N-30D 1 0001.txt ANNUAL REPORT DTD 8/31/00 ANNUAL REPORT [FRANKLIN TEMPLETON GLOBAL LOGO] TEMPLETON EMERGING AUGUST 31, 2000 MARKET FUND, INC. [FRANKLIN TEMPLETON LOGO] FRANKLIN(R) TEMPLETON(R) INVESTMENTS [PHOTO OF MARK MOBIUS] MARK MOBIUS President Templeton Emerging Markets Fund, Inc. Mark Mobius has been living in emerging market countries since earning his Ph.D. in economics and political science at Massachusetts Institute of Technology in 1964. During his extensive travels, he has acquired a thorough knowledge of business practices and customs unique to developing nations. SHAREHOLDER LETTER -------------------------------------------------------------------------------- Your Fund's Goal: Templeton Emerging Markets Fund seeks long-term capital appreciation by investing primarily in emerging country equity securities. -------------------------------------------------------------------------------- Dear Shareholder: This annual report of Templeton Emerging Markets Fund covers the year ended August 31, 2000. During this time, commodity prices and interest rates rose and inflation remained subdued in most emerging markets. In Asia, Hong Kong posted double-digit gross domestic product (GDP) figures, but the big news was the recognition of China's permanent trade status by the U.S. Congress. Despite difficulties, both the U.S. and the European Union finally signed deals with China, removing the major barriers to China's entry into the World Trade Organization. This now leaves two countries, Mexico and Switzerland, with which China has yet to conclude discussions. Elsewhere in the Far East region, the International Monetary Fund praised South Korea and Thailand's economic recoveries, and commended Indonesia's efforts to bring about structural reforms, thereby resuming loan disbursements to that country. A historic summit meeting between North and South Korea CONTENTS Shareholder Letter ........ 1 Performance Summary ....... 7 Important Notice to Shareholders .............. 8 Financial Highlights & Statement of Investments .. 10 Financial Statements ...... 19 Notes to Financial Statements ................ 22 Report of Independent Accountants ............... 25 Tax Designation ........... 26
[FUND CATEGORY PYRAMID GRAPHIC] Global Growth Growth & Income Income Tax-Free Income The dollar value, number of shares or principal value, and complete legal titles of all portfolio holdings are listed in the Fund's Statement of Investments (SOI). The SOI begins on page 11. GEOGRAPHIC DISTRIBUTION Based on Total Net Assets 8/31/00 [PIE CHART] Asia 43.0% Latin America 25.3% Mid-East/Africa 17.4% Europe 11.8% Short-Term Investments & Other Net Assets 2.5%
took place in June, resulting in improved confidence in, and better growth prospects for, South Korea. During the reporting period, Latin American markets performed relatively well. Mexico enjoyed strong GDP gains due in part to the unrelenting economic growth of the U.S., its primary export partner, coupled with soaring oil prices. And Moody's(R), an independent credit rating agency, assigned Mexico a coveted investment-grade rating. This upgraded rating could potentially lower the country's financing costs, and also makes it eligible for investment by a broad group of U.S. institutional investors normally unable to invest in emerging markets. Elsewhere in Latin America, the Brazilian government announced a US$1 billion reform package which could encourage economic development and foreign investment, and the Brazilian Senate approved a bankruptcy bill enabling simplification of the bankruptcy process. In Argentina, Fernardo De la Rua was elected president. De la Rua's conservative policies, along with continued support of the currency board system ("currency peg") within his financial reform efforts have found favor in the business community. In South Africa, the release of positive economic figures indicated slowing inflation and rising domestic demand, suggesting that the country's economy might be on its way to recovery. Furthermore, our assessment indicates that the country's recovery is now more broad-based than in the past, and therefore, less dependent on the outcome of agricultural activity. In another positive development, the South African government announced its intent to accelerate the privatization of state-owned companies and to raise at least US$6 billion by 2004, primarily through foreign direct investment. 2 During the 12-month period, many eastern European countries underwent further political changes which, when completed, could move them toward a greater focus on economic reform. Newly elected Russian president Vladimir Putin promoted internal reforms, and Russia's upper house of Parliament approved an overhaul of the country's tax system. Putin also signed various economic agreements with China in regard to education, banking, energy development and nuclear science research. Elsewhere in the region, Turkey's parliament elected Ahmet Necdet Sezer, a supporter of democratic and economic reforms, as president. And in Hungary, rising GDP, fixed investment growth and slowed inflation suggested a strengthening economy. During the latter part of 1999, equity markets of most developing countries performed strongly. However, the first eight months of 2000 saw many emerging markets giving back those gains. Higher interest rates, a global correction in technology stocks and an apparent lack of investor confidence in stocks of developing countries contributed to this negative performance. Within this environment, the Fund posted a -0.24% one-year cumulative total return in terms of net asset value, and a -23.10% one-year cumulative total return in market price terms, as shown in the Performance Summary on page 7. The MSCI Emerging Markets Free Index rose 6.30% during the same time.(1) The Fund's underperformance during the reporting period largely reflects our focus on undervalued stocks and unwillingness to go after expensive stocks. We are of the conviction that value will eventually be recognized, although it might take time. TOP 10 COUNTRIES* Based on Equity Investments 8/31/00
% OF TOTAL COUNTRY NET ASSETS ---------------------------- South Africa 13.4% Brazil 11.4% South Korea 10.8% Mexico 9.8% Thailand 6.8% Hong Kong 5.5% Singapore 5.0% Poland 4.4% Indonesia 4.0% Turkey 3.8%
* Does not include investments in fixed income securities, short-term investments or other net assets. (1.) Source: Morgan Stanley Capital International. The MSCI Emerging Markets Free Index is a market capitalization-weighted equity index comprising 26 of the 48 countries in the MSCI universe. "Free" denotes investment opportunities in the developing world available to foreign investors. 3 TOP 10 HOLDINGS* 8/31/00
COMPANY, % OF TOTAL SECTOR, COUNTRY NET ASSETS ----------------------------------------------- Cemex SA, 3.3% Construction Materials, Mexico Grupo Financiero Banamex Accival SA de CV, 3.1% Banks, Mexico Centrais Eletricas Brasileiras SA (Eletrobras), Ord. + B, pfd., 2.7% Electric Utilities, Brazil Korea Electric Power Corp., 2.7% Electric Utilities, South Korea Cheung Kong Holdings Ltd., 2.2% Real Estate, Hong Kong Samsung Electronics Co. Ltd., 1.8% Semiconductor Equipment & Products, South Korea Sasol Ltd., 1.7% Oil & Gas, South Africa Telefonos de Mexico SA de CV (Telmex) ADR, 1.7% Diversified Telecommunication Services, Mexico Banco Bradesco SA pfd., 1.6% Banks, Brazil Anglo American PLC, 1.6% Metals & Mining, South Africa
* Does not include investments in fixed income securities, short-term investments or other net assets. Attempting to maximize returns by keeping the Fund fully invested, we reduced our cash position from almost 8% of total net assets to 2.5%, yet maintained a relatively steady geographic distribution in the portfolio throughout the year. As of August 31, the Fund's greatest regional exposures were to Asia (43.0% of total net assets) and Latin America (25.3%). During the period, we were able to purchase several stocks at what we believed to be bargain prices in Taiwan. We found similar bargains in eastern Europe, as aspirations for European Union membership continued to push most nations there to improve their economies. We believe these continuing efforts may lead to further reforms and restructuring, which could, in turn, lead to positive market gains for eastern Europe and its neighbors. Our largest country exposure was to South Africa (13.4%), followed by Brazil (11.4%), South Korea (10.8%) and Mexico (9.8%). Our largest industry exposures were to banks and diversified telecommunication services, totaling 29.6%. Due to the aforementioned portfolio changes and varying performances of individual stocks, the following stocks fell out of the Fund's top 10 list during the fiscal year: LG Electronics and Samsung SDI (South Korea), Thai Farmers Bank (Thailand), Philippine Long Distance Telephone (Philippines), City Developments (Singapore) and Telesp Participacoes (Brazil). Brazil's Eletrobras and Banco Bradesco, Mexico's Grupo Financiero Banamex Accival, Hong Kong's Cheung Kong Holdings, South Korea's Samsung Electronics and South Africa's Sasol replaced them. 4 Looking forward, we are optimistic about long-term prospects for the Fund. Renewed selling has brought markets down to what we believe to be attractive levels, and we feel that the present discounts on stocks in a lot of these markets are unwarranted. Many emerging markets continue to exhibit strengthening macroeconomic characteristics, and in our opinion, political changes in emerging market countries during the past year may allow governments to focus on much-needed structural and economic reforms. We expect many emerging markets to continue their long-term growth trend -- albeit with some corrections along the way -- and anticipate finding the stocks of many solid companies trading at appealing prices. We shall continue to focus on those companies and countries which, in our opinion, have been the most aggressive in reform, since we believe improved corporate governance and better economic efficiencies can potentially benefit stock prices for years to come. Of course, investing in foreign securities involves special risks, such as adverse economic, social and political developments in the countries where the Fund invests, as well as market and currency volatility. Emerging market securities involve heightened risks related to the same factors, in addition to those associated with the relatively small size and lesser liquidity of these markets. Investing in any emerging market means accepting a certain amount of volatility and, in some cases, severe market corrections. For example, Hong Kong's equity market has appreciated 924.3% in the last 15 years, but has also suffered five quarterly declines of more than 20% each during that time.(2) While short-term volatility can be disconcerting, declines in excess of 50% are not unusual in emerging markets. (2) Source: Hong Kong's Hang Seng Index. Based on quarterly percentage price change over 15 years ended June 30, 2000. Market return is measured in U.S. dollars and does not include reinvested dividends. The Hang Seng Index is a capitalization-weighted index of 33 companies that represent approximately 70% of the total market capitalization of the Stock Exchange of Hong Kong. The components of the Index are divided into four subindexes: Commerce and Industry, Finance, Utilities and Properties. 5 We thank you for your continued participation in Templeton Emerging Markets Fund and welcome your comments and suggestions. Sincerely, /s/ Mark Mobius Mark Mobius President Templeton Emerging Markets Fund, Inc. -------------------------------------------------------------------------------- This discussion reflects our views, opinions and portfolio holdings as of August 31, 2000, the end of the reporting period. The information provided is not a complete analysis of every aspect of any country, industry, security or the Fund. Our strategies and the Fund's portfolio composition will change depending on market and economic conditions. Although historical performance is no guarantee of future results, these insights may help you understand our investment and management philosophy. -------------------------------------------------------------------------------- 6 ONE-YEAR PERFORMANCE SUMMARY AS OF 8/31/00 Distributions will vary based on earnings of the Fund's portfolio and any profits realized from the sale of the portfolio's securities, as well as the level of the Fund's operating expenses. Past distributions are not indicative of future trends. 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. One-Year Total Return - 0.24% Based on change in Net Asset Value -23.10% Based on change in Market Price on the New York Stock Exchange(NYSE) Net Asset Value (NAV) $11.44(8/31/00) $11.60(8/31/99) Change in NAV -$0.16 Market Price (NYSE) $9.3125(8/31/00) $12.250(8/31/99) Change in Market Price -$2.9375 Distributions (9/1/99-8/31/00) Dividend Income $0.1031 Long-Term Capital Gain $0.0311 --------------------------------------------- Total $0.1342
ADDITIONAL PERFORMANCE AS OF 9/30/00
INCEPTION 1-YEAR 5-YEAR 10-YEAR (2/26/87) ------------------------------------------------------------------------ Cumulative Total Return(1) Based on change in NAV - 4.94% 23.77% 338.61% 621.83% Based on change in market price -23.37% -8.62% 258.85% 368.64% Average Annual Total Return(2) Based on change in NAV - 4.94% 4.36% 15.93% 15.65% Based on change in market price -23.37% -1.78% 13.63% 12.03%
For updated performance figures, please call Franklin Templeton at 1-800/342-5236. Past performance does not guarantee future results. (1) Cumulative total return represents the change in value of an investment over the periods indicated. (2) Average annual total return represents the average annual change in value of an investment over the periods indicated. Templeton Emerging Markets Fund, Inc. paid distributions derived from long-term capital gains of 3.11 cent ($0.0311) per share in October 1999. The Fund hereby designates such distributions as capital gain dividends in accordance with Internal Revenue Code Section 852(b)(3). -------------------------------------------------------------------------------- Since markets can go down as well as up, investment return and principal value will fluctuate with market conditions, currency volatility, and the economic, social and political climates 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. -------------------------------------------------------------------------------- 7 IMPORTANT NOTICE TO SHAREHOLDERS -------------------------------------------------------------------------------- DEFINITIONS OF "EMERGING MARKET" AND "EMERGING MARKET COMPANY." The Fund uses the following definitions of "emerging market" and "emerging market company" to reflect the dynamic nature of what constitutes an "emerging market" or an "emerging market company." The following definitions generally will be used in managing the Fund's portfolio: "Emerging market" countries are (i) countries that are generally considered low or middle income countries by the International Bank of Reconstruction and Development (commonly known as the World Bank) and the International Finance Corporation; or (ii) countries that are classified by the United Nations or otherwise regarded by their authorities as developing; or (iii) countries with a stock market capitalization of less than 3% of the Morgan Stanley Capital(R) International World Index. "Emerging market companies" are (i) companies whose principal securities trading markets are in emerging market countries; or (ii) companies that derive a significant share of their total revenue from either goods or services produced or sales made in emerging market countries; or (iii) companies that have a significant portion of their assets in emerging market countries; or (iv) companies that are linked to currencies of emerging market countries; or (v) companies that are organized under the laws of or with principal offices in, emerging market countries. These definitions as used by the Fund's manager may differ from the definition of the same terms as used in managing other Franklin Templeton funds. The Board of Directors may change these definitions without shareholder approval. EURO RISK. On January 1, 1999, the European Economic and Monetary Union (EMU) introduced a new single currency called the euro. By July 1, 2002, the euro, which will be implemented in stages, will have replaced the national currencies of most of the member countries. It is not possible to predict the long-term impact of the euro on currency values or on the business or financial condition of European countries and issuers, and issuers in other regions, whose securities the Fund may hold, or the impact, if any, on Fund performance. In the first year and a half of the euro's existence, the exchange rates of the euro versus many of the world's major currencies steadily declined. In this environment, U.S. and other foreign investors experienced erosion of their investment returns on their euro-denominated securities. The transition and the elimination of currency risk among EMU countries may change the economic environment and behavior of investors, particularly in European markets, but the full impact of those changes cannot be assessed at this time. -------------------------------------------------------------------------------- 8 -------------------------------------------------------------------------------- INVESTMENT OF CASH BALANCES. The U.S. Securities and Exchange Commission granted the Franklin Templeton Funds an order that allows the funds, including Templeton Emerging Markets Fund, Inc., to invest their uninvested cash balances in affiliated Franklin Templeton money market funds. Among the conditions of the SEC order are that there will be no layering of investment advisory fees with regard to their investments in the Franklin Templeton money market funds. At a shareholder meeting held on March 7, 2000, shareholders approved an amendment to the Fund's fundamental investment restriction regarding diversification of its investments to permit, among other things, the Fund to invest its cash balances to the full extent permitted by the SEC's exemptive order. Subject to the conditions of the SEC order, the Fund may invest cash balances in Franklin Templeton money market funds. -------------------------------------------------------------------------------- 9 TEMPLETON EMERGING MARKETS FUND, INC. Financial Highlights
YEAR ENDED AUGUST 31, -------------------------------------------------------- 2000 1999 1998 1997 1996 -------------------------------------------------------- PER SHARE OPERATING PERFORMANCE+ (For a share outstanding throughout the year) Net asset value, beginning of year......................... $11.60 $10.85 $20.67 $17.26 $18.23 -------------------------------------------------------- Income from investment operations: Net investment income..................................... .13 .13 .26 .27 .25 Net realized and unrealized gains (losses)................ (.16) 5.17 (7.64) 4.27 1.20 -------------------------------------------------------- Total from investment operations........................... (.03) 5.30 (7.38) 4.54 1.45 -------------------------------------------------------- Less distributions from: Net investment income..................................... (.10) (.29) (.26) (.21) (.26) Net realized gains........................................ (.03) (4.26) (2.18) (.92) (2.16) -------------------------------------------------------- Total distributions........................................ (.13) (4.55) (2.44) (1.13) (2.42) -------------------------------------------------------- Net asset value, end of year............................... $11.44 $11.60 $10.85 $20.67 $17.26 ======================================================== Total Return Based on market value per share........................... (23.10)% 99.91% (54.35)% 33.81% 7.45% Based on net asset value per share........................ (.24)% 60.34% (39.69)% 27.34% 8.69% RATIOS/SUPPLEMENTAL DATA Net assets, end of year (000's)............................ $201,965 $204,804 $182,352 $342,002 $283,678 Ratios to average net assets: Expenses.................................................. 1.68% 1.63% 1.70% 1.67% 1.71% Net investment income..................................... 1.09% 1.18% 1.58% 1.38% 1.51% Portfolio turnover rate.................................... 81.66% 45.00% 40.51% 12.60% 8.83%
+Based on average weighted shares outstanding effective year ended August 31, 1999. See Notes to Financial Statements. 10 TEMPLETON EMERGING MARKETS FUND, INC. STATEMENT OF INVESTMENTS, AUGUST 31, 2000
INDUSTRY SHARES VALUE ---------------------------------------------------------------------------------------------------------------------------- LONG TERM SECURITIES 97.5% ARGENTINA 2.2% *Capex SA, A..................................... Electric Utilities 36,849 $ 217,453 *Molinos Rio de la Plata SA, B................... Food Products 103,832 197,320 Perez Companc SA, B.............................. Oil & Gas 545,142 910,569 Quilmes Industrial SA, ADR....................... Beverages 74,830 823,130 Telecom Argentina Stet-France Telecom SA, B, ADR............................................ Diversified Telecommunication Services 96,548 2,268,878 ------------ 4,417,350 ------------ AUSTRIA 2.1% Austria Tabak AG................................. Tobacco 6,592 253,471 Bank Austria AG.................................. Banks 43,370 2,325,045 BBAG Oesterreichische Brau-Beteiligungs AG....... Beverages 3,087 137,224 Erste Bank Der Oester Sparkassen AG.............. Banks 1,560 69,484 Mayr-Melnhof Karton AG........................... Containers & Packaging 8,830 400,365 OMV AG........................................... Oil & Gas 13,135 975,199 ------------ 4,160,788 ------------ BRAZIL 11.4% Banco Bradesco SA, pfd. ......................... Banks 381,989,259 3,212,111 *Bradespar SA, pfd. ............................. Banks 239,062,259 163,876 Brasil Telecom Participacoes SA, pfd. ........... Diversified Telecommunication Services 62,348,000 890,930 Centrais Eletricas Brasileiras SA (Eletrobras)... Electric Utilities 13,690,000 256,570 Centrais Eletricas Brasileiras SA (Eletrobras), B, pfd. ....................................... Electric Utilities 255,516,770 5,195,999 Cia Energetica de Minas Gerais, pfd. ............ Electric Utilities 51,020,000 914,126 Cia Vale do Rio Doce, A, pfd. ................... Metals & Mining 80,830 2,185,675 Companhia Paranaense de Energia-Copel, B, pfd. .......................................... Electric Utilities 110,842,000 1,005,772 *Companhia Riograndense de Telecom, A, pfd. ..... Diversified Telecommunication Services 2,278,000 989,074 Copene-Petroquimica do Nordeste SA, A, pfd. ..... Chemicals 4,173,800 1,743,384 Duratex SA, pfd. ................................ Building Products 6,379,800 226,159 Eletropaulo Metropolitana SA, pfd. .............. Electric Utilities 10,384,000 639,191 Embraer-Empresa Brasileira de Aeronautica SA..... Aerospace & Defense 183,300 1,181,703 Itausa-Investimentos Itau SA, pfd. .............. Industrial Conglomerates 529,332 561,479 Tele Celular Sul Participacoes SA, pfd. ......... Wireless Telecommunication Services 11,322,000 46,358 Tele Norte Leste Participacoes SA, pfd. ......... Diversified Telecommunication Services 88,615,767 2,245,225 Unibanco Uniao de Bancos Brasileiros SA, GDR..... Banks 48,646 1,653,964 ------------ 23,111,596 ------------ CHILE .3% *Cia de Telecomunicaciones de Chile SA, ADR...... Diversified Telecommunication Services 30,830 543,379 *Madeco Manufacturera de Cobre SA, ADR........... Metals & Mining 27,210 156,458 ------------ 699,837 ------------ CHINA .1% Shandong Huaneng Power Development Co. Ltd., ADR............................................ Electric Utilities 20,100 153,263 ------------
11 TEMPLETON EMERGING MARKETS FUND, INC. STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (CONT.)
INDUSTRY SHARES VALUE ---------------------------------------------------------------------------------------------------------------------------- LONG TERM SECURITIES (CONT.) COLOMBIA .6% Cementos Argos SA................................ Construction Materials 486,528 $ 862,210 Compania Nacional de Chocolates SA............... Food Products 67,334 182,411 Compania Suramericana de Inversiones SA.......... Diversified Financials 149,840 104,931 ------------ 1,149,552 ------------ CROATIA Pliva D D, GDR, Reg S............................ Pharmaceuticals 9,400 99,875 ------------ CZECH REPUBLIC .7% *Cesky Telecom AS................................ Diversified Telecommunication Services 2,693 40,704 *CEZ AS.......................................... Electric Utilities 476,250 1,298,122 Tabak AS......................................... Tobacco 35 4,938 ------------ 1,343,764 ------------ EGYPT 1.2% *Al Ahram Beverages Co., GDR..................... Beverages 32,147 544,892 Commercial International Bank Ltd. .............. Banks 95,785 930,327 *Orascom Telecom................................. Wireless Telecommunication Services 42,000 597,320 *Suez Cement Co. ................................ Construction Materials 40,950 384,452 ------------ 2,456,991 ------------ ESTONIA .3% Eesti Telekom AS, GDR, Reg S..................... Diversified Telecommunication Services 2,150 38,163 Hansabank Ltd. .................................. Banks 65,850 504,168 ------------ 542,331 ------------ FINLAND .1% Hartwall OYJ, A.................................. Beverages 12,650 224,929 ------------ GREECE .3% Hellenic Telecommunications Organization SA...... Diversified Telecommunication Services 36,160 673,138 ------------ HONG KONG 5.5% Cheung Kong Holdings Ltd. ....................... Real Estate 349,000 4,541,882 *China Aerospace International Holdings Ltd. .... Industrial Conglomerates 1,104,400 169,923 Cosco Pacific Ltd. .............................. Commercial Services & Supplies 166,000 150,052 Dairy Farm International Holdings Ltd. .......... Food & Drug Retailing 658,404 302,866 Hang Lung Development Co. Ltd. .................. Real Estate 846,000 786,417 Hong Kong & Shanghai Hotels Ltd. ................ Hotels Restaurants & Leisure 127,000 79,789 Hong Kong Land Holdings Ltd. .................... Real Estate 389,800 779,600 HSBC Holdings PLC................................ Banks 51,434 732,011 Hutchison Whampoa Ltd. .......................... Diversified Financials 112,700 1,589,502 Jardine Matheson Holdings Ltd. .................. Food & Drug Retailing 267,211 1,309,334 *Pacific Century Cyberworks Ltd. ................ Diversified Telecommunication Services 87,099 161,929 Swire Pacific Ltd., A............................ Diversified Financials 77,500 531,618 ------------ 11,134,923 ------------
12 TEMPLETON EMERGING MARKETS FUND, INC. STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (CONT.)
INDUSTRY SHARES VALUE ---------------------------------------------------------------------------------------------------------------------------- LONG TERM SECURITIES (CONT.) HUNGARY 1.9% Borsodchem RT, GDR, Reg S........................ Chemicals 12,573 $ 399,821 Egis RT.......................................... Pharmaceuticals 6,552 320,952 Gedeon Richter Ltd. ............................. Pharmaceuticals 17,670 988,796 *Graphisoft NV................................... Electronic Equipment & Instruments 41 584 Matav RT......................................... Diversified Telecommunication Services 80,700 446,099 Mol Magyar Olay-Es Gazipari RT................... Oil & Gas 72,640 993,359 OTP Bank......................................... Banks 10,200 548,055 Tiszai Vegyi Kombinat RT......................... Chemicals 4,800 57,150 ------------ 3,754,816 ------------ INDIA .7% BSES Ltd. ....................................... Electric Utilities 29,600 140,854 *Colgate-Palmolive (INDIA) Ltd. ................. Household Products 2,600 9,185 Gas Authority of India Ltd., GDR................. Gas Utilities 11,600 78,300 Grasim Industries Ltd. .......................... Industrial Conglomerates 25,300 150,905 Hindalco Industries Inc. ........................ Metals & Mining 14,800 259,784 Hindustan Petroleum Corporation Ltd. ............ Oil & Gas 64,800 171,804 Mahanagar Telephone Nigam Ltd. .................. Diversified Telecommunication Services 188,200 626,854 ------------ 1,437,686 ------------ INDONESIA 4.0% *Asia Pulp & Paper Co. Ltd., ADR................. Paper & Forest Products 180,180 686,936 *PT Barito Pacific Timber TBK.................... Paper & Forest Products 5,823,500 210,108 PT Gudang Garamm................................. Tobacco 251,500 377,477 PT Hanjaya Mandala Sampoerna..................... Tobacco 80,500 119,564 *PT Indah Kiat Pulp & Paper Corp. TBK............ Paper & Forest Products 5,355,800 937,184 *PT Indocement Tunggal Prakarsa.................. Construction Materials 747,000 233,129 *PT Indofoods Sukses Makmurr TBK................. Food Products 1,926,750 864,315 PT Indosat TBK................................... Diversified Telecommunication Services 854,500 765,607 PT Semen Gresik TBK.............................. Construction Materials 569,111 461,996 PT Telekomunikasi Indonesia (Persero), B......... Diversified Telecommunication Services 8,930,460 3,103,912 PT Timah TBK..................................... Metals & Mining 1,014,000 265,238 PT Tjiwi Kimia TBK............................... Paper & Forest Products 991,500 146,072 ------------ 8,171,538 ------------ ISRAEL 2.8% *Ampal-American Israel Corp., A.................. Diversified Financials 2,680 41,708 *Crystal Systems Solutions Ltd. ................. Software 2,300 19,838 Elbit Systems Ltd. .............................. Aerospace & Defense 8,831 133,663 Elron Electronic Industries Ltd. ................ Electronic Equipment & Instruments 29,790 1,228,087 *Formula Systems Ltd. ........................... Software 15,599 788,299 *Fundtech Ltd. .................................. Software 24,790 596,509 *Galileo Technology Ltd. ........................ Semiconductor Equipment & Products 15,000 441,563 *Gilat Satellite Networks Ltd. .................. Communications Equipment 2,630 211,058 *Magic Software Enterprises Ltd. ................ Software 23,150 208,350 *Nice Systems Ltd. .............................. Communications Equipment 5,050 402,542
13 TEMPLETON EMERGING MARKETS FUND, INC. STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (CONT.)
INDUSTRY SHARES VALUE ---------------------------------------------------------------------------------------------------------------------------- LONG TERM SECURITIES (CONT.) ISRAEL (CONT.) *Orbotech Ltd. .................................. Electronic Equipment & Instruments 6,640 $ 642,835 *Orckit Communications Ltd. ..................... Diversified Telecommunication Services 7,000 69,125 *Sapiens International Corp. .................... Software 20,400 137,700 *Tecnomatix Technologies Ltd. ................... Software 12,938 194,070 *TTI Team Telecom International Ltd. ............ Software 9,100 261,625 *Vocaltec Communications Ltd. ................... Software 13,600 219,300 ------------ 5,596,272 ------------ MALAYSIA .8% Genting Bhd. .................................... Hotels Restaurants & Leisure 295,400 831,784 Golden Hope Plantations Bhd. .................... Food Products 126,000 122,684 IOI Corp. Bhd. .................................. Food Products 510,000 434,842 Resorts World Bhd. .............................. Hotels Restaurants & Leisure 91,000 187,987 ------------ 1,577,297 ------------ MEXICO 9.8% Alfa SA de CV, A................................. Industrial Conglomerates 196,200 540,293 Cemex SA......................................... Construction Materials 1,435,257 6,735,441 DESC SA de CV DESC, B............................ Industrial Conglomerates 525,900 325,635 Fomento Economico Mexicano SA de CV Femsa........ Beverages 20,750 945,422 Grupo Bimbo SA de CV, A.......................... Food Products 333,500 532,557 *Grupo Financiero Banamex Accival SA de CV....... Banks 1,242,294 6,342,710 *Grupo Financiero Bancomer SA de CV.............. Banks 1,497,500 897,963 Grupo Mexico SA de CV, B......................... Metals & Mining 6,600 29,467 Telefonos de Mexico SA de CV (Telmex), ADR....... Diversified Telecommunication Services 62,492 3,401,908 ------------ 19,751,396 ------------ PAKISTAN 1.0% *Hub Power Co. Ltd. ............................. Electric Utilities 2,602,000 824,821 Pakistan Telecommunications Corp., A............. Diversified Telecommunication Services 2,479,000 1,162,847 ------------ 1,987,668 ------------ PERU .1% Credicorp Ltd. .................................. Banks 14,700 123,113 ------------ PHILIPPINES 2.9% *Filinvest Development Corp. .................... Real Estate 522,000 14,807 Philippine Long Distance Telephone Co., ADR...... Diversified Telecommunication Services 135,338 2,283,829 *Philippine National Bank........................ Banks 1,063,860 1,308,459 RFM Corp. ....................................... Food Products 4,906,803 206,602 San Miguel Corp., B.............................. Beverages 1,664,900 1,955,450 ------------ 5,769,147 ------------
14 TEMPLETON EMERGING MARKETS FUND, INC. STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (CONT.)
INDUSTRY SHARES VALUE ---------------------------------------------------------------------------------------------------------------------------- LONG TERM SECURITIES (CONT.) POLAND 4.4% Bank Rozwoju Eksportu SA......................... Banks 25,105 $ 806,977 Bank Slaski SA W Katowicach...................... Banks 17,120 807,897 *Elektrim SA..................................... Electrical Equipment 196,800 2,225,300 Impexmetal SA.................................... Metals & Mining 1,603 11,475 *Orbis SA........................................ Hotels Restaurants & Leisure 51,900 325,373 Polski Koncern Naftowy Orlen SA.................. Oil & Gas 404,200 1,870,571 Prokom Software SA............................... IT Consulting & Services 23,303 1,152,799 Telekomunikacja Polska SA........................ Diversified Telecommunication Services 288,021 1,707,180 ------------ 8,907,572 ------------ RUSSIA 1.9% GUM Trade House.................................. Multiline Retail 27,000 53,595 Lukoil Holdings.................................. Oil & Gas 8,400 136,080 Lukoil Holdings, ADR............................. Oil & Gas 28,340 1,827,930 Mosenergo, ADR................................... Electric Utilities 43,220 202,702 Mosenergo, GDR................................... Electric Utilities 9,800 44,957 Rostelecom, ADR.................................. Diversified Telecommunication Services 82,850 1,190,969 Rostelekom, pfd. ................................ Diversified Telecommunication Services 103,800 85,635 *Unified Energy Systems.......................... Electric Utilities 2,149,700 363,299 *Unified Energy Systems, pfd. ................... Electric Utilities 119,000 8,449 ------------ 3,913,616 ------------ SINGAPORE 5.0% Cycle & Carriage Ltd. ........................... Specialty Retail 14,000 30,907 DBS Group Holdings Ltd. ......................... Banks 79,304 958,301 First Capital Corp. Ltd. ........................ Real Estate 166,000 161,053 Fraser and Neave Ltd. ........................... Beverages 499,700 1,857,945 *Golden Agri-Resources Ltd. ..................... Food Products 366,000 69,105 Keppel Corp., Ltd. .............................. Diversified Financials 1,126,000 2,551,211 MCL Land Ltd. ................................... Real Estate 6,000 4,671 Natsteel Ltd. ................................... Industrial Conglomerates 709,000 972,079 Oversea Chinese Banking Corp. Ltd. .............. Banks 258,500 1,787,109 Overseas Union Enterprise Ltd. .................. Hotels Restaurants & Leisure 36,900 105,043 Sembcorp Industries Ltd. ........................ Industrial Conglomerates 715,096 764,409 Sembcorp Marine Ltd. ............................ Machinery 92,000 36,077 United Industrial Corporation Ltd. .............. Real Estate 363,000 172,927 United Overseas Bank Ltd. ....................... Banks 80,368 630,319 ------------ 10,101,156 ------------ SLOVAK REPUBLIC .1% *Slovnaft AS..................................... Oil & Gas 8,000 96,780 *Vychodoslovenske Zeleziarne AS.................. Metals & Mining 5,000 16,165 ------------ 112,945 ------------
15 TEMPLETON EMERGING MARKETS FUND, INC. STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (CONT.)
INDUSTRY SHARES VALUE ---------------------------------------------------------------------------------------------------------------------------- LONG TERM SECURITIES (CONT.) SOUTH AFRICA 13.4% *African Bank Investments Ltd. .................. Diversified Financials 493,800 $ 527,617 Anglo American PLC............................... Metals & Mining 56,920 3,183,765 Barlow Ltd. ..................................... Industrial Conglomerates 344,044 2,247,573 CG Smith Ltd. ................................... Food Products 845,900 12,132 *Comparex Holdings Ltd. ......................... IT Consulting & Services 42,500 65,830 De Beers Centenary AG............................ Metals & Mining 33,250 925,134 Fedsure Holdings Ltd. ........................... Insurance 182,639 830,356 Firstrand Ltd. .................................. Banks 236,000 258,932 *Imperial Holdings Ltd. ......................... Specialty Retail 57,000 547,723 Iscor Ltd. ...................................... Metals & Mining 392,838 912,725 Kersaf Investments Ltd. ......................... Hotels Restaurants & Leisure 71,775 309,335 Liberty Group Ltd. .............................. Insurance 114,459 1,067,025 Nampak Ltd. ..................................... Containers & Packaging 343,476 662,568 Nedcor Ltd. ..................................... Banks 18,000 407,888 Old Mutual PLC................................... Insurance 789,720 1,990,645 Palabora Mining Co. Ltd. ........................ Metals & Mining 27,000 171,158 Rembrandt Group Ltd. ............................ Diversified Financials 198,200 1,961,391 Reunert Ltd. .................................... Electronic Equipment & Instruments 100,500 168,641 Sanlam Ltd. ..................................... Insurance 738,500 889,695 Sappi Ltd. ...................................... Paper & Forest Products 121,700 1,064,711 Sasol Ltd. ...................................... Oil & Gas 431,000 3,523,413 South African Breweries PLC...................... Beverages 410,648 3,009,554 Super Group Ltd. ................................ Specialty Retail 133,000 131,617 Tiger Brands Ltd. ............................... Food Products 209,333 1,669,260 Tongaat-Hulett Group Ltd. ....................... Food Products 86,981 449,095 ------------ 26,987,783 ------------ SOUTH KOREA 10.8% Cheil Jedang Corp. .............................. Food Products 16,520 692,834 Hana Bank........................................ Banks 180,150 968,382 *Hyundai Electronics Industries Co. ............. Semiconductor Equipment & Products 70,650 1,293,524 *Hyundai Heavy Industries........................ Machinery 23,020 456,767 Hyundai Motor Co. Ltd. .......................... Automobiles 46,440 703,668 *Korea Data Systems.............................. Computers & Peripherals 99,600 523,714 Korea Electric Power Corp. ...................... Electric Utilities 183,640 5,399,472 Korea Telecom Corp. ............................. Diversified Telecommunication Services 2,065 141,361 Korea Telecom Corp., ADR......................... Diversified Telecommunication Services 8,483 321,294 LG Chemical Ltd. ................................ Chemicals 25,830 435,645 LG Electronics Inc. ............................. Household Durables 75,930 1,931,207 Samsung Corp. ................................... Trading Companies & Distributors 37,300 338,097 *Samsung Electro-Mechanics Co. .................. Electronic Equipment & Instruments 2,820 119,794 Samsung Electronics Co. Ltd. .................... Semiconductor Equipment & Products 14,477 3,571,102 *Samsung Heavy Industries Co. Ltd. .............. Machinery 392,808 1,541,118
16 TEMPLETON EMERGING MARKETS FUND, INC. STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (CONT.)
INDUSTRY SHARES VALUE ---------------------------------------------------------------------------------------------------------------------------- LONG TERM SECURITIES (CONT.) SOUTH KOREA (CONT.) Samsung SDI Co. Ltd. ............................ Electronic Equipment & Instruments 37,956 $ 1,694,541 SK Corp. ........................................ Oil & Gas 91,980 1,559,616 SK Global........................................ Trading Companies & Distributors 20,020 213,968 ------------ 21,906,104 ------------ TAIWAN 1.6% *Accton Technology Corp. ........................ Computers & Peripherals 367,000 797,248 Advantech Co. Ltd. .............................. Computers & Peripherals 60,000 347,574 Hon Hai Precision Industry Co. Ltd. ............. Electronic Equipment & Instruments 139,100 1,060,961 *Procomp Informatics Co. Ltd. ................... Machinery 41,000 225,634 *Ritek Corp. .................................... Computers & Peripherals 50,000 197,120 *Siliconware Precision Industries Co Ltd. ....... Semiconductor Equipment & Products 50,000 77,239 UNI-President Enterprises Corp. ................. Food Products 240,840 165,869 *United Epitaxy Co. Ltd. ........................ Electronic Equipment & Instruments 7,000 17,459 *Via Technologies Inc. .......................... Electronic Equipment & Instruments 25,500 339,754 ------------ 3,228,858 ------------ THAILAND 6.8% *Advanced Info Service Public Co. Ltd., fgn. .... Wireless Telecommunication Services 6,900 83,391 *American Standard Sanitaryware Public Co. Ltd., fgn. .......................................... Building Products 13,300 52,061 *Bangkok Bank Public Co. Ltd. ................... Banks 700 437 *Bangkok Bank Public Co. Ltd., fgn. ............. Banks 734,800 759,518 BEC World Public Co Ltd., fgn. .................. Media 32,460 195,356 Charoen Pokphand Foods Public Co. Ltd., fgn. .... Food Products 315,096 383,511 *Charoen Pokphand Foods Public Co. Ltd., fgn., wts., 4/29/02.................................. Food Products 166,998 20,019 *Dusit Thani Public Company Ltd., fgn. .......... Hotels Restaurants & Leisure 74,500 47,388 Electricity Generating Public Co. Ltd. .......... Electric Utilities 122,100 142,637 Hana Microelectronics Co. Ltd., fgn. ............ Electronic Equipment & Instruments 105,300 777,996 *Jasmine International Public Co. Ltd., fgn. .... Construction & Engineering 930,900 220,911 *Land and House Public Co. Ltd., fgn. ........... Household Durables 399,749 134,472 PTT Exploration & Production Public Co. Ltd., fgn. .......................................... Oil & Gas 163,300 1,014,757 Saha Union Public Co. Ltd., fgn. ................ Textiles & Apparel 111,000 27,835 *Serm Suk Public Co. Ltd. ....................... Beverages 78,800 160,010 Serm Suk Public Co. Ltd., fgn. .................. Beverages 1,300 3,021 *Shin Corporations Public Company Ltd., fgn. .... Wireless Telecommunication Services 221,000 1,011,058 *Siam Cement Public Co. Ltd. .................... Construction Materials 70,165 569,903 *Siam Cement Public Co. Ltd., fgn. .............. Construction Materials 91,215 1,169,337 *Siam Commercial Bank, 144A, 5.25%, fgn., cvt. pfd. .......................................... Banks 3,366,300 1,482,407 Siam Makro Public Company Ltd., fgn. ............ Food & Drug Retailing 286,500 409,336 *Telecomasia Corp. Public Co. Ltd., fgn. ........ Diversified Telecommunication Services 766,000 618,422 *Thai Airways International Public Co. Ltd., fgn. .......................................... Airlines 347,300 327,121 *Thai Farmers Bank Public Co. Ltd. .............. Banks 274,400 146,011 *Thai Farmers Bank Public Co. Ltd., fgn. ........ Banks 3,466,100 2,119,939
17 TEMPLETON EMERGING MARKETS FUND, INC. STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (CONT.)
INDUSTRY SHARES VALUE ---------------------------------------------------------------------------------------------------------------------------- LONG TERM SECURITIES (CONT.) THAILAND (CONT.) *Total Access Communication Public Co. Ltd. ..... Diversified Telecommunication Services 322,100 $ 1,281,958 *United Communication Industry Public Co. Ltd., fgn. .......................................... Communications Equipment 633,000 542,018 ------------ 13,700,830 ------------ TURKEY 3.8% Akbank........................................... Banks 464,994,722 2,840,703 Akcansa Cimento Sanayi Ve Ticaret AS............. Construction Materials 5,895,000 75,628 *Dogan Sirketler Grubu Holding AS................ Diversified Financials 28,606,000 666,262 *Tupras-Turkiye Petrol Rafineleri AS............. Oil & Gas 60,698,200 2,734,738 *Turkcell Iletisim Hizmetleri AS................. Wireless Telecommunication Services 27,160,000 1,451,830 ------------ 7,769,161 ------------ UNITED STATES *Seminis Inc., A................................. Food Products 1,800 2,925 ------------ VENEZUELA .9% Compania Anonima Nacional Telefonos de Venezuela, ADR............................................ Diversified Telecommunication Services 77,350 1,904,744 ------------ TOTAL LONG TERM SECURITIES (COST $196,810,194)... 196,872,964 ------------ PRINCIPAL AMOUNT** ------------ SHORT TERM INVESTMENTS (COST $5,538,721) 2.7% U.S. Treasury Bills, 5.735% to 6.360%, with maturities to 11/24/00......................... $ 5,592,000 5,539,699 ------------ TOTAL INVESTMENTS (COST $202,348,915) 100.2%..... 202,412,663 OTHER ASSETS, LESS LIABILITIES (.2%)............. (447,692) ------------ TOTAL NET ASSETS 100.0%.......................... $201,964,971 ============
*Non-income producing. **Securities denominated in U.S. dollars. See Notes to Financial Statements. 18 TEMPLETON EMERGING MARKETS FUND, INC. Financial Statements STATEMENT OF ASSETS AND LIABILITIES AUGUST 31, 2000 Assets: Investments in securities, at value (cost $202,348,915).... $202,412,663 Cash....................................................... 165,099 Receivables: Investment securities sold................................ 183,782 Dividends and interest.................................... 489,427 ------------ Total assets.......................................... 203,250,971 ------------ Liabilities: Payables: Investment securities purchased........................... 824,582 To affiliates............................................. 239,796 Accrued expenses........................................... 221,622 ------------ Total liabilities..................................... 1,286,000 ------------ Net assets, at value........................................ $201,964,971 ============ Net assets consist of: Undistributed net investment income........................ $ 1,727,654 Net unrealized appreciation................................ 63,748 Accumulated net realized loss.............................. (4,620,242) Capital shares............................................. 204,793,811 ------------ Net assets, at value........................................ $201,964,971 ============ Net asset value per share ($201,964,971 / 17,656,437 shares outstanding).............................................. $11.44 ============
See Notes to Financial Statements. 19 TEMPLETON EMERGING MARKETS FUND, INC. Financial Statements (continued) STATEMENT OF OPERATIONS FOR THE YEAR ENDED AUGUST 31, 2000 Investment Income: (net of foreign taxes of $561,292) Dividends.................................................. $ 5,399,216 Interest................................................... 575,210 ----------- Total investment income............................... $ 5,974,426 Expenses: Management fees (Note 3)................................... 2,696,864 Administrative fees (Note 3)............................... 323,618 Transfer agent fees........................................ 123,900 Custodian fees............................................. 254,500 Reports to shareholders.................................... 130,200 Registration and filing fees............................... 14,000 Professional fees.......................................... 40,400 Directors' fees and expenses............................... 40,700 Other...................................................... 5,850 ----------- Total expenses........................................ 3,630,032 ----------- Net investment income........................... 2,344,394 ----------- Realized and unrealized gains (losses): Net realized gain (loss) from: Investments............................................... 6,980,855 Foreign currency transactions............................. (307,623) ----------- Net realized gain..................................... 6,673,232 Net unrealized depreciation on investments............ (9,487,022) ----------- Net realized and unrealized loss............................ (2,813,790) ----------- Net decrease in net assets resulting from operations........ $ (469,396) ===========
See Notes to Financial Statements. 20 TEMPLETON EMERGING MARKETS FUND, INC. Financial Statements (continued) STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEARS ENDED AUGUST 31, 2000 AND 1999
2000 1999 -------------------------------- Increase (decrease) in net assets: Operations: Net investment income..................................... $ 2,344,394 $ 2,243,372 Net realized gain (loss) from investments and foreign currency transactions.................................... 6,673,232 (9,036,810) Net unrealized appreciation (depreciation) on investments.............................................. (9,487,022) 97,897,584 -------------------------------- Net increase (decrease) in net assets resulting from operations............................................ (469,396) 91,104,146 Distributions to shareholders from: Net investment income..................................... (1,820,379) (4,872,098) Net realized gains........................................ (549,115) (71,586,456) -------------------------------- Total distributions to shareholders........................ (2,369,494) (76,458,554) Capital share transactions (Note 2)........................ -- 7,806,529 Net increase (decrease) in net assets................... (2,838,890) 22,452,121 Net assets: Beginning of year.......................................... 204,803,861 182,351,740 -------------------------------- End of year................................................ $201,964,971 $ 204,803,861 ================================ Undistributed net investment income included in net assets: End of year................................................ $ 1,727,654 $ 1,289,249 ================================
See Notes to Financial Statements. 21 TEMPLETON EMERGING MARKETS FUND, INC. Notes to Financial Statements 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Templeton Emerging Markets Fund, Inc. (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 primarily 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 latest 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. Securities for which market quotations are not readily available are valued at fair value as determined by management in accordance with procedures established by the Board of Directors. 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. When the Fund purchases or sells foreign securities it will customarily enter into a foreign exchange contract to minimize foreign exchange risk from the trade date to the settlement date of such transactions. 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 currency denominated assets and liabilities other than investments in securities held at the end of the reporting period. c. 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. 22 TEMPLETON EMERGING MARKETS FUND, INC. Notes to Financial Statements (continued) 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.) d. ACCOUNTING ESTIMATES: The preparation of financial statements in accordance with generally accepted accounting principles 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. 2. CAPITAL SHARES At August 31, 2000, there were 30 million shares authorized ($0.01 par value). During the year ended August 31, 2000, there were no share transactions and for the year ended August 31, 1999, 856,099 shares were issued for $7,806,529 from reinvested distributions. 3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES Certain officers of the Fund are also officers or directors of Templeton Asset Management Ltd. (TAML) and Franklin Templeton Services, Inc. (FT Services), the Fund's investment manager and administrative manager, respectively. 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 monthly to FT Services based on the rate of 0.15% per year of the Fund's average daily net assets. 4. 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 all of its taxable income. At August 31, 2000, the net unrealized depreciation based on the cost of investments for income tax purposes of $205,732,806 was as follows: Unrealized appreciation..................................... $ 34,349,777 Unrealized depreciation..................................... (37,669,920) ------------ Net unrealized depreciation................................. $ (3,320,143) ============
Net investment income and net realized capital gains differ for financial statement and tax purposes primarily due to differing treatments of wash sales and losses realized subsequent to October 31 on the sale of foreign currencies. At August 31, 2000, the Fund had deferred currency losses occurring subsequent to October 31, 1999 of $281,029. For tax purposes, such losses will be reflected in the year ending August 31, 2001. 23 TEMPLETON EMERGING MARKETS FUND, INC. Notes to Financial Statements (continued) 4. INCOME TAXES (CONT.) At August 31, 2000, the Fund had tax basis capital losses of $985,226 which may be carried over to offset future capital gains. Such losses expire August 31, 2008. 5. INVESTMENT TRANSACTIONS Purchases and sales of securities (excluding short-term securities) for the year ended August 31, 2000 aggregated $174,673,166 and $164,895,479, respectively. 24 TEMPLETON EMERGING MARKETS FUND, INC. REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of the Templeton Emerging Markets Fund, Inc. (the "Fund") at August 31, 2000, the results of its operations for the year then ended, the changes in its net assets and the financial highlights for each of the two years in the period then ended, in conformity with accounting principles generally accepted in the United States. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at August 31, 2000 by correspondence with the custodian and brokers, provide a reasonable basis for the opinion expressed above. The financial highlights for each of the three years ending August 31, 1998 were audited by other independent accountants whose report dated September 29, 1998 expressed an unqualified opinion on those financial statements. PricewaterhouseCoopers LLP Ft. Lauderdale, Florida September 29, 2000 25 TEMPLETON EMERGING MARKETS FUND, INC. Tax Designation At August 31, 2000, more than 50% of the Fund's total assets were invested in securities of foreign issuers. In most instances, foreign taxes were withheld from dividends paid to the fund on these investments. The Fund intends to make an election under Section 853 of the Internal Revenue Code. This election will allow shareholders to treat their proportionate share of foreign taxes paid by the Fund as having been paid directly by them. The following table provides a breakdown by country of foreign source income and foreign taxes paid, as designated by the Fund to shareholders in November 2000.
FOREIGN TAX FOREIGN SOURCE COUNTRY PAID PER SHARE INCOME PER SHARE ------------------------------------------------------------------------------------------------ Argentina................................................... $0.0000 $0.0081 Austria..................................................... 0.0006 0.0019 Brazil...................................................... 0.0110 0.0474 China....................................................... 0.0000 0.0002 Colombia.................................................... 0.0000 0.0027 Croatia..................................................... 0.0000 0.0001 Egypt....................................................... 0.0000 0.0012 Estonia..................................................... 0.0003 0.0004 Greece...................................................... 0.0000 0.0005 Hong Kong................................................... 0.0000 0.0092 Hungary..................................................... 0.0006 0.0018 India....................................................... 0.0000 0.0007 Indonesia................................................... 0.0012 0.0034 Israel...................................................... 0.0002 0.0004 Malaysia.................................................... 0.0002 0.0003 Mexico...................................................... 0.0008 0.0080 Pakistan.................................................... 0.0004 0.0010 Peru........................................................ 0.0000 0.0011 Philippines................................................. 0.0006 0.0012 Poland...................................................... 0.0006 0.0017 Russia...................................................... 0.0001 0.0004 Singapore................................................... 0.0038 0.0120 South Africa................................................ 0.0000 0.0212 South Korea................................................. 0.0020 0.0051 Taiwan...................................................... 0.0001 0.0003 Thailand.................................................... 0.0007 0.0030 Turkey...................................................... 0.0000 0.0023 United Kingdom.............................................. 0.0000 0.0011 Venezuela................................................... 0.0000 0.0057 ---------------------------------- TOTAL....................................................... $0.0232 $0.1424 ==================================
In January 2001, shareholders will receive Form 1099-DIV which will include their share of taxes withheld and foreign source income distributed during the calendar year 2000. Shareholders are advised to check with their tax advisors for information on the treatment of these amounts on their individual income tax returns. 26 TEMPLETON EMERGING MARKETS FUND, INC. Annual Meeting of Shareholders, March 7, 2000 An Annual Meeting of Shareholders of the Fund was held at the Fund's offices, 500 E. Broward Blvd., Ft. Lauderdale, Florida, on March 7, 2000. The purpose of the meeting was to elect four Directors of the Fund; to ratify the selection of PricewaterhouseCoopers LLP as the Fund's independent auditors for the fiscal year ending August 31, 2000, to approve the amendment of the Fund's fundamental investment restriction regarding diversification of its investments; and to authorize the proxyholders, in their discretion, to vote upon such other matters that may properly come before the meeting or any adjournments of the meeting. At the meeting, the following persons were elected by the shareholders to serve as Directors of the Fund: John Wm. Galbraith, Betty P. Krahmer, Gordon S. Macklin and Fred R. Millsaps.* Shareholders also ratified the selection of PricewaterhouseCoopers LLP to serve as the Fund's independent auditors for the fiscal year ending August 31, 2000 and approved the amendment of the Fund's fundamental investment restriction regarding diversification of its investments. No other business was transacted at the meeting. The results of the voting at the Annual Meeting are as follows: 1. The election of four (4) Directors:
% OF % OF % OF TERM EXPIRING 2003: FOR OUTSTANDING SHARES VOTED SHARES WITHHELD OUTSTANDING SHARES ---------------------------------------------------------------------------------------------------------------------- John Wm. Galbraith......... 9,481,212 53.70% 97.07% 286,276 1.62% Betty P. Krahmer........... 9,460,507 53.58% 96.86% 306,981 1.74% Gordon S. Macklin.......... 9,480,687 53.70% 97.06% 286,801 1.62% Fred R. Millsaps........... 9,403,463 53.26% 96.27% 364,025 2.06% % OF TERM EXPIRING 2003: VOTED SHARES ----------------------------------------- John Wm. Galbraith......... 2.93% Betty P. Krahmer........... 3.14% Gordon S. Macklin.......... 2.94% Fred R. Millsaps........... 3.73%
2. The ratification of the selection of PricewaterhouseCoopers LLP as independent auditors of the Fund for the fiscal year ending August 31, 2000:
SHARES % OF % OF VOTED OUTSTANDING SHARES VOTED SHARES -------------------------------------------------------------------------------- For........................ 9,473,131 53.65% 96.99% Against.................... 108,014 0.61% 1.11% Abstain.................... 186,343 1.06% 1.90%
3. The amendment of the Fund's fundamental investment restriction regarding diversification of its investments:
SHARES % OF % OF VOTED OUTSTANDING SHARES VOTED SHARES -------------------------------------------------------------------------------- For........................ 7,106,307 40.25% 72.75% Against.................... 293,646 1.66% 3.01% Abstain.................... 228,662 1.30% 2.34% Broker Non-Votes........... 2,138,873 12.11% 21.90%
4. The transaction of any other business that may properly come before the meeting or any adjournments thereof:
SHARES % OF % OF VOTED OUTSTANDING SHARES VOTED SHARES -------------------------------------------------------------------------------- For........................ 8,826,686 49.99% 90.37% Against.................... 498,030 2.82% 5.10% Abstain.................... 442,772 2.51% 4.53% Abstain....................
*Harris J. Ashton, Nicholas F. Brady, Harmon E. Burns, Frank J. Crothers, S. Joseph Fortunato, Andrew H. Hines, Jr., Edith E. Holiday, Charles B. Johnson and Constantine D. Tseretopoulos are Directors of the Fund who are currently serving and whose terms of office continued after the Annual Meeting of Shareholders. 27 TEMPLETON EMERGING MARKETS FUND, INC. 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; ChaseMellon Shareholder Services, 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 common stock 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 stock 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 Securities Trust Company (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 Securities Trust Co." and sent to ChaseMellon Shareholder Services, Investor Services, P.O. Box 382009, Pittsburgh, PA 15250-8009, Attn: Templeton Emerging Markets Fund, Inc. 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 in 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 ChaseMellon Shareholder Services, Investor Services, P.O. Box 3338, South Hackensack, NJ 07606-1938. Upon withdrawal, the participant will receive, without charge, stock 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. 28 TEMPLETON EMERGING MARKETS FUND, INC. SHAREHOLDER INFORMATION Shares of Templeton Emerging Markets Fund, Inc. are traded daily 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. 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, Inc., 100 Fountain Parkway, P.O. Box 33030, St. Petersburg, FL 33733-8030. 29 ANNUAL REPORT AUDITORS PricewaterhouseCoopers L.L.P. 333 Market Street San Francisco, CA 94105 TEMPLETON EMERGING MARKETS FUND, INC. 100 Fountain Parkway P.O. Box 33030 St. Petersburg, FL 33733-8030 TRANSFER AGENT ChaseMellon Shareholder Services, L.L.C. 85 Challenger Road Overpeck Centre Ridgefield Park, NJ 07660 1-800/416-5585 chasemellon.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 determined by the presence of a regular beeping tone. TLEMF A00 10/00 [RECYCLE LOGO] Printed on recycled paper