<PAGE> 1
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.
[BACKGROUND GRAPHIC OF WORLD GLOBE]
TEMPLETON
EMERGING
MARKETS
INCOME
FUND, INC.
Annual Report
August 31, 1996
[FRANKLIN TEMPLETON LOGO]
[RECYCLE LOGO] TLTEI A96 10/96
<PAGE> 2
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 15, 1996
Dear Shareholder:
This annual report for the Templeton Emerging Markets Income Fund covers the
fiscal year ended August 31, 1996. We are pleased to report that the Fund
produced a total return of 23.73% in market-price terms, as shown in the
Performance Summary on page 5. Based on the change in actual net asset value,
the total return was 24.31%.
The Fund's strong showing can be attributed to the performance of bond markets
in Mexico, Argentina, and Brazil. During the fiscal year, Mexico's bonds
provided a total return of 20%, Argentina's provided 23%, and Brazil's provided
33% in reaction to tight monetary and fiscal measures adopted by these countries
to bolster investor confidence following the 1994 Mexican peso devaluation.
Although these policies initially resulted in recessions in all three countries,
1
<PAGE> 3
TEMPLETON EMERGING MARKETS INCOME FUND
Geographic Distribution on 8/31/96
Based on Total Net Assets
Latin America 62.9%
Asia 13.4%
Europe 13.4%
Middle East & Africa 6.5%
United States 3.8%
their economic conditions differed at the end of the reporting period. On August
31, 1996, the Mexican economy was the strongest, having bottomed-out during the
second quarter of 1995, when it began an export-led recovery. Argentina was
beginning to show signs of renewed economic growth after a mild but persistent
recession. However, Brazil's economy remained in recession because of high
interest rates brought on by its large budget deficit.
During the fiscal year, we benefited strongly from our Argentine, Brazilian, and
Mexican holdings, and increased our positions in Argentina and Mexico. But due
to the sluggish Brazilian economy, we took some profits and decreased our
allocation to that country.
The Fund also benefited from its holdings of restructured Panamanian and
Peruvian debt, as well as its Bulgarian and Russian bonds, all of which
significantly rose in value during the year. Bulgarian bond prices were aided by
that government's negotiation of a new borrowing agreement with the
International Monetary Fund, while Russian bond prices rose as economic reforms,
including the restructuring of the banking sector and the issuance of bonds to
foreign investors, brought inflation down sharply during the year.
President Yeltsin's victory seemed to indicate that many Russians are committed
to continued monetary, fiscal, and foreign reserve reforms, which we believe
should put downward pressure on Russia's domestic interest rates and reduce the
size of the country's fiscal deficit. Although the high rate of tax evasion in
Russia is a continuing source of concern, investors appeared cheered by the
recent free and fair election campaign.
2
<PAGE> 4
TEMPLETON EMERGING
MARKETS INCOME FUND
Top 10 Countries Represented in the Fund on 8/31/96
As a Percentage of Total Net Assets
<TABLE>
% OF TOTAL
COUNTRY NET ASSETS
<S> <C>
Argentina 15.8%
Brazil 13.1%
Mexico 11.1%
Venezuela 9.4%
Indonesia 5.6%
Ecuador 5.1%
Philippines 4.7%
Morocco 3.9%
Poland 3.4%
Czech Republic 3.1%
Bulgaria 3.1%
</TABLE>
Looking forward, we expect to increase our exposure in countries that we believe
have implemented economic policies designed to improve their fiscal positions
and external balance of payments. Since prices for emerging market debt are, in
our opinion, at or above fair value, we feel that an important near-term factor
which may contribute to a correction would be a change in interest rate policy
in the United States. In the meantime, assuming normal market volatility, we
will look for investment opportunities when bond prices temporarily deviate from
our assessment of their underlying value.
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.
This discussion reflects the strategies we employed for the Fund during the past
year, and includes our opinions as of the close of the period. Since economic
and market conditions are constantly changing, our strategies and evaluations,
conclusions and decisions 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.
3
<PAGE> 5
We appreciate your support, welcome your comments and look forward to serving
you in the future.
Sincerely,
/s/ Neil S. Devlin
- ----------------------
Neil S. Devlin, CFA
Portfolio Manager
Templeton Emerging Markets Income Fund, Inc.
Neil S. Devlin, CFA, became the lead portfolio manager of Templeton Emerging
Markets Income Fund, Inc. on May 23, 1996. Devlin has been with the Templeton
organization since 1987 and is currently executive vice president and chief
investment officer of the Templeton Global Bond Managers division of Templeton
Investment Counsel, Inc., an indirect wholly owned subsidiary of Franklin
Resources, Inc. He oversees Templeton's fixed-income group and directs all
investment strategies in both the developed and the emerging fixed-income
markets.
On April 16, 1996, the Fund's Board of Directors adopted a non-fundamental
policy permitting investment in Russian securities up to 5% of its total
assets. Russian securities involve additional significant risks, including
political and social uncertainty (for example, regional conflicts and risk of
war), currency exchange rate volatility, pervasiveness of corruption and crime
in the Russian economic system, delays in settling portfolio transactions and
risk of loss arising out of Russia's system of share registration and custody.
4
<PAGE> 6
PERFORMANCE SUMMARY
In market-price terms, the Templeton Emerging Markets Income Fund produced a
total return of 23.73% for the one-year period ended August 31, 1996. Based on
the change in actual net asset value (in contrast to market price), the Fund
delivered a total return of 24.31% for the same period. Both total return
figures assume reinvestment of dividends and capital gains in accordance with
the dividend reinvestment plan.
During the reporting period, the Fund's closing price on the New York Stock
Exchange (NYSE) increased by $1.375, from $10.75 per share on August 31, 1995 to
$12.00 on August 31, 1996, while the net asset value increased by $1.40, from
$11.52 to $12.92. Shareholders received income distributions totaling $1.24 per
share. Distributions will vary, however, depending on income earned by the Fund
and any profits realized from the sale of securities in the portfolio. Past
performance is not predictive of future results.
TEMPLETON EMERGING MARKETS
INCOME FUND
Periods ended 8/31/96
<TABLE>
<CAPTION>
Since
Inception
One-Year (9/23/93)
<S> <C> <C>
Cumulative Total Return(1)
Based on change
in net asset value 24.31% 23.37%
Based on change
in market price 23.73% 6.93%
Average Annual Total Return(2)
Based on change
in net asset value 24.31% 7.41%
Based on change
in market price 23.73% 2.31%
</TABLE>
1. CUMULATIVE TOTAL RETURNS SHOW THE CHANGE IN VALUE OF AN INVESTMENT OVER THE
PERIODS INDICATED.
2. AVERAGE ANNUAL TOTAL RETURNS REPRESENT THE AVERAGE ANNUAL CHANGE IN VALUE OF
AN INVESTMENT OVER THE PERIODS INDICATED.
ALL CALCULATIONS ASSUME REINVESTMENT OF DIVIDEND AND CAPITAL GAINS
DISTRIBUTIONS, EITHER AT NET ASSET VALUE OR AT MARKET PRICE ON THE REINVESTMENT
DATE, IN ACCORDANCE WITH THE DIVIDEND REINVESTMENT PLAN.
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> 7
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
YEAR ENDED AUGUST 31 (COMMENCEMENT OF
--------------------------------- OPERATIONS) TO
1996 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 1.24 1.33 1.18
Net realized and unrealized gain (loss) 1.40 (.92) (1.77)
-------- -------- --------
Total from investment operations 2.64 .41 (.59)
-------- -------- --------
Underwriting expenses deducted from capital -- -- (.03)
-------- -------- --------
Distributions:
Dividends from net investment income (1.24) (1.24) (1.00)
Distributions from net realized gains -- -- (.05)
-------- -------- --------
Total distributions (1.24) (1.24) (1.05)
-------- -------- --------
Change in net asset value 1.40 (.83) (1.67)
-------- -------- --------
Net asset value, end of period $ 12.92 $ 11.52 $ 12.35
======== ======== ========
TOTAL RETURN*
Based on market value per share 23.73% (4.28)% (9.71)%
Based on net asset value per share 24.31% 3.82% (4.55)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000) $ 614,951 $ 548,448 $587,954
Ratio of expenses to average net assets 1.09% .81% .86%**
Ratio of expenses, exclusive of fee waiver, to average net
assets 1.20% 1.28% 1.25%**
Ratio of net investment income to average net assets 10.14% 11.79% 9.66%**
Portfolio turnover rate 77.90% 58.73% 91.73%
</TABLE>
* NOT ANNUALIZED FOR PERIODS OF LESS THAN ONE YEAR.
** ANNUALIZED.
SEE NOTES TO FINANCIAL STATEMENTS.
6
<PAGE> 8
TEMPLETON EMERGING MARKETS INCOME FUND, INC.
Investment Portfolio, August 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL IN
COUNTRY LOCAL CURRENCY** VALUE
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
LONG TERM SECURITIES: 96.2%
- --------------------------------------------------------------------------------------------------------------------------
ALGERIA: 0.4%
Banque National D'Algerie FRN, 12/19/94 U.S. 4,666,667 $ 2,473,333
- --------------------------------------------------------------------------------------------------------------------------
ARGENTINA: 15.8%
Argentina Domestic Securities Trust (Morgan
Stanley), 14.75%, 9/01/02 U.S. 11,800,000 12,213,000
Argentina Local Market Securities Trust 1994-I
(Goldman Sachs Group, L.P.),
13.375%, 8/15/01 U.S. 12,500,000 14,281,250
Bridas Corp., Yankee,
12.50%, 11/18/99 U.S. 12,180,000 12,728,100
Industrias Metalurgicas Pescarmona,
11.75%, 3/27/98, 144A U.S. 5,900,000 6,010,625
Republic of Argentina:
6.813%, FRN, 3/31/05 U.S. 8,434,800 6,568,601
6.563%, FRN, 3/31/23 U.S. 15,000,000 10,368,750
5.25%, VRN, 3/31/23, L U.S. 65,035,000 34,875,019
------------
97,045,345
- --------------------------------------------------------------------------------------------------------------------------
BRAZIL: 13.1%
Abril SA, 12.00%, 10/25/03, 144A U.S. 5,525,000 5,732,188
Brazil C-Bond,
8.00%, 4/15/14, payment-in-kind U.S. 31,390,533 20,580,732
Centrais Electricas Brasileiras SA,
10.00%, 10/30/98, 144A U.S. 5,550,000 5,695,688
Companhia Suzano Papel,
10.25%, 10/06/01 U.S. 6,000,000 5,895,000
Copene-Petroquimica Nordeste SA,
9.50%, 10/19/01, 144A U.S. 14,150,000 14,061,563
Government of Brazil:
6.375%, FRN, 1/01/01, A U.S. 6,260,800 6,010,368
6.50%, 4/15/24 U.S. 30,820,000 22,479,338
------------
80,454,877
- --------------------------------------------------------------------------------------------------------------------------
BULGARIA: 3.1%
Republic of Bulgaria:
6.25%, FRN, 7/28/11 U.S. 33,820,000 15,028,763
6.25%, FRN, 7/28/24 U.S. 7,760,000 3,869,524
------------
18,898,287
- --------------------------------------------------------------------------------------------------------------------------
CHINA: 0.7%
Guangdong Enterprises Holdings Ltd.,
8.75%, 12/22/03, 144A U.S. 5,000,000 4,615,625
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE> 9
TEMPLETON EMERGING MARKETS INCOME FUND, INC.
Investment Portfolio, August 31, 1996 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL IN
COUNTRY LOCAL CURRENCY** VALUE
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
LONG TERM SECURITIES (CONT.)
- --------------------------------------------------------------------------------------------------------------------------
COLOMBIA: 1.1%
Banco Ganadero SA,
9.75%, 8/26/99, 144A U.S. 5,580,000 $ 5,796,225
Empresa Colombiana de Petroleos,
7.25%, 7/08/98 U.S. 1,000,000 997,500
------------
6,793,725
- --------------------------------------------------------------------------------------------------------------------------
COSTA RICA: 2.4%
Banco Central de Costa Rica,
6.25%, 5/21/10, A U.S. 16,900,000 12,886,250
Instituto Costarricense de Electricidad,
8.375%, 1/27/97 U.S. 1,900,000 1,902,375
------------
14,788,625
- --------------------------------------------------------------------------------------------------------------------------
CZECH REPUBLIC: 3.1%
Ceskoslovenska Obchodni Banka,
11.125%, 8/26/97 Csk. 144,580,000 5,511,284
CEZ, 14.375%, 1/27/01 Csk. 122,770,000 4,873,815
Skofin, 11.625%, 2/09/98, 144A Csk. 230,750,000 8,800,466
------------
19,185,565
- --------------------------------------------------------------------------------------------------------------------------
ECUADOR: 5.1%
Republic of Ecuador:
6.50%, FRN, 12/21/04, 144A U.S. 2,230,175 1,669,844
6.063%, FRN, 2/28/25 U.S. 31,180,000 18,045,425
3.25%, FRN, 2/28/25 U.S. 32,200,000 11,712,750
------------
31,428,019
- --------------------------------------------------------------------------------------------------------------------------
GUATEMALA: 1.8%
Associacion Nacional del Cafe, 11.00%, 8/31/98 U.S. 10,910,000 11,128,200
- --------------------------------------------------------------------------------------------------------------------------
HUNGARY: 1.6%
National Bank of Hungary, 7.95%, 11/01/03 U.S. 9,600,000 9,708,000
- --------------------------------------------------------------------------------------------------------------------------
INDIA: 0.8%
Essar Gujarat Ltd., 8.099%, FRN, 7/15/99, 144A U.S. 5,300,000 5,127,750
- --------------------------------------------------------------------------------------------------------------------------
INDONESIA: 5.6%
PT Astra International, 9.75%, 4/29/01 U.S. 6,150,000 6,365,250
PT Indah Kiat Pulp & Paper Corp.,
8.875%, 11/01/00, 144A U.S. 4,840,000 4,694,800
PT Inti Indorayon Utama, 9.125%, 10/15/00 U.S. 6,830,000 6,608,025
PT Polysindo Eka Perkasa, 13.00%, 6/21/01 U.S. 5,000,000 5,450,000
</TABLE>
8
<PAGE> 10
TEMPLETON EMERGING MARKETS INCOME FUND, INC.
Investment Portfolio, August 31, 1996 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL IN
COUNTRY LOCAL CURRENCY** VALUE
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
LONG TERM SECURITIES (CONT.)
- --------------------------------------------------------------------------------------------------------------------------
INDONESIA (cont.)
PT Polysindo Intl. Finance Co.,
11.375%, 6/15/06, B U.S. 2,535,000 $ 2,554,013
Tjiwi Kimia Int'l Finance Co., BV,
13.25%, 8/01/01 U.S. 8,000,000 8,840,000
------------
34,512,088
- --------------------------------------------------------------------------------------------------------------------------
JORDAN: 2.2%
Kingdom of Jordan:
6.438%, FRN, 12/23/05 U.S. 1,866,558 1,623,905
6.438%, FRN, 12/23/23 U.S. 5,706,250 4,336,750
4.00%, VRN, 12/23/23 U.S. 13,325,332 7,412,216
------------
13,372,871
- --------------------------------------------------------------------------------------------------------------------------
LITHUANIA: 0.6%
Republic of Lithuania:
10.00%, 12/22/97 U.S. 250,000 253,375
10.00%, 12/22/97, 144A U.S. 3,730,000 3,780,355
------------
4,033,730
- --------------------------------------------------------------------------------------------------------------------------
MEXICO: 11.1%
Bancomer SA, 8.00%, 7/07/98 U.S. 11,100,000 11,016,750
Cementos de Mexico SA de CV,
10.75%, 7/15/00, 144A U.S. 6,340,000 6,458,875
United Mexican States:
10.813%, FRN, 7/21/97, 144A U.S. 13,000,000 13,481,000
9.75%, 2/06/01 U.S. 23,255,000 23,458,481
6.25%, 12/31/19, A U.S. 8,250,000 5,465,625
6.25%, 12/31/19, B U.S. 12,745,000 8,443,563
------------
68,324,294
- --------------------------------------------------------------------------------------------------------------------------
MOROCCO: 3.9%
Kingdom of Morocco, FRN, 1/01/09 U.S. 32,000,000 23,840,000
- --------------------------------------------------------------------------------------------------------------------------
PANAMA: 1.0%
Republic of Panama, FRN, 5/10/02 U.S. 6,461,538 6,186,923
- --------------------------------------------------------------------------------------------------------------------------
PERU: 0.5%
Guaranteed Capital Corp. Ltd., 11.00%, 3/21/97 U.S. 3,053,333 3,053,333
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE> 11
TEMPLETON EMERGING MARKETS INCOME FUND, INC.
Investment Portfolio, August 31, 1996 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL IN
COUNTRY LOCAL CURRENCY** VALUE
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
LONG TERM SECURITIES (CONT.)
- --------------------------------------------------------------------------------------------------------------------------
PHILIPPINES: 4.7%
National Power Corp., 7.625%, 11/15/00, 144A U.S. 10,000,000 $ 9,875,000
Philippine Long Distance Telephone Co.:
10.625%, 6/02/04 U.S. 5,500,000 6,008,750
9.25%, 6/30/06 U.S. 4,980,000 4,998,675
Subic Power Corp., 9.50%, 12/28/08, 144A U.S. 7,844,357 7,775,719
------------
28,658,144
- --------------------------------------------------------------------------------------------------------------------------
POLAND: 3.4%
Government of Poland:
FRN, 20 Year Bond, 10/27/14 U.S. 5,000,000 3,953,125
FRN, 30 Year Bond, 10/27/24 U.S. 5,000,000 4,815,625
2.75%, 10/27/24 U.S. 23,300,000 11,970,375
------------
20,739,125
- --------------------------------------------------------------------------------------------------------------------------
RUSSIA: 1.6%
Bank Foreign Economic Affairs,
7.50%, 9/27/96 Ger. 3,000,000 2,027,232
*Russia, when issued 12/29/49 U.S. 17,670,000 7,818,975
------------
9,846,207
- --------------------------------------------------------------------------------------------------------------------------
THAILAND: 1.6%
ABN Amro NV, 9.10%, 8/05/97, CD Thai. 250,000,000 9,854,574
- --------------------------------------------------------------------------------------------------------------------------
TRINIDAD AND TOBAGO: 0.9%
Sei Holdings IX Inc., 11.00%, 11/30/00, 144A U.S. 5,210,000 5,496,550
- --------------------------------------------------------------------------------------------------------------------------
URUGUAY: 0.7%
Government of Uruguay, 6.75%, 2/19/21, A U.S. 6,000,000 4,545,000
- --------------------------------------------------------------------------------------------------------------------------
VENEZUELA: 9.4%
Electricidad de Caracas, 6.625%, FRN, 9/30/03, A1 U.S. 2,662,008 2,009,816
Produvisa Capital Corp., 9.50%, 11/29/96 U.S. 6,750,000 6,716,250
Republic of Venezuela:
6.75%, 3/31/20, A U.S. 45,720,000 29,003,625
6.375%, 3/31/20, FRN, W U.S. 18,270,000 13,177,238
6.4375%, 3/31/20, FRN, U.S. 9,380,000 6,765,325
------------
57,672,254
------------
TOTAL LONG TERM SECURITIES (cost $581,168,491) 591,782,444
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE> 12
TEMPLETON EMERGING MARKETS INCOME FUND, INC.
Investment Portfolio, August 31, 1996 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL IN
COUNTRY LOCAL CURRENCY** VALUE
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
SHORT TERM OBLIGATIONS: 8.6%
- --------------------------------------------------------------------------------------------------------------------------
Federal Home Loan Bank, 5.13%, 9/11/96 U.S. 6,300,000 $ 6,292,629
Federal Home Loan Mortgage Corp., 5.18% to 5.25%,
with maturities to 9/30/96 U.S. 9,304,000 9,294,002
Federal National Mortgage Assn., 5.16% to 5.21%,
with maturities to 9/24/96 U.S. 9,700,000 9,676,157
Generale Bank, 5.125%, 9/03/96, TD U.S. 8,700,000 8,700,000
U.S. Treasury Bill, 4.935%, 9/19/96 U.S. 18,634,000 18,591,511
------------
TOTAL SHORT TERM OBLIGATIONS: (cost $52,538,004) 52,554,299
- --------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS: 104.8% (cost $633,706,495) 644,336,743
UNREALIZED LOSS IN FORWARD EXCHANGE CONTRACTS: (0.1)% (131,106)
OTHER ASSETS, LESS LIABILITIES: (4.7)% (29,254,595)
------------
TOTAL NET ASSETS: 100.0% $614,951,042
============
</TABLE>
* NON-INCOME PRODUCING.
** CURRENCY OF COUNTRIES INDICATED.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE> 13
TEMPLETON EMERGING MARKETS INCOME FUND, INC.
Financial Statements
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
August 31, 1996
<TABLE>
<S> <C>
Assets:
Investments in securities, at value
(identified cost $633,706,495) $644,336,743
Receivables:
Investment securities sold 614,139
Interest 16,726,413
Unamortized organization costs 12,095
------------
Total assets 661,689,390
------------
Liabilities:
Payable for investment securities
purchased 45,452,474
Cash overdraft 376,320
Unrealized loss on forward exchange
contracts (Note 5) 131,106
Accrued expenses 778,448
------------
Total liabilities 46,738,348
------------
Net assets, at value $614,951,042
============
Net assets consist of:
Undistributed net investment income $ 9,474,408
Net unrealized appreciation 10,545,094
Accumulated net realized loss (70,007,427)
Net capital paid in on shares of
capital stock 664,938,967
------------
Net assets, at value $614,951,042
============
Shares outstanding 47,605,757
============
Net asset value per share
($614,951,042 / 47,605,757
shares outstanding) $ 12.92
============
</TABLE>
STATEMENT OF OPERATIONS
for the year ended August 31, 1996
<TABLE>
<S> <C> <C>
Interest income $ 65,163,894
Expenses:
Management fees (Note 3) $ 4,352,764
Administrative fees (Note
3) 870,719
Transfer agent fees (Note
3) 520,000
Custodian fees 147,000
Reports to shareholders 205,500
Audit fees 40,500
Legal fees (Note 3) 80,000
Registration and filing
fees 26,500
Directors' fees and
expenses 50,000
Amortization of
organization costs 5,764
Other 7,558
-----------
Total expenses 6,306,305
------------
Net investment
income 58,857,589
Realized and unrealized gain
(loss):
Net realized gain on:
Investments 21,073,668
Foreign currency
transactions 1,737,914
-----------
22,811,582
-----------
Net unrealized
appreciation
(depreciation) on:
Investments 45,128,368
Foreign currency
translations of
other assets and
liabilities (1,263,368)
-----------
43,865,000
-----------
Net realized and
unrealized gain 66,676,582
------------
Net increase in net assets
resulting from operations $125,534,171
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE> 14
TEMPLETON EMERGING MARKETS INCOME FUND, INC.
Financial Statements (cont.)
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
For the years ended August 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
------------ ------------
Increase (decrease) in net assets:
Operations:
Net investment income $ 58,857,589 $ 63,376,083
Net realized gain (loss) on investment and foreign currency transactions 22,811,582 (72,882,161)
Net unrealized appreciation 43,865,000 29,031,471
------------ ------------
Net increase in net assets resulting from operations 125,534,171 19,525,393
Distributions to shareholders from net investment income (59,031,139) (59,031,139)
------------ ------------
Net increase (decrease) in net assets 66,503,032 (39,505,746)
Net assets:
Beginning of year 548,448,010 587,953,756
------------ ------------
End of year $614,951,042 $548,448,010
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE> 15
TEMPLETON EMERGING MARKETS INCOME FUND, INC.
Notes to Financial Statements
- --------------------------------------------------------------------------------
1. SUMMARY OF ACCOUNTING POLICIES
Templeton Emerging Markets Income Fund, Inc. (the Fund) is a Maryland
corporation and 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 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 determined 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
investments; options written (sold) are accounted for as liabilities. When an
option expires, 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
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
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.
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 currencies
are translated into U.S. dollar amounts on the respective dates of such
transactions. When the Fund purchases or sells foreign securities it will
customarily 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
foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, the differences between the amounts
of dividends, interest,
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TEMPLETON EMERGING MARKETS INCOME FUND, INC.
Notes to Financial Statements (cont.)
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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.
I. SECURITIES TRADED ON A WHEN-ISSUED OR DELAYED DELIVERY BASIS:
The Fund may trade securities on a when-issued or delayed delivery basis, with
payment and delivery scheduled for a future date. These transactions are subject
to market fluctuations and are subject to the risk that the value at delivery
may be more or less than the trade date purchase price. Although the Fund will
generally purchase these securities with the intention of acquiring such
securities, it may sell such securities before the settlement date. These
securities are identified on the accompanying Investment Portfolio. The Fund has
set aside sufficient investment securities as collateral for these purchase
commitments.
2. TRANSACTIONS IN SHARES OF CAPITAL STOCK
As of August 31, 1996, there were 100,000,000 shares of $.01 par value capital
stock authorized. During the years ended August 31, 1996 and 1995, there were no
capital share transactions.
3. INVESTMENT MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Certain officers of the Fund are also directors or 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 $581,669 and $60,522,
respectively, for the year ended August 31, 1996. The Fund pays TGII monthly a
fee of 0.15% per annum of the Fund's average net assets.
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TEMPLETON EMERGING MARKETS INCOME FUND, INC.
Notes to Financial Statements (cont.)
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An officer of the Fund is a partner of Dechert Price & Rhoads, legal counsel for
the Fund, which firm received fees of $80,000 for the year ended August 31,
1996.
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities (excluding short-term securities) for the year
ended August 31, 1996, aggregated $442,330,976 and $414,756,093, respectively.
The cost of securities for federal income tax purposes is $635,914,348. Realized
gains and losses are reported on an identified cost basis.
At August 31, 1996, the aggregate gross unrealized appreciation and depreciation
of portfolio securities, based on cost for federal income taxes purposes, was as
follows:
<TABLE>
<S> <C>
Unrealized appreciation $16,685,939
Unrealized depreciation (8,263,544)
------------
Net unrealized appreciation $ 8,422,395
============
</TABLE>
5. FINANCIAL INSTRUMENTS
During the year ended August 31, 1996, 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
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 contract
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 August 31, 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
financial 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 contract to sell
21,000,000 Deutschemarks for 14,084,507 U.S. dollars, September 26, 1996 $(131,106)
========
</TABLE>
6. TAX LOSS CARRYOVERS
At August 31, 1996, the Fund had tax basis capital losses of $67,000,000 which
may be carried over to offset capital gains. Such losses expire in 2003 and
2004.
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TEMPLETON EMERGING MARKETS INCOME FUND, INC.
Independent Auditor's Report
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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, 1996, and the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years in the
period then ended, and the financial highlights for the periods indicated in the
accompanying financial statements. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
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
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights 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
August 31, 1996, 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
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Templeton Emerging Markets Income Fund, Inc. as of August 31, 1996, 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
principles.
/s/ McGladrey & Pullen, LLP
[McGladrey & Pullen, LLP Signature]
New York, New York
September 27, 1996
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TEMPLETON EMERGING MARKETS INCOME FUND, INC.
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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
shareholder 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
instructs them otherwise, or unless the reinvestment service is not provided by
the broker-dealer or nominee. -- Participants should contact Chemical Mellon
Securities Trust Company, Dividend Reinvestment Services, P.O. Box 750,
Pittsburgh, PA 15230, to receive the Plan brochure. -- To receive dividends or
distributions 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 distribution. -- Whenever the Fund declares dividends in either cash or
common 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 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 termination. --
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, 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 1-800-357-0738. 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.
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LITERATURE REQUEST
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For a free brochure and prospectus, which contain more complete information,
including charges and expenses, call Franklin Fund Information, toll free, at
1-800/DIAL BEN (1-800/342-5236). Please read the prospectus carefully before you
invest or send money. 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.
FRANKLIN TEMPLETON GROUP
GLOBAL GROWTH INCOME
Franklin Global Health Franklin Adjustable Rate
Care Fund Securities Fund
Franklin Templeton Franklin Adjustable U.S.
Japan Fund Government Securities Fund
Templeton Developing Franklin's AGE High
Markets Trust Income Fund
Templeton Foreign Fund Franklin Investment Grade
Templeton Foreign Smaller Income Fund
Companies Fund Franklin Short-Intermediate U.S.
Templeton Global Government Securities Fund
Infrastructure Fund Franklin U.S. Government
Templeton Global Securities Fund
Opportunities Trust Franklin Money Fund
Templeton Global Franklin Federal Money Fund
Real Estate Fund
Templeton Global Smaller FOR NON-U.S. INVESTORS:
Companies Fund
Templeton Greater Franklin Tax-Advantaged
European Fund High Yield Securities Fund
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Fund Franklin Tax-Advantaged U.S.
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Growth Fund
Templeton World Fund FOR CORPORATIONS:
GLOBAL GROWTH AND INCOME Franklin Corporate Qualified
Dividend Fund
Franklin Global Utilities Fund
Franklin Templeton German FRANKLIN FUNDS SEEKING
Government Bond Fund TAX-FREE INCOME
Franklin Templeton
Global Currency Fund Federal Intermediate-Term
Templeton Global Bond Fund Tax-Free Income Fund
Templeton Growth and Federal Tax-Free Income Fund
Income Fund High Yield Tax-Free
Income Fund
GLOBAL INCOME Insured Tax-Free Income Fund
Puerto Rico Tax-Free
Franklin Global Government Income Fund
Income Fund Tax-Exempt Money Fund
Franklin Templeton Hard
Currency Fund FRANKLIN STATE-SPECIFIC
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Templeton Americas
Government Securities Fund Alabama
Arizona*
GROWTH Arkansas**
California*
Franklin Blue Chip Fund Colorado
Franklin California Growth Fund Connecticut
Franklin DynaTech Fund Florida*
Franklin Equity Fund Georgia
Franklin Gold Fund Hawaii**
Franklin Growth Fund Indiana
Franklin MidCap Growth Fund Kentucky
Franklin Small Cap Growth Fund Louisiana
Maryland
GROWTH AND INCOME Massachusetts***
Michigan*
Franklin Asset Allocation Fund Minnesota***
Franklin Balance Sheet Missouri
Investment Fund New Jersey
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Securities Fund North Carolina
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Franklin Income Fund Oregon
Franklin MicroCap Value Fund Pennsylvania
Franklin Natural Resources Fund Tennessee**
Franklin Real Estate Texas
Securities Fund Virginia
Franklin Rising Dividends Fund Washington**
Franklin Strategic Income Fund
Franklin Utilities Fund VARIABLE ANNUITIES
Franklin Value Fund
Templeton American Trust, Inc. Franklin Valuemark(SM)
Franklin Templeton
Valuemark Income Plus
(an immediate annuity)
*Two or more fund options available: long-term portfolio, intermediate-term
portfolio, a portfolio of insured municipal securities, and/or a high yield
portfolio (CA) and a money market portfolio (CA and NY).
**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. 10/96.1
