April 19, 1996
The Emerging Markets
Income Fund Inc
Dear Shareholder,
DURING THE QUARTER ENDED February 29, 1996, the net asset value of each of your
shares of The Emerging Markets Income Fund Inc (the "Fund") increased from
$13.90 per share at November 30, 1995 to $15.58 per share at February 29, 1996.
Assuming that dividends of $0.4125 per share paid from net investment income and
$0.03 per share paid from long-term capital gain were reinvested in additional
shares of the Fund, the net asset value return was 15.61% for the quarter. For
the same period, the Salomon Brothers Brady Bond Index, which we use as a
measure of performance of the overall market for emerging market debt, gained
9.64%. The Fund's primary investment objective is to seek high current income
through investments in selected debt securities of emerging markets countries.
As a secondary objective, the Fund seeks capital appreciation.
Market Overview
THE RECOVERY IN THE emerging debt markets continued into January 1996 was driven
by the continued improvement of fundamentals in the major Latin American
countries and the effect of additional funds flowing into the market. However,
by February 1996, instability in the U.S. bond market caused by investor
anticipation of an increase in interest rates by the Federal Reserve,
contributed to a sell-off in the emerging debt markets, as measured by a 6.18%
decline in the Salomon Brothers Brady Bond Index for the month. Despite the
global impact of fluctuations in the U.S. fixed-income markets, we believe the
fundamental outlook for the Fund's core country holdings in the emerging debt
markets continues to be positive.
Portfolio Review
BRAZILIAN BRADY BONDS gained 10.18% for the quarter ended February 29, 1996.
Brazil represented the Fund's largest investment at 19.44% of total investments
as of that date. By the end of February, legislative delays and a potential
congressional investigation of an accounting scandal surrounding Brazil's
seventh-largest financial institution, Banco Nacional, overshadowed prospects
for a significant economic recovery into the second quarter and a stabilizing
political situation. We continue to view the momentum of developments in Brazil
as positive and sustainable for the foreseeable future.
For the quarter ended February 29, 1996, Argentine Brady bonds gained 8.16%.
Argentine bonds represented 13.22% of total investments as of that date. In
February, market gains followed partial congressional approval of Argentine
President Menem's "super powers" legislation, which would grant the government
special powers to cut and alter taxes without prior congressional approval.
These gains were erased by the wide Brady bond market sell-off. Current market
prices for Argentine Brady bonds reflect the view that the law is likely to be
ratified in the Senate in its original format.
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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
Ecuadorian Brady bonds gained 16.02% during the quarter ended February 29, 1996,
reflecting that country's continued economic development. The Ecuadorian
congress recently approved the sale of 39% of the shares of the newly formed
electricity companies that will be reshaped from assets of the state-owned
electric company. Ecuadorian bonds represented 8.71% of total investments at
February 29, 1996.
The Mexican economy is beginning to show significant signs of recovery as
confirmed by the strong economic performance in the third and fourth quarters of
1995. Mexican Brady bonds reflected that progress and gained 4.94% during the
quarter ended February 29, 1996. It is likely that local interest rates in
Mexico will remain volatile in the short-term as market participants remain
unsure of the near-term inflation trend. We remained underweighted in Mexico at
5.60% of the Fund's total investments at quarter-end.
Polish Brady bonds gained 15.85% during the quarter ended February 29, 1996,
reflecting the Moody's Investors Service's upgrade of Polish Brady bonds to the
investment grade rating of Baa. In February, the Cabinet of Prime Minister
Wlodzimierz Cimoszewicz was overwhelmingly approved by the government's powerful
lower chamber, the Sejm. The installation of Mr. Cimoszewicz as Prime Minister
is a very positive step for Poland as he is widely respected across the
political spectrum. Polish Brady bonds represented 4.56% of total investments at
February 29, 1996.
During the quarter we added to our positions in Bulgaria and Ecuador based on
our favorable outlook for these countries. We reduced our holdings in Poland
following the price appreciation that accompanied the announcement of the
country's investment grade status.
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 market debt securities is available by calling (800)
421-4777. The update also includes specific information about the Fund, its
portfolio, country allocations and recent performance.
Cordially,
Michael S. Hyland Alan H. Rappaport
Chairman of the Board President
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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 February 29, 1996 (unaudited)
<TABLE>
<CAPTION>
BONDS -- 103.2%
- ------------------------------------------------------------------------------------------------------
Principal
Amount
000's(a) Value
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
ARGENTINA - 17.8%
Peso 1,863 Republic of Argentina, BOCON, Pre 1, 3.8876%, 4/01/01*(b)............ $ 1,293,536
Peso 2,319 Republic of Argentina, BOCON, Pre 3, 3.9072%, 9/01/02*(b)............ 1,298,666
10,000 Republic of Argentina, FRB, Series L, 6.8125%, 3/31/05*,**........... 7,162,500
-----------
TOTAL ARGENTINA...................................................... 9,754,702
-----------
BRAZIL - 26.2%
233 Federal Republic of Brazil, IDU Bond, 6.375%, 1/01/01*,**............ 203,873
4,000 Federal Republic of Brazil, NMB, Series L, 6.875%, 4/15/09*,**....... 2,695,000
1,000 Federal Republic of Brazil, Investment (Exit) Bond, 6%, 9/15/13...... 589,375
4,000 Federal Republic of Brazil, Par Bond, Par Z-L, 4.25%, 4/15/24*,**.... 2,052,500
11,580 Federal Republic of Brazil, Capitalization Bond, 8.0%, 4/15/14**(b).. 7,020,587
2,500 Federal Republic of Brazil, EI Bond, Series L, 6.8125%, 4/15/06*,**.. 1,784,375
-----------
TOTAL BRAZIL........................................................ 14,345,710
-----------
BULGARIA - 7.6%
5,250 Republic of Bulgaria, FLIRB, Series A, 2%, 7/28/12*.................. 1,739,063
4,250 Republic of Bulgaria, IAB, 6.25%, 7/28/11*........................... 1,986,875
800 Republic of Bulgaria, Discount Bond, Tranche A, 6.25%, 7/28/24*,**... 412,000
-----------
TOTAL BULGARIA...................................................... 4,137,938
-----------
COSTA RICA - 3.8%
3,500 Costa Rica, Principal Bond, Series A, 6.25%, 5/21/10**............... 2,100,000
-----------
ECUADOR - 11.7%
16,059 Republic of Ecuador, PDI Bond, 6.0625%, 2/28/15*,**(b)............... 6,423,426
-----------
INDONESIA - 3.6%
1,000 APP International Finance Company B.V., 11.75%, 10/01/05**........... 982,500
1,000 Indah Kiat Finance, 12.5%, 6/15/06**................................. 1,002,500
-----------
TOTAL INDONESIA..................................................... 1,985,000
-----------
MEXICO - 7.6%
1,000 Grupo Industrial Durango, 12.0%, 7/15/01**........................... 940,000
2,000 United Mexican States, Par Bond, Series A, 6.25%, 12/31/19**
(including 2,000,000 rights expiring 6/30/03)...................... 1,238,750
3,150 United Mexican States, Par Bond, Series B, 6.25%, 12/31/19**
(including 3,150,000 rights expiring 6/30/03)...................... 1,951,031
-----------
TOTAL MEXICO......................................................... 4,129,781
-----------
</TABLE>
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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 February 29, 1996 (continued) (unaudited)
<TABLE>
<CAPTION>
BONDS (continued)
- ------------------------------------------------------------------------------------------------------
Principal
Amount
000's(a) Value
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
PANAMA - 4.8%
3,000 Republic of Panama, Floating Rate Note, 6.75%, 5/10/02*,**........... $ 2,610,000
-----------
PHILIPPINES - 2.9%
2,000 Republic of the Philippines, Par Bond, Series B, 6.25%, 12/01/17*,**. 1,610,000
-----------
POLAND - 6.2%
4,500 Republic of Poland, PDI Bond, 3.75%, 10/27/14*,**.................... 3,363,750
-----------
SOUTH AFRICA - 1.2%
ZAL 3,000 Republic of South Africa Notes, 12%, 2/28/05**....................... 671,659
-----------
TRINIDAD AND TOBAGO - 1.9%
1,000 Trinidad and Tobago Notes, 9.75%, 11/03/00**......................... 1,035,000
-----------
URUGUAY - 1.3%
1,000 Uruguay, DCB, Series B, 6.4375%, 2/18/07*,**......................... 730,000
-----------
VENEZUELA - 6.6%
2,000 Republic of Venezuela, FLIRB, Series A, 6.8125%, 3/31/07*............ 1,127,500
1,000 Republic of Venezuela, FLIRB, Series B, 6.625%, 3/31/07*............. 563,750
2,500 Republic of Venezuela, Par Bond, Series A, 6.75%, 3/31/20**
(including 12,500 warrants expiring 3/31/20)....................... 1,376,562
1,000 Republic of Venezuela, Par Bond, Series B, 6.75%, 3/31/20**
(including 5,000 warrants expiring 3/31/20)........................ 550,625
-----------
TOTAL VENEZUELA...................................................... 3,618,437
-----------
TOTAL BONDS (cost $52,976,049)....................................... 56,515,403
-----------
LOAN PARTICIPATIONS -- 25.2%
- -------------------------------------------------------------------------------------------------------
DEM 2,500 Bank for Foreign Economic Affairs, Vnesheconombank#
(Participation: Chase Manhattan Bank, New York)T................... 639,881
3,000 Government of Ivory Coast, 1/01/01#
(Participation: Morgan Stanley Emerging Markets, Inc.)T............ 540,000
722 Government of Jamaica, Tranche A, 6.40625%, 10/15/00*
(Participation: Chase Manhattan Bank, New York)T................... 660,822
15,000 Kingdom of Morocco, Tranche A, 6.59375%, 1/01/09*,**
(Participation: Morgan Guaranty Trust Company of New York)T........ 10,012,500
2,250 Peru Non-Citi # (Participation: Merrill Lynch)T...................... 1,929,375
-----------
TOTAL LOAN PARTICIPATIONS
(cost $11,360,941)................................................. 13,782,578
-----------
U.S. GOVERNMENT SECURITY -- 6.4%
- -------------------------------------------------------------------------------------------------------
3,500 U.S. Treasury Bill, 5.075%, 3/14/96 (cost $3,493,586)................ 3,493,586
-----------
TOTAL INVESTMENTS - 134.8% (cost $67,830,576)....................... 73,791,567
-----------
</TABLE>
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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 February 29, 1996 (continued) (unaudited)
<TABLE>
<CAPTION>
REPURCHASE AGREEMENT -- 4.1%
- ------------------------------------------------------------------------------------------------------
Principal
Amount
000's(a) Value
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
2,239 Chase Manhattan Bank, 5.4%, cost $2,239,000, dated 2/29/96,
$2,239,336 due 3/01/96, (collateralized by $2,175,000 U.S. Treasury
Bond, 7.125%, due 2/29/00, valued at $2,283,750)................... $ 2,239,000
-----------
LIABILITIES IN EXCESS OF OTHER ASSETS - (38.9%)...................... (21,302,879)
-----------
NET ASSETS - 100.0% (equivalent to $15.58 per share on
3,512,134 common shares outstanding)............................... $54,727,688
===========
<FN>
- ------------
(a)Principal denominated in U.S. dollars unless otherwise indicated.
(b)Payment-in-kind security for which all or 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.
TParticipation interests were acquired through the financial institutions indicated parenthetically. See Note 6.
</FN>
</TABLE>
Abbreviations used in this statement:
BOCON - Bonos de Consolidacion.
DCB - Debt Conversion Bond.
DEM - Deutschemark.
EI - Eligible Interest.
FLIRB - Front Loaded Interest Reduction Bond.
FRB - Floating Rate Bond.
IAB - Interest Arrears Bond.
IDU - Interest Due and Unpaid.
NMB - New Money Bond.
PDI - Past Due Interest.
Peso - Argentina Peso.
ZAL - South African Rand.
See accompanying notes to financial statements.
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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 February 29, 1996 (unaudited)
<TABLE>
<S> <C>
Assets
Investments, at value (cost-$67,830,576)............................................. $73,791,567
Repurchase agreement ................................................................ 2,239,000
Cash................................................................................. 580
Receivable for securities sold ...................................................... 1,449,167
Interest receivable ................................................................. 1,832,608
Unamortized organization expenses .................................................. 50,124
Prepaid expenses .................................................................... 14,694
-----------
Total assets ........................................................... 79,377,740
-----------
Liabilities
Loan payable (Note 5) .............................................................. 20,000,000
Payable for securities purchased ................................................... 3,493,586
Payable for compensated foreign currency contracts ................................. 564,044
Accrued interest expense on loan .................................................... 435,000
Accrued management fee (Note 3) ..................................................... 32,858
Accrued advisory fee (Note 3) ...................................................... 23,470
Other accrued expenses .............................................................. 101,094
-----------
Total liabilities ...................................................... 24,650,052
-----------
Net Assets
Common Stock ($.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 ................................................. 1,167,456
Accumulated net realized loss on investments ....................................... (1,118,121)
Net unrealized appreciation on investments and foreign currency translations ........ 5,958,348
-----------
Net assets............................................................... $54,727,688
===========
Net Asset Value Per Share ($54,727,688 / 3,512,134 shares) .......................... $15.58
======
</TABLE>
See accompanying notes to financial statements.
Page 6
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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 Six Months Ended February 29, 1996 (unaudited)
<TABLE>
Net Investment Income
<S> <C>
Income
Interest (includes discount accretion of $1,481,207) ................................ $ 5,052,796
Expenses
Interest on loan....................................................... $712,292
Management fee ........................................................ 177,412
Advisory fee .......................................................... 126,722
Audit and tax services ................................................ 34,550
Printing .............................................................. 26,100
Custodian ............................................................. 30,748
Legal ................................................................. 21,450
Amortization of organization expenses ................................. 14,924
Directors' fees and expenses .......................................... 17,880
Transfer agent expenses................................................ 15,600
Listing fees .......................................................... 9,062
Other ................................................................. 17,725 1,204,465
-------- -----------
Net investment income................................................................ 3,848,331
-----------
Realized and Unrealized Gain (Loss) on Investments
and Foreign Currency Transactions
Net Realized Gain (Loss) on:
Investments...................................................................... 1,525,353
Foreign currency transactions.................................................... (533)
-----------
1,524,820
-----------
Change in Net Unrealized Appreciation (Depreciation) on:
Investments...................................................................... 5,366,674
Translation of foreign currency contracts and other assets and liabilities
denominated in foreign currencies.............................................. (2,365)
-----------
5,364,309
-----------
Net realized gain and change in net unrealized appreciation ......................... 6,889,129
-----------
Net Increase in Net Assets from Operations........................................... $10,737,460
===========
</TABLE>
See accompanying notes to financial statements.
Page 7
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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
<TABLE>
<CAPTION>
Six Months
Ended Twelve Months
February 29, 1996 Ended
(unaudited) August 31, 1995
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations
Net investment income ............................................ $ 3,848,331 $ 6,832,081
Net realized gain (loss) on investments and foreign
currency transactions 1,524,820 (1,970,869)
Change in net unrealized appreciation(depreciation) .............. 5,364,309 (5,811,885)
----------- -----------
Net increase (decrease) in net assets from operations ............ 10,737,460 (950,673)
----------- -----------
Dividends and Distributions to Shareholders
From net investment income ....................................... (2,897,511) (4,794,063)
From net realized capital gains .................................. -- (1,729,666)
In excess of net realized capital gains........................... (105,364) (2,537,577)
----------- -----------
Total dividend to shareholders.................................... (3,002,875) (9,061,306)
----------- -----------
Total increase (decrease) in net assets........................... 7,734,585 (10,011,979)
Net Assets
Beginning of period............................................... 46,993,103 57,005,082
----------- -----------
End of period (includes undistributed net investment income of
$1,167,456 for the six months ended February 29, 1996 and
$216,636 for the year ended August 31, 1995).................... $54,727,688 $46,993,103
=========== ===========
Statement of Cash Flows For the Six Months Ended February 29, 1996 (unaudited)
Cash Flows from Operating Activities:
Purchases of securities ............................................................ $(29,652,778)
Net purchases of short-term investments ............................................. (1,061,000)
Proceeds from sales of securities and principal paydowns............................. 31,995,195
------------
................................................................................... 1,281,417
Net investment income .............................................................. 3,848,331
Accretion of discount on investments ................................................ (1,481,207)
Interest on payment-in-kind bonds ................................................... (583,034)
Amortization of organization expenses ............................................... 14,924
Net change in receivables/payables related to operations ............................ (104,412)
------------
Net cash provided by operating activities............................................ 2,976,019
------------
Cash Flows from Financing Activities:
Dividends paid ...................................................................... (3,002,875)
------------
Net cash used by financing activities .............................................. (3,002,875)
------------
Net decrease in cash ............................................................... (26,856)
Cash at beginning of period ........................................................ 27,436
------------
Cash at end of period .............................................................. $ 580
============
</TABLE>
See accompanying notes to financial statements.
Page 8
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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 (unaudited)
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. The
policies are in conformity with generally accepted accounting principles
("GAAP"). The preparation of financial statements in accordance with GAAP
requires management to make estimates and assumptions that effect the reported
amounts and disclosures in the financial statements. Actual amounts could differ
from those estimates.
(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 of 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) Securities transactions and investment income. Securities transactions
are recorded on the trade date. Interest income is accrued on a daily
basis. 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. Net realized gains and losses on
foreign currency transactions represent net gains and losses from sales and
maturities of forward currency contracts, disposition of foreign
currencies, currency gains and losses realized between the trade and
settlement dates on securities transactions and the difference between the
amount of net investment income accrued and the U.S. dollar equivalent
amount actually received. 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.
Page 9
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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 (unaudited) (continued)
2. Significant Accounting Policies (continued)
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.
(d) Federal income taxes. It is the Fund's intention to continue to meet
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
federal income tax or excise tax provision is required.
(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 due primarily to differences in
the treatment of foreign currency gains/losses and deferral of wash sales
and post-October losses incurred by the Fund. 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 income 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 distributions 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 contracts. A forward foreign currency contract
is a commitment to purchase or sell a foreign currency at a future date at
a negotiated forward rate. The contract is marked-to-market to reflect the
change in the currency exchange rate. The change in market value is
recorded by the Fund as an unrealized gain or loss. The Fund records a
realized gain or loss on delivery of the currency or at the time the
forward contract is extinguished (compensated) by entering into a closing
transaction prior to delivery. This gain or loss, if any, is included in
net realized gain (loss) on foreign currency transactions.
(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
Page 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 (unaudited) (continued)
2. Significant Accounting Policies (continued)
on cash receipts and cash payments is presented in the Statement of Cash
Flows. For the six months ended February 29, 1996, the Fund paid interest
expense of $777,257.
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 February 29, 1996, Oppenheimer and the Manager own 3,658 and 5,562
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 six months ended February 29, 1996 aggregated $29,652,778
and $33,234,362, respectively. The federal income tax cost basis of the Fund's
investments and repurchase agreements at February 29, 1996 was $70,161,268.
Gross unrealized appreciation and depreciation amounted to $7,098,550 and
$1,229,251, respectively, resulting in a net unrealized appreciation on
investments of $5,869,299.
For the year ended August 31, 1995 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 elected to defer net capital and foreign currency losses
of $2,589,473 and $1,511,892, respectively, during fiscal 1995.
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% and the maturity date is
May 6, 1996. The collateral for the loan was valued at $46,486,017 on February
29, 1996 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%.
Page 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 (unaudited) (continued)
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 February 29, 1996 was $13,782,578.
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 and Market 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
exchange rate fluctuations.
8. Dividend Subsequent to February 29, 1996
On March 1, 1996, the Board of Directors of the Fund declared a dividend of
$.4125 per share, from net investment income, payable on March 29, 1996 to
shareholders of record March 12, 1996.
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 February 29, 1996, all forward
contracts which the Fund has entered into have been compensated by the Fund with
offsetting contracts.
Page 12
<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>
Six Months Period
Ended Twelve Months Twelve Months Ended
February 29, 1996 Ended Ended August 31,
(unaudited) August 31, 1995 August 31, 1994 1993(c)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net investment income............................ $ 1.10 $ 1.95 $ 1.37 $ 1.28
Net realized gain (loss) and change in
unrealized appreciation (depreciation) on
securities and foreign currency translations . 1.96 (2.22) (0.79) 3.88
------ ------ ------ ------
Total from investment operations................. 3.06 (0.27) 0.58 5.16
------ ------ ------ ------
Dividends to shareholders from net
investment income............................. (0.83) (1.37) (1.50) (1.07)
Dividends to shareholders from net
realized capital gains........................ -- (0.49) (0.81) --
Distributions in excess of net realized
capital gains (0.03) (0.72) -- --
Offering costs on issuance of common stock....... -- -- -- (0.15)
------ ------ ------ ------
Net increase (decrease) in net asset value....... 2.20 (2.85) (1.73) 3.94
Net asset value, beginning of period............. 13.38 16.23 17.96 14.02
------ ------ ------ ------
Net asset value, end of period................... $15.58 $13.38 $16.23 $17.96
====== ====== ====== ======
Per share market value, end of period............ $15.75 $13.00 $16.00 $18.50
Total investment return based on market
price per share (b)........................... 28.41% -1.76% -1.33% 40.7%(d)
Ratios/Supplemental data:
Net assets, end of period..................... $54,727,688 $46,993,103 $57,005,082 $63,091,629
Ratio of total expenses to
average net assets........................ 4.77%(a) 5.15% 3.31% 2.81%(a)
Ratio of operating expenses to
average net assets........................ 1.95%(a) 2.00% 1.78% 2.00%(a)
Ratio of interest expense to
average net assets........................ 2.82%(a) 3.15% 1.53% 0.81%(a)
Ratio of net investment income to
average net assets........................ 15.22%(a) 14.45% 7.99% 9.99%(a)
Portfolio turnover rate....................... 43.1% 79.7% 21.6% 29.9%
Bank loan outstanding, end of period.......... $20,000,000 $20,000,000 $20,000,000 $10,000,000
Interest rate on bank loan, end of period..... 6.75% 7.5625% 6.3125% 4.9375%
Weighted average bank loan.................... $20,000,000 $20,000,000 $16,876,712 $ 8,202,614
Weighted average interest rate................ 7.1%(a) 7.5% 5.40% 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.
Page 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
Selected Quarterly Financial Information
Summary of quarterly results of operations (unaudited)
<TABLE>
<CAPTION>
Net Realized Gain
(Loss) & Change in
Net Investment Net Unrealized
Income Appreciation (Depreciation)
Per Per
Quarters Ended** Total Share Total Share
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
November 30, 1995........................... 1,859 .53 1,412 .40
February 29, 1996........................... 1,989 .57 5,477 1.56
<FN>
*For the period October 30, 1992 (commencement of operations) through November 30, 1992.
**Totals expressed in thousands of dollars except per share amounts.
</FN>
</TABLE>
See accompanying notes to financial statements.
Page 14
<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;
Managing Director, Salomon Brothers Inc
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
1177 Avenue of the Americas
New York, New York 10036
LEGAL COUNSEL
Simpson Thacher & Bartlett
425 Lexington Avenue
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.
Page 15
<PAGE>
Left Col.
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
- ------------------
Right Col.
The Emerging Markets
Income Fund Inc
Semi-Annual Report
FEBRUARY 29, 1996
- ----------------------------------------------------------
The Emerging Markets Income Fund Inc
--------------------------------------------
