UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-07866
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TEMPLETON EMERGING MARKETS INCOME FUND
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(Exact name of registrant as specified in charter)
500 EAST BROWARD BLVD., FORT LAUDERDALE, FL 33394-3091
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(Address of principal executive offices) (Zip code)
MURRAY L. SIMPSON, ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906
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(Name and address of agent for service)
Registrant's telephone number, including area code: (954) 527-7500
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Date of fiscal year end: 8/31
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Date of reporting period: 2/28/05
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ITEM 1. REPORTS TO STOCKHOLDERS
FEBRUARY 28, 2005
[photo omitted]
SEMIANNUAL REPORT
INCOME
Templeton Emerging Markets
Income Fund
[LOGO OMITTED]
FRANKLIN(R) TEMPLETON(R)
INVESTMENTS
Franklin O TEMPLETON O Mutual Series
Franklin Templeton Investments
GAIN FROM OUR PERSPECTIVE
Franklin Templeton's distinct multi-manager structure combines the specialized
expertise of three world-class investment management groups--Franklin, Templeton
and Mutual Series.
SPECIALIZED EXPERTISE
Each of our portfolio management groups operates autonomously, relying on its
own research and staying true to the unique investment disciplines that underlie
its success.
FRANKLIN. Founded in 1947, Franklin is a recognized leader in fixed income
investing and also brings expertise in growth- and value-style U.S. equity
investing.
TEMPLETON. Founded in 1940, Templeton pioneered international investing and, in
1954, launched what has become the industry's oldest global fund. Today, with
research offices in over 25 countries, they offer investors the broadest global
reach in the industry.
MUTUAL SERIES. Founded in 1949, Mutual Series is dedicated to a unique style of
value investing, searching aggressively for opportunity among undervalued
stocks, arbitrage situations and distressed companies.
TRUE DIVERSIFICATION
Because our management groups work independently and adhere to distinctly
different investment approaches, Franklin, Templeton and Mutual Series funds
typically have a low overlap of securities. That's why our funds can be used to
build truly diversified portfolios covering every major asset class.
RELIABILITY YOU CAN TRUST
At Franklin Templeton Investments, we seek to consistently provide investors
with exceptional risk-adjusted returns over the long term, as well as the
reliable account services that have helped us become one of the most trusted
names in financial services.
MUTUAL FUNDS | RETIREMENT PLANS | 529 COLLEGE SAVINGS PLANS | SEPARATE ACCOUNTS
[photo omitted]
Not part of the semiannual report
Contents
SEMIANNUAL REPORT
Templeton Emerging Markets
Income Fund ......................... 1
Performance Summary ................. 7
Important Notice to
Shareholders ........................ 8
Financial Highlights and
Statement of Investments ............ 9
Financial Statements ................ 13
Notes to Financial
Statements .......................... 16
Annual Meeting of
Shareholders ........................ 26
Dividend Reinvestment and
Cash Purchase Plan .................. 27
Shareholder Information ............. 30
Semiannual Report
Templeton Emerging Markets
Income Fund
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Templeton Emerging Markets Income Fund
seeks high, current income, with a secondary goal of capital appreciation, by
investing, under normal market conditions, at least 80% of its total net assets
in income-producing securities of sovereign or sovereign-related entities and
private sector companies in emerging market countries.
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:
Geographic Distribution *
Based on Total Net Assets as of 2/28/05
Latin America 44.9%
Europe 25.3%
Asia 24.6%
Middle East & Africa 2.2%
Short-Term Investments &
Other Net Assets 3.0%
*The Geographic Distribution is a snapshot of the Fund on 2/28/05 and may not
reflect ongoing repositioning or reinvestment of cash in the Fund.
Dear Shareholder:
We are pleased to bring you Templeton Emerging Markets Income Fund's semiannual
report for the period ended February 28, 2005.
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE
SOI BEGINS ON PAGE 10.
Semiannual Report | 1
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WHAT IS BALANCE OF PAYMENTS?
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Balance of payments is a record of all of a country's exports and imports of
goods and services, borrowing and lending with the rest of the world during a
particular time period. It helps a country evaluate its competitive strengths
and weaknesses and forecast the strength of its currency.
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WHAT IS A CURRENT ACCOUNT?
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A current account is that part of the balance of payments where all of one
country's international transactions in goods and services are recorded.
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PERFORMANCE OVERVIEW
For the six months under review, Templeton Emerging Markets Income Fund posted
cumulative total returns of 15.98% based on market price and 11.84% based on net
asset value. The Fund outperformed the J.P. Morgan (JPM) Emerging Markets Bond
Index Global (EMBIG), which posted an 8.01% cumulative total return in U.S.
dollar terms for the same period. 1 You can find the Fund's long-term
performance data in the Performance Summary on page 7.
ECONOMIC AND MARKET OVERVIEW
During the six months under review, overall global growth conditions remained
robust, particularly in the U.S. and Asia. Although there was some increase in
inflationary pressures regionally, inflation generally remained historically
low, and global treasury yield curves flattened over the period.
The U.S. economy experienced improved growth amid employment gains and strong
investment spending. The core Consumer Price Index moved higher, rising to 2.4%
at period-end from 1.7% at the beginning of the reporting period. In an effort
to ease inflationary pressures, the Federal Reserve Board raised the federal
funds target rate 100 basis points (100 basis points equal one percent) from
1.50% to 2.50%. Economic growth indicators were generally quite positive;
however, measures of the U.S. balance of payment position sharply deteriorated.
The U.S. trade deficit reached record levels, hitting a $61 billion monthly
deficit level in February 2005 and a current account deficit of 6.3% of gross
domestic product (GDP) in fourth quarter 2004. 2 Although financing of the
current account deficit through foreign purchases of U.S. securities continued
to rise over the reporting period, the increase was not enough to prevent a
decline in the U.S. dollar's value against the euro and other major trading
partners' currencies, and it depreciated 6.96% on a trade-weighted basis.
Economic growth in Europe generally moderated in the second half of 2004, with
the slowdown most apparent in the euro zone. During fourth quarter 2004, real
GDP growth in the euro zone slowed to 1.6% annualized. Soft labor markets
contributed to weak domestic demand conditions. Additionally, the export
sector's contributions to growth eased largely due to the euro's sustained
strength, which weighed on exports. Because of the weaker growth
1. Source: J.P. Morgan. The JPM EMBIG tracks total returns for U.S.
dollar-denominated debt instruments issued by emerging market sovereign and
quasi-sovereign entities: Brady bonds, loans and Eurobonds. Local bond market
returns are from country subindexes of the JPM EMBIG. The index is unmanaged and
includes reinvested interest. One cannot invest directly in an index, nor is an
index representative of the Fund's portfolio.
2. Sources: U.S. Census Bureau; The Financial Times Limited.
2 | Semiannual Report
conditions, underlying inflationary pressures were limited, and the European
Central Bank left interest rates unchanged at 2.00%. During the reporting
period, the euro rose 8.97% against the U.S. dollar.
Asia's economic performance was divided between mixed developments in Japan,
which experienced weakening growth indicators and continued deflationary
concerns, and generally strong economic performance elsewhere in Asia. In fourth
quarter 2004, Japan's GDP growth slowed to 0.5% compared with a year earlier,
while GDP grew 9.5% in China, 5.1% in Thailand and 3.3% in South Korea. 3 Asia
generally continued to produce current account surpluses, facilitating further
buildup of foreign currency reserves in the region. While Japan's foreign
currency accumulation slowed relative to prior periods given less government
intervention in currency markets, China's reserve accumulation accelerated. For
the six months under review, Japan's reserves rose $12 billion. From September
through December 2004, China's increased $114 billion.
INVESTMENT STRATEGY
We invest selectively in bonds around the world to generate income for the Fund,
seeking opportunities while monitoring changes in interest rates, currency rates
and credit risk.
MANAGER'S DISCUSSION
During the six months under review, global growth conditions remained favorable
for emerging market economies, particularly as strong growth in the U.S. and
Asia supported consumption demand for imports of goods and commodities from
emerging market countries. Sovereign interest rate spreads declined from 425
basis points (100 basis points equal one percentage point) greater than the U.S.
Treasury market at the beginning of the reporting period to 333 basis points at
period-end. Regionally, Latin American sovereign debt rose 8.70%, central and
eastern Europe's increased 9.51% and Asia's appreciated 4.08%. 1 Similarly, the
JPM Euro EMBIG rose 6.27% in euro terms and 15.80% in U.S. dollar terms during
the period. 4 The Fund benefited from selective sovereign debt exposure and from
diversification away from U.S. dollar-denominated sovereign bonds into local
currency debt markets.
TOP 10 COUNTRIES
2/28/05
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% OF TOTAL
NET ASSETS
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Brazil 17.9%
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Russia 11.3%
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Indonesia 9.8%
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Venezuela 9.8%
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Mexico 5.3%
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South Korea 4.8%
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Ukraine 4.8%
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Philippines 4.8%
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Poland 4.7%
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Argentina 4.7%
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3. Sources: Economic and Social Research Institute (Japan); National Bureau of
Statistics (China); National Economic and Social Development Board (Thailand);
Bank of Korea (South Korea).
4. Source: J.P. Morgan. The JPM Euro EMBIG tracks total returns for
euro-denominated, straight fixed coupon instruments issued by emerging market
sovereign and quasi-sovereign entities. The index includes 64 instruments from
19 countries.
Semiannual Report | 3
We sought this positioning given potential risk to sovereign yields from rising
U.S. interest rates, as well as currency risk to the U.S. dollar stemming from
weak balance of payment conditions.
LATIN AMERICA
With close economic ties to the U.S., Latin America experienced firmer economic
growth over the period, and the region also generated stronger current account
surpluses. The Fund's Latin American holdings were predominantly U.S.
dollar-denominated sovereign bonds. The JPM EMBIG's Venezuelan, Brazilian and
Argentine subindexes increased 12.08%, 11.00% and 10.30%, respectively, for the
six-month period. 1 Venezuela, as a large oil exporter, benefited from continued
strength in oil prices, which helped the country's credit fundamentals. In
Brazil, inflationary pressures accompanied solid economic growth during the
period, and largely as a result, Brazil's central bank raised interest rates 275
basis points. 5 Although Brazil remained the Fund's largest weighting at
period-end, the Fund trimmed overall exposure, moving to a slight underweighting
in Brazil relative to the JPM EMBIG. During the period, the Fund increased
exposure to performing Argentine bonds as economic stability along with progress
on debt restructuring supported Argentine bond performance.
EASTERN AND CENTRAL EUROPE
Ukraine and Russia were among the Fund's U.S. dollar-denominated eastern
European holdings during the period. Ukrainian sovereign bonds returned 8.71%,
helped by the landmark election of the presidential candidate many perceived as
market friendly. 1 In addition to a strong economic environment with 12% GDP
growth in 2004, such political developments seemed to provide a positive
backdrop for progress on previously stalled structural reform initiatives, which
has the potential to enhance Ukraine's credit standing. 6 Russia's sovereign
bonds appreciated in value 11.58%, benefiting from an investment grade sovereign
credit rating from Standard & Poor's and Moody's Investors Service, two
independent credit rating agencies. 1
5. Source: Central Bank of Brazil.
6. Source: Reuters.
4 | Semiannual Report
Among the Fund's local currency holdings in central Europe, Polish bonds rose
38.74% in U.S. dollar terms and Hungarian bonds increased 28.29% during the
period, as measured by the JPM Global Bond Index (GBI) Broad's country-specific
subindexes. 7 Following strong economic growth in the lead-up to European Union
accession, as well as slowing growth in the euro zone, growth in central Europe
began to moderate during the period. Additionally, favorable inflation
developments in central Europe facilitated interest rate cuts in Hungary of 275
basis points and prompted Poland's central bank to move to an easing bias. 8 In
addition to interest rate cuts supporting some bonds' performance, higher
interest rate levels relative to the euro zone supported the region's currency
performance, and central European currencies were among the top performing
during the period.
ASIA
Asia generally experienced strong economic growth during the period while
maintaining large current account surpluses. The Fund's local currency Asian
bond market exposure benefited performance relative to the JPM EMBIG, supported
by local currency strength against the U.S. dollar. For example, Indonesia's
bond market returned 12.08% in U.S. dollar terms, as measured by the HSBC Asian
Local Bond Index (ALBI), supported by favorable economic conditions in
Indonesia, such as slowing inflation and robust growth, as well as political
stability and attractive yields. 9 Additionally, the country's economy benefited
from greater investment spending, which rose 18.3% annualized in fourth quarter
2004. Elsewhere in Asia, the HSBC ALBI's South Korea and Thailand subindexes
returned 14.95% and 11.72% in U.S. dollar terms. 9 The Fund's Philippine
sovereign debt exposure underperformed the broader market during the reporting
period.
7. Source: J.P. Morgan. The JPM GBI Broad is a combination of the GBI Global and
other countries, launched in 1997 to increase country and return diversification
in international fixed income markets.
8. Source: Hungarian Central Bank.
9. Source: HSBC. The HSBC ALBI tracks total return performance of a bond
portfolio, which consists of local-currency denominated, high-quality and liquid
bonds in Asia ex-Japan.
Semiannual Report | 5
Thank you for your continued participation in Templeton Emerging Markets Income
Fund. We look forward to serving your future investment needs.
Sincerely,
[PHOTO OMITTED]
/s/Alex C. Calvo
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Alex C. Calvo
[PHOTO OMITTED]
/s/Michael Hasenstab
--------------------
Michael Hasenstab, Ph.D.
Portfolio Managers
Templeton Emerging Markets Income Fund
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF FEBRUARY 28, 2005, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT
OUR MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE
DEPENDING ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE OPINIONS MAY
NOT BE RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A PARTICULAR SECURITY.
THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET,
COUNTRY, INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE FROM SOURCES
CONSIDERED RELIABLE, BUT THE INVESTMENT MANAGER MAKES NO REPRESENTATION OR
WARRANTY AS TO THEIR COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE
IS NO GUARANTEE OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR
INVESTMENT MANAGEMENT PHILOSOPHY.
6 | Semiannual Report
Performance Summary as of 2/28/05
Your dividend income will vary depending on dividends or interest paid by
securities in the Fund's portfolio, adjusted for operating expenses. Capital
gain distributions are net profits realized from the sale of portfolio
securities. Total return reflects reinvestment of the Fund's dividends and
capital gain distributions, if any, and any unrealized gains or losses. 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. The performance table does not reflect any taxes due on Fund
dividends, capital gains distributions, if any, or any realized gains on the
sale of Fund shares.
PRICE AND DISTRIBUTION INFORMATION
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CHANGE 2/28/05 8/31/04
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Net Asset Value (NAV) +$1.05 $14.28 $13.23
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Market Price (NYSE) +$1.52 $14.34 $12.82
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DISTRIBUTIONS (9/1/04-2/28/05)
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Dividend Income $0.5000
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PERFORMANCE
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6-MONTH 1-YEAR 5-YEAR 10-YEAR
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Cumulative Total Return 1
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Based on change in NAV 11.84% 15.22% 90.75% 280.48%
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Based on change in market price 15.98% 15.35% 146.35% 289.16%
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Average Annual Total Return 1
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Based on change in NAV 11.84% 15.22% 13.79% 14.29%
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Based on change in market price 15.98% 15.35% 19.76% 14.55%
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PERFORMANCE DATA QUOTED REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE
FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU
MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY
DIFFER FROM FIGURES SHOWN.
FOR MORE CURRENT PERFORMANCE, CALL FRANKLIN TEMPLETON INVESTMENTS AT
1-800/342-5236.
ENDNOTES
SPECIAL RISKS ARE ASSOCIATED WITH FOREIGN INVESTING, INCLUDING CURRENCY
VOLATILITY, ECONOMIC INSTABILITY AND POLITICAL DEVELOPMENTS 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 NONDIVERSIFIED 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.
1. Total return calculations represent the cumulative and average annual changes
in value of an investment over the periods indicated. Six-month return has not
been annualized.
Semiannual Report | 7
Important Notice to Shareholders
SHARE REPURCHASE PROGRAM
The Fund's Board previously authorized management to implement an open-
market share repurchase program pursuant to which the Fund may purchase Fund
shares, from time to time, in open-market transactions, at the discretion of
management. This authorization remains in effect.
8 | Semiannual Report
Templeton Emerging Markets Income Fund
FINANCIAL HIGHLIGHTS
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SIX MONTHS ENDED
FEBRUARY 28, 2005 YEAR ENDED AUGUST 31,
(UNAUDITED) 2004 2003 2002 2001 2000
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PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .............. $13.23 $12.53 $11.11 $11.48 $12.43 $11.36
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Income from investment operations:
Net investment income a .......................... .41 .84 .93 1.16 e 1.26 1.27
Net realized and unrealized gains (losses) ....... 1.14 .86 1.61 (.27) e (.93) 1.03
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Total from investment operations .................. 1.55 1.70 2.54 .89 .33 2.30
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Capital share repurchases ......................... -- -- -- -- .01 .01
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Distributions from net investment income .......... (.50) (1.00) (1.12) (1.26) (1.29) (1.24)
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Net asset value, end of period .................... $14.28 $13.23 $12.53 $11.11 $11.48 $12.43
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Market value, end of period b ..................... $14.34 $12.82 $12.43 $11.00 $10.93 $10.688
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Total return (based on market value per share) c .. 15.98% 11.48% 24.44% 12.38% 15.53% 21.62%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ................. $674,597 $624,112 $591,029 $522,210 $539,423 $587,397
Ratios to average net assets:
Expenses ......................................... 1.09% d 1.24% 1.17% 1.15% 1.18% 1.19%
Net investment income ............................ 5.96% d 6.46% 7.78% 9.99% e 10.77% 10.62%
Portfolio turnover rate ........................... 14.92% 68.25% 142.71% 95.94% 138.63% 53.40%
aBased on average daily shares outstanding.
bBased on the last sale on the New York Stock Exchange.
cTotal return is not annualized for periods less than one year.
dAnnualized.
eEffective September 1, 2001, the Fund adopted the provisions of the AICPA Audit
and Accounting Guide for Investment Companies and began amortizing all premium
and discount on fixed-income securities, as required. The effect of this change
was as follows:
Net investment income per share ................................ $(.03)
Net realized and unrealized gains/(losses) per share ........... .03
Ratio of net investment income to average net assets ........... (.29)%
Per share data and ratios for prior periods have not been restated to reflect
this change in accounting policy.
Semiannual Report | See notes to financial statements. | 9
Templeton Emerging Markets Income Fund
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2005 (UNAUDITED)
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PRINCIPAL AMOUNT c VALUE
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LONG TERM INVESTMENTS 97.0%
Argentina 4.7%
Republic of Argentina, FRN, 3.01%, 8/03/12 ................................... 35,320,000 $ 31,478,950
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BOSNIA AND HERZEGOVINA 1.3%
Bosnia & Herzegovina, FRN, 3.50%, 12/11/17 ................................... 8,041,599 EUR 9,065,088
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BRAZIL 17.9%
a,b Globo Communicacoes Participacoes Ltd., 144A, 10.625%, 12/05/08 .............. 5,000,000 5,012,500
Republic of Brazil,
DCB, L, FRN, 3.125%, 4/15/12 .............................................. 45,737,131 44,236,495
RG, FRN, 3.125%, 4/15/12 .................................................. 8,775,070 8,555,193
8.00%, 4/15/14 ............................................................ 61,527,829 62,758,386
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120,562,574
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COLOMBIA 3.5%
Republic of Colombia,
10.50%, 7/09/10 ........................................................... 2,758,000 3,194,109
10.75%, 1/15/13 ........................................................... 12,450,000 14,664,855
11.75%, 2/25/20 ........................................................... 4,255,000 5,421,083
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23,280,047
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HUNGARY 3.2%
Government of Hungary,
9.25%, 5/12/05 ............................................................ 345,900,000 HUF 1,898,340
8.50%, 10/12/05 ........................................................... 2,983,400,000 HUF 16,430,495
7.00%, 4/12/06 ............................................................ 120,000,000 HUF 654,911
6.25%, 6/12/08 ............................................................ 500,000,000 HUF 2,679,852
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21,663,598
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INDONESIA 9.8%
Government of Indonesia, 11.00%, 10/15/14 .................................... 56,602,000,000 IDR 6,394,447
Indonesia Recapital Bonds,
13.15%, 3/15/10 ........................................................... 81,420,000,000 IDR 10,106,640
14.25%, 6/15/13 ........................................................... 208,402,000,000 IDR 27,364,788
14.275%, 12/15/13 ......................................................... 127,800,000,000 IDR 16,856,986
a,b P T Indah Kiat Finance Mauritius Ltd., 10.00%, 7/01/07 ....................... 16,375,000 4,034,636
a,b PT Inti Indorayon Utama TBK, 9.125%, 10/15/49 ................................ 6,830,000 119,525
a,b Tjiwi Kimia International Finance Co. BV, senior note, 13.25%, 8/01/01 ....... 8,000,000 1,558,080
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66,435,102
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MALAYSIA .1%
Government of Malaysia,
4.305%, 2/27/09 ........................................................... 650,000 MYR 176,253
4.032%, 9/15/09 ........................................................... 1,850,000 MYR 496,579
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672,832
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10 | Semiannual Report
Templeton Emerging Markets Income Fund
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2005 (UNAUDITED) (CONTINUED)
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PRINCIPAL AMOUNT c VALUE
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LONG TERM INVESTMENTS (CONT.)
MEXICO 5.3%
Pemex Project Funding Master Trust, 144A, FRN, 3.79%, 6/15/10 ................ 8,710,000 $ 9,036,625
United Mexican States,
5.375%, 6/10/13 ........................................................... 5,500,000 EUR 7,740,088
144A, 7.50%, 3/08/10 ...................................................... 8,610,000 EUR 13,296,278
Reg S, 7.50%, 3/08/10 ..................................................... 3,600,000 EUR 5,559,420
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35,632,411
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PANAMA .9%
Republic of Panama, 10.75%, 5/15/20 .......................................... 4,600,000 5,980,000
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PERU 2.9%
Republic of Peru,
9.875%, 2/06/15 ........................................................... 7,640,000 9,292,150
FRN, 4.50%, 3/07/17 ....................................................... 10,650,000 10,011,000
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19,303,150
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PHILIPPINES 4.8%
Republic of Philippines,
8.375%, 2/15/11 ........................................................... 6,500,000 6,750,742
9.00%, 2/15/13 ............................................................ 19,060,000 20,137,843
Reg S, 8.75%, 10/07/16 .................................................... 5,450,000 5,513,863
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32,402,448
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POLAND 4.7%
Republic of Poland,
8.50%, 11/12/06 ........................................................... 27,950,000 PLN 9,980,716
8.50%, 5/12/07 ............................................................ 37,300,000 PLN 13,522,414
6.00%, 5/24/09 ............................................................ 23,000,000 PLN 8,021,400
-------------
31,524,530
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RUSSIA 11.3%
Russian Federation,
Reg S, 11.00%, 7/24/18 .................................................... 44,725,000 64,682,816
Reg S, 12.75%, 6/24/28 .................................................... 6,566,000 11,242,305
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75,925,121
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SOUTH AFRICA 2.2%
Republic of South Africa, 5.25%, 5/16/13 ..................................... 10,490,000 EUR 14,765,237
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SOUTH KOREA 4.8%
Korea Treasury Bond,
6.90%, 1/16/07 ............................................................ 10,000,000,000 KRW 10,475,590
4.75%, 3/12/08 ............................................................ 21,865,000,000 KRW 22,082,060
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32,557,650
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THAILAND 4.1%
Thailand Government,
8.50%, 10/14/05 ........................................................... 670,000,000 THB 18,187,574
8.00%, 12/08/06 ........................................................... 31,000,000 THB 882,872
4.125%, 2/12/08 ........................................................... 98,000,000 THB 2,623,153
8.50%, 12/08/08 ........................................................... 11,000,000 THB 337,349
4.80%, 4/09/10 ............................................................ 212,000,000 THB 5,738,276
-------------
27,769,224
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Semiannual Report | 11
Templeton Emerging Markets Income Fund
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2005 (UNAUDITED) (CONTINUED)
---------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT c VALUE
---------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
UKRAINE 4.8%
Republic of Ukraine,
144A, FRN, 5.361%, 8/05/09 ................................................ 11,100,000 $ 11,946,375
144A, 7.65%, 6/11/13 ...................................................... 18,148,000 19,990,022
FRN, 6.365%, 8/05/09 ...................................................... 560,000 604,016
-------------
32,540,413
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VENEZUELA 9.8%
Republic of Venezuela,
10.75%, 9/19/13 ........................................................... 6,175,000 7,147,562
9.25%, 9/15/27 ............................................................ 57,409,000 59,256,996
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66,404,558
-------------
VIETNAM .9%
Republic of Vietnam, 4.00%, 3/12/16 .......................................... 6,592,000 6,278,260
-------------
TOTAL LONG TERM INVESTMENTS (COST $583,217,979) 654,241,193
-------------
-------------------
SHARES
-------------------
SHORT TERM INVESTMENTS (COST $5,000,375) .7%
d Franklin Institutional Fiduciary Trust Money Market Portfolio ................ 5,000,375 5,000,375
-------------
TOTAL INVESTMENTS (COST $588,218,354) 97.7% .................................. 659,241,568
OTHER ASSETS, LESS LIABILITIES 2.3% .......................................... 15,354,993
-------------
NET ASSETS 100.0% ............................................................ $674,596,561
=============
PORTFOLIO ABBREVIATIONS:
FRN - Floating Rate Notes
CURRENCY ABBREVIATIONS:
EUR - Euro
HUF - Hungarian Forint
IDR - Indonesian Rupiah
KRW - Korean Won
MYR - Malaysian Ringett
PLN - Polish Zloty
THB - Thai Baht
aNon-income producing.
bSee Note 7 regarding defaulted securities.
cThe principal amount is stated in U.S. dollars unless otherwise indicated.
dSee Note 9 regarding investments in Franklin Institutional Fiduciary Trust
Money Market Portfolio.
12 | See notes to financial statements. | Semiannual Report
Templeton Emerging Markets Income Fund
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
February 28, 2005 (unaudited)
Assets:
Investments in securities:
Cost - Unaffiliated issuers ................................. $583,217,979
Cost - Sweep Money Fund (Note 9) ............................ 5,000,375
-------------
Total cost of investments ................................... $588,218,354
=============
Value - Unaffiliated issuers ................................ $654,241,193
Value - Sweep Money Fund (Note 9) ........................... 5,000,375
-------------
Total value of investments .................................. 659,241,568
Foreign currency, at value (cost $31,713) .................... 22,347
Receivables:
Investment securities sold .................................. 2,064,341
Dividends and interest ...................................... 14,837,312
-------------
Total assets ............................................ 676,165,568
-------------
Liabilities:
Payables:
Investment securities purchased ............................. 622,929
Affiliates .................................................. 511,833
Other liabilities ............................................ 434,245
-------------
Total liabilities ....................................... 1,569,007
-------------
Net assets, at value .................................. $674,596,561
=============
Net assets consist of:
Distributions in excess of net investment income ............. $ (9,819,610)
Net unrealized appreciation (depreciation) ................... 71,343,227
Accumulated net realized gain (loss) ......................... (48,892,229)
Capital shares ............................................... 661,965,173
-------------
Net assets, at value .................................. $674,596,561
=============
Shares outstanding ............................................ 47,257,186
=============
Net asset value per share ..................................... $14.28
=============
Semiannual Report | See notes to financial statements. | 13
Templeton Emerging Markets Income Fund
FINANCIAL STATEMENTS (CONTINUED)
STATEMENT OF OPERATIONS
for the six months ended February 28, 2005 (unaudited)
Investment income:
Dividends - Sweep Money Fund (Note 9) ..................................... $ 38,688
Interest (net of foreign taxes of $618,677) ............................... 22,780,247
------------
Total investment income .............................................. 22,818,935
------------
Expenses:
Management fees (Note 3) .................................................. 2,739,860
Administrative fees (Note 3) .............................................. 484,923
Custodian fees (Note 4) ................................................... 214,227
Reports to shareholders ................................................... 21,600
Registration and filing fees .............................................. 27,400
Professional fees ......................................................... 18,600
Trustees' fees and expenses ............................................... 23,200
Other ..................................................................... 6,300
------------
Total expenses ....................................................... 3,536,110
Expense reductions (Note 4) .......................................... (736)
------------
Net expenses ....................................................... 3,535,374
------------
Net investment income ............................................ 19,283,561
------------
Realized and unrealized gains (losses): Net realized gain (loss) from:
Investments .............................................................. 2,178,793
Foreign currency transactions ............................................ 231,024
------------
Net realized gain (loss) ........................................... 2,409,817
------------
Net change in unrealized appreciation (depreciation) on:
Investments .............................................................. 50,749,458
Translation of assets and liabilities denominated in foreign currencies .. 409,934
------------
Net change in unrealized appreciation (depreciation) ............... 51,159,392
------------
Net realized and unrealized gain (loss) .................................... 53,569,209
------------
Net increase (decrease) in net assets resulting from operations ............ $72,852,770
============
14 | See notes to financial statements. | Semiannual Report
Templeton Emerging Markets Income Fund
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS for the six months ended February 28, 2005
(unaudited) and the year ended August 31, 2004
------------------------------------
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 2005 AUGUST 31, 2004
------------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income .............................................................. $ 19,283,561 $ 39,665,827
Net realized gain (loss) from investments and foreign
currency transactions ............................................................. 2,409,817 40,671,159
Net change in unrealized appreciation (depreciation) on investments and translation
of assets and liabilities denominated in foreign currencies ....................... 51,159,392 (89,458)
------------------------------------
Net increase (decrease) in net assets resulting from operations ................ 72,852,770 80,247,528
Distributions to shareholders from net investment income ............................ (23,605,555) (47,165,033)
Capital share transactions (Note 2) ................................................. 1,237,615 --
------------------------------------
Net increase (decrease) in net assets .......................................... 50,484,830 33,082,495
Net assets:
Beginning of period ................................................................. 624,111,731 591,029,236
------------------------------------
End of period ....................................................................... $674,596,561 $624,111,731
====================================
Distributions in excess of net investment income included in net assets:
End of period ....................................................................... $ (9,819,610) $ (5,497,616)
====================================
Semiannual Report | See notes to financial statements. | 15
Templeton Emerging Markets Income Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Templeton Emerging Markets Income Fund (the Fund) is registered under the
Investment Company Act of 1940 as a non-diversified, closed-end investment
company. Effective June 1, 2004, the Fund was reorganized from a Maryland
corporation into a Delaware statutory trust. The Fund seeks high current income,
with a secondary goal of capital appreciation, by investing, under normal
conditions, at least 80% of its total net assets in income-producing securities
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 on a securities exchange or on the NASDAQ National Market
System are valued at the last quoted sale price or the official closing price of
the day, respectively. Over-the-counter securities and listed securities for
which there is no reported sale are valued within the range of the most recent
quoted bid and ask prices. Securities that trade in multiple markets or on
multiple exchanges are valued according to the broadest and most representative
market. Investments in open-end mutual funds are valued at the closing net asset
value.
Corporate debt securities generally trade in the over-the-counter market rather
than on a securities exchange. The Fund may utilize independent pricing
services, quotations from bond dealers and information with respect to bond and
note transactions, to assist in determining a current market value for each
security. The Fund's pricing services may use valuation models or matrix pricing
which considers information with respect to comparable bond and note
transactions, quotations from bond dealers, or by reference to other securities
that are considered comparable in such characteristics as rating, interest rate
and maturity date, option adjusted spread models, prepayment projections,
interest rate spreads and yield curves, to determine current value.
Foreign securities are valued as of the close of trading on the foreign stock
exchange on which the security is primarily traded, or the NYSE, whichever is
earlier. The value is then converted into its U.S. dollar equivalent at the
foreign exchange rate in effect at the close of the NYSE on the day that the
value of the foreign security is determined. If no sale is reported at that
time, the foreign security will be valued within the range of the most recent
quoted bid and ask prices.
The Fund has procedures to determine the fair value of individual securities and
other assets for which market prices are not readily available or which may not
be reliably priced. Some methods for valuing these securities may include:
fundamental analysis, matrix pricing, discounts from market prices of similar
securities, or discounts applied due to the nature and duration of restrictions
on the disposition of the securities. Occasionally, events occur between the
time at which trading in a security is completed and the close of the NYSE that
might call into question the availability (including the reliability) of the
value of a portfolio security held by the Fund. If such an event occurs, the
securities may be valued using fair value procedures, which may include the use
of independent pricing services. All security valuation procedures are approved
by the Fund's Board of Trustees.
16 | Semiannual Report
Templeton Emerging Markets Income Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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
securities, income and expense items denominated in foreign currencies are
translated into U.S. dollars at the exchange rate in effect on the transaction
date. Occasionally, events may impact the availability or reliability of foreign
exchange rates used to convert the U.S. dollar equivalent value. If such an
event occurs, the foreign exchange rate will be valued at fair value using
procedures established and approved by the Fund's Board of Trustees.
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 on the
Statement of Operations.
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 dividends, 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 denominated assets and liabilities other than investments in securities
held at the end of the reporting period.
C. FOREIGN CURRENCY CONTRACTS
When the Fund purchases or sells foreign securities it may enter into foreign
exchange contracts to minimize foreign exchange risk from the trade date to the
settlement date of the transactions. A foreign exchange contract is an agreement
between two parties to exchange different currencies at an agreed upon exchange
rate on a specified date. Realized and unrealized gains and losses are included
in the Statement of Operations.
The risks of these contracts include movement in the values of the foreign
currencies relative to the U.S. dollar and the possible inability of the
counterparties to fulfill their obligations under the contracts.
D. INCOME TAXES
No provision has been made for U.S. income taxes because the Fund's policy is to
qualify as a regulated investment company under Subchapter M of the Internal
Revenue Code and to distribute substantially all of its taxable income. Fund
distributions to shareholders are determined on an income tax basis and may
differ from net investment income and realized gains for financial reporting
purposes.
Semiannual Report | 17
Templeton Emerging Markets Income Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
E. 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.
Interest income and estimated expenses are accrued daily. Discounts and premiums
on securities purchased are amortized over the lives of the respective
securities. Dividend income and distributions to shareholders are recorded on
the ex-dividend date.
F. ACCOUNTING ESTIMATES
The preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America 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 expenses during the reporting period. Actual results could differ from those
estimates.
G. GUARANTEES AND INDEMNIFICATIONS
Under the Fund's organizational documents, its officers and trustees are
indemnified by the Fund against certain liability arising out of the performance
of their duties to the Fund. Additionally, in the normal course of business, the
Fund enters into contracts with service providers that contain general
indemnification clauses. The Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund
that have not yet occurred. However, based on experience, the Fund expects the
risk of loss to be remote.
2. SHARES OF BENEFICIAL INTEREST
The Board of the Fund previously authorized an open-market share repurchase
program pursuant to which the Fund may purchase, from time to time, Fund shares
in open-market transactions, at the discretion of management. This authorization
remains in effect. Through February 28, 2005, the Fund had repurchased a total
of 610,500 shares.
At February 28, 2005, there were an unlimited number of shares authorized
(without par value). During the period ended February 28, 2005, 92,153 shares
were issued for $1,237,615 from reinvested distributions. During the year ended
August 31, 2004, there were no share transactions; all reinvested distributions
were satisfied with previously issued shares purchased in the open market.
18 | Semiannual Report
Templeton Emerging Markets Income Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES
Franklin Resources, Inc. is the holding company for various subsidiaries that
together are referred to as Franklin Templeton Investments. Certain officers and
trustees of the Fund are also officers and/or directors of the following
subsidiaries:
--------------------------------------------------------------------------------
SUBSIDIARY AFFILIATION
--------------------------------------------------------------------------------
Franklin Advisers Inc. (Advisers) Investment manager
Franklin Templeton Services LLC (FT Services) Administrative manager
A. MANAGEMENT FEE
The Fund pays an investment management fee to Advisers based on the Fund's
average daily net assets as follows:
--------------------------------------------------------------------------------
ANNUALIZED FEE RATE NET ASSETS
--------------------------------------------------------------------------------
0.850% Up to and including $1 billion
0.830% Over $1 billion, up to and including $5 billion
0.810% Over $5 billion, up to and including $10 billion
0.790% Over $10 billion, up to and including $15 billion
0.770% Over $15 billion, up to and including $20 billion
0.750% Over $20 billion
B. ADMINISTRATIVE FEES
The Fund pays an administrative fee to FT Services of 0.15% per year based on
the Fund's average daily net assets.
4. EXPENSE OFFSET ARRANGEMENT
The Fund has entered into an arrangement with its custodian whereby credits
realized as a result of uninvested cash balances are used to reduce a portion of
the Fund's custodian expenses. During the period ended February 28, 2005, the
custodian fees were reduced as noted in the Statement of Operations.
Semiannual Report | 19
Templeton Emerging Markets Income Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
5. INCOME TAXES
At August 31, 2004, 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:
2009 ................................................. $ 4,205,169
2010 ................................................. 22,453,289
2011 ................................................. 24,484,014
-----------
$51,142,472
===========
Net investment income differs for financial statement and tax purposes primarily
due to differing treatments of accrual of interest on defaulted bonds, foreign
currency transactions, and bond discounts and premiums.
Net realized gains differ for financial statement and tax purposes primarily due
to differing treatments of wash sales, foreign currency transactions, and bond
discounts and premiums.
At February 28, 2005, the net unrealized appreciation (depreciation) based on
the cost of investments for income tax purposes were as follows:
Cost of investments ...................................... $593,969,054
============
Unrealized appreciation .................................. $ 88,719,998
Unrealized depreciation .................................. (23,447,484)
------------
Net unrealized appreciation (depreciation) ............... $ 65,272,514
============
6. INVESTMENT TRANSACTIONS
Purchases and sales of investments (excluding short-term securities) for the
period ended February 28, 2005 aggregated $92,430,137 and $93,326,273,
respectively.
7. CREDIT RISK AND DEFAULTED SECURITIES
The Fund has 63.10% of its portfolio invested in below investment grade and
comparable quality unrated high yield securities, which tend to be more
sensitive to economic conditions than higher rated securities. The risk of loss
due to default by the issuer may be significantly greater for the holders of
high yielding securities because such securities are generally unsecured and are
often subordinated to other creditors of the issuer.
The Fund held defaulted securities and/or other securities for which the income
has been deemed uncollectible. At February 28, 2005, the value of these
securities was $10,724,741, representing 1.59% of the Fund's net assets. The
Fund discontinues accruing income on securities for which income has been deemed
uncollectible and provides an estimate for losses on interest receivable. For
information as to specific securities, see the accompanying Statement of
Investments.
20 | Semiannual Report
Templeton Emerging Markets Income Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
8. CONCENTRATION OF RISK
Investing in securities of emerging market issuers includes certain risks not
typically associated with investing in countries with more developed securities
markets, such as political, economic and legal uncertainties, delays in settling
portfolio transactions, currency fluctuations, and the risk of loss from
underdeveloped systems of securities registration and transfer.
9. INVESTMENTS IN FRANKLIN INSTITUTIONAL FIDUCIARY TRUST MONEY MARKET PORTFOLIO
The Fund may invest in the Franklin Institutional Fiduciary Trust Money Market
Portfolio (the Sweep Money Fund), an open-end investment company managed by
Advisers. Management fees paid by the Fund are reduced on assets invested in the
Sweep Money Fund, in an amount not to exceed the management fees paid by the
Sweep Money Fund.
10. REGULATORY MATTERS
INVESTIGATIONS
As part of various investigations by a number of federal, state, and foreign
regulators and governmental entities, including the Securities and Exchange
Commission ("SEC"), the California Attorney General's Office ("CAGO"), and the
National Association of Securities Dealers, Inc. ("NASD"), relating to certain
practices in the mutual fund industry, including late trading, market timing and
marketing support payments to securities dealers who sell fund shares, Franklin
Resources, Inc. and certain of its subsidiaries (as used in this section,
together, the "Company"), as well as certain current or former executives and
employees of the Company, received subpoenas and/or requests for documents,
information and/or testimony. The Company and its current employees provided
documents and information in response to those requests and subpoenas.
SETTLEMENTS
Beginning in August 2004, the Company entered into settlements with certain
regulators investigating the mutual fund industry practices noted above. The
Company believes that settlement of each of the matters described in this
section is in the best interest of the Company and shareholders of the Franklin,
Templeton, and Mutual Series mutual funds (the "funds").
Semiannual Report | 21
Templeton Emerging Markets Income Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
10. REGULATORY MATTERS (CONTINUED)
SETTLEMENTS (CONTINUED)
On August 2, 2004, Franklin Resources, Inc. announced that its subsidiary,
Franklin Advisers, Inc., reached an agreement with the SEC that resolved the
issues resulting from the SEC investigation into market timing activity. In
connection with that agreement, the SEC issued an "Order Instituting
Administrative and Cease-and-Desist Proceedings Pursuant to Sections 203(e) and
203(k) of the Investment Advisers Act of 1940 and Sections 9(b) and 9(f) of the
Investment Company Act of 1940, Making Findings and Imposing Remedial Sanctions
and a Cease-and-Desist Order" (the "Order"). The SEC's Order concerned the
activities of a limited number of third parties that ended in 2000 and those
that were the subject of the first Massachusetts administrative complaint
described below.
Under the terms of the SEC's Order, pursuant to which Franklin Advisers, Inc.
neither admitted nor denied any of the findings contained therein, Franklin
Advisers, Inc. agreed to pay $50 million, of which $20 million is a civil
penalty, to be distributed to shareholders of certain funds in accordance with a
plan to be developed by an independent distribution consultant. At this time, it
is unclear which funds or which shareholders of any particular fund will receive
distributions. The Order also required Franklin Advisers, Inc. to, among other
things, enhance and periodically review compliance policies and procedures.
On September 20, 2004, Franklin Resources, Inc. announced that two of its
subsidiaries, Franklin Advisers, Inc. and Franklin Templeton Alternative
Strategies, Inc. ("FTAS"), reached an agreement with the Securities Division of
the Office of the Secretary of the Commonwealth of Massachusetts (the "State of
Massachusetts") related to its administrative complaint filed on February 4,
2004, concerning one instance of market timing that was also a subject of the
August 2, 2004 settlement that Franklin Advisers, Inc. reached with the SEC, as
described above.
Under the terms of the settlement consent order issued by the State of
Massachusetts, Franklin Advisers, Inc. and FTAS consented to the entry of a
cease-and-desist order and agreed to pay a $5 million administrative fine to the
State of Massachusetts (the "Massachusetts Consent Order"). The Massachusetts
Consent Order included two different sections: "Statements of Fact" and
"Violations of Massachusetts Securities Laws." Franklin Advisers, Inc. and FTAS
admitted the facts in the Statements of Fact.
22 | Semiannual Report
Templeton Emerging Markets Income Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
10. REGULATORY MATTERS (CONTINUED)
SETTLEMENTS (CONTINUED)
On October 25, 2004, the State of Massachusetts filed a second administrative
complaint, alleging that Franklin Resources, Inc.'s Form 8-K filing (in which it
described the Massachusetts Consent Order and stated that "Franklin did not
admit or deny engaging in any wrongdoing") failed to state that Franklin
Advisers, Inc. and FTAS admitted the Statements of Fact portion of the
Massachusetts Consent Order (the "Second Complaint"). Franklin Resources, Inc.
reached a second agreement with the State of Massachusetts on November 19, 2004,
resolving the Second Complaint. As a result of the November 19, 2004 settlement,
Franklin Resources, Inc. filed a new Form 8-K. The terms of the Massachusetts
Consent Order did not change and there was no monetary fine associated with this
second settlement.
On November 17, 2004, Franklin Resources, Inc. announced that Franklin Templeton
Distributors, Inc. ("FTDI") reached an agreement with the CAGO, resolving the
issues resulting from the CAGO's investigation concerning sales and marketing
support payments. Under the terms of the settlement, FTDI neither admitted nor
denied the allegations in the CAGO's complaint and agreed to pay $2 million to
the State of California as a civil penalty, $14 million to the funds, to be
allocated by an independent distribution consultant to be paid for by FTDI, and
$2 million to the CAGO for its investigative costs.
On December 13, 2004, Franklin Resources, Inc. announced that its subsidiaries
FTDI and Franklin Advisers, Inc. reached an agreement with the SEC, resolving
the issues resulting from the SEC's investigation concerning marketing support
payments to securities dealers who sell fund shares. In connection with that
agreement, the SEC issued an "Order Instituting Administrative and
Cease-and-Desist Proceedings, Making Findings, and Imposing Remedial Sanctions
Pursuant to Sections 203(e) and 203(k) of the Investment Advisers Act of 1940,
Sections 9(b) and 9(f) of the Investment Company Act of 1940, and Section 15(b)
of the Securities Exchange Act of 1934" (the "Second Order").
Under the terms of the Second Order, in which FTDI and Franklin Advisers, Inc.
neither admitted nor denied the findings contained therein, they agreed to pay
the funds a penalty of $20 million and disgorgement of $1 (one dollar). FTDI and
Franklin Advisers, Inc. also agreed to implement certain measures and
undertakings relating to marketing support payments to broker-dealers for the
promotion or sale of fund shares, including making additional disclosures in the
funds' Prospectuses and Statements of Additional Information. The Second Order
further requires the appointment of an independent distribution consultant, at
the Company's expense, who shall develop a plan for the distribution of the
penalty and disgorgement to the funds.
Semiannual Report | 23
Templeton Emerging Markets Income Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
10. REGULATORY MATTERS (CONTINUED)
SETTLEMENTS (CONTINUED)
The SEC's Second Order and the CAGO settlement agreement concerning marketing
support payments provide that the distribution of settlement monies are to be
made to the relevant funds, not to individual shareholders. The independent
distribution consultant has substantially completed preparation of these
distribution plans. The CAGO has approved the distribution plan pertaining to
the distribution of the monies owed under the CAGO settlement agreement and, in
accordance with the terms and conditions of that settlement, the monies were
disbursed to the participating funds. The Fund did not participate in the CAGO
settlement. The SEC has not yet approved the distribution plan pertaining to the
Second Order. When approved, disbursements of settlement monies under the SEC's
Second Order will be made promptly in accordance with the terms and conditions
of that order.
OTHER LEGAL PROCEEDINGS
The Company, and other funds, and certain current and former officers,
employees, and directors have been named in multiple lawsuits in different
federal courts in Nevada, California, Illinois, New York and Florida, alleging
violations of various federal securities laws and seeking, among other relief,
monetary damages, restitution, removal of fund trustees, directors, advisers,
administrators, and distributors, rescission of management contracts and 12b-1
Plans, and/or attorneys' fees and costs. Specifically, the lawsuits claim breach
of duty with respect to alleged arrangements to permit market timing and/or late
trading activity, or breach of duty with respect to the valuation of the
portfolio securities of certain Templeton funds managed by Franklin Resources,
Inc. subsidiaries, resulting in alleged market timing activity. The majority of
these lawsuits duplicate, in whole or in part, the allegations asserted in the
February 4, 2004 Massachusetts administrative complaint and the findings in the
SEC's August 2, 2004 Order, as described above. The lawsuits are styled as class
actions or derivative actions on behalf of either the named funds or Franklin
Resources, Inc.
In addition, the Company, as well as certain current and former officers,
employees, and directors, have been named in multiple lawsuits alleging
violations of various securities laws and pendent state law claims relating to
the disclosure of directed brokerage payments and/or payment of allegedly
excessive advisory, commission, and distribution fees, and seeking, among other
relief, monetary damages, restitution, rescission of advisory contracts,
including recovery of all fees paid pursuant to those contracts, an accounting
of all monies paid to the named advisers, declaratory relief, injunctive relief,
and/or attorneys' fees and costs. These lawsuits are styled as class actions or
derivative actions brought on behalf of certain funds.
24 | Semiannual Report
Templeton Emerging Markets Income Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
10. REGULATORY MATTERS (CONTINUED)
OTHER LEGAL PROCEEDINGS (CONTINUED)
The Company and fund management strongly believe that the claims made in each of
the lawsuits identified above are without merit and intend to vigorously defend
against them. The Company cannot predict with certainty, however, the eventual
outcome of the remaining governmental investigations or private lawsuits, nor
whether they will have a material negative impact on the Company. Public trust
and confidence are critical to the Company's business and any material loss of
investor and/or client confidence could result in a significant decline in
assets under management by the Company, which would have an adverse effect on
the Company's future financial results. If the Company finds that it bears
responsibility for any unlawful or inappropriate conduct that caused losses to
the Fund, it is committed to making the Fund or its shareholders whole, as
appropriate. The Company is committed to taking all appropriate actions to
protect the interests of its funds' shareholders.
Semiannual Report | 25
Templeton Emerging Markets Income Fund
ANNUAL MEETING OF SHAREHOLDERS, FEBRUARY 25, 2005
The Annual Meeting of Shareholders of the Fund was held at the Fund's offices,
500 E. Broward Blvd., Fort Lauderdale, Florida, on February 25, 2005. The
purpose of the meeting was to elect four Trustees of the Fund. At the meeting,
the following persons were elected by the shareholders to serve as Trustees of
the Fund: Harris J. Ashton, S. Joseph Fortunato, Edith E. Holiday and
Constantine D. Tseretopoulos.* No other business was transacted at the meeting.
The results of the voting at the Annual Meeting are as follows:
The election of four (4) Trustees:
---------------------------------------------------------------------------------------------------------
% OF % OF
SHARES SHARES
% OF PRESENT % OF PRESENT
OUTSTANDING AND OUTSTANDING AND
TERM EXPIRING 2008 FOR SHARES VOTING WITHHELD SHARES VOTING
---------------------------------------------------------------------------------------------------------
Harris J. Ashton ...... 42,259,588.791 89.42% 98.61% 595,848.38 1.26% 1.39%
S. Joseph Fortunato ... 42,287,739.791 89.48% 98.67% 567,697.38 1.20% 1.32%
Edith E. Holiday ...... 42,324,881.791 89.56% 98.76% 530,555.38 1.12% 1.24%
Constantine D.
Tseretopoulos ......... 42,354,390.791 89.63% 98.83% 501,046.38 1.06% 1.17%
* Frank J. Crothers, Charles B. Johnson, Rupert H. Johnson, Jr., Gordon S.
Macklin, Fred R. Millsaps and Frank A. Olson are Trustees of the Fund who are
currently serving and whose terms of office continued after the Annual Meeting
of Shareholders.
26 | Semiannual Report
Templeton Emerging Markets Income Fund
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 Mellon 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 Investor Services (the "Plan Administrator") at the address above or the
institution in whose name the shares are held. The Plan Administrator must
receive written notice within ten business days before the record date for the
distribution.
Whenever the Fund declares dividends in either cash or shares 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 shares 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 cash payments to the Plan
Administrator, 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 Bank, N.A." and sent to
Mellon Investor Services, P.O. Box 382009, Pittsburgh, PA 15250-8009, Attention:
Templeton Emerging Markets Income Fund. The Plan Administrator shall apply such
payments (less a $5.00 service charge and less a pro rata share of trading fees)
to purchases of the Fund's shares on 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.
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. The Plan
Administrator's fees for a sale of shares through the Plan are $15.00 per
transaction plus a $0.12 per share trading fee.
Semiannual Report | 27
Templeton Emerging Markets Income Fund
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN (CONTINUED)
The participant may withdraw from the Plan without penalty at any time by
written notice to the Plan Administrator sent to Mellon Investor Services, P.O.
Box 3338, South Hackensack, NJ 07606-1938. Upon withdrawal, the participant will
receive, without charge, share certificates issued in the participant's name for
all full shares held by the Plan Administrator; or, if the participant wishes,
the Plan Administrator will sell the shares and send the proceeds, less a
service charge of $15.00 and less trading fees, to the participant.
28 | Semiannual Report
Templeton Emerging Markets Income Fund
TRANSFER AGENT
Mellon Investor Services LLC
85 Challenger Road
Ridgefield Park, NJ 07660
1-800-416-5585
www.melloninvestor.com
SHAREHOLDER INFORMATION
Shares of Templeton Emerging Markets Income Fund are traded 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 distributions and shareholder accounts, call
1-800-416-5585. Registered shareholders can access their Fund account on-line
with Investor ServiceDirect[R]. For information go to Mellon Investor Services'
web site at https://vault.melloninvestor.com/isd and follow the instructions.
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 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, 100 Fountain Parkway, P.O. Box 33030, St. Petersburg, FL
33733-8030.
Semiannual Report | 29
Templeton Emerging Markets Income Fund
SHAREHOLDER INFORMATION
PROXY VOTING POLICIES AND PROCEDURES
The Fund has established Proxy Voting Policies and Procedures ("Policies") that
the Fund uses to determine how to vote proxies relating to portfolio securities.
Shareholders may view the Fund's complete Policies online at
franklintempleton.com. Alternatively, shareholders may request copies of the
Policies free of charge by calling the Proxy Group collect at 1-954/847-2268 or
by sending a written request to: Franklin Templeton Companies, LLC, 500 East
Broward Boulevard, Suite 1500, Fort Lauderdale, FL 33394, Attention: Proxy
Group. Copies of the Fund's proxy voting records are also made available online
at franklintempleton.com and posted on the U.S. Securities and Exchange
Commission's website at sec.gov and reflect the most recent 12-month period
ended June 30.
QUARTERLY STATEMENT OF INVESTMENTS
The Fund files a complete statement of investments with the U.S. Securities and
Exchange Commission for the first and third quarters for each fiscal year on
Form N-Q. Shareholders may view the filed Form N-Q by visiting the Commission's
website at sec.gov. The filed form may also be viewed and copied at the
Commission's Public Reference Room in Washington, DC. Information regarding the
operations of the Public Reference Room may be obtained by calling
1-800/SEC-0330.
CERTIFICATIONS
The Fund's Chief Executive Officer - Finance and Administration is required by
the New York Stock Exchange's Listing Standards to file annually with the
Exchange a certification that he is not aware of any violation by the Fund of
the Exchange's Corporate Governance Standards applicable to the Fund. The Fund
has filed such certification.
In addition, the Fund's Chief Executive Officer - Finance and Administration and
Chief Financial Officer and Chief Accounting Officer are required by the rules
of the Commission to provide certain certifications with respect to the Fund's
Form N-CSR and Form N-CSRS (which include the Fund's annual and semiannual
reports to shareholders) that are filed semiannually with the Commission. The
Fund has filed such certifications with its Form N-CSR for the year ended August
31, 2004. Additionally, the Fund expects to file, on or about April 30, 2005,
such certifications with its Form N-CSRS for the six months ended February 28,
2005.
30 | Semiannual Report
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Literature Request
LITERATURE REQUEST. TO RECEIVE A BROCHURE AND PROSPECTUS, PLEASE CALL US AT
1-800/DIAL BEN[R] (1-800/342-5236) OR VISIT FRANKLINTEMPLETON.COM. INVESTORS
SHOULD CAREFULLY CONSIDER A FUND'S INVESTMENT GOALS, RISKS, CHARGES AND EXPENSES
BEFORE INVESTING. THE PROSPECTUS CONTAINS THIS AND OTHER INFORMATION. PLEASE
CAREFULLY READ THE PROSPECTUS BEFORE INVESTING. To ensure the highest quality of
service, we may monitor, record and access telephone calls to or from our
service departments. These calls can be identified by the presence of a regular
beeping tone.
FRANKLIN TEMPLETON INVESTMENTS
INTERNATIONAL
Mutual European Fund
Templeton China World Fund
Templeton Developing Markets Trust
Templeton Foreign Fund
Templeton Foreign Smaller Companies Fund
Templeton International (Ex EM) Fund
GLOBAL
Mutual Discovery Fund
Templeton Global Long-Short Fund
Templeton Global Opportunities Trust
Templeton Global Smaller Companies Fund
Templeton Growth Fund
Templeton World Fund
GROWTH
Franklin Aggressive Growth Fund
Franklin Capital Growth Fund
Franklin Flex Cap Growth Fund
Franklin Small-Mid Cap Growth Fund
Franklin Small Cap Growth Fund II 1
VALUE
Franklin Balance Sheet
Investment Fund 2
Franklin Equity Income Fund
Franklin Large Cap Value Fund
Franklin MicroCap Value Fund 2
Franklin Small Cap Value Fund
Mutual Beacon Fund
Mutual Qualified Fund
Mutual Recovery Fund 3
Mutual Shares Fund
BLEND
Franklin Blue Chip Fund
Franklin Convertible Securities Fund
Franklin Growth Fund
Franklin Rising Dividends Fund
Franklin U.S. Long-Short Fund
SECTOR
Franklin Biotechnology Discovery Fund
Franklin DynaTech Fund
Franklin Global Communications Fund
Franklin Global Health Care Fund
Franklin Gold and Precious Metals Fund
Franklin Natural Resources Fund
Franklin Real Estate Securities Fund
Franklin Technology Fund
Franklin Utilities Fund
Mutual Financial Services Fund
ASSET ALLOCATION
Franklin Templeton Corefolio
Allocation Fund
Franklin Templeton Founding Funds Allocation Fund
Franklin Templeton Perspectives Allocation Fund
TARGET FUNDS
Franklin Templeton Conservative Target Fund
Franklin Templeton Growth Target Fund
Franklin Templeton Moderate Target Fund
INCOME
Franklin Adjustable U.S. Government
Securities Fund 4
Franklin's AGE High Income Fund
Franklin Floating Rate Daily Access Fund
Franklin Income Fund
Franklin Limited Maturity
U.S. Government Securities Fund 4,5
Franklin Low Duration Total Return Fund
Franklin Real Return Fund
Franklin Strategic Income Fund
Franklin Strategic Mortgage Portfolio
Franklin Templeton Hard Currency Fund
Franklin Total Return Fund
Franklin U.S. Government Securities Fund 4
Templeton Global Bond Fund
TAX-FREE INCOME 6
NATIONAL FUNDS
Double Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free Income Fund
Insured Tax-Free Income Fund 7
LIMITED-TERM FUNDS
California Limited-Term Tax-Free Income Fund
Federal Limited-Term Tax-Free Income Fund
New York Limited-Term Tax-Free Income Fund
INTERMEDIATE-TERM FUNDS
California Intermediate-Term
Tax-Free Income Fund
Federal Intermediate-Term
Tax-Free Income Fund
New York Intermediate-Term
Tax-Free Income Fund
STATE-SPECIFIC
Alabama
Arizona
California 8
Colorado
Connecticut
Florida 8
Georgia
Kentucky
Louisiana
Maryland
Massachusetts 7
Michigan 7
Minnesota 7
Missouri
New Jersey
New York 8
North Carolina
Ohio 7
Oregon
Pennsylvania
Tennessee
Virginia
INSURANCE FUNDS
Franklin Templeton Variable Insurance Products
Trust 9
1. The fund is closed to new investors. Existing shareholders can continue
adding to their accounts.
2. The fund is only open to existing shareholders and select retirement plans.
3. The fund is a continuously offered, closed-end fund. Shares may be purchased
daily; there is no daily redemption. However, each quarter, pending board
approval, the fund will authorize the repurchase of 5%-25% of the outstanding
number of shares. Investors may tender all or a portion of their shares during
the tender period.
4. An investment in the fund is neither insured nor guaranteed by the U.S.
government or by any other entity or institution.
5. Formerly Franklin Short-Intermediate U.S. Government Securities Fund.
Effective 9/1/04, the fund's name changed; its investment goal and strategy
remained the same.
6. For investors subject to the alternative minimum tax, a small portion of fund
dividends may be taxable. Distributions of capital gains are generally taxable.
7. Portfolio of insured municipal securities.
8. These funds are available in two or more variations, including long-term
portfolios, portfolios of insured securities, a high-yield portfolio (CA) and
limited-term, intermediate-term and money market portfolios (CA and NY).
9. The funds of the Franklin Templeton Variable Insurance Products Trust are
generally available only through insurance company variable contracts.
01/05 Not part of the semiannual report
[LOGO OMITTED]
FRANKLIN(R) TEMPLETON(R)
INVESTMENTS
100 Fountain Parkway
P.O. Box 33030
St. Petersburg, FL 33733-8030
SEMIANNUAL REPORT
Templeton Emerging Markets Income Fund
INVESTMENT MANAGER
Franklin Advisers, Inc.
TRANSFER AGENT
Mellon Investor Services LLC
P.O. Box 3315
South Hackensack, NJ 07606-1915
Toll free number: 1-800/416-5585
Hearing Impaired phone number: 1-800/231-5469
Foreign Shareholders phone number: 201/329-8660
www.melloninvestor.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
identified by the presence of a regular beeping tone.
TLTEI S2005 04/05
ITEM 2. CODE OF ETHICS.
(a) The Registrant has adopted a code of ethics that applies to its principal
executive officers and principal financial and accounting officer.
(c) N/A
(d) N/A
(f) Pursuant to Item 11(a), the registrant is attaching as an exhibit a copy of
its code of ethics that applies to its principal executive officers
financial and accounting officer.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
(a)(1) The Registrant has an audit committee financial expert serving on its
audit committee.
(2) The audit committee financial experts are Fred R. Millsaps and Frank A.
Olson, they are "independent" as defined under the relevant Securities and
Exchange Commission Rules and Releases.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. N/A/
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Members of the Audit Committee are: Fred R. Millsaps, Frank J. Crothers, Frank
A. Olson and Constantine D. Tseretopoulos.
ITEM 6. SCHEDULE OF INVESTMENTS. N/A
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES. N/A
ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANIES AND AFFILIATED PURCHASES. N/A
ITEM 9. SUBMISSION OF MATTERS OF A VOTE OF SECURITY HOLDERS.
There have been no changes to the procedures by which shareholders may recommend
nominees to the Registrant's Board of Trustees that would require disclosure
herein.
ITEM 10. CONTROLS AND PROCEDURES.
(a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. The Registrant maintains
disclosure controls and procedures that are designed to ensure that information
required to be disclosed in the Registrant's filings under the Securities
Exchange Act of 1934 and the Investment Company Act of 1940 is recorded,
processed, summarized and reported within the periods specified in the rules and
forms of the Securities and Exchange Commission. Such information is accumulated
and communicated to the Registrant's management, including its principal
executive officer and principal financial officer, as appropriate, to allow
timely decisions regarding required disclosure. The Registrant's management,
including the principal executive officer and the principal financial officer,
recognizes that any set of controls and procedures, no matter how well designed
and operated, can provide only reasonable assurance of achieving the desired
control objectives.
Within 90 days prior to the filing date of this Shareholder Report on Form
N-CSR, the Registrant had carried out an evaluation, under the supervision and
with the participation of the Registrant's management, including the
Registrant's principal executive officer and the Registrant's principal
financial officer, of the effectiveness of the design and operation of the
Registrant's disclosure controls and procedures. Based on such evaluation, the
Registrant's principal executive officer and principal financial officer
concluded that the Registrant's disclosure controls and procedures are
effective.
(b) CHANGES IN INTERNAL CONTROLS. There have been no significant changes in the
Registrant's internal controls or in other factors that could significantly
affect the internal controls subsequent to the date of their evaluation in
connection with the preparation of this Shareholder Report on Form N-CSR.
ITEM 11. EXHIBITS
(a) Code of Ethics
(b)(1) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
of Jimmy D. Gambill, Chief Executive Officer - Finance and Administration, and
Galen G. Vetter, Chief Financial Officer
(b)(2) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
of Jimmy D. Gambill, Chief Executive Officer - Finance and Administration, and
Galen G. Vetter, Chief Financial Officer
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
TEMPLETON EMERGING MARKETS INCOME FUND
By /s/JIMMY D. GAMBILL
Chief Executive Officer - Finance and Administration
Date April 25, 2005
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By /s/JIMMY D. GAMBILL
Chief Executive Officer - Finance and Administration
Date April 25, 2005
By /s/GALEN G. VETTER
Chief Financial Officer
Date April 25, 2005