tei-nq_053110.htm - Generated by SEC Publisher for SEC Filing

FORM N-Q

 

QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF

REGISTERED MANAGEMENT INVESTMENT COMPANY

 

 

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

 

Date of fiscal year end:   8/31    

 

Date of reporting period: _05/31/10_

 

 

Item 1. Schedule of Investments.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Templeton Emerging Markets Income Fund
Statement of Investments, May 31, 2010 (unaudited)
                         
    Principal                
    Amount a             Value  
 
Bonds 95.7%
                        
Argentina 8.5%
                        
Government of Argentina,
                        
bGDP Linked Securities, 12/15/35
     219,745,000             $ 15,107,469  
c,dsenior bond, FRN, 0.389%, 8/03/12
     140,605,000               46,336,377  
 
                      
 
                     61,443,846  
 
                      
 
                        
Bosnia & Herzegovina 0.8%
                        
cGovernment of Bosnia & Herzegovina, FRN, 1.813%, 12/11/17
     6,059,555     EUR     5,480,145  
 
                      
 
                        
Brazil 13.0%
                        
eCentrais Eletricas Brasileiras SA, senior note, 144A, 6.875%, 7/30/19
     4,150,000               4,419,750  
Nota Do Tesouro Nacional,
                        
10.00%, 1/01/12
     30,950 f   BRL     16,504,283  
10.00%, 1/01/14
     20,000 f   BRL     10,264,616  
10.00%, 1/01/17
     46,400 f   BRL     22,801,891  
gIndex Linked, 6.00%, 5/15/15
     22,055 f   BRL     22,535,727  
gIndex Linked, 6.00%, 5/15/45
     17,820 f   BRL     17,784,375  
 
                      
 
                     94,310,642  
 
                      
 
                        
Colombia 1.3%
                        
Government of Colombia,
                        
senior bond, 11.75%, 2/25/20
     4,255,000               6,191,238  
senior note, 7.375%, 3/18/19
     3,000,000               3,472,500  
 
                      
 
                     9,663,738  
 
                      
 
                        
Croatia 1.1%
                        
eGovernment of Croatia, 144A, 6.75%, 11/05/19
     7,920,000               8,256,600  
 
                      
 
                        
El Salvador 0.4%
                        
eGovernment of El Salvador, 144A, 7.65%, 6/15/35
     2,650,000               2,749,375  
 
                      
 
                        
Fiji 1.7%
                        
Republic of Fiji, 6.875%, 9/13/11
     12,360,000               12,174,600  
 
                      
 
                        
Georgia 1.0%
                        
Government of Georgia, 7.50%, 4/15/13
     6,950,000               7,279,277  
 
                      
 
                        
Ghana 1.5%
                        
Government of Ghana,
                        
14.99%, 3/11/13
     7,450,000     GHS     5,263,610  
hReg S, 8.50%, 10/04/17
     5,300,000               5,538,500  
 
                      
 
                     10,802,110  
 
                      
 
                        
Hungary 0.4%
                        
Government of Hungary,
                        
3.50%, 7/18/16
     190,000     EUR     220,213  
4.375%, 7/04/17
     560,000     EUR     671,911  
5.75%, 6/11/18
     1,255,000     EUR     1,612,498  
senior note, 3.875%, 2/24/20
     535,000     EUR     605,450  
 
                      
 
                     3,110,072  
 
                      
 
                        
India 0.5%
                        
c,eICICI Bank Ltd., sub. bond, 144A, FRN, 6.375%, 4/30/22
     4,100,000               3,740,459  
 
                      
 
                        
Indonesia 12.0%
                        
Government of Indonesia,
                        
FR26, 11.00%, 10/15/14
     120,832,000,000     IDR     14,349,090  
FR28, 10.00%, 7/15/17
     18,800,000,000     IDR     2,183,438  
FR31, 11.00%, 11/15/20
     132,050,000,000     IDR     16,381,449  
FR36, 11.50%, 9/15/19
     40,000,000,000     IDR     5,065,240  
Quarterly Statement of Investments  See Notes to Statements of Investments.

Templeton Emerging Markets Income Fund
Statement of Investments, May 31, 2010 (unaudited) (continued)
                         
    Principal                
    Amount a             Value  
 
FR40, 11.00%, 9/15/25
     387,140,000,000     IDR   $ 46,795,122  
FR46, 9.50%, 7/15/23
     3,200,000,000     IDR     350,990  
FR47, 10.00%, 2/15/28
     12,210,000,000     IDR     1,331,192  
FR48, 9.00%, 9/15/18
     5,450,000,000     IDR     600,599  
 
                      
 
                     87,057,120  
 
                      
 
                        
Iraq 5.0%
                        
Government of Iraq,
                        
e144A, 5.80%, 1/15/28
     41,800,000               34,877,920  
hReg S, 5.80%, 1/15/28
     1,675,000               1,397,620  
 
                      
 
                     36,275,540  
 
                      
 
                        
Kazakhstan 6.2%
                        
eHSBK (Europe) BV, 144A, 7.25%, 5/03/17
     26,035,000               23,879,763  
eKazmunaigaz Finance Sub BV, 144A, 9.125%, 7/02/18
     19,200,000               21,216,000  
 
                      
 
                     45,095,763  
 
                      
 
                        
Lithuania 1.6%
                        
eGovernment of Lithuania, 144A,
                       
6.75%, 1/15/15
     7,750,000               8,118,125  
7.375%, 2/11/20
     3,400,000               3,570,000  
 
                      
 
                     11,688,125  
 
                      
 
                        
Luxembourg 0.7%
                        
eRSHB Capital SA, 144A, 9.00%, 6/11/14
     4,880,000               5,416,800  
 
                      
 
                        
Mexico 2.3%
                        
Government of Mexico, M 20, 7.50%, 6/03/27
     2,248,000 i   MXN     16,937,267  
 
                      
 
                        
Netherlands 1.7%
                        
Rabobank Nederland, senior note, 8.75%, 1/24/17
     157,900,000     MXN     12,719,402  
 
                      
 
                        
Pakistan 1.9%
                        
eGovernment of Pakistan, 144A, 6.875%, 6/01/17
     15,000,000               13,650,000  
 
                      
 
                        
Panama 0.5%
                        
Government of Panama, 6.70%, 1/26/36
     3,339,000               3,631,162  
 
                      
 
                        
Peru 2.7%
                        
Government of Peru, 8.75%, 11/21/33
     12,550,000               16,686,480  
ePeru Enhanced Pass-Through Finance Ltd., senior secured bond, A-1, 144A, zero cpn., 5/31/18
     4,100,269               3,255,400  
 
                      
 
                     19,941,880  
 
                      
 
                        
Philippines 0.6%
                        
hGovernment of the Philippines, Reg S, 8.75%, 10/07/16
     3,750,000               4,722,768  
 
                      
 
                        
Poland 0.7%
                        
Government of Poland, 6.25%, 10/24/15
     15,380,000     PLN     4,834,859  
 
                      
 
                        
Russia 4.5%
                        
eAlfa MTN Markets for ABH Financial Ltd, 144A, 8.20%, 6/25/12
     1,575,000               1,618,312  
eGaz Capital SA, senior bond, 144A, 8.146%, 4/11/18
     6,000,000               6,345,600  
eGazprom, secured note, 144A, 7.51%, 7/31/13
     4,550,000               4,794,667  
hGovernment of Russia, senior bond, Reg S, 7.50%, 3/31/30
     4,903,600               5,481,244  
LUKOIL International Finance BV,
                        
e144A, 6.356%, 6/07/17
     890,000               885,550  
e144A, 6.656%, 6/07/22
     4,540,000               4,210,850  
hReg S, 6.356%, 6/07/17
     2,300,000               2,282,393  
hReg S, 6.656%, 6/07/22
     3,970,000               3,779,787  
eTNK-BP Finance SA, senior bond, 144A, 7.25%, 2/02/20
     1,190,000               1,168,753  
eVTB Capital SA, senior note, 144A, 6.25%, 6/30/35
     2,400,000               2,394,000  
 
                      
 
                     32,961,156  
 
                      

Templeton Emerging Markets Income Fund
Statement of Investments, May 31, 2010 (unaudited) (continued)
                         
    Principal                
    Amount a             Value  
 
South Africa 2.7%
                        
c,e Edcon Holdings, 144A, FRN, 6.15%, 6/15/15
     5,500,000     EUR   $ 4,178,916  
c Edcon Proprietary Ltd., senior secured note,
                        
e 144A, FRN, 3.90%, 6/15/14
     3,500,000     EUR     3,186,865  
h Reg S, FRN, 3.90%, 6/15/14
     2,100,000     EUR     1,912,119  
Government of South Africa,
                    
4.50%, 4/05/16
     4,000,000     EUR     5,041,694  
senior note, 5.875%, 5/30/22
     5,000,000               5,109,375  
 
                      
 
                     19,428,969  
 
                      
 
                        
Sri Lanka 2.5%
                        
Government of Sri Lanka,
                        
e144A, 7.40%, 1/22/15
     3,500,000               3,587,500  
A, 12.00%, 7/15/11
     51,840,000     LKR     468,421  
A, 8.50%, 1/15/13
     312,300,000     LKR     2,673,655  
A, 13.50%, 2/01/13
     303,200,000     LKR     2,903,758  
A, 11.25%, 7/15/14
     354,200,000     LKR     3,257,196  
A, 11.00%, 8/01/15
     607,700,000     LKR     5,556,629  
 
                      
 
                     18,447,159  
 
                      
 
                        
jSupranational 5.3%
                        
African Development Bank, senior note, 340, 25.50%, 6/24/11
     8,200,000     GHS     6,358,859  
Corporacion Andina De Fomento, 8.125%, 6/04/19
     4,550,000               5,565,551  
Inter-American Development Bank, senior note, 7.50%, 12/05/24
     355,000,000     MXN     26,380,506  
 
                      
 
                     38,304,916  
 
                      
 
                        
Trinidad and Tobago 0.7%
                        
Petro Co. of Trinidad and Tobago Ltd., senior note,
                        
e144A, 9.75%, 8/14/19
     4,500,000               4,950,000  
hReg S, 9.75%, 8/14/19
     210,000               231,000  
 
                      
 
                     5,181,000  
 
                      
 
                        
Ukraine 4.7%
                        
e City of Kiev, 144A, 8.625%, 7/15/11
     22,400,000               21,856,343  
e Government of the Ukraine, 144A, 7.65%, 6/11/13
     11,948,000               12,175,012  
 
                      
 
                     34,031,355  
 
                      
 
                        
United Arab Emirates 0.9%
                        
e DP World Ltd., 144A, 6.85%, 7/02/37
     8,080,000               6,343,527  
 
                      
 
                        
United States 1.9%
                        
General Electric Capital Corp., senior note, A, 8.50%, 4/06/18
     185,000,000     MXN     13,648,706  
 
                      
 
                        
Venezuela 6.4%
                        
Government of Venezuela, 10.75%, 9/19/13
     3,800,000               3,294,220  
c,h Reg S, FRN, 1.307%, 4/20/11
     800,000               718,000  
h senior bond, Reg S, 5.375%, 8/07/10
     870,000               860,212  
Petroleos de Venezuela SA,
                        
senior bond, zero cpn., 7/10/11
     40,385,000               34,869,927  
senior sub. bond, 4.90%, 10/28/14
     11,800,000               7,020,952  
 
                      
 
                     46,763,311  
 
                      
 
                        
Total Bonds (Cost $652,391,227)
                     696,091,649  
 
                      

Templeton Emerging Markets Income Fund
Statement of Investments, May 31, 2010 (unaudited) (continued)
                 
    Shares          
Short Term Investments (Cost $12,004,983) 1.7%
                
Money Market Funds 1.7%
                
United States 1.7%
                
kInstitutional Fiduciary Trust Money Market Portfolio, 0.00%
     12,004,983     $ 12,004,983  
 
              
 
                
Total Investments (Cost $664,396,210) 97.4%
             708,096,632  
Other Assets, less Liabilities 2.6%
             18,720,596  
 
              
Net Assets 100.0%
           $ 726,817,228  
 
              
a   The principal amount is stated in U.S. dollars unless otherwise indicated.
 
b   Securitiy is linked to the Argentine GDP and does not pay principal over the life of the security or at expiration. Securities entitle the holder to receive only variable payments, subject to certain conditions, which are based on growth of the Argentine GDP and the principal or “notional” value of this GDP linked securitiy.
 
c   The coupon rate shown represents the rate at period end.
 
d   The principal amount is stated in original face, and scheduled paydowns are reflected in the market price on ex-date.
 
e   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 Trust’s Board of Trustees. At May 31, 2010, the aggregate value of these securities was $210,846,087, representing 29.01% of net assets.
 
f   Principal amount is stated in 1,000 Brazilian Real units.
 
g   Redemption price at maturity is adjusted for inflation.
 
h   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 Trust’s Board of Trustees. At May 31, 2010, the aggregate value of these securities was $26,923,643, representing 3.70% of net assets.
 
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 Institutional Fiduciary Trust Money Market Portfolio is managed by the Fund’s investment manager. The rate shown is the annualized seven-day yield at period end.
At May 31, 2010 the Fund had the following forward exchange contracts outstanding. See Note 3.
                                                 
                    Contract     Settlement     Unrealized     Unrealized  
Currency   Counterparty   Type   Quantity     Amount     Date     Appreciation     Depreciation  
 
Mexican Peso
   DBAB   Sell     67,925,352     $ 4,869,725       6/09/10     $ —     $ (379,327 )
Malaysian Ringgit
   DBAB   Buy     2,499,000       694,553       7/16/10       70,043       —  
Malaysian Ringgit
   DBAB   Buy     3,942,000       1,103,954       7/20/10       101,894       —  
Malaysian Ringgit
   DBAB   Buy     4,793,000       1,353,572       7/23/10       112,369       —  
Malaysian Ringgit
   JPHQ   Buy     5,039,000       1,419,437       7/27/10       121,427       —  
Euro
   DBAB   Sell     2,260,000       3,192,024       8/20/10       408,534       —  
Euro
   UBSW   Sell     2,260,000       3,185,809       8/20/10       402,319       —  
Euro
   BZWS   Sell     2,260,000       3,193,493       8/20/10       410,003       —  
Mexican Peso
   DBAB   Sell     74,700,583       5,514,993       8/27/10       —       (208,641 )
Euro
   DBAB   Sell     725,485       1,052,751       9/10/10       159,013       —  
Euro
   UBSW   Sell     362,390       528,275       9/13/10       81,826       —  
Mexican Peso
   DBAB   Sell     13,012,157       925,862       9/15/10       —       (69,090 )
Euro
   DBAB   Sell     688,058       1,011,032       9/22/10       163,301       —  
Mexican Peso
   DBAB   Sell     39,897,968       2,806,119       10/04/10       —       (238,330 )
Mexican Peso
   CITI   Sell     11,801,000       868,935       12/02/10       —       (25,845 )
South Korean Won
   JPHQ   Buy     7,297,662,505       6,285,670       12/08/10       —       (215,921 )
Mexican Peso
   CITI   Sell     34,649,958       2,559,081       12/15/10       —       (64,574 )

Templeton Emerging Markets Income Fund
Statement of Investments, May 31, 2010 (unaudited) (continued)
                                                 
                    Contract     Settlement     Unrealized     Unrealized  
Currency   Counterparty   Type   Quantity     Amount     Date     Appreciation     Depreciation  
 
Japanese Yen
   BZWS   Sell     1,248,860,000       13,706,791       1/07/11       —       (54,775 )
Japanese Yen
   CITI   Sell     624,500,000       6,853,449       1/07/11       —       (28,105 )
Japanese Yen
   UBSW   Sell     624,380,000       6,853,411       1/07/11       —       (26,821 )
Japanese Yen
   HSBC   Sell     627,090,000       6,853,443       1/11/11       —       (57,468 )
Japanese Yen
   DBAB   Sell     626,420,000       6,853,386       1/11/11       —       (50,141 )
Euro
   BZWS   Sell     2,573,500       3,703,267       1/12/11       528,766       —  
Japanese Yen
   HSBC   Sell     993,800,000       10,835,623       1/13/11       —       (117,301 )
Japanese Yen
   BZWS   Sell     986,330,000       10,835,636       1/14/11       —       (35,280 )
Japanese Yen
   UBSW   Sell     784,550,000       8,668,544       1/14/11       21,562       —  
Euro
   BZWS   Sell     2,547,416       3,593,308       1/26/11       450,464       —  
Euro
   DBAB   Sell     180,829       247,320       2/22/11       24,153       —  
Mexican Peso
   DBAB   Sell     519,508,615       38,666,279       2/22/11       —       (387,496 )
Euro
   DBAB   Sell     7,600,000       10,173,588       3/30/11       790,113       —  
Euro
   UBSW   Sell     413,000       557,922       4/07/11       47,955       —  
Euro
   DBAB   Sell     688,000       929,715       4/07/11       80,181       —  
Euro
   HSBC   Sell     826,000       1,116,281       4/07/11       96,346       —  
                                     
    Unrealized appreciation (depreciation)             4,070,269       (1,959,115 )
                                     
         Net unrealized appreciation (depreciation)           $ 2,111,154          
 
                                              
At May 31, 2010, the Fund had the following interest rate swap contracts outstanding. See Note 3.
                                                                 
    Pay/Receive                                                  
    Floating                     Notional             Expiration     Unrealized     Unrealized  
Counterparty   Rate       Fixed Rate     Floating Rate     Amounta             Date     Appreciation     Depreciation  
 
MLCO
   Pay     9.03%   MXN Interbank Equilibrium Interest Rate     241,000,000     MXN     8/17/18     $ 1,989,157     $ —  
MLCO
   Pay     9.10%     MXN Interbank Equilibrium Interest Rate     80,000,000     MXN     8/04/28       694,952       —  
                                                     
Unrealized appreciation (depreciation)
                     2,684,109       —  
                                                     
Net unrealized appreciation(depreciation)
                   $ 2,684,109          
 
                                                              
a   In U.S. dollars unless otherwise indicated.
At May 31, 2010, the Fund had the following financial futures contracts outstanding. See Note 3.
                                                 
            Number of   Notional   Delivery   Unrealized   Unrealized
Description   Type   Contracts   Amount   Date   Appreciation   Depreciation
 
U.S. Treasury 10 Year Note
   Short     1     $ 100,000       09/21/10     $ —     $ (143 )
Currency
     
BRL  
Brazilian Real
EUR  
Euro
GHS  
Ghanaian Cedi
IDR  
Indonesian Rupiah
LKR  
Sri Lankan Rupee
MXN  
Mexican Peso
PLN  
Polish Zloty

Templeton Emerging Markets Income Fund
Statement of Investments, May 31, 2010 (unaudited) (continued)
Selected Portfolio
     
FRN  
Floating Rate Note
GDP  
Gross Domestic Product
MTN  
Medium Term Note
Counterparty
     
BZWS  
Barclays Bank PLC
CITI  
Citibank, Inc.
DBAB  
Deutsche Bank AG
HSBC  
HSBC Bank USA, N.A.
JPHQ  
JPMorgan Chase & Co.
MLCO  
Merrill Lynch & Co., Inc.
UBSW  
UBS AG

Templeton Emerging Markets Income Fund
Notes to Statement of Investments (unaudited)
1.   ORGANIZATION
Templeton Emerging Markets Income Fund (Fund) is registered under the Investment Company Act of 1940, as amended, as an open-end investment company.
2.   FINANCIAL INSTRUMENT VALUATION
The Fund values its investments in securities and other assets and liabilities carried at fair value daily. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date.
Under procedures approved by the Fund’s Board of Trustees, the Fund may utilize independent pricing services, quotations from securities and financial instrument dealers, and other market sources to determine fair value.
Corporate debt securities and government securities, generally trade in the over-the-counter market rather than on a securities exchange. The Fund’s pricing services use multiple valuation techniques to determine fair value. In instances where sufficient market activity exists, the pricing services utilize a market-based approach through which quotes from market makers are used to determine fair value. In other instances, the pricing services utilize proprietary valuation models to develop an income-based valuation which may consider characteristics such as option-adjusted spreads, credit risk and spreads, benchmark yield curves, coupon rates, maturity and other unique security features in order to estimate the relevant cash flows which are then used to calculate the fair value. Securities denominated in a foreign currency are converted into their U.S. dollar equivalent at the foreign exchange rate in effect at the close of the NYSE on the date that the values of the foreign debt securities are determined.
The Fund has procedures to determine the fair value of investments for which market prices are not readily available or which may not be reliably priced. Under these procedures, the Fund primarily employs a market-based approach, which may use prices of recent transactions, various market multiples, book values, and other relevant information for the investment, related assets or liabilities or other comparable assets or liabilities to determine the fair value of the investment. In developing this fair value, the Fund may also give consideration to an income-based approach valuation, which considers anticipated future cash flows of the investment and converts those amounts into a net present value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Due to the inherent uncertainty of valuations of such investments, the fair values may differ significantly from the values that would have been used had a ready market existed.
Trading in securities on foreign exchanges and over-the-counter markets may be completed before the daily close of business on the NYSE. Occasionally, events occur between the time at which trading in a foreign security is completed and the close of the NYSE that might call into question the availability (including the reliability) of the value of a foreign security held by the Fund. As a result, variances may arise between the value of the Fund’s portfolio securities as determined at the foreign market close and the latest indications of value at the close of the NYSE. In order to minimize the potential for these discrepancies, the investment manager monitors price movements following the close of trading in foreign stock markets through a series of country specific market proxies (such as baskets of American Depository Receipts, futures contracts and exchange traded funds). These price movements are measured against established trigger thresholds for each specific market proxy to assist in determining if an event has occurred that may call into question the

reliability of the values of the foreign securities 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.
Investments in open-end mutual funds are valued at the closing net asset value.
Derivative financial instruments (derivatives) may trade on a securities exchange or in the over-the-counter market. In instances where sufficient market activity exists, the Fund’s pricing services use a market-based approach to determine fair value. In other instance, the pricing services use an income-based approach which considers inputs such as anticipated future cash flows, discount rates, benchmark yield and swap curves and other unique security features to determine the net present value of the contract. The Fund’s net benefit or obligation under the contract, as measured by the fair market value of the contract, is included in net assets.
3.   DERIVATIVE FINANCIAL INSTRUMENTS
The Fund may invest in derivatives in order to manage risk or gain exposure to various other investments or markets. Derivatives are financial contracts based on an underlying or notional amount, require no initial investment or an initial net investment that is smaller than would normally be required to have a similar response to changes in market factors, and require or permit net settlement. Derivatives may contain various risks including the potential inability of the counterparty to fulfill their obligations under the terms of the contract, the potential for an illiquid secondary market, and the potential for market movements.
The Fund generally enters into financial futures contracts in order to manage interest rate risk. A futures contract is an agreement between the Fund and a counterparty to buy or sell a security for a specific price on a future date. Required initial margin deposits of cash or securities are pledged or received by the Fund. Subsequent payments, known as variation margin, are made or received by the Fund, depending on fluctuations in the value of the underlying security. Such variation margin is accounted for as unrealized appreciation or depreciation until the contract is closed, at which time the gains or losses are realized.
The Fund generally enters into forward exchange contracts in order to hedge against fluctuations in foreign exchange rates or to gain exposure to certain foreign currencies. A forward exchange contract is an agreement between the Fund and a counterparty to buy or sell a foreign currency for a specific exchange rate on a future date. Pursuant to the terms of the forward exchange contracts, cash or securities may be required to be deposited as collateral. Pursuant to the terms of the forward exchange contracts, cash or securities may be required to be deposited as collateral.
The Fund generally enters into interest rate swap contracts in order to manage interest rate risk. An interest rate swap is an agreement between the Fund and a counterparty to exchange cash flows based on the difference between two interest rates, applied to a notional principal amount. Over the term of the contract, contractually required payments to be paid and to be received are accrued daily and recorded as unrealized depreciation and appreciation until the payments are made, at which time they are realized. Pursuant to the terms of the interest rate swap contract, cash or securities may be required to be deposited as collateral. Unrestricted cash may be invested according to the Fund’s objectives.
4.   INCOME TAXES
At May 31, 2010, the cost of investments and net unrealized appreciation (depreciation) for income tax purposes were as follows:
         
Cost of investments
   $ 667,762,380  
 
      
 
Unrealized appreciation
   $ 65,382,274  
Unrealized depreciation
     (25,048,022 )
 
      
Net unrealized appreciation (depreciation)
   $ 40,334,252  
 
      

5.   FAIR VALUE MEASUREMENTS
The Fund follows 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 May 31, 2010, in valuing the Fund’s assets and liabilities carried at fair value:
                                 
    Level 1   Level 2   Level 3   Total
     
Assets:
                                
Investments in Securities:
                                
Bonds
   $ —     $ 696,091,649     $ —     $ 696,091,649  
Short Term Investments
     12,004,983       —       —       12,004,983  
     
Total Investments in Securities
   $ 12,004,983     $ 696,091,649     $ —     $ 708,096,632  
     
 
                                
Swaps
   $ —     $ 2,684,109     $ —       2,684,109  
Forward Exchange Contracts
     —       4,070,269       —       4,070,269  
Liabilities:
                                
Forward Exchange Contracts
     —       1,959,115       —       1,959,115  
Futures Contracts
     —       143       —       143  
6.   NEW ACCOUNTING PRONOUNCEMENTS
In January 2010, the Financial Accounting Standards Board issued an Accounting Standards Update (ASU) which enhances and clarifies existing fair value measurement disclosure requirements and is effective for interim and annual periods beginning after December 15, 2009. The Fund believes the adoption of this ASU will not have a material impact on its financial statements.
7.   SUBSEQUENT EVENTS
The Fund has evaluated subsequent events through the issuance of the statement of investments and determined that no events have occurred that require disclosure.
For information on the Fund’s policy regarding other significant accounting policies, please refer to the Fund’s most recent semiannual or annual shareholder report.

 

Item 2. 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 Quarterly Schedule of Portfolio Holdings on Form N-Q, 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 Quarterly Schedule of Portfolio Holdings on Form N-Q.

 

 

Item 3. Exhibits.

 

(a) Certification pursuant to Section 30a-2 under the Investment Company Act of 1940 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  July 27, 2010

 

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  July 27, 2010

 

 

 

 

By /s/MARK H. OTANI                

      Mark H. Otani    

      Chief Financial Officer and

   Chief Accounting Officer

Date  July 27, 2010