-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KreukrPCxNmsI5aJ8WNhHbsbSd2cv91RALfYV1Nx+ewTAEAY0zDhlALzPeY55uZI Iz5TH04q5/SQkVsxmHIy6w== 0000950149-97-001051.txt : 19970520 0000950149-97-001051.hdr.sgml : 19970520 ACCESSION NUMBER: 0000950149-97-001051 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970228 FILED AS OF DATE: 19970515 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TEMPLETON EMERGING MARKETS INCOME FUND INC CENTRAL INDEX KEY: 0000909112 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 593192205 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-07866 FILM NUMBER: 97605898 BUSINESS ADDRESS: STREET 1: BROWARD FINANCIAL CENTRE STREET 2: 500 EAST BROWARD BLVD STE 2100 CITY: FORT LAUDERDALE STATE: FL ZIP: 33394-3091 BUSINESS PHONE: 3055277500 MAIL ADDRESS: STREET 2: 500 EAST BROWARD BLVD STE 2100 CITY: FORT LAUDERDALE STATE: FL ZIP: 33394-3091 FORMER COMPANY: FORMER CONFORMED NAME: TEMPLETON EMERGING MARKETING INCOME FUND INC DATE OF NAME CHANGE: 19930714 N-30D 1 TEMPLETON EMERGING MARKETS INCOME A/R - 2/28/97 1 Templeton Emerging Markets Income Fund Your Fund's Objective: The Templeton Emerging Markets Income Fund seeks high current income, with a secondary objective of capital appreciation, by investing primarily in a portfolio of high-yielding debt obligations of sovereign-related entities and private sector companies in emerging market countries. April 15, 1997 Dear Shareholder: We are pleased to bring you the semi-annual report for the Templeton Emerging Markets Income Fund for the six months ended February 28, 1997. During this period, bond prices rallied in many emerging market countries in response to their governments' market-oriented policies, improved corporate earnings, and increased demand for such assets by new investors entering the market. These so-called "crossover" investors were in large part represented by financial institutions that normally invest in high-yield U.S. securities, but were searching for the higher returns available in emerging markets. Within this environment, the Fund posted a six-month total return of 12.34% in market-price terms, and 12.41% in net asset value terms, as discussed in the Performance Summary on page 5. On February 28, 1997, debt from Mexico, Argentina, and Brazil represented more than 47% of total net 1 2 Templeton Emerging Markets Income Fund Geographic Distribution on 2/28/97 Based on Total Net Income [PIE CHART] Latin America 56.2% United States 19.0% Europe 14.1% Asia 10.7%
assets. Mexico appeared to complete its recovery from the peso devaluation crisis of 1994, and by early 1997, repaid the entire stabilization loan granted by the U.S. two years ago. Spurred on by foreign investment and rising exports, Mexico's economy showed strong growth. In anticipation of these events, we increased our holdings there, from 11.1% to 22.6% of total net assets. During the reporting period, Argentina's economy continued to recuperate from recession, and Brazil's government moved forward on constitutional reform. These developments, along with expectations of future privatization and fiscal reform, increased the value of our Argentine and Brazilian holdings. However, we sold some of this debt at the end of February because of our concern that U.S. interest rates might rise and lead to higher rates in these markets. We increased our Russian holdings during the reporting period as a result of our optimism concerning recent reforms in its economic infrastructure. Russia's government agreed with the International Monetary Fund (IMF) on monetary, fiscal, and foreign reserve targets and also began implementing economic policies designed to improve its budget deficit and balance of payments. In the past, Russia's inefficient tax collection system had forced the government to rely primarily on borrowing as a source of financing, but during the reporting period tax receipts began to improve. Other recent reforms included restructuring the banking sector and refinancing domestic debt by selling bonds to international investors. These measures contributed to lower yields for their domestic 2 3 treasury bonds and reduced the government's cost of funding. Russia also began to renegotiate its non-performing foreign debt with international creditors. However, uncertainty surrounding President Boris Yeltsin's health remained a source of market volatility. Of course, investing in Russian securities involves special considerations not typically associated with investing in the U.S. securities markets, including significant risks, such as political and social uncertainty and the pervasiveness of corruption and crime in the Russian economic system. During the six months under review, we reduced our holdings in countries with inconsistent economic policies. For example, we sold our Ecuadorian bonds because we believed the country's debt was trading above fair value, and we were concerned about policies being pursued by President Bucaram. In Eastern Europe, Bulgaria underwent a severe political and financial crisis in January 1997, which led many foreign investors to doubt the nations's ability to service its external debt. We sold our Bulgarian positions before this crisis because of concerns that the government could not meet its financial obligations without IMF support. This discussion reflects the strategies we employed for the Fund during the six months under review, and includes our opinions as of the close of the period. Since economic and market conditions are constantly changing, our strategies, and our evaluations, conclusions and decisions regarding portfolio holdings may change as new circumstances arise. Although past performance of a specific investment or sector cannot guarantee future performance, such information can be useful in analyzing securities we purchase or sell for the Fund. Of course, investments in foreign securities involve special risks, such as market and currency volatility and adverse economic, social and political developments in the countries where the Fund is invested. 3 4 Developing markets involve heightened risks related to the same factors, in addition to risks associated with the relatively small size and lesser liquidity of these markets. These risks and other considerations are discussed in the Fund's prospectus. We appreciate your support, welcome your comments and look forward to serving you in the future. Sincerely, /s/ Neil S. Devlin - ------------------- Neil S. Devlin, CFA Portfolio Manager Templeton Emerging Markets Income Fund, Inc. CELEBRATING 50 YEARS This year marks 50 years of business for Franklin Templeton. Over these years, we have experienced profound changes in technology, regulations and customer expectations within the mutual fund industry. As one of the largest mutual fund families, we're proud to be an innovative industry leader, providing people like you with an opportunity to invest in companies and governments around the globe. In addition, we want to stress that all securities markets move both up and down. Mixed in with the good years can be some bad years. Accordingly, mutual fund share prices also move up and down. Every investor should expect such fluctuations, which can be wide. When markets are going down, as well as up, we encourage investors to maintain a long-term perspective. We thank you for your past support and look forward to serving your investment needs in the years ahead. 4 5 PERFORMANCE SUMMARY In market-price terms, the Templeton Emerging Markets Income Fund produced a total return of 12.34% for the six-month period ended February 28, 1997. Based on the change in actual net asset value (in contrast to market price), the Fund delivered a total return of 12.41% for the same period. Both total return figures assume reinvestment of dividends and capital gains in accordance with the dividend reinvestment plan. During the reporting period, the Fund's closing price on the New York Stock Exchange (NYSE) increased by 87.5 cents ($0.875), from $12.00 per share on August 31, 1996 to $12.875 on February 28, 1997, while the net asset value increased 95 cents ($0.95), from $12.92 to $13.87. Shareholders received income distributions totaling 62 cents ($0.62) per share. Distributions will vary depending on income earned by the Fund and any profits realized from the sale of securities in the portfolio. Past performance is not predictive of future results. TEMPLETON EMERGING MARKETS INCOME FUND Periods ended 2/28/97
Since Inception One-Year Three-Year (9/23/93) Cumulative Total Return(1) Based on change in net asset value 25.09% 33.43% 38.57% Based on change in market price 19.89% 27.34% 20.70% Average Annual Total Return(2) Based on change in net asset value 25.09% 10.09% 9.97% Based on change in market price 19.89% 8.39% 5.63%
1. Cumulative total return represents the change in value of an investment over the periods indicated. 2. Average annual total return represents the average annual change in value of an investment over the periods indicated. All calculations assume reinvestment of dividends and capital gains, either at net asset value or at market price on the reinvestment date, in accordance with the dividend reinvestment plan. Past expense reductions by the Fund's manager and shareholder servicing agent increased the Fund's total returns. Investment return and principal value will fluctuate with market conditions, currencies and the political and economic climates of countries where investments are made. Emerging markets involve heightened risks related to the same factors, in addition to those associated with the relatively small size and lesser liquidity of these markets. You may have a gain or loss when you sell your shares. Past performance is not predictive of future results. 5 6 Many investors have asked us about the activities of Sir John Templeton, since his retirement from the funds. We asked Professor Robert Herrmann to update us on Sir John's current activities and his comments follow. THE NEW CAREER OF SIR JOHN TEMPLETON [PHOTO OF SIR JOHN TEMPLETON] By Professor Robert Herrmann In 1992, Sir John Templeton retired after a 50-year career of helping investors manage their money. Currently, he devotes all of his time and efforts to the John Templeton Foundation. A major portion of his assets remain invested in Templeton funds, managed by many of the investment professionals he selected and trained. For sentimental reasons, he allows his name to be associated with the funds, although he knows no more about their management and holdings than any other investor. Sir John Templeton established the Templeton Foundation in 1987, to foster the acquisition of spiritual information through scientific research. Working with scientists, theologians and others, he strives toward a new science that uses empirical and statistical scientific methods to discover and test spiritual knowledge. A crucial ingredient in his research is what Sir John calls "humility theology," an attitude of humility toward the Creator, combined with receptiveness to the theological significance of current scientific discoveries. Universal spiritual laws, or "laws of life," are among the areas of investigation. In his recent book, Worldwide Laws of Life, Sir John compiles 200 laws and proverbs from nearly all religions, and deeply embedded in human history. For example, the Golden Rule taught by Jesus in the Sermon on the Mount, states "Do unto others as you would have others do unto you," and is affirmed by all major religions as an acceptable, universal law of life. Other books which Sir John has authored or co-authored during the past few years include: The Humble Approach, Is God the Only Reality, Evidence of Purpose, Who's Who in Theology and Science and The God Who Would Be Known. With an annual budget of more than $30 million, the Templeton Foundation sponsors 60 programs focusing on spiritual progress and the benefits of freedom. Sir John's first sizable investment in the programs was the Templeton Prize for Progress in Religion. A panel of nine judges gives the annual award which now exceeds $1.2 million to individuals who have shown extraordinary originality in furthering the world's understanding of God or spirituality. Recipients of the prize include Professor Paul Davies, author of The Mind of God; the Right Honorable Lord Jacobovits, former Chief Rabbi of Great Britain and The Commonwealth; the Reverend Dr. Billy Graham, world-renowned preacher and presidential inauguration speaker; Mr. Nikkyo Nimano, founder of the World Conference on Religion and Peace; and Sir Sarepalli Radhakrishnan, former President of India, and Oxford professor of Eastern Religions and Ethics. To encourage young people's and their parents' appreciation of spiritual laws of life, Sir John established an essay contest for teenagers in his home county of Franklin, Tennessee. Students submit essays about the spiritual life principles they plan to follow, and prizes are offered semiannually. In 1996, more than 800 youth participated. Twenty-six similar programs 6 7 have been launched in various locations, with the support of generous local donors. The Foundation also sponsors a worldwide program that awards college-level faculty who teach courses integrating science and religion. During the program's first two years, more than 200 courses were created. The Foundation maintains an extensive program of research and education on the health benefits of spirituality, including prizes for medical schools providing courses on spirituality in medicine. Lastly, the Foundation publishes a newsletter with over 2,000 subscribers. Free subscriptions are available to Templeton shareholders by writing to the Foundation. To contact Sir John Templeton or receive the free newsletter subscription, please write to: The John Templeton Foundation 2 Radnor Corporate Center #320 100 Matsonford Road Radnor, PA 19087 7 8 TEMPLETON EMERGING MARKETS INCOME FUND, INC. Financial Highlights - -------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE (For a share outstanding throughout the period)
PERIOD FROM SIX MONTHS SEPTEMBER 23, 1993 ENDED YEAR ENDED AUGUST 31 (COMMENCEMENT OF FEBRUARY 28, 1997 --------------------------------- OPERATIONS) TO (UNAUDITED) 1996 1995 AUGUST 31, 1994 ----------------- --------------- --------------- ------------------ Net asset value, beginning of period $ 12.92 $ 11.52 $ 12.35 $ 14.02 -------- -------- -------- -------- Income from investment operations: Net investment income .59 1.24 1.33 1.18 Net realized and unrealized gain (loss) .98 1.40 (.92) (1.77) -------- -------- -------- -------- Total from investment operations 1.57 2.64 .41 (.59) -------- -------- -------- -------- Underwriting expenses deducted from capital -- -- -- (.03) -------- -------- -------- -------- Distributions: Dividends from net investment income (.62) (1.24) (1.24) (1.00) Distributions from net realized gains -- -- -- (.05) -------- -------- -------- -------- Total distributions (.62) (1.24) (1.24) (1.05) -------- -------- -------- -------- Change in net asset value .95 1.40 (.83) (1.67) -------- -------- -------- -------- Net asset value, end of period $ 13.87 $ 12.92 $ 11.52 $ 12.35 ======== ======== ======== ======== TOTAL RETURN* Based on market value per share 12.34% 23.73% (4.28)% (9.71)% Based on net asset value per share 12.41% 24.31% 3.82% (4.55)% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000) $ 660,067 $ 614,951 $ 548,448 $587,954 Ratio of expenses to average net assets 1.20%** 1.09% .81% .86%** Ratio of expenses, exclusive of fee waiver, to average net assets 1.20%** 1.20% 1.28% 1.25%** Ratio of net investment income to average net assets 8.79%** 10.14% 11.79% 9.66%** Portfolio turnover rate 163.44% 77.90% 58.73% 91.73%
* NOT ANNUALIZED FOR PERIODS OF LESS THAN ONE YEAR. ** ANNUALIZED. SEE NOTES TO FINANCIAL STATEMENTS. 8 9 TEMPLETON EMERGING MARKETS INCOME FUND, INC. Investment Portfolio, February 28, 1997 (unaudited) - --------------------------------------------------------------------------------
PRINCIPAL IN COUNTRY LOCAL CURRENCY** VALUE - --------------------------------------------------------------------------------------------------------------------- LONG TERM SECURITIES: 81.1% - --------------------------------------------------------------------------------------------------------------------- ARGENTINA: 12.3% Argentina Republic of, 9.25%, 2/23/01 U.S. 28,530,000 $ 29,207,587 Argentina Republic of, 11.375%, 1/30/17 U.S. 4,200,000 4,467,750 Bridas Corp., Yankee, 12.50%, 11/18/99 U.S. 12,180,000 13,245,750 Argentina Local Market Securities Trust 1994-I (Goldman Sachs Group, L.P.), 8/15/01 U.S. 12,500,000 14,687,500 Industrias Metalurgicas Pescarmona, 11.75%, 3/27/98, 144A U.S. 5,900,000 5,995,875 Morgan Stanley Repack Arg Dom Secs Trust, 14.75%, 9/01/02 U.S. 11,800,000 13,835,500 ----------- 81,439,962 - --------------------------------------------------------------------------------------------------------------------- BRAZIL: 12.3% Abril SA, 12.00%, 10/25/03, 144A U.S. 5,525,000 5,897,937 Brazil Govt., 8.875%, 11/05/01 U.S. 29,725,000 29,992,525 Centrais Electricas Brasileiras SA, 10.00%, 10/30/98, 144A U.S. 5,550,000 5,758,125 Companhia Suzano Papel, 10.25%, 10/06/01 U.S. 6,000,000 6,067,500 Copene-Petroquimica Nordeste SA, 9.50%, 10/19/01, 144A U.S. 14,150,000 14,291,500 Government of Brazil, 5.00%, 4/15/24 U.S. 7,625,000 5,008,672 Government of Brazil, conv., L, 6.5625%, FRN, 4/15/12 U.S. 9,100,000 7,496,125 Tevecap SA, 12.625%, 11/26/04, 144A U.S. 6,070,000 6,532,837 ----------- 81,045,221 - --------------------------------------------------------------------------------------------------------------------- COLOMBIA: 1.0% Banco Ganadero SA, 9.75%, 8/26/99, 144A U.S. 5,580,000 5,852,025 Empresa Colombiana de Petroleos, 7.25%, 7/08/98 U.S. 1,000,000 1,010,000 ----------- 6,862,025 - --------------------------------------------------------------------------------------------------------------------- COSTA RICA: 1.0% Banco Central de Costa Rica, A, 6.25%, 5/21/10 U.S. 8,300,000 6,889,000 - --------------------------------------------------------------------------------------------------------------------- CZECH REPUBLIC: 2.6% Ceskoslovenska OBchodni Banka, 11.125%, 8/26/97 Csk. 144,580,000 4,957,695 CEZ, 14.375%, 1/27/01 Csk. 122,770,000 4,359,497 Skofin, 11.625%, 2/09/98, 144A Csk. 230,750,000 7,956,077 ----------- 17,273,269 - --------------------------------------------------------------------------------------------------------------------- GUATEMALA: 1.4% Asociacion Nacional del Cafe, 11.00%, 8/31/98 U.S. 8,728,000 9,011,660 - --------------------------------------------------------------------------------------------------------------------- INDIA: 0.8% Essar Gujarat Ltd., 8.33750%, FRN, 7/15/99, 144A U.S. 5,300,000 5,127,750 - ---------------------------------------------------------------------------------------------------------------------
9 10 TEMPLETON EMERGING MARKETS INCOME FUND, INC. Investment Portfolio, February 28, 1997 (unaudited) (cont.) - --------------------------------------------------------------------------------
PRINCIPAL IN COUNTRY LOCAL CURRENCY** VALUE - --------------------------------------------------------------------------------------------------------------------- LONG TERM SECURITIES (CONT.) - --------------------------------------------------------------------------------------------------------------------- INDONESIA: 5.4% PT Astra International, 9.75%, 4/29/01 U.S. 6,150,000 $ 6,519,000 PT Indah Kiat Pulp & Paper Corp., 8.875%, 11/01/00, 144A U.S. 4,840,000 4,882,350 PT Inti Indorayon Utama, 9.125%, 10/15/00 U.S. 6,830,000 6,761,700 PT Polysindo Eka Perkasa, 13.00%, 6/21/01 U.S. 5,000,000 5,675,000 PT Polysindo Intl. Finance Co., B 11.375%, 6/15/06 U.S. 2,535,000 2,737,800 Tjiwi Kimia Int'l Finance Co. BV, 13.25%, 8/01/01 U.S. 8,000,000 9,100,000 ----------- 35,675,850 - --------------------------------------------------------------------------------------------------------------------- LITHUANIA: 0.6% Republic of Lithuania, 10.00%, 12/22/97, 144A U.S. 3,730,000 3,812,993 Republic of Lithuania, 10.00%, 12/22/97 U.S. 250,000 255,563 ----------- 4,068,556 - --------------------------------------------------------------------------------------------------------------------- MEXICO: 22.6% Banco Nacional Obra Serv., 9.625%, 11/15/03 U.S. 3,500,000 3,626,875 Bancomer S.A., 8.00%, 7/07/98 U.S. 11,100,000 11,176,313 Cemex SA, 10.75%, 7/15/00, 144A U.S. 6,340,000 6,760,025 United Mexican States, 11.00781%, FRN, 7/21/97, 144A U.S. 13,000,000 13,211,250 United Mexican States, 11.375%, 9/15/16 U.S. 50,990,000 56,089,000 United Mexican States, 11.50%, 5/15/26, GLOB BD U.S. 21,275,000 23,748,219 United Mexican States, 9.875%, 1/15/07 U.S. 24,775,000 25,735,031 United Mexican States, A, 6.25%, 12/31/19 U.S. 4,100,000 3,139,063 United Mexican States, B, 6.25%, 12/31/19 U.S. 7,700,000 5,895,312 ----------- 149,381,088 - --------------------------------------------------------------------------------------------------------------------- PANAMA: 0.9% Republic of Panama, 6.54688%, FRN, 5/10/02 U.S. 5,923,077 5,863,846 - --------------------------------------------------------------------------------------------------------------------- PERU: 0.2% Guaranteed Capital Corp. Ltd., 11.00%, 3/21/97 U.S. 1,526,667 1,526,667 - --------------------------------------------------------------------------------------------------------------------- PHILIPPINES: 4.5% National Power Corp., 7.625%, 11/15/00, 144A U.S. 10,000,000 10,075,000 Philippine Long Distance Telephone Co., 10.625%, 6/02/04 U.S. 5,500,000 6,312,900 Philippine Long Distance Telephone Co., 9.25%, 6/30/06 U.S. 4,980,000 5,316,150 Subic Power Corp., 9.50%, 12/28/08, 144A U.S. 7,530,407 7,878,688 ----------- 29,582,738 - ---------------------------------------------------------------------------------------------------------------------
10 11 TEMPLETON EMERGING MARKETS INCOME FUND, INC. Investment Portfolio, February 28, 1997 (unaudited) (cont.) - --------------------------------------------------------------------------------
PRINCIPAL IN COUNTRY LOCAL CURRENCY** VALUE - --------------------------------------------------------------------------------------------------------------------- LONG TERM SECURITIES (CONT.) - --------------------------------------------------------------------------------------------------------------------- POLAND: 1.2% Poland Communications Inc., 9.875%, 11/01/03, 144A U.S. 7,590,000 $ 7,547,306 - --------------------------------------------------------------------------------------------------------------------- RUSSIA: 9.8% Russia, 9.25%, 11/27/01, Reg S U.S. 60,200,000 59,334,625 *Russia, when issued 12/31/97 U.S. 8,650,000 5,238,656 ----------- 64,573,281 - --------------------------------------------------------------------------------------------------------------------- TRINIDAD AND TOBAGO: 0.9% Sei Holdings IX Inc., 11.00%, 11/30/00, 144A U.S. 5,210,000 5,587,725 - --------------------------------------------------------------------------------------------------------------------- VENEZUELA: 3.6% Electricidad de Caracas, 6.5625%, FRN, SER A1, 9/30/03 U.S. 2,618,618 2,350,210 Republic of Venezuela, 6.75%, 3/31/20, PAR BOND, B U.S. 26,100,000 20,097,000 Venezuela Republic of, 6.4375%, 3/31/20, FRN, Ser. W/A U.S. 1,290,000 1,119,881 ----------- 23,567,091 ----------- TOTAL LONG TERM SECURITIES (cost $516,735,391) 535,023,035 - --------------------------------------------------------------------------------------------------------------------- SHORT TERM OBLIGATIONS: 0.7% - --------------------------------------------------------------------------------------------------------------------- Federal Home Loan Bank (D/N), 3/06/97 U.S. 700,000 699,694 Federal Home Loan Mortgage Corp., 5.23%, with maturities to 3/25/97 U.S. 2,135,000 2,128,280 U. S. Treasury Bill, 4.98% to 5.03%, with maturities to 6/05/97 U.S. 2,052,000 2,027,390 ----------- TOTAL SHORT TERM OBLIGATIONS (cost $4,853,097) 4,855,364 - --------------------------------------------------------------------------------------------------------------------- REPURCHASE AGREEMENTS: 2.0% (cost $13,002,000) - --------------------------------------------------------------------------------------------------------------------- MATURITY VALUE Bank of America, 5.34% Collateralized by 12,990,000 U.S. Treasury Note, 5/31/98, Value $13,266,038 U.S. 13,007,786 13,002,000 - --------------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS: 83.8% (cost $534,590,488) 552,880,399 UNREALIZED GAIN IN FORWARD EXCHANGE CONTRACTS: 56,439 OTHER ASSETS, LESS LIABILITIES: 16.2% 107,129,721 ------------ TOTAL NET ASSETS: 100.0% $660,066,559 ===========
* NON-INCOME PRODUCING. ** CURRENCY OF COUNTRIES INDICATED. SEE NOTES TO FINANCIAL STATEMENTS. 11 12 TEMPLETON EMERGING MARKETS INCOME FUND, INC. Financial Statements - -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES February 28, 1997 (unaudited) Assets: Investments in securities, at value (identified cost $534,590,488) $552,880,399 Cash 187 Receivables: Investment securities sold 267,974,406 Interest 13,782,607 Unamortized organization costs 9,276 Unrealized gain on forward exchange contracts (Note 5) 56,439 ------------ Total assets 834,703,314 ------------ Liabilities: Payable for investment securities purchased 173,764,692 Accrued expenses 872,063 ------------ Total liabilities 174,636,755 ------------ Net assets, at value $660,066,559 ============ Net assets consist of: Undistributed net investment income $ 7,945,292 Net unrealized appreciation 21,559,019 Accumulated net realized loss (34,376,719) Net capital paid in on shares of capital stock 664,938,967 ------------ Net assets, at value $660,066,559 ============ Shares outstanding 47,605,757 ============ Net asset value per share ($660,066,559 / 47,605,757 shares outstanding) $ 13.87 ============
STATEMENT OF OPERATIONS for the six months ended February 28, 1997 (unaudited) Interest income $31,802,470 Expenses: Management fees (Note 3) $ 2,704,960 Administrative fees (Note 3) 477,347 Transfer agent fees 350,000 Custodian fees 78,000 Reports to shareholders 94,250 Audit fees 30,000 Legal fees 20,000 Registration and filing fees 35,000 Directors' fees and expenses 23,000 Amortization of organization costs 2,819 Other 641 ----------- Total expenses 3,816,017 ----------- Net investment income 27,986,453 Realized and unrealized gain: Net realized gain on: Investments 34,155,819 Foreign currency transactions 1,474,889 ----------- 35,630,708 ----------- Net unrealized appreciation on: Investments 11,083,159 Foreign currency translation of other assets and liabilities (69,234) ----------- 11,013,925 ----------- Net realized and unrealized gain 46,644,633 ----------- Net increase in net assets resulting from operations $74,631,086 ===========
SEE NOTES TO FINANCIAL STATEMENTS. 12 13 TEMPLETON EMERGING MARKETS INCOME FUND, INC. Financial Statements (cont.) - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS ENDED FEBRUARY 28, 1997 YEAR ENDED (UNAUDITED) AUGUST 31, 1996 ----------------- --------------- Increase (decrease) in net assets: Operations: Net investment income $ 27,986,453 $ 58,857,589 Net realized gain on investment and foreign currency transactions 35,630,708 22,811,582 Net unrealized appreciation 11,013,925 43,865,000 ------------ ------------ Net increase in net assets resulting from operations 74,631,086 125,534,171 Distributions to shareholders from net investment income (29,515,569) (59,031,139) ------------ ------------ Net increase in net assets 45,115,517 66,503,032 Net assets: Beginning of period 614,951,042 548,448,010 ------------ ------------ End of period $ 660,066,559 $ 614,951,042 ============ ============
SEE NOTES TO FINANCIAL STATEMENTS. 13 14 TEMPLETON EMERGING MARKETS INCOME FUND, INC. Notes to Financial Statements (unaudited) - -------------------------------------------------------------------------------- 1. SUMMARY OF ACCOUNTING POLICIES Templeton Emerging Markets Income Fund, Inc. (the Fund) is a closed-end, non-diversified management investment company registered under the Investment Company Act of 1940. The Fund seeks high current income and capital appreciation by investing primarily in a portfolio of high yielding debt obligations of sovereign or sovereign-related entities and private sector companies in emerging market countries. The following summarizes the Fund's significant accounting policies. A. SECURITIES VALUATIONS: Securities, including options, listed or traded on a recognized national or foreign exchange or NASDAQ are valued at the last reported sales prices on the principal exchange on which the securities are traded. Over-the-counter securities and listed securities for which no sale is reported are valued at the mean between the last current bid and asked prices. Securities for which market quotations are not readily available are valued at fair value as determined in good faith by management and approved by the Board of Directors. B. FOREIGN EXCHANGE CONTRACTS: The Fund enters into forward exchange contracts and currency option contracts in order to hedge against foreign exchange risks. (i) Forward Exchange Contracts: These contracts are valued daily and the Fund's equity therein, representing unrealized gain or loss on the contracts, is included in the Statement of Assets and Liabilities. Realized and unrealized gains and losses are included in the Statement of Operations. (ii) Currency Option Contracts: Options purchased are recorded as investments; options written (sold) are accounted for as liabilities. When an option expires, the premium (original option value) is realized as a gain if the option was written or realized as a loss if the option was purchased. When the exercise of an option results in a cash settlement, the difference between the premium and the settlement proceeds is realized as a gain or loss. When securities are acquired or delivered upon exercise of an option, the acquisition cost or sale proceeds are adjusted by the amount of the premium. When an option is closed, the difference between the premium and the cost to close the position is realized as a gain or loss. C. INDEXED SECURITIES: The Fund may invest in debt instruments in which the principal and/or interest is dependent on another factor such as a yield curve, currency exchange rates or commodity prices. The Fund's objective in holding these securities, commonly called structured notes, is to tailor the Fund's investment based on specific risk and returns it wishes to assume while avoiding unwanted risk or change the Fund's exposure to a particular foreign exchange rate or the spread between two foreign exchange rates. D. FOREIGN CURRENCY TRANSACTIONS: Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars based on the rate of exchange of such currencies against U.S. dollars on the date of valuation. Purchases and sales of portfolio securities and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. When the Fund purchases or sells foreign securities it will customarily enter into a foreign exchange contract to minimize foreign exchange risk from the trade date to the settlement date of such transactions. The Fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments. Reported net realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions, the differences between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund's books, and the U.S. dollar equivalent of the amounts actually received or 14 15 TEMPLETON EMERGING MARKETS INCOME FUND, INC. Notes to Financial Statements (unaudited) (cont.) - -------------------------------------------------------------------------------- paid. Net unrealized foreign exchange gains and losses arise from changes in the value of assets and liabilities other than investments in securities at the end of the fiscal period, resulting from changes in the exchange rates. E. INCOME TAXES: It is the Fund's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable income to its shareholders. Therefore, no provision has been made for income taxes. F. UNAMORTIZED ORGANIZATION COSTS: Organization costs are being amortized on a straight line basis over a five year period. G. SECURITY TRANSACTIONS, INVESTMENT INCOME, DISTRIBUTIONS AND EXPENSES: Security transactions are accounted for on a trade date basis. Distributions to shareholders, which are determined in accordance with income tax regulations, are recorded on ex-dividend date. Interest income and estimated expenses are accrued daily. H. REPURCHASE AGREEMENTS: The Fund, through its custodians, receives delivery of the underlying securities, whose market is required to be at least 102% of the resale price at the time of purchase. The Fund's investment advisor, Templeton Investment Counsel, Inc., is responsible for determining that the value of these underlying securities remains at least equal to the resale price. I. ACCOUNTING ESTIMATES: The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the amounts of income and expense during the reporting period. Actual results could differ from those estimates. J. SECURITIES TRADED ON A WHEN-ISSUED OR DELAYED DELIVERY BASIS: The Fund may trade securities on a when-issued or delayed delivery basis, with payment and delivery scheduled for a future date. These transactions are subject to market fluctuations and are subject to the risk that the value at delivery may be more or less than the trade date purchase price. Although the Fund will generally purchase these securities with the intention of acquiring such securities, it may sell such securities before the settlement date. These securities are identified on the accompanying Investment Portfolio. The Fund has set aside sufficient investment securities as collateral for these purchase commitments. Included in the statement of assets and liabilities as of February 28, 1997 are receivables for investment securities sold and payables for investment securities purchased of $108,471,745 and $110,471,748, respectively, related to the sale and purchase of Russian when-issued securities. The realization of these receivables and payables are subject to the risk that such securities may never be issued. Included in net unrealized gains on investments is unrealized gains of $3,235,950 related to positions sold and unrealized gains of $2,703 on positions held as of February 28, 1997. In the event these securities are not issued, such gains will not be realized. 2. TRANSACTIONS IN SHARES OF CAPITAL STOCK As of February 28, 1997, there were 100,000,000 shares of $.01 par value capital stock authorized. During the six months ended February 28, 1997 and the year ended August 31, 1996, there were no capital share transactions. 15 16 TEMPLETON EMERGING MARKETS INCOME FUND, INC. Notes to Financial Statements (unaudited) (cont.) - -------------------------------------------------------------------------------- 3. INVESTMENT MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES Certain officers of the Fund are also officers of Templeton Investment Counsel, Inc. (TICI) and Franklin Templeton Services, Inc. (FTSI), the Fund's investment manager and administrative manager, respectively. The Fund pays monthly an investment management fee to TICI equal, on an annual basis, to 0.85% of the average daily net assets of the Fund. The Fund pays monthly a transfer agent fee to Paine Webber equal, on an annual basis, to 0.10% of average daily net assets of the Fund. The Fund pays FTSI monthly a fee of 0.15% per annum of the Fund's average net assets. An officer of the Fund is a partner of Dechert Price & Rhoads, legal counsel for the Fund, which firm received fees for the six months ended February 28, 1997. 4. PURCHASES AND SALES OF SECURITIES Purchases and sales of securities (excluding short-term securities) for the six months ended February 28, 1997 aggregated $936,541,153 and $1,041,258,526, respectively. The cost of securities for federal income tax purposes is $538,469,215. Realized gains and losses are reported on an identified cost basis. At February 28, 1997, the aggregate gross unrealized appreciation and depreciation of portfolio securities, based on cost for federal income taxes purposes, was as follows: Unrealized appreciation $16,620,601 Unrealized depreciation (2,209,417) ----------- Net unrealized appreciation $14,411,184 ===========
5. FINANCIAL INSTRUMENTS During the six months ended February 28, 1997, the Fund has been a party to financial instruments with off-balance-sheet risks, primarily forward exchange contracts, in order to minimize the risk to the Fund, with respect to its portfolio transactions, from adverse changes in the relationship between the U.S. dollar and foreign currencies and interest rates. These instruments involve market risk in excess of the amount recognized on the Statement of Assets and Liabilities; some of these risks have been minimized by offsetting contracts. Risks arise from the possible inability of counterparties to meet the terms of their contracts, future movement in currency values and interest rates and contract positions that are not exact offsets. The contract amount indicates the extent of the Fund's involvement in such contracts. Forwards: A forward exchange contract is an agreement between two parties to exchange different currencies at a specific rate at an agreed future date. At February 28, 1997, the Fund has an outstanding forward exchange contract for the sale of a currency as set out below. The contract is reported in the financial statements at the Fund's net equity, as measured by the difference between the forward exchange rates at the reporting date and the forward exchange rates at the date of entry into the contract. Net unrealized gain in forward exchange contract to sell 19,300,000 Deutschemarks for 11,519,500 U.S. dollars, March 27, 1997 $56,439 ========
6. TAX LOSS CARRYOVERS At August 31, 1996, the Fund had tax basis capital losses of $67,000,000 which may be carried over to offset capital gains. Such losses expire in 2003 and 2004. 16 17 TEMPLETON EMERGING MARKETS INCOME FUND, INC. Annual Meeting of Shareholders, February 25, 1997 - -------------------------------------------------------------------------------- An Annual Meeting of Shareholders of the Fund was held at the Fund's offices, 500 E. Broward Blvd., Ft. Lauderdale, Florida, on February 25, 1997. The purpose of the meeting was to elect five directors of the Fund, to ratify the selection of McGladrey & Pullen, LLP, as the Fund's independent public accountants for the fiscal year ending August 31, 1997 and in their discretion, to authorize the proxyholders to vote upon such other matters which may legally come before the meeting or any other adjournment thereof. At the meeting, the following persons were elected by the shareholders to serve as directors of the Fund: John Wm. Galbraith, Betty P. Krahmer, Gordon S. Macklin, Fred R. Millsaps and Edith E. Holiday. The shareholders ratified the selection of McGladrey & Pullen, LLP, to serve as the Fund's independent public accountants for the fiscal year ending August 31, 1997. No other business was transacted at the meeting. The results of the voting at the Annual Meeting are as follows: 1. Election of five (5) Directors for the terms set forth below:
% OF % OF OUTSTANDING OUTSTANDING FOR SHARES WITHHELD SHARES ----------- ----------- -------- ----------- Term expiring 2000: John Wm. Galbraith 43,332,952 91.02% 684,949 1.44% Betty P. Krahmer 43,409,663 91.18% 608,238 1.28% Gordon S. Macklin 43,414,484 91.20% 603,419 1.26% Fred R. Millsaps 43,364,253 91.09% 653,648 1.37% Term expiring 1999: Edith E. Holiday 43,321,803 91.00% 696,098 1.46%
2. Ratification of the selection of McGladrey & Pullen, LLP, as independent public accountants of the Fund for the fiscal year ending August 31, 1997:
% OF % OF % OF OUTSTANDING OUTSTANDING OUTSTANDING FOR SHARES AGAINST SHARES ABSTAIN SHARES ----------- ----------- ------- ----------- ------- ----------- 43,441,913 91.25% 219,142 0.46% 354,648 0.74%
17 18 TEMPLETON EMERGING MARKETS INCOME FUND, INC. - -------------------------------------------------------------------------------- DIVIDEND REINVESTMENT PLAN The Fund offers a Dividend Reinvestment Plan ( the "Plan") with the following features: -- If shares of the Fund are held in the shareholder's name, the shareholder will automatically be a participant in the Plan unless he elects to withdraw. If the shares are registered in the name of a broker-dealer or other nominee (i.e., in "street name"), the broker-dealer or nominee will elect to participate in the Plan on the shareholder's behalf unless the shareholder instructs them otherwise, or unless the reinvestment service is not provided by the broker-dealer or nominee. -- Participants should contact Chemical Mellon Securities Trust Company, Dividend Reinvestment Services, P.O. Box 750, Pittsburgh, PA 15230, to receive the Plan brochure. -- To receive dividends or distributions in cash, the shareholder must notify Chemical Mellon Securities Trust Company ("Mellon") or the institution in whose name the shares are held. Mellon must receive written notice within 10 business days before the record date for distribution. -- Whenever the Fund declares dividends in either cash or common stock of the Fund, if the market price is equal to or exceeds net asset value at the valuation date, participants will receive the dividends entirely in stock at a price equal to the net asset value, but not less than 95% of the then current market price of the Fund's shares. If the market price is lower than net asset value and if dividends and/or capital gains distributions are payable only in cash, the participant will receive shares purchased on the New York Stock Exchange. -- The automatic reinvestment of dividends and/or capital gains does not relieve the participant of any income tax which may be payable on dividends or distributions. -- The participant may withdraw from the Plan without penalty at any time by written notice to Mellon. Upon withdrawal, the participant will receive, without charge, stock certificates issued in the participant's name for all full shares; or, if the participant's wishes, Mellon will sell the participant's shares and send the proceeds, net of any brokerage commissions. A $5.00 fee is charged by Mellon upon any cash withdrawal or termination. -- Whenever shares are purchased on the New York Stock Exchange, each participant will pay a pro rata portion of brokerage commissions. Brokerage commissions will be deducted from amounts to be invested. SHAREHOLDER INFORMATION Weekly comparative net asset value and market price information about Templeton Emerging Markets Income Fund, Inc. shares is published each Monday in the Wall Street Journal, weekly in Barron's and each Saturday in The New York Times and other newspapers in a table called "Publicly Traded Funds". The Fund's New York Stock Exchange trading symbol is TEI. For current information about the net asset value, call 1-800-357-0738. If any shareholder is not receiving copies of the Reports to the Shareholders because shares are registered in a broker's name or in a custodian's name, he or she can write and request that his or her name be added to the Fund's mailing list, by writing Templeton Emerging Markets Income Fund, Inc., 700 Central Avenue, St. Petersburg, FL 33701. 18 19 FRANKLIN TEMPLETON GROUP OF FUNDS LITERATURE REQUEST - Call 1-800/DIAL BEN (1-800/342-5236) today for a free descriptive brochure and prospectus on any of the funds listed below. The prospectus contains more complete information, including fees, charges and expenses, and should be read carefully before investing or sending money. GLOBAL GROWTH INCOME FRANKLIN STATE-SPECIFIC FUNDS SEEKING Franklin Global Health Care Fund Franklin Adjustable Rate TAX-FREE INCOME Securities Fund Franklin Templeton Japan Fund Franklin Adjustable U.S. Alabama Templeton Developing Markets Trust Government Securities Fund Arizona* Templeton Foreign Fund Franklin's AGE High Income Fund Arkansas** Templeton Foreign Smaller Franklin Investment Companies Fund California* Grade Income Fund Templeton Global Infrastructure Fund Colorado Franklin Short-Intermediate U.S. Templeton Global Government Securities Fund Connecticut Opportunities Trust Franklin U.S. Government Florida* Templeton Global Real Estate Fund Securities Fund Georgia Templeton Global Smaller Franklin Money Fund Companies Fund Hawaii** Franklin Federal Money Fund Templeton Greater European Fund Indiana Templeton Growth Fund Kentucky FOR NON-U.S. INVESTORS: Templeton Latin America Fund Louisiana Franklin Tax-Advantaged High Yield Securities Fund Templeton Pacific Growth Fund Maryland Franklin Tax-Advantaged Templeton World Fund Massachusetts*** International Bond Fund Michigan* Franklin Tax-Advantaged U.S. GLOBAL GROWTH AND INCOME Minnesota*** Government Securities Fund Franklin Global Utilities Fund Missouri FOR CORPORATIONS: Franklin Templeton German New Jersey Franklin Corporate Qualified Government Bond Fund New York* Dividend Fund Franklin Templeton North Carolina Global Currency Fund Ohio*** Mutual European Fund FRANKLIN FUNDS SEEKING Oregon Templeton Global Bond Fund TAX-FREE INCOME Pennsylvania Templeton Growth and Income Fund Federal Intermediate-Term Tennessee** Tax-Free Income Fund Texas GLOBAL INCOME Federal Tax-Free Income Fund Virginia High Yield Tax-Free Income Fund Franklin Global Government Income Fund Washington** Insured Tax-Free Income Fund Franklin Templeton Hard Puerto Rico Tax-Free Income Fund VARIABLE ANNUITIES+ Currency Fund Tax-Exempt Money Fund Franklin Valuemark(R) Franklin Templeton High Income Currency Fund Franklin Templeton Valuemark Income Plus Templeton Americas (an immediate annuity) Government Securities Fund *TWO OR MORE FUND OPTIONS AVAILABLE: LONG-TERM PORTFOLIO, INTERMEDIATE-TERM PORTFOLIO, A PORTFOLIO OF INSURED MUNICIPAL SECURITIES, AND/OR A HIGH YIELD PORTFOLIO (CA) AND A MONEY MARKET PORTFOLIO (CA AND NY). **THE FUND MAY INVEST UP TO 100% OF ITS ASSETS IN BONDS THAT PAY INTEREST SUBJECT TO THE FEDERAL ALTERNATIVE MINIMUM TAX. ***PORTFOLIO OF INSURED MUNICIPAL SECURITIES. +FRANKLIN VALUEMARK AND FRANKLIN TEMPLETON VALUEMARK INCOME PLUS ARE ISSUED BY ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA OR BY ITS WHOLLY OWNED SUBSIDIARY, PREFERRED LIFE INSURANCE COMPANY OF NEW YORK, AND DISTRIBUTED BY NALAC FINANCIAL PLANS, LLC. FGF 02/97 GROWTH Franklin Blue Chip Fund Franklin California Growth Fund Franklin DynaTech Fund Franklin Equity Fund Franklin Gold Fund Franklin Growth Fund Franklin MidCap Growth Fund Franklin Small Cap Growth Fund Mutual Discovery Fund GROWTH AND INCOME Franklin Asset Allocation Fund Franklin Balance Sheet Investment Fund Franklin Convertible Securities Fund Franklin Equity Income Fund Franklin Income Fund Franklin MicroCap Value Fund Franklin Natural Resources Fund Franklin Real Estate Securities Fund Franklin Rising Dividends Fund Franklin Strategic Income Fund Franklin Utilities Fund Franklin Value Fund Mutual Beacon Fund Mutual Qualified Fund Mutual Shares Fund Templeton American Trust, Inc. FUND ALLOCATOR SERIES: Franklin Templeton Conservative Target Fund Franklin Templeton Moderate Target Fund Franklin Templeton Growth Target Fund 20 Templeton Emerging Markets Income Fund, Inc. 700 Central Avenue St. Petersburg, Florida 33701-3628 Investors should be aware that the value of investments made for the Fund may go up as well as down and that the Investment Manager may make errors in selecting securities for the Fund's portfolio. Like any investment in securities, the Fund's portfolio will be subject to the risk of loss from market, currency, economic, political, and other factors. The Fund and Fund investors are not protected from such losses by the Investment Manager. Therefore, investors who cannot accept the risk of such losses should not invest in shares of the Fund. To ensure the highest quality of service, telephone calls to or from our service departments may be monitored, recorded, and accessed. These calls can be determined by the presence of a regular beeping tone. [GRAPHIC] TEMPLETON EMERGING MARKETS INCOME FUND, INC. SEMI-ANNUAL REPORT FEBRUARY 28, 1997 [FRANKLIN TEMPLETON LOGO] -----END PRIVACY-ENHANCED MESSAGE-----