March 23, 2000
The Emerging Markets
Income Fund Inc
Dear Shareholders:
We are pleased to provide this semi-annual report for the The Emerging Markets
Income Fund Inc. ("the Fund") as of February 29, 2000. 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 February 29, 2000 and financial statements for the six months
ended February 29, 2000.
During the six months ended February 29, 2000, the net asset value of the Fund
increased from $11.16 per share at August 31, 1999 to $13.45 per share at
February 29, 2000. Dividends of $0.825 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 for the six-month period ended
February 29, 2000 was 29.23%. In comparison, the J.P. Morgan Emerging Markets
Bond Index Plus ("EMBI+")*, a standard measure of return for the emerging
markets debt, returned 21.56% for the same time period.
As of February 29, 2000, the Fund, as a percentage of total investments, was
100% invested in securities of emerging market issuers, including obligations of
sovereign governments and companies.
EMERGING MARKETS DEBT SECURITIES
Emerging markets debt returned 21.56% for the six months ended February 29, 2000
as measured by the EMBI+. The market performed well in a relatively difficult
fixed-income environment. During the same time period, the Salomon Smith Barney
Broad Investment Grade Index** returned 1.93%. Market returns were dominated by
Russia, Bulgaria, Peru, Brazil and Venezuela during the reporting period.
The U.S. Federal Reserve Board ("Fed") raised interest rates by 50 basis points
during the past six months of the Fund's fiscal year in response to the ongoing
strength of the U.S. economy. (A basis point is .01% or one one-hundredth of a
percent.) The process of anticipating these two 25-basis point rate increases
has influenced bond market investors worldwide. The Fed's aggressive approach
has increased the bond market's focus on the U.S. economy and the outlook for
increases in rates.
When viewed in the context of this relatively difficult fixed-income
environment, the performance of emerging markets debt has been particularly
strong. Investors have been attracted by the high yields available in the market
and reassured by the improving economic performance of a number of key
countries. The highlights of the past six months are described below:
*The EMBI+ is a total return index that tracks the traded market for U.S.
dollar-denominated Brady and other similar sovereign restructured bonds traded
in the emerging markets.
**The Salomon Smith Barney Broad Investment Grade (BIG) Bond Index includes
institutionally traded U.S. Treasury Bonds, government-sponsored bonds (U.S.
Agency and supranational), mortgage-backed securities and corporate securties.
Page 1
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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
RUSSIA. Russia was the best-performing country in the Index over the past six
months, returning 67.06%. The country continues to work with the International
Monetary Fund ("IMF") on an expanded financing package. Spokesmen for the IMF
indicated pleasant surprise at the status of Russia's macroeconomic reforms.
Russia reached agreement with the London Club of Creditors of the Government of
the Russian Federation on restructuring defaulted Soviet-era debt. (The London
Club is the official group of creditors lending to emerging market governments.)
The agreement appears to be quite favorable to the Russians and broadens their
alternatives for financing sources in the future. On the political front,
President Yeltsin resigned and appointed Prime Minister Putin to the position of
acting President. President Putin, the prohibitive favorite, was elected
President on the first ballot of the March 26, 2000 election.
BULGARIA. Bulgaria returned 26.32% during the past six months. The local economy
continues to recover from the impact of the Kosovo crisis as regional trade has
rebounded. In addition, the country enjoys the support of multilateral agencies
and Western governments for its disciplined approach to dealing with its
economic problems.We continue to hold an overweight position in Bulgaria.
BRAZIL. Brazil's recovery from the effects of its January currency devaluation
continues to be impressive. Brazil has continued to exceed the fiscal targets
outlined in its IMF agreement. In addition, unemployment and inflation levels
have exceeded projections and underscore the progress Brazil is making in
reforming its economy. 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 2000.Brazil returned 25.81% in
the six months ended February 29, 2000.
PERU. Economic growth has rebounded in Peru, leading to very strong performance
over the past six months. Peruvian debt has returned 26.21% over this period as
economic growth has combined with heightened interest in the political scene
leading up to this year's presidential election.
VENEZUELA. Venezuela's Constituent Assembly completed the draft of the new
Constitution. The Constitution calls for national elections that are scheduled
for May 28, 2000. We expect the new Constitution to be ratified by the voters
and President Chavez to win reelection. Oil price strength improved Venezuela's
credit quality throughout 1999. Venezuela returned 23.10% during the past six
months of the Fund's fiscal year. We continue to overweight Venezuela for
several reasons: Venezuela's financing needs in 2000 are relatively limited; oil
prices remain substantially above budgeted levels; and Venezuelan spreads are at
particularly wide levels given its level of credit quality.
OUTLOOK
Our outlook for emerging markets debt is positive based upon the current spread
level of approximately 800 basis points over Treasuries. Economic growth in Asia
combined with a rebound in GDP growth in many Latin American countries points to
an improving macroeconomic environment for emerging countries. In addition,
volatility has declined sharply in the emerging debt markets. Volatility over
the past six months has been approximately 8%, substantially below the long-term
historical level of 15%.
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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
ANNUAL SHAREHOLDERS MEETING
The Fund held its annual shareholders meeting on February 24, 2000. At the
meeting, shareholders approved a new advisory agreement with PIMCO Advisors
L.P., elected each of the nominees proposed for election to the Fund's Board of
Directors and ratified the selection of PricewaterhouseCoopers LLP as the
independent accountants of the Fund. The following table provides information
concerning the matters voted on at the meeting.
1. APPROVAL OF NEW ADVISORY AGREEMENT BETWEEN PIMCO ADVISORS L.P. AND THE FUND
VOTES FOR VOTES AGAINST VOTES ABSTAINED
--------- ------------ ---------------
3,697,840 36,955 70,659
2. ELECTION OF DIRECTORS
NOMINEES VOTES FOR VOTES AGAINST
--------- --------- ------------
Heath B. McLendon 3,748,420 57,035
Leslie H. Gelb 3,746,486 58,969
3. RATIFICATION OF PRICEWATERHOUSECOOPERS LLP AS THE INDEPENDENT ACCOUNTANTS OF
THE FUND
VOTES FOR VOTES AGAINST VOTES ABSTAINED
--------- ------------ ---------------
3,737,374 20,976 47,105
* * *
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
Heath B. McLendon
Co-Chairman of the Board
/s/William D. Cvengros
William D. Cvengros
Co-Chairman of the Board
/s/Peter J. Wilby
Peter J. Wilby
Executive Vice President
/s/James E. Craige
James E. Craige
Executive Vice President
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T H E E M E R G I N G M A R K E T S I N C O M E F U N D I N C
Statement of Investments (unaudited)
February 29, 2000
<TABLE>
<S> <C> <C>
PRINCIPAL
AMOUNT (a) Bonds+ -- 90.6% VALUE
- -----------------------------------------------------------------------------------------
ARGENTINA -- 6.5%
Republic of Argentina:
Peso 250,000 8.750% due 7/10/02 .................................... $ 228,283
500,000 14.250% due 11/30/02*.................................. 495,000
Peso 1,500,000 11.750% due 2/12/07.................................... 1,400,835
Peso 2,077,736 BOCON, Pro 1, 2.8656% due 4/1/07*...................... 1,497,233
750,000 Structured Note, 11.786% due 4/10/05*(b)............... 705,000
-----------
4,326,351
-----------
BRAZIL -- 15.0%
1,000,000 Companhia Energetica De Sao Paulo, 9.125% due 6/26/07*... 970,000
Federal Republic of Brazil:
2,995,000 14.500% due 10/15/09................................... 3,237,595
530,000 12.750% due 1/15/20.................................... 520,063
702,000 12.250% due 3/6/30..................................... 666,724
847,983 Capitalization (C) Bond, 8.000% due 4/15/14(c)......... 626,977
1,400,000 DCB, Series L, 7.000% due 4/15/12*..................... 1,043,000
500,000 FRB, Series L, 5.000% due 4/15/09*..................... 382,500
1,373,663 MYDFA Trust Certificates, 6.250% due 9/15/07*.......... 1,138,423
1,700,000 NMB, Series L, 7.000% due 4/15/09*..................... 1,411,000
-----------
9,996,282
-----------
BULGARIA -- 3.9%
Republic of Bulgaria:
3,000,000 FLIRB, Series A, 2.750% due 7/28/12*................... 2,250,000
450,000 IAB, 7.0625% due 7/28/11*.............................. 371,812
-----------
2,621,812
-----------
COLOMBIA -- 4.9%
Republic of Colombia:
2,500,000 10.875% due 3/9/04..................................... 2,500,000
800,000 11.218% due 8/13/05*................................... 778,000
-----------
3,278,000
-----------
COSTA RICA -- 2.9%
2,000,000 Costa Rica, Principal Bond, Series A, 6.250% due 5/21/10 1,930,000
-----------
CROATIA -- 3.4%
2,386,363 Republic of Croatia, FRN, 7.0625% due 7/31/10*........... 2,240,198
-----------
ECUADOR -- 1.5%
2,350,000 Republic of Ecuador, Discount Bond due 2/28/25*(d)(e).... 959,094
-----------
</TABLE>
See accompanying notes to financial statements.
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T H E E M E R G I N G M A R K E T S I N C O M E F U N D I N C
Statement of Investments (unaudited) (continued)
February 29, 2000
<TABLE>
<S> <C> <C>
PRINCIPAL
AMOUNT (a) Bonds+ -- 90.6% (continued) VALUE
- -------------------------------------------------------------------------------------------------------------------
INDONESIA -- 2.9%
1,000,000 APP International Finance Company B.V., 11.750% due 10/1/05.......... $ 847,500
1,500,000 Tjiwi Kimia International Finance Company B.V., 10.000% due 8/1/04... 1,068,750
-----------
1,916,250
-----------
IVORY COAST -- 1.0%
Republic of Ivory Coast:
375,000 2.000% due 3/29/18*................................................ 71,250
2,107,000 FLIRB, 2.000% due 3/29/18*,#....................................... 400,330
921,113 PDI Bond, 2.000% due 3/29/18*,#................................... 216,461
----------
688,041
-----------
JAMAICA -- 0.5%
350,000 Government of Jamaica, 10.875% due 6/10/05........................... 336,875
-----------
MEXICO -- 14.0%
1,000,000 Grupo Industrial Durango, 12.000% due 7/15/01........................ 1,015,000
1,000,000 Hylsa S.A. de C.V., 9.250% due 9/15/07............................... 927,500
250,000 Petroleos Mexicanos, 9.250% due 3/30/18.............................. 245,313
5,959,000 United Mexican States, 11.375% due 9/15/16........................... 7,087,515
-----------
9,275,328
-----------
PANAMA -- 2.4%
Republic of Panama:
300,000 9.375% due 4/1/29.................................................. 288,375
1,650,000 IRB, 4.250% due 7/17/14*........................................... 1,310,719
-----------
1,599,094
-----------
PERU -- 3.7%
3,500,000 Republic of Peru, PDI Bond, 4.50% due 3/7/17*........................ 2,452,187
-----------
PHILIPPINES -- 1.9%
1,300,000 Republic of the Philippines, 9.875% due 1/15/19...................... 1,251,250
-----------
POLAND -- 1.6%
Republic of Poland:
1,000,000 PDI Bond, 6.000% due 10/27/14*..................................... 888,750
250,000 Par Bond, 3.500% due 10/27/24*..................................... 156,641
-----------
1,045,391
-----------
</TABLE>
See accompanying notes to financial statements.
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T H E E M E R G I N G M A R K E T S I N C O M E F U N D I N C
Statement of Investments (unaudited) (continued)
February 29, 2000
<TABLE>
<S> <C> <C>
PRINCIPAL
AMOUNT (a) Bonds+ -- 90.6% (concluded) VALUE
- ----------------------------------------------------------------------------------------------------
RUSSIA -- 11.9%
Russian Government:
1,400,000 11.750% due 6/10/03................................................ $ 1,204,000
6,175,000 12.750% due 6/24/28................................................ 4,824,219
8,000,000 IAN due 12/15/20(d)(e)............................................. 1,905,000
-----------
7,933,219
-----------
URUGUAY -- 1.1%
736,842 Uruguay, DCB, Series B, 7.0625% due 2/18/07*....................... 714,736
-----------
VENEZUELA -- 11.5%
Republic of Venezuela:
3,400,000 13.625% due 8/15/18................................................ 3,170,500
2,675,000 9.250% due 9/15/27................................................. 1,812,313
3,214,279 FLIRB, Series A, 6.875% due 3/31/07*............................... 2,683,923
----------
7,666,736
-----------
TOTAL BONDS (cost -- $56,283,408).................................... 60,230,844
-----------
LOAN PARTICIPATIONS+, ++ -- 9.4%
- ----------------------------------------------------------------------------------------------------
The People's Democratic Republic of Algeria:
181,818 Tranche A, 6.8125% due 3/4/00* (Chase Manhattan Bank).............. 181,818
1,090,908 Tranche 1, 6.8125% due 9/4/06* (Chase Manhattan Bank).............. 856,363
2,350,000 Tranche 3, 7.500% due 3/4/10* (Chase Manhattan Bank)............... 1,739,000
83,304 Government of Jamaica, Tranche A, 7.000%
due 10/15/00* (Chase Manhattan Bank................................ 78,306
1,450,000 Russian Government, Principal Loan, due 12/15/20(d)(e) (J.P. Morgan). 344,375
Kingdom of Morocco:
Yen 118,870,649 Tranche A, 3.0175% due 1/1/09* (Goldman Sachs)..................... 881,645
2,325,000 Tranche A, 6.84375% due 1/1/09* (J.P. Morgan)...................... 2,182,594
-----------
TOTAL LOAN PARTICIPATIONS (cost -- $5,493,197)....................... 6,264,101
-----------
TOTAL INVESTMENTS -- 100.0% (Cost -- $61,776,605**).................. $66,494,945
===========
</TABLE>
See accompanying notes to financial statements.
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T H E E M E R G I N G M A R K E T S I N C O M E F U N D I N C
Statement of Investments (unaudited) (concluded)
February 29, 2000
FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT FEBRUARY 29, 2000:
<TABLE>
<S> <C> <C> <C> <C> <C>
CONTRACTS IN EXCHANGE CONTRACTS AT DELIVERY UNREALIZED
TO DELIVER FOR VALUE DATE APPRECIATION
-------------- ------------ -------------- -------- ------------
Sale. . . Yen 115,500,000 US $1,144,698 US $1,051,930 3/7/00 $92,768
</TABLE>
- -----------
(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 is currently in default.
(e)Non-income producing security.
*Rate shown reflects rate in effect at February 29, 2000 on instrument with
variable rates or step coupon rates.
**Aggregate cost for federal income tax purposes is substantially the same.
+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.
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.
IAB - Interest Arrears Bond.
IAN - Interest Arrears Note.
IRB - Interest Reduction Bond.
MYDFA - Multi Year Depository Facility Agreement.
NMB - New Money Bond.
PDI - Past Due Interest.
Peso - Argentina Peso.
Yen - Japanese Yen.
See accompanying notes to financial statements.
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T H E E M E R G I N G M A R K E T S I N C O M E F U N D I N C
Statement of Assets and Liabilities
February 29, 2000 (unaudited)
<TABLE>
<S> <C>
Assets
Investments, at value (cost -- $61,776,605)........................................ $66,494,945
Cash............................................................................... 654,430
Receivable for securities sold..................................................... 5,778,246
Interest receivable................................................................ 1,800,817
Net unrealized appreciation on forward foreign currency contracts.................. 92,768
Prepaid expenses................................................................... 15,109
-----------
Total Assets....................................................................... 74,836,315
-----------
Liabilities
Loan payable (Note 4).............................................................. 20,000,000
Payable for securities purchased................................................... 654,959
Accrued interest expense on loan................................................... 36,225
Accrued management fee (Note 2).................................................... 29,189
Accrued advisory fee (Note 2)...................................................... 20,850
Other accrued expenses............................................................. 123,338
-----------
Total Liabilities.................................................................. 20,864,561
----------
Net Assets......................................................................... $53,971,754
===========
Net Assets
Common Stock ($0.001 par value, authorized
100,000,000; 4,012,553 shares outstanding)......................................... $ 4,013
Additional paid-in capital......................................................... 55,583,099
Distribution in excess of net investment income.................................... (175,595)
Accumulated net realized loss on investments....................................... (6,250,418)
Net unrealized appreciation on investments and foreign currency.................... 4,810,655
-----------
Net Assets......................................................................... $53,971,754
===========
Net Asset Value Per Share ($53,971,754 / 4,012,553 shares)........................... $13.45
===========
</TABLE>
See accompanying notes to financial statements.
Page 8
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T H E E M E R G I N G M A R K E T S I N C O M E F U N D I N C
Statement of Operations
For the Six Months Ended February 29, 2000 (unaudited)
<TABLE>
<S> <C> <C>
INCOME
Interest (includes discount accretion of $940,169)................................. $ 4,301,097
EXPENSES
Interest on loan..................................................... $773,370
Management fee....................................................... 169,435
Advisory fee......................................................... 121,025
Custodian............................................................ 34,762
Audit and tax services............................................... 28,756
Legal................................................................ 19,838
Directors' fees and expenses......................................... 16,926
Printing............................................................. 13,923
Transfer agent expenses.............................................. 11,466
Listing fees......................................................... 9,025
Other............................................................... 7,419 1,205,945
--------- -----------
Net Investment Income................................................................ 3,095,152
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS
Net Realized Gain (Loss) on:
Investments...................................................................... 430,431
Foreign currency transactions.................................................... (103,983)
-----------
326,448
-----------
Net Change in Unrealized Appreciation on:
Investments....................................................................... 8,911,775
Foreign currency contracts and other assets and liabilities
denominated in foreign currencies................................................ 141,157
-----------
9,052,932
-----------
Net Gain on Investments and Foreign Currency Transactions............................ 9,379,380
-----------
Net Increase in Net Assets From Operations........................................... $12,474,532
===========
</TABLE>
See accompanying notes to financial statements.
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T H E E M E R G I N G M A R K E T S I N C O M E F U N D I N C
Statement of Changes in Net Assets
For the Six Months Ended February 29, 2000 (unaudited)
and the Year Ended August 31, 1999
<TABLE>
<S> <C> <C>
FEBRUARY 29, AUGUST 31,
2000 1999
- -------------------------------------------------------------------------------------------------------------------
OPERATIONS
Net investment income............................................. $ 3,095,152 $ 7,379,598
Net realized gain (loss) on investments and foreign currency transactions 326,448 (5,902,137)
Net change in unrealized appreciation............................. 9,052,932 20,445,925
----------- -----------
Net Increase in Net Assets From Operations........................ 12,474,532 21,923,386
----------- -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
From net investment income........................................ (3,295,493) (9,246,330)
From capital...................................................... -- (96,730)
----------- -----------
Decrease in Net Assets From
Dividends and Distributions to Shareholders..................... (3,295,493) (9,343,060)
----------- -----------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares issued in reinvestment of dividends
(36,033 and 208,092 shares issued)............................. 416,123 2,273,673
----------- -----------
Total Increase (Decrease) in Net Assets............................. 9,595,162 14,853,999
----------- -----------
NET ASSETS
Beginning of period............................................... 44,376,592 29,522,593
----------- -----------
End of period (includes distribution in excess of net investment
income and undistributed net investment of $175,595 and $24,746,
respectively)................................................... $53,971,754 $44,376,592
=========== ===========
</TABLE>
STATEMENT OF CASH FLOWS
For the Six Months Ended February 29, 2000 (unaudited)
<TABLE>
<S> <C>
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Purchases of securities............................................................ $(38,608,634)
Net sales of short-term investments................................................ 371,000
Proceeds from sales of securities and principal paydowns........................... 40,094,309
------------
1,856,675
Net investment income.............................................................. 3,095,152
Adjustments to reconcile net investment income to net cash provided by operating activities:
Accretion of discount on investments............................................... (940,169)
Interest on payment-in-kind bonds.................................................. (62,436)
Net change in receivables/payables related to operations........................... (342,194)
------------
Net Cash Provided by Operating Activities.......................................... 3,607,028
------------
Cash Flows Used by Financing Activities:
Proceeds from shares issued in reinvestment of dividends........................... 416,123
Dividends and distributions paid................................................... (3,295,493)
------------
Net Cash Used by Financing Activities.............................................. (2,879,370)
------------
Net Increase in Cash................................................................. 727,658
Due to Custodian at Beginning of Period.............................................. (73,228)
------------
Cash at End of Period................................................................ $ 654,430
============
</TABLE>
See accompanying notes to financial statements.
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T H E E M E R G I N G M A R K E T S I N C O M E F U N D I N C
Notes to Financial Statements (unaudited)
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
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T H E E M E R G I N G M A R K E T S I N C O M E F U N D I N C
Notes to Financial Statements (unaudited) (continued)
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 (unaudited) (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 six
months ended February 29, 2000, the Fund paid interest expense of $773,540.
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 PIMCO
Advisors L.P. (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 investment advisory agreement was
transferred to the Investment Adviser on November 2, 1999 from Value Advisors
LLC, its wholly owned subsidiary.
At February 29, 2000, 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 February 29, 2000 aggregated
$39,142,993 and $41,973,864 respectively. The federal income tax cost basis of
the Fund's investments at February 29, 2000 was substantially the same as the
cost basis for financial reporting. Gross unrealized appreciation and
depreciation amounted to $6,640,353 and $1,922,013, respectively, resulting in a
net unrealized appreciation on investments of $4,718,340.
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 (unaudited) (continued)
4. BANK LOAN
The Fund has borrowed $20,000,000 pursuant to a secured loan agreement (the
"Loan Agreement") with ING Baring (U.S.) Capital LLC. The interest rate on the
loan is 8.03375% and the maturity date is May 22, 2000. The collateral for the
loan was valued at $66,488,725 on February 29, 2000 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 February 29, 2000 was $6,264,101.
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 February 29, 2000, 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 (unaudited) (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 February 29, 2000, the Fund has an
outstanding contract to sell 115,500,000 Japanese Yen for U.S. $1,144,698 for a
scheduled settlement on March 7, 2000.
9. DIVIDEND SUBSEQUENT TO FEBRUARY 29, 2000
On March 1, 2000, the Board of Directors of the Fund declared a dividend of
$.4125 per share, from net investment income, payable on March 31, 2000 to
shareholders of record March 14, 2000.
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>
PERIOD ENDED YEAR ENDED AUGUST 31,
FEBRUARY 29, 2000 -----------------------------------------------
(UNAUDITED) 1999 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period............. $11.16 $ 7.83 $21.89 $18.04 $13.38
------ ------ ------ ------ ------
Net investment income............................ 0.78 1.88 2.02 2.10 2.24
Net realized gain (loss) and change in
unrealized appreciation (depreciation) on
securities and foreign currency translations.. 2.34 3.83 (10.84) 5.00 4.10
------ ------ ------ ------ ------
Total from investment operations................. 3.12 5.71 (8.82) 7.10 6.34
------ ------ ------ ----- ------
Dividends and distributions to shareholders from:
Net investment income......................... (0.83) (2.41) (2.03) (2.19) (1.65)
Net realized capital gains.................... -- -- (2.98) (1.06) (0.03)
Capital....................................... -- (0.02) -- -- --
Distributions in excess of net realized
capital gains................................. -- -- (0.23) -- --
------ ------ ------ ------ ------
Total dividends and distributions to
shareholders.................................. (0.83) (2.43) (5.24) (3.25) (1.68)
------ ------ ------ ------ ------
Increase in net asset value due to shares issued
on reinvestment of dividends.................. -- 0.05 -- -- --
------ ------ ------ ----- ------
Net increase (decrease) in net asset value....... 2.29 3.33 (14.06) 3.85 4.66
------ ------ ------ ------ ------
Net asset value, end of period................... $13.45 $11.16 $ 7.83 $21.89 $18.04
====== ====== ====== ========= ======
Per share market value, end of period............ $11.6875 $12.50 $ 9.50 $19.4375 $16.625
======== ====== ====== ========= =======
Total investment return based on market
price per share (a)........................... 0.48% 62.97% -35.00% 39.18% 42.46%
Ratios to Average Net Assets:
Total expenses, including
interest expense............................. 4.97%(b) 5.03% 3.79% 3.58% 4.41%
Total expenses, excluding
interest expense (operating expenses)........ 1.78%(b) 1.85% 1.73% 1.70% 1.87%
Net investment income......................... 12.77%(b) 18.13% 11.56% 10.44% 14.34%
Supplemental Data:
Net assets, end of period.....................$53,971,754 $44,376,592 $29,522,593 $76,873,572 $63,349,266
Portfolio turnover rate....................... 61% 87% 141% 112% 98%
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..... 8.03375% 7.17875% 6.28125% 6.50% 6.60156%
Weighted average bank loan....................$20,000,000 $20,000,000 $20,000,000 $20,000,000 $20,000,000
Weighted average interest rate................ 7.73% 6.48% 6.44% 6.64% 6.96%
<FN>
- ------------
(a) Dividends are assumed, for purposes of this calculation, to be reinvested at
prices obtained under the Fund's dividend reinvestment plan.
(b) Annualized.
</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
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, 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)
November 30, 1999........................... 1,650 0.41 4,745 1.19
February 29, 2000........................... 1,445 0.37 4,634 1.15
</TABLE>
*Totals expressed in thousands of dollars except per share amounts.
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
Other Information (unaudited)
YEAR 2000 ISSUE As the year 2000 began, there were few problems caused by the
inability of certain computer systems to tell the difference between the year
2000 and the year 1900 (commonly known as the "Year 2000" issue). It is still
possible that some computer systems could malfunction in the future because of
the Year 2000 issue or as a result of actions taken to address the Year 2000
issue. The Investment Adviser does not anticipate that its services or those of
the Fund's other service providers will be adversely affected, but the
Investment Adviser will continue to monitor the situation. If malfunctions
related to the Year 2000 issue do arise, the Fund and its investments could be
negatively affected.
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
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, SSB Citi Funds
Management LLC
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
JAMES E. CRAIGE
Executive Vice President
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
PIMCO Advisors L.P.
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
Semi-Annual Report
February 29, 2000
The Emerging Markets Income Fund Inc
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
EMDSEMI 2/00
PRSRT-STD
U.S. POSTAGE
PAID
PERMIT No. 169
STATEN ISLAND, NY
