<PAGE>
The Emerging Markets October 24, 1997
Income Fund Inc
To Our Shareholders:
We are pleased to provide this annual report for The Emerging Markets Income
Fund Inc (the "Fund") for the fiscal year ended August 31, 1997. Included are
market commentary, audited financial statements, the related report of
independent accountants and other information about the Fund.
During the twelve months ended August 31, 1997, the net asset value of the Fund
increased from $18.04 per share to $21.89 per share as of August 31, 1997.
Dividends of $2.1875 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 this period. Assuming the
reinvestment of these dividends in additional shares of the Fund, the net asset
value return for the fiscal year ended August 31, 1997 was 42.89%. During the
same period, the Salomon Brothers Brady Bond Index returned 31.15%.
On August 31, 1997, the Fund, as a percentage of total investments, was
approximately 92% invested in securities of emerging market issuers, including
obligations of sovereign governments and companies. The balance of the Fund's
assets were invested in short-term investments.
Emerging Market Debt Securities
The emerging debt markets enjoyed a strong performance in the twelve months
ended August 31, 1997, and maintained strong investor support. The impact on
these markets from the heightened U.S. stock market volatility has been limited.
Indeed, emerging debt markets have benefited from favorable market conditions,
attractive yields, and positive economic and political settings in many key
countries, as well as from the Federal Reserve's decision to hold U.S. interest
rates steady since March.
Latin America. We believe prospects for economic growth in Latin America are
especially bright, with annual GDP growth rates of 4%-6% expected over the next
two years. In Mexico, the recent election results signal a decisive step toward
greater democracy and, in our view, are not likely to derail the ongoing reform
process. Earlier this year, Mexico's balance of payments situation improved with
the prepayment of the last $3.5 billion of its $12.5 billion U.S. Treasury loan
and the reduction of its outstanding balance to the International Monetary Fund
("IMF").
Brazil's launch of its $3 billion, 30-year global bond was the largest amount
ever issued by an emerging market borrower, and will likely allow Brazilian
corporates to obtain more attractive, longer-term financing.
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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
Argentina aggressively tapped the markets early this year, taking advantage of
favorable global conditions. In April, a change in methodology by S&P --
whereby, under certain circumstances, a sovereign country's rating is no longer
a ceiling for its corporate issuers -- allowed for the upgrading of twelve
Argentine corporate ratings to BBB-. This represents an investment-grade rating
two notches above the sovereign and spurred a strong rally in the bonds that
were upgraded.
Venezuela's privatization efforts and restructurings have continued. The
Government is planning a longer-term debt management strategy that would reduce
the amount budgeted for debt service from 40% of the budget to 25% by the year
2000. S&P upgraded Venezuela's long-term foreign currency debt to B+ from B,
reflecting the country's commitment to reform, higher world oil prices, fiscal
restraint, and increased oil production.
Although political instability earlier this year caused a great deal of
volatility inEcuador, current Government officials remain committed to
correcting the fiscal imbalances. Moody's assigned Ecuador's long-term foreign
currency debt a B1 rating, reflecting its competitive export sector and
basically sound economic policies. However, the recent announcement that
gasoline prices will not be increased significantly reduces the potential for an
IMF deal.
Eastern Europe. Following a period of declining economic activity and a weak
currency, Bulgaria has embarked on an impressive turnaround. In exchange for
IMF support, Bulgaria agreed to launch a currency board and to implement tight
fiscal and monetary policies. With the victory of the pro-reform UDF party
earlier this year, there is both the incentive and the political majority to
deliver swift economic reform. The momentum of stabilization and reform efforts
continues to be strong, and market expectations remain solid, as Bulgarian debt
instruments continue to outperform.
In Russia, President Yeltsin's return from a prolonged illness provided an
element of stability. The debt restructuring process is under way, with more
than 90% of an estimated US$24.3 billion in eligible debt having been
reconciled. Progress on the inflation front reflects the impact of high real
interest rates and tight monetary policy. The government achieved its
self-imposed deadline of July 1 for repaying outstanding pension arrears.
S&P reaffirmed the BBB- rating for Poland's long-term foreign currency debt but
raised its outlook to positive from stable. The recent underperformance of
Polish Brady bonds reflects growing investor concern about the upcoming
elections and the widening current account deficit. Tighter monetary policy, in
the form of a higher discount rate and greater reserve requirements, should help
to improve macroeconomic stability, but higher levels of public sector saving
still need to be achieved.
* * *
On September 24, 1997, Travelers Group ("Travelers") and Salomon Inc
("Salomon"), the ultimate parent company of Salomon Brothers Asset Management
Inc ("SBAM"), announced their agreement (the "Transaction") to merge Salomon
with and into Smith Barney Holdings Inc., a subsidiary of Travelers, to form a
new company expected to be called Salomon Smith Barney Holdings Inc. Travelers
is a diversified financial services company engaged in investment services,
asset management, consumer finance and life and property casualty insurance
services.
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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
The Transaction is expected to be completed by the end of November 1997,
subject to a number of conditions, including the receipt of U.S. and foreign
regulatory approvals and the approval of Salomon stockholders. Upon
consummation of the Transaction, Travelers will become the ultimate parent of
SBAM, which will continue to serve as investment adviser to the Fund.
At a special meeting of stockholders of the Fund held on October 14, 1997, the
Fund's shareholders approved a new investment advisory agreement between the
Fund and Value Advisors LLC ("Value Advisors"). The new investment advisory
agreement with Value Advisors will take effect upon the closing of the sale of
Value Advisors by Oppenheimer Group Inc. to PIMCO Advisors L.P., which is
expected to occur in November 1997. Prior to the closing, Value Advisors will
assume the responsibilities and obligations that are currently performed by
Advantage Advisers, Inc. under the existing agreement.
As another current matter, in response to recent amendments to Maryland
corporate law, the Board of Directors recently reviewed various corporate
governance provisions in the Fund's By-Laws and approved amendments to the
Fund's By-Laws to (1) increase the percentage of stockholder voting power that
is required to call a special meeting of its stockholders to a majority of the
votes entitled to be cast at the meeting and (2) reduce the minimum permissible
board committee size to one director.
In a continuing effort to provide timely information concerning The Emerging
Markets Income Fund Inc, shareholders may call 1-888-777-0102 (a toll-free
number), Monday through Friday from 8:00 am to 6:00 pm EST for the Fund's net
asset value, market price and other information regarding the Fund's portfolio
holdings and allocations. Should you require specific information regarding your
Emerging Markets Income Fund Inc stock account, or for information regarding the
Fund's Dividend Reinvestment Plan, please call American Stock Transfer & Trust
Company at 1-800-937-5449 (1-718-921-8200 if you are calling from within New
York City).
Cordially,
/s/ Michael S. Hyland /s/ Alan Rappaport
Michael S. Hyland Alan 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 August 31, 1997
<TABLE>
<CAPTION>
BONDS -- 78.3%
- -------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
000'S(a) (NOTE 2a)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
ARGENTINA - 6.2%
Peso 500 Republic of Argentina, Global Bond, 11.75%, 2/12/07##................ $ 566,066
5,750+ Republic of Argentina, Par Bond, Series L, 5.5%, 3/31/23*............ 4,229,844
-----------
TOTAL ARGENTINA...................................................... 4,795,910
-----------
BRAZIL - 15.6%
1,000 Companhia Energetica De Sao Paul, 9.125%, 6/26/07*,##................ 985,000
8,686+ Federal Republic of Brazil, Capitalization (C) Bond, 8%, 4/15/14(b).. 7,079,355
1,000 Federal Republic of Brazil, Investment (Exit) Bond, 6%, 9/15/13...... 791,563
2,000+ Federal Republic of Brazil, NMB, Series L, 6.9375%, 4/15/09*......... 1,765,000
2,000+ Federal Republic of Brazil, Par Bond, Series Z-L, 4.25%, 4/15/24*.... 1,403,750
-----------
TOTAL BRAZIL......................................................... 12,024,668
-----------
BULGARIA - 2.9%
500 Republic of Bulgaria, FLIRB, Series A, 2.25%, 7/28/12*............... 309,688
2,500+ Republic of Bulgaria, IAB, 6.6875%, 7/28/11*......................... 1,925,000
-----------
TOTAL BULGARIA....................................................... 2,234,688
-----------
COSTA RICA - 4.0%
3,500+ Costa Rica, Principal Bond, Series A, 6.25%, 5/21/10................. 3,080,000
-----------
ECUADOR -4.5%
4,833+ Republic of Ecuador, PDI Bond, 6.6875%, 2/27/15*(b).................. 3,443,650
-----------
INDONESIA - 4.7%
1,000+ APP International Finance Company B.V., 11.75%, 10/01/05............. 1,048,750
1,000 Polysindo International Finance Company B.V., 11.375%, 6/15/06....... 1,088,750
1,500 Tjiwi Kimia International Finance Company B.V., 10%, 8/01/04##....... 1,470,000
-----------
TOTAL INDONESIA...................................................... 3,607,500
-----------
MEXICO - 12.1%
1,000+ Grupo Industrial Durango, 12%, 7/15/01............................... 1,092,500
4,750+ United Mexican States, Par Bond, Series A, 6.25%, 12/31/19
(including 4,750,000 rights, expiring 6/30/03)..................... 3,808,906
5,500+ United Mexican States, Par Bond, Series B, 6.25%, 12/31/19
(including 5,500,000 rights, expiring 6/30/03)..................... 4,410,312
-----------
TOTAL MEXICO......................................................... 9,311,718
-----------
PANAMA - 3.3%
3,000 Republic of Panama, IRB, 3.75%, 7/17/14*............................. 2,328,750
258 Republic of Panama, PDI Bond, 6.6875%, 7/17/16*(b)................... 226,100
-----------
TOTAL PANAMA......................................................... 2,554,850
-----------
See accompanying notes to financial statements.
Page 4
</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 August 31, 1997 (continued)
<TABLE>
<CAPTION>
BONDS (concluded)
- -------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
000'S(a) (NOTE 2a)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
PERU - 5.2%
6,000+ Republic of Peru, PDI Bond, 4%, 3/07/17*............................. $ 3,967,500
-----------
PHILIPPINES - 2.2%
1,735+ Republic of the Philippines, 8.75%, 10/07/16##....................... 1,718,734
-----------
POLAND - 4.2%
3,750+ Republic of Poland, PDI Bond, 4%, 10/27/14*.......................... 3,182,813
-----------
URUGUAY - 1.3%
1,000+ Uruguay, DCB, Series B, 6.8125%, 2/18/07*............................ 995,000
-----------
VENEZUELA - 12.1%
9,048+ Republic of Venezuela, FLIRB, Series A, 6.75%, 3/31/07*.............. 8,487,798
1,000+ Republic of Venezuela, Par Bond, Series B, 6.75%, 3/31/20
(including 5,000 rights, expiring 3/31/20)......................... 821,875
-----------
TOTAL VENEZUELA...................................................... 9,309,673
-----------
TOTAL BONDS (cost $49,918,203)....................................... 60,226,704
-----------
LOAN PARTICIPATIONS++ -- 25.0%
- -------------------------------------------------------------------------------------------------------
The People's Democratic Republic of Algeria,
2,000 Tranche A, 6.91%, 9/04/06* (Chase Manhattan)....................... 1,770,000
4,000 Tranche 3, 6.5%, 3/04/10* (Chase Manhattan)........................ 3,165,000
Republic of Ivory Coast,
3,000 1/01/01# (Morgan Stanley Emerging Markets, Inc.)................... 1,417,500
Government of Jamaica,
389 Tranche A, 6.53125%, 10/15/00* (Chase Manhattan)................... 381,073
Kingdom of Morocco,
7,000+ Tranche A, 6.8125%, 1/01/09* (Morgan Guaranty Trust Company of New York) 6,444,375
Yen 138,682 Tranche A, 2.6175%, 1/01/09* (Goldman Sachs)....................... 1,036,314
Russia,
5,000 Bank for Foreign Economic Affairs, Vnesheconombank# (Chase Manhattan) 4,978,125
-----------
TOTAL LOAN PARTICIPATIONS (cost $14,655,480)......................... 19,192,387
-----------
TOTAL INVESTMENTS-- 103.3% (cost $64,573,683)........................ 79,419,091
-----------
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 Investments August 31, 1997 (concluded)
<TABLE>
<CAPTION>
REPURCHASE AGREEMENTS -- 9.5%
- -------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
000'S(a) (NOTE 2a)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
3,647 Merrill Lynch, 5.53%, cost $3,647,000, dated 8/29/97, $3,649,241 due
9/02/97, (collateralized by $4,050,000 U.S. Treasury Strip, due
2/15/99, valued at $3,720,938)..................................... $ 3,647,000
3,647 State Street Bank, 5.5%, cost $3,647,000, dated 8/29/97, $3,649,229 due
9/02/97, (collateralized by $3,625,000 U.S. Treasury Note, 6.125%,
due 3/31/98, valued at $3,724,688)................................. 3,647,000
-----------
TOTAL REPURCHASE AGREEMENTS.......................................... 7,294,000
-----------
LIABILITIES IN EXCESS OF OTHER ASSETS - (12.8)%...................... (9,839,519)
-----------
NET ASSETS - 100.0% (EQUIVALENT TO $21.89 PER SHARE ON
3,512,134 COMMON SHARES OUTSTANDING)............................... $76,873,572
===========
<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.
++ 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.
IRB - Interest Reduction Bond.
NMB - New Money Bond.
PDI - Past Due Interest.
Peso - Argentina Peso.
Yen - Japanese Yen.
See accompanying notes to financial statements.
Page 6
</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 August 31, 1997
<TABLE>
<S> <C>
Assets
Investments, at value (cost-$64,573,683)............................................. $ 79,419,091
Repurchase agreements................................................................ 7,294,000
Cash................................................................................. 198
Receivable for securities sold....................................................... 19,071,787
Interest receivable.................................................................. 1,719,599
Unamortized organization expenses.................................................... 5,106
Prepaid expenses..................................................................... 7,599
------------
Total assets................................................................... 107,517,380
------------
Liabilities
Loan payable (Note 5)................................................................ 20,000,000
Payable for securities purchased..................................................... 9,981,719
Accrued interest expense on loan..................................................... 426,110
Accrued management fee (Note 3)...................................................... 45,979
Accrued advisory fee (Note 3)........................................................ 32,842
Other accrued expenses............................................................... 157,158
------------
Total liabilities.............................................................. 30,643,808
------------
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.................................................. 1,937,195
Accumulated net realized gain on investments......................................... 10,865,765
Net unrealized appreciation on investments and foreign currency translations (Note 7) 15,342,515
------------
Net assets..................................................................... $ 76,873,572
============
Net Asset Value Per Share ($76,873,572 / 3,512,134 shares)........................... $21.89
======
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 Operations For the Year Ended August 31, 1997
NET INVESTMENT INCOME
<TABLE>
<S> <C> <C>
INCOME
Interest (includes discount accretion of $2,666,782)................................. $ 9,888,006
EXPENSES
Interest on loan....................................................... $1,328,063
Management fee......................................................... 493,137
Advisory fee........................................................... 352,241
Audit and tax services................................................. 69,260
Custodian.............................................................. 67,714
Legal.................................................................. 61,070
Directors' fees and expenses........................................... 35,380
Amortization of organization expenses.................................. 29,930
Printing............................................................... 27,975
Transfer agent expenses................................................ 24,454
Listing fees........................................................... 17,611
Other.................................................................. 16,547 2,523,382
---------- -----------
Net investment income................................................................ 7,364,624
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS
Net Realized Gain on:
Investments........................................................................ 11,531,422
Foreign currency transactions...................................................... 20,670
-----------
11,552,092
-----------
Change in Net Unrealized Appreciation on:
Investments...................................................................... 5,993,864
Translation of foreign currency contracts and other assets and liabilities
denominated in foreign currencies............................................ 1,820
-----------
5,995,684
-----------
Net realized gain and change in net unrealized appreciation.......................... 17,547,776
-----------
Net Increase in Net Assets from Operations........................................... $24,912,400
===========
See accompanying notes to financial statements.
Page 8
</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 FOR THE
YEAR ENDED YEAR ENDED
AUGUST 31, 1997 AUGUST 31, 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS
Net investment income............................................. $ 7,364,624 $ 7,851,407
Net realized gain on investments and foreign currency transactions 11,552,092 5,652,349
Change in net unrealized appreciation............................. 5,995,684 8,752,792
----------- -----------
Net increase in net assets from operations........................ 24,912,400 22,256,548
----------- -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
From net investment income........................................ (7,682,793) (5,795,021)
From net realized capital gains................................... (3,705,301) (105,364)
----------- -----------
Total dividends and distributions to shareholders................. (11,388,094) (5,900,385)
----------- -----------
Total increase in net assets...................................... 13,524,306 16,356,163
NET ASSETS
Beginning of period............................................... 63,349,266 46,993,103
----------- -----------
End of period (includes undistributed net investment income of
$1,937,195 and $2,315,932, respectively)...................... $76,873,572 $63,349,266
=========== ===========
</TABLE>
Statement of Cash Flows For the Year Ended August 31, 1997
<TABLE>
<S> <C>
Cash Flows from Operating Activities:
Purchases of securities.............................................................. $(89,683,560)
Net purchases of short-term investments.............................................. (1,593,000)
Proceeds from sales of securities and principal paydowns............................. 99,353,675
------------
8,077,115
Net investment income................................................................ 7,364,624
Accretion of discount on investments................................................. (2,666,782)
Interest on payment-in-kind bonds.................................................... (924,906)
Amortization of organization expenses................................................ 29,930
Net change in receivables/payables related to operations............................. (492,265)
------------
Net cash provided by operating activities............................................ 11,387,716
------------
Cash Flows from Financing Activities:
Dividends paid....................................................................... (11,388,094)
------------
Net cash used by financing activities................................................ (11,388,094)
------------
Net decrease in cash................................................................. (378)
Cash at beginning of period.......................................................... 576
------------
Cash at end of period................................................................ $ 198
============
See accompanying notes to financial statements.
Page 9
</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
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. The Fund's primary investment objective is to seek high
current income through investments in selected debt securities of emerging
market 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 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 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)
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 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
dividends 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 GAAP 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 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)
2. SIGNIFICANT ACCOUNTING POLICIES (CONCLUDED)
on cash receipts and cash payments is presented in the Statement of Cash Flows.
For the year ended August 31, 1997, the Fund paid interest expense of
$1,334,722.
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 "Investment Manager") of the Fund subject to supervision by
the Board of Directors of the Fund. The Investment 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 & Co., Inc. ("Oppenheimer"), to act as investment adviser (the
"Investment 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, 1997, Oppenheimer and the Investment 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 Investment Manager or the Investment Adviser.
The Fund pays each Director not affiliated with the Investment Manager or
the Investment 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 TAX INFORMATION
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the year ended August 31, 1997 aggregated
$97,478,404 and $113,451,602, respectively. The federal income tax cost basis of
the Fund's investments and repurchase agreements at August 31, 1997 was
$71,867,683. Gross unrealized appreciation and depreciation amounted to
$14,959,018 and $113,610, respectively, resulting in a net unrealized
appreciation on investments of $14,845,408.
As a result of differing book and tax treatment for foreign currency losses
for the year ended August 31, 1997, $60,568 has been reclassified from
Accumulated Net Realized Gain on Investments to Undistributed 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 0.5% and the maturity date is
November 6, 1997. The collateral for the loan was valued at $53,223,245 on
August 31, 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%.
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
Notes to Financial Statements (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 August 31, 1997 was $19,192,387.
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 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. "WHEN AND IF" ISSUED BONDS
"When and if" issued bonds are recorded as investments in the Fund's
portfolio and marked-to-market to reflect the current value of the bonds. When
the Fund sells a "when and if" issued bond, an unrealized gain or loss is
recorded equal to the difference between the selling price and purchase cost of
the bond. Settlement of trades (i.e., receipt and delivery) of the "when and
if" issued bond is contingent upon the successful issuance of such bond. In the
event its sponsor is unable to successfully issue the security, all trades in
"when and if" issued bonds become null and void, and, accordingly, the Fund
will reverse any gain or loss recorded on such transactions.
For the year ended August 31, 1997, the Fund sold approximately $15.3
million of "when and if" issued Russian IAN bonds and recorded an unrealized
gain of $497,188. Settlement of the transaction and recognition of the realized
gain is contingent upon the successful closing of Russia's Brady plan before
December 31, 1997.
8. 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 August 31, 1997, the Fund has a concentration
risk in sovereign debt of emerging market countries.
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
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
Notes to Financial Statements (concluded)
9. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (CONCLUDED)
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, 1997, the
Fund did not have any outstanding forward contracts.
10. EVENTS SUBSEQUENT TO AUGUST 31, 1997
On September 2, 1997, the Board of Directors of the Fund declared a
dividend of $.4125 per share, from net investment income, payable on September
30, 1997 to shareholders of record September 16, 1997.
On September 24, 1997, Travelers Group ("Travelers") and Salomon Inc
("Salomon"), the ultimate parent company of the Investment Manager, announced
their agreement (the "Transaction") to merge Salomon with and into Smith Barney
Holdings Inc., a subsidiary of Travelers, to form a new company expected to be
called Salomon Smith Barney Holdings Inc. Travelers is a diversified financial
services company engaged in investment services, asset management, consumer
finance and life and property casualty insurance services.
The Transaction is expected to be completed by the end of November 1997,
subject to a number of conditions, including the receipt of U.S. and foreign
regulatory approvals and the approval of Salomon stockholders. Upon consummation
of the Transaction, as proposed, Travelers will become the ultimate parent of
the Investment Manager, which will continue to serve as investment manager to
the Fund.
At a special meeting of the Fund held on October 14, 1997, the Fund's
shareholders approved a new investment advisory agreement between the Fund and
Value Advisors LLC ("Value Advisors"). The new investment advisory agreement
with Value Advisors will take effect upon the closing of the sale of Value
Advisors by Oppenheimer Group Inc. to PIMCO Advisors L.P., which is expected to
occur in November 1997. Prior to the closing, Value Advisors will assume the
responsibilities and obligations that are currently performed by Advantage
Advisers, Inc. under the existing agreement.
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
Financial Highlights
Selected data per share of common stock outstanding throughout the period:
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
1997 1996 1995 1994 1993(A)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period....... $18.04 $13.38 $16.23 $17.96 $14.02
------ ------ ------ ------ ------
Net investment income...................... 2.10 2.24 1.95 1.37 1.28
Net realized gain (loss) and change in
unrealized appreciation (depreciation) on
securities and foreign currency translations 5.00 4.10 (2.22) (0.79) 3.88
------ ------ ------ ------ ------
Total from investment operations........... 7.10 6.34 (0.27) 0.58 5.16
------ ------ ------ ------ ------
Dividends to shareholders from net
investment income....................... (2.19) (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............................ (3.25) (1.68) (2.58) (2.31) (1.07)
------ ------ ------ ------ ------
Offering costs on issuance of common stock. -- -- -- -- (0.15)
------ ------ ------ ------ ------
Net increase (decrease) in net asset value. 3.85 4.66 (2.85) (1.73) 3.94
------ ------ ------ ------ ------
Net asset value, end of period............. $21.89 $18.04 $13.38 $16.23 $17.96
====== ====== ====== ====== ======
Per share market value, end of period $19.4375 $16.625 $13.00 $16.00 $18.50
Total investment return based on market
price per share (b)..................... 39.18% 42.46% -1.76% -1.33% 40.7%(c)
Ratios/Supplemental data:
Net assets, end of period............... $76,873,572 $63,349,266 $46,993,103 $57,005,082 $63,091,629
Ratio of total expenses to
average net assets.................. 3.58% 4.41% 5.15% 3.31% 2.81%(d)
Ratio of operating expenses to
average net assets.................. 1.70% 1.87% 2.00% 1.78% 2.00%(d)
Ratio of interest expense to
average net assets.................. 1.88% 2.54% 3.15% 1.53% 0.81%(d)
Ratio of net investment income to
average net assets.................. 10.44% 14.34% 14.45% 7.99% 9.99%(d)
Portfolio turnover rate................. 112.45% 98.45% 79.70% 21.60% 29.90%
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 6.50% 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.......... 6.64% 6.96% 7.50% 5.40% 5.20%(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 15
</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
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, 1997, 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 four 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. The 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, 1997 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PRICE WATERHOUSE LLP
New York, New York
October 15, 1997
Page 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
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
May 31, 1997................................ 1,803 .51 951 0.27
August 31, 1997............................. 1,744 .50 3,923 1.12
<FN>
*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.
Page 17
</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
Pursuant to certain rules of the Securities and Exchange Commission, the
following additional disclosures is provided.
Form of Terms and Conditions of Amended and Restated Dividend Reinvestment and
Cash Purchase Plan
1. Each shareholder holding shares of common stock ("Shares") of The Emerging
Markets Income Fund Inc (the "Fund") will be deemed to have elected to be a
participant in the Amended and Restated Dividend Reinvestment and Cash Purchase
Plan (the "Plan"), unless the shareholder specifically elects in writing
(addressed to the Agent at the address below or to any nominee who holds Shares
for the shareholder in its name) to receive all income dividends and
distributions of capital gains in cash, paid by check, mailed directly to the
record holder by or under the direction of American Stock Transfer & Trust
Company as the Fund's dividend-paying agent (the "Agent"). A shareholder whose
Shares are held in the name of a broker or nominee who does not provide an
automatic reinvestment service may be required to take such Shares out of
"street name" and register such Shares in the shareholder's name in order to
participate, otherwise dividends and distributions will be paid in cash to such
shareholder by the broker or nominee. Each participant in the Plan is referred
to herein as a "Participant." The Agent will act as Agent for each Participant,
and will open accounts for each Participant under the Plan in the same name as
their Shares are registered.
2. Unless the Fund declares a dividend or distribution payable only in the form
of cash, the Agent will apply all dividends and distributions in the manner set
forth below.
3. If, on the determination date, the market price per Share equals or exceeds
the net asset value per Share on that date (such condition, a "market premium"),
the Agent will receive the dividend or distribution in newly issued Shares of
the Fund on behalf of Participants. If, on the determination date, the net asset
value per Share exceeds the market price per Share (such condition, a "market
discount"), the Agent will purchase Shares in the open-market. The determination
date will be the fourth New York Stock Exchange trading day (a New York Stock
Exchange trading day being referred to herein as a "Trading Day") preceding the
payment date for the dividend or distribution. For purposes herein, "market
price" will mean the average of the highest and lowest prices at which the
Shares sell on the New York Stock Exchange on the particular date, or if there
is no sale on that date, the average of the closing bid and asked quotations.
4. Purchases made by the Agent will be made as soon as practicable commencing on
the Trading Day following the determination date and terminating no later than
30 days after the dividend or distribution payment date except where temporary
curtailment or suspension of purchase is necessary to comply with applicable
provisions of federal securities law; provided, however, that such purchases
will, in any event, terminate on the earlier of (i) 60 days after the dividend
or distribution payment date and (ii) the Trading Day prior to the "ex-dividend"
date next succeeding the dividend or distribution payment date.
Page 18
<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
5. If (i) the Agent has not invested the full dividend amount in open-market
purchases by the date specified in paragraph 4 above as the date on which such
purchases must terminate or (ii) a market discount shifts to a market premium
during the purchase period, then the Agent will cease making open-market
purchases and will receive the uninvested portion of the dividend amount in
newly issued Shares (x) in the case of (i) above, at the close of business on
the date the Agent is required to terminate making open-market purchases as
specified in paragraph 4 above or (y) in the case of (ii) above, at the close of
business on the date such shift occurs; but in no event prior to the payment
date for the dividend or distribution.
6. In the event that all or part of a dividend or distribution amount is to be
paid in newly issued Shares, such Shares will be issued to Participants in
accordance with the following formula: (i) if, on the valuation date, the net
asset value per Share is less than or equal to the market price per Share, then
the newly issued Shares will be valued at net asset value per Share on the
valuation date; provided, however, that if the net asset value is less than 95%
of the market price on the valuation date, then such Shares will be issued at
95% of the market price and (ii) if, on the valuation date, the net asset value
per Share is greater than the market price per Share, then the newly issued
Shares will be issued at the market price on the valuation date. The valuation
date will be the dividend or distribution payment date, except that with respect
to Shares issued pursuant to paragraph 5 above, the valuation date will be the
date such Shares are issued. If a date that would otherwise be a valuation date
is not a Trading Day, the valuation date will be the next preceding Trading Day.
7. Participants have the option of making additional cash payments to the
Agent, monthly, in a minimum amount of $250, for investment in Shares. The
Agent will use all such funds received from Participants to purchase Shares in
the open market on or about the first business day of each month. To avoid
unnecessary cash accumulations, and also to allow ample time for receipt and
processing by the Agent, Participants should send in voluntary cash payments to
be received by the Agent approximately 10 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 Agent not less than 48 hours
before such payment is to be invested.
8. Purchases by the Agent pursuant to paragraphs 4 and 7 above may be made on
any securities exchange on which the Shares are traded, in the over-the-counter
market or in negotiated transactions, and may be on such terms as to price,
delivery and otherwise as the Agent shall determine. Funds held by the Agent
uninvested will not bear interest, and it is understood that, in any event, the
Agent shall have no liability in connection with any inability to purchase
Shares within the time periods herein provided, or with the timing of any
purchases effected. The Agent shall have no responsibility as to the value of
the Shares acquired for the Participant's account. The Agent may commingle
amounts of all Participants to be used for open-market purchases of Shares and
the price per Share allocable to each Participant in connection with such
purchases shall be the average price (including brokerage commissions) of all
Shares purchased by the Agent.
Page 19
<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
9. The Agent will maintain all Participants' accounts in the Plan and will
furnish written confirmations of all transactions in each account, including
information needed by Participants for personal and tax records. The Agent will
hold Shares acquired pursuant to the Plan in noncertificated form in the
Participant's name or that of its nominee, and each Participant's proxy will
include those Shares purchased pursuant to the Plan. The Agent will forward to
Participants any proxy solicitation material and will vote any Shares so held
for Participants only in accordance with the proxy returned by Participants to
the Fund. Upon written request, the Agent will deliver to Participants, without
charge, a certificate or certificates for the full Shares.
10. The Agent will confirm to Participants each acquisition made for their
respective accounts as soon as practicable but not later than 60 days after the
date thereof. Although Participants may from time to time have an undivided
fractional interest (computed to three decimal places) in a Share of the Fund,
no certificates for fractional shares will be issued. Dividends and
distributions on fractional shares will be credited to each Participant's
account. In the event of termination of a Participant's account under the Plan,
the Agent will adjust for any such undivided fractional interest in cash at the
market value of the Fund's Shares at the time of termination less the pro rata
expense of any sale required to make such an adjustment.
11. Any share dividends or split shares distributed by the Fund on Shares held
by the Agent for Participants will be credited to their respective accounts. In
the event that the Fund makes available to Participants rights to purchase
additional Shares or other securities, the Shares held for Participants under
the Plan will be added to other Shares held by the Participants in calculating
the number of rights to be issued to Participants.
12. The Agent's service fee for handling capital gains distributions or income
dividends will be paid by the Fund. Participants will be charged a pro rata
share of brokerage commissions on all open-market purchases.
13. Participants may terminate their accounts under the Plan by notifying the
Agent in writing. Such termination will be effective immediately if notice is
received by the Agent not less than 10 days prior to any dividend or
distribution record date; otherwise such termination will be effective on the
first Trading Day after the payment date for such dividend or distribution with
respect to any subsequent dividend or distribution. The Plan may be amended or
terminated by the Fund as applied to any voluntary cash payments made and any
income dividend or capital gains distribution paid subsequent to written notice
of the change or termination sent to Participants at least 30 days prior to the
record date for the income dividend or capital gains distribution. The Plan may
be amended or terminated by the Agent, with the Fund's prior written consent, on
at least 30 days' written notice to Participants. Notwithstanding the preceding
two sentences, the Agent or the Fund may amend or supplement the Plan at any
time or times when necessary or appropriate to comply with applicable law or
rules or policies of the Securities and Exchange Commission or any other
regulatory authority. Upon any termination, the Agent will cause a certificate
or certificates for the full Shares held by each Participant under the Plan and
cash adjustment for any fraction to be
Page 20
<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
delivered to each Participant without charge. If the Participant elects by
notice to the Agent in writing in advance of such termination to have the Agent
sell part or all of a Participant's Shares and remit the proceeds to the
Participant, the Agent is authorized to deduct a $2.50 fee plus brokerage
commission for this transaction from the proceeds.
14. Any amendment or supplement shall be deemed to be accepted by each
Participant unless, prior to the effective date thereof, the Agent receives
written notice of the termination of the Participant's account under the Plan.
Any such amendment may include an appointment by the Agent in its place and
stead of a successor Agent under these terms and conditions, with full power and
authority to perform all or any of the acts to be performed by the Agent under
these terms and conditions. Upon any such appointment of an Agent for the
purpose of receiving dividends and distributions, the Fund will be authorized to
pay to such successor Agent, for each Participant's account, all dividends and
distributions payable on Shares of the Fund held in each Participant's name or
under the Plan for retention or application by such successor Agent as provided
in these terms and conditions.
15. In the case of Participants, such as banks, broker-dealers or other
nominees, which hold Shares for others who are beneficial owners ("Nominee
Holders"), the Agent will administer the Plan on the basis of the number of
Shares certified from time to time by each Nominee Holder as representing the
total amount registered in the Nominee Holder's name and held for the account of
beneficial owners who are to participate in the Plan.
16. The Agent shall at all times act in good faith and use its best efforts
within reasonable limits to insure the accuracy of all services performed under
this Agreement and to comply with applicable law, but assumes no responsibility
and shall not be liable for loss or damage due to errors unless such error is
caused by its negligence, bad faith, or willful misconduct or that of its
employees.
17. All correspondence concerning the Plan should be directed to the Agent at 40
Wall Street, 46th Floor, New York, New York 10005.
Page 21
<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
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 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 RAPPAPORT
President
PETER J. WILBY
Executive Vice President
THOMAS K. FLANAGAN
Executive Vice President
ALAN M. MANDEL
Treasurer
NOEL B. DAUGHERTY
Secretary
JENNIFER G. MUZZEY
Assistant Secretary
AMY W. YEUNG
Assistant Treasurer
LAURIE A. PITTI
Assistant Treasurer
The Emerging Markets Income Fund Inc
7 World Trade Center
New York, New York 10048
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
<PAGE>
The Emerging Markets
Income Fund Inc
Annual Report
AUGUST 31, 1997
- ----------------------------------------------
The Emerging Markets Income Fund Inc
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<PAGE>
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
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BULK RATE
U.S. POSTAGE
PAID
STATEN ISLAND, NY
PERMIT No. 169
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