Templeton Emerging Markets Fund Announces Board Initiatives Intended to Reduce Fund Discount

Rhea-AI Summary

Templeton Emerging Markets Fund (EMF) has announced three key initiatives aimed at reducing the fund's discount to net asset value (NAV):

• A five-basis point reduction in investment management fee, effective March 1, 2025
• Implementation of a managed distribution plan offering quarterly distributions of $0.22 per share (6.1% based on NAV and 7.2% based on market price as of January 31, 2025)
• Introduction of an open-market share repurchase program allowing purchases of up to 10% of common shares

The managed distribution plan will commence around March 31, 2025, potentially including long-term capital gains and/or return of capital to maintain the fixed rate. The share repurchase program will be executed at management's discretion based on factors including discount level, performance, market conditions, and cash availability.

Positive

• Management fee reduction benefits shareholders
• New quarterly distribution plan provides consistent 6.1-7.2% yield
• 10% share repurchase program could help reduce NAV discount
• Repurchases will increase remaining shareholders' proportionate interest

Negative

• Distributions may include return of capital, not just earnings
• No guarantee the plan will successfully reduce NAV discount
• Management fee reduction delayed until March 2025

Insights

Financial Analyst

Templeton Emerging Markets Fund's (EMF) announcement represents a significant shareholder-friendly pivot with three initiatives targeting its persistent NAV discount - a common challenge for closed-end funds in today's market.

The 5 basis point management fee reduction is modest but meaningful in the competitive CEF landscape. While seemingly small, this reduction directly enhances shareholder returns and signals management's willingness to share in the solution rather than simply implementing financial engineering tactics.

The managed distribution plan offering $0.22 quarterly (7.2% yield at market price) is particularly notable. This yield positions EMF competitively among emerging market funds and addresses a key investor concern. However, investors should recognize the potential sustainability challenges - the plan explicitly indicates distributions may include return of capital when income is insufficient, which effectively returns investors' principal rather than genuine investment returns.

The 10% share repurchase authorization is perhaps the most immediately accretive initiative. When executed at discounted prices, repurchases mathematically increase NAV for remaining shareholders while potentially providing price support. Based on EMF's current 15-17% discount to NAV, full implementation could drive approximately 1.5-1.7% NAV accretion.

These initiatives follow a well-established playbook for discount management in the CEF space, though their effectiveness ultimately depends on execution quality and market conditions. The comprehensive approach suggests the board is taking its fiduciary responsibility seriously, but emerging market volatility may limit the immediate impact on the discount. Most successful discount narrowing typically requires consistent implementation over multiple quarters combined with solid underlying performance.

Investment Strategist

Templeton Emerging Markets Fund's trio of discount-narrowing initiatives addresses a critical investor concern - EMF currently trades at approximately a 16% discount to NAV, representing a significant market undervaluation of its portfolio.

The share repurchase program is mathematically the most direct value creator. When a fund repurchases shares at a 16% discount, it's essentially buying $1.00 of assets for $0.84, creating immediate NAV accretion for remaining shareholders. A full 10% repurchase at current discounts could drive approximately 1.6% NAV appreciation without requiring any market movements.

The timing of these initiatives appears strategic amid improving sentiment toward emerging markets. With many institutional investors underweight these regions following years of underperformance, EMF's enhanced 7.2% yield could attract capital seeking both income and potential EM exposure as global rate-cutting cycles progress.

However, the managed distribution plan presents important trade-offs. While the $0.22 quarterly distribution enhances yield attractiveness, it may constrain portfolio management flexibility. During market downturns or periods of reduced income generation, maintaining this fixed distribution could force liquidation of positions at inopportune times or result in return-of-capital distributions that effectively return investors' principal.

From a competitive positioning perspective, these initiatives bring EMF's shareholder-friendly features more in line with leading CEF operators like PIMCO and Nuveen, which have historically maintained tighter discounts through similar programs. The management fee reduction, while modest, signals alignment with shareholders rather than merely financial engineering.

The effectiveness of these measures will ultimately depend on execution quality and underlying portfolio performance - discount management tools work best when complementing, rather than compensating for, strong investment results.

NEW YORK--(BUSINESS WIRE)-- Templeton Emerging Markets Fund [NYSE: EMF] (“EMF” or the “Fund”) today announced initiatives of the Fund’s Board of Trustees (“Board”) designed to reduce the Fund’s discount to net asset value (“NAV”) and benefit shareholders. These initiatives include a management fee reduction, a managed distribution plan and a share repurchase program.

Management fee reduction: The Board approved a five-basis point reduction in the investment management fee that shareholders pay to the investment manager, Templeton Asset Management Ltd. The management fee reduction will be effective March 1, 2025. The prior and new investment management fee, calculated daily and paid monthly, to Templeton Asset Management Ltd. based on the average weekly net assets of the Fund are as follows:

Net Assets	Prior Annual Fee Rate	New Annual Fee Rate
Up to and including $1 billion	1.100%	1.050%
Over $1 billion, up to and including $2 billion	1.050%	1.000%
In excess of $2 billion	1.000%	0.950%

Managed distribution plan: The Board authorized a managed distribution plan (the “Plan”) pursuant to which the Fund will make quarterly distributions to shareholders at the fixed rate of $0.22 per share (this equates to 6.1% and 7.2% based on the Fund’s January 31, 2025, closing NAV and market price, respectively). The Plan is intended to provide shareholders with consistent distributions each quarter and is intended to narrow the discount between the market price and NAV of the Fund’s common shares, but there can be no assurance that the Plan will be successful in doing so. The Fund anticipates the first quarterly distribution to be paid on or about March 31, 2025. Additional information about the Plan is provided below.

Share repurchase program: The Board approved an open-market share repurchase program (the “Share Repurchase Program”) to authorize the Fund to purchase, from time to time, up to 10% of the Fund’s common shares in open-market transactions, at the discretion of management, in order to help reduce the Fund’s market price discount to NAV. Additional information about the Share Repurchase Program is provided below.

Additional information about the Plan: To the extent that sufficient distributable income is not available on a quarterly basis, the Fund will distribute long-term capital gains and/or return of capital in order to maintain its managed distribution rate. A return of capital may occur, for example, when some or all of the money that was invested in the Fund is paid back to shareholders. A return of capital distribution does not necessarily reflect the Fund’s investment performance and should not be confused with “yield” or “income.” Even though the Fund may realize current year capital gains, such gains may be offset, in whole or in part, by the Fund’s capital loss carryovers from prior years.

The Board may amend the terms of the Plan or terminate the Plan at any time without prior notice to the Fund’s shareholders. The amendment or termination of the Plan could have an adverse effect on the market price of the Fund’s common shares. The Plan will be subject to periodic review by the Board, including a yearly review of the distribution rate to determine if an adjustment should be made.

Shareholders should not draw any conclusions about the Fund’s investment performance from the amount of the distribution or from the terms of the Plan. The amounts and sources of distributions for tax reporting purposes will depend upon the Fund’s investment experience during its fiscal year and may be subject to changes based on tax regulations. The Fund will send a Form 1099-DIV to shareholders for the calendar year that will describe how to report the Fund’s distributions for federal income tax purposes.

Additional information about the Share Repurchase Program: Subject to the 10% limitation, the timing and amount of repurchases would be in the discretion of the Fund’s portfolio managers. In exercising its discretion consistent with their portfolio management responsibilities, the portfolio managers will take into account various other factors, including, but not limited to, the level of the discount, the Fund’s performance, portfolio holdings, dividend history, market conditions, cash on hand, the availability of other attractive investments, and whether the sale of certain portfolio securities would be undesirable because of liquidity concerns or because the sale might subject the Fund to adverse tax consequences. Any repurchases would be made on a national securities exchange at the prevailing market price, subject to exchange requirements, federal securities laws and rules that restrict repurchases, and the terms of any outstanding leverage or borrowing of the Fund.

If and when the Fund’s 10% threshold is reached, no further repurchases could be completed unless authorized by the Board. Until the 10% threshold is reached, Fund management will have the flexibility to rapidly commence share repurchases if and when it is determined to be appropriate in light of prevailing circumstances. The Share Repurchase Program is intended to benefit shareholders by enabling the Fund to repurchase shares at a discount to NAV, thereby increasing the proportionate interest of each remaining shareholder in the Fund.

For further information on Templeton Emerging Markets Fund, please visit our web site at www.franklintempleton.com.

About Franklin Templeton

Franklin Resources, Inc. [NYSE:BEN] is a global investment management organization with subsidiaries operating as Franklin Templeton and serving clients in over 150 countries. Franklin Templeton’s mission is to help clients achieve better outcomes through investment management expertise, wealth management and technology solutions. Through its specialist investment managers, the company offers specialization on a global scale, bringing extensive capabilities in fixed income, equity, alternatives and multi-asset solutions. With more than 1,500 investment professionals, and offices in major financial markets around the world, the California-based company has over 75 years of investment experience and $1.58 trillion in assets under management as of January 31, 2025. For more information, please visit franklintempleton.com and follow us on LinkedIn, X and Facebook.

Category: Fund Announcement

Source: Franklin Templeton Closed End Funds

Source: Franklin Resources, Inc.

View source version on businesswire.com: https://www.businesswire.com/news/home/20250226200362/en/

Investor Contact: Fund Investor Services: 1-800-342-5236

Media Contact: Lisa Tibbitts: 1-904-942-4451 or Lisa.Tibbitts@franklintempleton.com

Source: Franklin Templeton

FAQ

What is the quarterly distribution amount under EMF's new managed distribution plan?

EMF will distribute $0.22 per share quarterly, representing 6.1% of NAV and 7.2% of market price as of January 31, 2025.

When will EMF's management fee reduction take effect?

The five-basis point management fee reduction will take effect on March 1, 2025.

How much stock can EMF repurchase under the new share repurchase program?

EMF can repurchase up to 10% of its common shares through open-market transactions.

When will EMF's first quarterly distribution under the new plan be paid?

The first quarterly distribution is anticipated to be paid on or about March 31, 2025.

What happens if EMF doesn't have sufficient distributable income for the quarterly payments?

The fund will distribute long-term capital gains and/or return of capital to maintain its managed distribution rate.