leisure 161,000 478,763 SIME Darby Bhd. .............................. Industrial Conglomerates 71,000 113,974 Southern Bank Bhd., fgn. ..................... Commercial Banks 10,000 8,789 SP Setia Bhd. ................................ Real Estate 200,000 223,158 Tanjong PLC .................................. Hotels Restaurants & Leisure 19,000 62,000 a YTL Corporation Bhd. ......................... Electric Utilities 31,000 37,526 YTL Power International Bhd. ................. Electric Utilities 1,252,600 1,133,933 --------------- 2,095,235 --------------- MEXICO 5.2% Embotelladoras Arca SA ....................... Food & Staples Retailing 500 1,071 Embotelladoras Arca SA, 144A ................. Food & Staples Retailing 154,652 331,262 Fomento Economico Mexicano SA de CV Femsa, ADR ......................................... Beverages 40,420 1,818,900 a Grupo Bimbo SA de CV, A ...................... Food Products 43,900 97,207 Grupo Carso SA de CV ......................... Industrial Conglomerates 354,000 1,510,447 Grupo Continental SA ......................... Beverages 84,299 165,711 Kimberly Clark de Mexico SA de CV, A ......... Household Products 1,646,200 4,362,292 Telefonos de Mexico SA de CV (Telmex), L, ADR Diversified Telecommunication Services 128,782 4,374,725 --------------- 12,661,615 --------------- PERU Credicorp Ltd. ............................... Commercial Banks 1,300 16,900 --------------- PHILIPPINES .9% San Miguel Corp., B .......................... Beverages 1,771,090 2,201,284 --------------- POLAND 2.0% a BRE Bank SA .................................. Commercial Banks 13,931 336,604 Polski Koncern Naftowy Orlen SA .............. Oil & Gas 477,532 3,461,477 Telekomunikacja Polska SA .................... Diversified Telecommunication Services 252,200 1,058,384 --------------- 4,856,465 --------------- RUSSIA 2.4% Aeroflot ..................................... Airlines 11,100 10,226 AvtoVAZ ...................................... Metals & Mining 5,500 169,950 Lukoil Holdings, ADR ......................... Oil & Gas 51,299 5,704,449 Yuzhnaya Telecommunication Co. ............... Diversified Telecommunication Services 917,700 94,064 --------------- 5,978,689 --------------- SINGAPORE 6.3% Comfortdelgro Corp. Ltd. ..................... Road & Rail 1,530,000 849,376 DBS Group Holdings Ltd. ...................... Commercial Banks 189,000 1,632,134 Fraser & Neave Ltd. .......................... Beverages 489,367 4,082,251 Keppel Corp. Ltd. ............................ Industrial Conglomerates 941,000 4,035,424 MobileOne (Asia) Ltd. ........................ Wireless Telecommunication Services 290,000 264,062 Singapore Press Holdings Ltd. ................ Media 10,000 109,267 Singapore Technologies Engineering Ltd. ...... Aerospace & Defense 581,000 709,931 10 | Semiannual Report PAGE Templeton Emerging Markets Fund STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (UNAUDITED) (CONTINUED) ------------------------------------------------------------------------------------------------------------------------------------ INDUSTRY SHARES VALUE ------------------------------------------------------------------------------------------------------------------------------------ COMMON STOCKS (CONT.) SINGAPORE (CONT.) Singapore Telecommunications Ltd. ............ Diversified Telecommunication Services 2,711,000 $ 3,678,901 --------------- 15,361,346 --------------- SOUTH AFRICA 12.5% Anglo American PLC ........................... Metals & Mining 437,912 10,952,573 BHP Billiton PLC ............................. Metals & Mining 145,500 1,353,829 Imperial Holdings Ltd. ....................... Air Freight & Logistics 160,333 1,687,335 Nampak Ltd. .................................. Containers & Packaging 146,300 292,534 Nedcor Ltd. .................................. Commercial Banks 62,803 604,284 Old Mutual PLC ............................... Insurance 738,860 1,302,621 Remgro Ltd. .................................. Industrial Conglomerates 364,700 4,016,278 SABMiller PLC ................................ Beverages 648,548 6,796,030 Sappi Ltd. ................................... Paper & Forest Products 61,500 841,482 Sasol Ltd. ................................... Oil & Gas 182,100 2,732,253 --------------- 30,579,219 --------------- SOUTH KOREA 13.1% CJ Corp. ..................................... Food Products 41,010 2,385,276 Dong-A Pharmaceutical Co. Ltd. ............... Pharmaceuticals 27,552 447,486 Hite Brewery Co., Ltd. ....................... Beverages 20,060 1,535,204 Hyundai Autonet Co. .......................... Auto Components 7,890 18,752 Hyundai Development Co. ...................... Construction & Engineering 200,590 2,208,878 Hyundai Motor Co. Ltd. ....................... Automobiles 125,460 5,334,184 a Kangwon Land Inc. ............................ Hotels Restaurants & Leisure 285,058 3,405,667 Korea Electric Power Corp. ................... Electric Utilities 158,622 2,792,071 Korea Gas Corp. .............................. Gas Utilities 44,780 997,650 KT Corp. ..................................... Diversified Telecommunication Services 58,240 2,154,286 KT&G Corp. ................................... Tobacco 20,780 488,577 LG Cable Ltd. ................................ Electrical Equipment 370 4,751 LG Home Shopping Inc. ........................ Internet & Catalog Retail 1,730 66,052 LG Household & Health Care Ltd. .............. Household Products 41,230 1,072,821 LG International Corp. ....................... Trading Companies & Distributors 38,440 248,422 POSCO Metals & Mining 7,840 1,153,333 Samsung Corp. ................................ Trading Companies & Distributors 104,170 1,027,527 Samsung Fine Chemicals ....................... Chemicals 109,500 1,694,643 Samsung Heavy Industries Co. Ltd. ............ Machinery 449,540 2,083,327 SK Corp. ..................................... Oil & Gas 84,090 3,121,198 --------------- 32,240,105 --------------- TAIWAN 11.1% Acer Inc. .................................... Computers & Peripherals 1,505,000 2,368,835 a Cheng Shin Rubber Industry Co. Ltd. .......... Auto Components 153,000 218,342 Chinatrust Financial Holding Co. Ltd. ........ Commercial Banks 1,030,540 1,229,666 Chunghwa Telcom Co. Ltd. ..................... Diversified Telecommunication Services 777,000 1,269,570 D-Link Corp. ................................. Communications Equipment 1,794,000 2,258,972 Delta Electronics Inc. ....................... Electronic Equipment & Instruments 2,093,552 2,824,459 Elan Microelectronics Corp. .................. Software 1,269,000 1,190,817 Elite Semiconductor Memory Technology Inc. ... Electrical Equipment 128,440 356,190 Semiannual Report | 11 PAGE Templeton Emerging Markets Fund STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (UNAUDITED) (CONTINUED) ------------------------------------------------------------------------------------------------------------------------------------ INDUSTRY SHARES VALUE ------------------------------------------------------------------------------------------------------------------------------------ COMMON STOCKS (CONT.) TAIWAN (CONT.) Fubon Financial Holding Co. Ltd. ............. Diversified Financial Services 1,192,000 $ 1,268,655 Lite-on Technology Corp. ..................... Computers & Peripherals 1,878,000 2,308,440 Mega Financial Holdings Co. Ltd. ............. Commercial Banks 1,957,661 1,426,208 a Micro-Star International Co. Ltd. ............ Computers & Peripherals 131,000 216,010 Phoenixtec Power Co. Ltd. .................... Electrical Equipment 741,990 929,851 President Chain Store Corp. .................. Food & Staples Retailing 611,000 1,227,312 Princeton Technology Corp. ................... Semiconductors & Semiconductor Equipment 54,000 102,803 Sunplus Technology Co. Ltd. .................. Semiconductors & Semiconductor Equipment 1,270,300 2,856,318 Taiwan Cellular Corp. ........................ Wireless Telecommunication Services 2,510,372 2,423,444 a Tatung Co. Ltd. .............................. Industrial Conglomerates 233,000 94,304 Tsann Kuen Enterprise Co. Ltd. ............... Household Durables 297,000 538,705 UNI-President Enterprises Corp. .............. Food Products 1,221,350 717,687 Yuanta Core Pacific Securities Co. ........... Diversified Financial Services 1,683,960 1,494,385 --------------- 27,320,973 --------------- THAILAND 2.3% Delta Electronics (Thailand) Public Co. Ltd., fgn. .............................. Electronic Equipment & Instruments 216,900 154,574 Hana Microelectronics Co. Ltd., fgn. ......... Electronic Equipment & Instruments 176,800 627,552 Krung Thai Bank Public Co. Ltd., fgn. ........ Commercial Banks 1,739,500 490,549 National Finance Public Co. Ltd., fgn. ....... Consumer Finance 976,200 380,144 PTT Exploration & Production Public Co. Ltd., fgn. .................................. Oil & Gas 393,100 2,540,293 Siam Makro Public Company Ltd., fgn. ......... Food & Staples Retailing 71,200 77,470 a Telecomasia Corp. Public Co. Ltd., purch. rts. Diversified Telecommunication Services 246,818 -- Thai Airways International Public Co. Ltd., fgn. Airlines 463,100 698,009 a Thai Military Bank Public Company Limited, fgn. ............................... Commercial Banks 5,695,800 695,847 Thai Union Frozen Products Ltd., fgn. ........ Food Products 88,400 60,748 --------------- 5,725,186 --------------- TURKEY 2.1% Arcelik AS, Br. .............................. Household Durables 487,047,650 2,787,320 Migros Turk T.A.S. ........................... Food & Staples Retailing 227,075,000 1,231,130 Tupras-Turkiye Petrol Rafineleri AS .......... Oil & Gas 137,701,470 1,140,599 --------------- 5,159,049 --------------- UNITED KINGDOM .8% HSBC Holdings PLC ............................ Commercial Banks 116,453 1,914,989 --------------- TOTAL COMMON STOCKS (COST $161,130,605) 228,873,650 --------------- PREFERRED STOCKS 3.9% BRAZIL 3.9% Banco Bradesco SA, ADR, pfd. ................. Commercial Banks 151,017 3,825,260 Cia de Bebidas Das Americas (Ambev), ADR, pfd. ................................... Beverages 24,000 645,600 Cia Vale do Rio Doce, ADR, pfd., A ........... Metals & Mining 35,877 1,784,881 12 | Semiannual Report PAGE Templeton Emerging Markets Fund STATEMENT OF INVESTMENTS, FEBRUARY 29, 2004 (UNAUDITED) (CONTINUED) ------------------------------------------------------------------------------------------------------------------------------------ INDUSTRY SHARES VALUE ------------------------------------------------------------------------------------------------------------------------------------ PREFERRED STOCKS (CONT.) BRAZIL (CONT.) Duratex SA, pfd. ............................. Building Products 2,795,769 $ 76,794 Metalurgica Gerdau SA, pfd. .................. Metals & Mining 5,179 127,141 Petroleo Brasileiro SA, ADR, pfd. ............ Oil & Gas 104,164 2,927,008 Suzano, pfd. ................................. Paper & Forest Products 1,700 7,926 Usinas Siderurgicas de Minas Gerais SA, pfd. . Metals & Mining 16,300 186,086 --------------- TOTAL PREFERRED STOCKS (COST $6,880,578) 9,580,696 --------------- SHORT TERM INVESTMENTS (COST $5,688,636) 2.3% b Franklin Institutional Fiduciary Trust Money Market Portfolio ............................ 5,688,636 5,688,636 --------------- TOTAL INVESTMENTS (COST $173,699,819) 99.4% 244,142,982 OTHER ASSETS, LESS LIABILITIES .6% ........... 1,458,282 --------------- NET ASSETS 100.0% ............................ $ 245,601,264 ===============
aNon-income producing. bSee Note 6 regarding investments in the Franklin Institutional Fiduciary Trust Money Market Portfolio. Semiannual Report | See notes to financial statements. | 13 PAGE Templeton Emerging Markets Fund FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES February 29, 2004 (unaudited) Assets: Investments in securities: Cost .................................... $173,699,819 ============= Value ................................... 244,142,982 Foreign currency, at value (cost $394,935) 398,096 Receivables: Investment securities sold .............. 3,365,014 Dividends and interest .................. 697,264 ------------- Total assets ........................ 248,603,356 ------------- Liabilities: Payables: Investment securities purchased ......... 1,846,773 Affiliates .............................. 267,946 Funds advanced by custodian .............. 259,299 Deferred tax liability (Note 1f) ......... 377,390 Other liabilities ........................ 250,684 ------------- Total liabilities ................... 3,002,092 ------------- Net assets, at value .............. $245,601,264 ============= Net assets consist of: Undistributed net investment income ...... $ (1,383,007) Net unrealized appreciation (depreciation) 70,081,404 Accumulated net realized gain (loss) ..... (28,175,069) Capital shares ........................... 205,077,936 ------------- Net assets, at value ...................... $245,601,264 ============= Shares outstanding ........................ 17,680,325 ============= Net asset value per share ................. $13.89 ============= 14 | See notes to financial statements. | Semiannual Report PAGE Templeton Emerging Markets Fund FINANCIAL STATEMENTS (CONTINUED) STATEMENT OF OPERATIONS for the six months ended February 29, 2004 (unaudited)
Investment income: (Net of foreign taxes of $252,254) Dividends .....................................................................$ 2,337,023 Interest ...................................................................... 3,003 ------------ Total investment income 2,340,026 Expenses: Management fees (Note 3) ...................................................... 1,358,819 Administrative fees (Note 3) .................................................. 163,808 Transfer agent fees ........................................................... 44,000 Custodian fees ................................................................ 123,700 Reports to shareholders ....................................................... 23,800 Registration and filing fees .................................................. 21,200 Professional fees ............................................................. 37,200 Trustees' fees and expenses ................................................... 22,700 Other ......................................................................... 4,400 ------------ Total expenses ........................................................... 1,799,627 ------------ Net investment income .................................................. 540,399 ------------ Realized and unrealized gains (losses): Net realized gain (loss) from: Investments (net of foreign taxes of $1,076,692) (Note 1f) ................... 14,857,977 Foreign currency transactions ................................................ (88,082) ------------ Net realized gain (loss) ................................................. 14,769,895 Net unrealized appreciation (depreciation) on: Investments .................................................................. 42,913,337 Translation of assets and liabilities denominated in foreign currencies ...... 23,343 Deferred taxes (Note 1f) ..................................................... 89,359 ------------ Net unrealized appreciation (depreciation) ............................... 43,026,039 ------------ Net realized and unrealized gain (loss) ........................................ 57,795,934 ------------ Net increase (decrease) in net assets resulting from operations ................$58,336,333 ============
Semiannual Report | See notes to financial statements. | 15 PAGE Templeton Emerging Markets Fund FINANCIAL STATEMENTS (CONTINUED) STATEMENTS OF CHANGES IN NET ASSETS for the six months ended February 29, 2004 (unaudited) and the year ended August 31, 2003
------------------------------------ SIX MONTHS ENDED YEAR ENDED FEBRUARY 29, 2004 AUGUST 31, 2003 Operations: Net investment income .............................................................. $ 540,399 $ 3,083,598 Net realized gain (loss) from investments and foreign currency transactions ........ 14,769,895 (1,040,146) Net unrealized appreciation (depreciation) on investments, translation of assets and liabilities denominated in foreign currencies, and deferred taxes ............................................ 43,026,039 37,038,648 ------------------------------------ Net increase (decrease) in net assets resulting from operations ................ 58,336,333 39,082,100 Distributions to shareholders from net investment income ............................. (4,094,976) (2,646,700) Capital share transactions (Note 2) .................................................. 284,125 -- ------------------------------------ Net increase (decrease) in net assets .......................................... 54,525,482 36,435,400 ------------------------------------ Net assets: Beginning of period ................................................................. 191,075,782 154,640,382 ------------------------------------ End of period ....................................................................... $245,601,264 $191,075,782 ==================================== Undistributed net investment income included in net assets: End of period ....................................................................... $ (1,383,007) $ 2,171,570 ====================================
16 | See notes to financial statements. | Semiannual Report PAGE Templeton Emerging Markets Fund NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Templeton Emerging Markets Fund (the Fund) is registered under the Investment Company Act of 1940 as a closed-end, diversified investment company. The Fund seeks long-term capital appreciation by investing mainly in emerging country equity securities. The following summarizes the Fund's significant accounting policies. A. SECURITY VALUATION Securities listed or traded on a recognized national exchange or NASDAQ are valued at the last reported sales price. Over-the-counter securities and listed securities for which no sale is reported are valued within the range of the latest quoted bid and asked prices. Investments in open-end mutual funds are valued at the closing net asset value. Foreign securities are valued at the close of trading of the foreign exchange or the NYSE, whichever is earlier. If events occur that materially affect the values of securities after the prices or foreign exchange rates are determined, or if market quotations are not readily available, the securities will be valued at fair value as determined following procedures approved by the Board of Trustees. B. FOREIGN CURRENCY TRANSLATION Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars based on the exchange rate of such currencies against U.S. dollars on the date of valuation. Purchases and sales of securities and income items denominated in foreign currencies are translated into U.S. dollars at the exchange rate in effect on the transaction date. The Fund does not separately report the effect of changes in foreign exchange rates from changes in market prices on securities held. Such changes are included in net realized and unrealized gain or loss from investments. Realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between 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 gains and 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. FOREIGN CURRENCY CONTRACTS When the Fund purchases or sells foreign securities it may enter into foreign exchange contracts to minimize foreign exchange risk from the trade date to the settlement date of the transactions. A foreign exchange contract is an agreement between two parties to exchange different currencies at an agreed upon exchange rate on a specified date. Realized and unrealized gains and losses are included in the Statement of Operations. Semiannual Report | 17 PAGE Templeton Emerging Markets Fund NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) C. FOREIGN CURRENCY CONTRACTS (CONTINUED) The risks of these contracts include movement in the values of the foreign currencies relative to the U.S. dollar and the possible inability of the counterparties to fulfill their obligations under the contracts. D. INCOME TAXES No provision has been made for income taxes because the Fund's policy is to qualify as a regulated investment company under the Internal Revenue Code and to distribute substantially all of its taxable income. E. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS Security transactions are accounted for on trade date. Realized gains and losses on security transactions are determined on a specific identification basis. Certain income from foreign securities is recorded as soon as information is available to the Fund. Interest income and estimated expenses are accrued daily. Dividend income and distributions to shareholders are recorded on the ex-dividend date. F. DEFERRED TAXES The Fund is subject to a tax imposed on net realized gains of securities of certain foreign countries. The Fund records an estimated deferred tax liability for net unrealized gains on these securities as reflected in the accompanying financial statements. G. ACCOUNTING ESTIMATES The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the amounts of income and expense during the reporting period. Actual results could differ from those estimates. H. GUARANTEES AND INDEMNIFICATIONS Under the Trust's organizational documents, its officers and trustees are indemnified against certain liability arising out of the performance of their duties to the Trust. Additionally, in the normal course of business, the Trust enters into contracts with service providers that contain general indemnification clauses. The Trust's maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Trust that have not yet occurred. However, based on experience, the Trust expects the risk of loss to be remote. 18 | Semiannual Report PAGE Templeton Emerging Markets Fund NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 2. SHARES OF BENEFICIAL INTEREST The Board of Directors of the Fund previously authorized an open-market share repurchase program pursuant to which the Fund may purchase, from time to time, shares of the Fund's common stock in open-market transactions, at the discretion of management. This authorization remains in effect. At February 29, 2004, the Fund's authorized number of shares of beneficial interest (without par value) is unlimited. During the period ended February 29, 2004, 23,888 shares were issued for $284,125 from reinvested distributions. During the year ended August 31, 2003, there were no share transactions; all reinvested distributions were satisfied with previously issued shares purchased in the open market. 3. TRANSACTIONS WITH AFFILIATES Certain officers of the Trust are also officers or trustees of the following entities: -------------------------------------------------------------------------------- ENTITY AFFILIATION -------------------------------------------------------------------------------- Templeton Asset Management Ltd. (TAML) Investment manager Franklin Templeton Services, LLC (FT Services) Administrative manager The Fund pays an investment management fee to TAML of 1.25% per year of the average daily net assets of the fund. The Fund pays an administrative fee to FT Services of 0.15% per year of the average daily net assets of the fund. 4. INCOME TAXES At February 29, 2004, the cost of investments and net unrealized appreciation (depreciation) for income tax purposes were as follows: Cost of investments $175,616,177 ------------- Unrealized appreciation 70,229,503 Unrealized depreciation (1,702,698) ------------- Net unrealized appreciation (depreciation) $ 68,526,805 ============= Net investment income and net realized capital gains differ for financial statement and tax purposes primarily due to differing treatments of passive foreign investment companies, wash sales and losses realized subsequent to October 31 on the sale of foreign currencies. At August 31, 2003, the Fund had tax basis capital losses which may be carried over to offset future capital gains. Such losses expire as follows: Capital loss carryovers expiring in: 2008 $ 1,056,614 2009 2,373,131 2010 30,608,800 2011 7,846,360 ------------ $41,884,905 ============ Semiannual Report | 19 PAGE Templeton Emerging Markets Fund NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 4. INCOME TAXES (CONTINUED) At August 31, 2003, the Fund had deferred currency losses occurring subsequent to October 31, 2002 of $270,525. For tax purposes, such losses will be reflected in the year ending August 31, 2004. 5. INVESTMENT TRANSACTIONS Purchases and sales of investment's (excluding short-term securities) for the period ended February 29, 2004 aggregated $54,133,770 and $63,518,791, respectively. 6. INVESTMENTS IN FRANKLIN INSTITUTIONAL FIDUCIARY TRUST MONEY MARKET PORTFOLIO The Fund may invest in the Franklin Institutional Fiduciary Trust Money Market Portfolio (the Sweep Money Fund), an open-end investment company managed by Franklin Advisers Inc. (an affiliate of the investment manager). Management fees paid by the Fund are reduced on assets invested in the Sweep Money Fund in an amount not to exceed the management fees paid by the Sweep Money Fund. The Fund earned $13,889 of dividend income from investment in the Sweep Money Fund for the period ended February 29, 2004. 7. REGULATORY MATTERS On February 4, 2004, the Securities Division of the Office of the Secretary of the Commonwealth of Massachusetts filed an administrative complaint against Franklin Resources, Inc. and certain of its subsidiaries (the "Company"), alleging violations of the Massachusetts Uniform Securities Act. The complaint arises from activity that occurred in 2001 during which time an officer of a Company subsidiary was negotiating an agreement with an investor relating to investments in a mutual fund and a hedge fund. The Fund, in addition to other entities within Franklin Templeton Investments, including the Company and other funds, has been named in shareholder class and derivative lawsuits related to the matter described above, as well as actions seeking the return of certain management and other fees to the Fund. The Fund's management believes that the claims made in the lawsuit are without merit and it intends to defend vigorously against the allegations. It is anticipated that the Fund may be named in additional similar civil actions related to the matter described above. 20 | Semiannual Report PAGE Templeton Emerging Markets Fund NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 7. REGULATORY MATTERS (CONTINUED) In addition, as part of ongoing investigations by the U.S. Securities and Exchange Commission (the "SEC"), the U.S. Attorney for the Northern District of California, the New York Attorney General, the California Attorney General, the U.S. Attorney for the District of Massachusetts, the Florida Department of Financial Services, and the Commissioner of Securities and the Attorney General of the State of West Virginia, relating to certain practices in the mutual fund industry, including late trading, market timing and sales compensation arrangements, the Company and its subsidiaries, as well as certain current or former executives and employees of the Company, have received requests for information and/or subpoenas to testify or produce documents. The Company and its current employees are providing documents and information in response to these requests and subpoenas. In addition, the Company has responded to requests for similar kinds of information from regulatory authorities in some of the foreign countries where the Company conducts its global asset management business. The Staff of the SEC has informed the Company that it intends to recommend that the Commission authorize an action against an affiliate of the Fund's investment adviser relating to the frequent trading issues that are the subject of the SEC's investigation. These issues were previously disclosed as being under investigation by government authorities and the subject of an internal inquiry by the Company in its Annual Report on Form 10-K and on its public website. The Company currently is in discussions with the SEC Staff in an effort to resolve the issues raised in their investigation. The Fund's management has been advised that the Company cannot predict the likelihood of whether those discussions will result in a settlement and, if so, the terms of such settlement. The impact, if any, of these matters on the Fund is uncertain at this time. If the Company finds that it bears responsibility for any unlawful or improper conduct, it has committed to making the Fund or its shareholders whole, as appropriate. Semiannual Report | 21 PAGE Templeton Emerging Markets Fund ANNUAL MEETING OF SHAREHOLDERS, FEBRUARY 27, 2004 The Annual Meeting of Shareholders of the Fund was held at the Fund's offices, 500 E. Broward Blvd., Fort Lauderdale, Florida, on February 27, 2004. The purpose of the meeting was to elect four Trustees of the Fund. At the meeting, the following persons were elected by the shareholders to serve as Trustees of the Fund: Harmon E. Burns, Charles B. Johnson, Frank A. Olson and Constantine D. Tseretopoulos.* No other business was transacted at the meeting. The results of the voting at the Annual Meeting are as follows: The election of four (4) Trustees:
---------------------------------------------------------------------------------------------------------- % OF % OF % OF % OF OUTSTANDING VOTED OUTSTANDING VOTED TERM EXPIRING 2007: FOR SHARES SHARES WITHHELD SHARES SHARES ---------------------------------------------------------------------------------------------------------- Harmon E. Burns 14,832,116.3195 83.90% 98.42% 237,598.6964 1.34% 1.58% Charles B. Johnson 14,819,267.3195 83.82% 98.34% 250,447.6964 1.42% 1.66% Frank A. Olson 14,817,969.3195 83.82% 98.33% 251,745.6964 1.42% 1.67% Constantine D. Tseretopoulos 14,837,488.3195 83.93% 98.46% 232,226.6964 1.31% 1.54%
* Harris J. Ashton, Nicholas F. Brady, Frank J. Crothers, S. Joseph Fortunato, Edith E. Holiday, Gordon S. Macklin and Fred R. Millsaps are Trustees of the Fund who are currently serving and whose terms of office continued after the Annual Meeting of Shareholders. 22 | Semiannual Report PAGE Templeton Emerging Markets Fund DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN The Fund offers a Dividend Reinvestment and Cash Purchase Plan (the "Plan") with the following features: Shareholders must affirmatively elect to participate in the Plan; Stock dividends and capital gains distributions will be reinvested automatically; Mellon Investor Services, P.O. Box 3338, South Hackensack, NJ 07606-1938, will provide additional Plan information upon request. Whenever the Fund declares dividends in either cash or shares of the Fund, if the market price is equal to or exceeds net asset value at the valuation date, the participant will receive the dividends entirely in shares at a price equal to the net asset value, but not less than 95% of the then current market price of the Fund's shares. If the market price is lower than net asset value or if dividends and/or capital gains distributions are payable only in cash, the participant will receive shares purchased on the New York Stock Exchange or otherwise on the open market. A participant has the option of submitting additional payments to Mellon Bank, N.A. (the "Plan Agent"), in any amounts of at least $100, up to a maximum of $5,000 per month, for the purchase of Fund shares for his or her account. These payments shall be made by check or money order payable to "Mellon Bank, N.A." and sent to Mellon Investor Services, P.O. Box 382009, Pittsburgh, PA 15250-8009, Attn: Templeton Emerging Markets Fund. The Plan Agent shall apply such payments (less a $5.00 service charge 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 of any income tax that may be payable on dividends or distributions. The participant may withdraw from the Plan without penalty at any time by written notice to the Plan Agent sent to Mellon Investor Services, P.O. Box 3338, South Hackensack, NJ 07606-1938. Upon withdrawal, the participant will receive, without charge, share certificates issued in the participant's name for all full shares held by the Plan Agent; or, if the participant wishes, the Plan Agent will sell the participant's shares and send the proceeds, less a service charge of $5.00 and less trading fees. Whenever shares are purchased on the New York Stock Exchange or otherwise on the open market, each participant will pay a pro rata portion of trading fees. Trading fees will be deducted from amounts to be invested. Effective March 3, 2004, the Plan Agent's fee for a sale of shares through the Plan will be $15.00 per transaction plus a $0.12 per share trading fee. All other terms and conditions of the Plan remain in effect and have not been modified or amended. Semiannual Report | 23 PAGE Templeton Emerging Markets Fund TRANSFER AGENT Mellon Investor Services LLC 85 Challenger Road Ridgefield Park, NJ 07660 1-800-416-5585 www.melloninvestor.com SHAREHOLDER INFORMATION Shares of Templeton Emerging Markets Fund are traded on the New York Stock Exchange under the symbol "EMF." The Fund's shares are also listed and traded on the Pacific Exchange. Information about the net asset value and the market price is published each Monday in the Wall Street Journal, weekly in Barron's and each Saturday in The New York Times and other newspapers. Daily market prices for the Fund's shares are published in the New York Stock 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[R]. For information go to Mellon Investor Services' web site at http://vault.melloninvestor.com/isd and follow the instructions. The daily closing net asset value as of the previous business day may be obtained when available by calling Franklin Templeton Fund Information after 7 a.m. pacific time any business day at 1-800/DIAL BEN[R] (1-800/342-5236). The Fund's net asset value and dividends are also listed on the NASDAQ Stock Market, Inc.'s Mutual Fund Quotation Service ("NASDAQ MFQS"). Shareholders not receiving copies of the 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. 24 | Semiannual Report PAGE Templeton Emerging Markets Fund PROXY VOTING POLICIES AND PROCEDURES The Fund has established Proxy Voting Policies and Procedures ("Policies") that the Fund uses to determine how to vote proxies relating to portfolio securities. Shareholders may view the Fund's complete Policies online at franklintempleton.com. Alternatively, shareholders may request copies of the Policies free of charge by calling the Proxy Group collect at 1-954/847-2268 or by sending a written request to: Franklin Templeton Companies, LLC, 500 East Broward Boulevard, Suite 1500, Fort Lauderdale, FL 33394, Attention: Proxy Group. Semiannual Report | 25 PAGE This page intentionally left blank. PAGE This page intentionally left blank. PAGE This page intentionally left blank. PAGE Literature Request For a brochure and prospectus, which contains more complete information, including charges, expenses and risks, call Franklin Templeton Investments at 1-800/DIAL BEN[R] (1-800/342-5236). Please read the prospectus carefully before investing or sending money. 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. FRANKLIN TEMPLETON INVESTMENTS INTERNATIONAL Mutual European Fund Templeton China World Fund Templeton Developing Markets Trust Templeton Foreign Fund Templeton Foreign Smaller Companies Fund Templeton International (Ex EM) Fund GLOBAL Franklin Global Aggressive Growth Fund Franklin Global Growth Fund Mutual Discovery Fund Templeton Capital Accumulator Fund Templeton Global Long-Short Fund Templeton Global Opportunities Trust Templeton Global Smaller Companies Fund Templeton Growth Fund Templeton World Fund GROWTH Franklin Aggressive Growth Fund Franklin Capital Growth Fund Franklin Flex Cap Growth Fund Franklin Small-Mid Cap Growth Fund Franklin Small Cap Growth Fund II 1 VALUE Franklin Balance Sheet Investment Fund 2 Franklin Equity Income Fund Franklin Large Cap Value Fund Franklin MicroCap Value Fund 2 Franklin Small Cap Value Fund Mutual Beacon Fund Mutual Qualified Fund Mutual Recovery Fund 3 Mutual Shares Fund BLEND Franklin Blue Chip Fund Franklin Convertible Securities Fund Franklin Growth Fund Franklin Rising Dividends Fund Franklin U.S. Long-Short Fund 4 SECTOR Franklin Biotechnology Discovery Fund Franklin DynaTech Fund Franklin Global Communications Fund Franklin Global Health Care Fund Franklin Gold and Precious Metals Fund Franklin Natural Resources Fund Franklin Real Estate Securities Fund Franklin Utilities Fund Franklin Technology Fund Mutual Financial Services Fund ASSET ALLOCATION Franklin Templeton Corefolio Allocation Fund Franklin Templeton Founding Funds Allocation Fund TARGET FUNDS Franklin Templeton Conservative Target Fund Franklin Templeton Growth Target Fund Franklin Templeton Moderate Target Fund INCOME Franklin Adjustable U.S. Government Securities Fund 5 Franklin's AGE High Income Fund Franklin Federal Money Fund 5, 6 Franklin Floating Rate Daily Access Fund Franklin Floating Rate Trust 3 Franklin Income Fund Franklin Money Fund 5, 6 Franklin Short-Intermediate U.S. Government Securities Fund 5 Franklin Strategic Income Fund Franklin Strategic Mortgage Portfolio Franklin Templeton Hard Currency Fund Franklin Total Return Fund Franklin U.S. Government Securities Fund 5 Templeton Global Bond Fund TAX-FREE INCOME 7 NATIONAL FUNDS Double Tax-Free Income Fund Federal Tax-Free Income Fund High Yield Tax-Free Income Fund Insured Tax-Free Income Fund 8 Tax-Exempt Money Fund 5, 6 LIMITED-TERM FUNDS California Limited-Term Tax-Free Income Fund Federal Limited-Term Tax-Free Income Fund New York Limited-Term Tax-Free Income Fund INTERMEDIATE-TERM FUNDS California Intermediate-Term Tax-Free Income Fund Federal Intermediate-Term Tax-Free Income Fund New York Intermediate-Term Tax-Free Income Fund STATE-SPECIFIC 7 Alabama Arizona California 9 Colorado Connecticut Florida 9 Georgia Kentucky Louisiana Maryland Massachusetts 8 Michigan 8 Minnesota 8 Missouri New Jersey New York 9 North Carolina Ohio 8 Oregon Pennsylvania Tennessee Virginia INSURANCE FUNDS Franklin Templeton Variable Insurance Products Trust 10 1.The fund is closed to new investors. Existing shareholders can continue adding to their accounts. 2.The fund is only open to existing shareholders as well as select retirement plans. 3.The fund is a continuously offered, closed-end fund. Shares may be purchased daily; there is no daily redemption. However, each quarter, pending board approval, the fund will authorize the repurchase of 5%-25% of the outstanding number of shares. Investors may tender all or a portion of their shares during the tender period. 4.Upon reaching approximately $350 million in assets, the fund intends to close to all investors. 5.An investment in the fund is neither insured nor guaranteed by the U.S. government or by any other entity or institution. 6.No assurance exists that the fund's $1.00 per share price will be maintained. It is possible to lose money by investing in the fund. 7.For investors subject to the alternative minimum tax, a small portion of fund dividends may be taxable. Distributions of capital gains are generally taxable. 8.Portfolio of insured municipal securities. 9.These funds are available in two or more variations, including long-term portfolios, portfolios of insured securities, a high-yield portfolio (CA) and limited-term, intermediate-term and money market portfolios (CA and NY). 10.The funds of the Franklin Templeton Variable Insurance Products Trust are generally available only through insurance company variable contracts. 02/04 Not part of the semiannual report PAGE [Franklin Templeton logo omitted] FRANKLIN[R] TEMPLETON[R] INVESTMENTS 100 Fountain Parkway P.O. Box 33030 St. Petersburg, FL 33733-8030 SEMIANNUAL REPORT AND SHAREHOLDER INFORMATION TEMPLETON EMERGING MARKETS FUND INVESTMENT MANAGER Templeton Asset Management Ltd. TRANSFER AGENT Mellon Investor Services LLC 85 Challenger Road Ridgefield Park, NJ 07660 1-800/416-5585 www.mellon.com FUND INFORMATION 1-800/342-5236 Investors should be aware that the value of investments made for the Fund may go down as well as up. Like any investment 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 the Investment 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 and accessed. These calls can be identified by the presence of a regular beeping tone. TLEMF S2004 04/04 PAGE ITEM 2. CODE OF ETHICS. (A) THE REGISTRANT HAS ADOPTED A CODE OF ETHICS THAT APPLIES TO ITS PRINCIPAL EXECUTIVE OFFICERS AND PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER. (C) N/A (D) N/A (F) PURSUANT TO ITEM 10(A), THE REGISTRANT IS ATTACHING AS AN EXHIBIT A COPY OF ITS CODE OF ETHICS THAT APPLIES TO ITS PRINCIPAL EXECUTIVE OFFICERS FINANCIAL AND ACCOUNTING OFFICER. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. (A)(1) THE REGISTRANT HAS AN AUDIT COMMITTEE FINANCIAL EXPERT SERVING ON ITS AUDIT COMMITTEE. (2) THE AUDIT COMMITTEE FINANCIAL EXPERTS ARE FRED R. MILLSAPS AND FRANK A. OLSON, WHO ARE "INDEPENDENT" AS DEFINED UNDER THE RELEVANT SECURITIES AND EXCHANGE COMMISSION RULES AND RELEASES. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS Members of the Audit Committee are: Fred R. Millsaps, Frank J. Crothers, Frank A. Olson and Constantine D. Tseretopoulos. ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. N/A ITEM 8. PURCHASE OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANIES AND AFFILIATED PURCHASERS. N/A ITEM 9. SUBMISSTION OF MATTERS OF A VOTE SECURITY HOLDERS. There have been no changes to the procedures by which shareholders may recommend nominees to the Registrant's Board of Trustees that would require disclosure herein. ITEM 10. CONTROLS AND PROCEDURES. (a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. The Registrant maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Registrant's filings under the Securities Exchange Act of 1934 and the Investment Company Act of 1940 is recorded, processed, summarized and reported within the periods specified in the rules and forms of the Securities and Exchange Commission. Such information is accumulated and communicated to the Registrant's management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. The Registrant's management, including the principal executive officer and the principal financial officer, recognizes that any set of controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Within 90 days prior to the filing date of this Shareholder Report on Form N-CSR, the Registrant had carried out an evaluation, under the supervision and with the participation of the Registrant's management, including the Registrant's principal executive officer and the Registrant's principal financial officer, of the effectiveness of the design and operation of the Registrant's disclosure controls and procedures. Based on such evaluation, the Registrant's principal executive officer and principal financial officer concluded that the Registrant's disclosure controls and procedures are effective. (B) CHANGES IN INTERNAL CONTROLS. There have been no significant changes in the Registrant's internal controls or in other factors that could significantly affect the internal controls subsequent to the date of their evaluation in connection with the preparation of this Shareholder Report on Form N-CSR. ITEM 11. EXHIBITS (A) CODE OF ETHICS FOR PRINCIPAL EXECUTIVE AND SENIOR FINANCIAL OFFICERS. (B)(1) CERTIFICATIONS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 OF JIMMY D. GAMBILL, CHIEF EXECUTIVE OFFICER - FINANCE AND ADMINISTRATION, AND DIOMEDES LOO-TAM, CHIEF FINANCIAL OFFICER (B(2) CERTIFICATIONS PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 OF JIMMY D. GAMBILL, CHIEF EXECUTIVE OFFICER - FINANCE AND ADMINISTRATION, AND DIOMEDES LOO-TAM, CHIEF FINANCIAL OFFICER SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. TEMPLETON EMERGING MARKETS FUND By /s/JIMMY D. GAMBILL Chief Executive Officer - Finance and Administration Date April 30, 2004 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By /s/JIMMY D. GAMBILL Chief Executive Officer - Finance and Administration Date April 30, 2004 By /s/DIOMEDES LOO-TAM Chief Financial Officer Date April 30, 2004