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
TEMPLETON EMERGING MARKETS INCOME FUND
(Exact name of registrant as specified in charter)
500 EAST BROWARD BLVD., SUITE 2100, FORT LAUDERDALE, FL 33394-3091
(Address of principal executive offices) (Zip code)
CRAIG S. TYLE, ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906
(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: 2/28/07
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ITEM 1. REPORTS TO STOCKHOLDERS.
[GRAPHIC OMITTED]
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FEBRUARY 28, 2007
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SEMIANNUAL REPORT INCOME
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TEMPLETON EMERGING MARKETS
INCOME FUND
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[LOGO](R)
FRANKLIN TEMPLETON
INVESTMENTS
Franklin o TEMPLETON o Mutual Series
Franklin Templeton Investments
GAIN FROM OUR PERSPECTIVE(R)
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 offices in over 25 countries,
Templeton offers investors a truly global
perspective.
MUTUAL SERIES. Founded in 1949, Mutual Series is
dedicated to a unique style of value investing,
searching aggressively for opportunity among what
it believes are undervalued stocks, as well as
arbitrage situations and distressed securities.
TRUE DIVERSIFICATION Because our management groups work independently
and adhere to different investment approaches,
Franklin, Templeton and Mutual Series funds
typically have distinct portfolios. That's why
our funds can be used to build truly diversified
allocation plans 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, accurate and personal service
that has helped us become one of the most trusted
names in financial services.
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MUTUAL FUNDS | RETIREMENT PLANS | 529 COLLEGE SAVINGS PLANS | SEPARATE ACCOUNTS
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[GRAPHIC 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 ...................................................... 14
Notes to Financial Statements ............................................. 17
Annual Meeting of Shareholders ............................................ 24
Dividend Reinvestment and Cash Purchase Plan .............................. 25
Shareholder Information ................................................... 28
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Semiannual Report
Templeton Emerging Markets Income Fund
YOUR FUND'S GOALS 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.
GEOGRAPHIC BREAKDOWN*
Based on Total Net Assets as of 2/28/07
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
Americas 50.9%
Asia 23.8%
Europe 16.4%
Middle East & Africa 6.2%
Other Assets, less Liabilities 2.7%
* The Geographic Breakdown is a snapshot of the Fund on 2/28/07 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, 2007.
PERFORMANCE OVERVIEW
For the six months under review, Templeton Emerging Markets Income Fund posted
cumulative total returns of +12.05% based on market price and +7.42% based on
net asset value. The Fund outperformed the J.P. Morgan (JPM) Emerging Markets
Bond Index Global (EMBIG), which posted a +5.88% 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.
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 and
regional 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.
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 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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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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ECONOMIC AND MARKET OVERVIEW
For the six months under review, global economies seemed resilient in the face
of moderating U.S. economic conditions. In general, lower energy and commodity
prices curbed inflation despite improved global growth rates and strong labor
markets. Oil prices fell 19% from a high of $77 per barrel in July to about $62
per barrel at period-end, alleviating some of the pressure on oil importing
countries. In the U.S., the trade deficit narrowed to $59 billion by January
2007 from $69 billion in August 2006. However, the magnitude of the adjustment
was small compared with the overall size of the current account deficit, which
was 5.8% of U.S. gross domestic product (GDP) in the fourth quarter of 2006, and
continued to be heavily dependent on foreign inflows for financing. 2 Lower oil
prices and an improved labor market also supported consumption growth,
offsetting some of the weakness in the U.S. housing market. For 2006, the U.S.
economy grew 3.3%, which was in line with its historical average. Underlying
inflation pressures in the U.S. remained relatively high and the U.S. Federal
Reserve Board left the federal funds target rate unchanged at 5.25% throughout
the reporting period.
Latin America benefited from a generally favorable and highly liquid
international environment as foreign investment increased and debt profiles
improved across the region. Trade balances remained mostly positive despite some
commodity price volatility and surging imports due to growing domestic demand.
These positive external factors supported regional currencies over the period,
while moderating growth in the U.S. was a concern for nations such as Mexico,
that are dependent on exports to the U.S.
Growth in Asia was generally robust as increased intra-regional trade remained
an important growth driver throughout Asia, and China continued to be an
important source of demand for Asia's exports of goods and services. While China
allowed limited currency appreciation, it continued to accumulate international
reserves that exceeded $1 trillion in the reporting period, adding $162.9
billion during the last four months of 2006. 3 The yuan rose 2.7% for the six
months under review. 4 During the fourth quarter of 2006, Singapore's economy
grew 7.9%, Indonesia's 6.1% and Malaysia's 5.7%. 5 Also, in Japan, structural
economic improvement was most evident in the upward inflation trend, which
turned positive on a yearly basis in 2006 for the first time since 1998.
2. Source: U.S. Bureau of Economic Analysis.
3. Source: The People's Bank of China.
4. Source: Exshare via Compustat.
5. Sources: Singapore Department of Statistics; BPS (Statistics Indonesia);
Department of Statistics Malaysia.
2 | Semiannual Report
Supported by investment growth and external demand from Asia and other parts of
Europe, Euro-zone economic growth notably accelerated, increasing 2.7% in 2006
from 1.5% in 2005. 6 Private consumption trends were more dynamic than in prior
years, but weak real wage growth remained an impediment to stronger consumer
spending. Labor markets improved and the unemployment rate dropped from 8.8% in
early 2005 to 7.5% by the end of 2006. 6 The European Central Bank tightened its
monetary policy, hiking interest rates 50 basis points (100 basis points equal
one percentage point) to 3.50%. 6 Among non-euro European countries, economic
growth was even better. In fourth quarter 2006, GDP growth in Slovakia was 9.6%,
Poland 6.4%, Sweden 4.9% and Norway 4.5%. 6 Growth among these countries was
broad based while inflation remained low, supported by lower energy prices and
improved productivity growth. Despite low inflation, rapidly narrowing excess
capacity led Norway and Sweden to hike rates 75 basis points each.
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
exchange rates and credit risk.
MANAGER'S DISCUSSION
U.S. dollar-denominated emerging market bonds generated strong positive
performance for the six months under review, rising +5.88%, as measured by the
JPM EMBIG, which is composed of U.S. dollar-denominated emerging market
sovereign debt. 1 Sovereign interest rate spreads over U.S. Treasuries narrowed
10 basis points during the period despite increased risk premiums in February. 1
Regionally, sovereign debt rose +6.20% in Latin America, +4.77% in Europe and
+7.22% in Asia. 1 In addition to holding positions denominated in U.S. dollars
and euros, the Fund remained well diversified with selected positions in local
debt markets. This helped mitigate risk associated with potential U.S. dollar
depreciation due to the nation's large current account and income deficits.
6. Source: Eurostat.
7. Sources: Statistical Office of the Slovak Republic; Statistics Sweden;
Statistics Norway.
TOP 10 COUNTRIES
2/28/07
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% OF TOTAL
NET ASSETS
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Brazil 19.3%
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Indonesia 13.2%
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Argentina 11.6%
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Russia 8.6%
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Peru 5.1%
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Philippines 4.7%
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Iraq 4.6%
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Mexico 4.2%
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Thailand 4.0%
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Ukraine 3.6%
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Semiannual Report | 3
CURRENCY BREAKDOWN
Based on Total Net Assets as of 2/28/07
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
U.S. Dollar 66.4%
Indonesian Rupiah 12.7%
Brazilian Real 9.0%
Thailand Bhat 4.0%
Polish Zloty 2.5%
Euro 1.8%
Egyptian Pound 1.7%
South Korean Won 1.50%
Colombian Peso 0.4%
LATIN AMERICA
The Fund's Latin American hard currency-denominated holdings performed well over
the period as the region's fundamentals continued to strengthen. The Fund
benefited from its overweighted exposure to Argentina as the country's economy
continued to be strong, growing 8.6% in the fourth quarter of 2006. 8 Inflation
remained high by regional and international standards, persisting despite some
reduction due to price controls and data-reporting irregularities stemming from
a change in directors in the statistics office that is responsible for
calculating the nation's consumer price index (CPI). The Fund maintained its
overweighted position in Peru, which also contributed to relative performance as
the Peruvian subindex of the JPM EMBIG returned +6.80% during the reporting
period. 1 The country's fundamentals dramatically improved as inflation
continued to slow and economic growth was robust; Peru's GDP grew 8.9% and 8.0%
in the third and fourth quarters of 2006. 9 Additionally, President Garcia
encouraged fiscal restraint and his growing popularity was positive for Peru's
political climate. In light of these developments, Peru's credit rating will be
reviewed for an upgrade. In Brazil, sound monetary policy led to lower interest
rates while inflation fell below the central bank's target rate. Based on these
fundamental improvements, the Fund significantly increased its weighting in
Brazil and benefited from its exposure. Over the period, Brazilian sovereign
debt outperformed the JPM EMBIG, returning +7.33%. 1 Strong inflows from its
trade surplus and foreign investments supported the local currency, which
benefited the Fund's position in local bonds. Although growth remained
relatively slow, the government recently unveiled its program to accelerate
production, which focused on boosting investment while maintaining fiscal
austerity.
EASTERN EUROPE
In Russia, strong fiscal revenues accompanied relatively high oil prices,
pushing the nation's fiscal surplus above 7.5% GDP in 2006. 10 It also bolstered
the oil stabilization fund, which is designed to reduce the impact of volatile
oil prices on government finances, to $104 billion from just under $65 billion
at the beginning of the period. 10 Fiscal prudence helped lower the nation's
core CPI, which fell from 9.6% in August 2006 to 8.2% in January 2007. 10
Although Russia was one of the Fund's larger country positions, our
underweighted exposure relative to the JPM EMBIG was positive for the Fund as
Russian sovereign debt underperformed the index, returning +4.24% for the
8. Source: INDEC (National Institute of Statistics and Census of Argentina).
9. Source: Instituto Nacional de Estadistica (Peru National Institute of
Statistics).
10. Source: Central Bank of Russia.
4 | Semiannual Report
period. 1 Among the Fund's European local bond holdings, Polish bonds
contributed to relative performance, rising +8.40% in U.S. dollar terms as
measured by the JPM Global Government Bond Index (GGBI), due to the zloty's
4.14% appreciation versus the U.S. dollar during the review period. 11, 4 The
Fund reduced its position in the first half of the reporting period as
accelerating growth rates and creeping inflation signaled an end to monetary
easing. This sale also helped the Fund as Polish bonds subsequently lost 1.78%
in the final three months of the reporting period. 11
ASIA
Indonesia was among the top performing local debt markets during the period,
contributing to Fund performance. Indonesian bonds rose +13.19% in U.S. dollar
terms as measured by the HSBC Asian Local Bond Index (ALBI). 12 Indonesia's
robust bond market returns were driven by interest rate cuts, which amounted to
a 250 basis point reduction during the review period. 13 Lower rates also
contributed to accelerated growth as investment expenditure in the fourth
quarter increased by 8.18% over the same quarter in the previous year and
Indonesia's economy grew 6.1%. 13 Conversely, South Korean local bonds slightly
underperformed the JPM EMBIG, returning +4.88% in U.S. dollar terms as
represented by the HSBC ALBI, despite the South Korean won's strength against
the U.S. dollar during the review period. 12 South Korea's moderating 4% GDP
growth rate in the fourth quarter did not lead to any change in interest rates
as core inflation was slightly higher over the period. 14 Finally, the
Philippines was among the top-performing U.S. dollar-denominated bond markets in
the JPM EMBIG over the six-month period, returning +9.2%, and the Fund's
underweighted position hindered the Fund's relative performance. 1
11. Source: J.P. Morgan. The JPM GGBI tracks total returns for liquid,
fixed-rate, domestic government bonds with maturities greater than one
year issued by developed countries globally.
12. Source: Standard & Poor's Micropal. 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. Local bond
market returns are from country subindexes of the HSBC ALBI.
13. Source: BPS (Statistics Indonesia).
14. Source: Bank of Korea.
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,
/s/ Michael Hasenstab
[PHOTO OMITTED]
Michael Hasenstab, Ph.D.
Portfolio Manager
Templeton Emerging Markets Income Fund
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF FEBRUARY 28, 2007, 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 2/28/07
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. Total
returns 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 that a shareholder would pay on Fund dividends, capital gain
distributions, if any, or realized gains on the sale of Fund shares.
PRICE AND DISTRIBUTION INFORMATION
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SYMBOL: TEI CHANGE 2/28/07 8/31/06
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Net Asset Value (NAV) +$ 0.45 $ 15.08 $ 14.63
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Market Price (NYSE) +$ 0.96 $ 14.45 $ 13.49
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DISTRIBUTIONS (9/1/06-2/28/07)
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Dividend Income $0.6167
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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 2 +7.42% +11.12% +84.57% +173.49%
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Based on change in market price 3 +12.05% +11.75% +87.20% +198.51%
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Average Annual Total Return 1
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Based on change in NAV 2 +7.42% +11.12% +13.04% +10.59%
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Based on change in market price 3 +12.05% +11.75% +13.36% +11.56%
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PERFORMANCE DATA 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.
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.
2. Assumes reinvestment of distributions based on net asset value.
3. Assumes reinvestment of distributions based on the dividend reinvestment
and cash purchase plan.
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, 2007 YEAR ENDED AUGUST 31,
(UNAUDITED) 2006 2005 2004 2003 2002
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PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ............... $ 14.63 $ 13.75 $ 13.23 $ 12.53 $ 11.11 $ 11.48
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Income from investment operations:
Net investment income a ........................... 0.49 0.89 0.82 0.84 0.93 1.16
Net realized and unrealized gains (losses) ........ 0.58 0.90 0.70 0.86 1.61 (0.27)
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Total from investment operations ................... 1.07 1.79 1.52 1.70 2.54 0.89
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Less distributions from net investment income ...... (0.62) (0.91) (1.00) (1.00) (1.12) (1.26)
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Net asset value, end of period ..................... $ 15.08 $ 14.63 $ 13.75 $ 13.23 $ 12.53 $ 11.11
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Market value, end of period b ...................... $ 14.45 $ 13.49 $ 13.32 $ 12.82 $ 12.43 $ 11.00
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Total return (based on market value per share) c ... 12.05% 8.71% 11.74% 11.48% 24.44% 12.38%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) .................. $713,698 $692,469 $650,806 $624,112 $591,029 $522,210
Ratios to average net assets:
Expenses .......................................... 1.19% d,e 1.22% e 1.21% e 1.24% e 1.17% 1.15%
Net investment income ............................. 6.63% d 6.29% 5.97% 6.46% 7.78% 9.99%
Portfolio turnover rate ............................ 16.93% 23.68% 53.16% 68.25% 142.71% 95.94%
a Based on average daily shares outstanding.
b Based on the last sale on the New York Stock Exchange.
c Total return is not annualized for periods less than one year.
d Annualized.
e Benefit of expense reduction rounds to less than 0.01%.
Semiannual Report |
The accompanying notes are an integral part of these financial statements. | 9
Templeton Emerging Markets Income Fund
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2007 (UNAUDITED)
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PRINCIPAL AMOUNT a VALUE
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LONG TERM INVESTMENTS 85.5%
BONDS 84.1%
ARGENTINA 10.2%
b,c Government of Argentina, FRN, 5.475%, 8/03/12 .............................. 102,145,000 $ 72,635,309
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BOSNIA AND HERZEGOVINA 1.8%
b Government of Bosnia & Herzegovina, FRN, 3.50%, 12/11/17 ................... 11,020,835 EUR 12,616,478
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BRAZIL 19.3%
Government of Brazil,
7.875%, 3/07/15 ........................................................... 1,275,000 1,436,925
8.00%, 1/15/18 ............................................................ 61,615,000 69,039,607
b FRN, 11.1138%, 6/29/09 .................................................... 2,900,000 3,245,825
Nota Do Tesouro Nacional,
9.762%, 1/01/12 ........................................................... 77,000 d BRL 33,660,187
9.762%, 1/01/14 ........................................................... 20,000 d BRL 8,536,037
10.00%, 1/01/17 ........................................................... 35,000 d BRL 14,562,953
e Index Linked, 6.00%, 11/15/09 .............................................. 5,100 d BRL 3,759,394
e Index Linked, 6.00%, 5/15/15 ............................................... 5,600 d BRL 3,897,880
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138,138,808
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COLOMBIA 1.3%
Government of Colombia,
12.00%, 10/22/15 .......................................................... 5,296,000,000 COP 2,748,498
11.75%, 2/25/20 ........................................................... 4,255,000 6,254,850
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9,003,348
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EL SALVADOR 0.4%
f Government of El Salvador, 144A, 7.65%, 6/15/35 ............................ 2,650,000 3,021,000
--------------
FIJI 0.2%
Republic of Fiji, 6.875%, 9/13/11 .......................................... 1,460,000 1,408,900
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INDONESIA 13.2%
Government of Indonesia,
14.25%, 6/15/13 ........................................................... 209,282,000,000 IDR 27,559,719
14.275%, 12/15/13 ......................................................... 166,215,000,000 IDR 22,070,377
11.00%, 10/15/14 .......................................................... 120,832,000,000 IDR 13,943,686
9.50%, 6/15/15 ............................................................ 9,450,000,000 IDR 1,005,126
10.75%, 5/15/16 ........................................................... 26,870,000,000 IDR 3,056,586
10.00%, 7/15/17 ........................................................... 18,800,000,000 IDR 2,022,778
11.50%, 9/15/19 ........................................................... 40,000,000,000 IDR 4,676,120
11.00%, 11/15/20 .......................................................... 132,050,000,000 IDR 14,930,907
12.90%, 6/15/22 ........................................................... 2,000,000,000 IDR 256,256
12.00%, 9/15/26 ........................................................... 7,850,000,000 IDR 958,523
g Reg S, 7.50%, 1/15/16 ..................................................... 3,300,000 3,618,450
--------------
94,098,528
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IRAQ 4.6%
f Government of Iraq, 144A, 5.80%, 1/15/28 ................................... 50,575,000 33,126,625
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10 | Semiannual Report
Templeton Emerging Markets Income Fund
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2007 (UNAUDITED) (CONTINUED)
----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT a VALUE
----------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
BONDS (CONTINUED)
MEXICO 4.2%
Government of Mexico,
8.00%, 12/17/15 ........................................................... 1,775,000 h MXN $ 15,885,168
10.00%, 12/05/24 .......................................................... 1,315,000 h MXN 13,902,653
--------------
29,787,821
--------------
PANAMA 1.0%
Government of Panama, 6.70%, 1/26/36 ....................................... 6,639,000 6,980,909
--------------
PERU 5.1%
Government of Peru,
9.875%, 2/06/15 ........................................................... 4,255,000 5,389,234
7.35%, 7/21/25 ............................................................ 10,520,000 11,855,514
8.75%, 11/21/33 ........................................................... 12,550,000 16,409,125
f Peru Enhanced Pass-Through Finance Ltd., senior secured bond, A-1,
144A, 5/31/18 ............................................................. 4,764,000 3,096,600
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36,750,473
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PHILIPPINES 4.7%
Government of the Philippines,
9.00%, 2/15/13 ............................................................ 21,460,000 24,732,650
8.875%, 3/17/15 ........................................................... 2,100,000 2,478,420
g Reg S, 8.75%, 10/07/16 .................................................... 5,450,000 6,453,182
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33,664,252
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POLAND 2.5%
Government of Poland,
8.50%, 5/12/07 ............................................................ 33,300,000 PLN 11,370,038
6.25%, 10/24/15 ........................................................... 15,380,000 PLN 5,590,947
5.75%, 9/23/22 ............................................................ 2,000,000 PLN 708,310
--------------
17,669,295
--------------
RUSSIA 8.6%
g Aries Vermogen, Reg S, 9.60%, 10/25/14 ..................................... 24,000,000 30,894,000
Government of Russia,
g Reg S, 11.00%, 7/24/18 .................................................... 12,670,000 18,292,946
g Reg S, 12.75%, 6/24/28 .................................................... 6,566,000 11,908,754
--------------
61,095,700
--------------
SOUTH KOREA 1.5%
Korea Treasury Note,
4.75%, 3/12/08 ............................................................ 3,965,000,000 KRW 4,201,487
4.25%, 9/10/08 ............................................................ 6,476,680,000 KRW 6,814,668
--------------
11,016,155
--------------
Semiannual Report | 11
Templeton Emerging Markets Income Fund
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2007 (UNAUDITED) (CONTINUED)
----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT a VALUE
----------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
BONDS (CONTINUED)
THAILAND 1.8%
Bank of Thailand Bond,
3.25%, 5/19/07 ............................................................ 17,165,000 THB $ 482,271
5.00%, 1/12/08 ............................................................ 31,460,000 THB 891,042
5.50%, 8/10/08 ............................................................ 51,970,000 THB 1,487,250
Government of Thailand,
5.60%, 7/07/07 ............................................................ 26,220,000 THB 741,441
4.125%, 2/12/08 ........................................................... 98,000,000 THB 2,754,268
8.50%, 12/08/08 ........................................................... 11,000,000 THB 331,543
4.80%, 4/09/10 ............................................................ 212,000,000 THB 6,063,496
--------------
12,751,311
--------------
UKRAINE 3.6%
b,f Government of the Ukraine, 144A, FRN, 8.775%, 8/05/09 ...................... 11,660,000 12,388,750
f Government of the Ukraine, 144A, 7.65%, 6/11/13 ............................ 11,948,000 12,993,450
--------------
25,382,200
--------------
VIETNAM 0.1%
b Government of Vietnam, FRN, 6.25%, 3/12/16 ................................. 902,087 907,210
--------------
TOTAL BONDS (COST $551,996,437) ............................................ 600,054,322
--------------
WARRANTS (COST $7,140,043) 1.4%
ARGENTINA 1.4%
i Government of Argentina, wts, 12/15/35 ..................................... 75,000,000 9,862,500
--------------
TOTAL LONG TERM INVESTMENTS (COST $559,136,480) ............................ 609,916,822
--------------
SHORT TERM INVESTMENTS 11.8%
FOREIGN GOVERNMENT SECURITIES 3.8%
EGYPT 1.6%
j Egypt Certificate of Deposit, 9/12/07 ...................................... 2,000,000 EGP 335,890
j Egypt Treasury Bills, 6/26/07 - 1/08/08 .................................... 68,825,000 EGP 11,546,907
--------------
THAILAND 2.2%
j Thailand Treasury Bills, 10/04/07 - 1/10/08 ................................ 570,990,000 THB 15,622,392
--------------
TOTAL FOREIGN GOVERNMENT SECURITIES (COST $26,861,357) ..................... 27,505,189
--------------
TOTAL INVESTMENTS BEFORE MONEY MARKET FUND (COST $585,997,837) ............. 637,422,011
--------------
12 | Semiannual Report
Templeton Emerging Markets Income Fund
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2007 (UNAUDITED) (CONTINUED)
----------------------------------------------------------------------------------------------------------------------------
SHARES VALUE
----------------------------------------------------------------------------------------------------------------------------
MONEY MARKET FUND (COST $57,231,488) 8.0%
UNITED STATES 8.0%
k Franklin Institutional Fiduciary Trust Money Market Portfolio, 4.98% ....... 57,231,488 $ 57,231,488
--------------
TOTAL INVESTMENTS (COST $643,229,325) 97.3% ................................ 694,653,499
NET UNREALIZED GAIN ON FORWARD EXCHANGE CONTRACTS 0.1% 539,864
OTHER ASSETS, LESS LIABILITIES 2.6% ........................................ 18,504,849
--------------
NET ASSETS 100.0% .......................................................... $ 713,698,212
==============
CURRENCY ABBREVIATIONS
BRL - Brazilian Real
COP - Colombian Peso
EGP - Egyptian Pound
EUR - Euro
IDR - Indonesian Rupiah
KRW - South Korean Won
MXN - Mexican Peso
PEN - Peruvian Nuevo Sol
PLN - Polish Zloty
THB - Thailand Baht
SELECTED PORTFOLIO ABBREVIATION
FRN - Floating Rate Note
a The principal amount is stated in U.S. dollars unless otherwise indicated.
b The coupon rate shown represents the rate at period end.
c The principal amount is stated in original face, and scheduled paydowns
are reflected in the market price on ex-date.
d Principal is stated in 100 Real units.
e Redemption price at maturity is adjusted for inflation. See Note 1(e).
f Security was purchased pursuant to Rule 144A under the Securities Act of
1933 and may be sold in transactions exempt from registration only to
qualified institutional buyers or in a public offering registered under
the Securities Act of 1933. These securities have been deemed liquid under
guidelines approved by the Fund's Board of Trustees. At February 28, 2007
the aggregate value of these securities was $64,626,425, representing
9.06% of net assets.
g Security was purchased pursuant to Regulation S under the Securities Act
of 1933, which exempts from registration securities offered and sold
outside of the United States. Such a security cannot be sold in the United
States without either an effective registration statement filed pursuant
to the Securities Act of 1933, or pursuant to an exemption from
registration. These securities have been deemed liquid under guidelines
approved by the Fund's Board of Trustees. At February 28, 2007, the
aggregate value of these securities was $71,167,332, representing 9.97% of
net assets.
h Principal is stated in 100 Peso units.
i Warrants are linked to Argentine Republic Gross Domestic Product (GDP) and
do not pay principal over life of security or at expiration. Warrants
entitle the holder to receive only variable income payments, subject to
certain conditions, which are based on growth of Argentine GDP and the
principal or "notional" value of these GDP linked warrants.
j The security is traded on a discount basis with no stated coupon rate.
k See Note 10 regarding investments in the Franklin Institutional Fiduciary
Trust Money Market Portfolio. The rate shown is the annualized seven-day
yield at period end.
Semiannual Report |
The accompanying notes are an integral part of these financial statements. | 13
Templeton Emerging Markets Income Fund
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
February 28, 2007 (unaudited)
Assets:
Investments in securities:
Cost - Unaffiliated issuers .............................. $ 585,997,837
Cost - Sweep Money Fund (Note 10) ........................ 57,231,488
-------------
Total cost of investments ................................ $ 643,229,325
=============
Value - Unaffiliated issuers ............................. $ 637,422,011
Value - Sweep Money Fund (Note 10) ....................... 57,231,488
-------------
Total value of investments ............................... 694,653,499
Cash ...................................................... 9,891,338
Foreign currency, at value (cost $422,812) ................ 373,836
Receivables:
Dividends and interest ................................... 9,388,238
Unrealized gain on forward exchange contracts (Note 7) .... 539,864
-------------
Total assets ....................................... 714,846,775
-------------
Liabilities:
Payables:
Affiliates ............................................... 534,447
Accrued expenses and other liabilities .................... 614,116
-------------
Total liabilities .................................. 1,148,563
-------------
Net assets, at value ............................ $ 713,698,212
=============
Net assets consist of:
Paid-in capital ........................................... $ 662,750,400
Distributions in excess of net investment income .......... (328,149)
Net unrealized appreciation (depreciation) ................ 52,190,249
Accumulated net realized gain (loss) ...................... (914,288)
-------------
Net assets, at value ............................ $ 713,698,212
=============
Shares outstanding ......................................... 47,338,848
=============
Net asset value per share .................................. $ 15.08
=============
14 | The accompanying notes are an integral part of these financial statements.
| Semiannual Report
Templeton Emerging Markets Income Fund
FINANCIAL STATEMENTS (CONTINUED)
STATEMENT OF OPERATIONS
for the six months ended February 28, 2007 (unaudited)
Investment income:
Dividends
Unaffiliated issuers ....................................................... $ 468,368
Sweep Money Fund (Note 10) ................................................. 835,480
Interest (net of foreign taxes of $901,132) ................................. 26,087,082
------------
Total investment income .............................................. 27,390,930
------------
Expenses:
Management fees (Note 3a) ................................................... 2,920,174
Administrative fees (Note 3b) ............................................... 525,534
Transfer agent fees ......................................................... 397,503
Custodian fees (Note 4) ..................................................... 201,813
Reports to shareholders ..................................................... 37,485
Registration and filing fees ................................................ 22,349
Professional fees ........................................................... 28,482
Trustees' fees and expenses ................................................. 27,663
Other ....................................................................... 12,161
------------
Total expenses ....................................................... 4,173,164
Expense reductions (Note 4) .......................................... (11,181)
------------
Net expenses ...................................................... 4,161,983
------------
Net investment income .......................................... 23,228,947
------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments ................................................................ 31,750,470
Foreign currency transactions .............................................. 309,252
------------
Net realized gain (loss) .......................................... 32,059,722
------------
Net change in unrealized appreciation (depreciation) on:
Investments ................................................................ (5,143,156)
Translation of assets and liabilities denominated in foreign currencies .... 278,046
------------
Net unrealized appreciation (depreciation) ........................ (4,865,110)
------------
Net realized and unrealized gain (loss) ...................................... 27,194,612
------------
Net increase (decrease) in net assets resulting from operations .............. $ 50,423,559
============
Semiannual Report |
The accompanying notes are an integral part of these financial statements. | 15
Templeton Emerging Markets Income Fund
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS ENDED
FEBRUARY 28, 2007 YEAR ENDED
(UNAUDITED) AUGUST 31, 2006
------------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income .................................................................... $ 23,228,947 $ 42,077,183
Net realized gain (loss) from investments and foreign currency transactions .............. 32,059,722 33,368,331
Net change in unrealized appreciation (depreciation) on investments and translation of
assets and liabilities denominated in foreign currencies ................................ (4,865,110) 9,295,371
------------------------------------
Net increase (decrease) in net assets resulting from operations ................. 50,423,559 84,740,885
------------------------------------
Distributions to shareholders from net investment income and net foreign currency gains ... (29,193,868) (43,078,352)
------------------------------------
Net increase (decrease) in net assets ........................................... 21,229,691 41,662,533
Net assets:
Beginning of period ....................................................................... 692,468,521 650,805,988
------------------------------------
End of period ............................................................................. $ 713,698,212 $ 692,468,521
====================================
Distributions in excess of net investment income / Undistributed net investment income
included in net assets:
End of period ............................................................................ $ (328,149) $ 5,636,772
====================================
16 | The accompanying notes are an integral part of these financial statements.
| Semiannual Report
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 amended, (the 1940 Act) as a non-diversified,
closed-end investment company.
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 and government 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.
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. 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. Due to the inherent uncertainty of
valuations of such securities, the fair values may differ significantly from the
values that would have been used had a ready market for such investments
existed. 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.
Semiannual Report | 17
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 at a future date. Realized and unrealized gains and losses on these
contracts are included in the Statement of Operations.
The Fund may also enter into forward exchange contracts to hedge against
fluctuations in foreign exchange rates or to gain exposure to certain foreign
currencies. These contracts are valued daily by the Fund and the unrealized
gains or losses on the contracts, as measured by the difference between the
contractual forward foreign exchange rates and the forward rates at the
reporting date, are included in the Statement of Assets and Liabilities.
Realized and unrealized gains and losses on these contracts 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, which may be in
excess of the amount reflected in the Statement of Assets and Liabilities.
18 | Semiannual Report
Templeton Emerging Markets Income Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
D. INCOME TAXES
No provision has been made for U.S. income taxes because it is the Fund's policy
to qualify as a regulated investment company under the Internal Revenue Code and
to distribute to shareholders substantially all of its taxable income and net
realized gains.
Foreign securities held by the Fund may be subject to foreign taxation on
interest income received. Foreign taxes, if any, are recorded based on the tax
regulations and rates that exist in the foreign markets in which the Fund
invests.
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. Amortization of
premium and accretion of discount on debt securities are included in interest
income. Dividend income is recorded on the ex-dividend date. Distributions to
shareholders are recorded on the ex-dividend date and are determined according
to income tax regulations (tax basis). Distributable earnings determined on a
tax basis may differ from earnings recorded in accordance with accounting
principles generally accepted in the United States. These differences may be
permanent or temporary. Permanent differences are reclassified among capital
accounts to reflect their tax character. These reclassifications have no impact
on net assets or the results of operations. Temporary differences are not
reclassified, as they may reverse in subsequent periods.
Inflation-indexed bonds provide an inflation hedge through periodic adjustments
in the security's interest rate and principal redemption value, by amounts
corresponding to the current rate of inflation. Any such adjustments, including
adjustments to principal redemption value, are recorded as interest income.
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 liabilities 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. Currently, the Fund expects the
risk of loss to be remote.
Semiannual Report | 19
Templeton Emerging Markets Income Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST
At February 28, 2007, there were an unlimited number of shares authorized
(without par value). During the periods ended August 31, 2006 and February 28,
2007, there were no share transactions; all reinvested distributions were
satisfied with previously issued shares purchased in the open market.
The Fund's Board of Trustees 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, 2007, the Fund had
repurchased a total of 610,500 shares. During the periods ended August 31, 2006
and February 28, 2007, there were no share repurchases.
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 FEES
The Fund pays an investment management fee to Advisers based on the average
daily net assets of the Fund 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% In excess of $20 billion
B. ADMINISTRATIVE FEES
The Fund pays an administrative fee to FT Services of 0.15% per year of the
average daily net assets of the Fund.
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, 2007, the
custodian fees were reduced as noted in the Statement of Operations.
20 | Semiannual Report
Templeton Emerging Markets Income Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
5. INCOME TAXES
For tax purposes, capital losses may be carried over to offset future capital
gains, if any. At August 31, 2006, the capital loss carryforwards were as
follows:
Capital loss carryforwards expiring in:
2010 ........................................................ $ 8,361,871
2011 ........................................................ 24,484,014
-------------
$ 32,845,885
=============
At February 28, 2007, the cost of investments and net unrealized appreciation
(depreciation) for income tax purposes were as follows:
Cost of investments ............................................ $ 647,938,625
=============
Unrealized appreciation ........................................ $ 50,213,454
Unrealized depreciation ........................................ (3,498,580)
-------------
Net unrealized appreciation (depreciation) ..................... $ 46,714,874
=============
Net investment income differs for financial statement and tax purposes primarily
due to differing treatments of foreign currency transactions and bond discounts
and premiums.
Net realized gains (losses) differ for financial statement and tax purposes
primarily due to differing treatments of wash sales, foreign currency
transactions, and bond discounts and premiums.
6. INVESTMENT TRANSACTIONS
Purchases and sales of investments (excluding short term securities) for the
period ended February 28, 2007, aggregated $108,129,003 and $144,170,331,
respectively.
7. FORWARD EXCHANGE CONTRACTS
At February 28, 2007, the Fund had the following forward exchange contracts
outstanding:
CONTRACT SETTLEMENT UNREALIZED
AMOUNT DATE GAIN
----------------------------------------------------------------------------------------------------------
CONTRACTS TO SELL
61,513,239 Mexican Peso ............................. $ 5,568,321 8/16/07 $ 118,016
42,706,994 Mexican Peso ............................. 3,882,807 8/20/07 99,824
69,355,929 Mexican Peso ............................. 6,287,081 8/21/07 143,950
34,649,958 Mexican Peso ............................. 3,081,914 9/12/07 17,635
13,012,157 Mexican Peso ............................. 1,153,918 9/14/07 3,352
74,700,583 Mexican Peso ............................. 6,663,151 11/26/07 92,858
40,428,962 Mexican Peso ............................. 3,603,455 1/25/08 64,230
----------
Net unrealized gain (loss) on forward exchange contracts ......... $ 539,864
==========
Semiannual Report | 21
Templeton Emerging Markets Income Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
8. CREDIT RISK
The Fund has 71.33% 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.
9. CONCENTRATION OF RISK
Investing in foreign securities may include certain risks and considerations not
typically associated with investing in U.S. securities, such as fluctuating
currency values and changing local and regional economic, political and social
conditions, which may result in greater market volatility. In addition, certain
foreign securities may not be as liquid as U.S. securities.
10. 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 and administrative
fees paid by the Sweep Money Fund.
11. REGULATORY AND LITIGATION MATTERS
As part of various investigations by a number of federal, state, and foreign
regulators and governmental entities, including the Securities and Exchange
Commission ("SEC"), 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 ("marketing support"), Franklin
Resources, Inc. and certain of its subsidiaries (collectively, the "Company"),
entered into settlements with certain of those regulators and governmental
entities. Specifically, the Company entered into settlements with the SEC, among
others, concerning market timing and marketing support.
On June 23, 2006, the SEC approved the proposed plan of distribution for the
marketing support settlement, and disbursement of the settlement monies to the
designated funds, in accordance with the terms and conditions of that settlement
and plan, was completed in September 2006. The Fund did not participate in that
settlement.
22 | Semiannual Report
Templeton Emerging Markets Income Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
11. REGULATORY AND LITIGATION MATTERS (CONTINUED)
The plan of distribution for the market timing settlement is currently under
review by the SEC staff. After publication of notice of the plan and a 30-day
comment period, the proposed plan of distribution will be submitted to the SEC
for approval. Following the SEC's approval of the plan of distribution, with
modifications as appropriate, distribution of the settlement monies will begin
in accordance with the terms and conditions of the settlement and plan.
In addition, the Company, as well as most of the mutual funds within Franklin
Templeton Investments and certain current or former officers, Company directors,
fund directors, and employees, have been named in private lawsuits (styled as
shareholder class actions, or as derivative actions on behalf of either the
named funds or Franklin Resources, Inc.). The lawsuits relate to the industry
practices referenced above, as well as to allegedly excessive commissions and
advisory and distribution fees.
The Company and fund management believe that the claims made in each of the
private lawsuits referenced above are without merit and intend to defend against
them vigorously. The Company cannot predict with certainty the eventual outcome
of these lawsuits, nor whether they will have a material negative impact on the
Company. If it is determined that the Company 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.
12. NEW ACCOUNTING PRONOUNCEMENTS
In July 2006, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes -- an
Interpretation of FASB Statement No. 109" ("FIN 48"), which clarifies the
accounting for uncertainty in tax positions taken or expected to be taken in a
tax return. FIN 48 provides guidance on the measurement, recognition,
classification and disclosure of tax positions, along with accounting for the
related interest and penalties. FIN 48 is effective for fiscal years beginning
after December 15, 2006, and is to be applied to all open tax years as of the
date of effectiveness. On December 22, 2006, the Securities and Exchange
Commission extended the implementation date to no later than the last net asset
value calculation in the first semi-annual reporting period in 2007. The Fund is
currently evaluating the impact, if any, of applying the various provisions of
FIN 48.
In September 2006, FASB issued FASB Statement No. 157, "Fair Value Measurement"
("SFAS 157"), which defines fair value, establishes a framework for measuring
fair value, and expands disclosures about fair value measurements. SFAS 157 is
effective for fiscal years beginning after November 15, 2007, and interim
periods within those fiscal years. The Fund believes the adoption of SFAS 157
will have no material impact on its financial statements.
Semiannual Report | 23
Templeton Emerging Markets Income Fund
ANNUAL MEETING OF SHAREHOLDERS, FEBRUARY 23, 2007
The Annual Meeting of Shareholders of the Fund was held at the Fund's offices,
500 E. Broward Blvd., Fort Lauderdale, Florida, on February 23, 2007. The
purpose of the meeting was to elect five Trustees of the Fund. At the meeting,
the following persons were elected by the shareholders to serve as Trustees of
the Fund: Frank J. Crothers, Charles B. Johnson, Gregory E. Johnson, Frank A.
Olson and Robert E. Wade.* No other business was transacted at the meeting.
The results of the voting at the Annual Meeting are as follows:
The election of five (5) Trustees:
-------------------------------------------------------------------------------------------------
% OF % OF
SHARES SHARES
% OF PRESENT % OF PRESENT
OUTSTANDING AND OUTSTANDING AND
TERM EXPIRING 2010 FOR SHARES VOTING WITHHELD SHARES VOTING
-------------------------------------------------------------------------------------------------
Frank J. Crothers ........ 41,221,444 87.08% 98.63% 571,832 1.21% 1.37%
Charles B. Johnson ....... 41,146,148 86.92% 98.45% 647,128 1.37% 1.55%
Gregory E. Johnson ....... 41,177,863 86.99% 98.53% 615,413 1.30% 1.47%
Frank A. Olson ........... 41,125,012 86.87% 98.40% 668,264 1.41% 1.60%
-------------------------------------------------------------------------------------------------
TERM EXPIRING 2009
-------------------------------------------------------------------------------------------------
Robert E. Wade ........... 41,215,918 87.07% 98.62% 577,358 1.22% 1.38%
* Harris J. Ashton, Edith E. Holiday, David W. Niemiec, Larry D. Thompson
and Constantine D. Tseretopoulos are Trustees of the Fund who are
currently serving and whose terms of office continued after the Annual
Meeting of Shareholders.
24 | 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 | 25
Templeton Emerging Markets Income Fund
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN (CONTINUED)
A 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 to the
participant, less a service charge of $15.00 and less trading fees of $0.12 per
share.
DIRECT DEPOSIT SERVICE FOR REGISTERED SHAREHOLDERS
Cash distributions can now be electronically credited to a checking or savings
account at any financial institution that participates in the Automated Clearing
House ("ACH") system. The Direct Deposit service is provided for registered
shareholders at no charge.
To enroll in the service, access your account online by going to
www.melloninvestor.com/isd or dial 1-800-416-5585 (toll free) and follow the
instructions. Direct Deposit will begin with the next scheduled distribution
payment date following enrollment in the service.
26 | Semiannual Report
Templeton Emerging Markets Income Fund
TRANSFER AGENT
Mellon Investor Services LLC
480 Washington Boulevard
Jersey City, NJ 07310
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 | 27
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 1-954/527-7678 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 U.S. Securities and Exchange 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, 2006. Additionally, the Fund expects to file, on or
about April 30, 2007, such certifications with its Form N-CSRS for the six
months ended February 28, 2007.
28 | Semiannual Report
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 BRIC Fund
Templeton China World Fund
Templeton Developing Markets Trust
Templeton Emerging Markets Small Cap Fund
Templeton Foreign Fund
Templeton Foreign Smaller Companies Fund
Templeton International (Ex EM) Fund 1
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 MidCap Value Fund
Franklin Small Cap Value Fund
Mutual Beacon Fund
Mutual Qualified Fund
Mutual Recovery Fund 3
Mutual Shares Fund
BLEND
Franklin Balanced Fund
Franklin Blue Chip Fund 1
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 Global Real Estate 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
RETIREMENT TARGET FUNDS
Franklin Templeton 2015 Retirement Target Fund
Franklin Templeton 2025 Retirement Target Fund
Franklin Templeton 2035 Retirement Target Fund
Franklin Templeton 2045 Retirement Target Fund
INCOME
Franklin Adjustable U.S. Government
Securities Fund 4
Franklin Floating Rate Daily Access Fund
Franklin High Income Fund 5
Franklin Income Fund
Franklin Limited Maturity
U.S. Government Securities Fund 4
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
Templeton Income 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 Michigan 7
Arizona Minnesota 7
California 8 Missouri
Colorado New Jersey
Connecticut New York 8
Florida 8 North Carolina
Georgia Ohio 7
Kentucky Oregon
Louisiana Pennsylvania
Maryland Tennessee
Massachusetts 7 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. Effective 10/1/06, Franklin's AGE High Income Fund changed its name to
Franklin High Income Fund. The fund's 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.
01/07 Not part of the semiannual report
[LOGO](R) 100 Fountain Parkway
FRANKLIN TEMPLETON P.O. Box 33030
INVESTMENTS 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: 201/680-6578
www.melloninvestor.com/isd
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 S2007 04/07
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 12(a)(1), the Registrant is attaching as an exhibit a
copy of its code of ethics that applies to its principal executive
officers and principal 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 David W. Niemiec 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: Frank J. Crothers, David W. Niemiec,
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.
The board of trustees of the Fund has delegated the authority to vote proxies
related to the portfolio securities held by the Fund to the Fund's manager
Franklin Advisers, Inc. in accordance with the Proxy Voting Policies and
Procedures (Policies) adopted by the manager.
The manager has delegated its administrative duties with respect to the voting
of proxies to the Proxy Group within Franklin Templeton Companies, LLC (Proxy
Group), an affiliate and wholly owned subsidiary of Franklin Resources, Inc. All
proxies received by the Proxy Group will be voted based upon the manager's
instructions and/or policies.
To assist it in analyzing proxies, the manager subscribes to Institutional
Shareholder Services (ISS), an unaffiliated third party corporate governance
research service that provides in-depth analyses of shareholder meeting agendas,
vote recommendations, recordkeeping and vote disclosure services. In addition,
the manager subscribes to Glass, Lewis & Co., LLC (Glass Lewis), an unaffiliated
third party analytical research firm, to receive analyses and vote
recommendations on the shareholder meetings of publicly held U.S. companies.
Although ISS' and/or Glass Lewis' analyses are thoroughly reviewed and
considered in making a final voting decision, the manager does not consider
recommendations from ISS, Glass Lewis or any other third party to be
determinative of the manager's ultimate decision. The manager votes proxies
solely in the interests of the Fund and its shareholders. As a matter of policy,
the officers, directors/trustees and employees of the Fund, the manager and the
Proxy Group will not be influenced by outside sources whose interests conflict
with the interests of the Fund and its shareholders. Efforts are made to resolve
all conflicts in the interests of the manager's clients. Material conflicts of
interest are identified by the Proxy Group based upon analyses of client, broker
and vendor lists, information periodically gathered from directors and officers,
and information derived from other sources, including public filings. In
situations where a material conflict of interest is identified, the Proxy Group
will refer the matter, along with the recommended course of action by the
manager to an interdepartmental Proxy Review Committee (which may include
portfolio managers and/or research analysts employed by the manager), for
evaluation and voting instructions. The Proxy Review Committee may defer to the
voting recommendation of ISS, Glass Lewis or those of another independent third
party provider of proxy services; or send the proxy directly to the Fund with a
recommendation regarding the vote for approval. Where the Proxy Review Committee
refers a matter to the Fund, it may rely upon the instructions of a
representative of the Fund, such as the board of trustees or a committee of the
board.
The recommendation of management on any issue is a factor which the manager
considers in determining how proxies should be voted, but is not determinative
of the manager's ultimate decision. As a matter of practice, the votes with
respect to most issues are cast in accordance with the position of the company's
management. Each issue, however, is considered on its own merits, and the
manager will not support the position of the company's management in any
situation where it deems that the ratification of management's position would
adversely affect the investment merits of owning that company's shares.
MANAGER'S PROXY VOTING POLICIES AND PRINCIPLES The manager has adopted general
proxy voting guidelines, which are summarized below. These guidelines are not an
exhaustive list of all the issues that may arise and the manager cannot
anticipate all future situations. In all cases, each proxy will be considered
based on the relevant facts and circumstances.
BOARD OF DIRECTORS. The manager supports an independent board of directors, and
prefers that key committees such as audit, nominating, and compensation
committees be comprised of independent directors. The manager will generally
vote against management efforts to classify a board and will generally support
proposals to declassify the board of directors. The manager may withhold votes
from directors who have attended less than 75% of meetings without a valid
reason. While generally in favor of separating Chairman and CEO positions, the
manager will review this issue as well as proposals to restore or provide for
cumulative voting on a case-by-case basis, taking into consideration factors
such as the company's corporate governance guidelines or provisions and
performance.
RATIFICATION OF AUDITORS OF PORTFOLIO COMPANIES. In light of several high
profile accounting scandals, the manager will closely scrutinize the role and
performance of auditors. On a case-by-case basis, the manager will examine
proposals relating to non-audit relationships and non-audit fees. The manager
will also consider, on a case-by-case basis, proposals to rotate auditors, and
will vote against the ratification of auditors when there is clear and
compelling evidence of accounting irregularities or negligence.
MANAGEMENT AND DIRECTOR COMPENSATION. A company's equity-based compensation plan
should be in alignment with its shareholders' long-term interests. The manager
believes that executive compensation should be directly linked to the
performance of the company. The manager evaluates plans on a case-by-case basis
by considering several factors to determine whether the plan is fair and
reasonable, including the ISS quantitative model utilized to assess such plans
and/or the Glass Lewis evaluation of the plans. The manager will generally
oppose plans that have the potential to be excessively dilutive, and will almost
always oppose plans that are structured to allow the repricing of underwater
options, or plans that have an automatic share replenishment "evergreen"
feature. The manager will generally support employee stock option plans in which
the purchase price is at least 85% of fair market value, and when potential
dilution is 10% or less.
Severance compensation arrangements will be reviewed on a case-by-case basis,
although the manager will generally oppose "golden parachutes" that are
considered to be excessive. The manager will normally support proposals that
require a percentage of directors' compensation to be in the form of common
stock, as it aligns their interests with those of shareholders. The manager will
review on a case-by-case basis any shareholder proposals to adopt policies on
expensing stock option plans.
ANTI-TAKEOVER MECHANISMS AND RELATED ISSUES. The manager generally opposes
anti-takeover measures since they tend to reduce shareholder rights. On
occasion, the manager may vote with management when the research analyst has
concluded that the proposal is not onerous and would not harm the Fund or its
shareholders' interests. The manager generally supports proposals that require
shareholder rights' plans ("poison pills") to be subject to a shareholder vote
and will closely evaluate such plans on a case-by-case basis to determine
whether or not they warrant support. The manager will generally vote against any
proposal to issue stock that has unequal or subordinate voting rights. The
manager generally opposes any supermajority voting requirements as well as the
payment of "greenmail." The manager generally supports "fair price" provisions
and confidential voting.
CHANGES TO CAPITAL STRUCTURE. The manager will review, on a case-by-case basis,
proposals by companies to increase authorized shares and the purpose for the
increase and proposals seeking preemptive rights. The manager will generally not
vote in favor of dual-class capital structures to increase the number of
authorized shares where that class of stock would have superior voting rights.
The manager will generally vote in favor of the issuance of preferred stock in
cases where the company specifies the voting, dividend, conversion and other
rights of such stock and the terms of the preferred stock issuance are deemed
reasonable.
MERGERS AND CORPORATE RESTRUCTURING. Mergers and acquisitions will be subject to
careful review by the research analyst to determine whether each will be
beneficial to shareholders. The manager will analyze various economic and
strategic factors in making the final decision on a merger or acquisition.
Corporate restructuring and reincorporation proposals are also subject to a
thorough examination on a case-by-case basis.
SOCIAL AND CORPORATE POLICY ISSUES. The manager will generally give management
discretion with regard to social, environmental and ethical issues, although the
manager may vote in favor of those that are believed to have significant
economic benefits or implications for the Fund and its shareholders.
GLOBAL CORPORATE GOVERNANCE. Many of the tenets discussed above are applied to
proxy voting decisions for international companies. However, the manager must be
more flexible in these instances and must be mindful of the varied market
practices of each region.
The manager will attempt to process every proxy it receives for all domestic and
foreign issuers. However, there may be situations in which the manager cannot
process proxies, for example, where a meeting notice was received too late, or
sell orders preclude the ability to vote. If a security is on loan, the manager
may determine that it is not in the best interests of the Fund to recall the
security for voting purposes. Also, the manager may abstain from voting under
certain circumstances or vote against items such as "Other Business" when the
manager is not given adequate information from the company.
Shareholders may view the complete Policies online at franklintempleton.com.
Alternatively, shareholders may request copies of the Policies free of charge by
calling the Proxy Group collect at 1-954-527-7678 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 available online at franklintempleton.com and posted on
the SEC website at www.sec.gov and reflect the 12-month period beginning July 1,
2005, and ending June 30, 2006.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. N/A
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS. N/A
ITEM 10. SUBMISSION OF MATTERS TO 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 11. 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 12. EXHIBITS.
(a)(1) Code of Ethics
(a)(2) 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) 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
--------------------------
Jimmy D. Gambill
Chief Executive Officer - Finance and Administration
Date: April 26, 2007
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
--------------------------
Jimmy D. Gambill
Chief Executive Officer - Finance and Administration
Date: April 26, 2007
By /s/GALEN G. VETTER
--------------------------
Galen G. Vetter
Chief Financial Officer
Date: April 26, 2007