<PAGE> 1
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, 1997
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 28, 1997. During this
period, bond prices rallied in many emerging market countries in response to
their governments' market-oriented policies, improved corporate earnings, and
increased demand for such assets by new investors entering the market. These
so-called "crossover" investors were in large part represented by financial
institutions that normally invest in high-yield U.S. securities, but were
searching for the higher returns available in emerging markets. Within this
environment, the Fund posted a six-month total return of 12.34% in market-price
terms, and 12.41% in net asset value terms, as discussed in the Performance
Summary on page 5.
On February 28, 1997, debt from Mexico, Argentina, and Brazil represented more
than 47% of total net
1
<PAGE> 2
Templeton Emerging Markets Income Fund
Geographic Distribution on 2/28/97
Based on Total Net Income
[PIE CHART]
<TABLE>
<S> <C>
Latin America 56.2%
United States 19.0%
Europe 14.1%
Asia 10.7%
</TABLE>
assets. Mexico appeared to complete its recovery from the peso devaluation
crisis of 1994, and by early 1997, repaid the entire stabilization loan granted
by the U.S. two years ago. Spurred on by foreign investment and rising exports,
Mexico's economy showed strong growth. In anticipation of these events, we
increased our holdings there, from 11.1% to 22.6% of total net assets.
During the reporting period, Argentina's economy continued to recuperate from
recession, and Brazil's government moved forward on constitutional reform. These
developments, along with expectations of future privatization and fiscal reform,
increased the value of our Argentine and Brazilian holdings. However, we sold
some of this debt at the end of February because of our concern that U.S.
interest rates might rise and lead to higher rates in these markets.
We increased our Russian holdings during the reporting period as a result of our
optimism concerning recent reforms in its economic infrastructure. Russia's
government agreed with the International Monetary Fund (IMF) on monetary,
fiscal, and foreign reserve targets and also began implementing economic
policies designed to improve its budget deficit and balance of payments. In the
past, Russia's inefficient tax collection system had forced the government to
rely primarily on borrowing as a source of financing, but during the reporting
period tax receipts began to improve. Other recent reforms included
restructuring the banking sector and refinancing domestic debt by selling bonds
to international investors. These measures contributed to lower yields for their
domestic
2
<PAGE> 3
treasury bonds and reduced the government's cost of funding. Russia also began
to renegotiate its non-performing foreign debt with international creditors.
However, uncertainty surrounding President Boris Yeltsin's health remained a
source of market volatility. Of course, investing in Russian securities involves
special considerations not typically associated with investing in the U.S.
securities markets, including significant risks, such as political and social
uncertainty and the pervasiveness of corruption and crime in the Russian
economic system.
During the six months under review, we reduced our holdings in countries with
inconsistent economic policies. For example, we sold our Ecuadorian bonds
because we believed the country's debt was trading above fair value, and we were
concerned about policies being pursued by President Bucaram. In Eastern Europe,
Bulgaria underwent a severe political and financial crisis in January 1997,
which led many foreign investors to doubt the nations's ability to service its
external debt. We sold our Bulgarian positions before this crisis because of
concerns that the government could not meet its financial obligations without
IMF support.
This discussion reflects the strategies we employed for the Fund during the six
months under review, 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 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.
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.
3
<PAGE> 4
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 risks and other considerations are discussed in the
Fund's prospectus.
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.
CELEBRATING 50 YEARS
This year marks 50 years of business for Franklin Templeton. Over these years,
we have experienced profound changes in technology, regulations and customer
expectations within the mutual fund industry. As one of the largest mutual fund
families, we're proud to be an innovative industry leader, providing people like
you with an opportunity to invest in companies and governments around the globe.
In addition, we want to stress that all securities markets move both up and
down. Mixed in with the good years can be some bad years. Accordingly, mutual
fund share prices also move up and down. Every investor should expect such
fluctuations, which can be wide. When markets are going down, as well as up, we
encourage investors to maintain a long-term perspective. We thank you for your
past support and look forward to serving your investment needs in the years
ahead.
4
<PAGE> 5
PERFORMANCE SUMMARY
In market-price terms, the Templeton Emerging Markets Income Fund produced a
total return of 12.34% for the six-month period ended February 28, 1997. Based
on the change in actual net asset value (in contrast to market price), the Fund
delivered a total return of 12.41% 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 87.5 cents ($0.875), from $12.00 per share on
August 31, 1996 to $12.875 on February 28, 1997, while the net asset value
increased 95 cents ($0.95), from $12.92 to $13.87. Shareholders received income
distributions totaling 62 cents ($0.62) per share. Distributions will vary
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 2/28/97
<TABLE>
<CAPTION>
Since
Inception
One-Year Three-Year (9/23/93)
<S> <C> <C> <C>
Cumulative Total Return(1)
Based on change
in net asset value 25.09% 33.43% 38.57%
Based on change
in market price 19.89% 27.34% 20.70%
Average Annual Total Return(2)
Based on change
in net asset value 25.09% 10.09% 9.97%
Based on change
in market price 19.89% 8.39% 5.63%
</TABLE>
1. Cumulative total return represents the change in value of an investment
over the periods indicated.
2. Average annual total return represents the average annual change in value
of an investment over the periods indicated.
All calculations assume reinvestment of dividends and capital gains, either at
net asset value or at market price on the reinvestment date, in accordance with
the dividend reinvestment plan.
Past expense reductions by the Fund's manager and shareholder servicing agent
increased the Fund's total returns. Investment return and principal value will
fluctuate with market conditions, currencies and the political and economic
climates of countries where investments are made. Emerging markets involve
heightened risks related to the same factors, in addition to those associated
with the relatively small size and lesser liquidity of these markets. You may
have a gain or loss when you sell your shares. Past performance is not
predictive of future results.
5
<PAGE> 6
Many investors have asked us about the activities of Sir John Templeton, since
his retirement from the funds. We asked Professor Robert Herrmann to update us
on Sir John's current activities and his comments follow.
THE NEW CAREER OF SIR JOHN TEMPLETON
[PHOTO OF SIR JOHN TEMPLETON]
By Professor Robert Herrmann
In 1992, Sir John Templeton retired after a 50-year career of helping investors
manage their money. Currently, he devotes all of his time and efforts to the
John Templeton Foundation. A major portion of his assets remain invested in
Templeton funds, managed by many of the investment professionals he selected and
trained. For sentimental reasons, he allows his name to be associated with the
funds, although he knows no more about their management and holdings than any
other investor.
Sir John Templeton established the Templeton Foundation in 1987, to foster the
acquisition of spiritual information through scientific research. Working with
scientists, theologians and others, he strives toward a new science that uses
empirical and statistical scientific methods to discover and test spiritual
knowledge. A crucial ingredient in his research is what Sir John calls "humility
theology," an attitude of humility toward the Creator, combined with
receptiveness to the theological significance of current scientific discoveries.
Universal spiritual laws, or "laws of life," are among the areas of
investigation. In his recent book, Worldwide Laws of Life, Sir John compiles 200
laws and proverbs from nearly all religions, and deeply embedded in human
history. For example, the Golden Rule taught by Jesus in the Sermon on the
Mount, states "Do unto others as you would have others do unto you," and is
affirmed by all major religions as an acceptable, universal law of life. Other
books which Sir John has authored or co-authored during the past few years
include: The Humble Approach, Is God the Only Reality, Evidence of Purpose,
Who's Who in Theology and Science and The God Who Would Be Known.
With an annual budget of more than $30 million, the Templeton Foundation
sponsors 60 programs focusing on spiritual progress and the benefits of freedom.
Sir John's first sizable investment in the programs was the Templeton Prize for
Progress in Religion. A panel of nine judges gives the annual award which now
exceeds $1.2 million to individuals who have shown extraordinary originality in
furthering the world's understanding of God or spirituality.
Recipients of the prize include Professor Paul Davies, author of The Mind of
God; the Right Honorable Lord Jacobovits, former Chief Rabbi of Great Britain
and The Commonwealth; the Reverend Dr. Billy Graham, world-renowned preacher and
presidential inauguration speaker; Mr. Nikkyo Nimano, founder of the World
Conference on Religion and Peace; and Sir Sarepalli Radhakrishnan, former
President of India, and Oxford professor of Eastern Religions and Ethics.
To encourage young people's and their parents' appreciation of spiritual laws of
life, Sir John established an essay contest for teenagers in his home county of
Franklin, Tennessee. Students submit essays about the spiritual life principles
they plan to follow, and prizes are offered semiannually. In 1996, more than 800
youth participated. Twenty-six similar programs
6
<PAGE> 7
have been launched in various locations, with the support of generous local
donors.
The Foundation also sponsors a worldwide program that awards college-level
faculty who teach courses integrating science and religion. During the program's
first two years, more than 200 courses were created. The Foundation maintains an
extensive program of research and education on the health benefits of
spirituality, including prizes for medical schools providing courses on
spirituality in medicine. Lastly, the Foundation publishes a newsletter with
over 2,000 subscribers. Free subscriptions are available to Templeton
shareholders by writing to the Foundation.
To contact Sir John Templeton or receive the free newsletter subscription,
please write to:
The John Templeton Foundation
2 Radnor Corporate Center #320
100 Matsonford Road
Radnor, PA 19087
7
<PAGE> 8
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 YEAR ENDED AUGUST 31 (COMMENCEMENT OF
FEBRUARY 28, 1997 --------------------------------- OPERATIONS) TO
(UNAUDITED) 1996 1995 AUGUST 31, 1994
----------------- --------------- --------------- ------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 12.92 $ 11.52 $ 12.35 $ 14.02
-------- -------- -------- --------
Income from investment operations:
Net investment income .59 1.24 1.33 1.18
Net realized and unrealized gain
(loss) .98 1.40 (.92) (1.77)
-------- -------- -------- --------
Total from investment operations 1.57 2.64 .41 (.59)
-------- -------- -------- --------
Underwriting expenses deducted from
capital -- -- -- (.03)
-------- -------- -------- --------
Distributions:
Dividends from net investment income (.62) (1.24) (1.24) (1.00)
Distributions from net realized gains -- -- -- (.05)
-------- -------- -------- --------
Total distributions (.62) (1.24) (1.24) (1.05)
-------- -------- -------- --------
Change in net asset value .95 1.40 (.83) (1.67)
-------- -------- -------- --------
Net asset value, end of period $ 13.87 $ 12.92 $ 11.52 $ 12.35
======== ======== ======== ========
TOTAL RETURN*
Based on market value per share 12.34% 23.73% (4.28)% (9.71)%
Based on net asset value per share 12.41% 24.31% 3.82% (4.55)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000) $ 660,067 $ 614,951 $ 548,448 $587,954
Ratio of expenses to average net assets 1.20%** 1.09% .81% .86%**
Ratio of expenses, exclusive of fee
waiver, to average net assets 1.20%** 1.20% 1.28% 1.25%**
Ratio of net investment income to average
net assets 8.79%** 10.14% 11.79% 9.66%**
Portfolio turnover rate 163.44% 77.90% 58.73% 91.73%
</TABLE>
* NOT ANNUALIZED FOR PERIODS OF LESS THAN ONE YEAR.
** ANNUALIZED.
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE> 9
TEMPLETON EMERGING MARKETS INCOME FUND, INC.
Investment Portfolio, February 28, 1997 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL IN
COUNTRY LOCAL CURRENCY** VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LONG TERM SECURITIES: 81.1%
- ---------------------------------------------------------------------------------------------------------------------
ARGENTINA: 12.3%
Argentina Republic of, 9.25%, 2/23/01 U.S. 28,530,000 $ 29,207,587
Argentina Republic of, 11.375%, 1/30/17 U.S. 4,200,000 4,467,750
Bridas Corp., Yankee, 12.50%, 11/18/99 U.S. 12,180,000 13,245,750
Argentina Local Market Securities Trust 1994-I
(Goldman Sachs Group, L.P.), 8/15/01 U.S. 12,500,000 14,687,500
Industrias Metalurgicas Pescarmona, 11.75%,
3/27/98, 144A U.S. 5,900,000 5,995,875
Morgan Stanley Repack Arg Dom Secs Trust, 14.75%,
9/01/02 U.S. 11,800,000 13,835,500
-----------
81,439,962
- ---------------------------------------------------------------------------------------------------------------------
BRAZIL: 12.3%
Abril SA, 12.00%, 10/25/03, 144A U.S. 5,525,000 5,897,937
Brazil Govt., 8.875%, 11/05/01 U.S. 29,725,000 29,992,525
Centrais Electricas Brasileiras SA, 10.00%,
10/30/98, 144A U.S. 5,550,000 5,758,125
Companhia Suzano Papel, 10.25%, 10/06/01 U.S. 6,000,000 6,067,500
Copene-Petroquimica Nordeste SA, 9.50%, 10/19/01,
144A U.S. 14,150,000 14,291,500
Government of Brazil, 5.00%, 4/15/24 U.S. 7,625,000 5,008,672
Government of Brazil, conv., L, 6.5625%, FRN,
4/15/12 U.S. 9,100,000 7,496,125
Tevecap SA, 12.625%, 11/26/04, 144A U.S. 6,070,000 6,532,837
-----------
81,045,221
- ---------------------------------------------------------------------------------------------------------------------
COLOMBIA: 1.0%
Banco Ganadero SA, 9.75%, 8/26/99, 144A U.S. 5,580,000 5,852,025
Empresa Colombiana de Petroleos, 7.25%, 7/08/98 U.S. 1,000,000 1,010,000
-----------
6,862,025
- ---------------------------------------------------------------------------------------------------------------------
COSTA RICA: 1.0%
Banco Central de Costa Rica, A, 6.25%, 5/21/10 U.S. 8,300,000 6,889,000
- ---------------------------------------------------------------------------------------------------------------------
CZECH REPUBLIC: 2.6%
Ceskoslovenska OBchodni Banka, 11.125%, 8/26/97 Csk. 144,580,000 4,957,695
CEZ, 14.375%, 1/27/01 Csk. 122,770,000 4,359,497
Skofin, 11.625%, 2/09/98, 144A Csk. 230,750,000 7,956,077
-----------
17,273,269
- ---------------------------------------------------------------------------------------------------------------------
GUATEMALA: 1.4%
Asociacion Nacional del Cafe, 11.00%, 8/31/98 U.S. 8,728,000 9,011,660
- ---------------------------------------------------------------------------------------------------------------------
INDIA: 0.8%
Essar Gujarat Ltd., 8.33750%, FRN, 7/15/99, 144A U.S. 5,300,000 5,127,750
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE> 10
TEMPLETON EMERGING MARKETS INCOME FUND, INC.
Investment Portfolio, February 28, 1997 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL IN
COUNTRY LOCAL CURRENCY** VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LONG TERM SECURITIES (CONT.)
- ---------------------------------------------------------------------------------------------------------------------
INDONESIA: 5.4%
PT Astra International, 9.75%, 4/29/01 U.S. 6,150,000 $ 6,519,000
PT Indah Kiat Pulp & Paper Corp., 8.875%, 11/01/00,
144A U.S. 4,840,000 4,882,350
PT Inti Indorayon Utama, 9.125%, 10/15/00 U.S. 6,830,000 6,761,700
PT Polysindo Eka Perkasa, 13.00%, 6/21/01 U.S. 5,000,000 5,675,000
PT Polysindo Intl. Finance Co., B 11.375%, 6/15/06 U.S. 2,535,000 2,737,800
Tjiwi Kimia Int'l Finance Co. BV, 13.25%, 8/01/01 U.S. 8,000,000 9,100,000
-----------
35,675,850
- ---------------------------------------------------------------------------------------------------------------------
LITHUANIA: 0.6%
Republic of Lithuania, 10.00%, 12/22/97, 144A U.S. 3,730,000 3,812,993
Republic of Lithuania, 10.00%, 12/22/97 U.S. 250,000 255,563
-----------
4,068,556
- ---------------------------------------------------------------------------------------------------------------------
MEXICO: 22.6%
Banco Nacional Obra Serv., 9.625%, 11/15/03 U.S. 3,500,000 3,626,875
Bancomer S.A., 8.00%, 7/07/98 U.S. 11,100,000 11,176,313
Cemex SA, 10.75%, 7/15/00, 144A U.S. 6,340,000 6,760,025
United Mexican States, 11.00781%, FRN, 7/21/97,
144A U.S. 13,000,000 13,211,250
United Mexican States, 11.375%, 9/15/16 U.S. 50,990,000 56,089,000
United Mexican States, 11.50%, 5/15/26, GLOB BD U.S. 21,275,000 23,748,219
United Mexican States, 9.875%, 1/15/07 U.S. 24,775,000 25,735,031
United Mexican States, A, 6.25%, 12/31/19 U.S. 4,100,000 3,139,063
United Mexican States, B, 6.25%, 12/31/19 U.S. 7,700,000 5,895,312
-----------
149,381,088
- ---------------------------------------------------------------------------------------------------------------------
PANAMA: 0.9%
Republic of Panama, 6.54688%, FRN, 5/10/02 U.S. 5,923,077 5,863,846
- ---------------------------------------------------------------------------------------------------------------------
PERU: 0.2%
Guaranteed Capital Corp. Ltd., 11.00%, 3/21/97 U.S. 1,526,667 1,526,667
- ---------------------------------------------------------------------------------------------------------------------
PHILIPPINES: 4.5%
National Power Corp., 7.625%, 11/15/00, 144A U.S. 10,000,000 10,075,000
Philippine Long Distance Telephone Co., 10.625%,
6/02/04 U.S. 5,500,000 6,312,900
Philippine Long Distance Telephone Co., 9.25%,
6/30/06 U.S. 4,980,000 5,316,150
Subic Power Corp., 9.50%, 12/28/08, 144A U.S. 7,530,407 7,878,688
-----------
29,582,738
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE> 11
TEMPLETON EMERGING MARKETS INCOME FUND, INC.
Investment Portfolio, February 28, 1997 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL IN
COUNTRY LOCAL CURRENCY** VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LONG TERM SECURITIES (CONT.)
- ---------------------------------------------------------------------------------------------------------------------
POLAND: 1.2%
Poland Communications Inc., 9.875%, 11/01/03, 144A U.S. 7,590,000 $ 7,547,306
- ---------------------------------------------------------------------------------------------------------------------
RUSSIA: 9.8%
Russia, 9.25%, 11/27/01, Reg S U.S. 60,200,000 59,334,625
*Russia, when issued 12/31/97 U.S. 8,650,000 5,238,656
-----------
64,573,281
- ---------------------------------------------------------------------------------------------------------------------
TRINIDAD AND TOBAGO: 0.9%
Sei Holdings IX Inc., 11.00%, 11/30/00, 144A U.S. 5,210,000 5,587,725
- ---------------------------------------------------------------------------------------------------------------------
VENEZUELA: 3.6%
Electricidad de Caracas, 6.5625%, FRN, SER A1,
9/30/03 U.S. 2,618,618 2,350,210
Republic of Venezuela, 6.75%, 3/31/20, PAR BOND, B U.S. 26,100,000 20,097,000
Venezuela Republic of, 6.4375%, 3/31/20, FRN, Ser.
W/A U.S. 1,290,000 1,119,881
-----------
23,567,091
-----------
TOTAL LONG TERM SECURITIES (cost $516,735,391) 535,023,035
- ---------------------------------------------------------------------------------------------------------------------
SHORT TERM OBLIGATIONS: 0.7%
- ---------------------------------------------------------------------------------------------------------------------
Federal Home Loan Bank (D/N), 3/06/97 U.S. 700,000 699,694
Federal Home Loan Mortgage Corp., 5.23%, with
maturities to 3/25/97 U.S. 2,135,000 2,128,280
U. S. Treasury Bill, 4.98% to 5.03%, with
maturities to 6/05/97 U.S. 2,052,000 2,027,390
-----------
TOTAL SHORT TERM OBLIGATIONS (cost $4,853,097) 4,855,364
- ---------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS: 2.0% (cost $13,002,000)
- ---------------------------------------------------------------------------------------------------------------------
MATURITY
VALUE
Bank of America, 5.34% Collateralized by 12,990,000
U.S. Treasury Note, 5/31/98, Value $13,266,038 U.S. 13,007,786 13,002,000
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS: 83.8% (cost $534,590,488) 552,880,399
UNREALIZED GAIN IN FORWARD EXCHANGE CONTRACTS: 56,439
OTHER ASSETS, LESS LIABILITIES: 16.2% 107,129,721
------------
TOTAL NET ASSETS: 100.0% $660,066,559
===========
</TABLE>
* NON-INCOME PRODUCING.
** CURRENCY OF COUNTRIES INDICATED.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE> 12
TEMPLETON EMERGING MARKETS INCOME FUND, INC.
Financial Statements
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
February 28, 1997 (unaudited)
<TABLE>
<S> <C>
Assets:
Investments in securities, at value
(identified cost $534,590,488) $552,880,399
Cash 187
Receivables:
Investment securities sold 267,974,406
Interest 13,782,607
Unamortized organization costs 9,276
Unrealized gain on forward exchange
contracts (Note 5) 56,439
------------
Total assets 834,703,314
------------
Liabilities:
Payable for investment securities
purchased 173,764,692
Accrued expenses 872,063
------------
Total liabilities 174,636,755
------------
Net assets, at value $660,066,559
============
Net assets consist of:
Undistributed net investment income $ 7,945,292
Net unrealized appreciation 21,559,019
Accumulated net realized loss (34,376,719)
Net capital paid in on shares of
capital stock 664,938,967
------------
Net assets, at value $660,066,559
============
Shares outstanding 47,605,757
============
Net asset value per share
($660,066,559 / 47,605,757
shares outstanding) $ 13.87
============
</TABLE>
STATEMENT OF OPERATIONS
for the six months ended February 28, 1997 (unaudited)
<TABLE>
<S> <C> <C>
Interest income $31,802,470
Expenses:
Management fees (Note 3) $ 2,704,960
Administrative fees (Note
3) 477,347
Transfer agent fees 350,000
Custodian fees 78,000
Reports to shareholders 94,250
Audit fees 30,000
Legal fees 20,000
Registration and filing
fees 35,000
Directors' fees and
expenses 23,000
Amortization of
organization costs 2,819
Other 641
-----------
Total expenses 3,816,017
-----------
Net investment income 27,986,453
Realized and unrealized gain:
Net realized gain on:
Investments 34,155,819
Foreign currency
transactions 1,474,889
-----------
35,630,708
-----------
Net unrealized
appreciation on:
Investments 11,083,159
Foreign currency
translation of other
assets and
liabilities (69,234)
-----------
11,013,925
-----------
Net realized and
unrealized gain 46,644,633
-----------
Net increase in net assets
resulting from operations $74,631,086
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE> 13
TEMPLETON EMERGING MARKETS INCOME FUND, INC.
Financial Statements (cont.)
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
FEBRUARY 28, 1997 YEAR ENDED
(UNAUDITED) AUGUST 31, 1996
----------------- ---------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 27,986,453 $ 58,857,589
Net realized gain on investment and foreign currency transactions 35,630,708 22,811,582
Net unrealized appreciation 11,013,925 43,865,000
------------ ------------
Net increase in net assets resulting from operations 74,631,086 125,534,171
Distributions to shareholders from net investment income (29,515,569) (59,031,139)
------------ ------------
Net increase in net assets 45,115,517 66,503,032
Net assets:
Beginning of period 614,951,042 548,448,010
------------ ------------
End of period $ 660,066,559 $ 614,951,042
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE> 14
TEMPLETON EMERGING MARKETS INCOME FUND, INC.
Notes to Financial Statements (unaudited)
- --------------------------------------------------------------------------------
1. SUMMARY OF ACCOUNTING POLICIES
Templeton Emerging Markets Income Fund, Inc. (the Fund) is 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 in
good faith by management and approved 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, and foreign withholding taxes recorded on the Fund's
books, and the U.S. dollar equivalent of the amounts actually received or
14
<PAGE> 15
TEMPLETON EMERGING MARKETS INCOME FUND, INC.
Notes to Financial Statements (unaudited) (cont.)
- --------------------------------------------------------------------------------
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. REPURCHASE AGREEMENTS:
The Fund, through its custodians, receives delivery of the underlying
securities, whose market is required to be at least 102% of the resale price at
the time of purchase. The Fund's investment advisor, Templeton Investment
Counsel, Inc., is responsible for determining that the value of these underlying
securities remains at least equal to the resale price.
I. 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.
J. 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.
Included in the statement of assets and liabilities as of February 28, 1997 are
receivables for investment securities sold and payables for investment
securities purchased of $108,471,745 and $110,471,748, respectively, related to
the sale and purchase of Russian when-issued securities. The realization of
these receivables and payables are subject to the risk that such securities may
never be issued. Included in net unrealized gains on investments is unrealized
gains of $3,235,950 related to positions sold and unrealized gains of $2,703 on
positions held as of February 28, 1997. In the event these securities are not
issued, such gains will not be realized.
2. TRANSACTIONS IN SHARES OF CAPITAL STOCK
As of February 28, 1997, there were 100,000,000 shares of $.01 par value capital
stock authorized. During the six months ended February 28, 1997 and the year
ended August 31, 1996, there were no capital share transactions.
15
<PAGE> 16
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 Franklin Templeton Services, Inc. (FTSI), 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 equal, on an annual basis, to 0.10%
of average daily net assets of the Fund. The Fund pays FTSI 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 for the six months ended February 28, 1997.
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities (excluding short-term securities) for the six
months ended February 28, 1997 aggregated $936,541,153 and $1,041,258,526,
respectively. The cost of securities for federal income tax purposes is
$538,469,215. Realized gains and losses are reported on an identified cost
basis.
At February 28, 1997, 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 $16,620,601
Unrealized depreciation (2,209,417)
-----------
Net unrealized appreciation $14,411,184
===========
</TABLE>
5. FINANCIAL INSTRUMENTS
During the six months ended February 28, 1997, 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 February 28, 1997, 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 gain in forward exchange contract to sell 19,300,000 Deutschemarks
for 11,519,500 U.S. dollars, March 27, 1997 $56,439
========
</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.
16
<PAGE> 17
TEMPLETON EMERGING MARKETS INCOME FUND, INC.
Annual Meeting of Shareholders, February 25, 1997
- --------------------------------------------------------------------------------
An Annual Meeting of Shareholders of the Fund was held at the Fund's offices,
500 E. Broward Blvd., Ft. Lauderdale, Florida, on February 25, 1997. 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, 1997 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: John Wm.
Galbraith, Betty P. Krahmer, Gordon S. Macklin, Fred R. Millsaps and Edith E.
Holiday. 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, 1997. No other business was transacted at the 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
OUTSTANDING OUTSTANDING
FOR SHARES WITHHELD SHARES
----------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Term expiring 2000:
John Wm. Galbraith 43,332,952 91.02% 684,949 1.44%
Betty P. Krahmer 43,409,663 91.18% 608,238 1.28%
Gordon S. Macklin 43,414,484 91.20% 603,419 1.26%
Fred R. Millsaps 43,364,253 91.09% 653,648 1.37%
Term expiring 1999:
Edith E. Holiday 43,321,803 91.00% 696,098 1.46%
</TABLE>
2. Ratification of the selection of McGladrey & Pullen, LLP, as independent
public accountants of the Fund for the fiscal year ending August 31, 1997:
<TABLE>
<CAPTION>
% OF % OF % OF
OUTSTANDING OUTSTANDING OUTSTANDING
FOR SHARES AGAINST SHARES ABSTAIN SHARES
----------- ----------- ------- ----------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
43,441,913 91.25% 219,142 0.46% 354,648 0.74%
</TABLE>
17
<PAGE> 18
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
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.
18
<PAGE> 19
FRANKLIN TEMPLETON GROUP OF FUNDS
LITERATURE REQUEST - Call 1-800/DIAL BEN (1-800/342-5236) 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.
GLOBAL GROWTH INCOME FRANKLIN STATE-SPECIFIC
FUNDS SEEKING
Franklin Global Health Care Fund Franklin Adjustable Rate
TAX-FREE INCOME
Securities Fund
Franklin Templeton Japan Fund
Franklin Adjustable U.S.
Alabama
Templeton Developing Markets Trust
Government Securities Fund
Arizona*
Templeton Foreign Fund
Franklin's AGE High Income Fund
Arkansas**
Templeton Foreign Smaller
Franklin Investment
Companies Fund California*
Grade Income Fund
Templeton Global Infrastructure Fund
Colorado
Franklin Short-Intermediate U.S.
Templeton Global
Government Securities Fund
Connecticut
Opportunities Trust
Franklin U.S. Government
Florida*
Templeton Global Real Estate Fund
Securities Fund
Georgia
Templeton Global Smaller
Franklin Money Fund
Companies Fund Hawaii**
Franklin Federal Money Fund
Templeton Greater European Fund Indiana
Templeton Growth Fund Kentucky
FOR NON-U.S. INVESTORS:
Templeton Latin America Fund Louisiana
Franklin Tax-Advantaged
High Yield Securities Fund
Templeton Pacific Growth Fund Maryland
Franklin Tax-Advantaged
Templeton World Fund Massachusetts***
International Bond Fund
Michigan*
Franklin Tax-Advantaged U.S.
GLOBAL GROWTH AND INCOME
Minnesota***
Government Securities Fund
Franklin Global Utilities Fund
Missouri
FOR CORPORATIONS:
Franklin Templeton German
New Jersey
Franklin Corporate Qualified
Government Bond Fund
New York*
Dividend Fund
Franklin Templeton
North Carolina
Global Currency Fund
Ohio***
Mutual European Fund
FRANKLIN FUNDS SEEKING
Oregon
Templeton Global Bond Fund
TAX-FREE INCOME
Pennsylvania
Templeton Growth and Income Fund
Federal Intermediate-Term
Tennessee**
Tax-Free Income Fund
Texas
GLOBAL INCOME Federal Tax-Free Income Fund
Virginia
High Yield Tax-Free Income Fund
Franklin Global Government
Income Fund
Washington**
Insured Tax-Free Income Fund
Franklin Templeton Hard
Puerto Rico Tax-Free Income Fund
VARIABLE ANNUITIES+
Currency Fund
Tax-Exempt Money Fund
Franklin Valuemark(R)
Franklin Templeton High
Income Currency Fund
Franklin Templeton
Valuemark Income Plus
Templeton Americas
(an immediate annuity)
Government Securities Fund
*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.
+FRANKLIN VALUEMARK AND FRANKLIN TEMPLETON VALUEMARK INCOME PLUS ARE ISSUED BY
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA OR BY ITS WHOLLY OWNED
SUBSIDIARY, PREFERRED LIFE INSURANCE COMPANY OF NEW YORK, AND DISTRIBUTED BY
NALAC FINANCIAL PLANS, LLC.
FGF 02/97 GROWTH
Franklin Blue Chip Fund
Franklin California Growth Fund
Franklin DynaTech Fund
Franklin Equity Fund
Franklin Gold Fund
Franklin Growth Fund
Franklin MidCap Growth Fund
Franklin Small Cap Growth Fund
Mutual Discovery Fund
GROWTH AND INCOME
Franklin Asset Allocation Fund
Franklin Balance Sheet
Investment Fund
Franklin Convertible Securities Fund
Franklin Equity Income Fund
Franklin Income Fund
Franklin MicroCap Value Fund
Franklin Natural Resources Fund
Franklin Real Estate Securities Fund
Franklin Rising Dividends Fund
Franklin Strategic Income Fund
Franklin Utilities Fund
Franklin Value Fund
Mutual Beacon Fund
Mutual Qualified Fund
Mutual Shares Fund
Templeton American Trust, Inc.
FUND ALLOCATOR SERIES:
Franklin Templeton
Conservative Target Fund
Franklin Templeton
Moderate Target Fund
Franklin Templeton
Growth Target Fund
<PAGE> 20
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.
[GRAPHIC]
TEMPLETON
EMERGING
MARKETS
INCOME
FUND, INC.
SEMI-ANNUAL REPORT
FEBRUARY 28, 1997
[FRANKLIN TEMPLETON LOGO]
