<PAGE>
Templeton Emerging
Markets Income Fund, Inc.
- --------------------------------------------------------------------------------
Your Fund's Objective:
The Templeton Emerging Markets Income Fund seeks high current income, with a
secondary objective of capital appreciation, by investing primarily in a
portfolio of high-yielding debt obligations of sovereign-related entities and
private sector companies in emerging market countries.
- --------------------------------------------------------------------------------
April 17, 1995
Dear Shareholder:
This report for the Templeton Emerging Markets Income Fund covers the six months
ended February 28, 1995, a period when many investors fully realized the risks
involved in emerging markets investing. The unmanaged JP Morgan Emerging Markets
Bond Index/Latin Eurobond Index (EMBI)*, which tracks the debt obligations of
emerging nations, posted a return of -15.8%
*The Fund's performance differs from that of the index because in addition to
not being managed according to any investment strategy, the index does not
contain cash (the Fund generally carries a certain percentage of cash at any
given time), and includes no sales charges or management expenses. Of course,
one cannot invest directly in an index, and past performance is not predictive
of future results.
during this period. Although the EMBI is the broadest emerging market bond index
currently available, it excludes certain major market segments such as local
currency securities denominated in Mexican pesos. Based on the change in net
asset value, the Fund posted a total return of -9.88%, as shown in the
Performance Summary on page 4.
Early in 1994, the crash of Venezuela's banking system and the return of
socialist governments in Poland and Hungary made the reality of risk in emerging
markets apparent. The risk was made even more obvious in December when Mexico
stunned the investment world with the devaluation of its peso. Surges of selling
through January and into February of 1995 created unusually high volatility in
global securities markets. These dramatic market moves provided us with ample
opportunity for portfolio adjustment.
We sold our Mexican peso positions, which represented approximately 3.5% of the
portfolio, immediately following the initial devaluation on December 20, 1994,
prior to the flotation of the currency on December 22 that
1
<PAGE>
resulted in a further devaluation. During the same period, we also liquidated
our Mexican Brady bonds. These bonds are the restructured debt of foreign banks,
which are backed by U.S. Treasury bonds to guarantee repayment of principal when
the loans mature. These actions helped minimize the Fund's losses from the
devaluation.
Spillover effects from the Mexican situation have lowered our confidence in
Argentina's currency as well, although we do not anticipate a devaluation
anytime soon. Occasional days of market optimism helped us work down our 4%
position in securities denominated in Argentine pesos.
The combination of these sales resulted in a larger-than-usual cash position
that was available for reinvestment. Since we invest for value, our primary
targets for this cash were bonds with depressed prices but which, in our
opinion, maintained a high level of creditworthiness. Accordingly, we purchased
government and corporate bonds issued from Costa Rica, Uruguay, Chile, Trinidad
& Tobago, Colombia, Guatemala and Indonesia. These countries differ from Mexico
in that they don't have large, current account trade deficits or rely heavily on
short-term foreign credit for day-to-day financing. Similar reasoning led us to
increase our exposure in Brazil, making it the Fund's largest allocation, at
15.3% of total net assets. We also participated in a new, corporate offering
from Skofin, the leading automobile financing company in the Czech and Slovak
Republics. This company primarily finances Volkswagen sales in these countries,
and this debt issue has the additional security of a guarantee from Volkswagen
Financial Services AG in Germany.
We expect a rocky road for Mexico in the coming months. However, we believe the
advent of new agreements for foreign aid have lowered the probability of the
country's default on its debt obligations. Because of this and the severely
depressed prices of Mexican debt, we subsequently reinvested 4% of total net
assets in U.S. dollar-denominated Mexican government bonds. These bonds have
been paying in excess of 500 basis points above credit-risk-free U.S. Treasury
securities. We believe these yields are once again high enough relative to long-
term fundamental risk.
2
<PAGE>
- --------------------------------------------------------------------------------
Templeton Emerging Markets Income Fund
Geographic Distribution on 2/28/95
Based on Total Net Assets.
<TABLE>
<CAPTION>
Description Amount
------------------------ ---------------
<S> <C>
Latin America 54.2%
Asia 22.0%
Europe 12.0%
United States 5.9%
Mid-East/Africa 5.9%
</TABLE>
As of February 28, 1995, the Fund had most of its assets either invested in, or
committed to purchase, a diverse range of instruments. About 53% of the
portfolio consisted of government-issued bonds, including Brady bonds. The
balance was in local-currency securities, dollar-linked local debt, corporate
bonds and short-term obligations. Looking forward, we are optimistic about the
potential long-term future of the Fund. We view emerging market debt as
undervalued, and in our experience, value is ultimately realized to the
potential benefit of those who are patient.
Investments in foreign securities involve special risks, such as market and
currency volatility and adverse economic, social and political developments in
the countries where the Fund is invested. Developing markets involve heightened
risks related to the same factors, in addition to risks associated with the
relatively small size and lesser liquidity of these markets.
We thank you for your participation in the Templeton Emerging Markets Income
Fund and welcome your comments and suggestions.
Sincerely,
/s/ Tom Wilkinson
Tom Wilkinson, CFA
Portfolio Manager
Templeton Emerging Markets Income Fund, Inc.
- --------------------------------------------------------------------------------
Tom W. Wilkinson, CFA, became the lead portfolio manager of Templeton Emerging
Markets Income Fund, Inc. on April 4, 1995. Wilkinson has been with the
Templeton organization since 1985 and is vice president of the Templeton Global
Bond Managers Division of Templeton Investment Counsel, Inc. He has been a
member of the Fund's portfolio management team since September 23, 1993, and is
the Senior Portfolio Manager for Franklin Templeton's emerging markets fixed
income group with research responsibilities covering East Asia.
- --------------------------------------------------------------------------------
3
<PAGE>
Performance Summary
During the reporting period, Templeton Emerging Markets Income Fund shareholders
received income distributions totaling 62 cents ($0.62) per share. The Fund's
closing price on the New York Stock Exchange decreased, from $12.50 on August
31, 1994 to $10.38 on February 28, 1995, and the Fund produced a total return
of -11.48% in market-price terms for this six-month period.
Between August 31, 1994 and February 28, 1995, the Fund's net asset value
declined from $12.35 to $10.56. Based on the change in actual net asset value
(in contrast to market price), the Fund produced a total return of -9.88% for
the same period. Both total return figures assume reinvestment of dividends and
capital gains in accordance with the dividend reinvestment plan.
We have always maintained a long-term perspective when managing the Fund, and we
encourage shareholders to view their investments in a similar manner.
Past distributions and total returns are not predictive of future performance,
and distributions will vary depending on income earned by the Fund, as well as
any profits realized from the sale of securities in the portfolio.
- --------------------------------------------------------------------------------
TEMPLETON EMERGING MARKETS
INCOME FUND
Cumulative Total Returns*
Periods Ended 2/28/95
<TABLE>
<CAPTION>
Since
Inception
One-Year (9/23/93)
<S> <C> <C>
Based on change -17.33% -14.14%
in net asset value
Based on change -16.54% -20.90%
in market price
</TABLE>
*Cumulative total return calculations show the change in value of an investment
over the periods indicated. These calculations assume reinvestment of all
distributions and capital gains, either at net asset value or at market price on
the reinvestment date. Past performance is not predictive of future results.
The Fund's investment manager and shareholder servicing agent are waiving a
portion of their fees, which reduces operating expenses and increases total
return to shareholders. Without these reductions, the Fund's total return would
have been lower. In accordance with the Fund's prospectus, this fee waiver was
undertaken during the fiscal quarter following the fiscal period ended November
30, 1993, and may continue through any of the succeeding eight full fiscal
quarters of the Fund during which the average closing price of the Fund's shares
is less than the $15.00 maximum initial offering price.
4
<PAGE>
Templeton Emerging Markets Income Fund, Inc.
Financial Highlights
- --------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE (For a share outstanding throughout the period)
<TABLE>
<CAPTION>
PERIOD FROM
SIX MONTHS SEPTEMBER 23, 1993
ENDED (COMMENCEMENT OF
FEBRUARY 28, 1995 OPERATIONS) TO
(UNAUDITED) AUGUST 31, 1994
----------------- ------------------
<S> <C> <C>
Net asset value, beginning of period $ 12.35 $ 14.02
-------- --------
Income from investment operations:
Net investment income .63 1.18
Net realized and unrealized loss (1.80) (1.77)
-------- --------
Total from investment operations (1.17) (.59)
-------- --------
Underwriting expenses deducted from capi-
tal -- (.03)
-------- --------
Distributions:
Dividends from net investment income (.62) (1.00)
Distributions from net realized gains -- (.05)
-------- --------
Total distributions (.62) (1.05)
-------- --------
Change in net asset value (1.79) (1.67)
-------- --------
Net asset value, end of period $ 10.56 $ 12.35
======== ========
TOTAL RETURN *
Based on market value per share (11.48)% (9.71)%
Based on net asset value per share (9.88)% (4.55)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000) $502,803 $587,954
Ratio of expenses to average net assets 0.81%** 0.86%**
Ratio of expenses, exclusive of fee
waiver to average net assets 1.28%** 1.25%**
Ratio of net investment income to average
net assets 10.96%** 9.66%**
Portfolio turnover rate 43.93% 91.73%
</TABLE>
*NOT ANNUALIZED IN PERIODS OF LESS THAN ONE YEAR.
**ANNUALIZED.
SEE NOTES TO FINANCIAL STATEMENTS.
5
<PAGE>
Templeton Emerging Markets Income Fund, Inc.
Investment Portfolio, February 28, 1995 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL IN
LOCAL CURRENCY** VALUE
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
LONG TERM SECURITIES: 91.9%
- -------------------------------------------------------------------------------
Algeria: 0.2%
Banque National
D'Algerie, FRN, 12/19/94 U.S. 4,666,667 $ 1,166,667
- -------------------------------------------------------------------------------
Argentina: 12.5%
Argentina Domestic
Securities Trust (Morgan
Stanley) 14.75%, 9/01/02 U.S. 11,800,000 6,195,000
Argentina Local Market
Securities Trust 1994-I
(Goldman Sachs Group,
L.P.) 13.375%, 8/15/01 U.S. 12,500,000 8,062,500
Bocon Proveedores, Series
I, FRN, 4/01/07 Arg. 12,000,000 3,599,820
Bridas Corp., Yankee,
12.50%, 11/18/99 U.S. 11,000,000 9,515,000
Republic of Argentina:
6.50%, FRN, 3/31/05 U.S. 34,600,000 17,581,125
7.125%, FRN, 3/31/23 U.S. 15,000,000 7,800,000
Telefonica de Argentina
SA, 11.875%, 11/01/04 U.S. 12,000,000 10,320,000
------------
63,073,445
- -------------------------------------------------------------------------------
Brazil: 15.3%
Aracruz Celulose SA,
10.375%, 1/31/02 U.S. 5,500,000 4,922,500
Bombril SA, 8.00%,
8/26/98 U.S. 3,000,000 2,415,000
Brazil C Bond, 8.00%,
4/15/14 U.S. 11,220,000 4,659,688
Companhia Suzano Papel,
10.25%, 10/06/01 U.S. 6,000,000 5,265,000
Copene-Petroquimica do
Nordeste SA, 9.50%,
10/19/01 U.S. 14,150,000 11,178,500
Government of Brazil:
7.8125%, FRN, 1/01/01 U.S. 19,497,000 15,122,361
6.6875%, FRN, 4/15/06 U.S. 32,700,000 18,393,750
6.75%, FRN, 4/15/12 U.S. 7,825,000 3,892,938
Industrias Klabin de
Papel Celulose SA,
12.125%, 12/28/02 U.S. 5,600,000 5,446,000
Iochpe-Maxion SA, 144A,
12.375%, 11/08/02 U.S. 6,050,000 5,656,750
------------
76,952,487
- -------------------------------------------------------------------------------
Bulgaria: 2.5%
Republic of Bulgaria,
IAB, 7.5625%, FRN,
7/28/24 U.S. 33,250,000 12,510,313
- -------------------------------------------------------------------------------
Chile: 1.1%
Compania Sud Americana de
Vapores SA,
7.375%, 12/08/03 U.S. 6,620,000 5,461,500
- -------------------------------------------------------------------------------
China: 0.8%
Guangdong Enterprises
Holdings Ltd., 8.75%,
12/22/03 U.S. 5,000,000 4,050,000
- -------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
Templeton Emerging Markets Income Fund, Inc.
Investment Portfolio, February 28, 1995 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL IN
LOCAL CURRENCY** VALUE
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
LONG TERM SECURITIES (CONT.)
- -------------------------------------------------------------------------------
Colombia: 2.0%
Banco Ganadero, 9.75%,
8/26/99 U.S. 5,640,000 $ 5,301,600
Empresa Colombiana de
Petroleos, 7.25%,
7/08/98 U.S. 1,000,000 930,000
Republic of Columbia,
8.75%, 10/06/99 U.S. 4,025,000 3,929,406
------------
10,161,006
- -------------------------------------------------------------------------------
Costa Rica: 2.2%
Banco Central de Costa
Rica, A, 6.25%, 5/21/10 U.S. 16,900,000 9,210,500
Instituto Costarricense
de Electricidad, 8.375%,
1/27/97 U.S. 1,900,000 1,838,250
------------
11,048,750
- -------------------------------------------------------------------------------
Czech Republic: 3.8%
Ceskoslovenska Obchodni
Banka, 11.125%, 8/26/97 Csk. 144,580,000 5,358,898
CEZ AS, 14.375%, 1/27/01 Csk. 122,770,000 4,922,673
Skofin, 11.625%, 2/09/98,
144A Csk. 230,750,000 8,642,933
------------
18,924,504
- -------------------------------------------------------------------------------
Ecuador: 1.8%
*Ecuador Myra-To-Be Loan
Assignments U.S. 10,000,000 4,412,499
*Republic of Ecuador
Consolidation Agreement
of 8/15/86 U.S. 10,000,000 4,437,500
------------
8,849,999
- -------------------------------------------------------------------------------
Guatemala: 2.1%
Associacion Nacional del
Cafe, 11.00%, 8/31/98 U.S. 10,960,000 10,740,800
- -------------------------------------------------------------------------------
Hungary: 2.4%
National Bank of Hungary:
7.95%, 11/01/03 U.S. 9,600,000 7,679,520
8.875%, 11/01/13 U.S. 6,500,000 4,290,000
------------
11,969,520
- -------------------------------------------------------------------------------
India: 2.2%
Essar Gujarat Ltd., FRN,
7/15/99 U.S. 11,230,000 11,145,775
- -------------------------------------------------------------------------------
Indonesia: 6.9%
Dharmala Sakti Sajahtera,
7/22/96 Idr. 5,000,000,000 1,674,938
Dharmala Sakti Sajahtera,
9/25/96, CP Idr. 14,000,000,000 4,547,710
PT Astra International,
9.75%, 4/29/01 U.S. 6,150,000 5,627,250
PT Indah Kiat Pulp &
Paper Corp., 8.875%,
11/01/00 U.S. 5,000,000 4,350,000
PT Inti Indorayon Utama,
9.125%, 10/15/00 U.S. 7,000,000 5,880,000
PT Polysindo Eka Perkasa
Global, 13.00%, 6/15/01 U.S. 5,000,000 4,625,000
Tjiwi Kimia Int'l Finance
Co. BV, 13.25%, 8/01/01 U.S. 8,000,000 8,040,000
------------
34,744,898
- -------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
Templeton Emerging Markets Income Fund, Inc.
Investment Portfolio, February 28, 1995 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL IN
LOCAL CURRENCY** VALUE
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
LONG TERM SECURITIES (CONT.)
- -------------------------------------------------------------------------------
Jordan: 1.7%
Kingdom of Jordan:
Collateralized, FRN,
12/23/05 U.S. 1,866,331 $ 1,063,809
Collateralized, FRN,
12/23/23 U.S. 5,706,250 3,081,375
Collateralized Par Bond,
4.00%, 12/23/23 U.S. 13,325,332 4,530,613
------------
8,675,797
- -------------------------------------------------------------------------------
Mexico: 8.0%
Bonos de la Tesoreria de
La Federacion, 7/27/95 U.S. 4,650,000 4,310,989
Grupo Mexicano de
Desarrollo SA, 8.25%,
2/17/01 U.S. 11,145,000 4,067,925
Hylsa SA, 11.00%, 2/23/98 U.S. 10,000,000 7,150,000
Tribasa Toll Road Trust I,
10.50%, 12/01/11 U.S. 10,700,000 4,815,000
United Mexican States:
8.50%, 9/15/02 U.S. 7,735,000 5,027,750
Par B, 6.25%, 12/31/19 U.S. 29,700,000 14,701,500
------------
40,073,164
- -------------------------------------------------------------------------------
Morocco: 3.9%
Kingdom of Morocco Loan
Participation, FRN,
1/01/09 U.S. 32,000,000 19,760,000
- -------------------------------------------------------------------------------
Nicaragua: 0.4%
*Nicaragua Loan
Participation U.S. 25,000,000 1,750,000
- -------------------------------------------------------------------------------
Pakistan: 0.7%
Republic of Pakistan,
11.50%, 12/22/99 U.S. 3,800,000 3,700,250
- -------------------------------------------------------------------------------
Panama: 1.0%
Republic of Panama,
7.125%, FRN, 5/10/02 U.S. 7,000,000 5,127,500
- -------------------------------------------------------------------------------
Peru: 1.1%
Gloria SA, 11.00%, 3/21/97 U.S. 5,840,000 5,402,000
- -------------------------------------------------------------------------------
Philippines: 4.3%
National Power Corp.,
7.625%, 11/15/00 U.S. 10,000,000 8,750,000
Philippine Long Distance
Telephone Co.,
10.625%, 6/02/04 U.S. 5,500,000 5,390,000
Subic Power Corp., 9.50%,
12/28/08 U.S. 8,786,050 7,534,038
------------
21,674,038
- -------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
Templeton Emerging Markets Income Fund, Inc.
Investment Portfolio, February 28, 1995 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL IN
LOCAL CURRENCY** VALUE
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
LONG TERM SECURITIES (CONT.)
- -------------------------------------------------------------------------------
Poland: 1.1%
Government of Poland:
FRN, 10/27/14 U.S. 5,000,000 $ 2,012,500
FRN, 10/27/24 U.S. 5,000,000 3,334,375
Republic of Poland,
2.75%, VRN, 10/27/24 U.S. 17,000 5,950
------------
5,352,825
- -------------------------------------------------------------------------------
Russia: 2.3%
Bank Foreign Economic
Affairs:
6.375%, 8/04/95 Ger. 2,000,000 1,337,680
7.00%, 3/29/96 Ger. 13,000,000 8,264,413
7.50%, 9/27/96 Ger. 3,000,000 1,894,303
------------
11,496,396
- -------------------------------------------------------------------------------
Thailand: 3.3%
ABN Amro Bank (THB),
9.10%, 8/05/97, CD Thb. 250,000,000 9,542,903
Industrial Finance Corp.
Thailand, zero, 6/15/95 Thb. 180,000,000 6,979,872
------------
16,522,775
- -------------------------------------------------------------------------------
Trinidad and Tobago: 1.7%
Republic of Trinidad and
Tobago, 11.75%, 10/3/04 U.S. 8,550,000 8,528,625
- -------------------------------------------------------------------------------
Turkey: 1.6%
Republic of Turkey:
series 4, 6.5625%,
2/21/96 U.S. 1,000,000 956,250
series 5, 6.8125%,
2/21/97 U.S. 7,730,000 7,053,625
------------
8,009,875
- -------------------------------------------------------------------------------
Uruguay: 0.6%
Government of Uruguay, A,
6.75%, 2/19/21 U.S. 5,900,000 3,245,000
- -------------------------------------------------------------------------------
Venezuela: 4.4%
Bariven SA, 10.625%,
3/17/02 U.S. 15,650,000 12,813,438
Electricidad de Caracas,
FRN, 9/30/03 U.S. 2,779,273 1,129,080
Produvisa Capital Corp.,
9.50%, 11/29/96 U.S. 6,750,000 5,906,250
Republic of Venezuela:
9.125%, 3/11/96 U.S. 1,410,000 1,337,738
9.00%, 5/27/96 U.S. 1,000,000 920,000
------------
22,106,506
------------
TOTAL LONG TERM SECURITIES (cost $557,080,227) 462,224,415
- -------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
Templeton Emerging Markets Income Fund, Inc.
Investment Portfolio, February 28, 1995 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL IN
LOCAL CURRENCY** VALUE
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
SHORT TERM OBLIGATIONS: 4.4%
- -------------------------------------------------------------------------------
Federal Home Loan Bank,
5.85% to 5.87% with
maturities to 3/27/95 U.S. 6,600,000 $ 6,575,441
Federal National Mortgage
Assn., 5.82%, 3/24/95 U.S. 3,940,000 3,925,264
Goldman Sachs Group LP,
(principal and interest
is linked to the change
in the Indonesian Rupiah
to U.S. Dollar foreign
exchange rate between
issue date (2,179.25
Rupiah/U.S. Dollar) and
maturity date), 14.00%,
6/15/95 U.S. 5,600,000 5,481,280
PT Polysindo Eka Perkasa,
18.00%, 6/21/95 Idr. 12,900,000,000 5,463,512
U.S. Treasury Bills,
5.42% to 5.50% with 290,000 289,661
maturities to 4/06/95 U.S. 500,000 497,293
------------
TOTAL SHORT TERM OBLIGATIONS: (cost $21,885,977) 22,232,451
- -------------------------------------------------------------------------------
TOTAL INVESTMENTS: 96.3% (cost $578,966,204) 484,456,866
UNREALIZED LOSS IN FORWARDS EXCHANGE CONTRACTS: (0.2)% (1,101,477)
OTHER ASSETS, LESS LIABILITIES: 3.9% 19,447,797
------------
TOTAL NET ASSETS: 100.0% $502,803,186
============
</TABLE>
*NON-INCOME PRODUCING.
**PRINCIPAL AMOUNT IN CURRENCY OF COUNTRY INDICATED.
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
Templeton Emerging Markets Income Fund, Inc.
Financial Statements
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
February 28, 1995 (unaudited)
<TABLE>
<S> <C>
Assets:
Investment in securities,
at value (identified
cost $578,966,204) $484,456,866
Receivables:
Investment securities
sold 2,371,125
Interest 17,892,033
Unamortized organization
costs 21,271
------------
Total assets 504,741,295
------------
Liabilities:
Payables for investment
securities purchased 199,569
Unrealized loss in
forward exchange
contracts (Note 5) 1,101,477
Accrued expenses 637,063
------------
Total liabilities 1,938,109
------------
Net assets, at value $502,803,186
============
Net assets consists of:
Undistributed net
investment income $ 8,794,230
Net unrealized
depreciation (95,549,336)
Accumulated net realized
loss (75,380,675)
Net capital paid in on
shares of capital stock 664,938,967
------------
Net assets, at value $502,803,186
============
Shares outstanding 47,605,757
============
Net asset value per share
($502,803,186 / 47,605,757) $ 10.56
============
</TABLE>
STATEMENT OF OPERATIONS
for the six months ended February 28, 1995 (unaudited)
<TABLE>
<S> <C> <C>
Interest income: (net of $66,094 foreign taxes
withheld) $ 32,304,676
Expenses:
Management fees (Note 3) $ 1,167,325
Administrative fees (Note 3) 410,002
Transfer agent fees 188,545
Custodian fees 159,000
Reports to shareholders 139,500
Audit fees 15,000
Legal fees 60,000
Registration and filing fees 19,000
Directors' fees and expenses 29,500
Organization costs 3,220
Other 26,352
-----------
Total expenses 2,217,444
------------
Net investment income 30,087,232
Realized and unrealized loss:
Net realized loss on:
Investments (51,511,562)
Foreign currency transactions (1,012,712)
-----------
(52,524,274)
-----------
Net unrealized depreciation on:
Investments (32,085,887)
Foreign currency
translation of other assets and liabilities (1,112,072)
-----------
(33,197,959)
-----------
Net realized and unrealized loss (85,722,233)
------------
Net decrease in net assets
resulting from operations $(55,635,001)
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
Templeton Emerging Markets Income Fund, Inc.
Financial Statements (cont.)
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE PERIOD
SIX MONTHS SEPTEMBER 23, 1993
ENDED (COMMENCEMENT
FEBRUARY 28, 1995 OF OPERATIONS) TO
(UNAUDITED) AUGUST 31, 1994
----------------- ------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 30,087,232 $ 55,564,019
Net realized loss from security and
foreign currency transactions (52,524,274) (20,741,082)
Net unrealized depreciation (33,197,959) (62,351,377)
------------ ------------
Net decrease in net assets resulting
from operations (55,635,001) (27,528,440)
Distributions to shareholders:
From net investment income (29,515,569) (47,348,142)
From net realized gain -- (2,108,629)
Capital share transactions (Note 2) -- 664,838,962
------------ ------------
Net increase (decrease) in net assets (85,150,570) 587,853,751
Net assets:
Beginning of period 587,953,756 100,005
------------ ------------
End of period $502,803,186 $587,953,756
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
Templeton Emerging Markets Income Fund, Inc.
Notes to Financial Statements (unaudited)
- --------------------------------------------------------------------------------
1. SUMMARY OF ACCOUNTING POLICIES
Templeton Emerging Markets Income Fund, Inc. (the Fund), was organized as a
Maryland corporation on July 9, 1993 and commenced operations on September 23,
1993 as a closed-end, non-diversified management investment company registered
under the Investment Company Act of 1940. The following summarizes the Fund's
significant accounting policies.
A. Securities Valuations:
Securities, including options, listed or traded on a recognized national or
foreign stock exchange or NASDAQ are valued at the last reported sales prices
on the principal exchange on which the securities are traded. Over-the-counter
securities and listed securities for which no sale is reported are valued at
the mean between the last current bid and asked prices. Securities for which
market quotations are not readily available are valued at fair value as deter-
mined by management and approved in good faith by the Board of Directors.
B. Foreign Exchange Contracts:
The Fund enters into forward exchange contracts and currency option contracts
in order to hedge against foreign exchange risks.
(i) Forward Exchange Contracts: These contracts are valued daily and the
Fund's equity therein, representing unrealized gain or loss on the contracts,
is included in the Statement of Assets and Liabilities. Realized and unrealized
gains and losses are included in the Statement of Operations.
(ii) Currency Option Contracts: Options purchased are recorded as invest-
ments; options written (sold) are accounted for as liabilities. When an option
expires, the premium (original option value) is realized as a gain if the op-
tion was written or realized as a loss if the option was purchased. When the
exercise of an option results in a cash settlement, the difference between the
premium and the settlement proceeds is realized as a gain or loss. When securi-
ties are acquired or delivered upon exercise of an option, the acquisition cost
or sale proceeds are adjusted by the amount of the premium. When an option is
closed, the difference between the premium and the cost to close the position
is realized as a gain or loss.
C. Indexed Securities:
The Fund may invest in debt instruments in which the principal and/or interest
is dependent on another factor such as a yield curve, currency exchange rates
or commodity prices. The Fund's objective in holding these securities, commonly
called structured notes, is to tailor the Fund's investment based on specific
risk and returns it wishes to assume while avoiding unwanted risk or change the
Fund's exposure to a particular foreign exchange rate or the spread between two
foreign exchange rates.
D. Foreign Currency Translations:
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the rate of exchange of
such currencies against U.S. dollars on the date of valuation. Purchases and
sales of portfolio securities and income items denominated in foreign curren-
cies are translated into U.S. dollar amounts on the respective dates of such
transactions. When the Fund purchases or sells foreign securities it will cus-
tomarily enter into a foreign exchange contract to minimize foreign exchange
risk from the trade date to the settlement date of such transactions.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from investments.
13
<PAGE>
Templeton Emerging Markets Income Fund, Inc.
Notes to Financial Statements (unaudited) (cont.)
- --------------------------------------------------------------------------------
Reported net realized foreign exchange gains or losses arise from sales of for-
eign currencies, currency gains or losses realized between the trade and set-
tlement dates on securities transactions, the differences between the amounts
of dividends, interest, and foreign withholding taxes recorded on the Fund's
books, and the U.S. dollar equivalent of the amounts actually received or paid.
Net unrealized foreign exchange gains and losses arise from changes in the
value of assets and liabilities other than investments in securities at the end
of the fiscal period, resulting from changes in the exchange rates.
E. Income Taxes:
It is the Fund's policy to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute all of its
taxable income to its shareholders. Therefore, no provision has been made for
income taxes.
F. Unamortized Organization Costs:
Organization costs are being amortized on a straight line basis over a five
year period.
G. Security Transactions, Investment Income, Distributions and Expenses:
Security transactions are accounted for on a trade date basis. Distributions to
shareholders are recorded on ex-dividend date. Interest income and estimated
expenses are accrued daily.
2. TRANSACTIONS IN SHARES OF CAPITAL STOCK
On September 23, 1993, the fund completed its initial public offering of 47
million shares of its common stock; receiving net proceeds of $657,600,870, af-
ter deducting underwriting commissions and expenses of $1,339,130.
As of February 28, 1995, there were 100,000,000 shares of $.01 par value capi-
tal stock authorized. During the six months ended February 28, 1995, there were
no capital share transactions. During the period September 23, 1993 through Au-
gust 31, 1994, 598,624 shares were issued for $7,238,092 from reinvested dis-
tributions.
3. INVESTMENT MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Certain officers of the Fund are also officers of Templeton Investment Counsel,
Inc. (TICI) and Templeton Global Investors, Inc. (TGII), the Fund's investment
manager and administrative manager, respectively. The Fund pays monthly an in-
vestment management fee to TICI equal, on an annual basis, to 0.85% of the av-
erage daily net assets of the Fund. The Fund pays monthly a transfer agent fee
to Paine Webber (formerly Kidder, Peabody & Co.) equal, on an annual basis, to
0.10% of average daily net assets of the Fund. TICI and Paine Webber have
agreed to reduce their fee by one-half during the Fund's fiscal quarter begin-
ning December 1, 1993 and any of the succeeding eight full fiscal quarters in
which the average closing price of the Fund's shares on the New York Stock Ex-
change is less than the $15 initial offering price. Such reduction in fees for
TICI and Paine Webber amounted to $1,166,874 and $137,279, respectively for the
six months ended February 28, 1995. The Fund pays TGII monthly a fee of 0.15%
per annum of the Fund's average net assets.
An officer of the Fund is a partner of Dechert Price & Rhoads, legal counsel
for the Fund, which firm received fees of $60,000 for the six months ended Feb-
ruary 28, 1995.
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities (excluding short-term securities) for the six
months ended February 28, 1995 were $210,193,600 and $211,950,717, respective-
ly. The cost of securities for federal income tax purposes is $579,434,954. Re-
alized gains and losses are reported on an identified cost basis.
14
<PAGE>
Templeton Emerging Markets Income Fund, Inc.
Notes to Financial Statements (unaudited) (cont.)
- --------------------------------------------------------------------------------
At February 28, 1995, the aggregate gross unrealized appreciation and deprecia-
tion of portfolio securities, based on cost for federal income taxes purposes,
was as follows:
<TABLE>
<S> <C>
Unrealized appreciation $ 2,872,994
Unrealized depreciation (97,851,082)
------------
Net unrealized depreciation $(94,978,088)
============
</TABLE>
5. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
During the six months ended February 28, 1995, the Fund has been a party to fi-
nancial instruments with off-balance-sheet risks, primarily forward exchange
contracts, in order to minimize the risk to the Fund, with respect to its port-
folio transactions, from adverse changes in the relationship between the U.S.
dollar and foreign currencies and interest rates. These instruments involve
market risk in excess of the amount recognized on the Statement of Assets and
Liabilities; some of these risks have been minimized by offsetting contracts.
Risks arise from the possible inability of counterparties to meet the terms of
their contracts, future movement in currency values and interest rates and con-
tract positions that are not exact offsets. The contract amount indicates the
extent of the Fund's involvement in such contracts.
Forwards: A forward exchange contract is an agreement between two parties to
exchange different currencies at a specific rate at an agreed future date.
At February 28, 1995, the Fund had an outstanding forward exchange contract for
the sale of currency as set out below. The contract is reported in the finan-
cial statements at the Fund's net equity, as measured by the difference between
the forward exchange rates at the reporting date and the forward exchange rates
at the date of entry into the contract.
<TABLE>
<S> <C>
Net unrealized loss in forward exchange contracts to sell
33,500,000 Deutschemarks for 21,898,287 U.S. dollars, March
10, 1995 $1,101,477
</TABLE>
6. UNAUDITED QUARTERLY RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
NET INCREASE
NET GAIN (LOSS) (DECREASE)
ON INVESTMENT AND IN NET ASSETS
INVESTMENT NET INVESTMENT FOREIGN CURRENCY RESULTING FROM
INCOME INCOME TRANSACTIONS OPERATIONS
----------------- ----------------- -------------------- --------------------
PER PER PER PER
TOTAL SHARE TOTAL SHARE TOTAL SHARE TOTAL SHARE
----------- ----- ----------- ----- ------------ ------ ------------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995
For the quarter ended:
November 30, 1994 $16,491,784 $ .35 $15,339,466 $ .32 $(16,686,409) $ (.35) $ (1,346,943) $ (.03)
February 28, 1995 15,812,892 .33 14,747,766 .31 (69,035,824) (1.45) (54,288,058) (1.14)
----------- ----- ----------- ----- ------------ ------ ------------ ------
$32,304,676 $ .68 $30,087,232 $ .63 $(85,722,233) $(1.80) $(55,635,001) $(1.17)
=========== ===== =========== ===== ============ ====== ============ ======
1994
For the quarter ended:
November 30, 1993 $11,215,296 $ .24 $ 9,719,816 $ .21 $ 17,010,762 $ .36 $ 26,730,578 $ .57
February 28, 1994 18,493,165 .39 17,156,641 .36 (16,172,049) (.34) 984,592 .02
May 31, 1994 23,166,448 .49 21,910,833 .46 (75,220,964) (1.59) (53,310,131) (1.13)
August 31, 1994 7,637,365 .16 6,776,729 .15 (8,710,208) (.20) (1,933,479) (.05)
----------- ----- ----------- ----- ------------ ------ ------------ ------
$60,512,274 $1.28 $55,564,019 $1.18 $(83,092,459) $(1.77) $(27,528,440) $ (.59)
=========== ===== =========== ===== ============ ====== ============ ======
</TABLE>
15
<PAGE>
Templeton Emerging markets Income Fund, Inc.
Annual Meeting of Shareholders, February 21, 1995
- --------------------------------------------------------------------------------
An Annual Meeting of Shareholders of the Fund was held at the Fund's offices,
700 Central Avenue, St. Petersburg, Florida, on February 21, 1995. The purpose
of the meeting was to elect twelve directors of the Fund and to ratify the se-
lection of McGladrey & Pullen, LLP, as the Fund's independent public accoun-
tants for the fiscal year ending August 31, 1995. At the meeting, the following
persons were elected by the shareholders to serve as directors of the Fund: An-
drew H. Hines, Jr., John G. Bennett, Jr., F. Bruce Clarke, Harmon E. Burns,
John M. Templeton, Betty P. Krahmer, Fred R. Millsaps, Gordon S. Macklin,
Hasso-G von Diergardt-Naglo, Harris J. Ashton, S. Joseph Fortunato and Nicholas
F. Brady. In addition, the shareholders ratified the selection of McGladrey &
Pullen, LLP, to serve as the Fund's independent public accountants for the fis-
cal year ending August 31, 1995. No other business was transacted at the Annual
Meeting.
The results of the voting at the Annual Meeting are as follows:
1. Election of twelve (12) Directors:
<TABLE>
<CAPTION>
% OF % OF % OF
OUTSTANDING SHARES OUTSTANDING
FOR SHARES VOTED AGAINST % ABSTAIN SHARES
---------- ----------- ------ ------- ----------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Andrew H.
Hines,
Jr. 41,611,800 87.41% 98.72% -0- -0- 538,822 1.13%
John G.
Bennett,
Jr. 41,648,313 87.49% 98.81% -0- -0- 502,309 1.06%
F. Bruce
Clarke 41,567,893 87.32% 98.62% -0- -0- 582,729 1.22%
Harmon E.
Burns 41,612,394 87.41% 98.72% -0- -0- 538,228 1.13%
John M.
Templeton 41,597,346 87.38% 98.69% -0- -0- 553,276 1.16%
Betty P.
Krahmer 41,639,353 87.47% 98.79% -0- -0- 511,269 1.07%
Fred R.
Millsaps 41,645,460 87.48% 98.80% -0- -0- 505,162 1.06%
Gordon S.
Macklin 41,646,161 87.48% 98.80% -0- -0- 504,461 1.06%
Hasso-G
von
Diergardt-
Naglo 41,525,293 87.23% 98.52% -0- -0- 625,329 1.31%
Harris J.
Ashton 41,600,135 87.38% 98.69% -0- -0- 550,487 1.16%
S. Joseph
Fortunato 41,600,435 87.39% 98.69% -0- -0- 550,187 1.16%
Nicholas
F. Brady 41,592,633 87.37% 98.68% -0- -0- 557,989 1.17%
2. Ratification of the selection of McGladrey & Pullen, LLP, as independent
public accountants of the Fund for the fiscal year ending August 31, 1995:
<CAPTION>
% OF % OF % OF % OF
OUTSTANDING SHARES OUTSTANDING OUTSTANDING
FOR SHARES VOTED AGAINST SHARES ABSTAIN SHARES
---------- ----------- ------ ------- ----------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
41,462,898 87.10% 98.37% 267,318 0.56% 420,406 0.88%
</TABLE>
16
<PAGE>
The Franklin Templeton Group
- --------------------------------------------------------------------------------
To receive a free brochure and prospectus, which contain more complete informa-
tion, including charges and expenses on each of the funds listed below, call
Franklin Fund Information, toll free, at 1-800-DIAL-BEN (1-800-342-5236) or
Templeton Fund Information at 1-800-292-9293. Please read the prospectus care-
fully before you invest or send money.
TEMPLETON
FAMILY OF FUNDS
Franklin Templeton Japan Fund
Templeton American Trust
Templeton Americas
Government Securities Fund
Templeton Developing
Markets Trust
Templeton Foreign Fund
Templeton Global
Infrastructure Fund
Templeton Global
Opportunities Trust
Templeton Global Rising
Dividends Fund
Templeton Growth Fund
Templeton Income Fund
Templeton Money Fund
Templeton Real Estate
Securities Fund
Templeton Smaller
Companies Growth Fund
Templeton World Fund
FRANKLIN GROUP OF FUNDS(R)
FRANKLIN GLOBAL/
INTERNATIONAL FUNDS
Franklin Global Health Care
Fund
Franklin Global Government
Income Fund
Franklin Global Utilities Fund
Franklin International Equity
Fund
Franklin Pacific Growth Fund
FUNDS SEEKING CAPITAL GROWTH
Franklin California Growth
Fund
Franklin DynaTech Fund
Franklin Equity Fund
Franklin Gold Fund
Franklin Growth Fund
Franklin Rising Dividends Fund
Franklin Small Cap Growth
Fund
FUNDS SEEKING GROWTH AND
INCOME
Franklin Balance Sheet
Investment Fund
Franklin Convertible
Securities Fund
Franklin Income Fund
Franklin Equity Income Fund
Franklin Utilities Fund
FUNDS SEEKING HIGH CURRENT
INCOME
Franklin's AGE High Income
Fund
Franklin Investment Grade Income
Fund
Franklin Premier Return Fund
Franklin U.S. Government
Securities Fund
FUNDS SEEKING TAX-FREE
INCOME
Franklin Federal Tax-Free
Income Fund
Franklin High Yield Tax-Free
Income Fund
Franklin California High Yield
Municipal Fund
Franklin Alabama Tax-Free
Income Fund
Franklin Arizona Tax-Free
Income Fund
Franklin California Tax-Free
Income Fund
Franklin Colorado Tax-Free
Income Fund
Franklin Connecticut Tax-Free
Income Fund
Franklin Florida Tax-Free
Income Fund
Franklin Georgia Tax-Free
Income Fund
Franklin Hawaii Municipal
Bond Fund
Franklin Indiana Tax-Free
Income Fund
Franklin Kentucky Tax-Free
Income Fund
Franklin Louisiana Tax-
Free Income Fund
Franklin Maryland Tax-
Free Income Fund
Franklin Missouri Tax-Free
Income Fund
Franklin New Jersey Tax-
Free Income Fund
Franklin New York Tax-
Free Income Fund
Franklin North Carolina
Tax-Free Income Fund
Franklin Oregon Tax-Free
Income Fund
Franklin Pennsylvania Tax-
Free Income Fund
Franklin Puerto Rico Tax-
Free Income Fund
Franklin Texas Tax-Free
Income Fund
Franklin Virginia Tax-Free
Income Fund
Franklin Washington
Municipal Bond Fund
FUNDS SEEKING TAX-FREE
INCOME THROUGH INSURED
PORTFOLIOS
Franklin Insured Tax-Free
Income Fund
Franklin Arizona Insured
Tax-Free Income Fund
Franklin California Insured
Tax-Free Income Fund
Franklin Florida Insured
Tax-Free Income Fund
Franklin Massachusetts
Insured Tax-Free Income
Fund
Franklin Michigan Insured
Tax-Free Income Fund
Franklin Minnesota Insured
Tax-Free Income Fund
Franklin New York Insured
Tax-Free Income Fund
Franklin Ohio Insured Tax-
Free Income Fund
FUNDS SEEKING HIGH CURRENT
INCOME AND STABILITY OF
PRINCIPAL
Franklin Adjustable Rate
Securities Fund
Franklin Adjustable U.S.
Government Securities
Fund
Franklin Short-
Intermediate U.S.
Government Securities
Fund
FUND SEEKING HIGH AFTER-TAX
INCOME FOR CORPORATIONS
Franklin Corporate
Qualified Dividend Fund
MONEY MARKET FUNDS SEEKING
SAFETY OF PRINCIPAL AND
INCOME
Franklin Money Fund
Franklin Federal Money
Fund
Franklin Tax-Exempt
Money Fund
Franklin California Tax-
Exempt Money Fund
Franklin New York Tax-
Exempt Money Fund
IFT Franklin U.S. Treasury
Money Market Portfolio
FUNDS FOR
NON-U.S. INVESTORS
FRANKLIN PARTNERS FUNDS(R)
Franklin Tax-Advantaged
High Yield Securities Fund
Franklin Tax-Advantaged
International Bond Fund
Franklin Tax-Advantaged
U.S. Government
Securities Fund
<PAGE>
NOTES
-----
<PAGE>
NOTES
-----
<PAGE>
- --------------------------
TEMPLETON EMERGING
MARKETS INCOME
FUND, INC.
700 Central Avenue
St. Petersburg,
Florida 33701-3628
Investors should be
aware that the value of
investments made for
the Fund may go up as
well as down and that
the Investment Manager
may make errors in
selecting securities
for the Fund's
portfolio. Like any
investment in
securities, the Fund's
portfolio will be
subject to the risk of
loss from market,
currency, economic,
political and other
factors. The Fund and
Fund investors are not
protected from such
losses by the
Investment Manager.
Therefore, investors
who cannot accept the
risk of such losses
should not invest in
shares of the Fund.
To ensure the highest
quality of service,
telephone calls to or
from our service de-
partments may be moni-
tored, recorded and ac-
cessed. These calls can
be determined by the
presence of a regular
beeping tone.
- --------------------------
[RECYCLING LOGO APPEARS HERE] TLTEI S95 04/95
TEMPLETON
EMERGING
MARKETS
INCOME
FUND, INC.
Semi-Annual Report
February 28, 1995
[LOGO OF FRANKLIN TEMPLETON APPEARS HERE]
