UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-07866
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TEMPLETON EMERGING MARKETS INCOME FUND
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(Exact name of registrant as specified in charter)
500 EAST BROWARD BLVD., SUITE 2100, FORT LAUDERDALE, FL 33394-3091
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(Address of principal executive offices) (Zip code)
CRAIG S. TYLE, ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906
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(Name and address of agent for service)
Registrant's telephone number, including area code: (954) 527-7500
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Date of fiscal year end: 8/31
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Date of reporting period: 2/28/09
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ITEM 1. REPORTS TO STOCKHOLDERS.
FEBRUARY 28, 2009 (GRAPHIC)
SEMIANNUAL REPORT
FIXED INCOME
TEMPLETON EMERGING MARKETS
INCOME FUND
(FRANKLIN TEMPLETON INVESTMENTS(R) LOGO)
Franklin - TEMPLETON - 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.
MUTUAL FUNDS | RETIREMENT PLANS | 529 COLLEGE SAVINGS PLANS | SEPARATE ACCOUNTS
(GRAPHIC)
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
Shareholder Information ............................ 26
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 2/28/09
(BAR CHART)
Americas 36.9%
Asia Pacific 25.8%
Other Europe 13.0%
Middle East & Africa 10.0%
Supranationals** 3.8%
EMU*** 1.9%
Other Net Assets 8.6%
* The Geographic Breakdown is a snapshot of the Fund on 2/28/09 and may not
reflect ongoing repositioning or reinvestment of cash in the Fund.
** The Fund's supranational investment was denominated in the Mexican peso.
*** The Fund's EMU investments were in Germany, France and Austria.
Dear Shareholder:
This semiannual report for Templeton Emerging Markets Income Fund covers the
period ended February 28, 2009.
PERFORMANCE OVERVIEW
For the six months under review, Templeton Emerging Markets Income Fund had
cumulative total returns of -34.93% based on market price and -19.88% based on
net asset value. The Fund underperformed the J.P. Morgan (JPM) Emerging Markets
Bond Index Global (EMBIG), which had a -12.75% 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: (C) 2009 Morningstar. All Rights Reserved. The information
contained herein: (1) is proprietary to Morningstar and/or its content
providers; (2) may not be copied or distributed; and (3) is not warranted
to be accurate, complete or timely. Neither Morningstar nor its content
providers are responsible for any damages or losses arising from any use of
this information. Past performance is no guarantee of future results. 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. Country and regional bond market returns are
based on 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
CURRENCY BREAKDOWN
2/28/09
% OF TOTAL
NET ASSETS
----------
AMERICAS 84.6%
U.S. Dollar 68.6%
Brazilian Real 13.1%
Mexican Peso 2.6%
Peruvian Nuevo Sol 0.3%
ASIA PACIFIC 13.4%
Indonesian Rupiah 10.5%
Kazakhstani Tenge 1.0%
South Korean Won 1.0%
Malaysian Ringgit 0.9%
MIDDLE EAST & AFRICA 2.2%
Egyptian Pound 2.2%
EUROPE* -0.2%
Polish Zloty 0.8%
Euro* -1.0%
* Holding is a negative percentage because of the Fund's holdings of forward
currency exchange contracts.
ECONOMIC AND MARKET OVERVIEW
The period under review encompassed one of the most challenging periods in
decades for the global economy and financial markets. The series of economic and
financial shocks culminated in a systemic failure of U.S. financial institutions
and led to an intensified worldwide financial crisis. Rising uncertainty and
risk aversion negatively impacted global capital flows with severe effects for
global demand and trade and contributed to a series of bank bailouts in the U.S.
and Europe. Global central banks reacted with aggressive interest rate
reductions, and in some cases, moved toward unconventional monetary easing
measures to increase liquidity by expanding central bank balance sheets.
The commodity price-driven inflation shock from early 2008 unwound as global
economic growth and asset prices deteriorated sharply. Lower inflation provided
central banks worldwide with significant scope for reducing interest rates.
During the period, the U.S. Federal Reserve Board (Fed) cut the federal funds
target rate 175 basis points (bps; 100 bps equal one percentage point) to 0.25%
and initiated an asset purchase program. While U.S. economic growth slowed in
the fourth quarter of 2008 at a -0.8% rate year-over-year, job shedding and
business spending retrenchment further weakened economic activity into 2009. The
unemployment rate rose from 6.2% to 8.1% over the six-month period.(2) Eurozone
economic activity weakened even more abruptly than in the U.S., contracting 1.2%
year-over-year in fourth quarter 2008, as deleveraging's impact on investment
activity contributed to a deepening recession.(3) The European Central Bank cut
interest rates 225 bps to 2.00% in the six-month period and significantly
stepped up liquidity operations to aid the banking sector. In Asia, the Bank of
Japan cut interest rates 40 bps to 0.10%, and the central bank of China cut 216
bps to 5.31%. Although Asia's economic growth slowed during the period, hampered
by declining global trade, it was notably less severe than in the U.S. or
Europe. For instance, China registered 6.8% economic growth year-over-year in
the fourth quarter of 2008.(4) The world's largest economies also complemented
central bank measures with large fiscal stimulus packages to address the crisis.
In particular, China proposed fiscal measures for the next two years worth about
12% of 2009 gross domestic product to cushion the declines in investment
activity and labor demand.(5)
(2.) Source: Bureau of Labor Statistics.
(3.) Source: Eurostat.
(4.) Source: National Bureau of Statistics (China).
(5.) Source: International Monetary Fund.
2 | Semiannual Report
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
During this period of heightened risk aversion, global capital flows retrenched
and negatively impacted emerging market assets. U.S. dollar-denominated emerging
market debt had a six-month total return of -12.75% as measured by the JPM
EMBIG.(1) Sovereign interest rate spreads rose from 323 bps at the beginning of
the reporting period to 672 bps by period-end, as emerging market credit yields
climbed sharply while the U.S. Treasury yield curve shifted downward due to Fed
rate cuts.(1) Emerging market local debt markets were also adversely affected.
The JPM Global Bond Index - Emerging Markets (GBI-EM) had a -23.23% total return
in U.S. dollar terms during the reporting period.(6)
The Fund sought to use market volatility to build positions in high-quality,
emerging market sovereign and corporate credit where we believed default risk
offered value or in local bond markets where increased uncertainty and forced
selling pushed valuations out of line with fundamentals. Emerging market
governments broadly used the economic growth cycle of the past few years to
reduce sovereign debt burdens, improve fiscal positions, move to floating
exchange rates and build foreign exchange reserves. As a result, they entered
the current financial crisis with relatively strong credit positions. The
emerging market private sector, however, broadly used this same period to
increase exposure to external debt. With the sharp global growth slowdown in the
second half of 2008, investor focus returned to emerging markets' ability to
roll over private external debt and fund current account deficits amid global
deleveraging. We believed this investor focus on private sector debt presented
the Fund with an opportunity in sovereign credit given improvement in the asset
class's fundamentals over the past few years against the broad-based sovereign
credit spread widening to the highest level since early 2003.
WHAT IS A CURRENT ACCOUNT?
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.
WHAT IS BALANCE OF PAYMENTS?
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.
(6.) Source: (C) 2009 Morningstar. The JPM GBI-EM tracks total returns for
liquid, fixed-rate, local currency emerging market government bonds.
Semiannual Report | 3
LATIN AMERICA
After previously showing some resilience to the global crisis, Latin America's
economic growth slowed sharply during the period under review. Exposure to local
Latin American bond markets remained attractive to us given our assessment of
prospects for interest rate reductions, particularly in view of the region's
economic link to the U.S. and weaker external demand stemming from lower
commodity prices. During the period, the Fund benefited from its Mexican and
Chilean interest rate exposures as these countries' central banks cut interest
rates 75 bps and 300 bps to 7.50% and 4.75%. The Fund's Mexican bond exposure
was largely hedged from the Mexican peso's 31.79% depreciation against the U.S.
dollar. (7) After signficant weakening in the exchange rate, we began to unwind
the currency hedge later in the reporting period, although we were exposed to
some currency weakness in the process. Brazil only began reducing interest rates
during the period, cutting 25 bps to 12.75%. However, our Brazilian real
exposure detracted from Fund performance as the currency fell 31.25% against the
U.S. dollar.(7) We preferred local bond market exposure over sovereign bond
exposure in Brazil and Mexico. Relative to the JPM EMBIG, however, our lack of
exposure to these sovereign bond markets detracted from performance. Over the
period, Brazil and Mexico had returns of -3.75% and -6.71%, compared with the
broader JPM EMBIG's return of -12.75%.(1) Conversely, the Fund's overweighted
Peruvian sovereign bond exposure benefited relative performance as Peru had a
-4.45% return.(1)
EUROPE-MIDDLE EAST-AFRICA (EMEA)
Central and eastern Europe came under increased pressure during the reporting
period given contagion effects and pressures on the balance of payments,
domestic banking sectors and private sector balance sheets. Several countries
including Hungary, Ukraine and Latvia secured balance of payment financing with
the International Monetary Fund (IMF) or the European Union. Although some of
these eastern European countries' economic and policy challenges were quite
large, not all countries in the region faced the same degree of vulnerability.
We increased our country exposure to Russia over the period given our opinion
that market pricing of default risk was inconsistent with our analysis of
fundamentals. However, the Fund held an underweighted position relative to the
JPM EMBIG, benefiting relative performance as Russian debt had a -17.64% return
during the period.(1) Although credit rating agency Standard & Poor's downgraded
Russia's sovereign credit rating one notch to BBB (while Moody's Investors
Service, another credit rating agency, left its
(7.) Source: Exshare (via Compustat via Factset).
4 | Semiannual Report
rating assessment unchanged at Baa1), Russia had accumulated significant
reserves to help cushion the shock of the current crisis.(8) Our Ukraine
sovereign debt exposure detracted from relative Fund performance as Ukraine had
a -56.20% return.1 Although sovereign debt-service levels remained very small
relative to reserves, the severe economic downturn and private sector
dollarization weighed on performance. Additionally, the Fund's overweighted Iraq
exposure detracted from relative performance as the sovereign credit had a
-35.64% return.(1) The Fund benefited from its Egyptian exposure, our primary
local bond market exposure in the EMEA region.
ASIA
Asian economic growth slowed, but less so than in the U.S. or Europe. We
believed that Asia's more limited financial and economic vulnerabilities could
support the region's asset performance over the medium term. The region has
demonstrated its ability to generate positive current account surpluses despite
declining exports. Additionally, Asian corporate and banking systems were less
leveraged going into this crisis, partly a legacy of the late 1990s' financial
crisis.
The Fund held Indonesian local bond market exposure, which detracted from
performance as financial market contagion weakened Indonesian assets. Long-term
bond yields rose 139 bps over the period to 13.59%, and the Indonesian rupiah
fell 23.62% against the U.S. dollar.(7) Although economic growth moderated in
the fourth quarter, it remained positive, and lower inflation allowed the
country's central bank to reduce interest rates 75 bps to 8.25%. During the
period, Indonesia was one of few emerging market countries able to access
international capital markets to help finance its budget deficit. Among
sovereign bonds, the Fund held a meaningful position in the Philippines, but was
underweighted relative to the JPM EMBIG. Over the six-month period, the
Philippines' sovereign credit had a -2.81% return.(1)
TOP 10 COUNTRIES
2/28/09
% OF TOTAL
NET ASSETS
----------
Brazil 13.1%
Indonesia 11.0%
Argentina 7.5%
Russia 5.8%
Peru 5.2%
Philippines 4.4%
Iraq 4.4%
Kazakhstan 4.3%
Ukraine 4.3%
Supranational 3.8%
(8.) These do not indicate ratings of the Fund.
Semiannual Report | 5
Thank you for your continued participation in Templeton Emerging Markets Income
Fund. We look forward to serving your future investment needs.
Sincerely,
(PHOTO OF MICHAEL HASENSTAB)
/s/ Michael Hasenstab
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, 2009, 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 2/28/09
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 any realized gains on the sale of Fund shares.
PRICE AND DISTRIBUTION INFORMATION
SYMBOL: TEI CHANGE 2/28/09 8/31/08
----------- ------ ------- -------
Net Asset Value (NAV) -$3.80 -$10.65 $14.45
Market Price (NYSE) -$5.84 $ 8.37 $14.21
DISTRIBUTIONS (9/1/08-2/28/09)
Dividend Income $0.8617
Long-Term Capital Gain $0.0788
TOTAL $0.9405
PERFORMANCE
6-MONTH 1-YEAR 5-YEAR 10-YEAR
------- ------ ------ -------
Cumulative Total Return(1)
Based on change in NAV(2) -19.88% -20.91% +21.80% +148.07%
Based on change in market
price(3) -34.93% -33.02% -1.29% +137.58%
Average Annual Total Return(1)
Based on change in NAV(2) -19.88% -20.91% +4.02% +9.51%
Based on change in market
price(3) -34.93% -33.02% -0.26% +9.04%
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
CHANGES IN INTEREST RATES WILL AFFECT THE VALUE OF THE FUND'S PORTFOLIO AND ITS
SHARE PRICE AND YIELD. BOND PRICES GENERALLY MOVE IN THE OPPOSITE DIRECTION OF
INTEREST RATES. THUS, AS PRICES OF BONDS IN THE FUND ADJUST TO A RISE IN
INTEREST RATES, THE FUND'S SHARE PRICE MAY DECLINE. SPECIAL RISKS ARE ASSOCIATED
WITH FOREIGN INVESTING, INCLUDING CURRENCY FLUCTUATIONS, ECONOMIC INSTABILITY
AND POLITICAL DEVELOPMENTS. INVESTMENTS IN DEVELOPING MARKETS INVOLVE HEIGHTENED
RISKS RELATED TO THE SAME FACTORS, IN ADDITION TO THOSE ASSOCIATED WITH THEIR
RELATIVELY SMALL SIZE AND LESSER LIQUIDITY. THE FUND'S USE OF FOREIGN CURRENCY
TECHNIQUES INVOLVES SPECIAL RISKS AS SUCH TECHNIQUES MAY NOT ACHIEVE THE
ANTICIPATED BENEFITS AND/OR MAY RESULT IN LOSSES TO THE FUND. ALSO, AS A
NONDIVERSIFIED INVESTMENT COMPANY, THE FUND MAY INVEST IN A RELATIVELY SMALL
NUMBER OF ISSUERS AND, AS A RESULT, BE SUBJECT TO A 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
SIX MONTHS ENDED YEAR ENDED AUGUST 31,
FEBRUARY 28, 2009 ----------------------------------------------------
(UNAUDITED) 2008 2007 2006 2005 2004
----------------- -------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ................. $ 14.45 $ 14.76 $ 14.63 $ 13.75 $ 13.23 $ 12.53
-------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income(a) .......................... 0.51 1.08 1.00 0.89 0.82 0.84
Net realized and unrealized gains (losses) ........ (3.37) (0.05) 0.25 0.90 0.70 0.86
-------- -------- -------- -------- -------- --------
Total from investment operations ..................... (2.86) 1.03 1.25 1.79 1.52 1.70
-------- -------- -------- -------- -------- --------
Less distributions from:
Net investment income and net realized foreign
currency gains ................................. (0.86) (1.34) (1.12) (0.91) (1.00) (1.00)
Net realized gains ................................ (0.08) -- -- -- -- --
-------- -------- -------- -------- -------- --------
Total distributions .................................. (0.94) (1.34) (1.12) (0.91) (1.00) (1.00)
-------- -------- -------- -------- -------- --------
Net asset value, end of period ....................... $ 10.65 $ 14.45 $ 14.76 $ 14.63 $ 13.75 $ 13.23
======== ======== ======== ======== ======== ========
Market value, end of period(b) ....................... $ 8.37 $ 14.21 $ 13.52 $ 13.49 $ 13.32 $ 12.82
======== ======== ======== ======== ======== ========
Total return (based on market value per share)(c) .... (34.93)% 15.84% 8.39% 8.71% 11.74% 11.48%
RATIOS TO AVERAGE NET ASSETS(d)
Expenses(e) .......................................... 1.23% 1.19% 1.17% 1.22% 1.21% 1.24%
Net investment income ................................ 9.04% 7.30% 6.63% 6.29% 5.97% 6.46%
SUPPLEMENTAL DATA
Net assets, end of period (000's) .................... $504,309 $684,152 $698,702 $692,469 $650,806 $624,112
Portfolio turnover rate .............................. 14.08% 25.04% 36.26% 23.68% 53.16% 68.25%
(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) Ratios are annualized for periods less than one year.
(e) Benefit of expense reduction rounds to less than 0.01%.
The accompanying notes are an integral part of these financial statements.
Semiannual Report | 9
Templeton Emerging Markets Income Fund
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2009 (UNAUDITED)
PRINCIPAL
AMOUNT(a) VALUE
--------------- -------------
BONDS 86.4%
ARGENTINA 7.5%
(b, c) Government of Argentina, senior bond, FRN, 1.683%, 8/03/12 ........... 140,605,000 $ 38,016,978
------------
BOSNIA & HERZEGOVINA 0.8%
(b) Government of Bosnia & Herzegovina, FRN, 3.029%, 12/11/17 ............ 6,502,937 EUR 4,241,860
------------
BRAZIL 13.1%
Nota Do Tesouro Nacional,
10.082%, 1/01/12 .................................................. 64,080(d) BRL 25,793,316
10.082%, 1/01/14 .................................................. 20,000(d) BRL 7,625,254
10.082%, 1/01/17 .................................................. 46,400(d) BRL 16,806,897
(e) Index Linked, 6.00%, 5/15/15 ...................................... 5,600(d) BRL 3,981,337
(e) Index Linked, 6.00%, 5/15/45 ...................................... 17,820(d) BRL 11,833,176
------------
66,039,980
------------
COLOMBIA 1.1%
Government of Colombia, 11.75%, 2/25/20 .............................. 4,255,000 5,329,175
------------
EL SALVADOR 0.4%
(f) Government of El Salvador, 144A, 7.65%, 6/15/35 ...................... 2,650,000 1,894,750
------------
FIJI 1.9%
Republic of Fiji, 6.875%, 9/13/11 .................................... 12,360,000 9,565,614
------------
GEORGIA 0.8%
Government of Georgia, 7.50%, 4/15/13 ................................ 6,950,000 4,222,125
------------
GHANA 0.7%
(g) Government of Ghana, Reg S, 8.50%, 10/04/17 .......................... 5,300,000 3,471,500
------------
HUNGARY 0.4%
Government of Hungary,
3.50%, 7/18/16 .................................................... 130,000 EUR 126,576
4.375%, 7/04/17 ................................................... 340,000 EUR 344,192
5.75%, 6/11/18 .................................................... 885,000 EUR 982,169
senior note, 3.875%, 2/24/20 ...................................... 420,000 EUR 383,036
------------
1,835,973
------------
INDIA 1.5%
(f) ICICI Bank Ltd.,
144A, 6.625%, 10/03/12 ............................................ 6,625,000 5,574,937
(b) sub. bond, 144A, FRN, 6.375%, 4/30/22 ................................ 4,100,000 2,227,551
------------
7,802,488
------------
INDONESIA 11.0%
Government of Indonesia,
11.00%, 10/15/14 .................................................. 120,832,000,000 IDR 9,203,604
10.00%, 7/15/17 ................................................... 18,800,000,000 IDR 1,278,966
FR19, 14.25%, 6/15/13 ............................................. 169,282,000,000 IDR 14,801,578
FR20, 14.275%, 12/15/13 ........................................... 166,215,000,000 IDR 14,602,786
FR31, 11.00%, 11/15/20 ............................................ 132,050,000,000 IDR 9,038,479
FR36, 11.50%, 9/15/19 ............................................. 40,000,000,000 IDR 2,871,452
10 | Semiannual Report
Templeton Emerging Markets Income Fund
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2009 (UNAUDITED) (CONTINUED)
PRINCIPAL
AMOUNT(a) VALUE
--------------- -------------
BONDS (CONTINUED)
INDONESIA (CONTINUED)
Government of Indonesia, (continued)
FR46, 9.50%, 7/15/23 .............................................. 3,200,000,000 IDR $ 188,982
FR47, 10.00%, 2/15/28 ............................................. 12,210,000,000 IDR 723,630
FR48, 9.00%, 9/15/18 .............................................. 5,450,000,000 IDR 340,057
(f, h) senior note, 144A, 11.625%, 3/04/19 .................................. 2,550,000 2,531,538
------------
55,581,072
------------
IRAQ 4.4%
Government of Iraq,
(f) 144A, 5.80%, 1/15/28 .............................................. 46,495,000 21,852,650
(g) Reg S, 5.80%, 1/15/28 ............................................. 555,000 260,850
------------
22,113,500
------------
KAZAKHSTAN 4.3%
HSBK (Europe) BV,
(f) 144A, 7.25%, 5/03/17 .............................................. 4,305,000 1,528,275
(g) Reg S, 7.25%, 5/03/17 ............................................. 21,730,000 8,472,092
(f) Kazmunaigaz Finance Sub BV, 144A, 9.125%, 7/02/18 .................... 19,200,000 11,808,000
------------
21,808,367
------------
MEXICO 3.4%
Government of Mexico, M 20, 7.50%, 6/03/27 ........................... 2,978,000(i) MXN 17,267,806
------------
NETHERLANDS 1.9%
Rabobank Nederland, senior note, 8.75%, 1/24/17 ...................... 157,900,000 MXN 9,748,699
------------
PAKISTAN 1.2%
(f) Government of Pakistan, 144A, 6.875%, 6/01/17 ........................ 15,000,000 6,187,500
------------
PANAMA 1.2%
Government of Panama, 6.70%, 1/26/36 ................................. 6,639,000 5,858,917
------------
PERU 5.2%
Government of Peru,
7.35%, 7/21/25 .................................................... 9,420,000 9,531,627
8.75%, 11/21/33 ................................................... 12,550,000 14,369,750
(f) Peru Enhanced Pass-Through Finance Ltd., senior secured bond,
A-1, 144A, zero cpn., 5/31/18 ..................................... 4,615,365 2,400,921
------------
26,302,298
------------
PHILIPPINES 4.4%
Government of the Philippines,
9.00%, 2/15/13 .................................................... 16,460,000 18,327,113
(g) Reg S, 8.75%, 10/07/16 ............................................... 3,750,000 4,106,250
------------
22,433,363
------------
POLAND 0.8%
Government of Poland, 6.25%, 10/24/15 ................................ 15,380,000 PLN 4,283,328
------------
Semiannual Report | 11
Templeton Emerging Markets Income Fund
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2009 (UNAUDITED) (CONTINUED)
PRINCIPAL
AMOUNT(a) VALUE
--------------- -------------
BONDS (CONTINUED)
RUSSIA 5.8%
(g) Alfa MTN Markets Ltd. for ABH Financial Ltd., Reg S, 8.20%, 6/25/12 .. 1,575,000 $ 1,063,125
(g) Gaz Capital SA, senior bond, Reg S, 8.146%, 4/11/18 .................. 6,000,000 4,440,000
(f) Gazprom, secured note, 144A, 7.51%, 7/31/13 .......................... 4,550,000 3,731,000
LUKOIL International Finance BV,
(f) 144A, 6.356%, 6/07/17 ............................................. 890,000 654,150
(f) 144A, 6.656%, 6/07/22 ............................................. 4,540,000 3,143,950
(g) Reg S, 6.356%, 6/07/17 ............................................ 2,300,000 1,725,000
(g) Reg S, 6.656%, 6/07/22 ............................................ 3,970,000 2,775,410
VTB Capital (VNESHTORGBK), 6.315% to 2/04/10, 7.815% thereafter,
2/04/15 ........................................................... 17,000,000 10,184,360
(f) VTB Capital SA, senior note, 144A, 6.25%, 6/30/35 .................... 2,400,000 1,428,000
------------
29,144,995
------------
SOUTH AFRICA 2.0%
(b, f) Edcon Holdings, 144A, FRN, 8.829%, 6/15/15 ........................... 1,200,000 EUR 349,582
(b, g) Edcon Proprietary Ltd., senior secured note, Reg S, FRN, 6.579%,
6/15/14 ........................................................... 2,100,000 EUR 997,448
Government of South Africa,
4.50%, 4/05/16 .................................................... 4,000,000 EUR 4,175,451
senior note, 5.875%, 5/30/22 ...................................... 5,000,000 4,350,000
------------
9,872,481
------------
SOUTH KOREA 1.0%
Korea Treasury Bond,
0475-1203, 4.75%, 3/10/12 ......................................... 2,255,000,000 KRW 1,496,167
0525-2703, 5.25%, 3/10/27 ......................................... 5,148,000,000 KRW 3,314,697
------------
4,810,864
------------
(j) SUPRANATIONAL 3.8%
Inter-American Development Bank, senior note, 7.50%, 12/05/24 ........ 355,000,000 MXN 19,024,224
------------
UKRAINE 4.3%
(f) City of Kiev, 144A, 8.625%, 7/15/11 .................................. 22,400,000 8,064,000
(f) Government of the Ukraine, 144A,
7.65%, 6/11/13 .................................................... 11,948,000 4,779,200
(b) FRN, 5.151%, 8/05/09 ................................................. 11,660,000 8,774,150
------------
21,617,350
------------
UNITED ARAB EMIRATES 0.8%
(f) DP World Ltd., 144A, 6.85%, 7/02/37 .................................. 8,080,000 3,999,600
------------
UNITED STATES 2.0%
General Electric Capital Corp., senior note, A, 8.50%, 4/06/18 ....... 185,000,000 MXN 9,833,389
------------
VENEZUELA 0.3%
Government of Venezuela,
10.75%, 9/19/13 ................................................... 1,295,000 900,025
(g) senior bond, Reg S, 5.375%, 8/07/10 ............................... 870,000 741,675
------------
1,641,700
------------
12 | Semiannual Report
Templeton Emerging Markets Income Fund
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2009 (UNAUDITED) (CONTINUED)
PRINCIPAL
AMOUNT(a) VALUE
--------------- ------------
BONDS (CONTINUED)
VIETNAM 0.4%
Government of Vietnam,
(b) FRN, 3.938%, 3/12/16 ................................................. 1,070,870 $ 798,462
(g) Reg S, 6.875%, 1/15/16 ............................................... 1,405,000 1,227,033
------------
2,025,495
------------
TOTAL BONDS (COST $608,937,802) ...................................... 435,975,391
------------
SHORT TERM INVESTMENTS 5.0%
FOREIGN GOVERNMENT AND AGENCY SECURITIES 2.2%
EGYPT 2.2%
(k) Egypt Treasury Bill, 7/07/09 ......................................... 32,375,000 EGP 5,601,083
(k) Egypt Treasury Bills, 3/03/09 - 9/22/09 .............................. 31,500,000 EGP 5,508,669
------------
TOTAL FOREIGN GOVERNMENT AND AGENCY SECURITIES (COST $11,520,527) .... 11,109,752
------------
TOTAL INVESTMENTS BEFORE MONEY MARKET FUNDS (COST $620,458,329) ...... 447,085,143
------------
SHARES
---------------
MONEY MARKET FUNDS (COST $13,990,352) 2.8%
UNITED STATES 2.8%
(l) Franklin Institutional Fiduciary Trust Money Market Portfolio,
0.25% ............................................................. 13,990,352 13,990,352
------------
TOTAL INVESTMENTS (COST $634,448,681) 91.4% .......................... 461,075,495
NET UNREALIZED APPRECIATION ON FORWARD EXCHANGE CONTRACTS 5.2% ....... 26,010,951
OTHER ASSETS, LESS LIABILITIES 3.4% .................................. 17,222,411
------------
NET ASSETS 100.0% .................................................... $504,308,857
============
See Abbreviations on page 25.
(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 amount is stated in 1,000 Brazilian Real units.
(e) Redemption price at maturity is adjusted for inflation. See Note 1(g).
(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, 2009,
the aggregate value of these securities was $90,929,754, representing
18.03% 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, 2009, the aggregate value of
these securities was $29,280,383, representing 5.81% of net assets.
(h) Security purchased on a delayed delivery basis. See Note 1(c).
(i) Principal amount is stated in 100 Mexican Peso Units.
(j) A supranational organization is an entity formed by two or more central
governments through international treaties.
(k) The security is traded on a discount basis with no stated coupon rate.
(l) See Note 7 regarding investments in the Franklin Institutional Fiduciary
Trust Money Market Portfolio. The rate shown is the annualized seven-day
yield at period end.
The accompanying notes are an integral part of these financial statements.
Semiannual Report | 13
Templeton Emerging Markets Income Fund
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
February 28, 2009 (unaudited)
Assets:
Investments in securities:
Cost - Unaffiliated issuers .................................. $ 620,458,329
Cost - Sweep Money Fund (Note 7) ............................. 13,990,352
-------------
Total cost of investments .................................... $ 634,448,681
-------------
Value - Unaffiliated issuers ................................. $ 447,085,143
Value - Sweep Money Fund (Note 7) ............................ 13,990,352
-------------
Total value of investments ................................... 461,075,495
Cash on deposit from brokers .................................... 5,490,000
Foreign currency, at value (cost and $221,110) .................. 219,659
Receivables:
Investment securities sold ................................... 5,559,531
Dividends and interest ....................................... 9,655,303
Unrealized appreciation on forward exchange contracts (Note 8)... 31,075,633
Unrealized appreciation on swap contracts (Note 9) .............. 5,514,862
-------------
Total assets .............................................. 518,590,483
-------------
Liabilities:
Payables:
Investment securities purchased .............................. 2,610,417
Affiliates ................................................... 391,425
Funds advanced by custodian ..................................... 228,383
Payable due to brokers .......................................... 5,490,000
Unrealized depreciation on forward exchange contracts (Note 8)... 5,064,682
Accrued expenses and other liabilities .......................... 496,719
-------------
Total liabilities ......................................... 14,281,626
-------------
Net assets, at value ................................... $ 504,308,857
-------------
Net assets consist of:
Paid-in capital ................................................. $ 661,118,506
Distributions in excess of net investment income ................ (5,278,345)
Net unrealized appreciation (depreciation) ...................... (142,131,669)
Accumulated net realized gain (loss) ............................ (9,399,635)
-------------
Net assets, at value ................................... $ 504,308,857
-------------
Shares outstanding ................................................. 47,338,848
-------------
Net asset value per share .......................................... $ 10.65
-------------
The accompanying notes are an integral part of these financial statements.
14 | Semiannual Report
Templeton Emerging Markets Income Fund
FINANCIAL STATEMENTS (CONTINUED)
STATEMENT OF OPERATIONS
for the six months ended February 28, 2009 (unaudited)
Investment income:
Dividends - Sweep Money Fund (Note 7) ........................... $ 88,662
Interest (net of foreign taxes of $448,962) ..................... 27,493,482
-------------
Total investment income ................................... 27,582,144
-------------
Expenses:
Management fees (Note 3a) ....................................... 2,257,729
Administrative fees (Note 3b) ................................... 403,516
Transfer agent fees ............................................. 388,972
Custodian fees (Note 4) ......................................... 127,166
Reports to shareholders ......................................... 35,444
Registration and filing fees .................................... 18,565
Professional fees ............................................... 27,073
Trustees' fees and expenses ..................................... 38,791
Other ........................................................... 11,028
-------------
Total expenses ............................................ 3,308,284
Expense reductions (Note 4) ............................... (1,347)
-------------
Net expenses ........................................... 3,306,937
-------------
Net investment income ............................... 24,275,207
-------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments .................................................. (12,383,181)
Swap contracts ............................................... (52,074)
Foreign currency transactions ................................ 2,982,258
-------------
Net realized gain (loss) ..................................... (9,452,997)
-------------
Net change in unrealized appreciation (depreciation) on:
Investments .................................................. (175,449,607)
Translation of other assets and liabilities denominated in
foreign currencies ........................................ 25,306,316
-------------
Net change in unrealized appreciation (depreciation) ............ (150,143,291)
-------------
Net realized and unrealized gain (loss) ......................... (159,596,288)
-------------
Net increase (decrease) in net assets resulting from operations .... $(135,321,081)
-------------
The accompanying notes are an integral part of these financial statements.
Semiannual Report | 15
Templeton Emerging Markets Income Fund
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS ENDED
FEBRUARY 28, 2009 YEAR ENDED
(UNAUDITED) AUGUST 31, 2008
----------------- ---------------
Increase (decrease) in net assets:
Operations:
Net investment income ........................................ $ 24,275,207 $ 51,145,837
Net realized gain (loss) from investments, foreign currency
transactions and swap contracts ........................... (9,452,997) 12,925,745
Net change in unrealized appreciation (depreciation) on
investments and translation of other assets and liabilities
denominated in foreign currencies ......................... (150,143,291) (15,210,844)
------------- ------------
Net increase (decrease) in net assets resulting from
operations ............................................. (135,321,081) 48,860,738
------------- ------------
Distributions to shareholders from:
Net investment income and net realized foreign currency
gains ..................................................... (40,791,885) (63,410,387)
Net realized gains ........................................... (3,730,301) --
------------- ------------
Total distributions to shareholders ............................. (44,522,186) (63,410,387)
------------- ------------
Net increase (decrease) in net assets ..................... (179,843,267) (14,549,649)
Net assets:
Beginning of period ............................................. 684,152,124 698,701,773
------------- ------------
End of period ................................................... $ 504,308,857 $684,152,124
------------- ------------
Undistributed net investment income (distributions in excess of net
investment income) included in net assets:
End of period ................................................... $ (5,278,345) $ 11,238,333
------------- ------------
The accompanying notes are an integral part of these financial statements.
16 | Semiannual Report
Templeton Emerging Markets Income Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Templeton Emerging Markets Income Fund (Fund) is registered under the Investment
Company Act of 1940, as amended, (1940 Act) as a 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.
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
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 (CONTINUED)
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. SECURITIES PURCHASED ON A DELAYED DELIVERY BASIS
The Fund may purchase securities on a delayed delivery basis, with payment and
delivery scheduled for a future date. These transactions are subject to market
fluctuations and are subject to the risk that the value at delivery may be more
or less than the trade date purchase price. Although the Fund will generally
purchase these securities with the intention of holding the securities, it may
sell the securities before the settlement date. Sufficient assets have been
segregated for these securities.
D. 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
appreciation or depreciation 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.
18 | Semiannual Report
Templeton Emerging Markets Income Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
D. FOREIGN CURRENCY CONTRACTS (CONTINUED)
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.
E. INTEREST RATE SWAPS
The Fund may enter into interest rate swap contracts to hedge the risk of
changes in interest rates. Interest rate swaps are agreements between two
parties to exchange cash flows based on a notional principal amount. The
interest receivable or payable is recorded as unrealized appreciation or
depreciation in the Statement of Assets and Liabilities. Payments received or
made are recorded as realized gains or losses in the Statement of Operations.
Interest rate swaps are marked to market daily based upon quotations from the
market makers and the change, if any, is recorded as unrealized appreciation or
depreciation in the Statement of Operations. When the swap contract is
terminated early, the fund records a realized gain or loss equal to the
difference between the current realized value and the expected cash flows. The
risks of interest rate swaps include changes in the market conditions and the
possible inability of the counterparty to fulfill its obligations under the
agreement.
F. 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.
The Fund has reviewed the tax positions, taken on federal income tax returns,
for each of the three open tax years and as of February 28, 2009, and has
determined that no provision for income tax is required in the Fund's financial
statements.
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
invest.
G. 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 of
Semiannual Report | 19
Templeton Emerging Markets Income Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
G. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
(CONTINUED)
America. 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 increases or
decreases in the security's interest accruals 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.
H. 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.
I. 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.
2. SHARES OF BENEFICIAL INTEREST
At February 28, 2009, there were an unlimited number of shares authorized
(without par value). During the periods ended August 31, 2008 and February 28,
2008 there were no shares issued; 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, 2009, the Fund had
repurchased a total of 610,500 shares. During the periods ended August 31, 2008
and February 28, 2009, there were no shares repurchased.
20 | Semiannual Report
Templeton Emerging Markets Income Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES
Franklin Resources, Inc. is the holding company for various subsidiaries that
together are referred to as Franklin Templeton Investments. Certain officers and
trustees of the Fund are also officers and/or directors of the following
subsidiaries:
SUBSIDIARY AFFILIATION
---------- -----------
Franklin Advisers, Inc. (Advisers) Investment manager
Franklin Templeton Services, LLC (FT Services) Administrative manager
A. MANAGEMENT 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, 2009, the
custodian fees were reduced as noted in the Statement of Operations.
5. INCOME TAXES
At February 28, 2009, the cost of investments and net unrealized appreciation
(depreciation) for income tax purposes were as follows:
Cost of investments ........................ $ 638,468,818
-------------
Unrealized appreciation .................... $ 2,210,590
Unrealized depreciation .................... (179,603,913)
-------------
Net unrealized appreciation (depreciation).. $(177,393,323)
-------------
Semiannual Report | 21
Templeton Emerging Markets Income Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
5. INCOME TAXES (CONTINUED)
Net investment income differs for financial statement and tax purposes primarily
due to differing treatments of foreign currency transactions, interest rate
swaps, bond discounts and premiums, and inflation related adjustments on foreign
securities.
Net realized gains (losses) differ for financial statement and tax purposes
primarily due to differing treatments of wash sales, foreign currency
transactions, interest rate swaps, and bond discounts and premiums.
6. INVESTMENT TRANSACTIONS
Purchases and sales of investments (excluding short term securities) for the
period ended February 28, 2009, aggregated $73,768,058 and $71,099,512,
respectively.
7. INVESTMENTS IN FRANKLIN INSTITUTIONAL FIDUCIARY TRUST MONEY MARKET PORTFOLIO
The Fund may invest in the Franklin Institutional Fiduciary Trust Money Market
Portfolio (Sweep Money Fund), and 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.
8. FORWARD EXCHANGE CONTRACTS
At February 28, 2009, the Fund had the following forward exchange contracts
outstanding:
CONTRACT SETTLEMENT UNREALIZED UNREALIZED
AMOUNT(a) DATE APPRECIATION DEPRECIATION
----------- ---------- ------------ ------------
CONTRACTS TO BUY
389,804,593 Kazakhstani Tenge ... 3,099,468 4/17/09 $ -- $ (699,424)
100,000,000 Mexican Peso ........ 7,183,908 5/07/09 -- (715,090)
2,249,893 Peruvian Nuevo Sol .. 832,369 5/15/09 -- (149,071)
2,814,447 Peruvian Nuevo Sol .. 1,040,461 5/19/09 -- (186,146)
1,752,374 Malaysian Ringgit ... 354,015 EUR 6/16/09 24,067 --
96,948,564 Mexican Peso ........ 6,847,859 12/22/09 -- (825,980)
40,262,564 Mexican Peso ........ 2,853,275 12/23/09 -- (352,771)
64,556,594 Mexican Peso ........ 4,565,239 12/24/09 -- (556,550)
7,781,929 Mexican Peso ........ 524,565 1/20/10 -- (43,269)
115,740,103 Mexican Peso ........ 7,868,482 1/21/10 -- (711,244)
CONTRACTS TO SELL
8,200,000 Euro ................ 12,547,640 3/27/09 2,163,524 --
183,978,800 Mexican Peso ........ 16,664,746 4/07/09 4,692,552 --
3,446,350 U S Dollar .......... 433,137,268 KZT 4/27/09 -- (825,137)
167,925,352 Mexican Peso ........ 15,279,832 5/07/09 4,417,047 --
61,513,239 Mexican Peso ........ 5,599,239 5/15/09 1,625,834 --
457,957,173 Mexican Peso ........ 41,806,834 5/20/09 12,252,216 --
22 | Semiannual Report
Templeton Emerging Markets Income Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
8. FORWARD EXCHANGE CONTRACTS (CONTINUED)
CONTRACT SETTLEMENT UNREALIZED UNREALIZED
AMOUNT(a) DATE APPRECIATION DEPRECIATION
----------- ---------- ------------ ------------
CONTRACTS TO SELL (CONTINUED)
34,649,958 Mexican Peso ........ 3,175,982 6/12/09 $ 949,448 $ --
1,327,555 Euro ................ 6,572,393 MYR 6/16/09 90,520 --
1,609,368 Euro ................ 7,951,887 MYR 6/17/09 105,536 --
180,829 Euro ................ 264,878 8/18/09 35,803 --
74,700,583 Mexican Peso ........ 6,956,657 8/27/09 2,225,104 --
725,485 Euro ................ 1,013,684 9/10/09 94,503 --
362,390 Euro ................ 505,680 9/11/09 46,532 --
13,012,157 Mexican Peso ........ 1,157,459 9/15/09 335,985 --
688,058 Euro ................ 970,299 9/21/09 98,470 --
39,897,968 Mexican Peso ........ 3,467,579 10/01/09 955,746 --
39,728,544 Mexican Peso ........ 3,462,183 10/05/09 962,746 --
----------- -----------
Unrealized appreciation (depreciation) on forward exchange
contracts .................................................. 31,075,633 (5,064,682)
----------- -----------
NET UNREALIZED APPRECIATION (DEPRECIATION) ON FORWARD EXCHANGE
CONTRACTS ............................................... $26,010,951 $ --
----------- -----------
(a) In U.S. Dollar unless otherwise indicated.
See Abbreviations on page 25.
9. INTEREST RATE SWAPS
At February 28, 2009, the Fund had the following interest rate swap contracts
outstanding:
RECEIVE - PAY - NOTIONAL PRINCIPAL EXPIRATION UNREALIZED UNREALIZED
COUNTER-PARTY FIXED RATE FLOATING RATE AMOUNT(a) DATE APPRECIATION DEPRECIATION
------------- ---------- ------------------------- ------------------- ---------- ------------ ------------
Merrill Lynch 7.05% Tasa Nominal Annual Rate 4,700,000,000 CLP 6/13/18 $1,781,037 $--
JPMorgan 7.06% Tasa Nominal Annual Rate 1,568,000,000 CLP 6/13/18 595,615 --
Merrill Lynch 7.09% Tasa Nominal Annual Rate 5,100,000,000 CLP 6/16/18 1,957,106 --
JPMorgan 7.15% Tasa Nominal Annual Rate 1,600,000,000 CLP 6/18/18 625,599 --
JPMorgan 7.86% Tasa Nominal Annual Rate 403,200,000 CLP 7/17/18 197,221 --
Merrill Lynch 9.03% MXN Interbank Equilibrium
Interest Rate 241,000,000 MXN 8/17/18 347,221 --
Merrill Lynch 9.10% MXN Interbank Equilibrium
Interest Rate 80,000,000 MXN 8/04/28 11,063 --
---------- ---
Unrealized appreciation (depreciation) on interest rate swap contracts ............ $5,514,862 $--
---------- ---
NET UNREALIZED APPRECIATION (DEPRECIATION) ON INTEREST RATE SWAP CONTRACTS ........ $5,514,862
----------
(a) In U.S. Dollar unless otherwise indicated.
See Abbreviations on page 25.
10. CREDIT RISK
The Fund has 48.21% of its portfolio invested in high yield or other securities
rated below investment grade. These securities may be more sensitive to economic
conditions causing greater price volatility and are potentially subject to a
greater risk of loss due to default than higher rated securities.
Semiannual Report | 23
Templeton Emerging Markets Income Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
11. 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.
12. FAIR VALUE MEASUREMENTS
The Fund adopted Financial Accounting Standards Board (FASB) issued FASB
Statement No. 157, "Fair Value Measurement" (SFAS 157), on September 1, 2008.
SFAS 157 defines fair value, establishes a framework for measuring fair value,
and expands disclosures about fair value measurements. The Fund has determined
that the implementation of SFAS 157 did not have a material impact on the Fund's
financial statements.
SFAS 157 establishes a fair value hierarchy that distinguishes between market
data obtained from independent sources (observable inputs) and the Fund's own
market assumptions (unobservable inputs). These inputs are used in determining
the value of the Fund's investments and are summarized in the following fair
value hierarchy:
- Level 1 - quoted prices in active markets for identical securities
- Level 2 - other significant observable inputs (including quoted prices
for similar securities, interest rates, prepayment speed, credit risk,
etc.)
- Level 3 - significant unobservable inputs (including the Fund's own
assumptions in determining the fair value of investments)
The inputs or methodology used for valuing securities are not an indication of
the risk associated with investing in those securities.
The following is a summary of the inputs used as of February 28, 2009, in
valuing the Fund's assets and liabilities carried at fair value:
LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
----------- ------------ ------- ------------
ASSETS:
Investments in Securities ....... $25,100,104 $435,975,391 $-- $461,075,495
Other Financial Instruments(a) .. -- 36,590,495 -- 36,590,495
LIABILITIES:
Other Financial Instruments(a) .. -- 5,064,682 -- 5,064,682
(a) Other financial instruments include(s) net unrealized appreciation
(depreciation) on forward exchange contracts and swaps.
24 | Semiannual Report
Templeton Emerging Markets Income Fund
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
13. NEW ACCOUNTING PRONOUNCEMENTS
In March 2008, FASB issued FASB Statement No. 161, "Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement No. 133"
(SFAS 161), which expands disclosures about derivative investments and hedging
activities. SFAS 161 is effective for fiscal years and interim periods beginning
after November 15, 2008. The Fund believes applying the various provisions of
SFAS 161 will not have a material impact on its financial statements.
ABBREVIATIONS
CURRENCY
BRL - Brazilian Real
CLP - Chilean Peso
EGP - Egyptian Pound
EUR - Euro
IDR - Indonesian Rupiah
KRW - South Korean Won
KZT - Kazakhstani Tenge
MXN - Mexican Peso
MYR - Malaysian Ringgit
PEN - Peruvian Nuevo Sol
PLN - Polish Zloty
SELECTED PORTFOLIO
FRN - Floating Rate Note
MTN - Medium Term Note
Semiannual Report | 25
Templeton Emerging Markets Income Fund
SHAREHOLDER INFORMATION
PROXY VOTING POLICIES AND PROCEDURES
The Fund's investment manager 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 (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 period 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 semiannually with the
Exchange a certification that she 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, 2008. Additionally, the Fund expects to file, on or
about April 30, 2009, such certifications with its Form N-CSRS for the six
months ended February 28, 2009.
26 | Semiannual Report
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Literature Request
LITERATURE REQUEST. TO RECEIVE A BROCHURE AND PROSPECTUS, PLEASE CALL US AT
(800) DIAL BEN/(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 FUNDS
VALUE
Franklin All Cap Value Fund
Franklin Balance Sheet Investment Fund
Franklin Large Cap Value Fund
Franklin MicroCap Value Fund(1)
Franklin MidCap Value Fund
Franklin Small Cap Value Fund
Mutual Beacon Fund
Mutual Qualified Fund
Mutual Recovery Fund(2)
Mutual Shares Fund
BLEND
Franklin Focused Core Equity Fund
Franklin Large Cap Equity Fund
Franklin Rising Dividends Fund
GROWTH
Franklin Capital Growth Fund(1)
Franklin Flex Cap Growth Fund
Franklin Growth Fund
Franklin Growth Opportunities Fund(3)
Franklin Small Cap Growth Fund(4)
Franklin Small-Mid Cap Growth Fund
SECTOR
Franklin Biotechnology Discovery Fund
Franklin DynaTech Fund
Franklin Global Real Estate Fund
Franklin Gold and Precious Metals
Fund Franklin Natural Resources Fund
Franklin Real Estate Securities Fund
Franklin Utilities Fund
Mutual Financial Services Fund
GLOBAL
Mutual Discovery Fund
Templeton Global Long-Short Fund
Templeton Global Opportunities Trust
Templeton Global Smaller Companies Fund
Templeton Growth Fund
Templeton World Fund
INTERNATIONAL
Franklin India Growth Fund
Franklin International Growth Fund
Franklin International Small Cap Growth Fund
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 Frontier Markets Fund
HYBRID
Franklin Balanced Fund
Franklin Convertible Securities Fund
Franklin Equity Income Fund
Franklin Income Fund
Templeton Income Fund
ASSET ALLOCATION
Franklin Templeton Corefolio(R) Allocation Fund
Franklin Templeton Founding Funds Allocation Fund
Franklin Templeton Perspectives Allocation Fund
Franklin Templeton Conservative Target Fund
Franklin Templeton Growth Target Fund
Franklin Templeton Moderate Target Fund
Franklin Templeton 2015 Retirement Target Fund
Franklin Templeton 2025 Retirement Target Fund
Franklin Templeton 2035 Retirement Target Fund
Franklin Templeton 2045 Retirement Target Fund
FIXED INCOME
Franklin Adjustable U.S. Government Securities Fund(5)
Franklin Floating Rate Daily Access Fund
Franklin High Income Fund
Franklin Limited Maturity U.S. Government Securities Fund(5)
Franklin Low Duration Total Return Fund
Franklin Real Return Fund
Franklin Strategic Income Fund
Franklin Strategic Mortgage Portfolio
Franklin Templeton Hard Currency Fund
Franklin Total Return Fund
Franklin U.S. Government Securities Fund(5)
Templeton Global Bond Fund
Templeton Global Total Return Fund
Templeton International Bond Fund
TAX-FREE INCOME(6)
NATIONAL FUNDS
Double Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free Income Fund
Insured Tax-Free Income Fund(7)
LIMITED-/INTERMEDIATE-TERM FUNDS
California Intermediate-Term Tax-Free Income Fund
Federal Intermediate-Term Tax-Free Income Fund
Federal Limited-Term Tax-Free Income Fund
New York Intermediate-Term Tax-Free Income Fund
STATE-SPECIFIC
Alabama
Arizona
California(8)
Colorado
Connecticut
Florida
Georgia
Kentucky
Louisiana
Maryland
Massachusetts(7)
Michigan(7)
Minnesota(7)
Missouri
New Jersey
New York(8)
North Carolina
Ohio(7)
Oregon
Pennsylvania
Tennessee
Virginia
INSURANCE FUNDS
Franklin Templeton Variable Insurance Products Trust(9)
(1.) The fund is closed to new investors. Existing shareholders and select
retirement plans can continue adding to their accounts.
(2.) 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.
(3.) Effective 11/1/07, Franklin Aggressive Growth Fund changed its name to
Franklin Growth Opportunities Fund. The fund's investment goal and strategy
remained the same.
(4.) Effective 3/31/08, Franklin Small Cap Growth Fund II changed its name to
Franklin Small Cap Growth Fund. The fund's investment goal and strategy
remained the same.
(5.) An investment in the fund is neither insured nor guaranteed by the U.S.
government or by any other entity or institution.
(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.) The fund invests primarily in insured municipal securities.
(8.) These funds are available in four or more variations, including long-term
portfolios, intermediate-term portfolios, portfolios of insured securities,
a high-yield portfolio (CA only) and money market portfolios.
(9.) The funds of the Franklin Templeton Variable Insurance Products Trust are
generally available only through insurance company variable contracts.
12/08
Not part of the semiannual report
(FRANKLIN TEMPLETON INVESTMENTS (R)LOGO)
100 Fountain Parkway
P.O. Box 33030
St. Petersburg, FL 33733-8030
SEMIANNUAL REPORT
TEMPLETON EMERGING MARKETS INCOME FUND
INVESTMENT MANAGER
Franklin Advisers, Inc.
TRANSFER AGENT
BNY Mellon Shareowner Services
P.O. Box 358035
Pittsburgh, PA 15252-8035
Toll free number: (800) 416-5585
Hearing Impaired phone number: (800) 231-5469
Foreign Shareholders phone number: (201) 680-6578
www.melloninvestor.com/isd
FUND INFORMATION
(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 S2009 04/09
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 expert is David W. Niemiec and he is
"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, Ann
Torre Bates 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. The manager votes proxies solely in the interests
of the Fund and its shareholders.
To assist it in analyzing proxies, the manager subscribes to RiskMetrics Group
(RiskMetrics), 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 RiskMetrics' and/or Glass Lewis' analyses are thoroughly reviewed and
considered in making a final voting decision, the manager does not consider
recommendations from RiskMetrics, Glass Lewis or any other third party to be
determinative of the manager's ultimate decision. As a matter of policy, the
officers, directors/trustees and employees of 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,
distributor, broker dealer 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 may defer to the voting recommendation of
RiskMetrics, Glass Lewis or those of another independent third party provider of
proxy services; or send the proxy directly to the Fund with the manager's
recommendation regarding the vote for approval. If the conflict is not resolved
by the Fund, the Proxy Group may refer the matter, along with the recommended
course of action by the manager, if any, 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 RiskMetrics, Glass
Lewis or those of another independent third party provider of proxy services; or
send the proxy directly to the Fund. Where the Proxy Group or 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 directors or a committee of the
board.
Where a material conflict of interest has been identified, but the items on
which the manager's vote recommendations differ from Glass Lewis, RiskMetrics,
or another independent third party provider of proxy services relate
specifically to (1) shareholder proposals regarding social or environmental
issues or political contributions, (2) "Other Business" without describing the
matters that might be considered, or (3) items the manager wishes to vote in
opposition to the recommendations of an issuer's management, the Proxy Group may
defer to the vote recommendations of the manager rather than sending the proxy
directly to the Fund for approval.
To avoid certain potential conflicts of interest, the manager will employ echo
voting, if possible, in the following instances: (1) when the Fund invests in an
underlying fund in reliance on any one of Sections 12(d)(1)(E), (F), or (G) of
the 1940 Act, or pursuant to an SEC exemptive order; (2) when the Fund invests
uninvested cash in affiliated money market funds pursuant to an SEC exemptive
order ("cash sweep arrangement"); or (3) when required pursuant to the Fund's
governing documents or applicable law. Echo voting means that the investment
manager will vote the shares in the same proportion as the vote of all of the
other holders of the Fund's shares.
The recommendation of management on any issue is a factor that the manager
considers in determining how proxies should be voted. However, the manager does
not consider recommendations from management to be 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 will consider
withholding 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. 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 the 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 RiskMetrics 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.
ANTI-TAKEOVER MECHANISMS AND RELATED ISSUES. The manager generally opposes
anti-takeover measures since they tend to reduce shareholder rights. However, as
with all proxy issues, the manager conducts an independent review of each
anti-takeover proposal. 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. In addition, 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 realizes that a company's financing
decisions have a significant impact on its shareholders, particularly when they
involve the issuance of additional shares of common or preferred stock or the
assumption of additional debt. The manager will review, on a case-by-case basis,
proposals by companies to increase authorized shares and the purpose for the
increase. 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 they would 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 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
the manager's proxy voting decisions for international investments. However, the
manager must be 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 (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. The proxy voting records are updated each year by
August 31 to reflect the most recent 12-month period ended June 30.
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 Laura F. Fergerson, Chief Executive Officer - Finance and Administration, and
Mark H. Otani, Chief Financial Officer and Chief Accounting Officer
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of
Laura F. Fergerson, Chief Executive Officer - Finance and Administration, and
Mark H. Otani, Chief Financial Officer and Chief Accounting 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/LAURA F. FERGERSON
--------------------------------------
Laura F. Fergerson
Chief Executive Officer - Finance and
Administration
Date: April 27, 2009
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/LAURA F. FERGERSON
--------------------------------------
Laura F. Fergerson
Chief Executive Officer - Finance and
Administration
Date: April 27, 2009
By /s/MARK H. OTANI
-------------------------------------
Mark H. Otani
Chief Financial Officer and
Chief Accounting Officer
Date: April 27, 2009