<PAGE>
Templeton Emerging
Markets Income Fund
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
October 16, 1995
Dear Shareholder:
This annual report for the Templeton Emerging Markets Income Fund covers the
fiscal year ended August 31, 1995, a period which has been somewhat of a
roller-coaster ride for investors in emerging market debt. As shown in the
Performance Summary on page 5, based on the change in net asset value, the Fund
produced a total return of 3.82% for the year, while in market-price terms (in
contrast to net asset value), the total return was -4.28%.
During the approximately three months following Mexico's devaluation of its peso
in December 1994, the JP Morgan Emerging Market Bond Index (EMBI), dropped
approximately 17%./1/ This plunge resulted from panic selling of all types of
worldwide emerging market debt during the December through March period,
regardless of the underlying credit risk. This spillover phenomenon has been
coined "the tequila effect" in reference to Mexico as the source of original
disruption. "Market contagion" is
1. The EMBI measures the change in value of sovereign restructured bonds, most
of which are known as "Brady bonds."
1
<PAGE>
the term used to describe a condition where price movement of one asset class
spreads to similar assets. Emerging market debt is particularly susceptible to
"contagion" due to the high level of leverage employed by many market
participants, the large proportion of U.S. dollar-block holders with similar
sensitivities, and forced liquidation of open-end mutual fund assets to meet
redemptions. Although heightened volatility in emerging markets was the
short-run effect of "contagion," the long-run impact should be negligible if
governments maintain market-oriented economic policies.
During this market downturn, when capital availability was evaporating, both
Argentina and Mexico faced short-term financing pressures. While the investment
community watched from the sidelines, these nations were forced to scramble for
financial assistance or else default on their obligations. As this quest for
capital unfolded, the markets second-guessed each step with wild swings until
the risk of immediate insolvency was averted. Ultimately, the emerging debt
market rebounded, and during the three months following March 31, 1995, the EMBI
had increased more than 22%.
Responding swiftly to the initial devaluation of the Mexican peso in December,
we sold all of our Mexican
- --------------------------------------------------------------------------------
Templeton Emerging Markets
Income Fund
Geographic Distribution on 8/31/95
Based on Total Net Assets
[PIE CHART APPEARS HERE]
<TABLE>
<S> <C>
Latin America 55.6%
United States 9.0%
Europe 10.9%
Asia 18.8%
Mid-East/Africa 5.7%
</TABLE>
Brady bonds and Mexican peso holdings before the Mexican government was forced
to allow the peso to float freely in the market. Combined, these positions
represented approximately 8.5% of the portfolio's total net assets. This action
helped us avoid most of the losses subsequently sustained by such assets. As a
closed-end fund we were not subject to redemption pressures from shareholders,
and we were able to retain the cash raised from these sales while the market
continued to plummet in January. With about 10% of the Fund's total net assets
available for reinvestment, we took advantage of the
2
<PAGE>
opportunity to purchase a broad array of securities from Colombia, Chile, Costa
Rica, Uruguay, Guatemala, Trinidad y Tobago, Indonesia, and the Czech Republic.
The long-range impact of the peso's devaluation and subsequent volatility in
Latin American financial markets remains to be seen, but we believe there are
solid reasons for optimism. In some ways, this near-disaster appears to have
served as a wake-up call. Rather than abandoning market-oriented reform in the
wake of this ordeal, Mexico and Argentina have responded with fiscal austerity
programs and banking reform. These actions seem to confirm their stated
commitment to free-markets, and also their recognition that slackening the pace
of progress may be suicide in the increasingly competitive world markets.
We believe that Mexico's President Zedillo and Finance Minister Ortiz,
Argentina's President Menem and Finance Minister Cavallo, and Brazil's President
Cardoso have all shown exceptional acumen in dealing with the complexities of
economic reform, and we are quite sanguine about the prospects for the economies
of these countries. They seem aware that falling behind their Asian and East
European peers will likely make them become less competitive within the world
economy, which will reduce their prospects for escaping underdevelopment. The
pressure of these economic forces should concentrate the minds of politicians,
business and labor leaders towards further progress, and although each of these
countries faces unique challenges, there are enough recent examples of failure
and success in the world to shape policy principles. Unfortunately, with
unemployment above 18% in Argentina and second quarter GDP down 10.5% in Mexico,
public patience is thin. This next year will most likely be pivotal in moving
forward enough to reap benefits for populations whose experience with reform
thus far has only been dislocation.
The universe of emerging market debt continues to expand as more corporate and
sovereign debt issuers enter the market. Several Asian countries have announced
plans to develop formal bond markets, and governments from Russia to Peru are
making strides in negotiating past-due obligations as a necessary prerequisite
to issuing bonds in the future. In July, JP Morgan announced its new, expanded
Emerging Market Bond Index Plus (EMBI+), just one sign that emerging market debt
appears to be approaching a stage of maturity where it holds increased appeal
for institutions. A broader
3
<PAGE>
market, combined with significant institutional involvement, should help dampen
the current level of volatility. With economic reforms back on track in Latin
America, and U.S. interest rates relatively stable, we are optimistic about the
potential opportunities for the Fund and will continue our commitment to seek a
balanced portfolio of attractive risk/reward values available.
Of course, 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.
These special risks and other considerations are discussed in the Fund's
prospectus.
In closing, we would like to mention that, although Sir John Templeton has not
been involved in investment management of the Templeton funds since October
1992, we were saddened by his recent decision to step down as Chairman and
Director of the U.S.-registered Templeton funds. The Fund's Board of Directors
has elected John Wm. Galbraith, former vice chairman of Templeton, Galbraith &
Hansberger, Ltd. to succeed him. The investment manager will continue to use the
investment philosophies and principles established by Sir John.
We appreciate your support, welcome your comments and look forward to serving
you in the future.
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.
- --------------------------------------------------------------------------------
4
<PAGE>
- --------------------------------------------------------------------------------
Performance Summary
During the reporting period, Templeton Emerging Markets Income Fund shareholders
received income distributions totaling $1.24 per share. The Fund's closing price
on the New York Stock Exchange decreased, from $12.50 on August 31, 1994 to
$10.75 on August 31, 1995, and the Fund produced a total return of -4.28% in
market-price terms for this one-year period.
Between August 31, 1994 and August 31, 1995, the Fund's net asset value declined
from $12.35 to $11.52. Based on the change in actual net asset value (in
contrast to market price), the Fund produced a total return of 3.82% 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 August 31, 1995
<TABLE>
<CAPTION>
Since
Inception
One-Year (9/23/93)
<S> <C> <C>
Based on change
in net asset value 3.82% -0.90%
Based on change
in market price -4.28% -13.57%
</TABLE>
*Cumulative total returns 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 in accordance with the dividend reinvestment plan. 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.
- --------------------------------------------------------------------------------
5
<PAGE>
Templeton Emerging Markets Income Fund, Inc.
Financial Highlights
- --------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
PERIOD FROM
SEPTEMBER 23, 1993
(COMMENCEMENT OF
YEAR ENDED OPERATIONS) TO
AUGUST 31, 1995 AUGUST 31, 1994
--------------- ------------------
<S> <C> <C>
Net asset value, beginning of period $ 12.35 $ 14.02
-------- --------
Income from investment operations:
Net investment income 1.33 1.18
Net realized and unrealized loss (.92) (1.77)
-------- --------
Total from investment operations .41 (.59)
-------- --------
Underwriting expenses deducted from capital -- (.03)
-------- --------
Distributions:
Dividends from net investment income (1.24) (1.00)
Distributions from net realized gains -- (.05)
-------- --------
Total distributions (1.24) (1.05)
-------- --------
Change in net asset value (.83) (1.67)
-------- --------
Net asset value, end of period $ 11.52 $ 12.35
======== ========
TOTAL RETURN*
Based on market value per share (4.28)% (9.71)%
Based on net asset value per share 3.82% (4.55)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000) $548,448 $587,954
Ratio of expenses to average net assets .81% .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 11.79% 9.66%**
Portfolio turnover rate 58.73% 91.73%
</TABLE>
*NOT ANNUALIZED IN PERIODS OF LESS THAN ONE YEAR.
**ANNUALIZED.
SEE NOTES TO FINANCIAL STATEMENTS.
6
<PAGE>
Templeton Emerging Markets Income Fund, Inc.
Investment Portfolio, August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL IN
COUNTRY LOCAL CURRENCY** VALUE
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------------------
LONG TERM SECURITIES: 89.1%
- --------------------------------------------------------------------------------
Algeria: 0.3%
Banque National
D'Algerie, FRN,
12/19/94 U.S. 4,666,667 $ 1,493,333
- --------------------------------------------------------------------------------
Argentina: 14.3%
Argentina Domestic
Securities Trust
(Morgan Stanley),
14.75%, 9/01/02 U.S. 11,800,000 8,555,000
Argentina Local Market
Securities Trust 1994-I
(Goldman Sachs Group,
L.P.), 13.375%, 8/15/01 U.S. 12,500,000 10,937,500
Bridas Corp., Yankee,
12.50%, 11/18/99 U.S. 12,180,000 11,814,600
Republic of Argentina:
7.3125%, FRN, 3/31/05 U.S. 43,600,000 26,677,532
6.875%, FRN, 3/31/23 U.S. 15,000,000 8,587,500
Telefonica de Argentina
SA, 11.875%, 11/01/04 U.S. 12,000,000 12,030,000
------------
78,602,132
- --------------------------------------------------------------------------------
Brazil: 16.8%
Aracruz Celulose SA,
10.375%, 1/31/02 U.S. 5,500,000 5,183,750
Bombril SA, 8.00%,
8/26/98 U.S. 2,200,000 1,886,500
Brazil C-Bond, 8.00%,
4/15/14 U.S. 11,444,400 5,776,309
Companhia Suzano Papel,
10.25%, 10/06/01 U.S. 6,000,000 5,640,000
Copene-Petroquimica
Nordeste SA, 9.50%,
10/19/01, 144a U.S. 14,150,000 12,522,750
Government of Brazil:
6.6875%, FRN A, 1/01/01 U.S. 19,095,000 15,801,113
7.25%, EI, FRN, L,
4/15/06 U.S. 32,450,000 20,159,563
7.3125%, FRN, 4/15/12 U.S. 26,825,000 14,183,719
Industrias Klabin Papel
Celulose,
12.125%,12/28/02, 144a U.S. 5,600,000 5,656,000
Iochpe--Maxion SA,
12.375%, 11/08/02, 144a U.S. 6,050,000 5,218,125
------------
92,027,829
- --------------------------------------------------------------------------------
Bulgaria: 2.7%
Republic of Bulgaria,
IAB, 6.75%, FRN,
7/28/24 U.S. 33,250,000 14,630,000
- --------------------------------------------------------------------------------
Chile: 1.2%
Compania Sud Americana
de Vapores SA,
7.375%, 12/08/03 U.S. 6,620,000 6,355,200
- --------------------------------------------------------------------------------
China: 0.8%
Guangdong Enterprises
Holdings Ltd., 8.75%,
12/22/03, 144a U.S. 5,000,000 4,400,000
- --------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
Templeton Emerging Markets Income Fund, Inc.
Investment Portfolio, August 31, 1995 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL IN
COUNTRY LOCAL CURRENCY** VALUE
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------------------
LONG TERM SECURITIES (CONT.)
- --------------------------------------------------------------------------------
Colombia: 1.2%
Banco Ganadero SA,
9.75%, 8/26/99, 144a U.S. 5,580,000 $ 5,552,100
Empresa Colombiana de
Petroleos, 7.25%,
7/08/98 U.S. 1,000,000 985,000
------------
6,537,100
- --------------------------------------------------------------------------------
Costa Rica: 2.0%
Banco Central de Costa
Rica, A, 6.25%, 5/21/10 U.S. 16,900,000 9,041,500
Instituto Costarricense
de Electricidad,
8.375%, 1/27/97 U.S. 1,900,000 1,850,125
------------
10,891,625
- --------------------------------------------------------------------------------
Czech Republic: 3.4%
Ceskoslovenska Obchodni
Banka, 11.125%, 8/26/97 Csk. 144,580,000 5,369,999
CEZ AS, 14.375%, 1/27/01 Csk. 122,770,000 4,887,515
Skofin, 11.625%,
2/09/98, 144a Csk. 230,750,000 8,646,475
------------
18,903,989
- --------------------------------------------------------------------------------
Ecuador: 3.7%
Republic of Ecuador:
6.75%, FRN, 12/21/04,
144a U.S. 2,350,725 1,369,297
7.25%, FRN, 2/27/15 U.S. 31,365,000 10,213,228
7.25%, FRN, 2/27/15,
144a U.S. 10,607,000 3,453,904
7.25%, FRN, 2/28/25,
144a U.S. 10,999,999 5,472,500
------------
20,508,929
- --------------------------------------------------------------------------------
Guatemala: 2.0%
Associacion Nacional del
Cafe, 11.00%, 8/31/98 U.S. 10,910,000 11,073,650
- --------------------------------------------------------------------------------
Hungary: 1.6%
National Bank of
Hungary, 7.95%,
11/01/03 U.S. 9,600,000 8,520,000
- --------------------------------------------------------------------------------
India: 1.9%
Essar Gujarat Ltd., FRN,
7/15/99, 144a U.S. 5,300,000 5,273,500
Morgan Stanley Group,
(principal and interest
is linked to the change
in the Indian Rupee to
U.S. Dollar foreign
exchange rate between
issue date (31.41
Rupee/U.S. Dollar) and
maturity date) 13.25%,
6/26/96 U.S. 5,230,000 5,050,611
------------
10,324,111
- --------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
Templeton Emerging Markets Income Fund, Inc.
Investment Portfolio, August 31, 1995 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL IN
COUNTRY LOCAL CURRENCY** VALUE
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------------------
LONG TERM SECURITIES (CONT.)
- --------------------------------------------------------------------------------
Indonesia: 5.6%
PT Astra International,
9.75%, 4/29/01 U.S. 6,150,000 $ 6,349,875
PT Indah Kiat Pulp &
Paper Corp., 8.875%,
11/01/00, 144a U.S. 4,840,000 4,477,000
PT Inti Indorayon Utama,
9.125%, 10/15/00 U.S. 6,830,000 6,283,600
PT Polysindo Eka Perkasa
Global, 13.00%, 6/15/01 U.S. 5,000,000 5,100,000
Tjiwi Kimia Int'l
Finance Co. BV, 13.25%,
8/01/01 U.S. 8,000,000 8,520,000
------------
30,730,475
- --------------------------------------------------------------------------------
Jordan: 1.9%
Kingdom of Jordan:
Collateralized FRN,
12/23/05 U.S. 1,866,331 1,306,432
Collateralized FRN,
12/23/23 U.S. 5,706,250 3,409,484
Collateralized Par Bond,
4.00%, 12/23/23 U.S. 13,325,332 5,663,266
------------
10,379,182
- --------------------------------------------------------------------------------
Mexico: 5.9%
Hylsa SA, 11.00%,
2/23/98 U.S. 10,000,000 9,750,000
United Mexican States:
FRN, 7/20/97, 144a U.S. 13,000,000 13,276,250
8.50%, 9/15/02 U.S. 10,585,000 9,208,950
------------
32,235,200
- --------------------------------------------------------------------------------
Morocco: 3.5%
Kingdom of Morocco Loan
Participation, FRN,
1/01/09 U.S. 32,000,000 19,480,000
- --------------------------------------------------------------------------------
Nicaragua: 0.4%
*Nicaragua Loan
Participation U.S. 25,000,000 2,125,000
- --------------------------------------------------------------------------------
Panama: 1.0%
Republic of Panama, FRN,
5/10/02 U.S. 7,000,000 5,565,000
- --------------------------------------------------------------------------------
Peru: 1.0%
Gloria SA, 11.00%,
3/21/97 U.S. 5,840,000 5,664,800
- --------------------------------------------------------------------------------
Philippines: 4.3%
National Power Corp.,
7.625%, 11/15/00, 144a U.S. 10,000,000 9,525,000
Philippine Long Distance
Telephone Co.,
10.625%, 6/02/04 U.S. 5,500,000 5,809,040
Subic Power Corp.,
9.50%, 12/28/08, 144a U.S. 8,472,100 8,048,495
------------
23,382,535
- --------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
Templeton Emerging Markets Income Fund, Inc.
Investment Portfolio, August 31, 1995 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL IN
COUNTRY LOCAL CURRENCY** VALUE
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------------------
LONG TERM SECURITIES (CONT.)
- --------------------------------------------------------------------------------
Poland: 1.2%
Government of Poland:
FRN, 20 year bond,
10/27/14 U.S. 5,000,000 $ 3,062,500
FRN, 30 year bond,
10/27/24 U.S. 5,000,000 3,809,375
Republic of Poland,
2.75%, VRN, 10/27/24 U.S. 17,000 7,480
------------
6,879,355
- --------------------------------------------------------------------------------
Russia: 2.0%
Bank Foreign Economic
Affairs:
7.00%, 3/29/96 Ger. 13,000,000 8,744,891
7.50%, 9/27/96 Ger. 3,000,000 2,023,161
------------
10,768,052
- --------------------------------------------------------------------------------
Thailand: 2.7%
ABN Amro Bank (THB),
9.10%, 8/05/97, CD Thai. 250,000,000 9,737,630
Thailand Military Bank:
11.125%, 6/03/96 Thai. 70,000,000 2,793,296
11.00%, 6/05/96 Thai. 60,000,000 2,392,099
------------
14,923,025
- --------------------------------------------------------------------------------
Trinidad and Tobago: 0.9%
Sei Holdings IX Inc.,
11.00%, 11/30/00, 144a U.S. 5,210,000 5,223,025
- --------------------------------------------------------------------------------
Turkey: 1.6%
Republic of Turkey:
Series 4, 6.5625%,
2/21/96 U.S. 1,000,000 1,000,000
Series 5, 6.8125%,
2/21/97 U.S. 7,730,000 7,672,025
------------
8,672,025
- --------------------------------------------------------------------------------
Uruguay: 0.7%
Government of Uruguay,
A, 6.75%, 2/19/21 U.S. 6,000,000 3,900,000
- --------------------------------------------------------------------------------
Venezuela: 4.5%
Bariven SA, 10.625%,
3/17/02 U.S. 15,650,000 14,750,125
Electricidad de Caracas,
FRN, 9/30/03 U.S. 2,741,475 1,206,249
Produvisa Capital Corp.,
9.50%, 11/29/96 U.S. 6,750,000 6,125,625
Republic of Venezuela:
9.125%, 3/11/96 U.S. 1,410,000 1,395,900
9.00%, 5/27/96 U.S. 1,000,000 985,000
------------
24,462,899
------------
TOTAL LONG TERM SECURITIES (cost $522,838,669) 488,658,471
- --------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
Templeton Emerging Markets Income Fund, Inc.
Investment Portfolio, August 31, 1995 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL IN
COUNTRY LOCAL CURRENCY** VALUE
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
SHORT TERM OBLIGATIONS: 7.6%
- -------------------------------------------------------------------------------
Bangkok Bank, 11.50%,
5/16/96 Thai. 50,000,000 $ 2,001,209
Federal Home Loan
Mortgage Corp.:
5.68%, 9/06/95 U.S. 5,000,000 4,996,050
5.64%, 9/25/95 U.S. 1,490,000 1,484,353
5.60%, 10/11/95 U.S. 3,000,000 2,981,220
Federal National
Mortgage Assn.:
5.64%, 9/06/95 U.S. 3,000,000 2,997,660
5.64%, 9/11/95 U.S. 3,000,000 2,995,290
5.69%, 9/14/95 U.S. 5,840,000 5,828,086
National Westminster
Bank PLC, (principal
and interest is linked
to the change in the
Indian Rupee to U.S.
Dollar foreign
exchange rate between
issue date (31.42
Rupee/U.S. Dollar and
maturity date),
14.00%, 4/24/96 U.S. 8,720,000 8,420,904
U.S. Treasury Bills,
5.28% to 5.43% with
maturities to 11/02/95 U.S. 9,840,000 9,780,104
------------
TOTAL SHORT TERM OBLIGATIONS: (cost $41,802,798) 41,484,876
- -------------------------------------------------------------------------------
TOTAL INVESTMENTS: 96.7% (cost $564,641,467) 530,143,347
UNREALIZED GAIN IN FORWARD EXCHANGE CONTRACTS: 0.2% 1,213,561
OTHER ASSETS, LESS LIABILITIES: 3.1% 17,091,102
------------
TOTAL NET ASSETS: 100.0% $548,448,010
============
</TABLE>
* NON-INCOME PRODUCING.
** CURRENCY OF COUNTRIES INDICATED.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
Templeton Emerging Markets Income Fund, Inc.
Financial Statements
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
August 31, 1995
<TABLE>
<S> <C>
Assets:
Investments in securities, at value (identified cost
$564,641,467) $530,143,347
Cash 139,548
Receivables:
Investment securities sold 6,031,193
Interest 17,439,903
Unrealized gain in forward exchange contracts (Note 5) 1,284,810
Unamortized organization costs 17,859
------------
Total assets 555,056,660
------------
Liabilities:
Payables for investment securities purchased 5,827,077
Unrealized loss in forward exchange contracts (Note 5) 71,249
Accrued expenses 710,324
------------
Total liabilities 6,608,650
------------
Net assets, at value $548,448,010
============
Net assets consist of:
Undistributed net investment income $ 8,031,520
Net unrealized depreciation (33,319,906)
Accumulated net realized loss (91,202,571)
Net capital paid in on shares of capital stock 664,938,967
------------
Net assets, at value $548,448,010
============
Shares outstanding 47,605,757
============
Net asset value per share
($548,448,010 / 47,605,757) $ 11.52
============
</TABLE>
STATEMENT OF OPERATIONS
for the year ended August 31, 1995
<TABLE>
<S> <C> <C>
Interest income: (net of $66,095 foreign taxes
withheld) $ 67,716,764
Expenses:
Management fees (Note 3) $ 2,284,662
Administrative fees
(Note 3) 806,353
Transfer agent fees (Note 3) 343,000
Custodian fees 209,000
Reports to shareholders 284,500
Audit fees 50,000
Legal fees (Note 3) 140,000
Registration and filing fees 79,000
Directors' fees and expenses 74,500
Organization costs 6,694
Other 62,972
------------
Total expenses 4,340,681
------------
Net investment income 63,376,083
Realized and unrealized gain (loss):
Net realized loss on:
Investments (70,210,785)
Foreign currency transactions (2,671,376)
------------
(72,882,161)
------------
Net unrealized
appreciation on:
Investments 27,925,331
Foreign currency translation of other assets and
liabilities 1,106,140
------------
29,031,471
------------
Net realized and unrealized loss (43,850,690)
------------
Net increase in net assets resulting from
operations $ 19,525,393
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
Templeton Emerging Markets Income Fund, Inc.
Financial Statements (cont.)
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE PERIOD
SEPTEMBER 23, 1993
(COMMENCEMENT
YEAR ENDED OF OPERATIONS) TO
AUGUST 31, 1995 AUGUST 31, 1994
--------------- ------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 63,376,083 $ 55,564,019
Net realized loss on investment and for-
eign currency transactions (72,882,161) (20,741,082)
Net unrealized appreciation (deprecia-
tion) 29,031,471 (62,351,377)
------------ ------------
Net increase (decrease) in net assets
resulting from operations 19,525,393 (27,528,440)
Distributions to shareholders:
From net investment income (59,031,139) (47,348,142)
From net realized gain -- (2,108,629)
Capital share transactions (Note 2) -- 664,838,962
------------ ------------
Net increase (decrease) in net assets (39,505,746) 587,853,751
Net assets:
Beginning of period 587,953,756 100,005
------------ ------------
End of period $548,448,010 $587,953,756
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
Templeton Emerging Markets Income Fund, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
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 Transactions:
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.
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.
14
<PAGE>
Templeton Emerging Markets Income Fund, Inc.
Notes to Financial Statements (cont.)
- --------------------------------------------------------------------------------
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, which are determined in accordance with income tax regulations,
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.
During the period September 23, 1993 through August 31, 1994, 598,624 shares
were issued for $7,238,092 from reinvested distributions. During the year ended
August 31, 1995, there were no capital share transactions. As of August 31,
1995, there were 100,000,000 shares of $.01 par value capital stock authorized.
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 $2,284,662 and $268,800, respectively for the
year ended August 31, 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 $140,000 for the year ended August
31, 1995.
15
<PAGE>
Templeton Emerging Markets Income Fund, Inc.
Notes to Financial Statements (cont.)
- --------------------------------------------------------------------------------
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities (excluding short-term securities) for the
year ended August 31, 1995 aggregated $283,059,872 and $307,993,733, respec-
tively. The cost of securities for federal income tax purposes is $565,110,216.
Realized gains and losses are reported on an identified cost basis.
At August 31, 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 $ 8,280,765
Unrealized depreciation (43,247,634)
------------
Net unrealized depreciation $(34,966,869)
============
</TABLE>
5. FINANCIAL INSTRUMENTS
During the year ended August 31, 1995, the Fund has been a party to financial
instruments with off-balance-sheet risks, primarily forward exchange contracts,
in order to minimize the risk to the Fund, with respect to its portfolio trans-
actions, 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 con-
tracts, future movement in currency values and interest rates and contract po-
sitions 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 August 31, 1995, the Fund had outstanding forward exchange contracts for the
purchase and sale of currencies as set out below. These contracts are reported
in the financial statements at the Fund's net equity, as measured by the dif-
ference between the forward exchange rates at the reporting date and the for-
ward exchange rates at the date of entry into the contract.
<TABLE>
<S> <C>
Net unrealized gain in forward exchange contracts to sell
35,000,000 Deutschmarks for 25,170,802 U.S. dollars, Octo-
ber 12, 1995 $1,284,810
Net unrealized loss in forward exchange contracts to buy
2,000,000 Deutschmarks for 1,436,163 U.S. dollars, October
12, 1995 (71,249)
----------
Net unrealized gain in forward exchange contracts $1,213,561
==========
</TABLE>
16
<PAGE>
Templeton Emerging Markets Income Fund, Inc.
Notes to Financial Statements (cont.)
- --------------------------------------------------------------------------------
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)
May 31, 1995 17,618,265 .37 16,482,787 .35 37,202,092 .78 53,684,879 1.13
August 31, 1995 17,793,823 .37 16,806,064 .35 4,669,451 .10 21,475,515 .45
----------- ----- ----------- ----- ------------ ------ ------------ ------
$67,716,764 $1.42 $63,376,083 $1.33 $(43,850,690) $ (.92) $ 19,525,393 $ .41
=========== ===== =========== ===== ============ ====== ============ ======
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>
7. TAX LOSS CARRYOVERS
At August 31, 1995 the Fund had tax basis capital losses of $86,600,000 which
may be carried over to offset future capital gains. Such losses expire in 2003.
17
<PAGE>
Templeton Emerging Markets Income Fund, Inc.
Independent Auditor's Report
- --------------------------------------------------------------------------------
The Board of Directors and Shareholders
Templeton Emerging Markets Income Fund, Inc.
We have audited the accompanying statement of assets and liabilities, including
the investment portfolio, of Templeton Emerging Markets Income Fund, Inc. as of
August 31, 1995, and the related statement of operations for the year then end-
ed, the statement of changes in net assets and the financial highlights for the
year ended August 31, 1995 and for the period from September 23, 1993 (com-
mencement of operations) to August 31, 1994. These financial statements and fi-
nancial highlights are the responsibility of the Fund's management. Our respon-
sibility is to express an opinion on these financial statements and financial
highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial high-
lights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of Au-
gust 31, 1995, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement pre-
sentation. We believe that our audits provide a reasonable basis for our opin-
ion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Tem-
pleton Emerging Markets Income Fund, Inc. as of August 31, 1995, the results of
its operations, the changes in its net assets and the financial highlights for
the periods indicated, in conformity with generally accepted accounting princi-
ples.
/s/ McGladrey & Pullen, LLP
New York, New York
September 29, 1995
18
<PAGE>
Templeton Emerging Markets Income Fund, Inc.
- --------------------------------------------------------------------------------
Dividend Reinvestment Plan
The Fund offers a Dividend Reinvestment Plan (the "Plan") with the following
features: .If shares of the Fund are held in the shareholder's name, the share-
holder will automatically be a participant in the Plan unless he elects to
withdraw. If the shares are registered in the name of a broker-dealer or other
nominee (i.e., in "street name"), the broker-dealer or nominee will elect to
participate in the Plan on the shareholder's behalf unless the shareholder in-
structs them otherwise, or unless the reinvestment service is not provided by
the broker-dealer or nominee. .Participants should contact Chemical Mellon Se-
curities Trust Company, Dividend Reinvestment Services, P.O. Box 750, Pitts-
burgh, PA 15230, to receive the Plan brochure. .To receive dividends or distri-
butions in cash, the shareholder must notify Chemical Mellon Securities Trust
Company ("Mellon") or the institution in whose name the shares are held. Mellon
must receive written notice within 10 business days before the record date for
the distribution. .Whenever the Fund declares dividends in either cash or com-
mon stock of the Fund, if the market price is equal to or exceeds net asset
value at the valuation date, participants will receive the dividends entirely
in stock at a price equal to the net asset value but not less than 95% of the
then current market price of the Fund's shares. If the market price is lower
than net asset value and if dividends and/or capital gains distributions are
payable only in cash, the participant will receive shares purchased on the New
York Stock Exchange. .The automatic reinvestment of dividends and/or capital
gains does not relieve the participant of any income tax which may be payable
on dividends or distributions. .The participant may withdraw from the Plan
without penalty at any time by written notice to Mellon. Upon withdrawal, the
participant will receive, without charge, stock certificates issued and in the
participant's name for all full shares; or, if the participant's wishes, Mellon
will sell the participant's shares and send the proceeds, net of any brokerage
commissions. A $5.00 fee is charged by Mellon upon any cash withdrawal or ter-
mination. .Whenever shares are purchased on the New York Stock Exchange, each
participant will pay a pro rata portion of brokerage commissions. Brokerage
commissions will be deducted from amounts to be invested.
SHAREHOLDER INFORMATION
Weekly comparative net asset value and market price information about Templeton
Emerging Markets Income Fund shares is published each Monday in The Wall Street
Journal, weekly in Barron's and each Saturday in The New York Times and other
newspapers in a table called "Publicly Traded Funds". The Fund's New York Stock
Exchange trading symbol is TEI.
For current information about the net asset value, call 1-800-237-0738. If any
shareholder is not receiving copies of the Reports to the Shareholders because
shares are registered in a broker's name or in a custodian's name, he or she
can write and request that his or her name be added to the Fund's mailing list,
by writing Templeton Emerging Markets Income Fund, Inc., 700 Central Avenue,
St. Petersburg, FL 33701.
19
<PAGE>
TEMPLETON
EMERGING
MARKETS
INCOME
FUND, INC.
Annual Report
August 31, 1995
[LOGO OF FRANKLIN TEMPLETON APPEARS HERE]
- --------------------------
TEMPLETON EMERGING MARKETS
INCOME FUND, INC.
700 Central Avenue
St. Petersburg,
Florida 33701-3628
Auditors
McGladrey & Pullen, LLP
555 Fifth Avenue
New York, New York 10017-2416
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 departments may be monitored, recorded, and accessed. These calls can
be determined by the presence of a regular beeping tone.
- --------------------------
[RECYCLED PAPER LOGO TLTEI A95 10/95
APPEARS HERE]
