<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.
April 15, 1996
Dear Shareholder:
We are pleased to bring you the semi-annual report for the Templeton Emerging
Markets Income Fund for the six months ended February 29, 1996. The Fund's
share price, as measured by net asset value, increased each month of this
period, and the Fund produced a total return based on net asset value of 11.71%,
as discussed in the Performance Summary on page 5. In market price terms, the
total return for the period was 16.33%.
During this time, U.S. interest rates continued to fall. The U.S. Federal
Reserve Board lowered the overnight federal funds rate from 5.75% to 5.25%,
while rates on the 30-year Treasury bond declined from 6.65% on August 31, 1995,
to 6.47% on February 29, 1996. Consequently, investors searching for higher
yields moved into other markets, contributing to the outstanding performance of
emerging market bonds, which generally provided their best six-month total
return in two years.
1
<PAGE>
Because low interest rates in many industrial countries encouraged capital flow
to emerging-market nations and decreased their debt service costs, it was easier
for these nations to consolidate economic reforms. In Latin America, Argentina
restored its banking reserves to the levels preceding Mexico's 1994 currency
devaluation and Brazil realized 4.2% growth in 1995, despite fallout from
Mexico. Many economists expect Mexico itself to eke out slightly positive real
gross domestic product (GDP) growth in 1996, after a dismal 7.2% contraction in
1995. It is also encouraging that Venezuela, one of the few holdouts against
the free-market system, began negotiations with the International Monetary Fund
(IMF) concerning economic reforms, which may improve its economic plight in the
near term.
As interest rates fell during the past several months, we reduced our positions
in eurobonds (dollar-denominated bonds issued by foreign governments and
companies) and foreign bonds denominated in local currencies, while increasing
our exposure to Brady bonds, from 25% to 40% of total net assets. These moves
enhanced the Fund's
- -----------------------------------------
Templeton Emerging
Markets Income Fund
Geographic Distribution on 2/29/96
Based on Total Net Assets
[PIE CHART APPEARS HERE]
<TABLE>
<CAPTION>
<S> <C>
Latin America 58.7%
Asia 16.4%
Europe 14.3%
Mid-East/Africa 5.9%
United States 4.7%
</TABLE>
total return because Brady bonds tend to have longer maturities and generally
perform better than eurobonds during market rallies.
The Fund also benefited dramatically from the increased confidence of foreign
investors in Russian economic reforms. In mid-November 1995, we established a
significant position in dollar-denominated Russian Ministry of Finance bonds
that mature in May 1999. We bought
2
<PAGE>
them partly because inflation in Russia had slowed to approximately 3%-4% per
month in 1995, down from around 10% per month in 1994, and the budget deficit
was headed toward the goal of 6% of GDP set by the IMF. The bonds we bought at
a price of $56.30 in November 1995 rose to $73.30 by February 29, 1996, yielding
a three-month total return in excess of 25%, including accrued interest.
However, it is tempting for emerging economies to stop implementing the fiscal
and monetary policies necessary to achieve competitiveness, and there is now
some concern over Russia's ability to continue making progress if Communist
party leader Zyuganov becomes president following the June election.
Poland is an example of the potential benefits to a country when it determinedly
pursues the course of economic reform. In January 1996, several Brady bonds were
upgraded by Moody's. Poland's are the first Brady bonds to rise above
speculative status and reach investment grade. This helped narrow the yield
spread on Polish Brady bonds to merely 2% above that of U.S. Treasury bonds with
similar maturity dates and, as a consequence, increased the market value of our
Polish holdings.
In our opinion, the outlook for investments in emerging market bonds appears
favorable. The possibility of low inflation and low interest rates in the key
industrial nations, combined with improved credit fundamentals in many emerging
market nations, may encourage investment flows to this asset class for some
months to come. 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.
This discussion reflects the strategies we employed for the fund during the six-
month period, and includes our opinions as of the close of the period. Since
economic and market conditions are constantly changing, our strategies, and our
evaluations, conclusions and decisions
3
<PAGE>
regarding portfolio holdings, may change as new circumstances arise. Although
past performance of a specific investment or sector cannot guarantee future
performance, such information can be useful in analyzing securities we purchase
or sell for the fund.
We thank you for your participation in the Templeton Emerging Markets Income
Fund and welcome your comments and suggestions.
Sincerely,
/s/ Tom W. Wilkinson
Tom Wilkinson, CFA
Vice President
Templeton Emerging Markets Income Fund, Inc.
4
<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 per share on the New York Stock Exchange increased, from $10.75 on
August 31, 1995 to $11.875 on February 29, 1996, and the Fund produced a total
return of 16.33% in market-price terms for this six-month period.
Between August 31, 1995 and February 29, 1996, the Fund's net asset value per
share increased from $11.52 to $12.22. Based on the change in actual net asset
value (in contrast to market price), the Fund produced a total return of 11.71%
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 2/29/96
<TABLE>
<CAPTION>
Since
Inception
One-Year (9/23/93)
<S> <C> <C>
Based on change
in net asset value 28.67% 10.98%
Based on change
in market price 27.27% -2.03%
</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 waived a portion
of their fees, which reduced operating expenses and increased total return to
shareholders. Without these reductions, the Fund's total return would have been
lower.
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
SIX MONTHS SEPTEMBER 23, 1993
ENDED (COMMENCEMENT OF
FEBRUARY 29, 1996 YEAR ENDED OPERATIONS) TO
(UNAUDITED) AUGUST 31, 1995 AUGUST 31, 1994
----------------- --------------- ------------------
<S> <C> <C> <C>
Net asset value,
beginning of period $ 11.52 $ 12.35 $ 14.02
-------- -------- --------
Income from investment
operations:
Net investment income .65 1.33 1.18
Net realized and
unrealized gain (loss) .67 (.92) (1.77)
-------- -------- --------
Total from investment
operations 1.32 .41 (.59)
-------- -------- --------
Underwriting expenses
deducted from capital -- -- (.03)
-------- -------- --------
Distributions:
Dividends from net
investment income (.62) (1.24) (1.00)
Distributions from net
realized gains -- -- (.05)
-------- -------- --------
Total distributions (.62) (1.24) (1.05)
-------- -------- --------
Change in net asset value .70 (.83) (1.67)
-------- -------- --------
Net asset value, end of
period $ 12.22 $ 11.52 $ 12.35
======== ======== ========
TOTAL RETURN*
Based on market value per
share 16.33% (4.28)% (9.71)%
Based on net asset value
per share 11.71% 3.82% (4.55)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(000) $581,701 $548,448 $587,954
Ratio of expenses to
average net assets .94%** .81% .86%
Ratio of expenses,
exclusive of fee waiver,
to average net assets 1.11%** 1.28% 1.25%
Ratio of net investment
income to average net
assets 11.04%** 11.79% 9.66%
Portfolio turnover rate 15.08% 58.73% 91.73%
</TABLE>
*NOT ANNUALIZED FOR PERIODS OF LESS THAN ONE YEAR.
**ANNUALIZED.
SEE NOTES TO FINANCIAL STATEMENTS.
6
<PAGE>
Templeton Emerging Markets Income Fund, Inc.
Investment Portfolio, February 29, 1996 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL IN
COUNTRY LOCAL CURRENCY** VALUE
- -------------------------------------------------------------------------------
LONG TERM SECURITIES: 93.8%
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Algeria: 0.3%
Banque National D'Algerie
FRN, 12/19/94 U.S. 4,666,667 $ 1,913,333
- -------------------------------------------------------------------------------
Argentina: 13.3%
Argentina Domestic
Securities Trust (Morgan
Stanley), 14.75%, 9/01/02 U.S. 11,800,000 11,151,000
Argentina Local Market
Securities Trust 1994-I
(Goldman Sachs Group,
L.P.),
13.375%, 8/15/01 U.S. 12,500,000 12,703,125
Bridas Corp., Yankee,
12.50%, 11/18/99 U.S. 12,180,000 12,728,100
Republic of Argentina:
6.813%, FRN, 3/31/05 U.S. 43,600,000 31,174,000
6.563%, FRN, 3/31/23 U.S. 15,000,000 9,543,750
-----------
77,299,975
- -------------------------------------------------------------------------------
Brazil: 18.1%
Abril SA, 12.00%, 10/25/03,
144A U.S. 5,525,000 5,711,469
Brazil C-Bond, 8.00%,
4/15/14 U.S. 30,775,068 18,603,713
Centrais Electricas
Brasileiras SA,
10.00%, 10/30/98, 144A U.S. 5,550,000 5,661,000
Companhia Suzano Papel,
10.25%, 10/06/01 U.S. 6,000,000 5,790,000
Copene-Petroquimica
Nordeste SA,
9.50%, 10/19/01, 144A U.S. 14,150,000 13,796,250
Government of Brazil:
6.375%, FRN A, 1/01/01 U.S. 19,232,400 16,792,289
6.875%, FRN, L, 4/15/12 U.S. 26,825,000 16,262,656
4.25%, 4/15/24 U.S. 44,775,000 22,695,328
-----------
105,312,705
- -------------------------------------------------------------------------------
Bulgaria: 2.7%
Republic of Bulgaria, IAB,
6.75%, FRN, 7/28/24 U.S. 33,250,000 15,544,375
- -------------------------------------------------------------------------------
Chile: 1.1%
Compania Sud Americana de
Vapores SA,
7.375%, 12/08/03 U.S. 1,620,000 1,628,100
Compania Sud Americana de
Vapores SA,
7.375%, 12/08/03, 144A U.S. 5,000,000 5,025,000
-----------
6,653,100
- -------------------------------------------------------------------------------
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, February 29, 1996 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL IN
COUNTRY LOCAL CURRENCY** VALUE
- --------------------------------------------------------------------------------
LONG TERM SECURITIES (CONT.)
- --------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Colombia: 1.2%
Banco Ganadero SA, 9.75%,
8/26/99, 144A U.S. 5,580,000 $ 5,719,500
Empresa Colombiana de
Petroleos,
7.25%, 7/08/98 U.S. 1,000,000 1,011,250
-----------
6,730,750
- --------------------------------------------------------------------------------
Costa Rica: 2.2%
Banco Central de Costa
Rica, A, 6.25%, 5/21/10 U.S. 16,900,000 10,816,000
Instituto Costarricense de
Electricidad,
8.375%, 1/27/97 U.S. 1,900,000 1,878,625
-----------
12,694,625
- --------------------------------------------------------------------------------
Czech Republic: 3.2%
Ceskoslovenska Obchodni
Banka,
11.125%, 8/26/97 Csk. 144,580,000 5,348,099
CEZ, 14.375%, 1/27/01 Csk. 122,770,000 4,834,650
Skofin, 11.625%, 2/09/98,
144A Csk. 230,750,000 8,639,079
-----------
18,821,828
- --------------------------------------------------------------------------------
Ecuador: 4.2%
Republic of Ecuador:
6.50%, FRN, 12/21/04, 144A U.S. 2,290,450 1,580,410
6.813%, FRN, 2/27/15 U.S. 31,365,000 12,546,000
6.813%, FRN, 2/27/15, 144A U.S. 10,607,000 4,242,800
6.813%, FRN, 2/28/25, 144A U.S. 10,999,999 5,774,999
-----------
24,144,209
- --------------------------------------------------------------------------------
Guatemala: 2.0%
Associacion Nacional del
Cafe, 11.00%, 8/31/98 U.S. 10,910,000 11,319,125
- --------------------------------------------------------------------------------
Hungary: 1.6%
National Bank of Hungary,
7.95%, 11/01/03 U.S. 9,600,000 9,480,000
- --------------------------------------------------------------------------------
India: 1.7%
Essar Gujarat Ltd., FRN,
7/15/99, 144A U.S. 5,300,000 5,213,875
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 4,419,350
-----------
9,633,225
- --------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
Templeton Emerging Markets Income Fund, Inc.
Investment Portfolio, February 29, 1996 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL IN
COUNTRY LOCAL CURRENCY** VALUE
- -------------------------------------------------------------------------------
LONG TERM SECURITIES (CONT.)
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Indonesia: 5.5%
PT Astra International,
9.75%, 4/29/01 U.S. 6,150,000 $ 6,703,500
PT Indah Kiat Pulp & Paper
Corp.,
8.875%, 11/01/00, 144A U.S. 4,840,000 4,646,400
PT Inti Indorayon Utama,
9.125%, 10/15/00 U.S. 6,830,000 6,625,100
PT Polysindo Eka Perkasa
Global, 13.00%, 6/15/01 U.S. 5,000,000 5,300,000
Tjiwi Kimia Int'l Finance
Co. BV, 13.25%, 8/01/01 U.S. 8,000,000 8,840,000
-----------
32,115,000
- -------------------------------------------------------------------------------
Jordan: 2.0%
Kingdom of Jordan:
6.438%, FRN, 12/23/05 U.S. 1,866,558 1,437,250
Collateralized, FRN,
12/23/23 U.S. 5,706,250 3,737,594
Collateralized Par Bond,
4.00%, 12/23/23 U.S. 13,325,332 6,662,666
-----------
11,837,510
- -------------------------------------------------------------------------------
Lithuania: 0.6%
Republic of Lithuania,
10.00%, 12/22/97, 144A U.S. 3,730,000 3,711,350
- -------------------------------------------------------------------------------
Mexico: 7.5%
Bancomer SA, 8.00%, 7/07/98 U.S. 11,100,000 10,517,250
United Mexican States:
FRN, 7/20/97, 144A U.S. 13,000,000 13,325,000
8.50%, 9/15/02 U.S. 10,585,000 9,473,575
6.25%, A, 12/31/19 U.S. 17,000,000 10,476,250
*United Mexican Par Value
Recovery, A & B, rts. U.S. 17,000,000 --
-----------
43,792,075
- -------------------------------------------------------------------------------
Morocco: 3.6%
Kingdom of Morocco, FRN,
1/01/09 U.S. 32,000,000 21,120,000
- -------------------------------------------------------------------------------
Panama: 1.1%
Republic of Panama, FRN,
5/10/02 U.S. 7,000,000 6,125,000
- -------------------------------------------------------------------------------
Peru: 0.7%
Guaranteed Capital Corp.
Ltd., 11.00%, 3/21/97 U.S. 4,380,000 4,352,625
- -------------------------------------------------------------------------------
Philippines: 4.2%
National Power Corp.,
7.625%, 11/15/00, 144A U.S. 10,000,000 10,125,000
Philippine Long Distance
Telephone Co.,
10.625%, 6/02/04 U.S. 5,500,000 6,108,465
Subic Power Corp., 9.50%,
12/28/08, 144A U.S. 8,158,150 7,964,394
-----------
24,197,859
- -------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
Templeton Emerging Markets Income Fund, Inc.
Investment Portfolio, February 29, 1996 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL IN
COUNTRY LOCAL CURRENCY** VALUE
- ------------------------------------------------------------------------------
LONG TERM SECURITIES (CONT.)
- ------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Poland: 1.4%
Government of Poland:
FRN, 20 Year Bond,
10/27/14 U.S. 5,000,000 $ 3,746,875
FRN, 30 Year Bond,
10/27/24 U.S. 5,000,000 4,309,375
Republic of Poland, 2.75%,
VRN, 10/27/24 U.S. 17,000 9,138
-----------
8,065,388
- ------------------------------------------------------------------------------
Russia: 4.8%
Bank Foreign Economic
Affairs:
7.00%, 3/29/96 Ger. 13,000,000 8,814,384
7.50%, 9/27/96 Ger. 3,000,000 2,035,109
Russia Federation Ministry
Finance,
3.00%, 5/14/99, III U.S. 23,000,000 16,859,000
-----------
27,708,493
- ------------------------------------------------------------------------------
Thailand: 2.6%
ABN Amro NV, 9.10%,
8/05/97, CD Thai. 250,000,000 9,692,582
Thailand Military Bank:
11.125%, 6/03/96 Thai. 70,000,000 2,776,676
11.00% 6/05/96 Thai. 60,000,000 2,368,108
-----------
14,837,366
- ------------------------------------------------------------------------------
Trinidad and Tobago: 0.9%
Sei Holdings IX Inc.,
11.00%, 11/30/00, 144A U.S. 5,210,000 5,392,350
- ------------------------------------------------------------------------------
Uruguay: 0.7%
Government of Uruguay,
6.75%, A, 2/19/21 U.S. 6,000,000 4,320,000
- ------------------------------------------------------------------------------
Venezuela: 5.8%
Bariven SA, 10.625%,
3/17/02 U.S. 15,650,000 15,923,875
Electricidad de Caracas,
FRN, A1, 9/30/03 U.S. 2,702,546 1,358,029
Produvisa Capital Corp.,
9.50%, 11/29/96 U.S. 6,750,000 6,480,000
Venezuela Front Load
Interest Reduction Bond:
A, 3/31/07 U.S. 14,750,000 8,241,563
B, 3/31/07 U.S. 3,250,000 1,832,188
-----------
33,835,655
-----------
TOTAL LONG TERM SECURITIES (cost
$546,096,332) 545,357,921
- ------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
Templeton Emerging Markets Income Fund, Inc.
Investment Portfolio, February 29, 1996 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL IN
COUNTRY LOCAL CURRENCY** VALUE
- -------------------------------------------------------------------------------
SHORT TERM OBLIGATIONS: 2.7%
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Bangkok Bank, 11.50%,
5/16/96 Thai. 50,000,000 $ 1,986,480
Federal Farm Credit Bank,
5.15%, 3/01/96 U.S. 1,000,000 1,000,000
Federal Home Loan Mortgage
Corp.,
5.13%, 3/20/96 U.S. 1,000,000 997,260
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 7,541,056
U.S. Treasury Bills, 4.74%
to 4.87%, 5/02/96 U.S. 4,402,000 4,364,539
------------
TOTAL SHORT TERM OBLIGATIONS: (cost
$17,107,039) 15,889,335
- -------------------------------------------------------------------------------
TOTAL INVESTMENTS: 96.5% (cost
$563,203,371) 561,247,256
UNREALIZED GAIN IN FORWARD EXCHANGE
CONTRACTS: 0.1% 509,753
OTHER ASSETS, LESS LIABILITIES: 3.4% 19,944,195
------------
TOTAL NET ASSETS: 100.0% $581,701,204
============
</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
February 29, 1996 (unaudited)
<TABLE>
<S> <C>
Assets:
Investments in securities, at value (identified cost
$563,203,371) $561,247,256
Cash 6,530
Receivables:
Investment securities sold 159,746
Interest 20,577,959
Unrealized gain on forward exchange contracts (Note 5) 509,753
Unamortized organization costs 14,962
------------
Total assets 582,516,206
------------
Liabilities:
Accrued expenses 815,002
------------
Total liabilities 815,002
------------
Net assets, at value $581,701,204
============
Net assets consist of:
Undistributed net investment income $ 9,557,160
Net unrealized depreciation (1,479,127)
Accumulated net realized loss (91,315,796)
Net capital paid in on shares of capital stock 664,938,967
------------
Net assets, at value $581,701,204
============
Shares outstanding 47,605,757
============
Net asset value per share ($581,701,204 / 47,605,757
shares outstanding) $ 12.22
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
STATEMENT OF OPERATIONS
for the six months ended February 29, 1996 (unaudited)
<TABLE>
<S> <C> <C>
Interest income $33,699,654
Expenses:
Management fees (Note 3) $ 1,808,293
Administrative fees (Note 3) 421,696
Transfer agent fees (Note 3) 195,015
Custodian fees 54,029
Reports to shareholders 66,591
Audit fees 20,000
Legal fees (Note 3) 40,000
Registration and filing fees 20,000
Directors' fees and expenses 30,000
Organization costs 2,820
-----------
Total expenses 2,658,444
-----------
Net investment income 31,041,210
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments (885,717)
Foreign currency transactions 772,492
-----------
(113,225)
-----------
Net unrealized appreciation on:
Investments 31,838,196
Foreign currency translations of other assets and
liabilities 2,583
-----------
31,840,779
-----------
Net realized and unrealized gain 31,727,554
-----------
Net increase in net assets resulting from operations $62,768,764
===========
</TABLE>
12
<PAGE>
Templeton Emerging Markets Income Fund, Inc.
Financial Statements (cont.)
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
FEBRUARY 29, 1996 YEAR ENDED
(UNAUDITED) AUGUST 31, 1995
----------------- ---------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 31,041,210 $ 63,376,083
Net realized loss on investment and for-
eign currency transactions (113,225) (72,882,161)
Net unrealized appreciation 31,840,779 29,031,471
------------ ------------
Net increase in net assets resulting
from operations 62,768,764 19,525,393
Distributions to shareholders from net
investment income (29,515,570) (59,031,139)
------------ ------------
Net increase (decrease) in net assets 33,253,194 (39,505,746)
Net assets:
Beginning of period 548,448,010 587,953,756
------------ ------------
End of period $581,701,204 $548,448,010
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<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 Fund seeks high current income
and capital appreciation by investing primarily in a portfolio of high yielding
debt obligations of sovereign or sovereign-related entities and private sector
companies in emerging market countries. 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 in-
cluded in the Statement of Assets and Liabilities. Realized and unrealized
gains and losses included in the Statement of Operations.
(ii) Currency Option Contracts: Options purchased are recorded as investments;
options written (sold) are accounted for as liabilities. When an option ex-
pires, the premium (original option value) is realized as a gain if the option
was written or realized as a loss if the option was purchased. When the exer-
cise of an option results in a cash settlement, the difference between the pre-
mium and the settlement proceeds is realized as a gain or loss. When securities
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.
14
<PAGE>
Templeton Emerging Markets Income Fund, Inc.
Notes to Financial Statements (unaudited) (cont.)
- --------------------------------------------------------------------------------
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.
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.
h. Accounting Estimates:
The preparation of financial statements in accordance with generally accepted
accounting principles 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 expense during the reporting
period. Actual results could differ from those estimates.
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 year ended August 31, 1995 and the six months ended February 29,
1996, there were no capital share transactions. As of February 29, 1996, there
were 100,000,000 shares of $.01 par value capital stock authorized.
15
<PAGE>
Templeton Emerging Markets Income Fund, Inc.
Notes to Financial Statements (unaudited) (cont.)
- --------------------------------------------------------------------------------
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 investment management fee to TICI equal, on an annual
basis, to 0.85% of the average 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 beginning 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 Exchange is less than the $15 initial offering
price. Such reduction in fees for TICI and Paine Webber amounted to $381,686
and $80,678, respectively for the six months ended February 29, 1996. 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 $40,000 for the six months ended Feb-
ruary 29, 1996.
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities (excluding short-term securities) for the six
months ended February 29, 1996 aggregated $97,113,194 and $76,961,523, respec-
tively. The cost of securities for federal income tax purposes is $563,672,121.
Realized gains and losses are reported on an identified cost basis.
At February 29, 1996, the aggregate gross unrealized appreciation and deprecia-
tion of portfolio securities, based on cost for federal income taxes purposes,
was as follows:
<TABLE>
<CAPTION>
<S> <C>
Unrealized appreciation $ 21,113,868
Unrealized depreciation (23,538,733)
------------
Net unrealized depreciation $ (2,424,865)
============
</TABLE>
5. FINANCIAL INSTRUMENTS
During the six months ended February 29, 1996, 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 29, 1996, the Fund has an outstanding forward exchange contract for
the sale of a 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>
<CAPTION>
<S> <C>
Net unrealized gain in forward exchange contract to sell
33,310,000 Deutschmarks for 22,740,461 U.S. dollars,
March 12, 1996
$509,753
</TABLE>
6. 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 capital gains. Such losses expire in 2003.
16
<PAGE>
Templeton Emerging Markets Income Fund, Inc.
Annual Meeting of Shareholders, February 20, 1996
- --------------------------------------------------------------------------------
An Annual Meeting of Shareholders of the Fund was held at the Fund's offices,
700 Central Avenue, St. Petersburg, Florida, on February 20, 1996. The purpose
of the meeting was to elect five directors of the Fund, to ratify the selection
of McGladrey & Pullen, LLP, as the Fund's independent public accountants for
the fiscal year ending August 31, 1996, and in their discretion, to authorize
the Proxyholders to vote upon such other matters which may legally come before
the meeting or any other adjournment thereof. At the meeting, the following
persons were elected by the Shareholders to serve as directors of the Fund:
Harris J. Ashton, Nicholas F. Brady, S. Joseph Fortunato, John Wm. Galbraith,
and Charles B. Johnson. In addition, the Shareholders ratified the selection of
McGladrey & Pullen, LLP, to serve as the Fund's independent public accountants
for the fiscal year ending August 31, 1996. No other business was transacted at
the Annual Meeting.
The results of the voting at the Annual Meeting are as follows:
1. Election of five (5) Directors for the terms set forth below:
<TABLE>
<CAPTION>
% OF % OF % OF
OUTSTANDING SHARES OUTSTANDING
FOR SHARES VOTED AGAINST SHARES
---------- ----------- ------ ------- -----------
<S> <C> <C> <C> <C> <C>
Term expiring 1999:
Harris J. Ashton 43,366,968 91.10% 98.53% 645,168 1.36%
Nicholas F. Brady 43,334,726 91.03% 98.46% 677,410 1.42%
S. Joseph Fortunato 43,354,717 91.07% 98.51% 657,419 1.38%
Term expiring 1998:
Charles B. Johnson 43,334,719 91.03% 98.46% 677,417 1.42%
Term expiring 1997:
John Wm. Galbraith 43,323,977 91.01% 98.44% 688,159 1.45%
2. Ratification of the selection of McGladrey & Pullen, LLP, as independent
public accountants of the Fund for the fiscal year ending August 31, 1996:
<CAPTION>
% OF % OF % OF % OF
OUTSTANDING SHARES OUTSTANDING OUTSTANDING
FOR SHARES VOTED AGAINST SHARES ABSTAIN SHARES
---------- ----------- ------ ------- ----------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
43,317,501 90.99% 98.42% 238,950 0.50% 455,685 0.96%
</TABLE>
17
<PAGE>
Templeton Emerging Markets Income Fund, Inc.
- --------------------------------------------------------------------------------
TRANSFER AGENT
Chemical Mellon Shareholder Services
Securities Transfer Services
450 West 33rd Street
New York, NY 10001
800-526-0801
SHAREHOLDER INFORMATION
Weekly comparative net asset value and market price information about Templeton
Emerging Markets Income Fund, Inc. 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 1-800-292-9293.
If any shareholder is not receiving copies of the Reports to Shareholders be-
cause 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 Ave-
nue, St. Petersburg, FL 33701.
18
<PAGE>
THE FRANKLIN TEMPLETON GROUP
Literature Request - Call today for a free descriptive brochure and prospectus
on any of the funds listed below. The prospectus contains more complete
information, including fees, charges and expenses, and should be read carefully
before investing or sending money.
Templeton Funds
Americas Government
Securities Fund
Developing Markets Trust
Foreign Fund
Global Infrastructure Fund
Global Opportunities Trust
Greater European Fund
Growth Fund
Growth and Income Fund
Income Fund
Latin America Fund
Real Estate
Securities Fund
Smaller Companies
Growth Fund
World Fund
Franklin Funds Seeking
Tax-Free Income
Federal Tax-Free
Income Fund
Federal Intermediate-Term
Tax-Free Income Fund
High Yield Tax-Free
Income Fund
Insured Tax-Free
Income Fund***
Puerto Rico Tax-Free
Income Fund
Franklin State-Specific
Funds Seeking Tax-Free
Income
Alabama
Arizona*
Arkansas**
California*
Colorado
Connecticut
Florida*
Georgia
Hawaii**
Indiana
Kentucky
Louisiana
Maryland
Massachusetts***
Michigan***
Minnesota***
Missouri
New Jersey
New York*
North Carolina
Ohio***
Oregon
Pennsylvania
Tennessee
Texas
Virginia
Washington**
Franklin Funds
Seeking Capital Growth
California Growth Fund
DynaTech Fund
Equity Fund
Global Health
Care Fund
Gold Fund
Growth Fund
International
Equity Fund
Japan Fund
Pacific Growth Fund
Small Cap Growth Fund
Franklin Funds Seeking
Growth and Income
Balance Sheet
Investment Fund
Convertible Securities Fund
Equity Income Fund
Global Utilities Fund
Income Fund
Natural Resources Fund
Premier Return Fund
Real Estate Securities Fund
Rising Dividends Fund
Strategic Income Fund
Utilities Fund
Franklin Funds Seeking
High Current Income
AGE High Income Fund
Global Government
Income Fund
Investment Grade
Income Fund
U.S. Government
Securities Fund
Franklin Funds Seeking
High Current Income and
Stability of Principal
Adjustable Rate
Securities Fund
Adjustable U.S. Government
Securities Fund
Short-Intermediate U.S.
Government
Securities Fund
Franklin Funds for
Non-U.S. Investors
Tax-Advantaged High Yield
Securities Fund
Tax-Advantaged International
Bond Fund
Tax-Advantaged U.S.
Government Securities Fund
Franklin Templeton Global
Currency Funds
German Government
Bond Fund
Global Currency Fund
High Income Currency Fund
Hard Currency Fund
Franklin Money
Market Funds
Money Fund
Federal Money Fund
Tax-Exempt Money
Fund
California Tax-Exempt
Money Fund
New York Tax-Exempt
Money Fund
IFT U.S. Treasury Money
Market Portfolio
Franklin Fund for
Corporations
Corporate Qualified
Dividend Fund
Franklin Tax-Deferred
Annuity
Franklin Valuemark
Franklin Templeton
Valuemark Income Plus
(an immediate annuity)
Fund Information: 1-800/342-5236
Shareholder Services: 1-800/632-2301
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.
*Two or more fund options available: long-term portfolio, intermediate-term
portfolio, a portfolio of insured municipal securities, and a high yield
portfolio (CA).
**The fund may invest up to 100% of its assets in bonds that pay interest
subject to the federal alternative minimum tax.
***Portfolio of insured municipal securities.
<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 departments may be monitored, recorded, and accessed. These calls can
be determined by the presence of a regular beeping tone.
-------------------------------------------------------------------------------
TEMPLETON
EMERGING
MARKETS
INCOME
FUND, INC.
Semi-Annual Report
February 29, 1996
[LOGO OF RECYCLED PAPER APPEARS HERE]
TLTEI S96 04/96
[LOGO OF FRANKLIN TEMPLETON APPEARS HERE]
