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Annual Report

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

During the reporting period, we continued to search for undervalued stocks trading at what we considered attractive valuations and made key purchases in Hong Kong, Indonesia and South Africa. We also added to our investments in Russia, Pakistan and Poland. Subsequently, we invested in construction and engineering, diversified banks, consumer electronics, and metals and minerals companies. Some of the largest additions included Hyundai Development, one of South Korea’s leading residential property developers; Bank Danamon, a major Indonesian bank; and Hong Kong-based VTech Holdings, a market leader in the global cordless phone market. Conversely, we made some sales in Thailand and South Korea and eliminated our exposure to Taiwan. The Fund undertook five sales during the reporting period as stocks reached their sell targets and we raised funds for income distribution. We reduced our holdings in SK Innovation and Dairy Farm and divested our investments in Taiwanese integrated circuit design company MediaTek and Thai industrial real estate companies Amata and Hemaraj Land and Development.

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


Mark Mobius Executive Chairman Templeton Emerging Markets Group

The foregoing information reflects our analysis, opinions and portfolio holdings as of August 31, 2011, 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 consid- ered 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 under- stand our investment management philosophy.

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