September 21, 2000
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, 2000. Included in this report is an
analysis of the Fund's performance versus the benchmark, a commentary on the
emerging debt markets, a statement of the Fund's investments as of August 31,
2000, and financial statements for the year ended August 31, 2000.
During the year ended August 31, 2000, the net asset value of the Fund increased
from $11.16 per share at August 31, 1999, to $14.01 per share at August 31,
2000. Dividends of $1.65 per share from net investment income were paid during
this period. Assuming reinvestment of these dividends in additional shares of
the Fund, the total return for the year ended August 31, 2000 based on net asset
value was 43.24%. In comparison, the J.P. Morgan Emerging Markets Bond Index
Plus ("EMBI+")1, a standard measure of return for the emerging markets debt,
returned 35.22% for the same time period.
As of August 31, 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 35.22% during the fiscal year ended August 31,
2000, as measured by the EMBI+. This above-average return was generated with
below-average volatility. Return volatility for the year ended August 31, 2000,
was 8.13%, down from 22.07% the previous year. Spreads tightened from 1,166
basis points to 643 basis points2 over U.S. Treasuries during the fiscal year.
The strong returns generated by emerging markets debt were attributable to
improving economic fundamentals in a number of key countries as well as rising
oil prices. Stable technical factors also contributed to overall returns by
encouraging new investors to enter the market. Individual country performance
was dominated by Russia, which returned over 127% during the fiscal year. Given
the outsized nature of Russia's returns, Brazil, Venezuela and Ecuador were the
only other countries to outperform the Index. That said, a wide range of
countries did generate good performance with 11 of 16 Index countries returning
in excess of 16% for the fiscal year.
The U.S. Federal Reserve Board ("Fed") was active during the Fund's fiscal year,
raising interest rates four times for a total increase of 125 basis points. The
Fed adopted this aggressive posture in order to slow the rate of growth of the
U.S. economy and keep inflation in check. The expectation that U.S. interest
rates would continue to rise had a negative impact on emerging markets during
1 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.
2 A basis point is 0.01% or one one-hundredth of a percent.
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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
some periods of the fiscal year. This expectation had a greater negative
impact than the actual rate increases.
The shift to floating currency exchange regimes in a number of emerging
countries has reduced the direct impact of U.S. interest rate increases on their
economies. Nonetheless, fears of future interest rate increases impacted returns
during January, April and May. Most notable was the 50 basis point hike on May
16, a clear signal that the Fed was maintaining their tightening bias.
Commodity prices in general and oil prices in particular moved higher during the
fiscal year. Oil prices closed the year at $31.22 per barrel, up over $10 per
barrel from the beginning of the year. This trend of higher prices has benefited
oil-producing emerging countries including Mexico, Venezuela, Russia and
Ecuador.
The following is a brief description of developments in key countries over the
past months.
RUSSIA
Russia returned 127.72% during the period. These outstanding returns clearly
make Russia the turnaround story of the year. Russia has benefited from strong
political leadership, rising oil prices and the favorable debt restructuring
terms negotiated with the London Club3. Other key developments in Russia during
the Fund's fiscal year include:
o The lower house of the Duma passed the 2000 budget which emphasizes increased
tax collection and deficit reduction.
o Duma elections in December reduced the influence of the Communist party and
made the moderate bloc the largest faction in Congress.
o Vladimir Putin was elected and inaugurated President. Mr. Putin has moved
aggressively to reassert federal power over Russia's vast regions.
o Russia successfully concluded a debt restructuring agreement with the London
Club of creditors. The terms of the debt exchange were favorable for Russia.
The debt exchange occurred by August 31, 2000.
o Tax collections continued to run ahead of budget levels, leading to a
stronger-than-anticipated fiscal balance.
o Rising oil prices helped expand Russia's hard currency reserve position.
Assuming oil prices remain at current levels, Russia will end the year with
reserves in excess of $25 billion. This reserve position substantially
strengthens Russia's credit quality.
This broad range of events encouraged investors to reassess the outlook for
Russia. Russian debt prices reflected this improved outlook. We maintained a
large position in Russian debt securities over the course of the period. These
positions were important contributors to the Fund's performance.
ARGENTINA
Argentina lagged the returns of the Index for the fiscal year returning 16.95%.
Argentina started the fiscal year with political uncertainty and concerns about
its ability to refinance its substantial obligations in the latter part of 1999
and through 2000. The election of Fernando de la Rua as
3 The London Club is the official group of creditors lending to emerging market
governments.
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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
President ended ten years of Peronist party rule. Reflecting Argentina's fiscal
uncertainties, Moody's downgraded Argentina's sovereign rating one notch from
Ba3 to B1.
We were underweight Argentina during the period. We believe that the Argentine
economy must grow at a more accelerated pace in order to reduce the fiscal
pressure of its debt amortization schedule.
BRAZIL
Brazil returned 38.90% during the period. Economic news from Brazil was very
positive throughout the period. The current account deficit and the central
government primary surplus exceeded targets established with the International
Monetary Fund ("IMF"). The factors behind these good fiscal results include a
combination of one-off revenue events and very disciplined expenditure control.
Brazilian government officials have made substantial progress in dealing with
the country's debt problems.
In addition, negotiations with the IMF have led to a lowering of the target for
foreign reserves, giving the central bank additional flexibility in supporting
the local currency. Brazil's subdued inflation and continued primary surplus led
the Central Bank to lower overnight rates from 45% to 16.5% over the course of
the Fund's fiscal year.
We maintained a large position in Brazil during the fiscal year. Assuming the
Brazilian economic recovery continues, the country will have added flexibility
in dealing with its domestic debt burden.
MEXICO
Mexico returned 28.51% for the Fund's fiscal year. Mexico's foreign currency
debt rating was upgraded by Moody's to investment grade (Baa3). The ratings
agency cited sound fiscal policies, increased political stability and a reduced
debt burden in explaining its rationale for the upgrade. Mexico has benefited
from rising oil prices as its economy and export volumes continue to grow. The
ratings upgrade attracted additional investors into emerging markets debt as
Mexico was added to investment grade debt indexes.
In another important development, Vincente Fox, PAN candidate, was elected
President on July 2. The election marked the first defeat for the PRI party in
over 70 years of presidential politics. This evolutionary opening of the Mexican
political system further establishes Mexico as a leading credit in emerging
markets. While we are impressed by Mexico's progress and its sound fundamentals,
we are underweight relative to the Index because the country trades at
substantially tighter spreads than other potential investments.
VENEZUELA
Venezuela returned 35.41% for the year, fourth highest in the EMBI+. Oil price
strength continues to be a bright spot for the Venezuelan economy. The
additional revenue from oil has helped limit the size of the federal budget
deficit during a period of economic contraction. Venezuela financed 1999's
deficit domestically, without turning to international capital markets. This
policy has continued through 2000. Political uncertainty weighed on Venezuelan
debt as controversy accompanied the process of Constitutional reform. The
referendum on the new Constitution was approved by 71% of the voters on December
15, 1999. The new Constitution called for national elections. President Chavez
was re-elected to a six year term of office in July.
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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
MOROCCO
Morocco returned 24.59% for the year. The Moroccan economy has struggled with
two consecutive years of drought. The government cut spending to offset the
decline in tax revenues. Earlier in the year a cellular telephone license was
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 investments in Morocco.
ECUADOR
Ecuador returned 55.45% for the year. The market was encouraged by Ecuador's
establishment of a dollarization program and its agreement to exchange defaulted
Brady bonds for newly issued Eurobonds. In addition, Ecuador reached agreement
with the IMF on a $2 billion, three-year financing.
Our outlook for emerging markets debt is positive based upon the current spread
level of approximately 700 basis points over U.S. Treasuries. Continued economic
growth in Asia coupled with an economic rebound in many Latin American countries
points to an improving macroeconomic environment for emerging countries. In
addition, volatility in the market is well below historical levels, reflecting
the improved technical picture in the market.
* * *
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/ James E. Craige
Peter J. Wilby James E. Craige
Executive Vice President 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
August 31, 2000
PRINCIPAL
AMOUNT (a) BONDS+ -- 91.0% VALUE
-----------------------------------------------------------------------------
ARGENTINA -- 13.8%
Republic of Argentina:
Peso 250,000 8.750% due 7/10/02 ........................... $ 232,294
500,000 14.100% due 11/30/02* ........................ 502,500
2,050,000 11.595% due 4/10/05*(b) ...................... 1,985,425
Peso 1,500,000 11.750% due 2/12/07........................... 1,335,254
1,650,000 11.375% due 3/15/10 .......................... 1,505,625
1,250,000 11.750% due 6/15/15 .......................... 1,138,438
Peso 1,465,530 BOCON, Pro 1, 2.8656% due 4/1/07*............. 1,020,704
1,400,000 FRB, Series L, 7.375% due 3/31/05* ........... 1,288,437
---------
9,008,677
---------
BRAZIL -- 5.1%
Federal Republic of Brazil:
90,000 14.500% due 10/15/09.......................... 101,092
75,000 12.750% due 1/15/20 .......................... 74,156
1,552,000 12.250% due 3/6/30 ........................... 1,470,520
1,000 11.000% due 8/17/40 .......................... 820
625,000 DISC, Series ZL, 7.375% due 4/15/24* ......... 517,969
1,298,394 MYDFA Trust Certificates, 7.1875%
due 9/15/07*................................. 1,162,063
---------
3,326,620
---------
BULGARIA -- 4.9%
Republic of Bulgaria:
4,000,000 FLIRB, Series A, 3.000% due 7/28/12*.......... 3,085,000
185,000 IAB, 7.750% due 7/28/11* ..................... 150,775
---------
3,235,775
---------
COLOMBIA -- 4.0%
Republic of Colombia:
2,575,000 12.832% due 8/13/05*.......................... 2,517,062
100,000 9.750% due 4/23/09 ........................... 83,375
---------
2,600,437
---------
COSTA RICA -- 0.5%
350,000 Costa Rica, 9.995% due 8/1/20# ................ 356,125
---------
CROATIA -- 1.6%
1,136,364 Republic of Croatia, FRN, 7.750%
due 7/31/10*................................. 1,051,137
---------
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 (continued)
August 31, 2000
PRINCIPAL
AMOUNT (a) BONDS+ -- 91.0% (continued) VALUE
-----------------------------------------------------------------------------
ECUADOR -- 0.9%
Republic of Ecuador:
1,363,000 4.000% due 8/15/30*,# ........................ $ 527,822
83,000 12.000% due 11/15/12# ........................ 54,074
---------
581,896
---------
INDONESIA -- 3.0%
500,000 APP China Group Ltd, 14.000% due 3/15/10(c).... 300,000
1,000,000 APP International Finance Company B.V.,
11.750% due 10/1/05........................... 670,000
1,500,000 Tjiwi Kimia International Finance
Company B.V., 10.000% due 8/1/04.............. 975,000
---------
1,945,000
---------
IVORY COAST -- 1.0%
Republic of Ivory Coast:
375,000 2.000% due 3/29/18*(d)........................ 69,375
2,107,000 FLIRB, 2.000% due 3/29/18*,#(d)............... 389,795
909,150 PDI Bond, 2.000% due 3/29/18*,#(d)............ 176,148
---------
635,318
---------
JAMAICA -- 1.0%
Government of Jamaica:
350,000 10.875% due 6/10/05........................... 336,875
350,000 12.750% due 9/1/07#........................... 343,875
---------
680,750
---------
MEXICO -- 8.9%
1,000,000 Grupo Industrial Durango, 12.000%
due 7/15/01................................... 1,030,000
1,000,000 Hylsa S.A. de C.V., 9.250% due 9/15/07 ........ 875,000
` Petroleos Mexicanos:
250,000 9.250% due 3/30/18 ........................... 247,500
1,000,000 9.500% due 9/15/27 ........................... 1,000,000
500,000 Series P, 9.500% due 9/15/27 ................. 521,250
1,834,000 United Mexican States, 11.375% due 9/15/16..... 2,173,749
---------
5,847,499
---------
PANAMA -- 5.6%
Republic of Panama:
850,000 8.875% due 9/30/27 ........................... 742,263
300,000 9.375% due 4/1/29 ............................ 297,000
3,150,000 IRB, 4.500% due 7/17/14* ..................... 2,626,312
---------
3,665,575
---------
PERU -- 1.9%
1,750,000 Republic of Peru, PDI Bond, 4.500%
due 3/7/17* .................................. 1,231,562
---------
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 (continued)
August 31, 2000
PRINCIPAL
AMOUNT (a) BONDS+ -- 91.0% (concluded) VALUE
-----------------------------------------------------------------------------
PHILIPPINES -- 1.8%
1,300,000 Republic of the Philippines, 10.625%
due 3/16/25................................. $ 1,164,150
-----------
POLAND -- 0.5%
350,000 Republic of Poland, PDI Bond, 6.000%
due 10/27/14*............................... 325,281
-----------
RUSSIA -- 19.9%
Russian Government:
1,842,360 8.250% due 3/31/10# ........................ 1,310,379
6,175,000 12.750% due 6/24/28 ........................ 5,657,844
13,949,500 2.250% due 3/31/30*,# ...................... 6,085,469
-----------
13,053,692
-----------
URUGUAY -- 1.0%
684,210 Uruguay, DCB, Series B, 7.9375%
due 2/18/07*................................ 663,684
-----------
VENEZUELA -- 15.6%
Republic of Venezuela:
3,400,000 13.625% due 8/15/18 ........................ 3,251,250
5,333,304 FLIRB, Series A, 7.4375% due 3/31/07*....... 4,623,308
2,666,640 FLIRB, Series B, 7.4375% due 3/31/07*....... 2,311,643
-----------
10,186,201
-----------
TOTAL BONDS (Cost -- $56,029,858)............ 59,559,379
-----------
LOAN PARTICIPATIONS+, ++ -- 9.0%
-----------------------------------------------------------------------------
The People's Democratic Republic of Algeria:
1,090,908 Tranche 1, 7.1875% due 9/4/06*
(Chase Manhattan Bank)..................... 943,635
4,150,000 Tranche 3, 7.1875% due 3/4/10*
(Chase Manhattan Bank)..................... 3,377,063
27,748 Government of Jamaica, Tranche A, 7.125%
due 10/15/00* (Chase Manhattan Bank)........ 27,817
Kingdom of Morocco:
Yen 112,266,724 Tranche A, 3.0175% due 1/1/09*
(Goldman Sachs)............................ 847,356
779,166 Tranche A, 7.750% due 1/1/09*
(J.P. Morgan).............................. 717,807
-----------
TOTAL LOAN PARTICIPATIONS
(Cost -- $5,398,570)....................... 5,913,678
-----------
TOTAL INVESTMENTS -- 100.0%
(Cost -- $61,428,429**).................... $65,473,057
===========
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 (concluded)
August 31, 2000
FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT AUGUST 31, 2000:
<TABLE>
<CAPTION>
CONTRACTS IN EXCHANGE CONTRACTS AT DELIVERY UNREALIZED
TO DELIVER FOR VALUE DATE APPRECIATION
-------------- ------------ -------------- -------- ------------
<S> <C> <C> <C> <C> <C>
Sale.......Yen 115,500,000 US $1,110,577 US $1,084,056 9/11/00 $26,521
<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) The bond is denominated in units. Each unit is equal to $1,000 and one
warrant to buy 12,914 shares of Asia Pulp &Paper at $7.8375 per share.
The warrant will expire on March 15, 2005.
(d) Security is currently in default.
* Rate shown reflects rate in effect at August 31, 2000 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.
</FN>
</TABLE>
Abbreviations used in this statement:
BOCON - Bonos De Consolidacion.
DCB - Debt Conversion Bond.
DISC - Discount Bond.
FLIRB - Front Loaded Interest Reduction Bond.
FRB - Floating Rate Bond.
FRN - Floating Rate Note.
IAB - Interest Arrears Bond.
IRB - Interest Reduction Bond.
MYDFA - Multi Year Depository Facility Agreement.
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
August 31, 2000
<TABLE>
<S> <C>
ASSETS
Investments, at value (Cost-- $61,428,429) ...................... $65,473,057
Cash ............................................................ 302,705
Receivable for securities sold .................................. 9,151,328
Interest receivable ............................................. 1,975,883
Net unrealized appreciation on forward foreign currency contracts 26,521
Prepaid expenses ................................................ 5,874
-----------
Total Assets .................................................... 76,935,368
-----------
LIABILITIES
Loan payable (Note 4) ........................................... 20,000,000
Payable for securities purchased ................................ 344,106
Accrued interest expense on loan ................................ 50,860
Accrued management fee (Note 2) ................................. 32,705
Accrued advisory fee (Note 2) ................................... 23,361
Other accrued expenses .......................................... 171,560
-----------
Total Liabilities ............................................... 20,622,592
-----------
Net Assets ...................................................... $56,312,776
===========
NET ASSETS
Common Stock ($0.001 par value, authorized
100,000,000; 4,020,760 shares outstanding) ...................... $ 4,021
Additional paid-in capital ...................................... 55,688,710
Undistributed net investment income ............................. 290,867
Accumulated net realized loss on investments .................... (3,742,046)
Net unrealized appreciation on investments and foreign currency . 4,071,224
-----------
Net Assets ...................................................... $56,312,776
===========
NET ASSET VALUE PER SHARE ($56,312,776 / 4,020,760 shares) ........ $ 14.01
===========
</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 Operations
For the Year Ended August 31, 2000
<TABLE>
<S> <C> <C>
INCOME
Interest (includes discount accretion of $1,787,726) ....................... $ 9,270,736
EXPENSES
Interest on loan ............................................. $1,652,823
Management fee ............................................... 354,154
Advisory fee ................................................. 252,967
Custodian .................................................... 59,906
Audit and tax services ....................................... 52,828
Legal ........................................................ 49,894
Directors' fees and expenses ................................. 29,038
Printing ..................................................... 25,999
Listing fees ................................................. 17,899
Transfer agent expenses ...................................... 13,058
Other ........................................................ 18,080 2,526,646
---------- -----------
Net Investment Income ....................................................... 6,744,090
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS
Net Realized Gain (Loss) on:
Investments ............................................................. 2,999,628
Foreign currency transactions ........................................... (36,928)
-----------
2,962,700
-----------
Net Change in Unrealized Appreciation on:
Investments ............................................................. 8,238,063
Foreign currency contracts and other assets and liabilities
denominated in foreign currencies ..................................... 75,438
-----------
8,313,501
-----------
Net Gain on Investments and Foreign Currency Transactions ................... 11,276,201
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS .................................. $18,020,291
===========
</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 Year Ended August 31, 2000
and the Year Ended August 31, 1999
<TABLE>
<CAPTION>
2000 1999
-----------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS
Net investment income ........................................ $ 6,744,090 $ 7,379,598
Net realized gain (loss) on investments and foreign
currency transactions ...................................... 2,962,700 (5,902,137)
Net change in unrealized appreciation ........................ 8,313,501 20,445,925
----------- ------------
Increase in Net Assets From Operations ....................... 18,020,291 21,923,386
----------- ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
From net investment income ................................... (6,605,849) (9,246,330)
From capital ................................................. -- (96,730)
----------- ------------
Decrease in Net Assets From
Dividends and Distributions to Shareholders ................ (6,605,849) (9,343,060)
----------- ------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares issued in reinvestment of dividends
(44,240 and 208,092 shares issued).......................... 521,742 2,273,673
----------- ------------
Total Increase (Decrease) in Net Assets ........................ 11,936,184 14,853,999
----------- ------------
NET ASSETS
Beginning of year ............................................ 44,376,592 29,522,593
----------- ------------
End of year (includes undistributed net investment income of
$290,867 and $24,746, respectively) ........................ $56,312,776 $ 44,376,592
=========== ============
STATEMENT OF CASH FLOWS
For the Year Ended August 31, 2000
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Purchases of securities .................................................... $(89,883,718)
Net sales of short-term investments ........................................ 372,137
Proceeds from sales of securities and principal paydowns ................... 91,453,246
------------
1,941,665
Net investment income ...................................................... 6,744,090
Adjustments to reconcile net investment income to net cash
provided by operating activities:
Accretion of discount on investments ....................................... (1,787,726)
Interest on payment-in-kind bonds .......................................... (71,140)
Net change in receivables/payables related to operations ................... (366,849)
------------
Net Cash Provided by Operating Activities .................................. 6,460,040
------------
CASH FLOWS USED BY FINANCING ACTIVITIES:
Proceeds from shares issued in reinvestment of dividends ................... 521,742
Dividends and distributions paid ........................................... (6,605,849)
------------
Net Cash Used by Financing Activities ...................................... (6,084,107)
------------
Net Increase in Cash ......................................................... 375,933
Due to Custodian at Beginning of Year ........................................ (73,228)
------------
Cash at End of Year .......................................................... $ 302,705
============
</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
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 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 (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 13
<PAGE>
T H E E M E R G I N G M A R K E T S I N C O M E F U N D I N C
Notes to Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (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, 2000, the Fund paid interest expense of $1,638,358.
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 August 31, 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 August 31, 2000 aggregated
$90,107,224 and $93,408,229 respectively. The federal income tax cost basis of
the Fund's investments at August 31, 2000 was substantially the same as the cost
basis for financial reporting. Gross unrealized appreciation and depreciation
amounted to $6,249,306 and $2,204,678, respectively, resulting in a net
unrealized appreciation on investments of $4,044,628.
Page 14
<PAGE>
T H E E M E R G I N G M A R K E T S I N C O M E F U N D I N C
NOTES TO FINANCIAL STATEMENTS (continued)
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 9.06125% and the maturity date is November 22, 2000. The collateral for
the loan was valued at $65,473,057 on August 31, 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 August 31, 2000 was $5,913,678.
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, 2000, the Fund has a concentration
risk in sovereign debt of emerging market countries.
Page 15
<PAGE>
T H E E M E R G I N G M A R K E T S I N C O M E F U N D I N C
Notes to Financial Statements (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, 2000, the Fund has
outstanding contracts to sell 115,500,000 Japanese Yen for U.S. $1,110,577 for a
scheduled settlement on September 11, 2000.
9. DIVIDEND SUBSEQUENT TO AUGUST 31, 2000
On September 1, 2000, the Board of Directors of the Fund declared a
dividend of $.4125 per share, from net investment income, payable on September
29, 2000 to shareholders of record September 12, 2000.
10. CAPITAL LOSS CARRYFORWARD
At August 31, 2000, 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 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
Financial Highlights
Selected data per share of common stock outstanding throughout each year:
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
------------------------------------------------------------------
2000 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............................ 1.72 1.88 2.02 2.10 2.24
Net realized gain (loss) and change in
unrealized appreciation (depreciation) on
securities and foreign currency translations.. 2.78 3.83 (10.84) 5.00 4.10
------ ------ ------ ------ ------
Total from investment operations................. 4.50 5.71 (8.82) 7.10 6.34
------ ------ ------ ------ ------
Dividends and distributions to shareholders from:
Net investment income......................... (1.65) (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.................................. (1.65) (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....... 2.85 3.33 (14.06) 3.85 4.66
------ ------ ------ ------ ------
Net asset value, end of period................... $14.01 $11.16 $ 7.83 $21.89 $18.04
====== ====== ====== ====== ======
Per share market value, end of period............ $13.9375 $12.50 $ 9.50 $19.4375 $16.625
======== ====== ====== ========= =======
Total investment return based on market
price per share (a)........................... 27.51% 62.97% -35.00% 39.18% 42.46%
Ratios to Average Net Assets:
Total expenses, including
interest expense............................. 5.00% 5.03% 3.79% 3.58% 4.41%
Total expenses, excluding
interest expense (operating expenses)........ 1.73% 1.85% 1.73% 1.70% 1.87%
Net investment income....................... 13.33% 18.13% 11.56% 10.44% 14.34%
Supplemental Data:
Net assets, end of period..................... $56,312,776 $44,376,592 $29,522,593 $76,873,572 $63,349,266
Portfolio turnover rate....................... 136% 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..... 9.06125% 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................ 8.26% 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.
</FN>
Page 17
</TABLE>
<PAGE>
T H E E M E R G I N G M A R K E T S I N C O M E F U N D I N C
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, 2000, 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 accounting
principles generally accepted in the United States of America. These 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 auditing
standards generally accepted in the United States of America, 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, 2000 by correspondence with the custodian and
brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
New York, New York
October 17, 2000
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
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
May 31, 2000 ................................... 1,569 0.39 (4,488) (1.12)
August 31, 2000 ................................ 2,080 0.55 6,385 1.56
<FN>
--------------
* Totals expressed in thousands of dollars except per share amounts.
</FN>
</TABLE>
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 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
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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
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Directors The Emerging Markets Income Fund Inc
CHARLES F. BARBER
Consultant; formerly Chairman, 7 World Trade Center
ASARCO Incorporated New York, New York 10048
WILLIAM D. CVENGROS For information call (toll free)
Co-Chairman of the Board; 1-888-777-0102
Chief Executive Officer of PocketVideo
Corporation and formerly Chief INVESTMENT MANAGER
Executive Officer and Salomon Brothers Asset Management Inc
President of PIMCO Advisors L.P. 7 World Trade Center
LESLIE H. GELB New York, New York 10048
President, The Council
on Foreign Relations INVESTMENT ADVISER
HEATH B. MCLENDON PIMCO Advisors L.P.
Co-Chairman of the Board; 800 Newport Center Drive
Managing Director, Salomon Suite 100
Smith Barney Inc. Newport Beach, California 92660
President, SSB Citi Funds
Management LLC CUSTODIAN
RIORDAN ROETT Brown Brothers Harriman & Co.
Professor and Director, 40 Water Street
Latin American Studies Program, Boston, Massachusetts 02109
Paul H. Nitze School of Advanced
International Studies, DIVIDEND DISBURSING AND TRANSFER AGENT
Johns Hopkins University American Stock Transfer & Trust Company
JESWALD W. SALACUSE 40 Wall Street
Henry J. Braker Professor of New York, New York 10005
Commercial Law, and formerly Dean,
The Fletcher School of Law & Diplomacy INDEPENDENT ACCOUNTANTS
Tufts University PricewaterhouseCoopers LLP
1177 Avenue of the Americas
Officers New York, New York 10036
WILLIAM D. CVENGROS
Co-Chairman of the Board LEGAL COUNSEL
HEATH B. MCLENDON Simpson Thacher & Bartlett
Co-Chairman of the Board 425 Lexington Avenue
STEPHEN J. TREADWAY New York, New York 10017
President
LEWIS E. DAIDONE NEW YORK STOCK EXCHANGE SYMBOL
Executive Vice President & Treasurer EMD
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
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The Emerging Markets
Income Fund Inc
Annual Report
August 31, 2000
-----------------------------------------------------------
The Emerging Markets Income Fund Inc
-----------------------------------------------------
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
PRSRT-STD
U.S. POSTAGE
PAID
PERMIT No. 169
STATEN ISLAND, NY
EMDANN 8/00