October 27, 1995
The Emerging Markets
Income Fund Inc
To Our Shareholders:
The net asset value of the Emerging Markets Income Fund Inc rose to $13.38 per
share as of August 31, 1995. Dividends of $0.4125 per share were paid during the
quarter. The total investment return, based on net asset value per share for the
quarter, assuming reinvestment of dividends in additional shares of the Fund,
was 4.8% compared with an increase of 4.4% in the Salomon Brothers Brady Bond
Index. The Fund's primary investment objective is to seek high current income
through investments in selected debt securities of emerging market countries.
Emerging Markets
Emerging Markets regained stability in the three-month period ended in August
following the extreme volatility of the first five months of the year. For the
three months ended in August, the Salomon Brothers Brady Bond Index appreciated
4.4% as investors focused on the fundamentals in individual countries and looked
beyond the short-term effects of Mexico's peso devaluation at the end of 1994.
The important developments for the market during the Fund's most recent quarter
included successful financings by Argentina and a continuation of the recession
in Mexico. Investors continue to move back into the market based on the
encouraging level of stability over the past three months.
Country Analysis
The largest holdings of foreign government debt securities in the Fund, as a
percentage of total assets on August 31, were in Morocco (15.2%), Brazil
(14.7%), Argentina (12.8%) and Poland (10.7%).
Morocco: The Moroccan economy continued to struggle with the effects of a severe
drought. The World Bank approved a $100 million emergency agricultural loan to
aid this stricken sector of the economy. Moroccan GDP is expected to contract in
1995 due to the effects of the drought. Current estimates from the Ministry of
Finance call for a contraction of approximately 5% in the Moroccan economy in
1995.
Brazil: President Cardoso continued to successfully guide his package of
constitutional reforms through the Brazilian Congress. In July, Standard
& Poor's raised its foreign currency rating on Brazil to single B-plus from
single B, reflecting the success of the Cardoso administration in its
anti-inflation efforts.
Argentina: The country successfully returned to the capital markets with major
debt underwritings denominated in deutschmarks and yen during the Fund's most
recent quarter. These financings are being used, in part, to finance repurchases
of Argentine public debt.
1
<PAGE>
T H E E M E R G I N G M A R K E T S I N C O M E F U N D I N C
Poland: The market continues to upgrade its assessment of Poland's prospects in
light of its investment grade credit rating. Inflation continued to fall during
the recent quarter reflecting the decline in food prices and the strength of the
zloty.
We encourage you to read the financial statements that follow for further
details about the Fund's investments. A recorded update of developments
affecting emerging markets debt securities is available by calling (800)
421-4777.
Cordially,
Michael S. Hyland Alan H. Rappaport
Chairman of the Board President
2
<PAGE>
T H E E M E R G I N G M A R K E T S I N C O M E F U N D I N C
Statement of Investments August 31, 1995
<TABLE>
<CAPTION>
BONDS -- 110.5%
- ------------------------------------------------------------------------------------------------------------------
Principal
Amount
000's(a) Value
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ARGENTINA - 18.6%
Peso 2,614 Republic of Argentina, Bocon, Pro I, Floating Rate Note,
3.9016%, 4/1/07*,** ................................................... $ 946,750
12,750 Republic of Argentina, Floating Rate Bond, Series L, 7.3125%, 3/31/05*,** 7,801,406
-----------
TOTAL ARGENTINA ......................................................... 8,748,156
-----------
BRAZIL - 21.3%
2,375 Federal Republic of Brazil, Interest Due Bond, 6.6875%, 1/01/01*,** ..... 1,963,828
4,000 Federal Republic of Brazil, "New" New Money Bond, Floating Rate,
Series L, 7.3125%, 4/15/09 *,** ....................................... 2,185,000
4,000 Federal Republic of Brazil, Par Bond, Series YL4, 4.25%, 4/15/24*,** .... 1,817,500
6,580 Federal Republic of Brazil, Capitalization Bond, 8.0%, 4/15/14*,**(b) ... 3,269,684
1,250 Federal Republic of Brazil, Eligible Interest Bond, 7.25%, 4/15/06* ..... 775,000
-----------
TOTAL BRAZIL ............................................................ 10,011,012
-----------
BULGARIA - 6.4%
10,000 Republic of Bulgaria, Front Loaded Interest Reduction Bond,
Series A, 2%, 7/28/12* ................................................ 2,600,000
800 Republic of Bulgaria, Discount Bond, Tranche A, 6.75%, 7/28/24* ......... 402,000
-----------
TOTAL BULGARIA .......................................................... 3,002,000
-----------
COSTA RICA - 3.9%
3,500 Costa Rica, Principal Bond, Series A, 6.25%, 5/21/10** .................. 1,820,000
-----------
ECUADOR - 7.3%
736 Republic of Ecuador, Interest Equalization Bond, 6.75%, 12/21/04*,** .... 428,793
3,236 Republic of Ecuador, Past Due Interest Bond, 6.8125%, 2/28/15*(b) ....... 1,055,767
6,000 Republic of Ecuador, Par Bond, 3%, 2/28/25*,** .......................... 1,957,500
-----------
TOTAL ECUADOR ........................................................... 3,442,060
-----------
INDONESIA - 2.2%
1,000 Indah Kiat Finance, 12.5%, 6/15/06** .................................... 1,020,000
-----------
MEXICO - 13.6%
2,500 Cementos Mexicanos S.A., 10%, 11/05/99** ................................ 2,362,500
1,000 Grupo Industrial Durango, 12.0%, 7/15/01** .............................. 895,000
2,000 United Mexican States, Par Bond, Series A, 6.25%, 12/31/19**
(including 2,000,000 rights expiring 6/30/03) ......................... 1,213,750
3,150 United Mexican States, Par Bond, Series B, 6.25%, 12/31/19**
(including 3,150,000 rights expiring 6/30/03) ......................... 1,911,656
-----------
TOTAL MEXICO ............................................................ 6,382,906
-----------
</TABLE>
3
<PAGE>
T H E E M E R G I N G M A R K E T S I N C O M E F U N D I N C
Statement of Investments August 31, 1995 (continued)
<TABLE>
<CAPTION>
BONDS (continued)
- ------------------------------------------------------------------------------------------------------------------
Principal
Amount
000's(a) Value
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
PANAMA - 5.1%
3,000 Republic of Panama, Floating Rate Note, 7.25%, 5/10/02*,** .............. $ 2,379,375
-----------
PHILIPPINES - 7.8%
5,000 Republic of the Philippines, Par Bond, Series B, 5.75%, 12/01/17*,** .... 3,687,500
-----------
POLAND - 15.5%
4,750 Republic of Poland, Discount Bond, 7.125%, 10/27/24*,** ................. 3,615,938
6,000 Republic of Poland, Past Due Interest Bond, 3.25%, 10/27/14*,** ......... 3,671,250
-----------
TOTAL POLAND ............................................................ 7,287,188
-----------
SOUTH AFRICA - 1.4%
ZAL 3,000 Republic of South Africa Notes, 12%, 2/28/05** .......................... 671,959
-----------
TRINIDAD AND TOBAGO - 2.1%
1,000 Trinidad and Tobago Notes, 9.75%, 11/03/00** ............................ 980,000
-----------
URUGUAY - 1.5%
1,000 Uruguay Debt Conversion Bonds, Series B, Floating Rate Note,
6.75%, 2/18/07*,** .................................................... 710,000
-----------
VENEZUELA - 3.8%
2,500 Republic of Venezuela, Par Bond, Series A, 6.75%, 3/31/20**
(including 12,500 warrants expiring 3/31/20) .......................... 1,264,063
1,000 Republic of Venezuela, Par Bond, Series B, 6.75%, 3/31/20**
(including 5,000 warrants expiring 3/31/20) ........................... 505,625
-----------
TOTAL VENEZUELA ......................................................... 1,769,688
-----------
TOTAL BONDS (cost $52,525,603) .......................................... 51,911,844
-----------
LOAN PARTICIPATIONS -- 27.7%
- ------------------------------------------------------------------------------------------------------------------
4,250 Bank for Foreign Economics, Vnesheconombank***
(Participation: Chase Manhattan Bank, New York)T ....................... 1,349,375
3,000 Government of Ivory Coast, 1/01/01***
(Participation: Morgan Stanley Emerging Markets, Inc.)T ................ 525,000
833 Government of Jamaica, Tranche A, 6.6875%, 10/15/00*
(Participation: Chase Manhattan Bank, New York)T ....................... 745,830
17,000 Kingdom of Morocco, Tranche A, 6.6875%, 1/01/09*,**
(Participation: Morgan Guaranty Trust Company of New York)T ........... 10,391,250
-----------
TOTAL LOAN PARTICIPATIONS
(cost $11,803,379) .................................................... 13,011,455
-----------
TOTAL INVESTMENTS - 138.2% (cost $64,328,982) .......................... 64,923,299
-----------
</TABLE>
4
<PAGE>
T H E E M E R G I N G M A R K E T S I N C O M E F U N D I N C
Statement of Investments August 31, 1995 (continued)
<TABLE>
<CAPTION>
REPURCHASE AGREEMENTS -- 2.5%
- ------------------------------------------------------------------------------------------------------------------
Principal
Amount
000's(a) Value
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1,178 State Street Bank and Trust Company, 5.55%, cost $1,178,000,
dated 8/31/95, $1,178,182 due 9/01/95, (collateralized by $1,130,000
U.S. Treasury Note, 7.125%, due 9/30/99, valued at $1,203,450) ........ $ 1,178,000
-----------
LIABILITIES IN EXCESS OF OTHER ASSETS - (40.7%) ......................... (19,108,196)
-----------
NET ASSETS - 100.0% (equivalent to $13.38 per share on
3,512,134 common shares outstanding) .................................. $46,993,103
===========
<FN>
- -----------
(a) Principal denominated in U.S. dollars unless otherwise indicated.
(b) Payment-in-kind security for which part of the interest earned is capitalized as additional principal.
* Rate shown reflects current rate on instrument with variable rates or step coupon rates.
** All or a portion of the security is segregated as collateral pursuant to a loan agreement. See Note 5.
*** Non-income producing. Security is currently in default.
T Participation interests were acquired through the financial institutions indicated parenthetically. See Note 6.
ZAL - South African Rand.
Peso - Argentina Peso.
</FN>
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
T H E E M E R G I N G M A R K E T S I N C O M E F U N D I N C
Statement of Assets and Liabilities August 31, 1995
Assets
<TABLE>
<S> <C>
Investments, at value (cost-$64,328,982) ............................................ $64,923,299
Repurchase agreements ............................................................... 1,178,000
Cash ................................................................................ 27,436
Principal paydown receivable ........................................................ 210,000
Interest receivable ................................................................. 1,823,625
Unamortized organization expenses ................................................... 65,048
Prepaid expenses .................................................................... 7,643
-----------
Total assets .................................................................. 68,235,051
-----------
Liabilities
Loan payable (Note 5) ............................................................... 20,000,000
Payable for compensated foreign currency contracts .................................. 564,044
Accrued interest expense on loan .................................................... 499,965
Accrued management fee (Note 3) ..................................................... 27,591
Accrued advisory fee (Note 3) ....................................................... 19,709
Other accrued expenses .............................................................. 130,639
-----------
Total liabilities ............................................................. 21,241,948
-----------
Net Assets
Common Stock ($.001 par value, authorized
100,000,000; 3,512,134 shares outstanding) ........................................ 3,512
Additional paid-in capital .......................................................... 48,716,493
Undistributed net investment income ................................................. 216,636
Distributions in excess of net realized gain on investments ......................... (2,537,577)
Net unrealized appreciation on investments and foreign currency translations ........ 594,039
-----------
Net assets .................................................................... $46,993,103
===========
Net Asset Value Per Share ($46,993,103 / 3,512,134 shares) .......................... $13.38
======
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
T H E E M E R G I N G M A R K E T S I N C O M E F U N D I N C
Statement of Operations for the Twelve Months ended August 31, 1995
<TABLE>
Net Investment Income
<S> <C> <C>
Income
Interest (includes discount accretion of $2,363,895) $ 9,267,498
Expenses
Interest on loan ...................................................................... $1,490,695
Management fee ........................................................................ 327,780
Advisory fee .......................................................................... 234,128
Audit and tax services ................................................................ 83,545
Printing .............................................................................. 64,245
Custodian ............................................................................. 59,860
Legal ................................................................................. 53,150
Amortization of organization expenses ................................................. 29,930
Directors' fees and expenses .......................................................... 25,095
Transfer agent expenses ............................................................... 23,295
Listing fees .......................................................................... 18,476
Other ................................................................................. 25,218 2,435,417
---------- -----------
Net investment income ............................................................................. 6,832,081
-----------
Realized and Unrealized Gain (Loss)
Net Realized Loss on:
Investments ................................................................................... (1,501,257)
Foreign currency transactions ................................................................. (469,612)
-----------
(1,970,869)
-----------
Change in Net Unrealized Appreciation (Depreciation) on:
Investments ................................................................................... (6,073,533)
Translation of foreign currency contracts and other assets and liabilities
denominated in foreign currencies ........................................................... 261,648
-----------
(5,811,885)
-----------
Net realized loss and change in net unrealized appreciation (depreciation) ........................ (7,782,754)
-----------
Net Decrease in Net Assets from Operations ........................................................ $ (950,673)
===========
</TABLE>
See accompanying notes to financial statements.
7
<PAGE>
T H E E M E R G I N G M A R K E T S I N C O M E F U N D I N C
Statement of Changes in Net Assets August 31, 1995
<TABLE>
<CAPTION>
Twelve Months Twelve Months
Ended Ended
August 31, 1995 August 31, 1994
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations
Net investment income ....................................................... $ 6,832,081 $ 4,799,159
Net realized gain (loss) on investments and foreign currency transactions ... (1,970,869) 3,051,773
Change in net unrealized appreciation(depreciation) ......................... (5,811,885) (5,813,794)
----------- -----------
Net increase (decrease) in net assets from operations ....................... (950,673) 2,037,138
----------- -----------
Dividends and Distributions to Shareholders
From net investment income .................................................. (4,794,063) (5,276,981)
From net realized capital gains ............................................. (1,729,666) (2,844,829)
In excess of net realized capital gains ..................................... (2,537,577) --
----------- -----------
Total dividend to shareholders .............................................. (9,061,306) (8,121,810)
----------- -----------
Capital Share Transactions
Offering expenses charged to paid-in capital ................................ -- (1,875)
----------- -----------
Total decrease in net assets ................................................ (10,011,979) (6,086,547)
Net Assets
Beginning of period ......................................................... 57,005,082 63,091,629
----------- -----------
End of period (includes undistributed net investment income of
$216,636 for 1995) ...................................................... $46,993,103 $57,005,082
=========== ===========
</TABLE>
Statement of Cash Flows For the Twelve Months Ended August 31, 1995
<TABLE>
<S> <C>
Cash Flows from Operating Activities:
Purchases of securities ........................................................................ $(56,746,175)
Net sales of short-term investments ............................................................ 818,896
Proceeds from sales of securities and principal paydowns ....................................... 59,600,168
------------
3,672,889
Net investment income .......................................................................... 6,832,081
Accretion of discount on investments ........................................................... (2,363,895)
Interest on payment-in-kind bonds .............................................................. (237,837)
Amortization of organization expenses .......................................................... 29,930
Net change in receivables/payables related to operations ....................................... 118,136
------------
Net cash provided by operating activities ...................................................... 8,051,304
------------
Cash Flows from Financing Activities:
Dividends paid ................................................................................. (9,061,306)
------------
Net cash used by financing activities .......................................................... (9,061,306)
------------
Net decrease in cash ........................................................................... (1,010,002)
Cash at beginning of period .................................................................... 1,037,438
------------
Cash at end of period .......................................................................... $ 27,436
============
</TABLE>
See accompanying notes to financial statements.
8
<PAGE>
T H E E M E R G I N G M A R K E T S I N C O M E F U N D I N C
Notes to Financial Statements
1. Organization
The Emerging Markets Income Fund Inc (the "Fund") was incorporated in
Maryland on July 30, 1992 and is registered as a non-diversified, closed-end,
management investment company under the Investment Company Act of 1940, as
amended. The Board of Directors authorized 100 million shares of $.001 par value
common stock.
2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements.
(a) Securities valuation. In valuing the Fund's assets, all securities for
which market quotations are readily available are valued (i) at the last
sale price prior to the time of determination if there was a sale on the
date of determination, (ii) at the mean between the last current bid and
asked prices if there was no sales price on such date and bid and asked
quotations are available, and (iii) at the bid price if there was no sales
price on such date and only bid quotations are available. Publicly traded
foreign government debt securities are typically traded internationally in
the over-the-counter market, and are valued at the mean between the last
current bid and asked price as at the close of business of that market.
However, where the spread between bid and asked price exceeds five percent
of the par value of the security, the security is valued at the bid price.
Securities may also be valued by independent pricing services which use
prices provided by market-makers or estimates of market values obtained from
yield data relating to instruments or securities with similar
characteristics. Short-term investments having a maturity of 60 days or less
are valued at amortized cost, unless the Board of Directors determines that
such valuation does not constitute fair value. Securities for which reliable
quotations are not readily available and all other securities and assets are
valued at fair value as determined in good faith by, or under procedures
established by, the Board of Directors.
(b) Investment transactions. Investment transactions are recorded on the
trade date. Interest income is accrued on a daily basis. Market discount on
securities purchased is accreted on an effective yield basis over the life
of the security. The Fund uses the specific identification method for
determining realized gain or loss on investments sold.
(c) Foreign currency translation. The books and records of the Fund are
maintained in U.S. dollars. Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at the date of valuation using the 12:00 noon rate of
exchange reported by Reuters. Purchases and sales of portfolio securities
and income and expense items denominated in foreign currencies are
translated into U.S. dollars at rates of exchange prevailing on the
respective dates of such transactions. The Fund does not isolate that
portion of gains and losses on investments which is due to changes in
foreign exchange rates from that which is due to changes in market prices of
the securities. Such fluctuations are included with the net realized and
unrealized gain or loss from investments. However, pursuant to U.S. federal
income tax regulations, certain net foreign exchange gains/losses included
in realized gain/loss are included in or are a reduction of ordinary income
for federal income tax purposes.
9
<PAGE>
T H E E M E R G I N G M A R K E T S I N C O M E F U N D I N C
Notes to Financial Statements (continued)
2. Significant Accounting Policies (Continued)
(d) Federal income taxes. It is the Fund's intention to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all of its taxable income and
capital gains, if any, to its shareholders. Therefore, no provision has been
made for federal income taxes.
(e) Organization expenses. Organization expenses amounting to $150,000 were
incurred in connection with the organization of the Fund. These costs have
been deferred and are being amortized ratably over a five year period from
commencement of operations.
(f) Repurchase agreements. When entering into repurchase agreements, it is
the Fund's policy to take possession, through its custodian, of the
underlying collateral and to monitor its value at the time the arrangement
is entered into and at all times during the term of the repurchase agreement
to ensure that it always equals or exceeds the repurchase price. In the
event of default of the obligation to repurchase, the Fund has the right to
liquidate the collateral and apply the proceeds in satisfaction of the
obligation. Under certain circumstances, in the event of default or
bankruptcy by the other party to the agreement, realization and/or retention
of the collateral may be subject to legal proceedings.
(g) Distribution of income and gains. The Fund declares and pays
distributions to shareholders quarterly from net investment income. Net
realized gains, if any, in excess of loss carryovers are expected to be
distributed annually. Dividends and distributions to shareholders are
recorded on the ex-dividend date. The amount of dividends and distributions
from net investment income and net realized gains are determined in
accordance with federal income tax regulations, which may differ from
generally accepted accounting principles. These "book/tax" differences are
either considered temporary or permanent in nature. To the extent these
differences are permanent in nature, such amounts are reclassified within
the capital accounts based on their federal tax basis treatment; temporary
differences do not require reclassification. Dividends and distributions
which exceed net investment income and net realized capital gains for
financial reporting purposes but not for tax purposes are reported as
dividends in excess of net investment income or distributions in excess of
net realized capital gains. To the extent they exceed net investment income
and net realized capital gains for tax purposes, they are reported as tax
return of capital.
(h) Forward foreign currency exchange contracts. The Fund enters into
forward foreign currency exchange contracts which are marked-to-market to
reflect the changes in the currency exchange rates. The change in market
value is recorded by the Fund as unrealized gain or loss. The Fund records
realized gains or losses on delivery of the currency or at the time the
forward contract is extinguished (compensated) by entering into a closing
transaction prior to delivery.
(i) Cash flow information. The Fund invests in securities and distributes
dividends from net investment income and net realized gains from investment
transactions which are paid in cash. These activities are reported in the
Statement of Changes in Net Assets. Additional information on cash receipts
and cash payments is presented in the Statement of Cash Flows. For the year
ended August 31, 1995, the Fund paid interest expense of $1,341,424.
10
<PAGE>
T H E E M E R G I N G M A R K E T S I N C O M E F U N D I N C
Notes to Financial Statements (continued)
3. Management and Advisory Fees and Other Transactions
The Fund has retained Salomon Brothers Asset Management Inc, an indirect
wholly owned subsidiary of Salomon Inc, to act as investment manager and
administrator (the "Manager") of the Fund subject to supervision by the Board of
Directors of the Fund. The Manager is responsible for the day-to-day management
of the Fund's investment portfolio as well as providing certain clerical
services relating to the Fund's operations, maintenance of the Fund's records,
preparation of reports and supervision of the Fund's arrangements with its
custodian and transfer and dividend paying agent. The management fee for these
services is payable monthly at an annual rate of 0.70% of the Fund's average
weekly net assets.
The Fund has also retained Advantage Advisers, Inc., a subsidiary of
Oppenheimer, to act as investment adviser (the "Adviser") to the Fund and to
provide financial, economic and political advice concerning emerging market
countries and also, as appropriate, to be involved in aiding the process of
emerging market country selection. The advisory fee for these services is
payable monthly at an annual rate of 0.50% of the Fund's average weekly net
assets.
At August 31, 1995, Oppenheimer and the Manager own 3,658 and 5,248 shares
of the Fund, respectively.
Certain officers and/or directors of the Fund are officers and/or directors
of the Manager or the Adviser.
The Fund pays each Director not affiliated with the Manager or the Adviser a
fee of $5,000 per year, plus a fee of $700 and reimbursement for travel and
out-of-pocket expenses for each board meeting attended.
4. Portfolio Activity and Federal Income Tax Status
Purchases and sales of investment securities, other than short-term
investments, for the year ended August 31, 1995 aggregated $52,539,825 and
$58,824,932, respectively. The federal income tax cost basis of the Fund's
investments at August 31, 1995 was $65,565,274. Gross unrealized appreciation
and depreciation amounted to $3,498,275 and $2,962,250, respectively, resulting
in a net unrealized appreciation on investments of $536,025.
For the year ended August 31, 1995, the Fund had a realized loss on forward
foreign currency exchange contracts closed of $469,637.
For federal income tax purposes, capital and foreign currency losses
incurred after October 31 within the taxable year are deemed to arise on the
first business day of the Fund's next taxable year. The Fund incurred and will
elect to defer net capital and foreign currency losses of $2,589,473 and
$1,581,587, respectively, during fiscal 1995.
As of August 31, 1995, the Fund had temporary book/tax differences primarily
attributable to deferral of post-October and wash sale losses. Permanent
book/tax differences of $1,577,468 arising from foreign currency losses have
been reclassified from Distributions in Excess of Realized Gain on Investments
to Undistributed Net Investment Income. For federal income tax purposes, foreign
11
<PAGE>
T H E E M E R G I N G M A R K E T S I N C O M E F U N D I N C
Notes to Financial Statements (continued)
currency losses include net realized losses on foreign currency transactions of
$469,612, and net realized currency losses on sale of securities of $1,107,856.
Net realized currency losses on sale of securities are included in Net Realized
Loss on Investments in the Statement of Operations. However, for federal income
tax purposes, such losses will be treated as a reduction of net investment
income.
5. Bank Loan
The Fund has borrowed $20,000,000 pursuant to a secured loan agreement (the
"Loan Agreement") with Morgan Guaranty Trust Company of New York. The interest
rate on the loan is equal to six month LIBOR plus 1.375% and the maturity date
is November 6, 1995. The collateral for the loan was valued at $51,263,946 on
August 31, 1995 and is being held in a segregated account by the Fund's
custodian. In accordance with the terms of the Loan Agreement, the Fund must
maintain a level of collateral to debt of at least 200%.
6. Loan Participations/Assignments
The Fund invests in fixed and floating rate loans arranged through private
negotiations between a foreign sovereign entity and one or more financial
institutions ("lenders"). The Fund's investment in any such loan may be in the
form of a participation in or an assignment of the loan. The market value of the
Fund's loan participations at August 31, 1995 was $13,011,455.
In connection with purchasing participations, the Fund generally will have
no right to enforce compliance by the borrower with the terms of the loan
agreement relating to the loan, nor any rights of set-off against the borrower,
and the Fund may not benefit directly from any collateral supporting the loan in
which it has purchased the participation. As a result, the Fund will assume the
credit risk of both the borrower and the lender that is selling the
participation. In the event of the insolvency of the lender selling the
participation, the Fund may be treated as a general creditor of the lender and
may not benefit from any set-off between the lender and the borrower.
When the Fund purchases assignments from lenders, the Fund will acquire
direct rights against the borrower on the loan, except that under certain
circumstances such rights may be more limited than those held by the assigning
lender.
7. Credit Risk
The yields of emerging market debt obligations reflect, among other things,
perceived credit risk. The Fund's investment in securities rated below
investment grade typically involves risks not associated with higher rated
securities including, among others, overall greater risk of timely and ultimate
payment of interest and principal, greater market price volatility and less
liquid secondary market trading. The consequences of political, social, economic
or diplomatic changes may have disruptive effects on the market prices of
investments held by the Fund. The Fund's investment in non-dollar-denominated
securities may also result in foreign currency losses caused by devaluations and
other currency exchange fluctuations.
12
<PAGE>
Notes to Financial Statements (continued)
8. Dividend Subsequent to August 31, 1995
On September 1, 1995, the Board of Directors of the Fund declared a dividend
of $.4125 per share, from net investment income, payable on September 29, 1995
to shareholders of record September 11, 1995.
9. Financial Instruments with Off-Balance Sheet Risk
The Fund enters into forward foreign currency contracts ("forward
contracts") to facilitate settlement of foreign currency denominated portfolio
transactions or to manage foreign currency exposure associated with foreign
currency denominated securities. Forward contracts involve elements of market
risk in excess of the amount reflected in the Statement of Assets and
Liabilities. The Fund bears the risk of an unfavorable change in the foreign
exchange rate underlying the forward contract. Risks may also arise upon
entering into these contracts from the potential inability of the counterparties
to meet the terms of their contracts. As of August 31, 1995, all forward
contracts which the Fund has entered into have been compensated by the Fund with
offsetting contracts.
13
<PAGE>
T H E E M E R G I N G M A R K E T S I N C O M E F U N D I N C
Financial Highlights
Selected data per share of common stock outstanding throughout the period:
<TABLE>
<CAPTION>
Twelve Months Twelve Months Period
Ended Ended Ended
May 31, 1995 August 31, 1994 August 31, 1993(c)
<S> <C> <C> <C>
Net investment income ................................ $ 1.95 $ 1.37 $ 1.28
Net realized gain (loss) and change in
unrealized appreciation (depreciation) on
securities and foreign currency translations ....... (2.22) (0.79) 3.88
_______________________________________________
Total from investment operations ..................... (0.27) 0.58 5.16
_______________________________________________
Dividends to shareholders from net
investment income .................................. (1.37) (1.50) (1.07)
Dividends to shareholders from net
realized capital gains ............................. (.49) (0.81) --
Distributions in excess of net realized capital gains (.72) -- --
Offering costs on issuance of common stock ........... -- -- (0.15)
_______________________________________________
Net increase (decrease) in net asset value ........... (2.85) (1.73) 3.94
Net asset value, beginning of period ................. 16.23 17.96 14.02
_______________________________________________
Net asset value, end of period ....................... $13.38 $16.23 $17.96
===============================================
Per share market value, end of period ................ $13.00 $16.00 $18.50
Total investment return based on market
price per share (b) ................................ -1.76% -1.33% 40.7%(d)
Ratios/Supplemental data:
Net assets, end of period .......................... $46,993,103 $57,005,082 $63,091,629
Ratio of total expenses to
average net assets ............................... 5.15% 3.31% 2.81%(a)
Ratio of operating expenses to
average net assets ............................... 2.00% 1.78% 2.00%(a)
Ratio of interest expense to
average net assets ............................... 3.15% 1.53% 0.81%(a)
Ratio of net investment income to
average net assets ............................... 14.45% 7.99% 9.99%(a)
Portfolio turnover rate ............................ 79.7% 21.6% 29.9%
Bank loan outstanding, end of period ............... $20,000,000 $20,000,000 $10,000,000
Interest rate on bank loan, end of period .......... 7.5625% 6.3125% 4.9375%
Weighted average bank loan ......................... $20,000,000 $16,876,712 $ 8,202,614
Weighted average interest rate ..................... 7.5% 5.4% 5.2%(a)
<FN>
- ---------------
(a) Annualized.
(b) Dividends are assumed, for purposes of this calculation, to be reinvested at prices obtained under the Fund's
dividend reinvestment plan.
(c) For the period October 30, 1992 (commencement of operations) through August 31, 1993.
(d) Return calculated based on beginning period price of $14.02 (initial offering price of $15.00 less sales load
of $0.98) and end of period market value of $18.50 per share. This calculation is not annualized.
</FN>
</TABLE>
See accompanying notes to financial statements.
14
<PAGE>
T H E E M E R G I N G M A R K E T S I N C O M E F U N D I N C
Selected Quarterly Financial Information
Summary of quarterly results of operations (Unaudited)
Net Realized Gain
(Loss) & Change in
Net Investment Net Unrealized
Income Appreciation (Depreciation)
Per Per
Quarters Ended** Total Share Total Share
_______________________________________________________________________________
November 30, 1992* ........... $ 243 $.07 $ (148) $ (.04)
February 28, 1993 ............ 1,530 .44 1,000 .28
May 31, 1993 ................. 1,378 .39 5,280 1.50
August 31, 1993 .............. 1,290 .38 7,537 2.14
November 30, 1993 ............ 1,267 .36 4,243 1.21
February 28, 1994 ............ 1,146 .33 (1,723) (.49)
May 31, 1994 ................. 1,197 .34 (6,897) (1.97)
August 31, 1994 .............. 1,189 .34 1,615 .46
November 30, 1994 ............ 1,595 .46 (3,082) (.88)
February 28, 1995 ............ 1,599 .45 (9,960) (2.83)
May 31, 1995 ................. 1,744 .49 5,054 1.44
August 31, 1995 .............. 1,894 .55 205 .05
*For the period October 30, 1992 (commencement of operations) through
November 30, 1992.
**Totals expressed in thousands of dollars except per share amounts.
See accompanying notes to financial statements.
15
<PAGE>
T H E E M E R G I N G M A R K E T S I N C O M E F U N D I N C
Report of Independent Accountants
To the Board of Directors and Shareholders of
The Emerging Markets Income Fund Inc
In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations, of
changes in net assets and of cash flows and the financial highlights present
fairly, in all material respects, the financial position of The Emerging Markets
Income Fund Inc (the "Fund") at August 31, 1995, the results of its operations
and cash flows for the year then ended, the changes in its net assets for each
of the two years in the period then ended and the financial highlights for each
of the two years in the period then ended and for the period October 30, 1992
(commencement of operations) through August 31, 1993, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at August 31, 1995 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.
PRICE WATERHOUSE LLP
New York, New York
October 17, 1995
16
<PAGE>
T H E E M E R G I N G M A R K E T S I N C O M E F U N D I N C
Other Information
Pursuant to certain rules of the Securities and Exchange Commission the
following additional disclosure is provided.
Pursuant to the Dividend Reinvestment and Cash Purchase Plan (the "Plan"),
shareholders whose shares of Common Stock are registered in their own names will
be deemed to have elected to have all distributions automatically reinvested by
American Stock Transfer & Trust Company (the "Plan Agent") in Fund shares
pursuant to the Plan, unless such shareholders elect to receive distributions in
cash. Shareholders who elect to receive distributions in cash will receive all
distributions in cash paid by check in dollars mailed directly to the
shareholder by American Stock Transfer & Trust Company, as dividend-paying
agent. Shareholders who do not wish to have distributions automatically
reinvested should notify the Plan Agent at the address below. Distributions with
respect to shares registered in the name of a bank, broker-dealer or other
nominee (i.e., in "street name") will be reinvested under the Plan unless the
service is not provided by the bank, broker-dealer or other nominee or the
shareholder elects to receive dividends and distributions in cash. Investors
that own shares registered in the name of a bank, broker-dealer or other nominee
should consult with such nominee as to participation in the Plan through such
nominee, and may be required to have their shares registered in their own names
in order to participate in the Plan.
The Plan Agent serves as agent for the shareholders in administering the
Plan. After the Fund declares a dividend or determines to make a capital gain
distribution, the Plan Agent will, as agent for the participants, receive the
cash payment and use it to buy the Fund's Common Stock in the open market, on
the New York Stock Exchange or elsewhere, for the participants' accounts. The
Fund will not issue any new shares in connection with the Plan.
Participants have the option of making additional cash payments to the Plan
Agent, monthly, in a minimum amount of $250, for investment in the Fund's Common
Stock. The Plan Agent will use all such funds received from participants to
purchase Fund shares in the open market on or about the first business day of
each month. Any voluntary cash payments received more than 30 days prior to
these dates will be returned by the Plan Agent, and interest will not be paid on
any uninvested cash payments. To avoid unnecessary cash accumulations, and also
to allow ample time for receipt and processing by the Plan Agent, it is
suggested that participants send in voluntary cash payments to be received by
the Plan Agent approximately ten days before an applicable purchase date
specified above. A participant may withdraw a voluntary cash payment by written
notice, if the notice is received by the Plan Agent not less than 48 hours
before such payment is to be invested.
The Plan Agent maintains all shareholder accounts in the Plan and furnishes
written confirmations of all transactions in an account, including information
needed by shareholders for personal and tax records. Shares in the account of
each Plan participant will be held by the Plan Agent in the name of the
participant, and each shareholder's proxy will include those shares purchased
pursuant to the Plan.
In the case of shareholders, such as banks, broker-dealers or other
nominees, that hold shares for others who are beneficial owners, the Plan Agent
will administer the Plan on the basis of the number of shares certified from
time to time by the shareholders as representing the total amount registered in
such shareholders' names and held for the account of beneficial owners that have
not elected to receive distributions in cash.
17
<PAGE>
T H E E M E R G I N G M A R K E T S I N C O M E F U N D I N C
Other Information (continued)
There is no charge to participants for reinvesting dividends or capital
gains distributions or voluntary cash payments. The Plan Agent's fees for the
reinvestment of dividends and capital gains distributions and voluntary cash
payments will be paid by the Fund. However, each participant will pay a pro rata
share of brokerage commissions incurred with respect to the Plan Agent's open
market purchases in connection with the reinvestment of dividends and
distributions and voluntary cash payments made by the participant. Brokerage
charges for purchasing small amounts of stock for individual accounts through
the Plan are expected to be less than the usual brokerage charges for such
transactions because the Plan Agent will be purchasing the stock for all
participants in blocks and prorating the lower commissions thus attainable.
The receipt of dividends and distributions under the Plan will not relieve
participants of any income tax which may be payable on such dividends or
distributions.
Experience under the Plan may indicate that changes in the Plan are
desirable. Accordingly, the Fund and the Plan Agent reserve the right to
terminate the Plan as applied to any voluntary cash payments made and any
dividend or distribution paid subsequent to notice of the termination sent to
members of the Plan at least 30 days before the record date for such dividend or
distribution. The Plan also may be amended by the Fund or the Plan Agent but
(except when necessary or appropriate to comply with applicable law, rules or
policies of a regulatory authority) only by at least 30 days' written notice to
participants in the Plan. All correspondence concerning the Plan should be
directed to the Plan Agent at 40 Wall Street, 46th floor, New York, New York
10005.
18
<PAGE>
(LEFT COLUMN)
Directors
CHARLES F. BARBER
Consultant; formerly Chairman,
ASARCO Incorporated
LESLIE H. GELB
President, The Council
on Foreign Relations
MICHAEL S. HYLAND
Chairman of the Board;
President, Salomon Brothers
Asset Management Inc
ALAN H.RAPPAPORT
President;
Executive Vice President,
Oppenheimer & Co., Inc.
RIORDAN ROETT
Professor and Director,
Latin American Studies Program,
Paul H. Nitze School of Advanced
International Studies,
John Hopkins University
JESWALD W. SALACUSE
Henry J. Braker Professor of
Commercial Law, and formerly Dean,
The Fletcher School of Law & Diplomacy
Tufts University
Officers
MICHAEL S. HYLAND
Chairman of the Board
ALAN H. RAPPAPORT
President
PETER J. WILBY
Executive Vice President
LAWRENCE H. KAPLAN
Executive Vice President
ALAN M. MANDEL
Treasurer
TANA E. TSELEPIS
Secretary
AMY W. YEUNG
Assistant Treasurer
LAURIE A. PITTI
Assistant Treasurer
(RIGHT COLUMN)
The Emerging Markets Income Fund Inc
7 World Trade Center
New York, New York 10048
1-800-SALOMON (1-800-725-6666)
INVESTMENT MANAGER
Salomon Brothers Asset Management Inc
7 World Trade Center
New York, New York 10048
INVESTMENT ADVISER
Advantage Advisers, Inc.
Oppenheimer Tower
World Financial Center
New York, New York 10281
CUSTODIAN
Brown Brothers Harriman & Co.
40 Water Street
Boston, Massachusetts 02109
DIVIDEND DISBURSING AND TRANSFER AGENT
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
New York, New York 10036
LEGAL COUNSEL
Simpson Thacher & Bartlett
New York, New York 10017
NEW YORK STOCK EXCHANGE SYMBOL
EMD
________________________________________________________________________________
This report is submitted for the general information of the shareholders of The
Emerging Markets Income Fund Inc. It is not authorized for distribution to
prospective investors unless accompanied or preceded by an effective Prospectus
for the Fund, which contains information concerning the Fund's investment
policies and expenses as well as other pertinent information.
19
<PAGE>
The Emerging Markets
Income Fund Inc
Annual Report
AUGUST 31, 1995
__________________________________________
The Emerging Markets Income Fund Inc
--------------------------------------------
Salomon Brothers Asset Management
Seven World Trade Center
New York, New York 10048
BULK RATE
U.S. POSTAGE
PAID
STATEN ISLAND, NY
PERMIT No. 169
