September 23, 1999
The Emerging Markets
Income Fund Inc
Dear Shareholders:
We are pleased to provide this annual report for The Emerging Markets Income
Fund Inc ("the Fund") as of August 31, 1999. Included in this report is an
analysis of the Fund's performance versus the benchmark and its peer group, a
commentary on the emerging debt markets, a statement of the Fund's investments
as of August 31,1999 and financial statements for the year ended August 31,
1999.
During the twelve months ended in August, the net asset value of the Fund
increased from $7.83 per share at August 31, 1998 to $11.16 per share at August
31, 1999. Dividends of $2.41 per share from net investment income were paid
during this period. Assuming reinvestment of these dividends in additional
shares of the fund, the total rate of return based on net asset value for the
year ended August 31, 1999 was 83.46%. During the same period, the JP Morgan
Emerging Markets Bond Index Plus ("EMBI+"), a standard measure of return for the
emerging markets debt, returned 30.47%. The Fund's outperformance, which was the
result of several factors highlighted below, places the Fund #1 within the
Lipper, Inc. category of open end and closed end emerging markets income funds
for the year ended August 31, 1999. (Lipper is a major fund-tracking
organization.)
At August 31, 1999, the Fund, as a percentage of total investments, was
approximately 99% 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
The Fund's fiscal year opened in the aftermath of the Russian debt crisis of
August 1998. For the balance of 1998, a rally occurred in emerging markets debt,
largely due to monetary easing by the U.S. Federal Reserve Board ("Fed") and
U.S. Congressional approval of funding for the International Monetary Fund
("IMF"). The agreement, as well as a lack of forced selling by non-dedicated
investors, caused the market to rise from September through the end of the year.
In January 1999, the market again traded down due to concerns over the Brazilian
devaluation of its local currency, which led to investors demanding a higher
risk premium from emerging markets debt.
Despite the market's turmoil at the beginning of the Fund's fiscal year and
worries stemming from Brazil's currency devaluation, global contagion was not as
severe as might have been expected. This relative calm was due to a number of
positive world events, including the Fed monetary easing, Congressional funding
for the IMF and a reduction in leverage dedicated to credit risk investments.
The Fed raised interest rates by 50 basis points during 1999 in response to the
ongoing strength of the U.S. economy. The process of anticipating these two 25
basis point rate increases has influenced bond market investors worldwide and
has impacted emerging markets debt. The Fed has emphasized its commitment to
price stability and its governors have made a number of public speeches
outlining their concerns. This high profile approach on the part of the Fed has
increased the bond market's focus on the U.S. economy and the outlook for
increases in rates.
Page 1
<PAGE>
T H E E M E R G I N G M A R K E T S I N C O M E F U N D I N C
The following is a brief description of developments in key countries over the
past twelve months:
Argentina. Argentina's 27.72% return slightly trailed the performance of the
Index for the 12 months ended August 31, 1999. The country has come through a
difficult period as it coped with large refinancing needs during a recession.
The presidential election scheduled for October 24, 1999 represents a turning
point in Argentine politics as it is the end of President Menem's second term.
Opposition candidate Fernando de la Rua has a comfortable lead one month ahead
of the elections. Both parties have affirmed their commitment to continuing the
policy of convertibility.
Brazil. As mentioned previously, the most notable event to occur in Brazil
during the period was the devaluation of the country's local currency, the real,
in January. The devaluation caused spillover throughout Latin America, but the
deterioration in market sentiment was short lived. Brazil's recovery from the
effects of its January currency devaluation continues to be impressive. Brazil
has exceeded the fiscal targets outlined in its IMF agreement for the first six
months of 1999. In addition, unemployment and inflation levels have exceeded
projections and underscore the progress Brazil is making in reforming its
economy. The most compelling evidence of Brazil's progress in 1999 is the change
in the overnight borrowing rate set by the Central Bank. In an effort to
stabilize the currency and prevent an inflationary spike, the Central Bank set
the overnight rate at 45% after the devaluation in January. That rate has been
gradually reduced over the ensuing months. The current overnight borrowing rate
is 19.5%. Brazil continues to have an ambitious structural reform agenda which
includes changes to the taxation and social security schemes. Despite recent
political noise, the working relationship between the administration and
congress remains intact and we expect further positive developments on these
important initiatives in the fourth quarter. Brazil returned 27.58% in the
twelve months ended August 31, 1999.
Ecuador. In a development with potentially negative implications for all
emerging markets, Ecuador announced that it would delay a $96 million coupon
payment on its Brady bonds due on August 31, 1999. In addition, Ecuador also
announced plans to restructure its $6 billion of Brady debt outstanding. Any
restructuring is expected to take considerable time and involve a number of
important parties including the Ecuadorian government and congress, the IMF and
international investors. It is too early to make a definite determination of
value in Ecuador until a firm restructuring proposal is presented. Ecuador's
debt declined 16.97% during the Fund's fiscal year.
Mexico. Mexico remains a safe haven investment in the emerging markets universe.
It is the only major Latin American country that is not in recession in 1999.
Its political and economic leadership is very solid and its need for external
financing is quite low. We expect a smooth transition to new leadership in the
upcoming presidential election, the first such contest where the election of the
PRI party candidate is not a foregone conclusion.
Venezuela. Venezuela was the best performing emerging markets debt issuer in the
Index over the past 12 months, returning 69.03%. The presidential race in
November resulted in a decisive victory for Hugo Chavez, who won 56% of the
vote. This was the largest victory in 15 years, a clear mandate for change.
Although a controversial figure prior to the election, Chavez seems to be
softening his views with regard to a major shift in economic policy, indicating
that he is a proponent of continuing a dialogue with the IMF and the current
"shadow program." The Constituent Assembly, a key element of President Chavez's
plan to reform the Venezuelan political system, was elected in July. In a
stunning development, 91% of the seats were won by allies of President Chavez.
The agenda for the Assembly revolves around the drafting of a new constitution
for Venezuela. The initial draft of the constitution is expected to be available
in late October 1999. This document will have important implications for the
future of external capital investment in Venezuela. We believe the political
agenda will take precedence over any economic issues during the balance of 1999
as the new Constitution is reviewed and ratified. Oil prices at current levels
are giving Venezuela the economic flexibility to address the constitutional
changes.
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<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
Russia. Russia was the second best performing country in the Index over the past
12 months, returning 61.06%. The country continues to work with the IMF on an
expanded financing package. Spokesmen for the IMF indicated pleasant surprise at
the status of Russia's macroeconomic reforms. On the political front, Kremlin
intrigue continues as the Duma elections in December and the presidential
election in June 2000 approach. Prime Minister Stepashin was fired by President
Yeltsin and replaced by Vladimir Putin, the fifth Russian prime minister in 17
months. Allegations of money laundering in the private sector have raised
questions concerning misuse of IMF aid money by the public sector. These
political issues will likely keep volatility in Russia high over the next few
months.
Morocco. King Hassan II died after 38 years on the throne. He has been replaced
by his eldest son, King Mohammed VI. We expect the policies that have made
Morocco a steadily improving credit will be continued by the new king. In
another important development in Morocco, a cellular telephone license has been
awarded to Telefonica for a price of $1.1 billion and a commitment to spend an
additional $700 million developing the network. The proceeds from this sale will
be used to fund a variety of government initiatives in Morocco.
Outlook
Our outlook for emerging markets debt is positive based upon the current spread
level of 1,100 basis points over Treasuries. The economic rebound in Asia and
the apparent bottoming of the recession in many Latin American countries points
to an improving macroeconomic environment for emerging market countries. We
expect the market to remain volatile but believe that we are being well
compensated for this price risk at current spread levels.
* * *
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 a.m. to 6:00 p.m. 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 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.
Sincerely,
/s/ Heath B. McLendon /s/ William D. Cvengros
Heath B. McLendon William D. Cvengros
Co-Chairman of the Board Co-Chairman of the Board
/s/ Peter J. Wilby /s/ Thomas K. Flanagan
Peter J. Wilby Thomas K. Flanagan
Executive Vice President Executive Vice President
Page 3
<PAGE>
T H E E M E R G I N G M A R K E T S I N C O M E F U N D I N C
Statement of Investments
August 31, 1999
<TABLE>
<CAPTION>
Principal
Amount (a) Bonds -- 85.4% Value
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Argentina -- 14.7%
Republic of Argentina:
Peso 250,000+ 8.750% due 7/10/02 ......................................... $ 204,778
500,000+ 14.250% due 11/30/02* ...................................... 472,500
Peso 1,500,000+ 11.750% due 2/12/07 ........................................ 1,205,788
Peso 741,435+ BOCON, Pro 1, 2.7696% due 4/1/07* .......................... 466,833
837,000+ FRB, Series L, 5.9375% due 3/31/05* ........................ 716,681
4,125,000+ Global Bond, 11.000% due 12/4/05 ........................... 3,774,375
1,550,000+ Global Bond, 11.750% due 4/7/09 ............................ 1,429,875
750,000+ Structured Note, 11.447% due 4/10/05*(b) ................... 645,000
-----------
8,915,830
-----------
Brazil -- 12.8%
1,000,000+ Companhia Energetica De Sao Paulo, 9.125% due 6/26/07* ....... 860,000
Federal Republic of Brazil:
6,739,213+ Capitalization (C) Bond, 8.000% due 4/15/14(c) ............. 4,051,952
1,500,000+ DCB, Series L, 5.9375% due 4/15/12* ........................ 855,937
3,000,000+ NMB, Series L, 5.9375% due 4/15/09* ........................ 1,976,250
-----------
7,744,139
-----------
Bulgaria -- 3.5%
Republic of Bulgaria:
3,000,000+ FLIRB, Series A, 2.750% due 7/28/12* ....................... 1,822,500
450,000+ IAB, 6.500% due 7/28/11* ................................... 310,781
-----------
2,133,281
-----------
Colombia -- 5.1%
Republic of Colombia:
2,500,000+ 10.875% due 3/9/04 ......................................... 2,387,500
800,000+ 12.471% due 8/13/05* ....................................... 700,000
-----------
3,087,500
-----------
Costa Rica -- 4.5%
3,000,000+ Costa Rica, Principal Bond, Series A, 6.250% due 5/21/10 ..... 2,745,000
-----------
Croatia -- 3.2%
2,500,000+ Republic of Croatia, FRN, 6.45625% due 7/31/10* .............. 1,962,500
-----------
Ecuador -- 1.4%
2,350,000+ Republic of Ecuador, Discount Bond, 6.000% due 2/28/25*(d).... 837,188
-----------
</TABLE>
See accompanying notes to financial statements.
Page 4
<PAGE>
T H E E M E R G I N G M A R K E T S I N C O M E F U N D I N C
Statement of Investments (continued)
August 31, 1999
<TABLE>
<CAPTION>
Principal
Amount (a) Bonds -- 85.4% (continued) Value
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Indonesia -- 2.8%
1,000,000+ APP International Finance Company B.V., 11.750% due 10/1/05 .. $ 725,000
1,500,000+ Tjiwi Kimia International Finance Company B.V.,
10.000% due 8/1/04 ......................................... 952,500
-----------
1,677,500
-----------
Ivory Coast -- 1.5%
Republic of Ivory Coast:
375,000+ 2.000% due 3/29/18* ........................................ 92,813
2,107,000+ FLIRB, 2.000% due 3/29/28*,# ............................... 521,482
933,075+ PDI Bond, 2.000% due 3/29/18*,# ............................ 289,253
-----------
903,548
-----------
Mexico -- 5.6%
1,000,000+ Grupo Industrial Durango, 12.000% due 7/15/01 ................ 982,500
1,000,000+ Hylsa S.A. de C.V., 9.250% due 9/15/07 ....................... 760,000
United Mexican States, Global Bond:
500,000+ 10.375% due 2/17/09 ........................................ 505,250
1,100,000+ 11.375% due 9/15/16 ........................................ 1,147,443
-----------
3,395,193
-----------
Panama -- 2.4%
2,000,000+ Republic of Panama, IRB, 4.2500% due 7/17/14* ................ 1,430,000
-----------
Peru -- 4.1%
4,250,000+ Republic of Peru, PDI Bond, 4.500% due 3/7/17* ............... 2,488,906
-----------
Philippines -- 3.8%
2,450,000+ Republic of the Philippines, Global Bond, 9.875% due 1/15/19.. 2,318,312
-----------
Poland -- 1.7%
Republic of Poland:
250,000+ Par Bond, 3.000% due 10/27/14* ............................. 146,875
1,000,000+ PDI Bond, 5.000% due 10/27/14* ............................. 873,750
-----------
1,020,625
-----------
Russia -- 5.5%
6,175,000+ Russian Government, Global Bond, 12.750% due 6/24/28 ......... 3,342,219
-----------
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 (continued)
August 31, 1999
<TABLE>
<CAPTION>
Principal
Amount (a) Bonds -- 85.4% (concluded) Value
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
South Korea -- 0.9%
Export-Import Bank of Korea, Global Bond:
250,000+ 7.250% due 6/25/01 ......................................... $ 247,987
35,000+ 6.500% due 2/10/02 ......................................... 33,987
250,000+ Korea Development Bank, Global Bond, 7.900%, due 2/1/02 ...... 250,913
-----------
532,887
-----------
Uruguay -- 1.2%
789,473+ Uruguay, DCB, Series B, 6.500% due 2/18/07* .................. 753,947
-----------
Venezuela -- 10.7%
Republic of Venezuela:
3,428,565+ FLIRB, Series A, 6.000% due 3/31/07* ....................... 2,389,281
5,000,000+ Global Bond, 13.625% due 8/15/18 ........................... 4,125,000
-----------
6,514,281
-----------
Total Bonds (Cost -- $54,811,967)............................. 51,802,856
-----------
Loan Participations++ -- 11.6%
- -----------------------------------------------------------------------------------------------
The People's Democratic Republic of Algeria:
363,636+ Tranche A, 6.750% due 3/4/00* (Chase Manhattan Bank) ....... 350,000
1,090,908+ Tranche 1, 6.000% due 9/4/06* (Chase Manhattan Bank) ....... 730,908
2,000,000+ Tranche 3, 6.000% due 3/4/10* (Chase Manhattan Bank) ....... 1,280,000
138,860+ Government of Jamaica, Tranche A, 6.125%
due 10/15/00* (Chase Manhattan Bank) ....................... 130,528
15,700,000+ Russian Government, Principal Loan, due 12/15/20##,(d)
(Chase Manhattan, Goldman Sachs, ING Bank, J.P. Morgan) .... 1,746,625
Kingdom of Morocco:
Yen 125,474,574+ Tranche A, 2.2325% due 1/1/09* (Goldman Sachs) ............. 834,143
2,454,166+ Tranche A, 5.90625% due 1/1/09* (Morgan Guaranty
Trust Company of New York) ............................... 1,981,739
-----------
Total Loan Participations (Cost -- $8,587,773) ............... 7,053,943
-----------
Contracts Purchased Options## -- 0.3%
- -----------------------------------------------------------------------------------------------
21,000,000 Hong Kong Dollar., Put @ HKD 7.8025, expiring 1/20/00 ...... 127,323
10,850,000 Hong Kong Dollar., Put @ HKD 7.8165, expiring 1/26/00 ...... 47,957
-----------
Total Options (Cost -- $259,290) ............................. 175,280
-----------
</TABLE>
See accompanying notes to financial statements.
Page 6
<PAGE>
T H E E M E R G I N G M A R K E T S I N C O M E F U N D I N C
Statement of Investments (concluded)
August 31, 1999
<TABLE>
<CAPTION>
Warrants Warrants## -- 2.1% Value
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
2,950+ Republic of Argentina Warrants, expiring 12/3/99 ............. $ 12,538
16,491+ United Mexican States Warrants, expiring 2/18/00 ............. 1,236,825
-----------
Total Warrants (Cost -- $815,848)............................. 1,249,363
-----------
Sub-Total Investments (Cost -- $64,474,878)................... 60,281,442
-----------
Principal
Amount (a) Repurchase Agreement -- 0.6%
- -----------------------------------------------------------------------------------------------
371,000 State Street Bank, 5.380%, dated 8/31/99, $371,055 due 9/1/99
(collateralized by $335,000 U.S. Treasury Bond
due 11/15/16, valued at $378,500) (Cost -- $371,000)........ 371,000
-----------
Total Investments -- 100% (Cost -- $64,845,878**)............. $60,652,442
===========
</TABLE>
FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT AUGUST 31, 1999:
<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 $1,017,621 US $1,067,085 11/2/99 $49,464
<FN>
- -------------
(a) Principal denominated in U.S. dollars unless otherwise indicated.
(b) Coupon rate is derived from a formula based on the yields of other
Argentina Global bonds.
(c) Payment-in-kind security for which all or part of the interest earned is
capitalized as additional principal.
(d) Security in default as of or subsequent to August 31, 1999.
* Rate shown reflects rate in effect at 8/31/99 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 under the Securities Act of 1933, this security can
only be sold to qualified institutional investors.
## Non-income producing security.
</FN>
Abbreviations used in this statement:
BOCON - Bonos De Consolidacion.
DCB - Debt Conversion Bond.
FLIRB - Front Loaded Interest Reduction Bond.
FRB - Floating Rate Bond.
FRN - Floating Rate Note.
HKD - Hong Kong Dollar.
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 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 Assets and Liabilities
August 31, 1999
<TABLE>
<S> <C>
Assets
Investments, at value (Cost -- $64,474,878)........................................ $60,281,442
Repurchase agreement............................................................... 371,000
Receivable for securities sold..................................................... 2,477,654
Interest receivable................................................................ 1,600,175
Prepaid expenses................................................................... 8,597
-----------
Total Assets....................................................................... 64,738,868
-----------
Liabilities
Due to Custodian................................................................... 73,228
Loan payable (Note 4).............................................................. 20,000,000
Net unrealized depreciation on forward foreign currency contracts.................. 49,464
Accrued interest expense on loan................................................... 36,395
Accrued management fee (Note 2).................................................... 26,230
Accrued advisory fee (Note 2)...................................................... 18,736
Other accrued expenses............................................................. 158,223
-----------
Total Liabilities.................................................................. 20,362,276
-----------
Net Assets......................................................................... $44,376,592
===========
Net Assets
Common Stock ($0.001 par value, authorized
100,000,000; 3,976,520 shares outstanding)......................................... $ 3,977
Additional paid-in capital......................................................... 55,167,012
Undistributed net investment income................................................ 24,746
Accumulated net realized loss on investments....................................... (6,576,866)
Net unrealized depreciation on investments and foreign currency.................... (4,242,277)
-----------
Net Assets......................................................................... $44,376,592
===========
Net Asset Value Per Share ($44,376,592 / 3,976,520 shares)........................... $11.16
======
</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 Operations
For the Year Ended August 31, 1999
<TABLE>
<S> <C> <C>
Income
Interest (includes discount accretion of $2,359,677)............................... $ 9,427,448
Expenses
Interest on loan..................................................... $1,296,575
Management fee....................................................... 283,965
Advisory fee......................................................... 202,832
Custodian............................................................ 66,970
Audit and tax services............................................... 51,890
Directors' fees and expenses......................................... 34,040
Legal................................................................ 32,830
Printing............................................................. 29,430
Transfer agent expenses.............................................. 21,995
Listing fees......................................................... 17,614
Other............................................................... 9,709 2,047,850
---------- ------------
Net Investment Income................................................................ 7,379,598
------------
Realized and Unrealized Gain (Loss) on Investments
and Foreign Currency Transactions
Net Realized Loss on:
Investments...................................................................... (5,760,434)
Foreign currency transactions.................................................... (141,703)
------------
(5,902,137)
------------
Net Change in Unrealized Appreciation (Depreciation) on:
Investments...................................................................... 20,488,795
Foreign currency contracts and other assets and liabilities
denominated in foreign currencies.............................................. (42,870)
------------
20,445,925
------------
Net Gain on Investments and Foreign Currency Transactions............................ 14,543,788
------------
Net Increase in Net Assets From Operations........................................... $ 21,923,386
============
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
Statement of Changes in Net Assets
For the Year Ended August 31,
<TABLE>
<CAPTION>
1999 1998
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations
Net investment income................................................. $ 7,379,598 $ 7,212,295
Net realized loss on investments and foreign currency transactions.... (5,902,137) (223,513)
Net change in unrealized appreciation (depreciation).................. 20,445,925 (40,030,717)
------------ ------------
Net Increase (Decrease) in Net Assets From Operations................. 21,923,386 (33,041,935)
------------ ------------
Dividends and Distributions to Shareholders
From net investment income............................................ (9,246,330) (7,315,909)
From net realized capital gains....................................... -- (10,439,304)
From capital.......................................................... (96,730) --
In excess of net realized capital gains............................... -- (819,780)
------------ ------------
Net Decrease in Net Assets From
Dividends and Distributions to Shareholders......................... (9,343,060) (18,574,993)
------------ ------------
Capital Share Transactions
Proceeds from shares issued in reinvestment of dividends
(208,092 and 256,294 shares issued)................................. 2,273,673 4,265,949
------------ ------------
Total Increase (Decrease) in Net Assets................................. 14,853,999 (47,350,979)
------------ ------------
Net Assets
Beginning of year..................................................... 29,522,593 76,873,572
------------ ------------
End of year (includes undistributed net investment
income of $24,746 and $2,036,529, respectively)..................... $ 44,376,592 $ 29,522,593
============ ============
</TABLE>
Statement of Cash Flows
For the Year Ended August 31, 1999
<TABLE>
<S> <C>
Cash Flows Provided by Operating Activities:
Purchases of securities............................................................ $(51,554,868)
Net sales of short-term investments................................................ 4,208,000
Proceeds from sales of securities and principal paydowns........................... 49,662,744
------------
2,315,876
Net investment income.............................................................. 7,379,598
Adjustments to reconcile net investment income to net cash provided by operating activities:
Accretion of discount on investments............................................... (2,359,677)
Interest on payment-in-kind bonds.................................................. (115,451)
Net change in receivables/payables related to operations........................... (405,807)
------------
Net Cash Provided by Operating Activities.......................................... 6,814,539
------------
Cash Flows Used by Financing Activities:
Proceeds from shares issued in reinvestment of dividends........................... 2,273,673
Dividends and distributions paid................................................... (9,343,060)
------------
Net Cash Used by Financing Activities.............................................. (7,069,387)
------------
Net Decrease in Cash................................................................. (254,848)
Cash at Beginning of Year............................................................ 181,620
------------
Due to Custodian at End of Year...................................................... $ (73,228)
============
</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
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 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)
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) 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.
(f) 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.
(g) 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.
(h) 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 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)
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. If a written put option is exercised, the premium reduces the
cost basis of the security purchased by the Fund.
(i) Cash flow information. The Fund invests in securities and distributes
dividends from net investment income and net realized gains from investment
transactions which are paid in cash. These activities are reported in the
Statement of Changes in Net Assets. Additional information on cash receipts
and cash payments is presented in the Statement of Cash Flows. For the year
ended August 31, 1999, the Fund paid interest expense of $1,671,951.
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 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.
At August 31, 1999, 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.
All officers and two directors of the Fund are employees of the Investment
Manager and/or the Investment Adviser.
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, 1999 aggregated
$51,671,576 and $52,254,523 respectively. The federal income tax cost basis of
the Fund's investments at August 31, 1999 was substantially the same as the cost
basis for financial reporting. Gross unrealized appreciation and depreciation
amounted to $2,897,387 and $7,090,823, respectively, resulting in a net
unrealized depreciation on investments of $4,193,436.
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)
4. Bank Loan
The Fund has borrowed $20,000,000 pursuant to a secured loan agreement (the
"Loan Agreement") with INGBaring (U.S.) Capital LLC. The interest rate on the
loan is 7.17875% and the maturity date is November 22, 1999. The collateral for
the loan was valued at $60,236,032 on August 31, 1999 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 not less
than 300%.
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, 1999 was $7,053,943.
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.
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, 1999, the Fund has a concentration
risk in sovereign debt of emerging market countries.
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 (concluded)
7. Credit and Market Risk (continued)
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, 1999, the Fund has an
outstanding contract to sell 115,500,000 Japanese Yen for U.S. $1,017,621 for a
scheduled settlement on November 2, 1999.
9. Dividend Subsequent to August 31, 1999
On September 1, 1999, the Board of Directors of the Fund declared a
dividend of $.4125 per share, from net investment income, payable on September
24, 1999 to shareholders of record September 14, 1999.
10. Capital Loss Carryforward
At August 31, 1999, the Fund had, for Federal income tax purposes, a
capital loss carryforward of approximately $3,667,000, available to offset
future capital gains through August 31, 2007. To the extent that these
carryforward losses are used to offset capital gains, it is probable that any
gains so offset will not be distributed.
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
Financial Highlights
Selected data per share of common stock outstanding throughout each year:
<TABLE>
<CAPTION>
Year Ended August 31,
--------------------------------------------------------------
1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year.............. $ 7.83 $21.89 $18.04 $13.38 $16.23
------ ------ ------ ------ ------
Net investment income........................... 1.88 2.02 2.10 2.24 1.95
Net realized gain (loss) and change in
unrealized appreciation (depreciation) on
securities and foreign currency translations.. 3.83 (10.84) 5.00 4.10 (2.22)
------ ------ ------ ------ ------
Total from investment operations................ 5.71 (8.82) 7.10 6.34 (0.27)
------ ------ ------ ------ ------
Dividends and distributions to shareholders from:
Net investment income........................ (2.41) (2.03) (2.19) (1.65) (1.37)
Net realized capital gains................... -- (2.98) (1.06) (0.03) (0.49)
Capital...................................... (0.02) -- -- -- --
Distributions in excess of net realized
capital gains................................ -- (0.23) -- -- (0.72)
------ ------ ------ ------ ------
Total dividends and distributions to
shareholders................................. (2.43) (5.24) (3.25) (1.68) (2.58)
------ ------ ------ ------ ------
Increase in net asset value due to shares issued
on reinvestment of dividends................. 0.05 -- -- -- --
------ ------ ------ ------ ------
Net increase (decrease) in net asset value...... 3.33 (14.06) 3.85 4.66 (2.85)
------ ------ ------ ------ ------
Net asset value, end of year.................... $11.16 $ 7.83 $21.89 $18.04 $13.38
====== ====== ====== ====== ======
Per share market value, end of period........... $12.50 $ 9.50 $19.4375 $16.625 $13.00
====== ====== ====== ====== ======
Total investment return based on market
price per share (a).......................... 62.97% -35.00% 39.18% 42.46% -1.76%
Ratios to Average Net Assets:
Total expenses, including
interest expense........................... 5.03% 3.79% 3.58% 4.41% 5.15%
Total expenses, excluding
interest expense (operating expenses)...... 1.85% 1.73% 1.70% 1.87% 2.00%
Net investment income........................ 18.13% 11.56% 10.44% 14.34% 14.45%
Supplemental Data:
Net assets, end of period.................... $44,376,592 $29,522,593 $76,873,572 $63,349,266 $46,993,103
Portfolio turnover rate...................... 87% 141% 112% 98% 80%
Bank loan outstanding, end of period......... $20,000,000 $20,000,000 $20,000,000 $20,000,000 $20,000,000
Interest rate on bank loan, end of period.... 7.17875% 6.28125% 6.50% 6.60156% 7.5625%
Weighted average bank loan................... $20,000,000 $20,000,000 $20,000,000 $20,000,000 $20,000,000
Weighted average interest rate............... 6.48% 6.44% 6.64% 6.96% 7.50%
<FN>
- ------------
(a) Dividends are assumed, for purposes of this calculation, to be reinvested at
prices obtained under the Fund's dividend reinvestment plan.
</FN>
</TABLE>
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
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, 1999, 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, 1999 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
October 18, 1999
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
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, 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)
November 30, 1998........................... 2,052 0.54 13,631 3.61
February 26, 1999........................... 1,938 0.51 (4,077) (1.08)
May 28, 1999................................ 1,775 0.45 5,209 1.32
August 31, 1999............................. 1,615 0.38 (219) (0.02)
<FN>
*Totals expressed in thousands of dollars except per share amounts.
</FN>
</TABLE>
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
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 investment 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.
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
Pursuant to certain rules of the Securities and Exchange Commission, the
following additional disclosure is provided.
Form of Terms and Conditions of Amended and Restated Dividend Reinvestment
and Cash Purchase Plan (unaudited)
1. Each shareholder holding shares of common stock ("Shares") of The Emerging
Markets Income Fund II 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 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
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 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
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 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
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 23
<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
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
CHRISTINA T. SYDOR
Secretary
ANTHONY PACE
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
<PAGE>
The Emerging Markets
Income Fund Inc
Annual Report
August 31, 1999
- -----------------------------------------------------
The Emerging Markets Income Fund Inc
----------------------------------------------------------
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
EMDANN 8/99
