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 811-06378
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TEMPLETON DEVELOPING MARKETS TRUST
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(Exact name of registrant as specified in charter)
500 EAST BROWARD BLVD., SUITE 2100, FORT LAUDERDALE, FL 33394-3091
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(Address of principal executive offices) (Zip code)
CRAIG S. TYLE, ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906
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(Name and address of agent for service)
Registrant's telephone number, including area code: (954) 527-7500
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Date of fiscal year end: 12/31
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Date of reporting period: 06/30/06
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ITEM 1. REPORTS TO STOCKHOLDERS.
JUNE 30, 2006
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[GRAPHIC]
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SEMIANNUAL REPORT AND SHAREHOLDER LETTER INTERNATIONAL
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WANT TO RECEIVE
THIS DOCUMENT
TEMPLETON FASTER VIA EMAIL?
DEVELOPING MARKETS TRUST
Eligible shareholders can
sign up for eDelivery at
franklintempleton.com.
See inside for details.
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[GRAPHIC]
[LOGO](R)
FRANKLIN TEMPLETON
INVESTMENTS
Franklin o TEMPLETON o Mutual Series
Franklin Templeton Investments
GAIN FROM OUR PERSPECTIVE
Franklin Templeton's distinct multi-manager
structure combines the specialized expertise of
three world-class investment management
groups--Franklin, Templeton and Mutual Series.
SPECIALIZED EXPERTISE Each of our portfolio management groups operates
autonomously, relying on its own research and
staying true to the unique investment disciplines
that underlie its success.
FRANKLIN. Founded in 1947, Franklin is a
recognized leader in fixed income investing and
also brings expertise in growth- and value-style
U.S. equity investing.
TEMPLETON. Founded in 1940, Templeton pioneered
international investing and, in 1954, launched
what has become the industry's oldest global fund.
Today, with offices in over 25 countries,
Templeton offers investors a truly global
perspective.
MUTUAL SERIES. Founded in 1949, Mutual Series is
dedicated to a unique style of value investing,
searching aggressively for opportunity among what
it believes are undervalued stocks, as well as
arbitrage situations and distressed securities.
TRUE DIVERSIFICATION Because our management groups work independently
and adhere to different investment approaches,
Franklin, Templeton and Mutual Series funds
typically have distinct portfolios. That's why our
funds can be used to build truly diversified
allocation plans covering every major asset class.
RELIABILITY YOU CAN TRUST At Franklin Templeton Investments, we seek to
consistently provide investors with exceptional
risk-adjusted returns over the long term, as well
as the reliable, accurate and personal service
that has helped us become one of the most trusted
names in financial services.
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MUTUAL FUNDS | RETIREMENT PLANS | 529 COLLEGE SAVINGS PLANS | SEPARATE ACCOUNTS
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[GRAPHIC]
Not part of the semiannual report
Contents
SHAREHOLDER LETTER ........................................................ 1
SEMIANNUAL REPORT
Templeton Developing Markets Trust ........................................ 3
Performance Summary ....................................................... 8
Your Fund's Expenses ...................................................... 11
Financial Highlights and Statement of Investments ......................... 13
Financial Statements ...................................................... 24
Notes to Financial Statements ............................................. 28
Shareholder Information ................................................... 38
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Semiannual Report
Templeton Developing Markets Trust
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Templeton Developing Markets Trust seeks
long-term capital appreciation. Under normal circumstances, the Fund invests at
least 80% of its net assets in securities of developing market countries.
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PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE
A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN. PLEASE VISIT FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
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GEOGRAPHIC BREAKDOWN
Based on Total Net Assets as of 6/30/06
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
Asia ................................................................... 51.7%
Europe ................................................................. 23.0%
Latin America .......................................................... 13.8%
Middle East & Africa ................................................... 9.9%
Short-Term Investments &
Other Net Assets ....................................................... 1.6%
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This semiannual report for Templeton Developing Markets Trust covers the period
ended June 30, 2006.
PERFORMANCE OVERVIEW
Templeton Developing Markets Trust - Class A posted a +6.14% cumulative total
return for the six months ended June 30, 2006. The Fund underperformed its
benchmarks, the Morgan Stanley Capital International (MSCI) Emerging Markets
(EM) Index and the Standard & Poor's/International Finance Corporation
Investable (S&P/IFCI) Composite Index, which returned +7.33% and +9.12% during
the same period. 1 Please note that index perform-
1. Source: Standard & Poor's Micropal. The MSCI EM 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 free float-adjusted, market capitalization-weighted
index designed to measure equity performance in global emerging markets.
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.
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 18.
Semiannual Report | 3
ance information is provided for reference and that we do not attempt to track
any index but rather undertake investments on the basis of fundamental research.
You can find the Fund's long-term performance data in the Performance Summary
beginning on page 8.
ECONOMIC AND MARKET OVERVIEW
Emerging markets ended the reporting period with positive returns as most
markets held onto some of the strong gains recorded in the first four months of
the year. The period began where 2005 left off -- on a wave of optimism. The
market had ample liquidity as fund inflows remained robust and a strong economic
environment boosted investor confidence. A weaker U.S. dollar against most major
emerging market currencies further enhanced performance. However, global
financial markets, including emerging markets, experienced substantial fund
outflows in early May, triggered by U.S. inflationary pressures and increased
uncertainty over the U.S. Federal Reserve Board's monetary policy. Investors
seemed to become risk averse, causing less predictable asset classes such as
commodities to retreat, exerting further downward pressure on equity markets.
Emerging market stock performance contrasted with solid economic fundamentals,
and eventually brought back some investors apparently searching for bargains,
which helped stock prices recover in June. Strong economic growth data and
signals of a possible end to U.S. interest rate hikes further bolstered investor
confidence. Consequently, the MSCI EM Index returned +7.33% in U.S. dollar terms
for the six-month period. 2
In Eastern Europe, the Russian stock market recorded the strongest gains during
the reporting period. Investors continued to be drawn toward the country's
strong economic growth, strengthening finances that resulted from high commodity
prices, and stable political environment. Turkey's was one of the few emerging
markets to end the six-month period in negative territory. This was largely due
to uncertainty arising from the Turkish lira's weakness, relatively high
inflation, a large external deficit and political instability. However, in
Turkey's favor are strong economic fundamentals, substantial progress on
structural reform implementation, International Monetary Fund support and
continued European Union accession efforts. In Latin America, economies reported
strong economic data and improved fiscal positions. Investors also focused
attention on upcoming elections in many regional markets. In Asia, China,
Indonesia and Singapore outperformed their regional peers while Taiwan, South
Korea and Thailand underperformed mostly due to political turmoil.
2. Source: Standard & Poor's Micropal. Please see footnote 1 for a
description of the MSCI EM Index.
4 | Semiannual Report
INVESTMENT STRATEGY
We employ a bottom-up, value-oriented, long-term investment approach. We focus
on the market price of a company's securities relative to our evaluation of its
long-term (typically five years) earnings, asset value and cash flow potential.
We also consider a company's price/earnings ratio, profit margins and
liquidation value. As we look for investments, we focus on specific companies
and perform in-depth research to construct an "action list" from which we make
our investment decisions. In choosing investments, we strongly believe in onsite
visits to issuers of prospective investments to assess critical factors such as
management strength and local conditions.
MANAGER'S DISCUSSION
During the six months under review, the Fund's performance, relative to the MSCI
EM Index, benefited from our underweighted position in Israel and our only
holding in Croatia, Pliva, which is not represented in the index. Stock
selection in Brazil and Russia further enhanced relative performance. The lack
of exposure to Egypt also supported performance as that market underperformed
the benchmark during the reporting period. In Israel, a significant contributor
to relative performance was the Fund's underweighted position in Teva
Pharmaceutical Industries, which underperformed the index. Key overweighted
Brazilian and Russian holdings that outperformed the MSCI EM Index were Souza
Cruz, Centrais Eletricas Brasileiras (Eletrobras), ZAO Polyus Gold (not in the
index), and Mining and Metallurgical Co. Norilsk Nickel.
On the other hand, our underweighted allocation to India and overweighted
allocation to Turkey had a negative effect on the Fund during the six months
under review. The Fund's South Korean exposure had an adverse impact on relative
performance as some holdings underperformed the index. We held overweighted
positions in Kangwon Land and Hyundai Development, which were among some South
Korean stocks that declined in value during the period. However, we remained
confident of their companies' corporate fundamentals and sought to use the share
price declines as an opportunity to build our positions at what we considered
attractive prices. A significant drop in Turkish stock prices hurt the Fund's
investments in Turkey and led to the country's underperformance against its
emerging markets peers. However, in line with our investment strategy, we
increased the Fund's exposure to selected Turkish stocks as we remained
confident in their corporate fundamentals.
TOP 10 COUNTRIES
6/30/06
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% OF TOTAL
NET ASSETS
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South Korea 16.2%
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China 12.2%
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Taiwan 12.0%
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Brazil 10.6%
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South Africa 9.6%
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Turkey 7.1%
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Russia 7.1%
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Thailand 3.1%
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Mexico 2.7%
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Hungary 2.5%
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Semiannual Report | 5
TOP 10 EQUITY HOLDINGS
6/30/06
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COMPANY % OF TOTAL
SECTOR/INDUSTRY, COUNTRY NET ASSETS
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Samsung Electronics Co. Ltd. 5.0%
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT, SOUTH KOREA
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LUKOIL, ADR & ADR (London Exchange) 3.7%
OIL, GAS & CONSUMABLE FUELS, RUSSIA
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PetroChina Co. Ltd., H, ord. & 144A 3.5%
OIL, GAS & CONSUMABLE FUELS, CHINA
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Petroleo Brasileiro SA, ADR, pfd. 3.5%
OIL, GAS & CONSUMABLE FUELS, BRAZIL
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Remgro Ltd. 2.1%
DIVERSIFIED FINANCIAL SERVICES,
SOUTH AFRICA
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Anglo American PLC 2.0%
METALS & MINING, SOUTH AFRICA
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Companhia Vale do Rio Doce,
ADR, pfd., A 1.9%
METALS & MINING, BRAZIL
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Taiwan Semiconductor
Manufacturing Co. Ltd. 1.9%
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT, TAIWAN
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China Mobile Ltd. 1.7%
WIRELESS TELECOMMUNICATION
SERVICES, CHINA
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CNOOC Ltd. 1.6%
OIL, GAS & CONSUMABLE FUELS, CHINA
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It is important to recognize the effect of currency movements on the Fund's
performance. In general, if the value of the U.S. dollar increases compared with
a foreign currency, an investment traded in that foreign currency will decrease
in value because it will be worth fewer U.S. dollars. This can have a negative
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 six months
ended June 30, 2006, the U.S. dollar fell in value relative to most non-U.S.
currencies. As a result, the Fund's performance was positively affected by the
portfolio's investments predominantly in securities with non-U.S. currency
exposure. However, one cannot expect the same results in future periods.
During the first half of 2006, we focused on portfolio alignment seeking to
position the Fund to benefit from developments in the global economy as well as
in individual emerging markets. A dominant theme during the period was sustained
high commodity prices despite an oil price correction in May. We therefore
significantly increased the Fund's exposure to stocks in the energy and metals
and mining sectors, as we believed such companies could benefit from higher
revenues and subsequent greater earnings. This led to selective purchases in
Russian, Brazilian, China H (Hong Kong-listed companies) and Red Chip (Hong
Kong-listed companies with significant exposure to China) shares. Key oil and
gas additions included Russia's Lukoil, one of the world's largest vertically
integrated oil companies; Petroleo Brasileiro (Petrobras), Brazil's national oil
and gas company; Companhia Vale do Rio Doce, a Brazilian mining giant that is
among the world's largest iron ore producers; CNOOC, China's largest offshore
oil and natural gas exploration and production company; and PetroChina, a
dominant player in the oil and gas exploration, development and production
industry. Our semiconductor industry holdings also increased through a new
purchase and additional shares of some South Korean and Taiwanese companies.
The market correction in May provided us an opportunity to build positions in
value stocks that we deemed were oversold not due to poor fundamentals but
lowered market expectations. As a result, we made substantial purchases in
Turkey and South Africa. Key additions in Turkey included Akbank and Turkiye
Vakiflar Bankasi, two major commercial and consumer banks, and Tupras-Turkiye
Petrol Rafineleri, Turkey's largest industrial company with a dominant market
share in oil refining. In South Africa, we bought shares of MTN Group, a
dominant regional wireless telecommunication services provider, and JD Group,
South Africa's leading furniture retailer. We believed higher personal incomes
and strong consumer demand in these countries could lead to greater consumption
of products and services offered by these market sectors. As certain stocks
approached their sell targets, we reduced the Fund's
6 | Semiannual Report
exposure to Singapore and India. The Fund's investments in the food products,
metals and mining, and machinery industries were also trimmed via the sale of
Uni-President Enterprises, a Taiwanese food and beverage manufacturer and
distributor; CJ Corporation, a key food producer in South Korea; POSCO, one of
the world's largest steel producers; and Daewoo Shipbuilding and Marine
Engineering, a major South Korean shipbuilder.
We thank you for your continued participation in Templeton Developing Markets
Trust and look forward to serving your future investment needs.
[PHOTO] /s/ Mark Mobius
Mark Mobius
President and Chief Executive Officer -
Investment Management
Templeton Developing Markets Trust
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF JUNE 30, 2006, 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 | 7
Performance Summary as of 6/30/06
Your dividend income will vary depending on dividends or interest paid by
securities in the Fund's portfolio, adjusted for operating expenses of each
class. Capital gain distributions are net profits realized from the sale of
portfolio securities. The performance table does not reflect any taxes that a
shareholder would pay on Fund dividends, capital gain distributions, if any, or
any realized gains on the sale of Fund shares. Total return reflects
reinvestment of the Fund's dividends and capital gain distributions, if any, and
any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
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CLASS A (SYMBOL: TEDMX) CHANGE 6/30/06 12/31/05
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Net Asset Value (NAV) +$1.29 $24.71 $23.42
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DISTRIBUTIONS (1/1/06-6/30/06)
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Dividend Income $0.1543
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CLASS B (SYMBOL: TDMBX) CHANGE 6/30/06 12/31/05
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Net Asset Value (NAV) +$1.18 $24.21 $23.03
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DISTRIBUTIONS (1/1/06-6/30/06)
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Dividend Income $0.1542
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CLASS C (SYMBOL: TDMTX) CHANGE 6/30/06 12/31/05
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Net Asset Value (NAV) +$1.18 $24.18 $23.00
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DISTRIBUTIONS (1/1/06-6/30/06)
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Dividend Income $0.1541
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CLASS R (SYMBOL: TDMRX) CHANGE 6/30/06 12/31/05
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Net Asset Value (NAV) +$1.24 $24.44 $23.20
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DISTRIBUTIONS (1/1/06-6/30/06)
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Dividend Income $0.1542
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ADVISOR CLASS (SYMBOL: TDADX) CHANGE 6/30/06 12/31/05
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Net Asset Value (NAV) +$1.33 $24.73 $23.40
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DISTRIBUTIONS (1/1/06-6/30/06)
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Dividend Income $0.1544
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8 | Semiannual Report
Performance Summary (CONTINUED)
PERFORMANCE
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURN AND
VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES. CLASS A: 5.75%
MAXIMUM INITIAL SALES CHARGE; CLASS B: CONTINGENT DEFERRED SALES CHARGE (CDSC)
DECLINING FROM 4% TO 1% OVER SIX YEARS, AND ELIMINATED THEREAFTER; CLASS C: 1%
CDSC IN FIRST YEAR ONLY; CLASS R/ADVISOR CLASS: NO SALES CHARGES. THE FUND MAY
CHARGE A 2% FEE ON REDEMPTIONS MADE WITHIN SEVEN DAYS OF PURCHASE.
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CLASS A 6-MONTH 1-YEAR 5-YEAR 10-YEAR
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Cumulative Total Return 1 +6.14% +27.90% +147.94% +101.36%
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Average Annual Total Return 2 +0.03% +20.57% +18.50% +6.61%
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Value of $10,000 Investment 3 $10,003 $12,057 $23,370 $18,973
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CLASS B 6-MONTH 1-YEAR 5-YEAR INCEPTION (1/1/99)
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Cumulative Total Return 1 +5.76% +27.02% +140.15% +145.63%
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Average Annual Total Return 2 +1.76% +23.02% +18.95% +12.74%
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Value of $10,000 Investment 3 $10,176 $12,302 $23,815 $24,563
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CLASS C 6-MONTH 1-YEAR 5-YEAR 10-YEAR
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Cumulative Total Return 1 +5.77% +27.05% +139.99% +88.32%
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Average Annual Total Return 2 +4.77% +26.05% +19.14% +6.53%
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Value of $10,000 Investment 3 $10,477 $12,605 $23,999 $18,832
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CLASS R 6-MONTH 1-YEAR 3-YEAR INCEPTION (1/1/02)
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Cumulative Total Return 1 +5.98% +27.62% +127.00% +162.26%
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Average Annual Total Return 2 +5.98% +27.62% +31.42% +23.95%
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Value of $10,000 Investment 3 $10,598 $12,762 $22,700 $26,226
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ADVISOR CLASS 4 6-MONTH 1-YEAR 5-YEAR 10-YEAR
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Cumulative Total Return 1 +6.23% +28.24% +152.66% +107.43%
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Average Annual Total Return 2 +6.23% +28.24% +20.37% +7.57%
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Value of $10,000 Investment 3 $10,623 $12,824 $25,266 $20,743
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PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE
A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN.
FOR MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND PERFORMANCE" AT
FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236.
Semiannual Report | 9
Performance Summary (CONTINUED)
ENDNOTES
THE FUND INVESTS IN FOREIGN SECURITIES, WHICH CAN INVOLVE EXPOSURE TO CURRENCY
VOLATILITY AND POLITICAL, ECONOMIC AND REGULATORY UNCERTAINTY. INVESTMENTS IN
DEVELOPING MARKETS INVOLVE HEIGHTENED RISKS RELATED TO THE SAME FACTORS, IN
ADDITION TO THOSE ASSOCIATED WITH THESE MARKETS' SMALLER SIZE AND LESSER
LIQUIDITY. THE FUND'S PROSPECTUS ALSO INCLUDES A DESCRIPTION OF THE MAIN
INVESTMENT RISKS.
CLASS B: These shares have higher annual fees and expenses than Class A
shares.
CLASS C: Prior to 1/1/04, these shares were offered with an initial
sales charge; thus actual total returns would have differed.
These shares have higher annual fees and expenses than Class A
shares.
CLASS R: Shares are available to certain eligible investors as
described in the prospectus. These shares have higher annual
fees and expenses than Class A shares.
ADVISOR CLASS: Shares are available to certain eligible investors as
described in the prospectus.
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. Six-month return has not been
annualized.
3. These figures represent the value of a hypothetical $10,000 investment in
the Fund over the periods indicated.
4. Effective 1/2/97, the Fund began offering Advisor Class shares, which do
not have sales charges or a Rule 12b-1 plan. Performance quotations for
this class reflect the following methods of calculation: (a) For periods
prior to 1/2/97, a restated figure is used based upon the Fund's Class A
performance, excluding the effect of Class A's maximum initial sales
charge, but reflecting the effect of the Class A Rule 12b-1 fees; and (b)
for periods after 1/1/97, actual Advisor Class performance is used
reflecting all charges and fees applicable to that class. Since 1/2/97
(commencement of sales), the cumulative and average annual total returns
of Advisor Class shares were +96.23% and +7.36%.
10 | Semiannual Report
Your Fund's Expenses
As a Fund shareholder, you can incur two types of costs:
o Transaction costs, including sales charges (loads) on Fund purchases and
redemption fees; and
o Ongoing Fund costs, including management fees, distribution and service
(12b-1) fees, and other Fund expenses. All mutual funds have ongoing
costs, sometimes referred to as operating expenses.
The following table shows ongoing costs of investing in the Fund and can help
you understand these costs and compare them with those of other mutual funds.
The table assumes a $1,000 investment held for the six months indicated.
ACTUAL FUND EXPENSES
The first line (Actual) for each share class listed in the table below provides
actual account values and expenses. The "Ending Account Value" is derived from
the Fund's actual return, which includes the effect of Fund expenses.
You can estimate the expenses you paid during the period by following these
steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS
ILLUSTRATION:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
Semiannual Report | 11
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR
REDEMPTION FEES. Therefore, the second line for each class is useful in
comparing ongoing costs only, and will not help you compare total costs of
owning different funds. In addition, if transaction costs were included, your
total costs would have been higher. Please refer to the Fund prospectus for
additional information on operating expenses.
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BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
CLASS A VALUE 1/1/06 VALUE 6/30/06 PERIOD* 1/1/06-6/30/06
- ------------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,061.40 $ 9.35
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Hypothetical (5% return before expenses) $1,000 $1,015.72 $ 9.15
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CLASS B
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Actual $1,000 $1,057.60 $12.96
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Hypothetical (5% return before expenses) $1,000 $1,012.20 $12.67
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CLASS C
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Actual $1,000 $1,057.70 $12.96
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Hypothetical (5% return before expenses) $1,000 $1,012.20 $12.67
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CLASS R
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Actual $1,000 $1,059.80 $10.42
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Hypothetical (5% return before expenses) $1,000 $1,014.68 $10.19
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ADVISOR CLASS
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Actual $1,000 $1,062.30 $ 7.93
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Hypothetical (5% return before expenses) $1,000 $1,017.11 $ 7.75
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* Expenses are equal to the annualized expense ratio for each class (A:
1.83%; B: 2.54%; C: 2.54%; R: 2.04%; and Advisor: 1.55%), multiplied by
the average account value over the period, multiplied by 181/365 to
reflect the one-half year period.
12 | Semiannual Report
Templeton Developing Markets Trust
FINANCIAL HIGHLIGHTS
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SIX MONTHS ENDED
JUNE 30, 2006 YEAR ENDED DECEMBER 31,
CLASS A (UNAUDITED) 2005 2004 2003 2002 2001
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PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the period)
Net asset value, beginning of period .. $ 23.42 $ 18.53 $ 14.95 $ 10.00 $ 9.88 $ 10.59
---------------------------------------------------------------------------------------
Income from investment operations a:
Net investment income b .............. 0.19 0.28 0.18 0.22 0.10 0.11
Net realized and unrealized gains
(losses) ............................ 1.25 4.90 3.66 4.98 0.07 (0.72)
---------------------------------------------------------------------------------------
Total from investment operations ...... 1.44 5.18 3.84 5.20 0.17 (0.61)
---------------------------------------------------------------------------------------
Less distributions from net
investment income ..................... (0.15) (0.29) (0.26) (0.25) (0.05) (0.10)
---------------------------------------------------------------------------------------
Redemption fees ....................... -- d -- d -- d -- d -- --
---------------------------------------------------------------------------------------
Net asset value, end of period ........ $ 24.71 $ 23.42 $ 18.53 $ 14.95 $ 10.00 $ 9.88
=======================================================================================
Total return c ........................ 6.14% 28.20% 25.45% 53.14% 1.68% (5.76)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ..... $4,231,699 $3,395,151 $2,305,376 $1,873,277 $1,168,340 $1,221,011
Ratios to average net assets:
Expenses ............................. 1.83% e,f 1.97% f 2.03% f 2.17% 2.24% 2.21%
Net investment income ................ 1.47% e 1.36% 1.12% 1.85% 0.96% 1.07%
Portfolio turnover rate ............... 25.99% 34.76% 58.74% 48.60% 49.05% 61.45%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the
timing of sales and repurchase of the Fund shares in relation to income
earned and/or fluctuating market value of the investments of the Fund.
b Based on average daily shares outstanding.
c Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
d Amount is less than $0.01 per share.
e Annualized.
f Benefit of expense reduction is less than 0.01%.
Semiannual Report | See notes to financial statements. | 13
Templeton Developing Markets Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
----------------------------------------------------------------------------
SIX MONTHS ENDED
JUNE 30, 2006 YEAR ENDED DECEMBER 31,
CLASS B (UNAUDITED) 2005 2004 2003 2002 2001
----------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ............. $ 23.03 $ 18.24 $ 14.74 $ 9.82 $ 9.77 $ 10.44
-----------------------------------------------------------------------
Income from investment operations a:
Net investment income b ......................... 0.09 0.15 0.06 0.13 0.03 0.04
Net realized and unrealized gains (losses) ...... 1.24 4.80 3.61 4.93 0.07 (0.70)
-----------------------------------------------------------------------
Total from investment operations ................. 1.33 4.95 3.67 5.06 0.10 (0.66)
-----------------------------------------------------------------------
Less distributions from net investment income .... (0.15) (0.16) (0.17) (0.14) (0.05) (0.01)
-----------------------------------------------------------------------
Redemption fees .................................. -- d -- d -- d -- d -- --
-----------------------------------------------------------------------
Net asset value, end of period ................... $ 24.21 $ 23.03 $ 18.24 $ 14.74 $ 9.82 $ 9.77
=======================================================================
Total return c ................................... 5.76% 27.35% 24.70% 52.17% 0.98% (6.32)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ................ $49,164 $46,965 $36,992 $26,062 $12,377 $11,027
Ratios to average net assets:
Expenses ........................................ 2.54% e,f 2.62% f 2.68% f 2.82% 2.88% 2.86%
Net investment income ........................... 0.76% e 0.71% 0.47% 1.20% 0.32% 0.42%
Portfolio turnover rate .......................... 25.99% 34.76% 58.74% 48.60% 49.05% 61.45%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the
timing of sales and repurchase of the Fund shares in relation to income
earned and/or fluctuating market value of the investments of the Fund.
b Based on average daily shares outstanding.
c Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
d Amount is less than $0.01 per share.
e Annualized.
f Benefit of expense reduction is less than 0.01%.
14 | See notes to financial statements. | Semiannual Report
Templeton Developing Markets Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
-----------------------------------------------------------------------------
SIX MONTHS ENDED
JUNE 30, 2006 YEAR ENDED DECEMBER 31,
CLASS C (UNAUDITED) 2005 2004 2003 2002 2001
-----------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ............ $ 23.00 $ 18.22 $ 14.72 $ 9.79 $ 9.73 $ 10.39
-------------------------------------------------------------------------
Income from investment operations a:
Net investment income b ........................ 0.09 0.14 0.05 0.14 0.03 0.04
Net realized and unrealized gains (losses) ..... 1.24 4.81 3.60 4.90 0.08 (0.70)
-------------------------------------------------------------------------
Total from investment operations ................ 1.33 4.95 3.65 5.04 0.11 (0.66)
-------------------------------------------------------------------------
Less distributions from net investment income ... (0.15) (0.17) (0.15) (0.11) (0.05) --g
-------------------------------------------------------------------------
Redemption fees ................................. -- d -- d -- d -- d -- --
-------------------------------------------------------------------------
Net asset value, end of period .................. $ 24.18 $ 23.00 $ 18.22 $ 14.72 $ 9.79 $ 9.73
=========================================================================
Total return c .................................. 5.77% 27.31% 24.72% 52.25% 0.98% (6.34)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............... $414,279 $364,355 $258,365 $208,581 $127,808 $139,099
Ratios to average net assets:
Expenses ....................................... 2.54% e,f 2.63% f 2.69% f 2.82% 2.89% 2.86%
Net investment income .......................... 0.76% e 0.70% 0.46% 1.20% 0.31% 0.43%
Portfolio turnover rate ......................... 25.99% 34.76% 58.74% 48.60% 49.05% 61.45%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the
timing of sales and repurchase of the Fund shares in relation to income
earned and/or fluctuating market value of the investments of the Fund.
b Based on average daily shares outstanding.
c Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
d Amount is less than $0.01 per share.
e Annualized.
f Benefit of expense reduction is less than 0.01%.
g Actual distribution from net investment income was $0.001.
Semiannual Report | See notes to financial statements. | 15
Templeton Developing Markets Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
-----------------------------------------------------------------
SIX-MONTHS ENDED
JUNE 30, 2006 YEAR ENDED DECEMBER 31,
CLASS R (UNAUDITED) 2005 2004 2003 2002 g
-----------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ................ $ 23.20 $ 18.39 $ 14.85 $ 9.98 $ 9.93
------------------------------------------------------------
Income from investment operations a:
Net investment income b ............................ 0.16 0.20 0.16 0.17 0.03
Net realized and unrealized gains (losses) ......... 1.23 4.90 3.64 4.98 0.07
------------------------------------------------------------
Total from investment operations .................... 1.39 5.10 3.80 5.15 0.10
------------------------------------------------------------
Less distributions from net investment income ....... (0.15) (0.29) (0.26) (0.28) (0.05)
------------------------------------------------------------
Redemption fees ..................................... -- d -- d -- d -- d --
------------------------------------------------------------
Net asset value, end of period ...................... $ 24.44 $ 23.20 $ 18.39 $ 14.85 $ 9.98
============================================================
Total return c ...................................... 5.98% 28.03% 25.28% 52.82% 0.96%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ................... $26,519 $16,183 $ 5,220 $ 1,688 $ 381
Ratios to average net assets:
Expenses ........................................... 2.04% e,f 2.13% f 2.18% f 2.32% 2.39% e
Net investment income .............................. 1.26% e 1.20% 0.97% 1.70% 0.81% e
Portfolio turnover rate ............................. 25.99% 34.76% 58.74% 48.60% 49.05%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the
timing of sales and repurchase of the Fund shares in relation to income
earned and/or fluctuating market value of the investments of the Fund.
b Based on average daily shares outstanding.
c Total return does not reflect contingent deferred sales charges, if
applicable, and is not annualized for periods less than one year.
d Amount is less than $0.01 per share.
e Annualized.
f Benefit of expense reduction is less than 0.01%.
g For the period January 2, 2002 (effective date) to December 31, 2002.
16 | See notes to financial statements. | Semiannual Report
Templeton Developing Markets Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
-----------------------------------------------------------------------------
SIX MONTHS ENDED
JUNE 30, 2006 YEAR ENDED DECEMBER 31,
ADVISOR CLASS (UNAUDITED) 2005 2004 2003 2002 2001
-----------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ............. $ 23.40 $ 18.51 $ 14.93 $ 10.01 $ 9.84 $ 10.55
-------- -------- -------- -------- -------- --------
Income from investment operations a:
Net investment income b ......................... 0.22 0.32 0.24 0.26 0.12 0.14
Net realized and unrealized gains (losses) ...... 1.26 4.92 3.65 4.99 0.10 (0.71)
--------
Total from investment operations ................. 1.48 5.24 3.89 5.25 0.22 (0.57)
--------
Less distributions from net investment income .... (0.15) (0.35) (0.31) (0.33) (0.05) (0.14)
--------
Redemption fees .................................. -- d -- d -- d -- d -- --
--------
Net asset value, end of period ................... $ 24.73 $ 23.40 $ 18.51 $ 14.93 $ 10.01 $ 9.84
======== ======== ======== ======== ======== ========
Total return c ................................... 6.23% 28.63% 25.98% 53.72% 2.20% (5.43)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ................ $368,242 $343,823 $199,101 $203,660 $130,459 $ 81,320
Ratios to average net assets:
Expenses ........................................ 1.55% e,f 1.63% f 1.68% f 1.82% 1.89% 1.87%
Net investment income ........................... 1.75% e 1.70% 1.47% 2.20% 1.31% 1.40%
Portfolio turnover rate .......................... 25.99% 34.76% 58.74% 48.60% 49.05% 61.45%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the
timing of sales and repurchase of the Fund shares in relation to income
earned and/or fluctuating market value of the investments of the Fund.
b Based on average daily shares outstanding.
c Total return is not annualized for periods less than one year.
d Amount is less than $0.01 per share.
e Annualized.
f Benefit of expense reduction is less than 0.01%.
Semiannual Report | See notes to financial statements. | 17
Templeton Developing Markets Trust
STATEMENT OF INVESTMENTS, JUNE 30, 2006 (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------------
INDUSTRY SHARES/RIGHTS VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS 98.4%
COMMON STOCKS AND RIGHTS 89.4%
ARGENTINA 0.1%
Banco Macro Bansud SA, ADR .................... Commercial Banks 72,800 $ 1,482,208
a Grupo Financiero Galicia SA, ADR .............. Commercial Banks 163,200 1,020,000
a Ternium SA, ADR ............................... Metals & Mining 122,800 2,968,076
--------------
5,470,284
--------------
AUSTRIA 0.7%
Erste Bank der oesterreichischen
Sparkassen AG ............................... Commercial Banks 227,946 12,830,397
Wienerberger AG ............................... Building Products 474,999 22,573,919
--------------
35,404,316
--------------
BRAZIL 1.9%
Centrais Eletricas Brasileiras SA
(Non Taxable) ............................... Electric Utilities 1,251,948,148 27,167,262
Centrais Eletricas Brasileiras SA
(Taxable) ................................... Electric Utilities 538,847,500 11,692,986
Companhia de Bebidas das Americas
(AmBev) ..................................... Beverages 42,247,000 15,604,414
a Companhia de Bebidas das Americas
(AmBev), rts., 7/25/06 ...................... Beverages 19,342 333
Souza Cruz SA (Non Taxable) ................... Tobacco 2,734,534 40,666,393
Souza Cruz SA (Taxable) ....................... Tobacco 17,600 261,737
--------------
95,393,125
--------------
CHINA 12.2%
Aluminum Corp. of China Ltd., H ............... Metals & Mining 96,092,000 71,143,973
Anhui Conch Cement Co. Ltd., H ................ Construction Materials 8,734,000 14,226,129
China Mobile (Hong Kong) Ltd. ................. Wireless Telecommunication Services 15,308,000 87,515,397
China Petroleum and Chemical Corp., H ......... Oil, Gas & Consumable Fuels 49,870,000 28,574,749
China Telecom Corp. Ltd., H ................... Diversified Telecommunication Services 66,038,000 21,257,734
China Travel International Investment
Hong Kong Ltd. .............................. Hotels, Restaurants & Leisure 79,210,000 19,072,370
Chongqing Changan Automobile Co. ..............
Ltd., B ..................................... Automobiles 7,774,109 3,993,986
Citic Pacific Ltd. ............................ Industrial Conglomerates 4,589,764 13,533,461
CNOOC Ltd. .................................... Oil, Gas & Consumable Fuels 103,337,000 82,495,561
Datang International Power Generation Co. .....
Ltd., H ..................................... Independent Power Producers & Energy Traders 19,162,000 13,323,479
Denway Motors Ltd. ............................ Automobiles 76,690,386 25,674,223
Huadian Power International Corp. .............
Ltd., H ..................................... Independent Power Producers & Energy Traders 22,226,000 6,296,034
Huaneng Power International Inc., H ........... Independent Power Producers & Energy Traders 26,980,000 17,890,901
PetroChina Co. Ltd., H ........................ Oil, Gas & Consumable Fuels 142,499,000 152,290,548
b PetroChina Co. Ltd., H, 144A .................. Oil, Gas & Consumable Fuels 26,450,000 28,267,462
Shanghai Industrial Holdings Ltd. ............. Industrial Conglomerates 11,918,000 23,248,720
a TCL Multimedia Technology Holdings Ltd. ....... Household Durables 2,171,386 229,263
Travelsky Technology Ltd., H .................. IT Services 10,309,000 11,813,799
--------------
620,847,789
--------------
18 | Semiannual Report
Templeton Developing Markets Trust
STATEMENT OF INVESTMENTS, JUNE 30, 2006 (UNAUDITED) (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
INDUSTRY SHARES/RIGHTS VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
COMMON STOCKS AND RIGHTS (CONTINUED)
CROATIA 1.0%
a,c Pliva d.d., GDR, Reg S ...................... Pharmaceuticals 1,838,850 $ 49,796,058
--------------
CZECH REPUBLIC 0.2%
Philip Morris CR AS ......................... Tobacco 19,661 10,839,690
--------------
FINLAND 0.4%
Nokian Renkaat OYJ .......................... Auto Components 1,485,140 19,530,616
--------------
HONG KONG 1.6%
Cheung Kong (Holdings) Ltd. ................. Real Estate 3,998,000 43,319,152
Cheung Kong Infrastructure Holdings Ltd. .... Electric Utilities 2,571,000 7,431,927
Dairy Farm International Holdings Ltd. ...... Food & Staples Retailing 4,008,054 12,585,290
Hopewell Holdings Ltd. ...................... Transportation Infrastructure 1,392,000 3,925,242
MTR Corp. Ltd. .............................. Road & Rail 6,891,295 16,637,388
--------------
83,898,999
--------------
HUNGARY 2.5%
BorsodChem Rt ............................... Chemicals 758,166 8,733,968
Gedeon Richter Ltd. ......................... Pharmaceuticals 88,158 16,213,629
a Magyar Telekom PLC .......................... Diversified Telecommunication Services 9,268,179 35,268,255
MOL Magyar Olaj-es Gazipari Rt .............. Oil, Gas & Consumable Fuels 632,010 64,980,465
--------------
125,196,317
--------------
INDIA 2.1%
Gail India Ltd. ............................. Gas Utilities 2,775,840 15,415,956
Himatsingka Seide Ltd. ...................... Textiles, Apparel & Luxury Goods 1,985,843 4,023,193
Hindustan Petroleum Corp. Ltd. .............. Oil, Gas & Consumable Fuels 4,911,041 25,208,155
Indian Oil Corp. Ltd. ....................... Oil, Gas & Consumable Fuels 2,016,259 17,578,544
Oil & Natural Gas Corp. Ltd. ................ Oil, Gas & Consumable Fuels 1,504,804 36,342,591
b Oil & Natural Gas Corp. Ltd., 144A .......... Oil, Gas & Consumable Fuels 386,240 9,328,100
--------------
107,896,539
--------------
INDONESIA 0.6%
PT Astra International Tbk .................. Automobiles 22,982,000 24,190,273
PT Bank Danamon Indonesia Tbk ............... Commercial Banks 19,802,500 8,497,780
--------------
32,688,053
--------------
ISRAEL 0.3%
a Israel Discount Bank ........................ Commercial Banks 1,799,193 3,075,964
a Taro Pharmaceutical Industries Ltd. ......... Pharmaceuticals 979,623 10,393,800
--------------
13,469,764
--------------
MALAYSIA 2.0%
Maxis Communications Bhd .................... Wireless Telecommunication Services 17,944,500 41,754,109
Resorts World Bhd ........................... Hotels, Restaurants & Leisure 7,542,700 24,016,762
Sime Darby Bhd .............................. Industrial Conglomerates 14,969,300 22,406,083
Tanjong PLC ................................. Hotels, Restaurants & Leisure 1,718,300 6,312,981
YTL Power International Bhd ................. Water Utilities 11,064,688 5,871,858
--------------
100,361,793
--------------
Semiannual Report | 19
Templeton Developing Markets Trust
STATEMENT OF INVESTMENTS, JUNE 30, 2006 (UNAUDITED) (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
INDUSTRY SHARES/RIGHTS VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
COMMON STOCKS AND RIGHTS (CONTINUED)
MEXICO 2.7%
Fomento Economico Mexicano SA de CV,
ADR ......................................... Beverages 466,810 $ 39,081,333
Grupo Bimbo SA de CV, A ....................... Food Products 2,267,438 6,791,824
Kimberly Clark de Mexico SA de CV, A .......... Household Products 18,505,712 58,578,998
Telefonos de Mexico SA de CV, L, ADR .......... Diversified Telecommunication Services 1,534,240 31,958,219
--------------
136,410,374
--------------
PANAMA 0.2%
Banco Latinoamericano de Exportaciones
SA, E ....................................... Commercial Banks 718,800 11,234,844
--------------
PERU 0.2%
Compania de Minas Buenaventura SA,
ADR ......................................... Metals & Mining 379,600 10,355,488
--------------
PHILIPPINES 0.6%
San Miguel Corp., B ........................... Beverages 22,847,236 31,451,032
--------------
POLAND 1.2%
Polski Koncern Naftowy Orlen SA ............... Oil, Gas & Consumable Fuels 2,318,128 38,668,298
Telekomunikacja Polska SA ..................... Diversified Telecommunication Services 3,865,510 24,332,043
--------------
63,000,341
--------------
PORTUGAL 0.2%
a Jeronimo Martins SGPS SA ...................... Food & Staples Retailing 557,451 9,520,142
--------------
RUSSIA 6.9%
Gazprom ....................................... Oil, Gas & Consumable Fuels 4,564,650 47,928,825
LUKOIL, ADR ................................... Oil, Gas & Consumable Fuels 1,602,032 133,369,164
LUKOIL, ADR (London Exchange) ................. Oil, Gas & Consumable Fuels 645,346 53,821,856
Mining and Metallurgical Co. ..................
Norilsk Nickel .............................. Metals & Mining 561,520 72,997,600
a Mobile Telesystems, ADR ....................... Wireless Telecommunication Services 1,082,600 31,871,744
a ZAO Polyus Gold Co. ........................... Metals & Mining 217,565 9,355,295
--------------
349,344,484
--------------
SINGAPORE 1.0%
ComfortDelGro Corp. Ltd. ...................... Road & Rail 21,755,000 21,031,941
Fraser and Neave Ltd. ......................... Industrial Conglomerates 12,122,980 30,640,667
--------------
51,672,608
--------------
SOUTH AFRICA 9.6%
Anglo American PLC ............................ Metals & Mining 2,551,592 104,348,369
Edgars Consolidated Stores Ltd. ............... Specialty Retail 4,945,423 19,967,922
a Imperial Holdings Ltd. ........................ Air Freight & Logistics 1,083,228 20,395,506
JD Group Ltd. ................................. Specialty Retail 1,877,171 17,378,886
Massmart Holdings Ltd. ........................ Food & Staples Retailing 2,137,029 14,008,419
MTN Group Ltd. ................................ Wireless Telecommunication Services 4,528,800 33,413,322
Nampak Ltd. ................................... Containers & Packaging 4,281,595 10,898,063
Nedbank Group Ltd. ............................ Commercial Banks 4,077,728 64,265,448
Old Mutual PLC ................................ Insurance 26,959,544 81,388,179
Remgro Ltd. ................................... Diversified Financial Services 5,773,730 108,718,450
20 | Semiannual Report
Templeton Developing Markets Trust
STATEMENT OF INVESTMENTS, JUNE 30, 2006 (UNAUDITED) (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
INDUSTRY SHARES/RIGHTS VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
COMMON STOCKS AND RIGHTS (CONTINUED)
SOUTH AFRICA (CONTINUED)
Sappi Ltd. .................................. Paper & Forest Products 1,079,763 $ 13,516,865
--------------
488,299,429
--------------
SOUTH KOREA 16.2%
Daewoo Shipbuilding & Marine Engineering
Co. Ltd. .................................. Machinery 628,450 18,480,901
Hana Financial Group Inc. ................... Commercial Banks 1,425,569 67,014,890
Hite Brewery Co. Ltd. ....................... Beverages 154,090 15,413,060
Hyundai Development Co. ..................... Construction & Engineering 1,435,780 62,046,883
Hyundai Motor Co. Ltd. ...................... Automobiles 73,750 6,265,349
Kangwon Land Inc. ........................... Hotels, Restaurants & Leisure 3,473,566 59,311,483
Kookmin Bank ................................ Commercial Banks 265,100 21,794,783
Korea Gas Corp. ............................. Gas Utilities 396,460 13,580,975
LG Card Co. Ltd. ............................ Consumer Finance 1,164,810 57,641,981
LG Chem Ltd. ................................ Chemicals 486,270 16,913,739
LG Corp. .................................... Industrial Conglomerates 682,600 20,037,323
LG Electronics Inc. ......................... Household Durables 510,660 30,949,091
LG Petrochemical Co. Ltd. ................... Chemicals 342,200 6,672,675
a,b Lotte Shopping Co. Ltd., GDR, 144A .......... Multiline Retail 2,106,000 40,372,020
Samsung Electronics Co. Ltd. ................ Semiconductors & Semiconductor Equipment 404,031 256,791,244
Samsung Fine Chemicals Co. Ltd. ............. Chemicals 570,740 14,467,770
Shinhan Financial Group Co. Ltd. ............ Commercial Banks 699,000 32,785,771
SK Corp. .................................... Oil, Gas & Consumable Fuels 705,850 45,382,714
SK Telecom Co. Ltd. ......................... Wireless Telecommunication Services 186,447 40,089,790
--------------
826,012,442
--------------
SWEDEN 0.7%
Oriflame Cosmetics SA, SDR .................. Personal Products 1,146,884 38,176,068
--------------
TAIWAN 12.0%
Asustek Computer Inc. ....................... Computers & Peripherals 10,643,000 26,140,183
AU Optronics Corp. .......................... Electronic Equipment & Instruments 16,676,000 23,544,285
a BenQ Corp. .................................. Computers & Peripherals 12,568,000 7,804,402
China Motor Corp. ........................... Automobiles 11,176,000 11,221,404
Chinatrust Financial Holding Co. Ltd. ....... Commercial Banks 25,707,809 21,324,889
Chunghwa Telecom Co. Ltd. ................... Diversified Telecommunication Services 17,728,000 32,040,039
D-Link Corp. ................................ Communications Equipment 22,846,893 24,916,055
LITE-ON IT Corp. ............................ Computers & Peripherals 3,337,000 3,902,110
Lite-On Technology Corp. .................... Computers & Peripherals 23,855,658 35,339,259
MediaTek Inc. ............................... Semiconductors & Semiconductor Equipment 2,581,000 23,921,405
Mega Financial Holding Co. Ltd. ............. Commercial Banks 111,214,308 82,289,345
President Chain Store Corp. ................. Food & Staples Retailing 10,510,164 23,053,946
Realtek Semiconductor Corp. ................. Semiconductors & Semiconductor Equipment 27,149,450 28,517,889
Siliconware Precision Industries Co. ........ Semiconductors & Semiconductor Equipment 17,363,258 21,349,697
Sunplus Technology Co. Ltd. ................. Semiconductors & Semiconductor Equipment 19,916,866 22,059,090
Synnex Technology International Corp. ....... Electronic Equipment & Instruments 17,928,240 19,496,549
Taiwan Mobile Co. Ltd. ...................... Wireless Telecommunication Services 54,608,106 54,323,834
Taiwan Semiconductor Manufacturing Co. ......
Ltd ....................................... Semiconductors & Semiconductor Equipment 52,683,045 95,051,974
Semiannual Report | 21
Templeton Developing Markets Trust
STATEMENT OF INVESTMENTS, JUNE 30, 2006 (UNAUDITED) (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
INDUSTRY SHARES/RIGHTS VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
COMMON STOCKS AND RIGHTS (CONTINUED)
TAIWAN (CONTINUED)
Uni-President Enterprises Corp. ......... Food Products 23,391,790 $ 20,379,334
United Microelectronics Corp. ........... Semiconductors & Semiconductor Equipment 29,901,000 17,921,108
a Yageo Corp. ............................. Electronic Equipment & Instruments 22,195,000 7,679,812
Yang Ming Marine Transport Corp. ........ Marine 1,382,000 866,725
Yuanta Core Pacific Securities Co. ...... Capital Markets 15,706,232 10,383,965
--------------
613,527,299
--------------
THAILAND 3.1%
Aromatics (Thailand) Public Co. Ltd., fgn. Chemicals 6,507,800 4,677,695
Bangkok Bank Public Co. Ltd., fgn ....... Commercial Banks 8,113,500 22,561,149
Kasikornbank Public Co. Ltd., fgn ....... Commercial Banks 22,642,900 36,233,392
Land and Houses Public Co. Ltd., fgn .... Household Durables 33,361,838 6,607,604
Siam Cement Public Co. Ltd., fgn ........ Construction Materials 5,068,113 30,844,759
Siam Commercial Bank Public Co. Ltd.,
fgn ................................... Commercial Banks 11,391,000 17,630,352
Thai Airways International Public Co.
Ltd., fgn ............................. Airlines 6,226,700 6,452,116
a Thai Beverages Co., Ltd. ................ Beverages 77,403,000 12,960,820
a TMB Bank Public Co. Ltd., fgn ........... Commercial Banks 217,743,100 19,420,949
a True Corp. Public Co. Ltd., rts., 3/28/08 Diversified Telecommunication Services 2,258,595 --
--------------
157,388,836
--------------
TURKEY 7.1%
Akbank TAS .............................. Commercial Banks 12,370,440 59,409,382
Arcelik AS, Br .......................... Household Durables 6,344,829 36,284,804
a KOC Holding AS .......................... Industrial Conglomerates 7,658,075 22,841,146
a Migros Turk TAS ......................... Food & Staples Retailing 1,806,685 14,499,146
Tupras-Turkiye Petrol Rafineleri AS ..... Oil, Gas & Consumable Fuels 4,740,040 79,375,078
a Turk Hava Yollari Anonim Ortakligi ...... Airlines 1,015,000 3,495,577
a,b Turk Hava Yollari Anonim Ortakligi, 144A Airlines 6,362,000 21,910,205
Turkcell Iletisim Hizmetleri AS ......... Wireless Telecommunication Services 8,311,977 38,080,147
Turkiye Is Bankasi (Isbank), C .......... Commercial Banks 5,224,466 25,750,923
Turkiye Vakiflar Bankasi T.A.O. ......... Commercial Banks 14,762,919 57,838,924
--------------
359,485,332
--------------
UNITED KINGDOM 2.1%
HSBC Holdings PLC ....................... Commercial Banks 3,731,282 65,388,178
Provident Financial PLC ................. Consumer Finance 3,714,808 42,248,091
--------------
107,636,269
--------------
TOTAL COMMON STOCKS AND RIGHTS
(COST $3,650,085,498) ................. 4,554,308,331
--------------
DIRECT EQUITY INVESTMENTS
(COST $4,447,586) 0.1%
HONG KONG 0.1%
a,d,e,f Mayfair Hanoi, Ltd., 30% equity owned
through HEA Holdings Ltd., a wholly
owned investment ...................... Real Estate 4,847,692
--------------
22 | Semiannual Report
Templeton Developing Markets Trust
STATEMENT OF INVESTMENTS, JUNE 30, 2006 (UNAUDITED) (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
INDUSTRY SHARES/RIGHTS VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
PREFERRED STOCKS 8.9%
BRAZIL 8.7%
Banco Bradesco SA, ADR, pfd. .................. Commercial Banks 2,471,298 $ 76,832,655
Braskem SA, pfd., A ........................... Chemicals 1,374,514 8,434,042
Companhia Vale do Rio Doce, ADR, pfd., A ...... Metals & Mining 4,669,900 96,106,542
Petroleo Brasileiro SA, ADR, pfd. ............. Oil, Gas & Consumable Fuels 2,240,841 178,908,745
Sadia SA, pfd. ................................ Food Products 4,721,438 12,534,405
Suzano Bahia Sul Papel e Celulose SA,
pfd., A ..................................... Paper & Forest Products 2,111,868 12,412,429
Unibanco - Uniao de Bancos Brasileiros
SA, GDR, pfd. ............................... Commercial Banks 738,800 49,048,932
Usinas Siderurgicas de Minas Gerais SA,
pfd., A ..................................... Metals & Mining 283,238 10,154,407
--------------
444,432,157
--------------
RUSSIA 0.2%
Surgutneftegaz, pfd. .......................... Oil, Gas & Consumable Fuels 7,973,050 8,371,703
--------------
TOTAL PREFERRED STOCKS
(COST $306,205,257) ......................... 452,803,860
--------------
TOTAL LONG TERM INVESTMENTS
(COST $3,960,738,341)
------------------
PRINCIPAL AMOUNT
------------------
SHORT TERM INVESTMENTS
(COST $353,733) 0.0% g
UNITED STATES 0.0% g
h U.S. Treasury Bill, 9/07/06 ................... $ 357,000 353,885
--------------
TOTAL INVESTMENTS
(COST $3,961,092,074) 98.4% ................. 5,012,313,768
OTHER ASSETS, LESS LIABILITIES 1.6% ........... 77,589,313
--------------
NET ASSETS 100.0% ............................. $5,089,903,081
==============
SELECTED PORTFOLIO ABBREVIATIONS
ADR - American Depository Receipt
GDR - Global Depository Receipt
SDR - Swedish Depository Receipt
a Non-income producing for the twelve months ended June 30, 2006.
b Security was purchased pursuant to Rule 144A under the Securities Act of
1933 and may be sold in transactions exempt from registration only to
qualified institutional buyers or in a public offering registered under
the Securities Act of 1933. These securities have been deemed liquid under
guidelines approved by the Fund's Board of Trustees. At June 30, 2006, the
value of these securities was $99,877,787, representing 1.96% of net
assets.
c Security was purchased pursuant to Regulation S under the Securities Act
of 1933, which exempts from registration securities offered and sold
outside of the United States. Such a security cannot be sold in the United
States without either an effective registration statement filed pursuant
to the Securities Act of 1933, or pursuant to an exemption from
registration. These securities have been deemed liquid under guidelines
approved by the Fund's Board of Trustees. At June 30, 2006, the value of
this security was $49,796,058, representing 0.98% of net assets.
d See Note 10 regarding other considerations.
e See Note 8 regarding restricted securities.
f See Note 9 regarding holdings of 5% voting securities.
g Rounds to less than 0.1% of net assets.
h The security is traded on a discount basis with no stated coupon rate.
Semiannual Report | See notes to financial statements. | 23
Templeton Developing Markets Trust
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2006 (unaudited)
Assets:
Investments in securities:
Cost - Unaffiliated issuers ........................................ $3,956,644,488
Cost - Controlled affiliated issuers (Note 8) ...................... 4,447,586
--------------
Total cost of investments .......................................... $3,961,092,074
==============
Value - Unaffiliated issuers ....................................... $5,007,466,076
Value - Controlled affiliated issuers (Note 8) ..................... 4,847,692
--------------
Total value of investments ......................................... 5,012,313,768
Receivables:
Investment securities sold ......................................... 85,160,204
Capital shares sold ................................................ 18,797,321
Dividends .......................................................... 11,072,897
Foreign tax ........................................................ 668,331
Other receivables (Note 11) ........................................ 604,964
--------------
Total assets ................................................. 5,128,617,485
--------------
Liabilities:
Payables:
Investment securities purchased .................................... 12,162,522
Capital shares redeemed ............................................ 9,043,113
Affiliates ......................................................... 8,766,752
Funds advanced by custodian ........................................ 4,043,536
Foreign currency advanced by custodian ............................. 2,747,682
Accrued expenses and other liabilities .............................. 1,950,799
--------------
Total liabilities ............................................ 38,714,404
--------------
Net assets, at value ...................................... $5,089,903,081
==============
Net assets consist of:
Paid-in capital ..................................................... $4,022,597,940
Accumulated distributions in excess of net investment income (21,881,262)
Net unrealized appreciation (depreciation) .......................... 1,050,853,756
Accumulated net realized gain (loss) ................................ 38,332,647
--------------
Net assets, at value ...................................... $5,089,903,081
==============
24 | See notes to financial statements. | Semiannual Report
Templeton Developing Markets Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
June 30, 2006 (unaudited)
CLASS A:
Net assets, at value ....................................................... $4,231,699,379
==============
Shares outstanding ......................................................... 171,244,839
==============
Net asset value per share a ................................................ $ 24.71
==============
Maximum offering price per share (net asset value per share / 94.25%) ...... $ 26.22
==============
CLASS B:
Net assets, at value ....................................................... $ 49,164,036
==============
Shares outstanding ......................................................... 2,030,596
==============
Net asset value and maximum offering price per share a ..................... $ 24.21
==============
CLASS C:
Net assets, at value ....................................................... $ 414,278,807
==============
Shares outstanding ......................................................... 17,133,509
==============
Net asset value and maximum offering price per share a ..................... $ 24.18
==============
CLASS R:
Net assets, at value ....................................................... $ 26,519,153
==============
Shares outstanding ......................................................... 1,084,912
==============
Net asset value and maximum offering price per share a ..................... $ 24.44
==============
ADVISOR CLASS:
Net assets, at value ....................................................... $ 368,241,706
==============
Shares outstanding ......................................................... 14,893,203
==============
Net asset value and maximum offering price per share a ..................... $ 24.73
==============
a Redemption price is equal to net asset value less contingent deferred
sales charges, if applicable, and redemption fees retained by the Fund.
Semiannual Report | See notes to financial statements. | 25
Templeton Developing Markets Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENT OF OPERATIONS
for the six months ended June 30, 2006 (unaudited)
Investment income:
Dividends (net of foreign taxes of $6,015,473) ................................ $ 77,623,407
Interest (net of foreign taxes of $711) ....................................... 3,394,200
Other Income (Note 11) ........................................................ 604,964
-------------
Total investment income ................................................ 81,622,571
-------------
Expenses:
Management fees (Note 3a) ..................................................... 29,873,950
Administrative fees (Note 3b) ................................................. 2,139,043
Distribution fees (Note 3c)
Class A ...................................................................... 5,650,178
Class B ...................................................................... 261,028
Class C ...................................................................... 2,087,656
Class R ...................................................................... 58,160
Transfer agent fees (Note 3e) ................................................. 3,651,157
Custodian fees (Note 4) ....................................................... 2,314,503
Reports to shareholders ....................................................... 149,325
Registration and filing fees .................................................. 70,865
Professional fees ............................................................. 37,400
Trustees' fees and expenses ................................................... 122,999
Other ......................................................................... 43,811
-------------
Total expenses ......................................................... 46,460,075
Expense reductions (Note 4) ............................................ (11,673)
-------------
Net expenses ........................................................ 46,448,402
-------------
Net investment income ............................................ 35,174,169
-------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments (net of foreign taxes of $505,145) ............................... 349,218,679
Foreign currency transactions ................................................ 605,784
-------------
Net realized gain (loss) ............................................... 349,824,463
-------------
Net change in unrealized appreciation (depreciation) on:
Investments .................................................................. (194,770,904)
Translation of assets and liabilities denominated in foreign currencies ...... (283,411)
Change in deferred taxes on unrealized appreciation .......................... 427,667
-------------
Net unrealized depreciation ............................................ (194,626,648)
-------------
Net realized and unrealized gain (loss) ........................................ 155,197,815
-------------
Net increase (decrease) in net assets resulting from operations ................ $ 190,371,984
=============
26 | See notes to financial statements. | Semiannual Report
Templeton Developing Markets Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
-------------------------------------
SIX MONTHS ENDED
JUNE 30, 2006 YEAR ENDED
(UNAUDITED) DECEMBER 31, 2005
-------------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income ................................................................. $ 35,174,169 $ 43,272,512
Net realized gain (loss) from investments and foreign currency transactions ........... 349,824,463 400,601,203
Net change in unrealized appreciation (depreciation) on investments, translation of
assets and liabilities denominated in foreign currencies, and deferred taxes ......... (194,626,648) 412,370,518
----------------------------------
Net increase (decrease) in net assets resulting from operations ................. 190,371,984 856,244,233
Distributions to shareholders from:
Net investment income:
Class A ......................................................................... (24,093,430) (39,094,297)
Class B ......................................................................... (330,316) (328,927)
Class C ......................................................................... (2,577,121) (2,418,452)
Class R ......................................................................... (136,502) (140,866)
Advisor Class ................................................................... (2,363,970) (4,529,261)
----------------------------------
Total distributions to shareholders .................................................... (29,501,339) (46,511,803)
----------------------------------
Capital share transactions: (Note 2)
Class A ......................................................................... 713,961,562 422,960,064
Class B ......................................................................... (31,734) 357,601
Class C ......................................................................... 34,174,820 34,935,377
Class R ......................................................................... 9,855,342 8,554,551
Advisor Class ................................................................... 4,564,898 84,841,579
----------------------------------
Total capital share transactions ....................................................... 762,524,888 551,649,172
----------------------------------
Redemption fees ........................................................................ 31,591 41,172
----------------------------------
Net increase (decrease) in net assets ........................................... 923,427,124 1,361,422,774
Net assets:
Beginning of period .................................................................... 4,166,475,957 2,805,053,183
----------------------------------
End of period .......................................................................... $5,089,903,081 $4,166,475,957
==================================
Accumulated distributions in excess of net investment income included in net assets:
End of period .......................................................................... $ (21,881,262) $ (27,554,092)
==================================
Semiannual Report | See notes to financial statements. | 27
Templeton Developing Markets Trust
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Templeton Developing Markets Trust (the Fund) is registered under the Investment
Company Act of 1940 (1940 Act) as a diversified, open-end investment company.
The Fund offers five classes of shares: Class A, Class B, Class C, Class R, and
Advisor Class. Effective March 1, 2005, Class B shares are only offered to
existing Class B shareholders in the form of reinvested distributions and
certain exchanges from other Franklin Templeton Class B shares. Each class of
shares differs by its initial sales load, contingent deferred sales charges,
distribution fees, voting rights on matters affecting a single class and its
exchange privilege.
The following summarizes the Fund's significant accounting policies.
A. SECURITY VALUATION
Securities listed on a securities exchange or on the NASDAQ National Market
System are valued at the last quoted sale price or the official closing price of
the day, respectively. Over-the-counter securities and listed securities for
which there is no reported sale are valued within the range of the most recent
quoted bid and ask prices. Securities that trade in multiple markets or on
multiple exchanges are valued according to the broadest and most representative
market.
Government securities generally trade in the over-the-counter market rather than
on a securities exchange. The Fund may utilize independent pricing services,
quotations from bond dealers, and information with respect to bond and note
transactions, to assist in determining a current market value for each security.
The Fund's pricing services may use valuation models or matrix pricing which
considers information with respect to comparable bond and note transactions,
quotations from bond dealers, or by reference to other securities that are
considered comparable in such characteristics as rating, interest rate and
maturity date, option adjusted spread models, prepayment projections, interest
rate spreads and yield curves, to determine current value.
Foreign securities are valued as of the close of trading on the foreign stock
exchange on which the security is primarily traded, or the NYSE, whichever is
earlier. If no sale is reported at that time, the foreign security will be
valued within the range of the most recent quoted bid and ask prices. The value
is then converted into its U.S. dollar equivalent at the foreign exchange rate
in effect at the close of the NYSE on the day that the value of the foreign
security is determined.
The Fund has procedures to determine the fair value of individual securities and
other assets for which market prices are not readily available or which may not
be reliably priced. Methods for valuing these securities may include:
fundamental analysis, matrix pricing, discounts from market prices of similar
securities, or discounts applied due to the nature and duration of restrictions
on the disposition of the securities. Due to the inherent uncertainty of
valuations of such securities, the fair values may differ significantly from the
values that would have been used had a ready market for such investments
existed. Occasionally, events occur between the time at which trading in a
security is completed and the close of the NYSE that might call into question
the availability (including the reliability) of the value of a portfolio
security held by the Fund. The
28 | Semiannual Report
Templeton Developing Markets Trust
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
A. SECURITY VALUATION (CONTINUED)
investment manager monitors price movements following the close of trading in
foreign stock markets through a series of country specific market proxies (such
as baskets of American Depository Receipts, futures contracts and exchange
traded funds). These price movements are measured against established trigger
thresholds for each specific market proxy to assist in determining if an event
has occurred. If such an event occurs, the securities may be valued using fair
value procedures, which may include the use of independent pricing services. All
security valuation procedures are approved by the Fund's 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, income and expense items denominated in foreign currencies are
translated into U.S. dollars at the exchange rate in effect on the transaction
date. Occasionally, events may impact the availability or reliability of foreign
exchange rates used to convert the U.S. dollar equivalent value. If such an
event occurs, the foreign exchange rate will be valued at fair value using
procedures established and approved by the Fund's Board of Trustees.
The Fund does not separately report the effect of changes in foreign exchange
rates from changes in market prices on securities held. Such changes are
included in net realized and unrealized gain or loss from investments on the
Statement of Operations.
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 on these
contracts are included in the Statement of Operations.
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, which may be in
excess of the amount reflected in the Statement of Assets and Liabilities.
Semiannual Report | 29
Templeton Developing Markets Trust
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
D. INCOME AND DEFERRED TAXES
No provision has been made for U.S. income taxes because the Fund intends to
qualify as a regulated investment company under the Internal Revenue Code and to
distribute to shareholders substantially all of its taxable income and net
realized gains.
Foreign securities held by the Fund may be subject to foreign taxation on
dividend and interest income received. Foreign taxes, if any, are recorded based
on the tax regulations and rates that exist in the foreign markets in which the
Fund invests.
The Fund may be subject to a tax imposed on net realized gains on securities of
certain foreign countries. The Fund records an estimated deferred tax liability
for net unrealized gains on these securities in an amount that would be payable
if the securities were disposed of on the valuation date.
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.
Interest income and estimated expenses are accrued daily. Dividend income is
recorded on the ex-dividend date. Dividend income is recorded on the ex-dividend
date except that certain dividends from foreign securities are recognized as
soon as the Fund is notified of the ex-dividend date. Distributions to
shareholders are recorded on the ex-dividend date and are determined according
to income tax regulations (tax basis). Distributable earnings determined on a
tax basis may differ from earnings recorded in accordance with accounting
principles generally accepted in the United States. These differences may be
permanent or temporary. Permanent differences are reclassified among capital
accounts to reflect their tax character. These reclassifications have no impact
on net assets or the results of operations. Temporary differences are not
reclassified, as they may reverse in subsequent periods.
Realized and unrealized gains and losses and net investment income, other than
class specific expenses, are allocated daily to each class of shares based upon
the relative proportion of net assets of each class. Differences in class-level
expenses may result in payment of different per share distributions by class.
F. 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 expenses during the reporting period. Actual results could differ from those
estimates.
30 | Semiannual Report
Templeton Developing Markets Trust
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
G. REDEMPTION FEES
A short term trading redemption fee will be imposed, with some exceptions, on
any Fund shares that are redeemed or exchanged within seven calendar days
following their purchase date (30 days or less prior to June 1, 2004). The
redemption fee is 2% of the amount redeemed. Such fees are retained by the Fund
and accounted for as an addition to paid-in capital.
H. GUARANTEES AND INDEMNIFICATIONS
Under the Fund's organizational documents, its officers and trustees are
indemnified by the Fund against certain liabilities arising out of the
performance of their duties to the Fund. Additionally, in the normal course of
business, the Fund enters into contracts with service providers that contain
general indemnification clauses. The Fund's maximum exposure under these
arrangements is unknown as this would involve future claims that may be made
against the Fund that have not yet occurred. However, based on experience, the
Fund expects the risk of loss to be remote.
2. SHARES OF BENEFICIAL INTEREST
At June 30, 2006, there were an unlimited number of shares authorized ($0.01 par
value). Transactions in the Fund's shares were as follows:
--------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2006 DECEMBER 31, 2005
--------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------------------
CLASS A SHARES:
Shares sold ........................ 56,777,249 $1,484,414,504 62,784,335 $1,280,942,613
Shares issued in reinvestment
of distributions .................. 809,923 20,928,403 1,592,210 33,794,108
Shares redeemed .................... (31,308,405) (791,381,345) (43,826,099) (891,776,657)
--------------------------------------------------------------------
Net increase (decrease) ............ 26,278,767 $ 713,961,562 20,550,446 $ 422,960,064
====================================================================
CLASS B SHARES:
Shares sold ........................ 261,219 $ 6,613,201 346,641 $ 6,913,076
Shares issued in reinvestment
of distributions .................. 11,728 297,664 15,252 297,644
Shares redeemed .................... (281,568) (6,942,599) (350,954) (6,853,119)
--------------------------------------------------------------------
Net increase (decrease) ............ (8,621) $ (31,734) 10,939 $ 357,601
====================================================================
CLASS C SHARES:
Shares sold ........................ 3,545,678 $ 89,769,745 4,078,278 $ 82,118,609
Shares issued in reinvestment
of distributions .................. 82,709 2,095,848 100,801 1,982,771
Shares redeemed .................... (2,336,102) (57,690,773) (2,515,326) (49,166,003)
--------------------------------------------------------------------
Net increase (decrease) ............ 1,292,285 $ 34,174,820 1,663,753 $ 34,935,377
====================================================================
Semiannual Report | 31
Templeton Developing Markets Trust
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
----------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2006 DECEMBER 31, 2005
----------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------
CLASS R SHARES:
Shares sold ........................ 647,220 $ 16,431,265 561,492 $ 11,503,248
Shares issued in reinvestment
of distributions .................. 5,269 134,790 6,460 138,829
Shares redeemed .................... (265,222) (6,710,713) (154,113) (3,087,526)
----------------------------------------------------------------
Net increase (decrease) ............ 387,267 $ 9,855,342 413,839 $ 8,554,551
================================================================
ADVISOR CLASS SHARES:
Shares sold ........................ 3,140,747 $ 79,593,716 7,573,075 $161,924,074
Shares issued in reinvestment
of distributions .................. 53,549 1,383,159 131,387 2,828,459
Shares redeemed .................... (2,991,867) (76,411,977) (3,772,674) (79,910,954)
----------------------------------------------------------------
Net increase (decrease) ............ 202,429 $ 4,564,898 3,931,788 $ 84,841,579
================================================================
3. TRANSACTIONS WITH AFFILIATES
Franklin Resources, Inc. is the holding company for various subsidiaries that
together are referred to as Franklin Templeton Investments. Certain officers and
trustees of the Fund are also officers and/or directors of the following
subsidiaries:
- ----------------------------------------------------------------------------------------------
SUBSIDIARY AFFILIATION
- ----------------------------------------------------------------------------------------------
Templeton Asset Management Ltd. (TAML) Investment manager
Franklin Templeton Services, LLC (FT Services) Administrative manager
Franklin Templeton Distributors, Inc. (Distributors) Principal underwriter
Franklin Templeton Investor Services, LLC (Investor Services) Transfer agent
A. MANAGEMENT FEES
The Fund pays an investment management fee to TAML based on the average daily
net assets of the Fund as follows:
- --------------------------------------------------------------------------------
ANNUALIZED FEE RATE NET ASSETS
- --------------------------------------------------------------------------------
1.250% Up to and including $1 billion
1.200% Over $1 billion, up to and including $5 billion
1.150% Over $5 billion, up to and including $10 billion
1.100% Over $10 billion, up to and including $15 billion
1.050% Over $15 billion, up to and including $20 billion
1.000% In excess of $20 billion
B. ADMINISTRATIVE FEES
The Fund pays an administrative fee to FT Services based on the Fund's average
daily net assets of the Fund as follows:
32 | Semiannual Report
Templeton Developing Markets Trust
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
B. ADMINISTRATIVE FEES (CONTINUED)
- --------------------------------------------------------------------------------
ANNUALIZED FEE RATE NET ASSETS
- --------------------------------------------------------------------------------
0.150% Up to and including $200 million
0.135% Over $200 million, up to and including $700 million
0.100% Over $700 million, up to and including $1.2 billion
0.075% In excess of $1.2 billion
C. DISTRIBUTION FEES
The Fund's Board of Trustees has adopted distribution plans for each share
class, with the exception of Advisor Class shares, pursuant to Rule 12b-1 under
the 1940 Act. Under the Fund's Class A reimbursement distribution plan, the Fund
reimburses Distributors up to 0.35% per year of Class A's average daily net
assets for costs incurred in connection with the sale and distribution of the
Fund's shares. Effective November 1, 2005, the Class A reimbursement
distribution plan was amended to discontinue the reimbursement of excess plan
year costs in subsequent periods.
Under the Fund's compensation distribution plans, the Fund pays Distributors for
costs incurred in connection with the sale and distribution of the Fund's shares
up to a certain percentage per year of its average daily net assets of each
class as follows:
Class B ................................................... 1.00%
Class C ................................................... 1.00%
Class R ................................................... 0.50%
D. SALES CHARGES/UNDERWRITING AGREEMENTS
Distributors has advised the Fund of the following commission transactions
related to the sales and redemptions of the Fund's shares for the period:
Net sales charges received a .......................... $633,842
Contingent deferred sales charges retained ............ $ 68,711
a Net of commissions paid to unaffiliated broker/dealers.
E. TRANSFER AGENT FEES
The Fund paid transfer agent fees of $3,651,157, of which $2,140,698 was
retained by Investor Services.
4. EXPENSE OFFSET ARRANGEMENT
The Fund has entered into an arrangement with its custodian whereby credits
realized as a result of uninvested cash balances are used to reduce a portion of
the Fund's custodian expenses. During the period ended June 30, 2006, the
custodian fees were reduced as noted in the Statement of Operations.
Semiannual Report | 33
Templeton Developing Markets Trust
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
5. INCOME TAXES
At December 31, 2005, the Fund had tax basis capital losses which may be carried
over to offset future capital gains, if any. At December 31, 2005, the Fund had
remaining tax basis capital losses of $10,995,696 from the merged Templeton
Vietnam and Southeast Asia Fund and Templeton Emerging Markets Appreciation Fund
which may be carried over to offset future capital gains, subject to certain
limitations under the Internal Revenue Code. At December 31, 2005, capital
losses carryforwards were as follows:
Capital loss carryovers expiring in:
2008 .............................................. $ 7,422,048
2009 .............................................. 159,105,818
2010 .............................................. 141,181,639
------------
$307,709,505
============
For tax purposes, realized currency losses occurring subsequent to October 31,
may be deferred and treated as occurring on the first day of the following
fiscal year. At December 31, 2005, the Fund deferred realized currency losses of
$868,511.
Net investment income differs for financial statement and tax purposes primarily
due to differing treatments of foreign currency transactions, passive foreign
investment company shares and foreign taxes paid on net realized gains.
Net realized gains (losses) differ for financial statement and tax purposes
primarily due to differing treatments of wash sales, foreign currency
transactions, passive foreign investment company shares and foreign taxes paid
on net realized gains.
At June 30, 2006, the cost of investments and net unrealized appreciation
(depreciation) for tax purposes were as follows:
Cost of investments .............................. $4,024,268,807
==============
Unrealized appreciation .......................... $1,128,620,725
Unrealized depreciation .......................... (140,575,764)
--------------
Net unrealized appreciation (depreciation) ....... $ 988,044,961
==============
6. INVESTMENT TRANSACTIONS
Purchases and sales of investments (excluding short term securities) for the
period ended June 30, 2006, aggregated $2,014,184,087 and $1,253,998,754,
respectively.
7. CONCENTRATION OF RISK
Investing in foreign securities may include certain risks and considerations not
typically associated with investing in U.S. securities, such as fluctuating
currency values and changing local and regional economic, political and social
conditions, which may result in greater market volatility. In addition, certain
foreign securities may not be as liquid as U.S. securities.
34 | Semiannual Report
Templeton Developing Markets Trust
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
8. RESTRICTED SECURITIES
The Fund may invest in securities that are restricted under the Securities Act
of 1933 (the 1933 Act) or which are subject to legal, contractual, or other
agreed upon restrictions on resale. Restricted securities are often purchased in
private placement transactions, and cannot be sold without prior registration
unless the sale is pursuant to an exemption under the 1933 Act. Disposal of
these securities may require greater effort and expense, and prompt sale at an
acceptable price may be difficult.
At June 30, 2006, the Fund held investments in restricted securities, excluding
144A securities deemed to be liquid, valued in accordance with procedures
approved by the Fund's Board of Trustees as reflecting fair value, as listed
below. The sale or transfer of this restricted security may only be made
pursuant to the terms of the organizational documents of the company.
- ---------------------------------------------------------------------------------------------------------------------
ACQUISITION
SHARES ISSUER DATE COST VALUE
- ---------------------------------------------------------------------------------------------------------------------
Mayfair Hanoi, Ltd., 30% equity owned through
HEA Holdings Ltd. (0.10% OF NET ASSETS) ............... 10/31/96 $4,447,586 $4,847,692
==========
9. HOLDINGS OF 5% VOTING SECURITIES OF PORTFOLIO COMPANIES
The Investment Company Act of 1940 defines "affiliated companies" to include
investments in portfolio companies in which a fund owns 5% or more of the
outstanding voting securities. Investments in "affiliated companies" for the
Fund for the period ended June 30, 2006 were as shown below.
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES NUMBER OF SHARES REALIZED
HELD AT GROSS GROSS HELD AT VALUE AT INVESTMENT CAPITAL
NAME OF ISSUER BEGINNING OF PERIOD ADDITIONS REDUCTIONS END OF PERIOD END OF PERIOD INCOME GAIN (LOSS)
- ------------------------------------------------------------------------------------------------------------------------------------
Controlled Affiliates a
Mayfair Hanoi, Ltd., 30% equity
owned through HEA
Holdings Ltd.
(0.10% OF NET ASSETS) ......... -- -- -- -- $4,847,692 $ -- $ --
=================================
a Issuer in which the Fund owns 25% or more of the outstanding voting
securities.
10. OTHER CONSIDERATIONS
Directors or employees of TAML, as the Fund's Investment Manager, may serve as
members on the board of directors of certain companies in which the Fund invests
and/or may represent the Fund in certain corporate negotiations. At June 30,
2006, such individuals serve in one or more of these capacities for HEA Holdings
Ltd., (which owns a 30% equity interest in Mayfair Hanoi Ltd.) and Mayfair
Hanoi, Ltd. As a result of this involvement, such individuals may be in
possession of certain material nonpublic information which, pursuant to the
Fund's policies and the requirements of the federal securities laws, could
prevent the Fund from trading in the securities of such companies for limited or
extended periods of time.
Semiannual Report | 35
Templeton Developing Markets Trust
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
11. REGULATORY MATTERS
As part of various investigations by a number of federal, state, and foreign
regulators and governmental entities, relating to certain practices in the
mutual fund industry, including late trading, market timing and marketing
support payments to securities dealers who sell fund shares, Franklin Resources,
Inc. and certain of its subsidiaries (collectively, the "Company"), entered into
settlements with certain of those regulators.
Specifically, the Company entered into settlements with the Securities and
Exchange Commission ("SEC") concerning market timing (the "August 2, 2004 SEC
Order") and marketing support payments to securities dealers who sell fund
shares (the "December 13, 2004 SEC Order") and with the California Attorney
General's Office ("CAGO") concerning marketing support payments to securities
dealers who sell fund shares (the "CAGO Settlement"). Under the terms of the
settlements with the SEC and the CAGO, the Company retained an Independent
Distribution Consultant ("IDC") to develop separate plans for the distribution
of the respective settlement monies. The CAGO approved the distribution plan
pertaining to the distribution of the monies owed under the CAGO settlement
agreement, and in March 2005, the disbursement of monies to the relevant funds
in accordance with the terms and conditions of that settlement was completed.
On June 23, 2006, the SEC approved the IDC's proposed plan of distribution
arising from the December 13, 2004 SEC Order. The relevant funds recorded the
settlement as other income and disbursement of the settlement monies to the
designated funds in accordance with the terms and conditions of the SEC's order
and the plan will be completed in August, 2006.
The IDC has also completed a proposed Plan of Distribution under the August 2,
2004 SEC Order resolving the SEC's market timing investigation and has submitted
that plan to the SEC staff, where it is under review. The SEC has announced the
following expected schedule with respect to the market timing Plan of
Distribution: "The SEC anticipates that Notice of the Plan will be published on
or after September 15, 2006. After publication and comment, the proposed
Distribution Plan will be submitted to the SEC for approval. When the SEC
approves the proposed Distribution Plan, with modifications as appropriate,
distributions will begin pursuant to that Plan. The SEC anticipates the
distribution will begin in the fall of 2006."
In addition, the Company, as well as most of the mutual funds within Franklin
Templeton Investments and certain current or former officers, directors, and/or
employees, have been named in private lawsuits (styled as shareholder class
actions, or as derivative actions on behalf of either the named funds or
Franklin Resources, Inc.) relating to the industry practices referenced above,
as well as to allegedly excessive advisory fees, commissions, and/or 12b-1 fees.
The lawsuits were filed in different courts throughout the country. Many of
those suits are now pending in a multi-district litigation in the United States
District Court for the District of Maryland.
36 | Semiannual Report
Templeton Developing Markets Trust
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
11. REGULATORY MATTERS (CONTINUED)
The Company and fund management strongly believe that the claims made in each of
the private lawsuits referenced above are without merit and intend to defend
against them vigorously. The Company cannot predict with certainty the eventual
outcome of these lawsuits, nor whether they will have a material negative impact
on the Company. If it is determined that the Company bears responsibility for
any unlawful or inappropriate conduct that caused losses to the Fund, it is
committed to making the Fund or its shareholders whole, as appropriate.
12. FASB INTERPRETATION NO. 48
In July 2006, the FASB issued FASB Interpretation No. 48, "Accounting for
Uncertainty in Income Taxes - an Interpretation of FASB Statement No. 109" ("FIN
48"), which clarifies the accounting for uncertainty in tax positions taken or
expected to be taken in a tax return. FIN 48 provides guidance on the
measurement, recognition, classification and disclosure of tax positions, along
with accounting for the related interest and penalties. FIN 48 is effective for
fiscal years beginning after December 15, 2006, and is to be applied to all open
tax years as of the date of effectiveness. We have not yet completed our
evaluation of the impact, if any, of adopting FIN 48 on the Fund's financial
statements.
Semiannual Report | 37
Templeton Developing Markets Trust
SHAREHOLDER INFORMATION
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT
At a meeting held February 28, 2006, the Board of Trustees ("Board"), including
a majority of non-interested or independent Trustees, approved renewal of the
investment management agreement for the Fund. In reaching this decision, the
Board took into account information furnished throughout the year at regular
Board meetings, as well as information prepared specifically in connection with
the annual renewal review process. Information furnished and discussed
throughout the year included investment performance reports and related
financial information for the Fund, as well as periodic reports on shareholder
services, legal, compliance, pricing, brokerage commissions and execution and
other services provided by the Investment Manager ("Manager") and its
affiliates. Information furnished specifically in connection with the renewal
process included a report for the Fund prepared by Lipper, Inc. ("Lipper"), an
independent organization, as well as a Fund profitability analysis report
prepared by management. The Lipper reports compared the Fund's investment
performance and expenses with those of other mutual funds deemed comparable to
the Fund as selected by Lipper. The Fund profitability analysis report discussed
the profitability to Franklin Templeton Investments from its overall U.S. fund
operations, as well as on an individual fund-by-fund basis. Included with such
profitability analysis report was information on a fund-by-fund basis listing
portfolio managers and other accounts they manage, as well as information on
management fees charged by the Manager and its affiliates including management's
explanation of differences where relevant and a three-year expense analysis with
an explanation for any increase in expense ratios. Additional information
accompanying such report was a memorandum prepared by management describing
enhancements to the services provided to the Fund by the Franklin Templeton
Investments organization, as well as a memorandum relating to economies of
scale.
In considering such materials, the independent Trustees received assistance and
advice from and met separately with independent counsel. In approving
continuance of the investment management agreement for the Fund, the Board,
including a majority of independent Trustees, determined that the existing
management fee structure was fair and reasonable and that continuance of the
investment management agreement was in the best interests of the Fund and its
shareholders. While attention was given to all information furnished, the
following discusses some primary factors relevant to the Board's decision.
NATURE, EXTENT AND QUALITY OF SERVICES. The Board was satisfied with the nature
and quality of the overall services provided by the Manager and its affiliates
to the Fund and its shareholders. In addition to investment performance and
expenses discussed later, the Board's opinion was based, in part, upon periodic
reports furnished them showing that the investment policies and restrictions for
the Fund were consistently complied with as well as other reports periodically
furnished the Board covering matters such as the compliance of portfolio
managers and other management personnel with the code of ethics adopted
throughout the Franklin Templeton fund complex, the adherence to fair value
pricing procedures established by the Board, and the accuracy of net asset value
calculations. The Board also noted the extent of benefits provided Fund
shareholders from being part of the Franklin Templeton family of funds,
38 | Semiannual Report
Templeton Developing Markets Trust
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
including the right to exchange investments between the same class of funds
without a sales charge, the ability to reinvest Fund dividends into other funds
and the right to combine holdings in other funds to obtain a reduced sales
charge. Favorable consideration was given to management's efforts and
expenditures in establishing back-up systems and recovery procedures to function
in the event of a natural disaster, it being noted by the Board that such
systems and procedures had functioned smoothly during the hurricanes and
blackout experienced last year in Florida. Among other factors taken into
account by the Board were the Manager's best execution trading policies,
including a favorable report by an independent portfolio trading analytical
firm. Consideration was also given to the experience of each Fund's portfolio
management team, the number of accounts managed and general method of
compensation. In this latter respect, the Board noted that a primary factor in
management's determination of a portfolio manager's bonus compensation was the
relative investment performance of the funds he or she managed so as to be
aligned with the interests of Fund shareholders. The Board also took into
account the transfer agent and shareholder services provided Fund shareholders
by an affiliate of the Manager, noting continuing expenditures by management to
increase and improve the scope of such services, periodic favorable reports on
such service conducted by third parties, and the firsthand experience of the
individual Trustees who deal with the shareholder services department in their
capacities as shareholders in one or more of the various Franklin Templeton
funds.
INVESTMENT PERFORMANCE. The Board placed significant emphasis on the investment
performance of the Fund in view of its importance to shareholders. While
consideration was given to performance reports and discussions with portfolio
managers at Board meetings during the year, particular attention in assessing
performance was given to the Lipper reports furnished for the agreement renewal.
The Lipper report prepared for the Fund showed the investment performance of its
Class A shares during 2005, as well as during the previous ten years ended
December 31, 2005, in comparison to a performance universe consisting of all
retail and institutional emerging market funds as selected by Lipper. The Board
noted that the Fund's total return during 2005 was in the second-lowest quintile
of its Lipper performance universe, but that its total return on an annualized
basis was in the middle quintile of its Lipper performance universe for the
previous two-, five- and ten-year periods. The Board also noted that the levels
of the Fund's total return during 2005 and the previous three-year period on an
annualized basis as shown in such Lipper report exceeded 28%. The Board was
satisfied with such performance.
COMPARATIVE EXPENSES. Consideration was given to a comparative analysis of the
management fees and total expense ratios of the Fund compared with those of a
group of other funds selected by Lipper as its appropriate Lipper expense group.
Prior to making such comparison, the Board relied upon a survey showing that the
scope of services covered under the Fund's investment management agreement was
similar to those provided by fund managers to other mutual fund groups that
would be used as a basis of comparison in the Lipper reports. In reviewing
comparative costs, emphasis was given to the Fund's management fee in comparison
with the effective management fee that would have been charged by other funds
within its
Semiannual Report | 39
Templeton Developing Markets Trust
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
Lipper expense group assuming they were the same size as the Fund, as well as
the actual total expenses of the Fund in comparison with those of its Lipper
expense group. The Lipper effective management fee analysis includes
administrative charges as being part of a management fee, and actual total
expenses, for comparative consistency, are shown by Lipper for fund Class A
shares. The results of such expense comparisons showed that the effective fee
rate for the Fund was in the second most expensive quintile of its Lipper
expense group, and that its total actual expenses were also in the second most
expensive quintile of its Lipper expense group. The Board found such fee and
expenses to be acceptable in view of the Fund's performance and factors relating
to its operation, such as the quality and experience of the Fund's portfolio
managers and research staff, the nature of the disciplined value investment
approach followed for the Fund and the depth of its physical presence and
coverage in emerging markets geographical areas.
MANAGEMENT PROFITABILITY. The Board also considered the level of profits
realized by the Manager and its affiliates in connection with the operation of
the Fund. In this respect, the Board reviewed the Fund profitability analysis
that addresses the overall profitability of Franklin Templeton's U.S. fund
business, as well as its profits in providing management and other services to
the fund. The Board also considered the extent to which the Manager and its
affiliates might derive ancillary benefits from fund operations, including its
interest in a joint venture entity which financed up-front commissions paid to
brokers/dealers who sold fund Class B shares, as well as potential benefits
resulting from allocation of fund brokerage and the use of "soft" commission
dollars to pay for research. Specific attention was given to the methodology
followed in allocating costs to the Fund, it being recognized that allocation
methodologies are inherently subjective and various allocation methodologies may
each be reasonable while producing different results. In this respect, the Board
noted that the cost allocation methodology was consistent with that followed in
profitability report presentations for the Fund made in prior years and that the
Fund's independent registered public accounting firm had been engaged by the
Manager to perform certain procedures on a biennial basis, specified and
approved by the Manager and the Fund's Board solely for their purposes and use
in reference to the profitability analysis. Included in the analysis were the
revenue and related costs involved in providing services to the Fund, as well as
the Fund's relative contribution to the profitability of the Manager's parent.
In reviewing and discussing such analysis, management discussed with the Board
its belief that costs incurred in establishing the infrastructure necessary to
the type of mutual fund operations conducted by the Manager and its affiliates
may not be fully reflected in the expenses allocated to the Fund in determining
its profitability, as well as the fact that the level of profits, to a certain
extent, reflected operational cost savings and efficiencies initiated by
management. The Board also took into account management's expenditures in
improving shareholder services provided the Fund, as well as the need to meet
additional regulatory and compliance requirements resulting from the
Sarbanes-Oxley Act and recent SEC requirements. In addition, the Board
considered a third-party study comparing the profitability of the Manager's
parent on an overall basis as compared to other publicly held managers broken
down to show profitability from management operations exclusive of distribution
expenses, as well as profitability including distribution expenses. Based upon
its consideration of all these factors,
40 | Semiannual Report
Templeton Developing Markets Trust
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
the Board determined that the level of profits realized by the Manager and its
affiliates from providing services to the Fund was not excessive in view of the
nature, quality and extent of services provided.
ECONOMIES OF SCALE. The Board also considered whether economies of scale are
realized by the Manager and its affiliates as the Fund grows larger and the
extent to which this is reflected in the level of management fees charged. While
recognizing that any precise determination is inherently subjective, the Board
noted that based upon the Fund profitability analysis, it appears that as some
funds get larger, at some point economies of scale do result in the Manager's
realizing a larger profit margin on management services provided such a fund.
The Board also noted that economies of scale are shared with a fund and its
shareholders through management fee breakpoints so that as a fund grows in size,
its effective management fee rate declines. The Fund's management advisory fee
schedule is at the rate of 1.25% on the first $1 billion of Fund net assets;
1.20% on the next $4 billion of Fund net assets; 1.15% on the next $5 billion of
Fund net assets; 1.10% on the next $5 billion of Fund net assets; 1.05% on the
next $5 billion of Fund net assets; and 1% on net assets in excess of $20
billion. The Fund is also charged a separate fee for administrative services
which starts at 0.15% on the first $200 million of Fund net assets, and declines
through breakpoints to a fixed rate of 0.075% after net assets reach the $1.2
billion level. At the end of 2005, the Fund's net assets were approximately $4.2
billion, and to the extent economies of scale may be realized by the manager and
its affiliates, the Board believes the schedules of management advisory and
administrative fees provide a sharing of benefits with the Fund and its
shareholders.
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 1-954/527-7678 or
by sending a written request to: Franklin Templeton Companies, LLC, 500 East
Broward Boulevard, Suite 1500, Fort Lauderdale, FL 33394, Attention: Proxy
Group. Copies of the Fund's proxy voting records are also made available online
at franklintempleton.com and posted on the U.S. Securities and Exchange
Commission's website at sec.gov and reflect the most recent 12-month period
ended June 30.
Semiannual Report | 41
Templeton Developing Markets Trust
SHAREHOLDER INFORMATION (CONTINUED)
QUARTERLY STATEMENT OF INVESTMENTS
The Fund files a complete statement of investments with the U.S. Securities and
Exchange Commission for the first and third quarters for each fiscal year on
Form N-Q. Shareholders may view the filed Form N-Q by visiting the Commission's
website at sec.gov. The filed form may also be viewed and copied at the
Commission's Public Reference Room in Washington, DC. Information regarding the
operations of the Public Reference Room may be obtained by calling
1-800/SEC-0330.
42 | Semiannual Report
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Literature Request
LITERATURE REQUEST. TO RECEIVE A BROCHURE AND PROSPECTUS, PLEASE CALL US AT
1-800/DIAL BEN(R) (1-800/342-5236) OR VISIT FRANKLINTEMPLETON.COM. INVESTORS
SHOULD CAREFULLY CONSIDER A FUND'S INVESTMENT GOALS, RISKS, CHARGES AND EXPENSES
BEFORE INVESTING. THE PROSPECTUS CONTAINS THIS AND OTHER INFORMATION. PLEASE
CAREFULLY READ THE PROSPECTUS BEFORE INVESTING. To ensure the highest quality of
service, we may monitor, record and access telephone calls to or from our
service departments. These calls can be identified by the presence of a regular
beeping tone.
FRANKLIN TEMPLETON INVESTMENTS
INTERNATIONAL
Mutual European Fund
Templeton BRIC Fund
Templeton China World Fund
Templeton Developing Markets Trust
Templeton Foreign Fund
Templeton Foreign Smaller Companies Fund
Templeton International (Ex EM) Fund
GLOBAL
Mutual Discovery 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 MidCap Value Fund
Franklin Small Cap Value Fund
Mutual Beacon Fund
Mutual Qualified Fund
Mutual Recovery Fund 3
Mutual Shares Fund
BLEND
Franklin Balanced Fund
Franklin Blue Chip Fund
Franklin Convertible Securities Fund
Franklin Growth Fund
Franklin Rising Dividends Fund
Franklin U.S. Long-Short Fund
SECTOR
Franklin Biotechnology Discovery Fund
Franklin DynaTech Fund
Franklin Global Communications Fund
Franklin Global Health Care Fund
Franklin Global Real Estate Fund
Franklin Gold and Precious Metals Fund
Franklin Natural Resources Fund
Franklin Real Estate Securities Fund
Franklin Technology Fund
Franklin Utilities Fund
Mutual Financial Services Fund
ASSET ALLOCATION
Franklin Templeton Corefolio
Allocation Fund
Franklin Templeton Founding Funds Allocation Fund
Franklin Templeton Perspectives Allocation Fund
TARGET FUNDS
Franklin Templeton Conservative Target Fund
Franklin Templeton Growth Target Fund
Franklin Templeton Moderate Target Fund
RETIREMENT TARGET FUNDS
Franklin Templeton 2015 Retirement Target Fund
Franklin Templeton 2025 Retirement Target Fund
Franklin Templeton 2035 Retirement Target Fund
Franklin Templeton 2045 Retirement Target Fund
INCOME
Franklin Adjustable U.S. Government
Securities Fund 4
Franklin's AGE High Income Fund
Franklin Floating Rate Daily Access Fund
Franklin Income Fund
Franklin Limited Maturity
U.S. Government Securities Fund 4
Franklin Low Duration Total Return Fund
Franklin Real Return Fund
Franklin Strategic Income Fund
Franklin Strategic Mortgage Portfolio
Franklin Templeton Hard Currency Fund
Franklin Total Return Fund
Franklin U.S. Government Securities Fund 4
Templeton Global Bond Fund
Templeton Income Fund
TAX-FREE INCOME 5
NATIONAL FUNDS
Double Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free Income Fund
Insured Tax-Free Income Fund 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
Alabama Michigan 6
Arizona Minnesota 6
California 7 Missouri
Colorado New Jersey
Connecticut New York 7
Florida 7 North Carolina
Georgia Ohio 6
Kentucky Oregon
Louisiana Pennsylvania
Maryland Tennessee
Massachusetts 6 Virginia
INSURANCE FUNDS
Franklin Templeton Variable Insurance Products
Trust(8)
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 and 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. An investment in the fund is neither insured nor guaranteed by the U.S.
government or by any other entity or institution.
5. For investors subject to the alternative minimum tax, a small portion of
fund dividends may be taxable. Distributions of capital gains are
generally taxable.
6. Portfolio of insured municipal securities.
7. 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).
8. The funds of the Franklin Templeton Variable Insurance Products Trust are
generally available only through insurance company variable contracts.
07/06
Not part of the semiannual report
[LOGO](R)
FRANKLIN TEMPLETON One Franklin Parkway
INVESTMENTS San Mateo, CA 94403-1906
o WANT TO RECEIVE THIS DOCUMENT FASTER VIA EMAIL?
Eligible shareholders can sign up for eDelivery at franklintempleton.com.
See inside for details.
SEMIANNUAL REPORT AND SHAREHOLDER LETTER
TEMPLETON
DEVELOPING MARKETS TRUST
INVESTMENT MANAGER
Templeton Asset Management Ltd.
PRINCIPAL UNDERWRITER
Franklin Templeton Distributors, Inc.
1-800/DIAL BEN(R)
franklintempleton.com
SHAREHOLDER SERVICES
1-800/632-2301
Authorized for distribution only when accompanied or preceded by a prospectus.
Investors should carefully consider a fund's investment goals, risks, charges
and expenses before investing. 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. The prospectus
contains this and other information; please read it carefully before investing.
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.
711 S2006 08/06
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 12(a)(1), the Registrant is attaching as an exhibit a copy
of its code of ethics that applies to its principal executive officers and
principal 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 David W. Niemeic and Frank A.
Olson and they are "independent" as defined under the relevant Securities and
Exchange Commission Rules and Releases.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. N/A
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS N/A
ITEM 6. SCHEDULE OF INVESTMENTS. N/A
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES. N/A
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT. N/A
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS. N/A
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF 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 11. 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 12. EXHIBITS.
(A)(1) Code of Ethics
(A) (2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
of Jimmy D. Gambill, Chief Executive Officer - Finance and Administration, and
Galen G. Vetter, Chief Financial Officer
(B) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
of Jimmy D. Gambill, Chief Executive Officer - Finance and Administration, and
Galen G. Vetter, 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 DEVELOPING MARKETS TRUST
By /s/JIMMY D. GAMBILL
-----------------------------
Jimmy D. Gambill
Chief Executive Officer - Finance and Administration
Date: August 28, 2006
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
-----------------------------
Jimmy D. Gambill
Chief Executive Officer - Finance and Administration
Date: August28, 2006
By /s/GALEN G. VETTER
-----------------------------
Galen G. Vetter
Chief Financial Officer
Date: August 28, 2006