ANNUAL REPORT
TEMPLETON EMERGING
MARKETS INCOME FUND, INC.
AUGUST 31, 2000
[FRANKLIN(R) TEMPLETON(R) LOGO]
<PAGE>
SHAREHOLDER LETTER
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Your Fund's Goal: Templeton Emerging Markets Income Fund seeks high current
income, with a secondary goal 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:
We are pleased to bring you this annual report of Templeton Emerging Markets
Income Fund, covering the 12 months ended August 31, 2000. During this period,
fixed income securities of many emerging-market countries rallied in response to
rising commodity prices and the implementation of sound economic policies by
many issuer governments. Credit ratings of many emerging market bonds were
upgraded while those of U.S. high yield bonds were downgraded by the leading
rating agencies, and many investors looking for attractive yields switched to
fixed income securities of emerging-market countries.
<TABLE>
<CAPTION>
CONTENTS
<S> <C>
Shareholder Letter ..... 1
Performance Summary .... 5
Important Notice to
Shareholders ........... 6
Financial Highlights &
Statement of Investments 7
Financial Statements ... 12
Notes to Financial
Statements ............. 15
Report of Independent
Accountants ............ 18
</TABLE>
[PYRAMID GRAPHIC]
The dollar value, number of shares or principal value, and complete legal titles
of all portfolio holdings are listed in the Fund's Statement of Investments
(SOI). The SOI begins on page 8.
<PAGE>
GEOGRAPHIC DISTRIBUTION
Based on Total Net Assets
8/31/00
[PIE CHART]
Latin American bonds generally performed well as they benefited from the
region's recovery from last year's recession. Brazil's Central Bank lowered
interest rates, while the government was successful in reducing its fiscal
deficit and stabilizing important credit ratios. Mexico continued to benefit
from strong economic growth in the U.S., and its bonds were upgraded to
investment-grade status. Ecuadorian bonds rallied following economic reforms
there. However, Argentina's economy faltered, and Argentine bonds generally
underperformed those of its neighbors.
Asian ex-Japan bonds, benefited from strong economic growth across the region,
particularly in the newly industrialized exporting countries. However, the rate
of economic growth in Asia began to level off as exports peaked because of
capacity constraints of companies producing exports.
As a whole, European fixed income securities delivered good returns mostly
because of the strong performance of Russian bonds, which rose 127% in response
to that nation's successful restructuring of defaulted debt, a relatively smooth
political transition following its presidential elections and its implementation
of tax reforms. These events led to an increase in foreign reserves and an
improvement in the country's creditworthiness.
Africa generally provided satisfactory returns for the 12 months under review.
However, bonds of the Ivory Coast and Nigeria dropped in value due to missed
payments and the possibility of debt restructuring with significant write-offs.
2
<PAGE>
Within this environment, Templeton Emerging Markets Income Fund posted a 21.62%
one-year cumulative total return based on market price and a 23.74% return based
on net asset value, as shown in the Performance Summary on page 5. The J.P.
Morgan Emerging Markets Bond Index Global (EMBIG) rose 30.23% during the same
period.(1)
On August 31, 2000, 63.7% of the Fund's total net assets were invested in Latin
American securities. Our largest regional holdings were Brazilian bonds (23.6%
of total net assets), followed by those from Argentina (12.9%), Venezuela (9.3%)
and Mexico (8.5%). Asian holdings made up 10.2% of the portfolio, with Indonesia
representing the largest country weighting in the region followed by the
Philippines. The Fund's European exposure remained comparatively small during
the period, split among Turkey (9.7%), Russia (5.4%), the Netherlands (3.5%) and
Bulgaria (2.2%).
During the period, we invested primarily in U.S. dollar-denominated bonds to
minimize currency exposure (92.5% of total net assets on August 31, 2000), and
favored sovereign Eurobonds over Brady bonds because of their relatively higher
current yield, and maintained very little emerging market currency exchange rate
exposure.
Looking forward, we will maintain our focus on bonds from those countries with
positive and sustainable economic growth, that we believe are making progress on
reform and adhering to prudent demand-management policies. In our opinion, the
underlying value of such securities should increase if the
TOP 10 COUNTRIES
8/31/00
<TABLE>
<CAPTION>
% OF TOTAL
NET ASSETS
------------------------------
<S> <C>
Brazil 23.6%
Argentina 12.9%
Turkey 9.7%
Venezuela 9.3%
Mexico 8.5%
Russia 5.4%
Indonesia 4.1%
Philippines 4.0%
Netherlands 3.5%
Colombia 3.5%
</TABLE>
1. Source: J.P. Morgan Securities, Inc. The unmanaged J.P. Morgan EMBIG measures
performance of external debt instruments in 14 emerging markets. It includes
reinvested interest. One cannot invest directly in an index, nor is an index
representative of the Fund's portfolio.
3
<PAGE>
economic performance and improved creditworthiness of these countries continues.
We expect to follow a defensive credit and currency posture in an effort to
minimize default rates and to meet the Fund's primary investment objective of
generating high income.
Of course, investing in foreign securities involves special risks, such as
adverse economic, social and political developments in the countries where the
Fund invests, as well as market and currency volatility. Emerging market
securities involve heightened risks related to the same factors, in addition to
those associated with the relatively small size and lesser liquidity of these
markets. Investing in any emerging market means accepting a certain amount of
volatility and, in some cases, the consequences of severe market corrections.
We welcome your comments and suggestions and look forward to serving your
investment needs in the years to come.
Sincerely,
Portfolio Management Team
Templeton Emerging Markets Income Fund, Inc.
--------------------------------------------------------------------------------
This discussion reflects our views, opinions and portfolio holdings as of August
31, 2000, the end of the reporting period. The information provided is not a
complete analysis of every aspect of any country, industry, security or the
Fund. Our strategies and the Fund's portfolio composition will change depending
on market and economic conditions. Although historical performance is no
guarantee of future results, these insights may help you understand our
investment and management philosophy.
--------------------------------------------------------------------------------
4
<PAGE>
ONE-YEAR PERFORMANCE SUMMARY
AS OF 8/31/00
Distributions will vary based on earnings of the Fund's portfolio and any
profits realized from the sale of the portfolio's securities, as well as the
level of the Fund's operating expenses. Past distributions are not indicative of
future trends. All total returns include reinvested distributions according to
the terms specified in the Fund's dividend reinvestment and cash purchase plan
and do not reflect any sales charges paid at inception or brokerage commissions
paid on secondary market purchases.
<TABLE>
<S> <C> <C>
One-Year Total Return 23.74% Based on change in Net Asset Value
21.62% Based on change in Market Price on
the New York Stock Exchange (NYSE)
Net Asset Value (NAV) $12.43 (8/31/00) $11.36 (8/31/99)
Change in NAV +$1.07
Market Price (NYSE) $10.6875 (8/31/00) $9.9375 (8/31/99)
Change in Market Price +$0.7500
Distributions (9/1/99-8/31/00) Dividend Income $1.24
</TABLE>
ADDITIONAL PERFORMANCE
AS OF 9/30/00
<TABLE>
<CAPTION>
INCEPTION
1-YEAR 5-YEAR (9/23/93)
-------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1)
Based on change in
NAV 19.12% 72.88% 75.33%
Based on change in
market price* 15.20% 58.87% 44.59%
Average Annual Total Return(2)
Based on change in
NAV 19.12% 11.56% 8.33%
Based on change in
market price* 15.20% 9.70% 5.39%
</TABLE>
* Market price returns assume reinvestment of dividends as of the 9/30/00
closing market price. Your actual returns may differ.
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.
Past expense reductions by the Fund's manager and shareholder servicing agent
increased the Fund's total return. Without these reductions, total return 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.
--------------------------------------------------------------------------------
For updated performance figures, please call Franklin Templeton at
1-800/342-5236.
Past performance does not guarantee future results.
5
<PAGE>
IMPORTANT NOTICE TO SHAREHOLDERS
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EURO RISK. On January 1, 1999, the European Economic and Monetary Union (EMU)
introduced a new single currency called the euro. By July 1, 2002, the euro,
which will be implemented in stages, will have replaced the national currencies
of most of the member countries.
It is not possible to predict the long-term impact of the euro on currency
values or on the business or financial condition of European countries and
issuers, and issuers in other regions, whose securities the Fund may hold, or
the impact, if any, on Fund performance. In the first year and a half of the
euro's existence, the exchange rates of the euro versus many of the world's
major currencies steadily declined. In this environment, U.S. and other foreign
investors experienced erosion of their investment returns on their
euro-denominated securities. The transition and the elimination of currency risk
among EMU countries may change the economic environment and behavior of
investors, particularly in European markets, but the full impact of those
changes cannot be assessed at this time.
SHARE REPURCHASE PROGRAM. On May 17, 2000, the Board of Directors of the Fund
authorized management to implement an open-market share repurchase program
pursuant to which the Fund may purchase, from time to time, shares of the Fund's
common stock in open-market transactions, at the discretion of management.
--------------------------------------------------------------------------------
6
<PAGE>
TEMPLETON EMERGING MARKETS INCOME FUND, INC.
Financial Highlights
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
--------------------------------------------------------
2000 1999 1998 1997 1996
--------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE+
(For a share outstanding throughout the year)
Net asset value, beginning of year......................... $11.36 $9.46 $14.33 $12.92 $11.52
--------------------------------------------------------
Income from investment operations:
Net investment income..................................... 1.27 1.26 1.22 1.18 1.24
Net realized and unrealized gains (losses)................ 1.03 1.88 (4.85) 1.47 1.40
--------------------------------------------------------
Total from investment operations........................... 2.30 3.14 (3.63) 2.65 2.64
--------------------------------------------------------
Capital share repurchases.................................. .01 -- -- -- --
--------------------------------------------------------
Distributions from net investment income................... (1.24) (1.24) (1.24) (1.24) (1.24)
--------------------------------------------------------
Net asset value, end of year............................... $12.43 $11.36 $9.46 $14.33 $12.92
========================================================
Total Return
Based on market value per share........................... 21.62% 37.66% (33.52)% 22.11% 23.73%
Based on net asset value per share........................ 23.74% 35.16% (27.44)% 22.20% 24.31%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's)............................ $587,397 $540,977 $450,329 $682,212 $614,951
Ratios to average net assets:
Expenses.................................................. 1.19% 1.18% 1.18% 1.19% 1.09%
Expenses, excluding waiver and payments by affiliate...... 1.19% 1.18% 1.18% 1.19% 1.20%
Net investment income..................................... 10.62% 11.30% 9.01% 8.62% 10.14%
Portfolio turnover rate.................................... 53.40% 38.29% 122.92% 266.79% 77.90%
</TABLE>
+Based on average weighted shares outstanding effective year ended August 31,
1999.
See Notes to Financial Statements.
7
<PAGE>
TEMPLETON EMERGING MARKETS INCOME FUND, INC.
STATEMENT OF INVESTMENTS, AUGUST 31, 2000
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT** VALUE
------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS 94.7%
ARGENTINA 12.9%
Republic of Argentina:
8.75%, 5/09/02............................................ $ 8,750,000 $ 8,443,750
11.00%, 10/09/06.......................................... 6,575,000 6,246,250
Reg S, 11.75%, 2/12/07.................................... 13,180,000ARS 11,587,538
11.75%, 4/07/09........................................... 35,205,000 32,907,874
11.375%, 3/15/10.......................................... 4,346,000 3,971,157
11.375%, 1/30/17.......................................... 7,400,000 6,539,750
9.75%, 9/19/27............................................ 7,800,000 6,023,063
------------
75,719,382
------------
BRAZIL 23.6%
Companhia Paranaense de Energia-Copel, 9.75%, 5/02/05....... 5,700,000 5,717,391
Globo Communicacoes Participacoes Ltd., 10.625%, 12/05/08... 7,000,000 6,220,900
Government of Brazil:
11.625%, 4/15/04.......................................... 5,100,000 5,318,025
11.25%, 7/26/07........................................... 5,000,000 4,987,500
9.375%, 4/07/08........................................... 18,500,000 16,846,563
14.50%, 10/15/09.......................................... 29,000,000 32,211,750
Series L, cvt., FRN, 7.4375%, 4/15/12..................... 18,275,000 14,151,795
12.75%, 1/15/20........................................... 2,000,000 1,957,500
10.125%, 5/15/27.......................................... 28,580,000 22,728,245
12.25%, 3/06/30........................................... 30,005,000 28,429,738
------------
138,569,407
------------
BULGARIA 2.2%
Republic of Bulgaria, FRN, 7.75%, 7/28/11................... 16,000,000 13,000,000
------------
COLOMBIA 3.5%
Republic of Colombia:
9.75%, 4/23/09............................................ 13,650,000 11,380,688
9.75%, 4/23/09, Series NOV................................ 10,300,000 9,389,789
------------
20,770,477
------------
ECUADOR 1.6%
Republic of Ecuador, 144A, 12.00%, 11/15/12................. 14,803,000 9,640,454
------------
INDIA .1%
+*Essar Steel Ltd.:
144A, FRN, 7.635%, 7/20/99................................ 475,000 249,375
Reg S, FRN, 7.635%, 7/20/99............................... 495,000 259,875
------------
509,250
------------
</TABLE>
8
<PAGE>
TEMPLETON EMERGING MARKETS INCOME FUND, INC.
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT** VALUE
------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
INDONESIA 4.1%
*PT Astra International, wts., 12/31/03..................... 5,786,583IDR $ 1,297,023
PT Indah Kiat Finance Mauritius Ltd., 10.00%, 7/01/07....... 16,375,000 9,538,438
PT Indah Kiat Pulp & Paper Corp., 144A, 8.875%, 11/01/00.... 4,840,000 4,779,500
+PT Inti Indorayon Utama, 9.125%, 10/15/00.................. 6,830,000 1,400,150
Tjiwi Kimia Int'l Finance Co. BV, 13.25%, 8/01/01........... 8,000,000 7,120,000
------------
24,135,111
------------
JAMAICA 1.1%
Government of Jamaica, Reg S, 9.625%, 7/02/02............... 6,575,000 6,400,434
------------
MEXICO 8.5%
Banco Nacional Obra Serv., 9.625%, 11/15/03................. 3,500,000 3,648,750
Bepensa SA, 144A, 9.75%, 9/30/04............................ 7,060,000 6,530,500
Petroleos Mexicanos (PEMEX), 9.375%, 12/02/08............... 3,280,000 3,411,200
Protexa Construcciones SA de CV, 144A, 12.125%, 7/24/02..... 5,130,217 3,975,918
United Mexican States:
8.625%, 3/12/08........................................... 21,575,000 21,499,485
10.375%, 2/17/09.......................................... 1,600,000 1,750,800
11.375%, 9/15/16.......................................... 595,000 699,125
11.50%, 5/15/26........................................... 6,750,000 8,336,250
------------
49,852,028
------------
NETHERLANDS 3.5%
Astra Overseas Finance NV, FRN, Reg S:
Series I, 6.7775%, 12/31/01............................... 923,000 830,700
Series II, 6.7775%, 6/30/05............................... 3,208,320 2,085,408
Series III, zero cpn., 6/30/06............................ 4,036,000 1,291,520
Cellco Finance NV:
144A, 12.75%, 8/01/05..................................... 3,900,000 4,085,250
15.00%, 8/01/05........................................... 11,450,000 12,494,813
------------
20,787,691
------------
PANAMA 2.2%
Republic of Panama, 9.375%, 4/01/29......................... 12,940,000 12,920,590
------------
PHILIPPINES 4.0%
Philippine Long Distance Telephone Co.:
10.625%, 6/02/04.......................................... 5,500,000 5,476,075
9.25%, 6/30/06............................................ 5,080,000 4,572,000
Republic of Philippines:
9.875%, 3/16/10........................................... 4,170,000 4,005,806
Reg S, 8.75%, 10/07/16.................................... 5,450,000 4,386,160
Subic Power Corp., 144A, 9.50%, 12/28/08.................... 5,334,483 4,987,632
------------
23,427,673
------------
</TABLE>
9
<PAGE>
TEMPLETON EMERGING MARKETS INCOME FUND, INC.
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT** VALUE
------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
RUSSIA 5.4%
Minfin of Russia:
144A, 10.00%, 6/26/07..................................... $ 20,050,000 $ 16,320,700
Reg S, 10.00%, 6/26/07.................................... 16,215,000 13,199,010
Russian Federation:
144A, FRN, 8.25%, 3/31/10................................. 495,542 349,357
144A, FRN, 2.25%, 3/31/30................................. 4,249,367 1,813,970
------------
31,683,037
------------
SOUTH KOREA 2.0%
Hanvit Bank, 144A, 12.75%, 3/01/10.......................... 11,500,000 11,802,450
------------
TRINIDAD AND TOBAGO 1.0%
SEI Holdings IX Inc.:
11.00%, 11/30/00.......................................... 380,000 380,000
144A, 11.00%, 11/30/00.................................... 5,210,000 5,210,000
------------
5,590,000
------------
TURKEY 9.7%
Pera Financial Services:
144A, 9.375%, 10/15/02.................................... 8,950,000 8,838,125
Reg S, 9.375%, 10/15/02................................... 1,100,000 1,086,250
Republic of Turkey:
144A, 9.875%, 2/23/05..................................... 7,450,000 7,505,875
144A, 10.00%, 9/19/07..................................... 17,450,000 17,428,188
12.375%, 6/15/09.......................................... 4,525,000 4,914,150
11.75%, 6/15/10........................................... 5,750,000 6,069,844
11.875%, 1/15/30.......................................... 10,000,000 10,900,000
------------
56,742,432
------------
VENEZUELA 9.3%
Republic of Venezuela:
144A, 9.125%, 6/18/07..................................... 7,200,000 5,706,000
Reg S, 9.125%, 6/18/07.................................... 10,050,000 7,964,625
9.25%, 9/15/27............................................ 60,754,000 41,217,792
------------
54,888,417
------------
TOTAL LONG TERM INVESTMENTS (COST $596,213,985)............. 556,438,833
------------
</TABLE>
10
<PAGE>
TEMPLETON EMERGING MARKETS INCOME FUND, INC.
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT** VALUE
------------------------------------------------------------------------------------------------
<S> <C> <C>
SHORT TERM INVESTMENTS (COST $5,694,000) 1.0%
Den Danske Bank, 6.625%, 9/01/00, Time Deposit.............. $ 5,694,000 $ 5,694,000
------------
TOTAL INVESTMENTS (COST $601,907,985) 95.7%................. 562,132,833
OTHER ASSETS, LESS LIABILITIES 4.3%......................... 25,264,333
------------
TOTAL NET ASSETS 100.0%..................................... $587,397,166
============
</TABLE>
CURRENCY ABBREVIATIONS:
ARS -- Argentine Peso
IDR -- Indonesian Rupiah
*Non-income producing.
**Securities denominated in U.S. dollars unless otherwise indicated.
+Represents defaulted bonds.
See Notes to Financial Statements.
11
<PAGE>
TEMPLETON EMERGING MARKETS INCOME FUND, INC.
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 2000
<TABLE>
<S> <C>
Assets:
Investments in securities, at value (cost $601,907,985).... $562,132,833
Receivables:
Investment securities sold................................ 8,178,504
Interest.................................................. 19,909,994
------------
Total assets.......................................... 590,221,331
------------
Liabilities:
Payables:
Investment securities purchased........................... 1,506,281
To affiliates............................................. 492,402
Funds advanced by custodian................................ 339,464
Accrued expenses........................................... 486,018
------------
Total liabilities..................................... 2,824,165
------------
Net assets, at value........................................ $587,397,166
============
Net assets consist of:
Undistributed net investment income........................ $ 12,974,767
Net unrealized depreciation................................ (39,775,152)
Accumulated net realized loss.............................. (47,128,641)
Capital shares............................................. 661,326,192
------------
Net assets, at value........................................ $587,397,166
============
Net asset value per share ($587,397,166 / 47,256,957 shares
outstanding).............................................. $12.43
============
</TABLE>
See Notes to Financial Statements.
12
<PAGE>
TEMPLETON EMERGING MARKETS INCOME FUND, INC.
Financial Statements (continued)
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED AUGUST 31, 2000
<TABLE>
<S> <C> <C>
Interest income (net of foreign taxes of $1,340)............ $ 67,193,637
Expenses:
Management fees (Note 3)................................... $ 4,833,310
Administrative fees (Note 3)............................... 852,935
Transfer agent fees........................................ 749,100
Custodian fees............................................. 93,200
Reports to shareholders.................................... 107,000
Registration and filing fees............................... 21,500
Professional fees.......................................... 63,500
Directors' fees and expenses............................... 53,000
Other...................................................... 11,604
------------
Total expenses........................................ 6,785,149
------------
Net investment income........................... 60,408,488
------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments............................................... (22,183,404)
Foreign currency transactions............................. 16,050
------------
Net realized loss..................................... (22,167,354)
Net unrealized appreciation on investments................. 70,799,475
------------
Net realized and unrealized gain............................ 48,632,121
------------
Net increase in net assets resulting from operations........ $109,040,609
============
</TABLE>
See Notes to Financial Statements.
13
<PAGE>
TEMPLETON EMERGING MARKETS INCOME FUND, INC.
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED AUGUST 31, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
-------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income..................................... $ 60,408,488 $ 59,782,959
Net realized loss from investments and foreign currency
transactions............................................. (22,167,354) (17,013,740)
Net unrealized appreciation on investments and translation
of assets and liabilities denominated in foreign
currencies............................................... 70,799,475 106,909,696
-------------------------------
Net increase in net assets resulting from operations.... 109,040,609 149,678,915
Distributions to shareholders from net investment income... (59,007,796) (59,031,139)
Capital share transactions (Note 2)........................ (3,612,775) --
-------------------------------
Net increase in net assets.............................. 46,420,038 90,647,776
Net assets:
Beginning of year.......................................... 540,977,128 450,329,352
-------------------------------
End of year................................................ $587,397,166 $540,977,128
===============================
Undistributed net investment income included in net assets:
End of year................................................ $ 12,974,767 $ 11,558,025
===============================
</TABLE>
See Notes to Financial Statements.
14
<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, non-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. 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.
15
<PAGE>
TEMPLETON EMERGING MARKETS INCOME FUND, INC.
Notes to Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)
d. 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
On May 17, 2000, the Board of Directors of the Fund authorized management to
implement an open-market share repurchase program pursuant to which the Fund
from time to time at the discretion of management may purchase shares of the
Fund's common stock.
At August 31, 2000, there were 100,000,000 shares authorized ($.01 par value).
During the year ended August 31, 2000, 348,800 shares were repurchased for
$3,612,775. The weighted average discount of market price to net asset value of
shares repurchased during the year ending August 31, 2000 was 14%. During the
year ended August 31, 1999, there were no share transactions; all reinvested
distributions were satisfied with previously issued shares purchased in the open
market. Through August 31, 2000, the Fund had repurchased a total of 348,800
shares.
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
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.
At August 31, 2000, the net unrealized depreciation based on the cost of
investments for income tax purposes of $610,610,019 was as follows:
<TABLE>
<S> <C>
Unrealized appreciation..................................... $ 7,707,352
Unrealized depreciation..................................... (56,184,538)
-------------
Net unrealized depreciation................................. $ (48,477,186)
=============
</TABLE>
Net realized capital gains differ for financial statement and tax purposes
primarily due to differing treatments of wash sales and losses realized
subsequent to October 31 on the sale of securities.
16
<PAGE>
TEMPLETON EMERGING MARKETS INCOME FUND, INC.
Notes to Financial Statements (continued)
4. INCOME TAXES (CONT.)
At August 31, 2000, the Fund had tax basis capital losses which may be carried
over to offset future capital gains. Such losses expire as follows:
Capital loss carryovers expiring in:
<TABLE>
<S> <C>
2007........................................................ $ 1,960,611
2008........................................................ 20,490,368
-----------
$22,450,979
===========
</TABLE>
At August 31, 2000, the Fund had deferred capital losses occurring subsequent to
October 31, 1999 of $15,975,629. For tax purposes, such losses will be reflected
in the year ending August 31, 2001.
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the year
ended August 31, 2000 aggregated $289,995,912 and $303,196,551, respectively.
17
<PAGE>
TEMPLETON EMERGING MARKETS INCOME FUND, INC.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Templeton Emerging Markets
Income Fund, Inc. (the "Fund") at August 31, 2000, the results of its operations
for the year then ended, the changes in its net assets and the financial
highlights for each of the two years in the period then ended, in conformity
with accounting principles generally accepted in the United States. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with auditing standards generally accepted in the United States, which require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included confirmation
of securities at August 31, 2000 by correspondence with the custodian and
brokers, provide a reasonable basis for the opinion expressed above. The
financial highlights for each of the three years ending August 31, 1998 were
audited by other independent accountants whose report dated September 29, 1998
expressed an unqualified opinion on those financial statements.
PricewaterhouseCoopers LLP
Ft. Lauderdale, Florida
September 29, 2000
18
<PAGE>
TEMPLETON EMERGING MARKETS INCOME FUND, INC.
Annual Meeting of Shareholders, March 7, 2000
An Annual Meeting of Shareholders of the Fund was held at the Fund's offices,
500 E. Broward Blvd., Ft. Lauderdale, Florida, on March 7, 2000. The purpose of
the meeting was to elect four Directors of the Fund; to ratify the selection of
PricewaterhouseCoopers LLP as the Fund's independent auditors for the fiscal
year ending August 31, 2000; and to authorize the proxyholders, in their
discretion, to vote upon such other matters that may properly come before the
meeting or any adjournments of the meeting. 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 and Fred R. Millsaps.*
Shareholders also ratified the selection of PricewaterhouseCoopers LLP to serve
as the Fund's independent auditors for the fiscal year ending August 31, 2000.
No other business was transacted at the meeting.
The results of the voting at the Annual Meeting are as follows:
1. The election of four (4) Directors:
<TABLE>
<CAPTION>
% OF % OF % OF
TERM EXPIRING 2003: FOR OUTSTANDING SHARES VOTED SHARES WITHHELD OUTSTANDING SHARES
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
John Wm. Galbraith........ 42,613,264 89.51% 98.24% 765,524 1.61%
Betty P. Krahmer.......... 42,612,461 89.51% 98.23% 766,327 1.61%
Gordon S. Macklin......... 42,622,043 89.53% 98.26% 756,745 1.59%
Fred R. Millsaps.......... 42,551,805 89.38% 98.09% 826,983 1.74%
<CAPTION>
% OF
TERM EXPIRING 2003: VOTED SHARES
--------------------------
<S> <C>
John Wm. Galbraith........ 1.76%
Betty P. Krahmer.......... 1.77%
Gordon S. Macklin......... 1.74%
Fred R. Millsaps.......... 1.91%
</TABLE>
2. The ratification of the selection of PricewaterhouseCoopers LLP as
independent auditors of the Fund for the fiscal year ending August 31, 2000:
<TABLE>
<CAPTION>
SHARES % OF % OF
VOTED OUTSTANDING SHARES VOTED SHARES
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
For......................................................... 42,762,421 89.82% 98.58%
Against..................................................... 309,271 0.65% 0.71%
Abstain..................................................... 307,096 0.65% 0.71%
</TABLE>
3. The transaction of any other business that may properly come before the
meeting or any adjournments thereof:
<TABLE>
<CAPTION>
SHARES % OF % OF
VOTED OUTSTANDING SHARES VOTED SHARES
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
For......................................................... 41,713,424 87.62% 96.16%
Against..................................................... 966,723 2.03% 2.23%
Abstain..................................................... 698,641 1.47% 1.61%
</TABLE>
*Harris J. Ashton, Nicholas F. Brady, Harmon E. Burns, Frank J. Crothers, S.
Joseph Fortunato, Andrew H. Hines, Jr., Edith E. Holiday, Charles B. Johnson and
Constantine D. Tseretopoulos 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 that 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.
20
<PAGE>
TEMPLETON EMERGING MARKETS INCOME FUND, INC.
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). The
Fund's net asset value and dividends are also listed on the NASDAQ Stock Market,
Inc.'s Mutual Fund Quotation Service ("NASDAQ MFQS").
Shareholders not receiving copies of the Reports to Shareholders because their
shares are registered in the name of a broker or a custodian can request that
they 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.
21
<PAGE>
ANNUAL REPORT
AUDITORS
PricewaterhouseCoopers L.L.P.
333 Market Street
San Francisco, CA 94105
TEMPLETON EMERGING MARKETS
INCOME FUND, INC.
100 Fountain Parkway
P.O. Box 33030
St. Petersburg, FL 33733-8030
TRANSFER AGENT
ChaseMellon Shareholder Services, L.L.C.
85 Challenger Road
Overpeck Centre
Ridgefield Park, NJ 07660
1-800/416-5585
chasemellon.com
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. Like any investment in securities, the value of the 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
this risk 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 A00 10/00 [RECYCLE LOGO] Printed on recycled paper
