<PAGE>
The Emerging Markets
Income Fund Inc
Annual Report
August 31, 1998
- -----------------------------------------------------
The Emerging Markets Income Fund Inc
--------------------------------------------------
<PAGE>
The Emerging Markets October 8, 1998
Income Fund Inc
Dear 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, 1998. 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, 1998, the net asset value for the Fund
decreased from $21.89 per share to $7.83 at August 31, 1998. Dividends totaling
$5.2375 per share were paid during this period. This total represents $2.0315,
$1.245 and $1.961 per share from net investment income, realized net short-term
capital gains and realized net long-term capital gains, respectively. Assuming
the reinvestment of these dividends in additional shares of the Fund, the total
return based on net asset value for the fiscal year ended August 31, 1998 was
- -52.08%. During the same period, the JP Morgan Emerging Markets Bond Index Plus
("JP Morgan EMBI+"), a standard measure of return for the emerging debt market
returned -29.87%.
At August 31, 1998, the Fund, as a percentage of total investments, was
approximately 90.5% invested in securities of emerging market issuers, including
obligations of sovereign governments and companies. The balance of the Fund's
assets was invested in short-term investments.
EMERGING MARKETS DEBT SECURITIES
In the twelve month period ended August 31, 1998, despite an initial period of
strength, the emerging debt market performed poorly. This sell-off was largely
due to a combination of continued Asian weakness as well as Russian economic and
political turmoil.
On August 31, 1998, top country allocations (as a percentage of total
investments) for the Fund were as follows:
* Brazil...................................................... 17.4%
* Venezuela................................................... 8.0
* Russia...................................................... 7.5
* Argentina................................................... 6.3
* South Korea................................................. 6.1
* Peru........................................................ 5.3
* Morocco..................................................... 4.9
* Costa Rica.................................................. 4.8
* Philippines................................................. 4.7
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T H E E M E R G I N G M A R K E T S I N C O M E F U N D I N C
For the twelve month period ended August 31, 1998, outperformers in the emerging
debt market included Argentina, Brazil, Mexico, Morocco, Nigeria, Panama, Peru,
The Philippines, Poland and South Korea. Underperformers for the same period
included Bulgaria, Ecuador, Russia and Venezuela.
Emerging debt markets continue to be negatively impacted by a global trend -
investors are reducing their appetite for risk. Beginning with Asian currency
problems in the fall of 1997 and compounded by the extended Japanese recession
and recent weakness in US equity prices, investors are demanding a higher risk
premium for investing in credit sensitive fixed income assets. This higher risk
premium leads to higher borrowing costs for countries that still have access to
the capital markets, and shuts other countries out of the capital markets
completely. Russia's problems, which we will detail below occurred in this risk
averse investment environment. The investment environment limited the range of
Russia's policy response and compounded the severity of the sell-off which
spilled over to all other emerging market credits. We expect this highly
volatile period for emerging markets debt to continue. The elements required for
stability must come from a variety of sources both inside and outside the
emerging debt market. These elements include an economic recovery in Japan,
greater stability in US equity prices and an end to political turmoil in Russia.
When stability returns, emerging markets debt will again trade on credit
fundamentals. While we are optimistic that the worst of the crisis has passed,
market volatility will continue to be extremely high and market sentiment will
be cautious.
The following is a brief description of each sector's highlights over the past
twelve months.
Latin America
Several times throughout the period, officials in the largest oil producing
regions met to discuss the oversupply of oil in world markets and the resulting
decline in oil prices. Latin American economies which rely on oil for much of
their commodity exports continue to suffer from these plunging prices. Since
August 31, 1997, West Texas Intermediate spot oil has fallen 32.3%, from
US$19.67 per barrel to US$13.32 per barrel.
Argentina. The International Monetary Fund (IMF) mission completed its review of
Argentina, announcing that the country has met all of its fiscal targets for the
first half of 1998. Argentina has had an impressive record in meeting financing
needs during the year. For example, in March, the Argentine government expanded
its global 2017 bond (a series of debt offerings maturing in 2017) by US$750
million. With the expansion, Argentina met US$1.35 billion of its US$2 billion
financing requirement for the second quarter. While Argentina's capital raising
efforts are impressive, we remain concerned that they will not have the ability
to raise the nearly US$12 billion they will need in 1999 and are thus
underweight at this time.
Brazil. Brazil has made substantial progress on the privatization front during
the past fiscal year. Sao Paulo state electricity distributor (formerly CESPE,
now Elektro) was sold to the US utility company Enron for BRL1.48 billion, a 99%
premium over the government's minimum requirement. In addition, Telebras was
sold for BRL22 billion, a 60% premium of the minimum asking price. Separately,
the TBC (the government's standard loan rate) was cut by 125 basis points to
19.75%. This move brings the rate below its pre-crisis level of 20.7%, from
which it was doubled last October in response to contagion effects from the
Asian crisis.
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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
In the political arena, President Cardoso was re-elected in the first round of
Brazil's Presidential elections on October 4th. While Brazil is continuing to
exhibit sound monetary and political strength, we are concerned that their level
of short-term local currency debt ($300 billion) is a potential problem, and
thus remain underweight.
Ecuador. Despite Ecuador's relative outperformance in November, the country's
inability to institute reform measures continues to be disappointing.
Specifically, the government has incurred continuous delays in the auction of a
35% stake in state-owned telephone company EMETEL. In addition, following the
failure by Congress to pass an increase in the value added tax, the sucre
devalued 7.5%. On a more positive note, in Ecuador's presidential elections,
Jamil Mahuad was the official first-round winner with 34.9% of the votes,
followed by Alvaro Noboa with 26.6%. Mahuad is an experienced politician with a
respected economic team and is believed to be the candidate with the ability to
stabilize the economy. We have established a marginally overweight position
because we believe we are being adequately compensated for the risk we are
taking. Further reforms will need to take place, however, for us to increase our
exposure.
Mexico. We remain confident in Mexico's potential and increased our exposure
during the period. The country's limited need for new capital in 1999 leads us
to believe that the region is a relative safe haven versus other more volatile
assets. We are, however, slightly underweight due to tight spread levels.
Panama. Panama retired US$600 million of outstanding Brady debt and
simultaneously issued a 30-year global bond during September, 1997. The exchange
allowed Panama to improve its debt structure and lower its cost of funding. We
remain overweight in Panama.
Peru. In March, Moody's raised Peru's sovereign debt ceiling to Ba3 from B2,
citing prudent fiscal and monetary policies and an outlook for strong growth.
Moody's stated that the move was based on the country's progress, which included
macroeconomic stabilization and high average rates of growth over the past
several years. Also noted was the completion of both Paris and London Club debt
restructurings, which have reduced external debt from US$33.5 billion to US$28.2
billion and have significantly lessened the near-term debt service by improving
the amortization profile. The rating increase complements Standard & Poor's
previously assigned BB rating. We maintained our overweight position during the
period, due to expected high growth as well as a limited debt obligation in the
region.
Venezuela. After months of negotiations, the International Monetary Fund (IMF)
and the government agreed on the terms of a "shadow" fiscal monitoring program
during the period. Unlike the previous stand-by agreement, the program will not
entail any financial support from the IMF, only technical assistance. In the
final month of the period, however, Venezuela's market sentiment was suffering,
due to two main factors. First, Moody's downgraded Venezuela's sovereign ceiling
to B1 from Ba2, having placed the rating on watch for possible downgrade on May
8th. Moody's pointed to the government's inability to address the domestic
implications of external shocks. Second, the privatization of the state aluminum
complex, CVG, was canceled. Although the coalition formed by Kaiser Aluminum and
Billiton would have only paid US$1.55 billion, with only US$200 million going to
the government, psychologically, the sale would have had a strong impact, as it
would have displayed the government's conviction to the privatization process.
While we are discouraged by the
Page 3
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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
downgrade and failed privatization, we remain overweight in Venezuela, due to
several factors: Venezuela's capital needs in 1999 are relatively limited;
Venezuela retired a good deal of their external debt with the proceeds of the
1997 oil boom; and Venezuelan spreads are at historically wide levels versus
other similarly rated countries.
Eastern Europe
Bulgaria. In December, Moody's upgraded Bulgaria's foreign currency rating to B2
from B3, citing improved credit risk with the election of a reform-oriented
government and establishment of a currency board. For comparison, the upgrade
puts Bulgaria on par with Peru and one notch below Brazil and Ecuador.
Additionally, the IMF approved the fourth tranche of a US$510 million standby
loan. Bulgaria's strides in decreasing inflation and promoting growth during the
past year have been significant: inflation in February was near 1.5%, down from
100% a year ago, and was negative 0.1% in March, largely due to falling fuel
prices. We remain slightly overweight in Bulgaria, due to the country's limited
debt service, in addition to its meeting all IMF fiscal targets for the year.
Russia. Russia's dramatic decline during the period was due to a number of
factors: 1) the government forced a restructuring of all domestic debt; 2) the
ruble was devalued; 3) Yeltsin dismissed his Cabinet, appointing Sergey
Kireyenko as the new Prime Minister, only to reverse his actions at the end of
the period, re-appointing Viktor Chernomyrdin; 4) the Duma refused to appoint
Chernomyrdin, resulting in Yevgeny Primakov being appointed the new Prime
Minister. These developments devastated Russian dollar denominated bond prices
during the month of August, with prices declining as much as 80%. The result was
a tremendous shock to the market and caused a wide-spread sell-off across all
emerging markets. The timing of these events was unfortunate, as the investment
community needed to be convinced of Russia's commitment to promoting political
continuity, and therefore effectively implementing fiscal reform.
While we are extremely concerned about Russia's ability to reform both
financially and politically, we have a slightly overweight US dollar denominated
position in the Fund. We believe the Fund is adequately compensated for the risk
at these prices. It is important to note that while the Fund suffered
significant mark-to-market losses in these positions, the Fund did not own ruble
denominated debt. The distinction is important because the debt the Fund owns
was not defaulted on and is still current on all interest payments. We believe
these bonds, trading at cents on the dollar, have much more upside than downside
in an unchanged environment. There is also significant return potential in these
investments if the country implements any meaningful reforms.
Given the nature of today's market, we wish to remind you that, while the Fund
may offer higher reward potential, the risks of investments in emerging markets
securities may be greater.
* * *
In a continuing effort to provide timely information concerning the Emerging
Markets Income Fund Inc, shareholders may call 1-888-777-0102 (toll free),
Monday through Friday from 8:00 am to 6:00 pm EST for the Fund's current net
asset value, market price and other information regarding the Fund's portfolio
holdings and allocations. For information concerning your Emerging
Page 4
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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
Markets Income Fund stock account, 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).
We appreciate the confidence you have demonstrated in the past and hope to
continue to serve you in the future years.
Cordially,
/s/ William D. Cvengros /s/ Heath B. McLendon
William D. Cvengros Heath B. McLendon
Co-Chairman of the Board Co-Chairman of the Board
/s/ Peter J. Wilby
Peter J. Wilby
Executive Vice President
Page 5
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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, 1998
<TABLE>
<CAPTION>
Principal
Amount (a) Bonds -- 80.2% Value
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Argentina -- 6.3%
Republic of Argentina:
Peso 1,798,212+ BOCON, Pro 1, 3.0872% due 4/1/07*.................................. $ 847,558
900,000+ Global Bond, 11.375% due 1/30/17................................... 663,300
500,000+ Global Bond, 9.750% due 9/19/27.................................... 340,000
Peso 250,000+ 8.750% due 7/10/02................................................. 156,280
Peso 2,000,000+ 11.750% due 2/12/07................................................ 1,025,200
-----------
3,032,338
-----------
Brazil -- 17.4%
1,000,000 Companhia Energetica De Sao Paulo, 9.125% due 6/26/07* .............. 650,000
Federal Republic of Brazil:
9,885,540+ Capitalization (C) Bond, 8.000% due 4/15/14(b)..................... 5,276,407
500,000+ DCB Bond, Series L, 6.6875% due 4/15/12*........................... 244,375
1,600,000+ Global Bond, 9.375% due 4/7/08..................................... 944,000
3,000,000+ NMB, Series L, 6.6875% due 4/15/09*................................ 1,260,000
-----------
8,374,782
-----------
Bulgaria -- 2.3%
3,000,000+ Republic of Bulgaria, FLIRB, Series A, 2.500% due 7/28/12*........... 1,125,000
-----------
Costa Rica -- 4.8%
3,000,000+ Costa Rica, Principal Bond, Series A, 6.250% due 5/21/10............. 2,317,500
-----------
Croatia -- 2.1%
1,500,000+ Republic of Croatia, FRN, Series A, 6.5625% due 7/31/10*............. 1,020,000
-----------
Ecuador -- 2.9%
4,492,109+ Republic of Ecuador, PDI Bond, 6.625% due 2/27/15*(b)................ 1,400,977
-----------
Indonesia -- 2.2%
1,000,000+ APP International Finance Company B.V., 11.750% due 10/1/05.......... 490,000
1,500,000 Tjiwi Kimia International Finance Company B.V., 10.000% due 8/1/04#.. 600,000
-----------
1,090,000
-----------
Ivory Coast -- 1.2%
Republic of Ivory Coast:
2,107,000+ FLIRB, 2.000% due 3/29/18*,#....................................... 387,161
957,000+ PDI Bond, 2.000% due 3/29/18*,#.................................... 181,830
-----------
568,991
-----------
</TABLE>
See accompanying notes to financial statements.
Page 6
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T H E E M E R G I N G M A R K E T S I N C O M E F U N D I N C
Statement of Investments (continued)
August 31, 1998
<TABLE>
<CAPTION>
Principal
Amount (a) Bonds -- 80.2% (continued) Value
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Mexico -- 4.5%
1,000,000+ Grupo Industrial Durango, 12.000% due 7/15/01......................... $ 735,000
1,000,000 Hylsa S.A. de C.V., 9.250% due 9/15/07................................ 550,000
1,000,000+ United Mexican States, Global Bond, 11.500% due 5/15/26............... 867,500
-----------
2,152,500
-----------
Panama -- 2.6%
2,000,000+ Republic of Panama, IRB, 4.000% due 7/17/14*.......................... 1,270,000
-----------
Peru -- 5.3%
5,250,000+ Republic of Peru, PDI Bond, 4.000% due 3/7/17*........................ 2,552,812
-----------
Philippines -- 4.7%
Republic of the Philippines:
1,735,000+ 8.750% due 10/7/16#................................................. 1,205,825
1,500,000+ Treasury Bond, 8.875% due 4/15/08................................... 1,061,250
-----------
2,267,075
-----------
Poland -- 1.6%
1,000,000+ Republic of Poland, PDI Bond, 4.000% due 10/27/14*.................... 785,625
-----------
Russia -- 6.4%
Russian Government:
2,600,000+ Global Bond, 11.750% due 6/10/03#................................... 640,250
350,000+ Global Bond, 8.750% due 7/24/05..................................... 66,500
9,675,000+ Global Bond, 12.750% due 6/24/28.................................... 2,322,000
334,597 IAN, 6.625% due 12/15/15*,#......................................... 50,190
-----------
3,078,940
-----------
South Korea -- 6.1%
Export-Import Bank of Korea, Global Bond:
250,000 7.250% due 6/25/01.................................................. 202,687
250,000 6.500% due 2/10/02.................................................. 189,525
Korea Development Bank, Global Bond:
750,000+ 7.900% due 2/1/02................................................... 596,363
250,000+ 6.625%, due 11/21/03................................................ 171,462
2,525,000+ Republic of Korea, Global Bond, 8.875% due 4/15/08.................... 1,781,703
-----------
2,941,740
-----------
Uruguay -- 1.8%
894,736+ Uruguay, DCB, Series B, 6.6875% due 2/18/07*.......................... 846,304
-----------
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 Investments (continued)
August 31, 1998
<TABLE>
<CAPTION>
Principal
Amount (a) Bonds -- 80.2% (concluded) Value
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Venezuela -- 8.0%
Republic of Venezuela:
3,392,857+ DCB, Series DL, 6.625% due 12/18/07*................................ $ 1,386,830
6,000,005+ FLIRB, Series A, 6.625% due 3/31/07*................................ 2,490,002
-----------
3,876,832
-----------
Total Bonds (Cost--$60,157,462)....................................... 38,701,416
-----------
Loan Participations++ -- 10.3%
- ---------------------------------------------------------------------------------------------------------
The People's Democratic Republic of Algeria:
727,272 Tranche A, 7.3125% due 3/6/00* (Chase Manhattan Bank)............... 603,636
1,090,908 Tranche 1, 6.625% due 9/4/06* (Chase Manhattan Bank)................ 654,545
1,000,000 Tranche 3, 6.53125% due 3/4/10* (Chase Manhattan Bank).............. 560,000
249,965 Government of Jamaica, Tranche A,
6.500% due 10/15/00* (Chase Manhattan Bank)......................... 237,467
Kingdom of Morocco:
3,000,000+ Tranche A, 6.5625% due 1/1/09* (Morgan Guaranty Trust Company
of New York)...................................................... 1,845,000
Yen138,682,424 Tranche A, 2.5175% due 1/1/09* (Goldman Sachs)...................... 526,711
4,950,000 Russian Government, Principal Loan, 6.625%, due 12/15/20(c)
(Chase Manhattan Bank, Goldman Sachs, Morgan Guaranty
Trust Company of New York, ING Bank)................................ 532,125
-----------
Total Loan Participations (Cost--$8,185,668)......................... 4,959,484
-----------
Total BondsandLoan Participations (Cost--$68,343,130)................ 43,660,900
-----------
Repurchase Agreements -- 9.5%
- ---------------------------------------------------------------------------------------------------------
2,000,000+ Merrill Lynch, 5.75%, dated 8/31/98, $2,000,319 due 9/1/98,
(collateralized by $1,940,000 U.S. Treasury Note, 7.50%
due 10/31/99, valued at $2,039,425)................................ 2,000,000
2,000,000+ State Street Bank, 5.75%, dated 8/31/98, $2,000,319 due 9/1/98
(collateralized by $1,675,000 U.S. Treasury Bond, 7.25%
due 5/15/16, valued at $2,041,406)................................. 2,000,000
579,000+ Warburg Dillon Read, 5.80%, dated 8/31/98, $579,093 due 9/1/98
(collateralized by $473,000 U.S. Treasury Bond, 7.50%
due 11/15/16, valued at $591,250).................................. 579,000
-----------
Total Repurchase Agreements (Cost--$4,579,000)....................... 4,579,000
-----------
Total Investments--100% (Cost--$72,922,130**)........................ $48,239,900
===========
</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
Statement of Investments (concluded)
August 31, 1998
FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT AUGUST 31, 1998:
<TABLE>
<CAPTION>
Contracts In Exchange Contracts at Delivery Unrealized
to Deliver For Value Date Depreciation
-------------- ------------ -------------- -------- ------------
<S> <C> <C> <C> <C> <C>
Sale...... Yen 115,500,000 US $816,428 US $822,545 9/24/98 $6,117
<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) Portion of income earned is capitalized as Russian Government Interest Arrears Note.
* Rate shown reflects current rate on instrument with variable rates or step coupon rates.
** Aggregate cost for federal income tax purposes is substantially the same.
+ All or a portion of the security is segregated as collateral pursuant to a loan agreement.
See Note 4.
++ Participation interests were acquired through the financial institutions indicated
parenthetically. See Note 5.
# Pursuant to Rule 144A of the Securities Act of 1933, this security can only be sold to
qualified institutional investors.
</FN>
</TABLE>
Abbreviations used in this statement:
BOCON - Bonos De Consolidacion.
DCB - Debt Conversion Bond.
FLIRB - Front Loaded Interest Reduction Bond.
FRN - Floating Rate Note.
IAN - Interest Arrears Note.
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 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
Statement of Assets and Liabilities
August 31, 1998
<TABLE>
<S> <C>
Assets
Investments, at value (Cost-- $68,343,130)......................................... $43,660,900
Repurchase agreements.............................................................. 4,579,000
Cash............................................................................... 181,620
Receivable for securities sold..................................................... 183,875
Interest receivable................................................................ 1,749,668
Prepaid expenses................................................................... 6,548
----------
Total Assets....................................................................... 50,361,611
----------
Liabilities
Loan payable (Note 4).............................................................. 20,000,000
Payable for securities purchased................................................... 181,292
Net unrealized depreciation on forward foreign currency contracts.................. 6,117
Accrued interest expense on loan................................................... 411,771
Accrued management fee (Note 2).................................................... 27,618
Accrued advisory fee (Note 2)...................................................... 19,727
Other accrued expenses............................................................. 192,493
-----------
Total Liabilities.................................................................. 20,839,018
-----------
Net Assets......................................................................... $29,522,593
===========
Net Assets
Common Stock ($0.001 par value, authorized
100,000,000; 3,768,428 shares outstanding)..................................... $ 3,768
Additional paid-in capital......................................................... 52,990,278
Undistributed net investment income................................................ 2,036,529
Distributions in excess of net realized gain on investments........................ (819,780)
Net unrealized depreciation on investments and foreign currency translations....... (24,688,202)
-----------
Net Assets......................................................................... $29,522,593
===========
Net Asset Value Per Share ($29,522,593 / 3,768,428 shares)........................... $7.83
======
</TABLE>
See accompanying notes to financial statements.
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
Statement of Operations
For the Year Ended August 31, 1998
<TABLE>
<S> <C>
Income
Interest (includes discount accretion of $2,176,685)............................... $ 9,576,282
Expenses
Interest on loan..................................................... $1,288,004
Management fee....................................................... 447,970
Advisory fee......................................................... 319,978
Audit and tax services............................................... 69,675
Custodian............................................................ 62,000
Legal................................................................ 55,225
Directors' fees and expenses......................................... 36,905
Printing............................................................. 25,525
Transfer agent expenses.............................................. 22,995
Listing fees......................................................... 16,214
Amortization of organization expenses................................ 5,106
Other............................................................... 14,390 2,363,987
---------- -----------
Net Investment Income................................................................ 7,212,295
-----------
Realized and Unrealized Gain (Loss) on Investments
and Foreign Currency Transactions
Net Realized Gain (Loss) on:
Investments...................................................................... (426,311)
Foreign currency transactions.................................................... 202,798
------------
(223,513)
------------
Net Change in Unrealized Appreciation (Depreciation) on:
Investments.................................................................... (40,024,825)
Translation of foreign currency contracts and other assets and liabilities
denominated in foreign currencies.......................................... (5,892)
------------
(40,030,717)
------------
Net Loss on Investments and Foreign Currency Transactions (40,254,230)
------------
Net Decrease in Net Assets From Operations $(33,041,935)
============
See accompanying notes to financial statements.
Page 11
</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
For the Year Ended August 31,
<TABLE>
<CAPTION>
1998 1997
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations
Net investment income............................................. $ 7,212,295 $ 7,364,624
Net realized gain (loss) on investments and foreign currency transactions (223,513) 11,552,092
Net change in unrealized appreciation (depreciation).............. (40,030,717) 5,995,684
----------- -----------
Net Increase (Decrease) in Net Assets From Operations............. (33,041,935) 24,912,400
----------- -----------
Dividends and Distributions to Shareholders
From net investment income........................................ (7,315,909) (7,682,793)
From net realized capital gains................................... (10,439,304) (3,705,301)
In excess of net realized capital gains........................... (819,780) --
----------- -----------
Net Decrease in Net Assets From
Dividends and Distributions to Shareholders..................... (18,574,993) (11,388,094)
----------- -----------
Capital Share Transactions
Proceeds from shares issued in reinvestment of dividends
(256,294 and 0 shares issued)................................... 4,265,949 --
----------- -----------
Total Increase (Decrease) in Net Assets............................. (47,350,979) 13,524,306
----------- -----------
Net Assets
Beginning of year................................................. 76,873,572 63,349,266
----------- -----------
End of year (includes undistributed net investment income of
$2,036,529 and $1,937,195, respectively)........................ $29,522,593 $76,873,572
=========== ===========
</TABLE>
Statement of Cash Flows
For the Year Ended August 31, 1998
<TABLE>
<S> <C>
Cash Flows From Operating Activities:
Purchases of securities............................................................ $(121,501,228)
Net sales of short-term investments................................................ 2,715,000
Proceeds from sales of securities and principal paydowns........................... 128,923,634
-------------
10,137,406
Net investment income.............................................................. 7,212,295
Accretion of discount on investments............................................... (2,176,685)
Interest on payment-in-kind bonds.................................................. (851,182)
Amortization of organization expenses.............................................. 5,106
Net change in receivables/payables related to operations........................... 163,526
-------------
Net Cash Provided by Operating Activities.......................................... 14,490,466
-------------
Cash Flows From Financing Activities:
Proceeds from shares issued in reinvestment of dividends........................... 4,265,949
Dividends and distributions paid................................................... (18,574,993)
-------------
Net Cash Used by Financing Activities.............................................. (14,309,044)
-------------
Net Increase in Cash................................................................. 181,422
Cash at Beginning of Year............................................................ 198
-------------
Cash at End of Year.................................................................. $ 181,620
=============
</TABLE>
See accompanying notes to financial statements.
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
1. Organization and Significant Accounting Policies
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.
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 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 (continued)
1. Organization and 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 were deferred and have been 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) Option contracts. When the Fund writes or purchases a call or a put
option, an amount equal to the premium received or paid by the Fund is
recorded as a liability or asset, the value of which is marked-to-market
to reflect the current market value of the option. When the option
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
Notes to Financial Statements (continued)
1. Organization and Significant Accounting Policies (concluded)
expires, the Fund realizes a gain or loss equal to the amount of the
premium received or paid. When the Fund exercises an option or enters into
a closing transaction by purchasing or selling an offsetting option, it
realizes a gain or loss without regard to any unrealized gain or loss on
the underlying security. When a written call option is exercised, the Fund
realizes a gain or loss from the sale of the underlying security and the
proceeds from such sale are increased by the premium originally received on
the option.
(j) Cash flow information. The Fund invests in securities and distributes
dividends from net investment income and net realized gains from
investment transactions which are paid in cash. These activities are
reported in the Statement of Changes in Net Assets. Additional information
on cash receipts and cash payments is presented in the Statement of Cash
Flows. For the year ended August 31, 1998, the Fund paid interest
expense of $1,302,343.
2. Management and Advisory Fees and Other Transactions
The Fund has entered into a management agreement with Salomon Brothers
Asset Management Inc (the "Investment Manager"), a wholly owned subsidiary of
Salomon Smith Barney Holdings Inc. ("SSBH"). 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 agreement with the Investment
Manager was most recently approved by shareholders at its annual shareholders
meeting held on January 15, 1998. Approval of the agreement was necessary due to
the merger of Salomon Inc., which had been the ultimate parent company of the
Investment Manager, with and into SSBH, which occurred on November 28, 1997.
The Fund has also entered into an investment advisory agreement with Value
Advisors LLC (the "Investment Adviser") 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. The agreement with the Investment Adviser
was approved by shareholders at a special meeting held on October 14, 1997, and
has been in effect since the closing of the sale of the Investment Adviser by
Oppenheimer Group Inc. to PIMCO Advisors L.P., which occurred on November 4,
1997. The Investment Adviser was the transferee of the investment advisory
responsibilities for the Fund which were previously provided by Advantage
Advisers, Inc.
At August 31, 1998, the Investment Manager owned 5,562 shares of the Fund.
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.
Page 15
<PAGE>
T H E E M E R G I N G M A R K E T S I N C O M E F U N D I N C
Notes to Financial Statements (continued)
3. Portfolio Activity and Tax Information
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the year ended August 31, 1998 aggregated
$111,700,801 and $109,450,969 respectively. The federal income tax cost basis of
the Fund's investments at August 31, 1998 was substantially the same as the cost
basis for financial reporting. Gross unrealized appreciation and depreciation
amounted to $387,749 and $25,069,979, respectively, resulting in a net
unrealized depreciation on investments of $24,682,230.
As a result of differing book and tax treatment for foreign currency gains
for the year ended August 31, 1998, $202,948 has been reclassified from
Distributions in Excess of Realized Gain on Investments to Undistributed Net
Investment Income.
4. 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, 1998. The collateral for the loan was valued at $42,724,865 on
August 31, 1998 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%.
5. 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, 1998 was $4,959,484.
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.
6. "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.
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
Notes to Financial Statements (concluded)
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 August 31, 1998, the Fund has a concentration
risk in sovereign debt of emerging market countries.
The net asset value of the Fund could be negatively affected if the Fund
were required to liquidate assets in other than an orderly manner and/or in
adverse market conditions to repay any bank loans outstanding.
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 August 31, 1998,
the Fund has an outstanding contract to sell 115,500,000 Japanese Yen for
U.S. $816,428 for a scheduled settlement on September 24, 1998.
9. Dividend Subsequent to August 31, 1998
On September 1, 1998, the Board of Directors of the Fund declared a
dividend of $.4125 per share, from net investment income, payable on September
25, 1998 to shareholders of record September 15, 1998.
10. Bylaw Amendment
The Board of Directors of the Fund recently reviewed and approved on July 14,
1998 various amendments to the Fund's bylaws. For example, the bylaws provisions
relating to timely notice for proposals to be brought before an annual meeting
of stockholders (other than a proposal under Rule 14a-8 of the Securities
Exchange Act of 1934 to be included in the Fund's proxy statement) have been
amended. As amended, a stockholder's notice must be delivered to the Fund not
less than 60 days nor more than 90 days prior to the first anniversary of the
preceding year's annual meeting. An exception applies in the event the date of
the annual meeting is substantially advanced or delayed from the anniversary
date. The Board believes that the amended timely notice provisions will provide
greater certainty to stockholders because previously, timely notice keyed off
the date of the current year's meeting or the date public disclosure of the
current year's meeting is made. In addition, the provisions provide that any
business to be brought before a special meeting of stockholders must be
specified in the notice of meeting or otherwise properly brought before the
meeting by or at the direction of the Board of Directors. Finally, upon
recommendation of the Fund's Maryland counsel, other changes to certain bylaw
provisions were made to conform to the bylaw provisions of more recently
organized Maryland companies.
Page 17
<PAGE>
T H E E M E R G I N G M A R K E T S I N C O M E F U N D I N C
Financial Highlights
For the Years Ended August 31,
Selected data per share of common stock outstanding throughout each year:
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year................ $21.89 $18.04 $13.38 $16.23 $17.96
------ ------ ------ ------ ------
Net investment income............................. 2.02 2.10 2.24 1.95 1.37
Net realized gain (loss) and change in
unrealized appreciation (depreciation) on
securities and foreign currency translations... (10.84) 5.00 4.10 (2.22) (0.79)
------ ------ ------ ------ ------
Total from investment operations.................. (8.82) 7.10 6.34 (0.27) 0.58
------ ------ ------ ------ ------
Dividends to shareholders from net
investment income.............................. (2.03) (2.19) (1.65) (1.37) (1.50)
Dividends to shareholders from net
realized capital gains......................... (2.98) (1.06) (0.03) (0.49) (0.81)
Distributions in excess of net realized
capital gains.................................. (0.23) -- -- (0.72) --
------ ------ ------ ------ ------
Total dividends and distributions to
shareholders.................................. (5.24) (3.25) (1.68) (2.58) (2.31)
------ ------ ------ ------ ------
Net increase (decrease) in net asset value....... (14.06) 3.85 4.66 (2.85) (1.73)
------ ------ ------ ------ ------
Net asset value, end of year..................... $7.83 $21.89 $18.04 $13.38 $16.23
====== ====== ====== ====== ======
Per share market value, end of year.............. $9.50 $19.4375 $16.625 $13.00 $16.00
====== ======== ======= ====== ======
Total investment return based on market
price per share (a)........................... -35.00% 39.18% 42.46% -1.76% -1.33%
Ratios to Average Net Assets:
Total expenses, including
interest expense.......................... 3.79% 3.58% 4.41% 5.15% 3.31%
Total expenses, excluding
interest expense (operating expenses)..... 1.73% 1.70% 1.87% 2.00% 1.78%
Net investment income......................... 11.56% 10.44% 14.34% 14.45% 7.99%
Supplemental Data:
Net assets, end of year..................... $29,408,506 $76,873,572 $63,349,266 $46,993,103 $57,005,082
Portfolio turnover rate..................... 141% 112% 98% 80% 22%
Bank loan outstanding, end of year.......... $20,000,000 $20,000,000 $20,000,000 $20,000,000 $20,000,000
Interest rate on bank loan, end of year..... 6.28125% 6.50% 6.60156% 7.5625% 6.3125%
Weighted average bank loan.................. $20,000,000 $20,000,000 $20,000,000 $20,000,000 $16,876,712
Weighted average interest rate.............. 6.44% 6.64% 6.96% 7.50% 5.40%
</TABLE>
- ------------
(a) Dividends are assumed, for purposes of this calculation, to be reinvested at
prices obtained under the Fund's dividend reinvestment plan.
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
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, 1998, the results of its operations
and its 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 five years in the period then ended, 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, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
October 21, 1998
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
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>
February 28, 1994........................... $1,146 $0.33 $(1,723) $ (0.49)
May 31, 1994................................ 1,197 0.34 (6,897) (1.97)
August 31, 1994............................. 1,189 0.34 1,615 0.46
November 30, 1994........................... 1,595 0.46 (3,082) (0 .88)
February 28, 1995........................... 1,599 0.45 (9,960) (2.83)
May 31, 1995................................ 1,744 0.49 5,054 1.44
August 31, 1995............................. 1,894 0.55 205 0.05
November 30, 1995........................... 1,859 0.53 1,412 0.40
February 29, 1996........................... 1,989 0.57 5,477 1.56
May 31, 1996................................ 2,070 0.58 4,137 1.18
August 31, 1996............................. 1,933 0.56 3,379 0.96
November 30, 1996........................... 1,978 0.56 8,841 2.52
February 28, 1997........................... 1,840 0.53 3,833 1.09
May 31, 1997................................ 1,803 0.51 951 0.27
August 31, 1997............................. 1,744 0.50 3,923 1.12
November 30, 1997........................... 1,668 0.47 (5,181) (1.47)
February 27, 1998........................... 1,827 0.51 491 0.14
May 29, 1998................................ 1,996 0.53 (3,192) (0.85)
August 31, 1998............................. 1,721 0.51 (32,372) (8.66)
</TABLE>
*Totals expressed in thousands of dollars except per share amounts.
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
Other Information (unaudited)
Year 2000. The investment management services provided to the Fund by the
Investment Manager depend in large part on the smooth functioning of its
computer systems. Many computer software systems in use today cannot recognize
the year 2000, but revert to 1900 or some other date, due to the manner in which
the dates were encoded or calculated. The capability of these systems to
recognize the year 2000 could have a negative impact on the Investment Manager's
provision of investement management services, including handling of securities
trades, pricing and account services. The Investment Manager has advised the
Fund that it has been reviewing all of their computer systems and actively
working on necessary changes to its systems to prepare for the year 2000 and
expects that given the extensive testing which it is undertaking its systems
will be year 2000 compliant before such date. In addition, the Investment
Manager has been advised by certain of the Fund's service providers that they
are also in the process of modifying their systems with the same goal. There
can, however, be no assurance that the Investment Manager or any other service
provider will be successful in achieving year 2000 compliance, or that
interaction with other non-complying computer systems will not impair services
to the Fund at that time.
Tax Information (unaudited)
For Federal tax purposes the Fund hereby designates for the fiscal year ended
August 31, 1998:
* The Taxpayer Relief Act of 1997 enacted differing rates of tax on
various long-term capital gain transactions. As a result, the Fund
designates:
* Total long-term capital gain distributions paid of $6,887,290.
$3,427,804 are considered "28 percent rate gains".
$3,459,486 are considered "20 percent rate gains".
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
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 22
<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.
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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
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
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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
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.
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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
Directors
CHARLES F. BARBER
Consultant; formerly Chairman,
ASARCO Incorporated
WILLIAM D. CVENGROS
Co-Chairman of the Board;
Chief Executive Officer,
President and Member of the
Board of Value Advisors LLC and
Chief Executive Officer and
President of PIMCO Advisors L.P.
LESLIE H. GELB
President, The Council
on Foreign Relations
HEATH B. MCLENDON
Co-Chairman of the Board;
Managing Director, Salomon
Smith Barney Inc.
President, Smith Barney Mutual Fund
Management Inc.
Chairman, Smith Barney Strategy Advisors Inc.
RIORDAN ROETT
Professor and Director,
Latin American Studies Program,
Paul H. Nitze School of Advanced
International Studies,
Johns Hopkins University
JESWALD W. SALACUSE
Henry J. Braker Professor of
Commercial Law, and formerly Dean,
The Fletcher School of Law & Diplomacy
Tufts University
Officers
WILLIAM D. CVENGROS
Co-Chairman of the Board
HEATH B. MCLENDON
Co-Chairman of the Board
STEPHEN J. TREADWAY
President
LEWIS E. DAIDONE
Executive Vice President & Treasurer
THOMAS K. FLANAGAN
Executive Vice President
NEWTON SCHOTT
Executive Vice President
PETER J. WILBY
Executive Vice President
ANTHONY PACE
Assistant Controller
The Emerging Markets Income Fund Inc
7 World Trade Center
New York, New York 10048
For information call (toll free)
1-888-777-0102
INVESTMENT MANAGER
Salomon Brothers Asset Management Inc
7 World Trade Center
New York, New York 10048
INVESTMENT ADVISER
Value Advisors LLC
800 Newport Center Drive
Suite 100
Newport Beach, California 92660
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
PricewaterhouseCoopers 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
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<PAGE>
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
