April 25, 1997
The Emerging Markets
Income Fund Inc
Dear Shareholders:
We are pleased to provide you with this semi-annual report for The Emerging
Markets Income Fund Inc (the "Fund"). Included are market commentary, a
statement of the Fund's investments as of February 28, 1997, and financial
statements for the six months ended February 28, 1997.
The net asset value of the Fund increased from $18.04 per share on August 31,
1996 to $20.32 per share on February 28, 1997. Dividends of $1.3625 per share
from net investment income, $0.93 per share from realized net short-term capital
gains and $0.125 per share from realized net long-term capital gains were
declared during the period. Assuming reinvestment of these dividends in
additional shares of the Fund, the net asset value return for the six months
ended February 28, 1997 was 27.37%. In comparison, the Salomon Brothers Brady
Bond Index returned 19.59% during the same period.
Throughout the last six months, the Fund continued to provide investors with
stable current income through its broad exposure to government sponsored debt
instruments issued in emerging market economies. Investments in securities of
emerging market issuers, including obligations of sovereign governments and
companies, totaled approximately 95% of the Fund's total investments at February
28, 1997. The remainder of the Fund's assets was invested primarily in
short-term investments.
Emerging Markets Review
The continued strong performance of the emerging markets debt market has been
driven by positive economic and political developments in a number of key
countries. The combination of favorable market conditions and attractive yields
have encouraged institutional investors to increase their allocations to
emerging markets debt.
The outlook for economic growth in emerging markets is especially strong in
Latin America. The major economies of the region are experiencing the benefits
of reform measures that have been enacted over the past few years. GDP annual
growth rates are expected to accelerate into the 4% to 6% range over the next
two years. This level of economic growth should provide the opportunity for
these countries to make progress in reducing unemployment. In addition,
inflation rates in the major Latin American countries are trending lower.
The recent renewed commitment on the part of the Russian government to reform
has been well received by the market. This important emerging economy is
concluding a large debt restructuring and is addressing the tax collection
problem which has hampered economic growth over the past few years.
Page 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
Annual Shareholders Meeting
The Fund held its annual shareholders meeting on December 12, 1996. At the
meeting, shareholders elected each of the nominees proposed for election to the
Fund's Board of Directors and ratified the selection of Price Waterhouse LLP as
the independent accountants of the Fund. The following table provides
information concerning the matters voted on at the meeting:
1. Election of Directors
Nominees Votes For Votes Against
---------- --------- ------------
Michael S. Hyland 3,087,160 50,894
Leslie H. Gelb 3,084,264 53,790
2.Ratification of Price Waterhouse LLP as the Independent Accountants of the
Fund
Votes For Votes Against Votes Abstained Unvoted
--------- ------------- --------------- -------
3,081,173 32,782 22,098 2,001
On February 14, 1997, Oppenheimer Group, Inc., the ultimate parent company of
Advantage Advisers, Inc., the Fund's investment adviser, entered into an
agreement to sell the stock of the investment adviser to PIMCO Advisors, L.P.
and its affiliates. On April 1, 1997, the Board of Directors of the Fund
approved, subject to the vote of the Fund's shareholders, a new investment
advisory agreement for the Fund with the investment adviser. The agreement is
substantially identical to the existing agreement and would take effect upon
shareholder approval and the closing of the proposed acquisition of the
investment adviser. The closing of the acquisition is also subject to certain
additional closing conditions.
We thank you for your ongoing interest and confidence in the Fund. In our
continuing effort to provide timely and relevant information to our
shareholders, a recorded Fund update is available 24 hours a day by calling
1-800-421-4777. This line provides current information relating to the Fund
including portfolio manager outlooks and market commentary, as well as price
information. Should you require specific information regarding the Emerging
Markets Income Fund stock account, or for information regarding the Fund's
Dividend Reinvestment Plan, please call American Stock Transfer & Trust Company
at 1-800-937-5449. If you are calling from within New York City, please call
1-718-921-8200.
Cordially,
Michael S. Hyland Alan H. Rappaport
Chairman of the Board President
Page 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 February 28, 1997 (unaudited)
<TABLE>
<CAPTION>
BONDS -- 103.5%
- ---------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
000'S(a) (NOTE 2a)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
ARGENTINA - 6.3%
Peso 500 Republic of Argentina, Global Bond, 11.75%, 2/12/07##................ $ 527,610
2,500 Republic of Argentina, Global Bond, 11%, 10/09/06(c)................. 2,650,000
2,000 Republic of Argentina, Par Bond, Series L, 5.25%, 3/31/23*(c)........ 1,332,500
----------
TOTAL ARGENTINA...................................................... 4,510,110
----------
BRAZIL - 23.8%
14,953+ Federal Republic of Brazil, Capitalization (C) Bond, 8%, 4/15/14(b).. 11,841,300
1,000 Federal Republic of Brazil, Investment (Exit) Bond, 6%, 9/15/13(c)... 761,300
2,000 Federal Republic of Brazil, NMB, Series L, 6.5625%, 4/15/09*(c)...... 1,740,000
4,000+ Federal Republic of Brazil, Par Bond, Series Z-L, 5%, 4/15/24*....... 2,622,500
----------
TOTAL BRAZIL......................................................... 16,965,100
----------
BULGARIA - 4.9%
800+ Republic of Bulgaria, Discount Bond, Tranche A, 6.5625%, 7/28/24*.... 501,500
5,000+ Republic of Bulgaria, IAB, 6.5625%, 7/28/11*......................... 3,015,625
----------
TOTAL BULGARIA....................................................... 3,517,125
----------
COSTA RICA - 4.1%
3,500+ Costa Rica, Principal Bond, Series A, 6.25%, 5/21/10 ................ 2,905,000
----------
ECUADOR - 14.7%
16,865+ Republic of Ecuador, PDI Bond, 6.4375%, 2/27/15*(b).................. 10,498,520
----------
INDONESIA - 3.1%
1,000+ APP International Finance Company B.V., 11.75%, 10/01/05............. 1,095,000
1,000 Polysindo International Finance Company B.V., 11.375%, 6/15/06(c).... 1,085,000
----------
TOTAL INDONESIA...................................................... 2,180,000
----------
MEXICO - 8.5%
1,000+ Grupo Industrial Durango, 12%, 7/15/01 .............................. 1,092,500
1,000+ United Mexican States, Par Bond, Series A, 6.25%, 12/31/19
(including 1,000,000 rights, expiring 6/30/03)..................... 766,250
5,500+ United Mexican States, Par Bond, Series B, 6.25%, 12/31/19
(including 5,500,000 rights, expiring 6/30/03)..................... 4,214,375
----------
TOTAL MEXICO......................................................... 6,073,125
----------
PANAMA - 6.1%
3,500 Republic of Panama, IRB, 3.5%, 7/17/14*(c)........................... 2,598,750
2,034 Republic of Panama, PDI Bond, 6.5625%, 7/17/16*(b)................... 1,757,150
----------
TOTAL PANAMA......................................................... 4,355,900
----------
See accompanying notes to financial statements.
Page 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 February 28, 1997 (continued) (unaudited)
BONDS (concluded)
- --------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
000'S(a) (NOTE 2a)
- --------------------------------------------------------------------------------------------------------
PHILIPPINES - 2.5%
1,735+ Republic of the Philippines, 8.75%, 10/07/16##....................... $ 1,762,109
-----------
POLAND - 4.4%
3,750+ Republic of Poland, PDI Bond, 4%, 10/27/14*.......................... 3,145,313
----------
RUSSIA - 7.0%
7,000 Russia, IAN, 12/31/15(d)............................................. 5,000,625
----------
SOUTH AFRICA - 0.8%
ZAL 3,000+ Republic of South Africa Notes, 12%, 2/28/05......................... 580,962
----------
URUGUAY - 1.4%
1,000+ Uruguay, DCB, Series B, 6.5%, 2/18/07*............................... 981,250
----------
VENEZUELA - 15.9%
9,500 Republic of Venezuela, FLIRB, Series A, 6.625%, 3/31/07*............. 8,692,500
2,500+ Republic of Venezuela, Par Bond, Series A, 6.75%, 3/31/20
(including 12,500 warrants, expiring 3/31/20)...................... 1,906,250
1,000+ Republic of Venezuela, Par Bond, Series B, 6.75%, 3/31/20
(including 5,000 warrants, expiring 3/31/20)....................... 762,500
----------
TOTAL VENEZUELA...................................................... 11,361,250
----------
TOTAL BONDS (cost $62,870,436)....................................... 73,836,389
----------
LOAN PARTICIPATIONS++ -- 23.2%
- -----------------------------------------------------------------------------------------------------
The People's Democratic Republic of Algeria,
2,000 Tranche A, 6.91%, 9/04/06* (Chase Manhattan)....................... 1,640,000
4,000 Tranche 3, 6.668%, 3/04/10* (Chase Manhattan)...................... 2,855,000
Republic of Ivory Coast,
3,000 1/01/01# (Morgan Stanley Emerging Markets, Inc.)................... 960,000
Government of Jamaica,
500 Tranche A, 6.4375%, 10/15/00* (Chase Manhattan).................... 492,471
Kingdom of Morocco,
12,000+ Tranche A, 6.375%, 1/01/09*
(Morgan Guaranty Trust Company of New York)...................... 10,582,500
----------
TOTAL LOAN PARTICIPATIONS
(cost $12,309,050)................................................. 16,529,971
----------
TOTAL INVESTMENTS-- 126.7% (cost $75,179,486)........................ 90,366,360
----------
See accompanying notes to financial statements.
Page 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 February 28, 1997 (concluded) (unaudited)
REPURCHASE AGREEMENT -- 6.2%
- --------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
000'S(a) (NOTE 2a)
- --------------------------------------------------------------------------------------------------------
4,414 Union Bank of Switzerland, 5.36%, cost $4,414,000, dated 2/28/97,
$4,415,972 due 3/03/97, (collateralized by $4,431,000 U.S. Treasury
Note, 5.875%, due 10/31/98, valued at $4,503,004).................. $ 4,414,000
-----------
LIABILITIES IN EXCESS OF OTHER ASSETS - (32.9)%...................... (23,429,731)
-----------
NET ASSETS - 100.0% (equivalent to $20.32 per share on
3,512,134 Common Shares outstanding)............................... $71,350,629
===========
<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.
(c) Securities valued at $9,297,550 as of February 28, 1997 were
segregated to be available for the purchase of delayed delivery
and "when and if issued" securities with a total cost of $8,741,250.
(d) "When and if issued" security issued pursuant to Russia's Brady Plan
debt restructuring. The Investment Adviser believes that this
restructuring will be completed and finalized and that the related
Brady Bonds will be issued. Accordingly, the Fund has marked-to-market
its investment in this security at February 28, 1997.
*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.
++Participation interests were acquired through the financial institutions
indicated parenthetically. See Note 6.
#Non-income producing. Security is currently in default.
##Pursuant to Rule 144A of the Securities Act of 1933, this security can
only be sold to qualified institutional investors.
Abbreviations used in this statement:
DCB - Debt Conversion Bond.
FLIRB - Front Loaded Interest Reduction Bond.
IAB - Interest Arrears Bond.
IAN - Interest Arrears Note.
IRB - Interest Reduction Bond.
NMB - New Money Bond.
PDI - Past Due Interest.
Peso - Argentina Peso.
ZAL - South African Rand.
See accompanying notes to financial statements.
Page 5
</TABLE>
<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 February 28, 1997 (unaudited)
<TABLE>
<CAPTION>
Assets
<S> <C>
Investments, at value (cost-$75,179,486)............................................. $ 90,366,360
Repurchase agreement................................................................. 4,414,000
Cash................................................................................. 81
Receivable for securities sold....................................................... 9,956,077
Interest receivable.................................................................. 1,663,630
Unamortized organization expenses.................................................... 20,194
Prepaid expenses..................................................................... 14,641
------------
Total assets................................................................... 106,434,983
------------
Liabilities
Loan payable (Note 5)................................................................ 20,000,000
Payable for securities purchased..................................................... 14,467,969
Accrued interest expense on loan..................................................... 419,270
Accrued management fee (Note 3)...................................................... 38,432
Accrued advisory fee (Note 3)........................................................ 27,452
Other accrued expenses............................................................... 131,231
------------
Total liabilities.............................................................. 35,084,354
------------
Net Assets
Common Stock ($.001 par value, authorized
100,000,000; 3,512,134 shares outstanding)........................................ 3,512
Additional paid-in capital........................................................... 48,724,585
Undistributed net investment income.................................................. 1,348,224
Accumulated net realized gain on investments......................................... 6,086,501
Net unrealized appreciation on investments and foreign currency translations......... 15,187,807
------------
Net assets..................................................................... $ 71,350,629
============
Net Asset Value Per Share ($71,350,629 / 3,512,134 shares)........................... $20.32
======
</TABLE>
See accompanying notes to financial statements.
Page 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 Six Months Ended February 28, 1997 (unaudited)
<TABLE>
<CAPTION>
Net Investment Income
Income
<S> <C> <C>
Interest (includes discount accretion of $1,521,362)................................. $ 5,075,550
Expenses
Interest on loan....................................................... $661,327
Management fee......................................................... 238,979
Advisory fee........................................................... 170,700
Audit and tax services................................................. 39,820
Custodian.............................................................. 32,399
Printing............................................................... 23,530
Directors' fees and expenses........................................... 20,815
Legal.................................................................. 15,023
Amortization of organization expenses.................................. 14,842
Transfer agent expenses................................................ 13,937
Listing fees........................................................... 9,194
Other.................................................................. 17,409 1,257,975
-------- ----------
Net investment income................................................................ 3,817,575
----------
Realized and Unrealized Gain (Loss) on Investments
and Foreign Currency Transactions
Net Realized Gain (Loss) on:
Investments........................................................................ 6,837,701
Foreign currency transactions...................................................... (4,304)
----------
6,833,397
----------
Change in Net Unrealized Appreciation on:
Investments...................................................................... 5,838,143
Translation of foreign currency contracts and other assets and liabilities
denominated in foreign currencies............................................ 2,833
-----------
5,840,976
-----------
Net realized gain and change in net unrealized appreciation.......................... 12,674,373
-----------
Net Increase in Net Assets from Operations........................................... $16,491,948
===========
See accompanying notes to financial statements.
Page 7
</TABLE>
<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
<TABLE>
<CAPTION>
For the
Six Months Ended For the
February 28, 1997 Year Ended
(Unaudited) August 31, 1996
- -------------------------------------------------------------------------------------------------------------------
Operations
<S> <C> <C>
Net investment income............................................. $ 3,817,575 $ 7,851,407
Net realized gain on investments and foreign currency transactions 6,833,397 5,652,349
Change in net unrealized appreciation............................. 5,840,976 8,752,792
----------- -----------
Net increase in net assets from operations........................ 16,491,948 22,256,548
----------- -----------
Dividends and Distributions to Shareholders
From net investment income........................................ (4,785,283) (5,795,021)
From net realized capital gains................................... (3,705,302) (105,364)
----------- -----------
Total dividends and distributions to shareholders................. (8,490,585) (5,900,385)
----------- -----------
Total increase in net assets...................................... 8,001,363 16,356,163
Net Assets
Beginning of period............................................... 63,349,266 46,993,103
----------- -----------
End of period (includes undistributed net investment income of
$1,348,224 and $2,315,932, respectively)...................... $71,350,629 $63,349,266
=========== ===========
</TABLE>
Statement of Cash Flows For the Six Months Ended February 28, 1997 (unaudited)
<TABLE>
<S> <C>
Cash Flows from Operating Activities:
Purchases of securities.............................................................. $(50,944,768)
Net sales of short-term investments.................................................. 1,287,000
Proceeds from sales of securities and principal paydowns............................. 57,062,173
------------
7,404,405
Net investment income................................................................ 3,817,575
Accretion of discount on investments................................................. (1,521,362)
Interest on payment-in-kind bonds.................................................... (712,368)
Amortization of organization expenses................................................ 14,842
Net change in receivables/payables related to operations............................. (513,002)
------------
Net cash provided by operating activities............................................ 8,490,090
------------
Cash Flows from Financing Activities:
Dividends paid....................................................................... (8,490,585)
------------
Net cash used by financing activities................................................ (8,490,585)
------------
Net decrease in cash................................................................. (495)
Cash at beginning of period.......................................................... 576
------------
Cash at end of period................................................................ $ 81
============
</TABLE>
See accompanying notes to financial statements.
Page 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 (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. 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.
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 affect the reported
amounts and disclosures in the financial statements. Actual results may 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
<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) (unaudited)
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 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 (continued) (unaudited)
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 28, 1997, the Fund paid interest expense of
$674,826.
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 28, 1997, 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
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the six months ended February 28, 1997 aggregated
$63,255,862 and $62,044,390, respectively. The federal income tax cost basis of
the Fund's investments and repurchase agreements at February 28, 1997 was
$79,610,140. Gross unrealized appreciation and depreciation amounted to
$15,308,847 and $138,627, respectively, resulting in a net unrealized
appreciation on investments of $15,170,220.
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, 1997. The collateral for the loan was valued at $43,879,075 on February
28, 1997 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 February 28, 1997 was $16,529,971.
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 (concluded) (unaudited)
6. Loan Participations/Assignments (continued)
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. At February 28, 1997, the Fund has a concentration
risk in sovereign debt of emerging market countries.
8. 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 28, 1997,
the Fund did not have any outstanding forward contracts.
9. Events Subsequent to February 28, 1997
On March 3, 1997, the Board of Directors of the Fund declared a dividend of
$.4125 per share, from net investment income, payable on March 31, 1997 to
shareholders of record March 18, 1997.
On February 14, 1997, Oppenheimer Group, Inc., the ultimate parent company
of the Investment Adviser, entered into an agreement to sell the stock of the
Investment Adviser to PIMCO Advisors, L.P. and its affiliates. On April 1, 1997,
the Board of Directors of the Fund approved, subject to the vote of the Fund's
shareholders, a new investment advisory agreement for the Fund with the
Investment Adviser. The agreement is substantially identical to the existing
agreement and would take effect upon shareholder approval and the closing of the
proposed acquisition of the Investment Adviser. The closing of the acquisition
is also subject to certain additional closing conditions.
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
Ended Year Year Year Period
February 28, Ended Ended Ended Ended
1997 August 31, August 31, August 31, August 31,
(Unaudited) 1996 1995 1994 1993(a)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net investment income................... $ 1.09 $ 2.24 $ 1.95 $ 1.37 $ 1.28
Net realized gain (loss) and change in
unrealized appreciation (depreciation) on
securities and foreign currency translations 3.61 4.10 (2.22) (0.79) 3.88
------ ------ ------ ------ ------
Total from investment operations........ 4.70 6.34 (0.27) 0.58 5.16
------ ------ ------ ------ ------
Dividends to shareholders from net
investment income.................... (1.36) (1.65) (1.37) (1.50) (1.07)
Dividends to shareholders from net
realized capital gains............... (1.06) (0.03) (0.49) (0.81) --
Distributions in excess of net realized
capital gains........................ -- -- (0.72) -- --
------ ------ ------ ------ ------
Total dividends and distributions to
shareholders......................... (2.42) (1.68) (2.58) (2.31) (1.07)
------ ------ ------ ------ ------
Offering costs on issuance of common stock -- -- -- -- (0.15)
------ ------ ------ ------ ------
Net increase (decrease) in net asset value 2.28 4.66 (2.85) (1.73) 3.94
Net asset value, beginning of period.... 18.04 13.38 16.23 17.96 14.02
------ ------ ------ ------ ------
Net asset value, end of period.......... $20.32 $18.04 $13.38 $16.23 $17.96
====== ====== ====== ====== ======
Per share market value, end of period... $18.375 $16.625 $13.00 $16.00 $18.50
Total investment return based on market
price per share (b).................. 25.68% 42.46% -1.76% -1.33% 40.7%(c)
Ratios/Supplemental data:
Net assets, end of period............ $71,350,629 $63,349,266 $46,993,103 $57,005,082 $63,091,629
Ratio of total expenses to
average net assets............... 3.69%(d) 4.41% 5.15% 3.31% 2.81%(d)
Ratio of operating expenses to
average net assets............... 1.75%(d) 1.87% 2.00% 1.78% 2.00%(d)
Ratio of interest expense to
average net assets............... 1.94%(d) 2.54% 3.15% 1.53% 0.81%(d)
Ratio of net investment income to
average net assets............... 11.21%(d) 14.34% 14.45% 7.99% 9.99%(d)
Portfolio turnover rate.............. 71.90% 98.45% 79.7% 21.6% 29.9%
Bank loan outstanding, end of period. $20,000,000 $20,000,000 $20,000,000 $20,000,000 $10,000,000
Interest rate on bank loan, end of period 6.5625% 6.60156% 7.5625% 6.3125% 4.9375%
Weighted average bank loan........... $20,000,000 $20,000,000 $20,000,000 $16,876,712 $ 8,202,614
Weighted average interest rate....... 6.61%(d) 6.96% 7.5% 5.4% 5.2%(d)
<FN>
- ----------
(a) For the period October 30, 1992 (commencement of operations) through August
31, 1993.
(b) Dividends are assumed, for purposes of this calculation, to be reinvested at
prices obtained under the Fund's dividend reinvestment plan.
(c) 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.
(d) Annualized.
See accompanying notes to financial statements.
Page 13
</TABLE>
<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
May 31, 1996................................ 2,070 .58 4,137 1.18
August 31, 1996............................. 1,933 .56 3,379 .96
November 30, 1996........................... 1,978 .56 8,841 2.52
February 28, 1997........................... 1,840 .53 3,833 1.09
<FN>
*For the period October 30, 1992 (commencement of operations) through November 30, 1992.
**Totals expressed in thousands of dollars except per share amounts.
</TABLE>
See accompanying notes to financial statements.
Page 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
(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
THOMAS K. FLANAGAN
Executive Vice President
LAWRENCE H. KAPLAN
Executive Vice President and General Counsel
ALAN M. MANDEL
Treasurer
JENNIFER G. MUZZEY
Secretary
NOEL B. DAUGHERTY
Assistant 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>
(left column)
The Emerging Markets
Income Fund Inc
Semi-Annual Report
FEBRUARY 28, 1997
(right column)
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
BULK RATE
U.S. POSTAGE
PAID
STATEN ISLAND, NY
PERMIT No. 169
- ----------------------------------------------------------
The Emerging Markets Income Fund Inc
-------------------------------------------------------
