August 31, 1998
ANNUAL
REPORT
TEMPLETON EMERGING
MARKETS INCOME FUND, INC.
[LOGO]
FRANKLIN TEMPLETON
PAGE
[50 YEAR LOGO]
Thank you for investing with Franklin Templeton. We encourage our investors to
maintain a long-term perspective and remember that all securities markets move
both up and down, as do mutual fund share prices. We appreciate your past
support and look forward to serving your investment needs in the years ahead.
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 the
Templeton funds which are managed by many of the investment professionals he
selected and trained.
PAGE
CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Shareholder Letter ..... 1
Performance Summary .... 7
Financial Highlights ... 9
Statement of Investments 10
Financial Statements ... 13
Notes to Financial
Statements ............. 16
Independent
Auditor's Report ....... 18
</TABLE>
[PYRAMID GRAPH]
SHAREHOLDER LETTER
Your Fund's Objective: 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 or
sovereign-related entities and private sector companies in emerging market
countries.
Dear Shareholder:
This annual report of Templeton Emerging Markets Income Fund covers the fiscal
year ended August 31, 1998.
In late 1997, the ripple effects of the Asian currency crises sent bond prices
in Latin America and Eastern Europe spiraling downward. Many fixed-income
markets in Eastern Europe rebounded during the first part of 1998, but by
mid-1998 bond prices in most emerging markets began to decline again in large
part due to Japan's inability to solve its economic problems. Toward the end of
the reporting period, investor uncertainty regarding the Japanese government's
implementation of an economic stimulus package and the yen's declining value,
You will find a complete listing of the Fund's portfolio holdings, including
dollar value and number of shares or principal amount, beginning on page 10 of
this report.
PAGE
GEOGRAPHIC DISTRIBUTION
Based on Total Net Assets
8/31/98
<TABLE>
<CAPTION>
<S> <C>
Latin America 71.3%
Asia 17.7%
Europe 5.4%
Short-Term Investments &
Other Net Assets 5.6%
</TABLE>
coupled with Russia's political turmoil and devaluation of its ruble,
contributed to severe market volatility. Within this environment, the Fund
posted a one-year cumulative total return of -33.52% in market-price terms, and
- -27.44% in net asset value terms, as discussed in the Performance Summary on
page 7. During the same period, the J.P. Morgan Emerging Markets Bond Index Plus
declined 29.87% and the J.P. Morgan Eurobond Benchmark Index dropped 28.94%.(1)
During the 12 months under review, the governments of many Latin American
countries demonstrated a commitment to economic adjustment and credit quality
improvement policies. The Mexican and Argentine governments were largely
successful in protecting their economies from falling global commodity prices
during the period, and at the end of the fiscal year, Mexico represented the
Fund's largest country holding at 19.6% of total net assets, followed by
Argentina (18.0%) and Brazil (17.4%).
Debt securities issued by the Mexican and Polish governments were the top
performers during the period due in part to responsible economic policies being
pursued in these countries. Venezuelan and Russian government bonds performed
poorly as weak oil prices adversely affected these nations' exports. Russia's
disappointing performance also reflected investor concerns about the country's
financing needs and devaluation of its currency. The Fund's exposure to Russia
was 2.3% of total net assets at the close of the period.
(1) Source: Emerging Markets Bond Index Monitor, J.P. Morgan Securities, Inc.
Performance includes reinvested interest. An index is an unmanaged group of
securities used to measure market performance. One cannot invest directly in an
index.
2
PAGE
TOP 10 COUNTRIES
REPRESENTED IN THE FUND*
8/31/98
<TABLE>
<CAPTION>
% OF TOTAL
COUNTRY NET ASSETS
<S> <C>
Mexico 19.6%
Argentina 18.0%
Brazil 17.4%
Venezuela 9.4%
Turkey 8.6%
Ecuador 5.1%
Philippines 4.8%
Indonesia 4.1%
Russia 2.3%
Bulgaria 1.7%
</TABLE>
*Does not include short-term investments and other net assets.
Since 93% of the Fund's total net assets were invested in U.S.
dollar-denominated bonds, the Fund had minimal foreign currency exposure at the
end of the reporting period. Due to market volatility, we concentrated on
relatively liquid instruments, namely sovereign eurobonds (59.4%) and Brady
bonds (5.3%). Corporate eurobonds accounted for 32.1% of the Fund's total net
assets at the end of the reporting period.
Looking forward, we will maintain our focus on bonds from countries that we
believe have the potential to experience strong economic growth. In our opinion,
the underlying value of such securities could increase as a result of economic
performance and improved creditworthiness of these nations. Although we are
aware that volatility could continue to affect countries with weak currencies,
we are optimistic that many of them will be able to service their debt
obligations through privatization and financial reform.
This discussion reflects our views, opinions and portfolio holdings as of August
31, 1998, the end of the reporting period. However, market and economic
conditions are changing constantly, which can be expected to affect our
strategies and the Fund's portfolio composition. Although historical performance
is no guarantee of future results, these insights may help you better understand
our investment and management philosophy.
Of course, investments in foreign securities involve special risks, such as
adverse economic, social and political developments in the countries where the
Fund invests, as well as market and currency
3
PAGE
volatility. Emerging markets involve heightened risks related to the same
factors, in addition to those associated with their relatively small size and
lesser liquidity. Investing in any emerging market means accepting a certain
amount of volatility and, in some cases, severe market corrections.
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
/s/ Umran Demirors
Umran Demirors, Ph.D.
Portfolio Management Team
Templeton Emerging Markets Income Fund, Inc.
4
PAGE
The portfolio managers of Templeton Emerging Markets Income Fund, Inc. are Neil
S. Devlin and Umran Demirors, who have been managing the Fund as a portfolio
management team since May 1998. Mr. Devlin is the Chief Investment Officer and
Executive Vice President of Templeton Global Bond Managers ("TGBM"), a division
of Templeton Investment Counsel, Inc., the Fund's manager. He holds a BA in
economics and philosophy from Brandeis University, and is a Chartered Financial
Analyst. Before joining the Templeton organization in 1987, he was a portfolio
manager and bond analyst with Constitution Capital Management of Boston. Prior
to that, Mr. Devlin was a bond trader and research analyst for the Bank of New
England. Mr. Devlin currently directs investment strategies in both the
developed and emerging fixed-income markets. He also manages numerous Franklin
Templeton mutual funds and corporate pension accounts.
Dr. Demirors is Vice President of TGBM. He holds a Ph.D. and an MA in economics
from New York University, and a BA in economics from Bursa Academy of Economics
and Business Administration in Turkey. Prior to joining the Templeton
organization in 1996, Dr. Demirors was a principal and portfolio manager for
Socimer Advisory Inc. in New York. Before joining Socimer Advisory Inc., Dr.
Demirors was the head of research and strategy at VestcorPartners Group in Miami
from 1992 through 1994. Currently, Dr. Demirors manages several emerging markets
fixed-income portfolios, and directs the TGBM emerging markets group.
5
PAGE
IMPORTANT NOTICE TO SHAREHOLDERS
INTRODUCTION OF THE EURO. On January 1, 1999, the European Monetary Union (EMU)
plans to introduce a new single currency, the Euro, which will replace the
national currency for participating member countries. If the Fund holds
investments in countries with currencies replaced by the Euro, the investment
process, including trading, foreign exchange, payments, settlements, cash
accounts, custody and accounting will be impacted.
The process to establish the Euro may result in market volatility. It is not
possible to predict the impact of the Euro on the business or financial
condition of European issuers or on the Fund. The transition and the elimination
of currency risk among EMU countries may change the economic environment and
behavior of investors, particularly in European markets. To the extent the Fund
holds non-U.S. dollar (Euro or other) denominated securities, it will still be
exposed to currency risk due to fluctuations in those currencies versus the U.S.
dollar.
Franklin Resources, Inc. has created an interdepartmental team to handle all
Euro-related changes to enable the Franklin Templeton Funds to process
transactions accurately and completely with minimal disruption to business
activities. While there can be no assurance that the Fund will not be adversely
affected, the manager and its affiliated service providers are taking steps that
they believe are reasonably designed to address the Euro issue.
YEAR 2000. The Fund's business operations use a worldwide network of computer
systems. Many of them have date fields that use two digits to represent the date
and these systems must be replaced or modified, so that they can distinguish the
year 1900 from the year 2000 (commonly referred to as the Year 2000 bug).
When the year 2000 arrives, the Fund's operations could be affected if the
computer systems used by the manager, its service providers and other third
parties it does business with are not Year 2000 ready. For example, the Fund's
portfolio and operational areas could be impacted, including securities trade
processing, interest and dividend payments, securities pricing, shareholder
account services, reporting, custody functions and others. The Fund could
experience difficulties in effecting transactions if any of its foreign
subcustodians, or if foreign broker/dealers or foreign markets are not ready for
the year 2000.
The Fund's manager and its affiliated service providers are making a concerted
effort to take steps they believe are reasonably designed to get ready for Year
2000. Of course, the Fund's ability to reduce the effects of Year 2000 issues is
also very much dependent upon the efforts of third parties.
In evaluating current and potential portfolio positions, Year 2000 is one of the
factors that the Fund's manager takes into consideration. It will rely upon
public filings and other statements made by companies regarding their Year 2000
readiness. Issuers in countries outside of the U.S., and in particular in
emerging markets, may not be required to make the level of disclosure regarding
Year 2000 readiness that is required in the U.S. Like with many other matters,
the manager, of course, cannot audit each portfolio company and its major
suppliers, and so cannot verify their Year 2000 readiness. If the value of a
Fund investment is adversely affected by a Year 2000 problem, the net asset
value of the Fund will be affected as well.
6
PAGE
PERFORMANCE SUMMARY
In market-price terms, Templeton Emerging Markets Income Fund posted a -33.52%
cumulative total return for the one-year period ended August 31, 1998. Based on
the change in net asset value (in contrast to market price), the Fund posted a
- -27.44% cumulative total return for the same period. Both total return figures
assume reinvestment of all distributions in accordance with the dividend
reinvestment and cash purchase plan. While we expect market volatility in the
short term, we have always maintained a long-term perspective when managing the
Fund, and we encourage shareholders to view their investments in a similar
manner.
During the reporting period, the Fund's closing price on the New York Stock
Exchange decreased $5.312 per share, from $13.437 on August 31, 1997, to $8.125
on August 31, 1998, while the net asset value decreased $4.87 per share, from
$14.33 to $9.46.
Shareholders received per-share distributions of $1.24 in income dividends.
Distributions will vary depending on income earned by the Fund and any profits
realized from the sale of securities in the portfolio, as well as the level of
the Fund's operating expenses.
Past performance is not predictive of future results.
7
PAGE
TEMPLETON EMERGING MARKETS INCOME FUND
Periods ended 8/31/98
<TABLE>
<CAPTION>
SINCE
INCEPTION
1-YEAR 3-YEAR (9/23/93)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1)
Based on change in net asset value -27.44% 10.22% 9.22%
Based on change in market price -33.52% 0.44% -13.19%
Average Annual Total Return(2)
Based on change in net asset value -27.44% 3.29% 1.80%
Based on change in market price -33.52% 0.15% -2.82%
</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 distributions, either at net asset value
or at market price on the reinvestment date, in accordance with the dividend
reinvestment and cash purchase plan, and do not reflect any sales charges paid
at inception or brokerage commissions paid on secondary market purchases.
Past expense reductions by the Fund's manager and shareholder servicing agent
increased the Fund's total returns. If they had not taken this action, the
Fund's total returns would have been lower. Since markets can go down as well as
up, investment return and principal value will fluctuate with market conditions,
currency volatility, and the economic, social and political climates of
countries where the Fund invests. Emerging markets involve heightened risks
related to the same factors, in addition to those associated with their
relatively small size and lesser liquidity. Also, as a non-diversified
investment company, the Fund may invest in a relatively small number of issuers
and, as a result, be subject to greater risk of loss with respect to its
portfolio securities. You may have a gain or loss when you sell your shares.
Past performance is not predictive of future results.
8
PAGE
TEMPLETON EMERGING MARKETS INCOME FUND, INC.
Financial Highlights
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
--------------------------------------------------------
1998 1997 1996 1995 1994+
--------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
Net asset value, beginning of year......................... $14.33 $12.92 $11.52 $12.35 $14.02
--------------------------------------------------------
Income from investment operations:
Net investment income..................................... 1.22 1.18 1.24 1.33 1.18
Net realized and unrealized gains (losses)................ (4.85) 1.47 1.40 (.92) (1.77)
--------------------------------------------------------
Total from investment operations........................... (3.63) 2.65 2.64 .41 (.59)
--------------------------------------------------------
Underwriting expenses deducted from capital................ -- -- -- -- (.03)
--------------------------------------------------------
Less distributions from:
Net investment income..................................... (1.24) (1.24) (1.24) (1.24) (1.00)
Net realized gains........................................ -- -- -- -- (.05)
--------------------------------------------------------
Total distributions........................................ (1.24) (1.24) (1.24) (1.24) (1.05)
--------------------------------------------------------
Net asset value, end of year............................... $9.46 $14.33 $12.92 $11.52 $12.35
--------------------------------------------------------
--------------------------------------------------------
Total Return*
Based on market value per share........................... (33.52)% 22.11% 23.73% (4.28)% (9.71)%
Based on net asset value per share........................ (27.44)% 22.20% 24.31% 3.82% (4.55)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's)............................ $450,329 $682,212 $614,951 $548,448 $587,954
Ratios to average net assets:
Expenses.................................................. 1.18% 1.19% 1.09% .81% .86%**
Expenses, excluding waiver and payments by affiliate...... 1.18% 1.19% 1.20% 1.28% 1.25%**
Net investment income..................................... 9.01% 8.62% 10.14% 11.79% 9.66%**
Portfolio turnover rate.................................... 122.92% 266.79% 77.90% 58.73% 91.73%
</TABLE>
*Total return is not annualized.
**Annualized.
+For the period September 23, 1993 (commencement of operations) to August 31,
1994.
See Notes to Financial Statements.
9
PAGE
TEMPLETON EMERGING MARKETS INCOME FUND, INC.
STATEMENT OF INVESTMENTS, AUGUST 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT* VALUE
- --------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM SECURITIES 94.4%
ARGENTINA 18.0%
Bridas Corp., Yankee, 12.50%, 11/15/99...................... $12,600,000 $ 12,600,000
Republic of Argentina:
9.25%, 2/23/01............................................ 31,380,000 24,907,875
8.75%, 5/09/02............................................ 7,800,000 5,507,775
11.00%, 10/09/06.......................................... 4,575,000 3,345,469
Reg S, 11.75%, 2/12/07.................................... 13,180,000ARS 7,777,756
11.375%, 1/30/17.......................................... 7,400,000 5,402,000
9.75%, 9/19/27............................................ 32,800,000 21,361,000
------------
80,901,875
------------
BRAZIL 17.4%
Abril SA:
12.00%, 10/25/03.......................................... 375,000 363,750
144A, 12.00%, 10/25/03.................................... 5,525,000 5,359,250
Centrais Electricas Brasileiras SA, 144A, 10.00%,
10/30/98.................................................. 5,550,000 4,717,500
Companhia Paranaense de Energia-Copel, 9.75%, 5/02/05....... 5,700,000 4,417,500
Companhia Suzano Papel, 10.25%, 10/06/01.................... 6,000,000 5,610,000
Copene-Petroquimica Nordeste SA, 144A, 9.50%, 10/19/01...... 14,150,000 11,717,969
Globo Communicacoes Participacoes Ltd., 10.625%, 12/05/08... 7,000,000 4,322,500
Republic of Brazil:
9.375%, 4/07/08........................................... 18,400,000 10,833,000
FRN, 6.688%, 4/15/12...................................... 18,275,000 8,429,344
8.00%, 4/15/14............................................ 12,240,253 6,489,235
10.125%, 5/15/27.......................................... 28,480,000 16,020,000
------------
78,280,048
------------
BULGARIA 1.7%
Republic of Bulgaria, FRN, 6.563%, 7/28/11.................. 17,130,000 7,751,325
------------
ECUADOR 5.1%
Republic of Ecuador:
11.25%, 4/25/02........................................... 21,225,000 16,422,844
144A, 11.25%, 4/25/02..................................... 8,750,000 6,770,313
------------
23,193,157
------------
INDIA .2%
Essar Steel Ltd.:
FRN, 8.40%, 7/15/99....................................... 495,000 418,275
144A, FRN, 8.40%, 7/15/99................................. 370,000 312,650
------------
730,925
------------
</TABLE>
10
PAGE
TEMPLETON EMERGING MARKETS INCOME FUND, INC.
STATEMENT OF INVESTMENTS, AUGUST 31, 1998 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM SECURITIES (CONT.)
INDONESIA 4.1%
PT Astra International, 9.75%, 4/29/01...................... $ 6,150,000 $ 1,383,750
PT Indah Kiat Finance Mauritius Ltd., 10.00%, 7/01/07....... 16,375,000 6,959,375
PT Indah Kiat Pulp & Paper Corp., 144A, 8.875%, 11/01/00.... 4,840,000 2,541,000
PT Inti Indorayon Utama, 9.125%, 10/15/00................... 6,830,000 2,732,000
Tjiwi Kimia Int'l Finance Co. BV, 13.25%, 8/01/01........... 8,000,000 4,640,000
------------
18,256,125
------------
JAMAICA .5%
Government of Jamaica, 9.625%, 7/02/02...................... 3,000,000 2,250,000
------------
MEXICO 19.6%
Banco Nacional Obra Serv., 9.625%, 11/15/03................. 3,500,000 3,010,000
Bepensa SA, 144A, 9.75%, 9/30/04............................ 6,950,000 5,212,500
Cemex SA, 144A, 10.75%, 7/15/00............................. 6,440,000 6,471,369
Protexa Construcciones SA de CV, 144A, 12.125%, 7/24/02..... 8,300,000 6,847,500
United Mexican States:
9.75%, 2/06/01............................................ 8,230,000 7,407,000
9.875%, 1/15/07........................................... 19,880,000 17,096,800
8.625%, 3/12/08........................................... 21,925,000 16,663,000
11.375%, 9/15/16.......................................... 30,020,000 25,592,050
------------
88,300,219
------------
PHILIPPINES 4.8%
National Power Corp., 144A, 7.625%, 11/15/00................ 8,500,000 7,571,715
Philippine Long Distance Telephone Co.:
10.625%, 6/02/04.......................................... 5,500,000 5,005,000
9.25%, 6/30/06............................................ 4,980,000 3,784,800
Subic Power Corp., 144A, 9.50%, 12/28/08.................... 6,589,028 5,271,222
------------
21,632,737
------------
POLAND 1.4%
Poland Communications Inc., 9.875%, 11/01/03................ 7,790,000 6,232,000
------------
RUSSIA 2.3%
Minfin of Russia:
144A, 10.00%, 6/26/07..................................... 20,050,000 4,661,625
Reg S, 10.00%, 6/26/07.................................... 20,615,000 4,792,988
Russia Federation, 6.625%, 12/15/15......................... 6,342,340 918,409
------------
10,373,022
------------
TRINIDAD AND TOBAGO 1.3%
Sei Holdings IX Inc.:
11.00%, 11/30/00.......................................... 380,000 409,074
144A, 11.00%, 11/30/00.................................... 5,210,000 5,608,617
------------
6,017,691
------------
</TABLE>
11
PAGE
TEMPLETON EMERGING MARKETS INCOME FUND, INC.
STATEMENT OF INVESTMENTS, AUGUST 31, 1998 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT* VALUE
- --------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM SECURITIES (CONT.)
TURKEY 8.6%
Cellco Finance NV, 15.00%, 8/01/05.......................... $ 9,450,000 $ 7,111,125
Pera Financial Services, 9.375%, 10/15/02................... 8,670,000 7,442,874
Republic of Turkey:
9.875%, 2/23/05........................................... 7,450,000 5,364,000
144A, 10.00%, 9/19/07..................................... 23,950,000 18,965,406
------------
38,883,405
------------
VENEZUELA 9.4%
Republic of Venezuela:
144A, 9.125%, 6/18/07..................................... 7,200,000 3,546,000
Reg S, 9.125%, 6/18/07.................................... 9,700,000 4,777,250
9.25%, 9/15/27............................................ 84,179,000 33,882,046
------------
42,205,296
------------
TOTAL LONG TERM SECURITIES (COST $642,384,200).............. 425,007,825
------------
SHORT TERM INVESTMENT (COST $745,435) .2%
Centrais Electricas Brasileiras, 10.00%, 10/30/98........... 750,000 637,500
------------
TOTAL INVESTMENT BEFORE REPURCHASE AGREEMENT (COST
$643,129,635)............................................. 425,645,325
------------
(a)REPURCHASE AGREEMENT 1.2%
Morgan Stanley Inc., 5.75%, 9/01/98 (Maturity Value
$5,562,888)
(COST $5,562,000) Collateralized by U.S. Treasury Notes &
Bonds..................................................... 5,562,000 5,562,000
------------
TOTAL INVESTMENTS (COST $648,691,635) 95.8%................. 431,207,325
OTHER ASSETS, LESS LIABILITIES 4.2%......................... 19,122,027
------------
TOTAL NET ASSETS 100.0%..................................... $450,329,352
------------
------------
</TABLE>
CURRENCY ABBREVIATION:
<TABLE>
<S> <C>
ARS -- Argentina Peso
</TABLE>
*Securities traded in U.S. dollars unless otherwise indicated.
(a)At August 31, 1998, all repurchase agreements held by the Fund had been
entered into on that date.
See Notes to Financial Statements.
12
PAGE
TEMPLETON EMERGING MARKETS INCOME FUND, INC.
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1998
<TABLE>
<S> <C>
Assets:
Investments in securities, at value (cost $643,129,635).... $ 425,645,325
Repurchase agreement, at value and cost.................... 5,562,000
Cash....................................................... 818
Interest receivable........................................ 19,870,730
-------------
Total assets.......................................... 451,078,873
-------------
Liabilities:
Payable to affiliates...................................... 460,880
Accrued liabilities........................................ 288,641
-------------
Total liabilities..................................... 749,521
-------------
Net assets, at value........................................ $ 450,329,352
-------------
Net assets consist of:
Undistributed net investment income........................ $ 8,455,421
Net unrealized depreciation................................ (217,484,323)
Accumulated net realized loss.............................. (5,580,713)
Capital shares............................................. 664,938,967
-------------
Net assets, at value........................................ $ 450,329,352
-------------
-------------
Net asset value per share ($450,329,352 / 47,605,757 shares
outstanding).............................................. $9.46
-------------
-------------
</TABLE>
See Notes to Financial Statements.
13
PAGE
TEMPLETON EMERGING MARKETS INCOME FUND, INC.
Financial Statements (continued)
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED AUGUST 31, 1998
<TABLE>
<S> <C> <C>
Interest Income............................................. $ 65,439,816
Expenses:
Management fees (Note 3)................................... $ 5,460,341
Administrative fees (Note 3)............................... 963,590
Transfer agent fees........................................ 704,000
Custodian fees............................................. 110,674
Reports to shareholders.................................... 171,782
Registration and filing fees............................... 45,000
Professional fees.......................................... 54,000
Directors' fees and expenses............................... 45,000
Amortization of organization costs......................... 5,702
Other...................................................... 18,481
-------------
Total expenses........................................ 7,578,570
-------------
Net investment income........................... 57,861,246
-------------
Realized and unrealized gains (losses):
Net realized gain from:
Investments............................................... 13,589,145
Foreign currency transactions............................. 6,186
-------------
Net realized gain..................................... 13,595,331
Net unrealized depreciation on:
Investments............................................... (244,307,554)
Translation of assets and liabilities denominated in
foreign currencies...................................... (36)
-------------
Net unrealized depreciation........................... (244,307,590)
-------------
Net realized and unrealized loss............................ (230,712,259)
-------------
Net decrease in net assets resulting from operations........ $(172,851,013)
-------------
-------------
</TABLE>
See Notes to Financial Statements.
14
PAGE
TEMPLETON EMERGING MARKETS INCOME FUND, INC.
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED AUGUST 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
--------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income..................................... $ 57,861,246 $ 56,317,185
Net realized gain from investments and foreign currency
transactions............................................ 13,595,331 53,696,242
Net unrealized appreciation (depreciation) on investments
and translation of assets and liabilities denominated in
foreign currencies....................................... (244,307,590) 16,278,173
--------------------------------
Net increase (decrease) in net assets resulting from
operations............................................ (172,851,013) 126,291,600
Distributions to shareholders from net investment income... (59,031,139) (59,031,138)
--------------------------------
Net increase (decrease) in net assets................... (231,882,152) 67,260,462
Net assets:
Beginning of year.......................................... 682,211,504 614,951,042
--------------------------------
End of year................................................ $ 450,329,352 $682,211,504
--------------------------------
Undistributed net investment income included in net assets:
End of year................................................ $ 8,455,421 $ 7,034,740
--------------------------------
--------------------------------
</TABLE>
See Notes to Financial Statements.
15
PAGE
TEMPLETON EMERGING MARKETS INCOME FUND, INC.
Notes to Financial Statements
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Templeton Emerging Markets Income Fund, Inc. (the Fund) is registered under the
Investment Company Act of 1940 as a closed-end, diversified investment company.
The 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 or sovereign-related entities and private sector
companies in emerging market countries. The following summarizes the Fund's
significant accounting policies.
a. SECURITY VALUATION:
Securities listed or traded on a recognized national exchange or NASDAQ are
valued at the latest reported sales price. Over-the-counter securities and
listed securities for which no sale is reported are valued within the range of
the latest quoted bid and asked prices. Securities for which market quotations
are not readily available are valued at fair value as determined by management
in accordance with procedures established by the Board of Directors.
b. FOREIGN CURRENCY TRANSLATION:
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the exchange rate 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. dollars at the exchange rate in effect on the transaction
date. 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 separately report the effect of changes in foreign exchange
rates from changes in market prices on securities held. Such changes are
included in net realized and unrealized gain or loss from investments.
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 and the difference between the recorded amounts
of interest and foreign withholding taxes and the U.S. dollar equivalent of the
amounts actually received or paid. Net unrealized foreign exchange gains and
losses arise from changes in foreign exchange rates on foreign currency
denominated assets and liabilities other than investments in securities held at
the end of the reporting period.
c. INCOME TAXES:
No provision has been made for income taxes because the Fund's policy is to
qualify as a regulated investment company under the Internal Revenue Code and to
distribute all of its taxable income.
d. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS:
Security transactions are accounted for on trade date. Realized gains and losses
on security transactions are determined on a specific identification basis.
Certain income from foreign securities is recorded as soon as information is
available to the Fund. Interest income and estimated expenses are accrued daily.
Distributions to shareholders are recorded on the ex-dividend date.
16
PAGE
TEMPLETON EMERGING MARKETS INCOME FUND, INC.
Notes to Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)
e. ACCOUNTING ESTIMATES:
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the amounts of income and expense during the reporting
period. Actual results could differ from those estimates.
2. CAPITAL SHARES
As of August 31, 1998, there were 100,000,000 shares authorized ($.01 par
value). During the years ended August 31, 1998 and 1997, there were no capital
share transactions; all reinvested distributions were satisfied with previously
issued shares purchased in the open market.
3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Certain officers of the Fund are also officers or directors of Templeton
Investment Counsel, Inc. (TICI) and Franklin Templeton Services, Inc. (FT
Services), the Fund's investment manager and administrative manager,
respectively.
The Fund pays an investment management fee to TICI of 0.85% per year of the
average daily net assets of the Fund. The Fund pays an administrative fee to FT
Services of 0.15% per year of the Fund's average daily net assets. The Fund pays
monthly a transfer agent fee to Paine Webber Group Inc. equal, on an annual
basis to 0.10% of the average daily assets of the Fund.
4. INCOME TAXES
At August 31, 1998, the net unrealized depreciation based on the cost of
investments for income tax purposes of $650,411,114 was as follows:
<TABLE>
<S> <C>
Unrealized appreciation..................................... $ 452,889
Unrealized depreciation..................................... (225,218,678)
-------------
Net unrealized depreciation................................. $(224,765,789)
=============
</TABLE>
Net investment income and net realized capital gains differ for financial
statement and tax purposes primarily due to differing treatments of wash sales.
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the year
ended August 31, 1998, aggregated $742,423,354 and $742,347,574, respectively.
17
PAGE
TEMPLETON EMERGING MARKETS INCOME FUND, INC.
Independent Auditor's Report
THE BOARD OF DIRECTORS AND SHAREHOLDERS
TEMPLETON EMERGING MARKETS INCOME FUND, INC.
We have audited the accompanying statement of assets and liabilities, including
the statement of investments, of Templeton Emerging Markets Income Fund, Inc. as
of August 31, 1998, 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, 1998, by correspondence with the custodian. 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, 1998, 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
New York, New York
September 29, 1998
18
PAGE
TEMPLETON EMERGING MARKETS INCOME FUND, INC.
Annual Meeting of Shareholders, February 17, 1998
An Annual Meeting of Shareholders of the Fund was held at the Fund's offices,
500 East Broward Boulevard, Fort Lauderdale, Florida, on February 17, 1998. The
purpose of the meeting was to elect three Directors of the Fund, to ratify the
selection of McGladrey & Pullen, LLP, as the Fund's independent auditors for the
fiscal year ending August 31, 1998, and in their discretion, to authorize the
proxyholders to vote upon other such matters that may legally come before the
meeting or any adjournment of the meeting. At the meeting, the following persons
were elected by the shareholders to serve as Directors of the Fund: Harmon E.
Burns, Andrew H. Hines, Jr. and Charles B. Johnson.* The shareholders ratified
the selection of McGladrey & Pullen, LLP, to serve as the Fund's independent
auditors for the fiscal year ending August 31, 1998. No other business was
transacted at the meeting.
The results of the voting at the Annual Meeting are as follows:
1. The election of three (3) Directors for the term set forth below:
<TABLE>
<CAPTION>
% OF % OF
OUTSTANDING OUTSTANDING
TERM EXPIRING 2001: FOR SHARES WITHHELD SHARES
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Harmon E. Burns............................................. 42,328,969 88.92% 645,189 1.35%
Andrew H. Hines, Jr. ....................................... 42,298,340 88.85% 675,818 1.42%
Charles B. Johnson.......................................... 42,359,221 88.98% 614,937 1.29%
</TABLE>
2. The ratification or rejection of the selection of McGladrey & Pullen, LLP, as
independent auditors for the Fund for the fiscal year ending August 31, 1998:
<TABLE>
<CAPTION>
% OF % OF % OF
OUTSTANDING OUTSTANDING OUTSTANDING
FOR SHARES AGAINST SHARES ABSTAIN SHARES
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
42,303,997 88.86% 262,193 0.55% 407,968 0.86%
</TABLE>
*Harris J. Ashton, Nicholas F. Brady, S. Joseph Fortunato, John Wm. Galbraith,
Edith E. Holiday, Betty P. Krahmer, Gordon S. Macklin and Fred R. Millsaps are
Directors of the Fund who are currently serving and whose terms of office
continued after the Annual Meeting of Shareholders.
19
PAGE
TEMPLETON EMERGING MARKETS INCOME FUND, INC.
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
The Fund offers a Dividend Reinvestment and Cash Purchase 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
ChaseMellon Shareholder Services, Investor Services, P.O. Box 3338, South
Hackensack, NJ 07606-1938, to receive the Plan brochure. -- To receive dividends
or distributions in cash, the shareholder must notify Mellon Securities Trust
Company (the "Plan Agent") at the address above or the institution in whose name
the shares are held. The Plan Agent must receive written notice within 10
business days before the record date for the 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, the
participant 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 or if dividends
and/or capital gains distributions are payable only in cash, the participant
will receive shares purchased on the New York Stock Exchange or otherwise on the
open market. -- A participant has the option of submitting additional payments
to the Plan Agent, in any amounts of at least $100, up to a maximum of $5,000
per month, for the purchase of Fund shares for his or her account. These
payments shall be made by check or money order payable to "Mellon Securities
Trust Co." and sent to ChaseMellon Shareholder Services, Investor Services, P.O.
Box 382009, Pittsburgh, PA 15250-8009, Attn: Templeton Emerging Markets Income
Fund, Inc. The Plan Agent shall apply such payments (less a $5.00 service charge
and less a pro rata share of trading fees) to purchases of Fund shares in the
open market. -- 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 the Plan Agent sent to
ChaseMellon Shareholder Services, Investor Services, P.O. Box 3338, South
Hackensack, NJ 07606-1938. Upon withdrawal, the participant will receive,
without charge, stock certificates issued in the participant's name for all full
shares held by the Plan Agent; or, if the participant wishes, the Plan Agent
will sell the participant's shares and send the proceeds, less a service charge
of $5.00 and less trading fees. -- Whenever shares are purchased on the New York
Stock Exchange or otherwise on the open market, each participant will pay a pro
rata portion of trading fees. Trading fees will be deducted from amounts to be
invested.
SHAREHOLDER INFORMATION
Shares of Templeton Emerging Markets Income Fund, Inc. are traded daily on the
New York Stock Exchange under the symbol "TEI." Information about the net asset
value and the market price is published each Monday in the Wall Street Journal,
weekly in Barron's and each Saturday in The New York Times and other newspapers.
Daily market prices for the Fund's shares are published in the New York Stock
Exchange Composite Transactions section of newspapers.
For current information about dividends and shareholder accounts, call
1-800-416-5585.
The daily closing net asset value as of the previous business day may be
obtained when available by calling Franklin Templeton Fund Information after 7
a.m. Pacific Time any business day at 1/800-DIAL BEN(R) (1-800-342-5236).
If any shareholder is not receiving copies of the Reports to Shareholders
because shares are registered in a broker's name or in a custodian's name, he or
she can request that his or her name be added to the Fund's mailing list, by
writing Templeton Emerging Markets Income Fund, Inc., 100 Fountain Parkway, P.O.
Box 33030, St. Petersburg, FL 33733-8030.
20
PAGE
LITERATURE REQUEST
For a free brochure and prospectus, which contain more complete information,
including charges and expenses, call Franklin Templeton Fund Information at
1-800/DIAL BEN(R) (1-800/342-5236). Please read the prospectus carefully before
investing or sending 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
Franklin Global Health Care Fund
Mutual Discovery Fund
Templeton Developing
Markets Trust
Templeton Foreign Fund
Templeton Foreign Smaller
Companies Fund
Templeton Global
Infrastructure Fund
Templeton Global
Opportunities Trust
Templeton Global Real Estate Fund
Templeton Global
Smaller Companies Fund
Templeton Greater European Fund
Templeton Growth Fund
Templeton Latin America Fund
Templeton Pacific Growth Fund
Templeton World Fund
GLOBAL GROWTH AND INCOME
Franklin Global Utilities Fund
Mutual European Fund
Templeton Global Bond Fund
Templeton Growth and
Income Fund
GLOBAL INCOME
Franklin Global Government
Income Fund
Franklin Templeton Global
Currency Fund
Franklin Templeton Hard
Currency Fund
Templeton Americas Government
Securities Fund
GROWTH
Franklin Biotechnology
Discovery Fund
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
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 Financial Services Fund
Mutual Qualified Fund
Mutual Shares Fund
FUND ALLOCATOR SERIES
Franklin Templeton Conservative
Target Fund
Franklin Templeton Moderate
Target Fund
Franklin Templeton Growth
Target Fund
INCOME
Franklin Adjustable Rate
Securities Fund
Franklin Adjustable U.S.
Government Securities Fund
Franklin's AGE High Income Fund
Franklin Bond Fund
Franklin Floating Rate Trust
Franklin Investment Grade
Income Fund
Franklin Short-Intermediate
U.S. Government Securities Fund
Franklin U.S. Government
Securities Fund
Franklin Money Fund
Franklin Federal Money Fund
FRANKLIN FUNDS SEEKING
TAX-FREE INCOME
Federal Intermediate-Term
Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free Income Fund
Insured Tax-Free Income Fund
Puerto Rico Tax-Free
Income Fund
Tax-Exempt Money Fund
FRANKLIN STATE-SPECIFIC
FUNDS SEEKING
TAX-FREE INCOME
Alabama
Arizona**
Arkansas***
California**
Colorado
Connecticut
Florida**
Georgia
Hawaii***
Indiana
Kentucky
Louisiana
Maryland
Massachusetts+
Michigan**
Minnesota+
Missouri
New Jersey
New York**
North Carolina
Ohio+
Oregon
Pennsylvania
Tennessee***
Texas
Virginia
Washington***
VARIABLE ANNUITIES++
Franklin Valuemark(R)
Franklin Templeton
Valuemark Income Plus
(an immediate annuity)
*These funds are now closed to new accounts, with the exception of retirement
plan accounts.
**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. The Franklin Valuemark Funds are managed by Franklin
Advisers, Inc. and its Templeton and Franklin affiliates.
09/98
PAGE
TEMPLETON EMERGING MARKETS
INCOME FUND, INC.
100 Fountain Parkway
P.O. Box 33030
St. Petersburg, Florida 33733-8030
TRANSFER AGENT
Chase Mellon Shareholder Services
450 West 33rd Street
New York, New York 10001
1-800/416-5585
FUND INFORMATION
1-800/342-5236
Investors should be aware that the value of
investments made for the Fund may go down as
well as up, and that the Investment Manager
may make errors in selecting securities for
the Fund's portfolio. Like any investment in
securities, the value of Fund's portfolio will
be subject to the risk of loss from market,
currency, economic, political and other
factors. The Fund and its 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.
TLTEI A98 10/98 Printed on recycled paper
