The Emerging Markets
Income Fund Inc
March 19, 2002
Dear Shareholders:
We are pleased to provide the semi-annual report for The Emerging Markets Income
Fund Inc (the "Fund") for the period ended February 28, 2002. In this report we
summarize the period's prevailing economic and market conditions and outline the
investment strategy of Salomon Brothers Asset Management Inc ("SBAM"), the
Fund's investment manager. A detailed summary of the Fund's performance can be
found in the appropriate sections that follow.
During the six months ended February 28, 2002, the net asset value ("NAV")1 of
the Fund increased from $12.91 per share at August 31, 2001 to $13.93 per share
at February 28, 2002. Dividends of $0.825 per share from net investment income
were paid during the period. Assuming reinvestment of these dividends in
additional shares of the Fund, the total return for the six months ended
February 28, 2002 based on NAV was 15.22%. In comparison, the J.P. Morgan
Emerging Markets Bond Index Plus ("EMBI+")2, a standard measure of return for
emerging-markets debt, returned 1.68% for the same time period.
EMERGING MARKET DEBT 3
Developments in Argentina set the tone for emerging markets during the Fund's
semi-annual period. Argentina, the worst performer in the EMBI+, returned
negative 55.61%. Most notable was the reduction of the country's weighting in
the Index. In January 2001, Argentina's weighting stood at 22%, the largest in
the EMBI+. At the end of February 2002, it stood at 2.54%. Nonetheless, in what
can only be described as a difficult period for the global financial markets, 15
out of the EMBI+'s 18 countries outperformed the Index's return for the period.
During the Fund's semi-annual period, the U.S. Federal Reserve Board ("Fed")
continued easing (i.e., reducing) short-term interest rates from 3.00% to 1.75%,
where they remained at the end of February 2002. The combination of a weak
economy, uncertainty about downside risks, and low and
----------------
1 The NAV is calculated by subtracting total liabilities from the closing value
of all securities held by the fund (plus all other assets) and dividing the
results (total net assets) by the total number of Fund's shares outstanding.
The NAV fluctuates with changes in the value of the securities in which the
Fund has invested. However, the price at which the investor may buy or sell
shares of the Fund is at their market (NYSE) price as determined by supply of
and demand for the Fund's shares.
2 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. An investor cannot invest directly in an index.
3 Investing in foreign securities is subject to certain risks not associated
with domestic investing, such as currency fluctuations and changes in
political and economic conditions. These risks are magnified in emerging or
developing markets.
PAGE 1
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
falling inflation drove the Fed's rate cuts. At their meeting on January 30,
2002, the federal policymakers left the benchmark U.S. interest rate unchanged
for the first time in a year, citing signs that the economy was beginning to
recover from recession. The overnight target rate remains at 1.75%, a 40-year
low.
Oil prices, an important driver of value in several emerging markets,
experienced considerable price volatility during the period. A number of factors
contributed to this volatility, including a global oversupply of oil, a slump in
the aviation industry and a slowing U.S. economy. Oil prices traded in a wide
range during the period, from $27.20 to $19.44 per barrel, as investors focused
on the declining demand for oil. Prices closed the period at $21.74 per barrel.
In December, the Organization of the Petroleum Exporting Countries' ("OPEC")4
11-member cartel decided to cut production by 1.5 million barrels per day for
six months starting January 1, 2002. The move follows an unprecedented agreement
by five non-OPEC members, including Russia, Mexico and Norway, who participated
in the cut.
Return volatility 5 for emerging market debt remained below historical levels.
The volatility for the 12 months ended February 28, 2002 was 14.19%. This level
gradually increased throughout 2001 as the Turkish banking crisis, the September
11th terrorist attacks and the demise of the Argentine economy all added to the
uncertainty in emerging markets. SBAM believes the market's ability to view
problems on a country-by-country basis and not extrapolate isolated problems
into broader market risks is a positive development illustrating a maturity of
the asset class.
LATIN AMERICA
Latin American debt returned negative 6.63% for the period as measured by the
EMBI+, and was unquestionably affected by the deteriorating situation in
Argentina. Most notable in this region was the divergence of Brazil from
Argentina, as Brazilian debt returned an impressive 15.72% (as measured by the
EMBI+) for the period despite Argentina's financial woes.
BRAZILIAN DEBT returned 15.72% for the period as measured by the EMBI+. The
breakaway from Argentine contagion and return to positive performance was, in
our opinion, the most convincing change in the Latin American sector over the
past six months. The events in November and December showed that the
historically close relationship between Brazilian and Argentine securities may
have changed. This year is an election year in Brazil and SBAM believes that
will cause some near-term volatility in its markets. However, SBAM believes that
Brazil is well-positioned to withstand this volatility. The Fund maintained its
slight overweight in Brazilian securities relative to the benchmark for the
period.
MEXICAN DEBT returned 9.34% for the period as measured by the EMBI+. Mexican
debt benefited as some investors sought to reduce risk in their portfolios by
selling volatile Argentine debt in exchange for more stable Mexican debt.
Subdued economic activity combined with currency strength may put a cap on
inflation pressures, suggesting market interest rates could decline further
---------------
4 OPEC is an international organization of 11 developing countries, each of
which is heavily reliant on oil revenues as its main source of income.
Membership is open to any country that is a substantial net exporter of oil
and which shares the ideals of the organization. The current members are
Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia,
the United Arab Emirates and Venezuela.
5 Return volatility is the standard deviation of monthly returns over the period
being measured.
PAGE 2
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
from current levels in 2002. More recently, in February, the market reacted
favorably to the anticipated Standard & Poor's Ratings Service investment-grade
upgrade and Mexican bonds rallied as sovereign spreads contracted. The Fund has
maintained its exposure to Mexican debt since SBAM believes Mexico is one of the
most economically stable countries in the emerging markets.
ARGENTINE DEBT returned negative 55.61% for the period as measured by the EMBI+.
This was the worst performance in the Index and was the driving contributor of
poor performance in the Latin American region for the period. The country
continues to be mired in a four-year recession made worse by recent political
turmoil. Argentina announced a debt moratorium (default) on all external debt
obligations in December. President De la Rua resigned after last-minute attempts
to form a coalition government with the opposition Peronist Party failed. De la
Rua was in the second year of his four-year term. Recently, the Argentine
government announced a series of measures to strengthen its embattled economy
and move closer to an agreement with the International Monetary Fund ("IMF")6.
However, much uncertainty remains over how the situation in Argentina will play
out in 2002. The country's ability to reach political consensus on a fiscal
program will likely shape the near-term direction of the economy. The Fund
remains underweight Argentine debt relative to the EMBI+ and SBAM continues to
monitor developments in Argentina very closely.
EASTERN EUROPE/MIDDLE EAST/AFRICA
Non-Latin American debt, which represents 40% of the EMBI+'s market
capitalization, largely outperformed the Latin American debt for the period,
returning 20.55%.
RUSSIAN DEBT, the best performer for the period, returned 30.23% as measured by
the EMBI+. The Russian economy continues to benefit from high domestic
consumption, abundant foreign reserves and limited external financing
requirements. These improving credit fundamentals have not gone unnoticed, as
Moody's Investors Service recently revised upward its foreign-currency bond
rating two notches from B2 to Ba3, citing an improved capacity on the part of
Russia to service its debt. Positive comments by the government on debt
reduction and the elimination of the 2003 debt hump added momentum to a
supportive technical picture. The Fund remained overweight Russian debt for the
period, as it positively contributed to portfolio performance.
TURKISH DEBT returned 23.01% for the period as measured by the EMBI+. Following
the September terrorist attacks on the U.S., market sentiment improved toward
Turkey due to the country's strategic importance combined with its improved
relations with the IMF. During the period, the IMF affirmed its commitment,
granting Turkey an $11.4 billion injection to restore confidence in the banking
sector. The Fund had a slight overweight position in Turkish sovereign debt,
which positively contributed to the Fund's performance.
OUTLOOK
Emerging market debt returned 1.68% for the period, as measured by the EMBI+. At
the beginning of the Fund's semi-annual period, emerging debt markets generally
came under pressure from the developed world's economic slowdown, poor equity
market performance, the terrorist attacks on the
----------------
6 The IMF is an international organization of 183 member countries established
to promote international monetary cooperation, exchange stability, and orderly
exchange arrangements.
PAGE 3
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
U.S. and Argentina's financial woes. However, we believe positive technicals and
declining risk aversion have been driving market performance more than
fundamentals since November. In SBAM's view, the recent rally in the global
equity markets thus far in 2002 bodes well for the emerging debt markets. The
EMBI+ (ex-Argentina) returned 14.63% for the period, relatively strong
performance for such volatile financial markets. EMBI+ sovereign spreads 7 over
U.S. Treasury securities closed the period at 644 basis points 8. For the
remainder of 2002, we think the prospect of U.S. recovery may be supportive for
Asia and Latin America. SBAM continues to remain invested in a diversified
portfolio of emerging-markets debt securities.
ANNUAL SHAREHOLDER AND SPECIAL MEETINGS
The Fund held its annual shareholders meeting on December 13, 2001 and a special
meeting on February 1, 2002. At the meeting on December 13, 2001, shareholders
elected Stephen J. Treadway to the Fund's Board of Directors. At the special
meeting on February 1, 2002, shareholders approved a new management agreement
between the Fund and SBAM and the retention by, and reimbursement to, SBAM of
its costs incurred in connection with services rendered to the Fund. The
following table provides information concerning the matters voted on at the
meetings:
DECEMBER 13, 2001
Election of a Director.
NOMINEE VOTES FOR VOTES WITHHELD VOTES AGAINST
------- --------- -------------- -------------
Stephen J. Treadway 3,806,736 0 51,715
FEBRUARY 1, 2002
1. Approval of new management agreement between the Fund and SBAM.
VOTES FOR VOTES WITHHELD VOTES AGAINST
--------- -------------- -------------
3,772,248 65,754 51,910
2. Approval of the rentention by, and reimbursement to, SBAM of its cost
incurred in connection with services rendered to the Fund.
VOTES FOR VOTES WITHHELD VOTES AGAINST
--------- -------------- -------------
3,749,553 82,982 57,377
------------------
7 Sovereign bonds are bonds issued by non-U.S. governments. Yield spread is the
difference between yields on securities of the same quality but different
maturities or the difference between yields on securities of the same maturity
but different quality.
8 A basis point is 0.01%, or one one-hundredth of a percent.
PAGE 4
T H E E M E R G I N G M A R K E T S I N C O M E F U N D I N C
In a continuing effort to provide timely information concerning the Fund,
stockholders may call 888-777-0102 (toll free), Monday through Friday from 8:00
a.m. to 6:00 p.m. (EST), for the Fund's current NAV, market price and other
information regarding the Fund's portfolio holdings and allocations. For
information concerning your Fund stock account, please call American Stock
Transfer & Trust Company at 800-937-5449 (718-921-5200 if calling from within
New York City).
We appreciate your confidence and look forward to serving you in future years.
Sincerely,
/s/ Heath B. McLendon /s/ Stephen J. Treadway
Heath B. McLendon Stephen J. Treadway
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
The information provided in this letter represents the opinion of the manager
and is not intended to be a forecast of future events, a guarantee of future
results or investment advice. Further, there is no assurance that certain
securities will remain in or out of the Fund. Please refer to pages 6 through 9
for a list and percentage breakdown of the Fund's holdings. Also, please note
any discussion of the Fund's holdings is as of February 28, 2002 and is subject
to change.
PAGE 5
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 28, 2002
FACE MARKET
AMOUNT (a) Bonds -- 92.2% VALUE
--------------------------------------------------------------------------------------------------------------
ARGENTINA -- 3.2%
Republic of Argentina:
5,323,000 due 4/10/05 (b) ....................................................... $ 1,729,975
ARS 200,000 8.750% due 7/10/02 (b) ................................................ 18,000
ARS 130,000 11.750% due 2/12/07 (b) ............................................... 11,700
ARS 50 10.000% due 9/19/08 (b)................................................ 16
1,000,000 Zero Coupon Bond, due 10/15/03 ........................................ 545,000
-----------
2,304,691
-----------
BRAZIL -- 24.5%
Federal Republic of Brazil:
1,850,000 9.625% due 7/15/05 .................................................... 1,832,888
27,000 12.250% due 3/6/30 .................................................... 24,678
17,732,304 C Bond, 8.000% due 4/15/14 ............................................ 14,429,662
1,852,941 NMB, Series L, 3.250% due 4/15/09* .................................... 1,555,312
-----------
17,842,540
-----------
BULGARIA -- 4.8%
Republic of Bulgaria:
3,450,000 DISC, Series A, 2.8125% due 7/28/24* .................................. 3,072,656
495,880 IAB, 2.8125% due 7/28/11* ............................................. 436,065
-----------
3,508,721
-----------
COLOMBIA -- 2.4%
Republic of Colombia:
1,750,000 11.750% due 2/25/20 ................................................... 1,702,312
100,000 8.375% due 2/15/27 .................................................... 69,250
-----------
1,771,562
-----------
COSTA RICA -- 0.6%
350,000 Republic of Costa Rica, 9.995% due 8/1/20# .............................. 399,875
-----------
ECUADOR -- 5.1%
Republic of Ecuador:
900,000 12.000% due 11/15/12 .................................................. 709,875
726,000 5.000% due 8/15/30*,# ................................................. 377,157
5,087,000 5.000% due 8/15/30* ................................................... 2,642,697
-----------
3,729,729
-----------
INDONESIA -- 0.4%
1,500,000 Tjiwi Kimia International Finance Company B.V.,
10.000% due 8/1/04(c)(d)............................................... 266,250
-----------
See accompanying notes to financial statements.
PAGE 6
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 28, 2002
FACE MARKET
AMOUNT (a) Bonds -- 92.2% (continued) VALUE
--------------------------------------------------------------------------------------------------------------
IVORY COAST -- 1.0%
Republic of Ivory Coast:
375,000 due 3/29/18(c)(d) ..................................................... $ 73,125
2,107,000 FLIRB, due 3/29/18(c)(d) .............................................. 410,865
909,150 PDI Bond, due 3/29/18(c)(d) ........................................... 209,105
-----------
693,095
-----------
JAMAICA -- 1.0%
Government of Jamaica:
350,000 10.875% due 6/10/05 ................................................... 365,750
350,000 12.750% due 9/1/07# ................................................... 389,375
-----------
755,125
-----------
MEXICO -- 9.7%
PEMEX, Project Funding Master Trust:
1,500,000 9.125% due 10/13/10 ................................................... 1,659,375
1,750,000 8.000% due 11/15/11 ................................................... 1,811,250
United Mexican States:
700,000 11.375% due 9/15/16 ................................................... 906,850
2,000,000 11.500% due 5/15/26 ................................................... 2,664,000
-----------
7,041,475
-----------
PANAMA -- 1.9%
Republic of Panama:
100,000 9.625% due 2/8/11 ..................................................... 106,875
1,388,880 IRB, 4.750% due 7/17/14* .............................................. 1,287,318
-----------
1,394,193
-----------
PERU -- 4.7%
4,250,000 Republic of Peru, PDI Bond, 4.500% due 3/7/17* .......................... 3,402,656
-----------
PHILIPPINES -- 4.1%
Republic of the Philippines:
1,925,000 9.875% due 1/15/19 .................................................... 1,969,516
1,000,000 FRN, 4.945% due 6/18/04* .............................................. 1,010,000
-----------
2,979,516
-----------
RUSSIA -- 21.0%
Russian Government:
1,200,000 10.000% due 6/26/07 ................................................... 1,273,500
75,000 8.250% due 3/31/10 .................................................... 71,625
1,842,360 8.250% due 3/31/10# ................................................... 1,759,454
550,000 11.000% due 7/24/18 ................................................... 586,437
17,000,000 5.000% due 3/31/30* ................................................... 11,246,350
569,500 5.000% due 3/31/30*,# ................................................. 376,753
-----------
15,314,119
-----------
See accompanying notes to financial statements.
PAGE 7
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 28, 2002
FACE MARKET
AMOUNT (a) Bonds -- 92.2% (concluded) VALUE
--------------------------------------------------------------------------------------------------------------
TURKEY -- 4.9%
Republic of Turkey:
310,000 12.375% due 6/15/09 ................................................... $ 325,515
1,500,000 11.750% due 6/15/10 ................................................... 1,525,050
700,000 11.500% due 1/23/12 ................................................... 703,675
1,040,000 11.875% due 1/15/30 ................................................... 1,045,096
-----------
3,599,336
-----------
URUGUAY -- 0.7%
526,315 Republic of Uruguay, DCB, Series B, 2.875% due 2/18/07* ................. 484,210
-----------
VENEZUELA -- 2.2%
1,900,000 Republic of Venezuela, 13.625% due 8/15/18 .............................. 1,626,875
-----------
TOTAL BONDS (cost -- $65,736,708)........................................ 67,113,968
-----------
Loan Participations+ -- 5.0%
--------------------------------------------------------------------------------------------------------------
The People's Democratic Republic of Algeria:
14,161 Tranche 1, 4.3125% due 9/4/06* (J.P. Morgan Chase & Co.) .............. 13,099
527,500 Tranche 3, 4.3125% due 3/4/10* (J.P. Morgan Chase & Co.) .............. 464,200
3,433,067 Kingdom of Morocco, Tranche A, 2.78125% due 1/1/09*
(Credit Suisse First Boston Inc., Morgan Stanley Dean Witter & Co.) ... 3,177,819
-----------
TOTAL LOAN PARTICIPATIONS (cost -- $3,423,726)........................... 3,655,118
-----------
Purchase Put Options (d) -- 0.1%
--------------------------------------------------------------------------------------------------------------
3,999,940 Venezuela DCB, 2.875% due 12/18/2007, Put @ 77.625,
Expire 3/15/02......................................................... 37,199
COP 1,000,000 Colombian Peso, Put @ 2,280, Expire 4/23/02 ............................. 25,512
-----------
TOTAL PURCHASE PUT OPTIONS (cost -- $103,999)............................ 62,711
-----------
SHARES Rights (d) -- 0.0%
--------------------------------------------------------------------------------------------------------------
1,000 United Mexican States Rights, Expire 6/3/03 (Cost -- $0) ................ 2
-----------
WARRANTS Warrants (d) -- 0.0%
--------------------------------------------------------------------------------------------------------------
500 Asia Pulp and Papers Warrants, Expire 3/15/05# (Cost -- $0) ............. 0
-----------
See accompanying notes to financial statements.
PAGE 8
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 28, 2002
PRINCIPAL
AMOUNT Repurchase Agreements -- 2.7%
-------------------------------------------------------------------------------------------------------------
1,000,000 Greenwich Capital Markets, Inc., 1.850% due 3/1/02;
Proceeds at maturity -- $1,000,051; (Fully collateralized
by U.S. Treasury Note, 6.000% due 9/30/02;
Market value -- $1,020,434)............................................ $ 1,000,000
929,000 UBS PaineWebber Inc., 1.870% due 3/1/02;
Proceeds at maturity -- $929,048; (Fully collateralized
by U.S. Treasury Bond, 9.000% due 11/15/18;
Market value -- $947,800).............................................. 929,000
-----------
TOTAL REPURCHASE AGREEMENTS (cost -- $1,929,000)......................... 1,929,000
-----------
TOTAL INVESTMENTS -- 100.0% (Cost -- $71,193,433**)...................... $72,760,799
===========
----------------
(a) Principal denominated in U.S. dollars unless otherwise indicated.
(b) Income accrual discontinued.
(c) Security is currently in default.
(d) Non-income producing security.
* Rate shown reflects rate in effect at February 28, 2002 on instrument
with variable rates or step coupon rates.
** Aggregate cost for federal income tax purposes is substantially the same.
+ Participation interests were acquired through the financial institutions
indicated parenthetically. See Note 5.
# Security is exempt from registration under Rule 144A of the Securities
Act of 1933. This security may be resold in transactions that are exempt
from registration, normally to qualified institutional buyers.
Abbreviations used in this statement:
ARS - Argentina Peso.
C Bond - Capitalization Bond.
COP - Colombian Peso.
DCB - Debt Conversion Bond.
DISC - Discount Bond.
FLIRB - Front Loaded Interest Reduction Bond.
FRN - Floating Rate Note.
IAB - Interest Arrears Bond.
IRB - Interest Arrears Bond.
NMB - New Money Bond.
PDI - Past Due Interest.
See accompanying notes to financial statements.
PAGE 9
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 (unaudited)
February 28, 2002
ASSETS
Investments, at value (cost -- $71,193,433)........................................ $72,760,799
Cash............................................................................... 633
Cash in foreign currency, at value (Cost -- $27,622)............................... 13,205
Receivable for securities sold..................................................... 8,494,592
Interest receivable................................................................ 1,663,633
Prepaid expenses................................................................... 17,100
-----------
Total Assets....................................................................... 82,949,962
-----------
LIABILITIES
Loan payable (Note 4).............................................................. 20,000,000
Payable for securities purchased................................................... 6,003,455
Loan interest payable.............................................................. 96,235
Management fee payable (Note 2).................................................... 120,826
Advisory fee payable (Note 2)...................................................... 20,941
Accrued expenses................................................................... 177,966
-----------
Total Liabilities.................................................................. 26,419,423
-----------
Net Assets......................................................................... $56,530,539
===========
NET ASSETS
Common Stock ($0.001 par value, authorized
100,000,000; 4,058,023 shares outstanding)....................................... $ 4,058
Additional paid-in capital......................................................... 56,165,411
Undistributed net investment income................................................ 541,647
Accumulated net realized loss on investments....................................... (1,733,526)
Net unrealized appreciation on investments and foreign currency.................... 1,552,949
-----------
Net Assets......................................................................... $56,530,539
===========
NET ASSET VALUE PER SHARE ($56,530,539 / 4,058,023 shares)........................... $13.93
======
See accompanying notes to financial statements.
PAGE 10
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 (unaudited)
For the Six Months Ended February 28, 2002
INCOME
Interest (includes discount accretion of $785,997)................................. $ 4,354,364
EXPENSES
Interest on loan................................................................... 432,089
Management fee..................................................................... 177,939
Advisory fee....................................................................... 127,099
Shareholder communications......................................................... 32,342
Custodian.......................................................................... 30,718
Audit and tax services............................................................. 25,831
Directors' fees and expenses....................................................... 16,109
Legal.............................................................................. 9,195
Listing fees....................................................................... 7,541
Transfer agent expenses............................................................ 7,059
Other............................................................................. 15,232
-----------
Total Expenses....................................................................... 881,154
-----------
Net Investment Income................................................................ 3,473,210
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS
Net Realized Loss on:
Investments...................................................................... (153,984)
Foreign currency transactions.................................................... (1,195)
-----------
Net Realized Loss ................................................................. (155,179)
-----------
Change in Net Unrealized Appreciation (Depreciation) on:
Investments...................................................................... 4,171,622
Foreign currency contracts and other assets and liabilities
denominated in foreign currencies.............................................. (14,483)
-----------
Decrease in Net Unrealized Depreciation.......................................... 4,157,139
-----------
Net Gain on Investments and Foreign Currency Transactions 4,001,960
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS .......................................... $ 7,475,170
===========
See accompanying notes to financial statements.
PAGE 11
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 28, 2002 (unaudited)
and the Year Ended August 31, 2001
FEBRUARY 28 AUGUST 31
------------------------------------------------------------------------------------------------------
OPERATIONS
Net investment income............................................. $ 3,473,210 $ 6,701,396
Net realized gain (loss).......................................... (155,179) 2,225,887
(Increase) decrease in net unrealized depreciation................ 4,157,139 (6,675,414)
----------- -----------
Increase in Net Assets From Operations............................ 7,475,170 2,251,869
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income............................................. (3,338,668) (6,647,346)
----------- -----------
Decrease in Net Assets From
Distributions to Shareholders................................... (3,338,668) (6,647,346)
----------- -----------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares issued in reinvestment of dividends
(15,135 and 22,128 shares issued)............................... 185,247 291,491
----------- -----------
Total Increase (Decrease) in Net Assets............................. 4,321,749 (4,103,986)
----------- -----------
NET ASSETS
Beginning of period............................................... 52,208,790 56,312,776
----------- -----------
End of period (includes undistributed net investment income of
$541,647 and $407,105, respectively)............................ $56,530,539 $52,208,790
=========== ===========
Statement of Cash Flows (unaudited)
For the Six Months Ended February 28, 2002
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Purchases of long-term portfolio investments....................................... $(53,597,335)
Proceeds from disposition of long-term portfolio investments and principal paydowns 55,879,266
Net purchases of short-term investments............................................ (1,378,549)
------------
903,382
Net investment income.............................................................. 3,473,210
Adjustments to reconcile net investment income to net cash provided by operating
activities:
Accretion of discount on investments............................................... (785,997)
Net change in receivables/payables related to operations........................... (237,435)
------------
Net Cash Provided by Operating Activities.......................................... 3,353,160
------------
CASH FLOWS USED BY FINANCING ACTIVITIES:
Proceeds from shares issued in reinvestment of dividends........................... 185,247
Cash distributions paid............................................................ (3,338,668)
------------
Net Cash Used by Financing Activities.............................................. (3,153,421)
------------
Net Decrease in Cash................................................................. 199,739
Payable to Bank at Beginning of Period.............................................. (185,901)
------------
Cash at End of Period................................................................ $ 13,838
============
See accompanying notes to financial statements.
PAGE 12
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. As a secondary objective, the Fund seeks capital appreciation. In
pursuit of these objectives, the Fund invests primarily in U.S. dollar
denominated debt securities of government and government related issuers located
in emerging market countries, and of entities organized to restructure the
outstanding debt of these issuers.
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
PAGE 13
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)
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. 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
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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 (CONCLUDED)
expires, the Fund realizes a gain or loss equal to the amount of the
premium received or paid. When the Fund 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 amount of the premium received reduces
the cost of the security that the Fund purchased upon exercise of the
option.
(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 28, 2002, the Fund paid interest expense of $371,696.
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, Division of Allianz Dresdner Asset Management of America 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.
At February 28, 2002, 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 six months ended February 28, 2002 aggregated
$56,671,917 and $47,501,960 respectively. The federal income tax cost basis of
the Fund's investments at February 28, 2002 was substantially the same as the
cost basis for financial reporting. Gross unrealized appreciation and
depreciation amounted to $1,767,713 and $200,347, respectively, resulting in a
net unrealized depreciation on investments of $1,567,366.
PAGE 15
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. LOAN
The Fund had outstanding a $20,000,000 loan pursuant to a secured loan
agreement with ING Baring (U.S.) Capital LLC which matured on November 20, 2001.
At February 28, 2002 the Fund had outstanding a $20,000,000 loan pursuant
to a revolving credit and security agreement with CXC Inc., a commercial paper
conduit issuer for which Citicorp North America Inc. acts as administrative
agent. The agreement between the Fund and CXC Inc. commenced on November 20,
2001. The loans generally bear interest at a variable rate based on the weighted
average interest rates of the underlying commercial paper or LIBOR, plus any
applicable margin. Securities held by the Fund are subject to a lien, granted to
the lenders, to the extent of the borrowing outstanding and any additional
expenses.
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 28, 2002 was $3,655,118.
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,
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
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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) (concluded)
7. CREDIT AND MARKET RISK (CONCLUDED)
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 28, 2002, the Fund has a concentration risk in sovereign debt of
emerging market countries.
The net asset value and/or market value per share 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, 2001, the Fund has no
outstanding forward contracts.
A risk in writing a covered call option is that the Fund may forego the
opportunity of profit if the market price of the underlying security increases
and the option is exercised. A risk in writing a put option is that the Fund may
incur a loss if the market price of the underlying security decreases and the
option is exercised. In addition, there is the risk that the Fund may not be
able to enter into a closing transaction because of an illiquid secondary
market.
9. DIVIDEND SUBSEQUENT TO FEBRUARY 28, 2002
On January 24, 2002, the Board of Directors of the Fund declared a dividend
of $0.4125 per share, from net investment income, payable on March 22, 2002 to
shareholders of record March 12, 2002.
10. CAPITAL LOSS CARRYFORWARD
At August 31, 2001, the Fund had, for Federal income tax purposes, a
capital loss carryforward of approximately $1,164,000, 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 17
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 period:
PERIOD ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31,
2002 --------------------------------------------------
(UNAUDITED) 2001 2000 1999 1998
-------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period .......... $12.91 $14.01 $11.16 $ 7.83 $21.89
------ ------ ------ ------ ------
Income (Loss) From Operations:
Net investment income ....................... 0.87 1.68 1.72 1.88 2.02
Net realized and unrealized gain (loss) ..... 0.98 (1.13) 2.78 3.83 (10.84)
------ ------ ------ ------ ------
Total Income (Loss) From Operations ........... 1.85 0.55 4.50 5.71 (8.82)
------ ------ ------ ------ ------
Less Distributions From:
Net investment income ...................... (0.83) (1.65) (1.65) (2.41) (2.03)
Net realized capital gains ................. -- -- -- -- (2.98)
Capital .................................... -- -- -- (0.02) --
Distributions in excess of net realized
capital gains .............................. -- -- -- -- (0.23)
------ ------ ------ ------ ------
Total Distributions ........................... (0.83) (1.65) (1.65) (2.43) (5.24)
------ ------ ------ ------ ------
Increase in Net Asset Value Due to Shares
Issued on Reinvestment of Dividends ........ -- -- -- 0.05 --
------ ------ ------ ------ ------
Net Increase (Decrease) in Net Asset Value .... 1.02 (1.10) 2.85 3.33 (14.06)
------ ------ ------ ------ ------
Net Asset Value, End of Period ................ $13.93 $12.91 $14.01 $11.16 $ 7.83
====== ====== ====== ====== ======
Per Share Market Value, End of Period ......... $14.97 $13.15 $13.9375 $12.50 $ 9.50
====== ====== ======== ====== ======
Total Return Based on Market
Price Per Share (a) ........................ 21.64% 7.14% 27.51% 62.97% -35.00%
Ratios to Average Net Assets:
Total expenses, including
interest expense ......................... 3.45%(b) 4.76% 5.00% 5.03% 3.79%
Total expenses, excluding
interest expense (operating
expenses) ................................ 1.76%(b) 1.71% 1.73% 1.85% 1.73%
Net investment income ...................... 13.58%(b) 12.87% 13.33% 18.13% 11.56%
Supplemental Data:
Net assets, end of period .................. $56,530,539 $52,208,790 $56,312,776 $44,376,592 $29,522,593
Portfolio turnover rate .................... 71% 195% 136% 87% 141%
Loan outstanding, end of period ............ $20,000,000 $20,000,000 $20,000,000 $20,000,000 $20,000,000
Weighted average loan ...................... $20,000,000 $20,000,000 $20,000,000 $20,000,000 $20,000,000
Weighted average interest rate on loans .... 4.32% 7.94% 8.26% 6.48% 6.44%
------------
(a) Dividends are assumed, for purposes of this calculation, to be reinvested at
prices obtained under the Fund's dividend reinvestment plan.
(b) Annualized.
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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
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.
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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
5. If (i) the Agent has not invested the full dividend amount in open-market
purchases by the date specified in paragraph 4 above as the date on which such
purchases must terminate or (ii) a market discount shifts to a market premium
during the purchase period, then the Agent will cease making open-market
purchases and will receive the uninvested portion of the dividend amount in
newly issued Shares (x) in the case of (i) above, at the close of business on
the date the Agent is required to terminate making open-market purchases as
specified in paragraph 4 above or (y) in the case of (ii) above, at the close of
business on the date such shift occurs; but in no event prior to the payment
date for the dividend or distribution.
6. In the event that all or part of a dividend or distribution amount is to be
paid in newly issued Shares, such Shares will be issued to Participants in
accordance with the following formula: (i) if, on the valuation date, the net
asset value per Share is less than or equal to the market price per Share, then
the newly issued Shares will be valued at net asset value per Share on the
valuation date; provided, however, that if the net asset value is less than 95%
of the market price on the valuation date, then such Shares will be issued at
95% of the market price and (ii) if, on the valuation date, the net asset value
per Share is greater than the market price per Share, then the newly issued
Shares will be issued at the market price on the valuation date. The valuation
date will be the dividend or distribution payment date, except that with respect
to Shares issued pursuant to paragraph 5 above, the valuation date will be the
date such Shares are issued. If a date that would otherwise be a valuation date
is not a Trading Day, the valuation date will be the next preceding Trading Day.
7. Participants have the option of making additional cash payments to the Agent,
monthly, in a minimum amount of $250, for investment in Shares. The Agent will
use all such funds received from Participants to purchase Shares in the open
market on or about the first business day of each month. To avoid unnecessary
cash accumulations, and also to allow ample time for receipt and processing by
the Agent, Participants should send in voluntary cash payments to be received by
the Agent approximately 10 days before an applicable purchase date specified
above. A Participant may withdraw a voluntary cash payment by written notice, if
the notice is received by the Agent not less than 48 hours before such payment
is to be invested.
8. Purchases by the Agent pursuant to paragraphs 4 and 7 above may be made on
any securities exchange on which the Shares are traded, in the over-the-counter
market or in negotiated transactions, and may be on such terms as to price,
delivery and otherwise as the Agent shall determine. Funds held by the Agent
uninvested will not bear interest, and it is understood that, in any event, the
Agent shall have no liability in connection with any inability to purchase
Shares within the time periods herein provided, or with the timing of any
purchases effected. The Agent shall have no responsibility as to the value of
the Shares acquired for the Participant's account. The Agent may commingle
amounts of all Participants to be used for open-market purchases of Shares and
the price per Share allocable to each Participant in connection with such
purchases shall be the average price (including brokerage commissions) of all
Shares purchased by the Agent.
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T H E E M E R G I N G M A R K E T S I N C O M E F U N D I N C
9. The Agent will maintain all Participants' accounts in the Plan and will
furnish written confirmations of all transactions in each account, including
information needed by Participants for personal and tax records. The Agent will
hold Shares acquired pursuant to the Plan in noncertificated form in the
Participant's name or that of its nominee, and each Participant's proxy will
include those Shares purchased pursuant to the Plan. The Agent will forward to
Participants any proxy solicitation material and will vote any Shares so held
for Participants only in accordance with the proxy returned by Participants to
the Fund. Upon written request, the Agent will deliver to Participants, without
charge, a certificate or certificates for the full Shares.
10. The Agent will confirm to Participants each acquisition made for their
respective accounts as soon as practicable but not later than 60 days after the
date thereof. Although Participants may from time to time have an undivided
fractional interest (computed to three decimal places) in a Share of the Fund,
no certificates for fractional shares will be issued. Dividends and
distributions on fractional shares will be credited to each Participant's
account. In the event of termination of a Participant's account under the Plan,
the Agent will adjust for any such undivided fractional interest in cash at the
market value of the Fund's Shares at the time of termination less the pro rata
expense of any sale required to make such an adjustment.
11. Any share dividends or split shares distributed by the Fund on Shares held
by the Agent for Participants will be credited to their respective accounts. In
the event that the Fund makes available to Participants rights to purchase
additional Shares or other securities, the Shares held for Participants under
the Plan will be added to other Shares held by the Participants in calculating
the number of rights to be issued to Participants.
12. The Agent's service fee for handling capital gains distributions or income
dividends will be paid by the Fund. Participants will be charged a pro rata
share of brokerage commissions on all open-market purchases.
13. Participants may terminate their accounts under the Plan by notifying the
Agent in writing. Such termination will be effective immediately if notice is
received by the Agent not less than 10 days prior to any dividend or
distribution record date; otherwise such termination will be effective on the
first Trading Day after the payment date for such dividend or distribution with
respect to any subsequent dividend or distribution. The Plan may be amended or
terminated by the Fund as applied to any voluntary cash payments made and any
income dividend or capital gains distribution paid subsequent to written notice
of the change or termination sent to Participants at least 30 days prior to the
record date for the income dividend or capital gains distribution. The Plan may
be amended or terminated by the Agent, with the Fund's prior written consent, on
at least 30 days' written notice to Participants. Notwithstanding the preceding
two sentences, the Agent or the Fund may amend or supplement the Plan at any
time or times when necessary or appropriate to comply with applicable law or
rules or policies of the Securities and Exchange Commission or any other
regulatory authority. Upon any termination, the Agent will cause a certificate
or certificates for the
PAGE 21
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
full Shares held by each Participant under the Plan and cash adjustment for any
fraction to be 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.
The report is transmitted to the shareholders of the Fund for their information.
This is not a prospectus, circular or representation intended for use in the
purchase of shares of the Fund or any securities mentioned in this report.
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940 that the Fund may purchase at market prices from time to
time shares of its common stock in the open market.
PAGE 22
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 The Emerging Markets Income Fund Inc
CHARLES F. BARBER, Emeritus Director 125 Broad Street
Consultant; formerly Chairman, 10th Floor, MF-2
ASARCO Inc. New York, New York 10004
Telephone 1-888-777-0102
LESLIE H. GELB
President, The Council INVESTMENT MANAGER
on Foreign Relations Salomon Brothers Asset Management Inc
388 Greenwich Street
HEATH B. MCLENDON New York, New York 10013
Co-Chairman of the Board;
Managing Director, Salomon INVESTMENT ADVISER
Smith Barney Inc. PIMCO Advisors, Division of Allianz Dresdner
President and Director, Smith Barney Fund Asset Management of America L.P.
Management LLC and Travelers 800 Newport Center Drive
Investment Advisers, Inc. Newport Beach, California 92660
RIORDAN ROETT CUSTODIAN
Professor and Director, Brown Brothers Harriman & Co.
Latin American Studies Program, 40 Water Street
Paul H. Nitze School of Advanced Boston, Massachusetts 02109
International Studies,
Johns Hopkins University DIVIDEND DISBURSING AND TRANSFER AGENT
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
STEPHEN J. TREADWAY New York, New York 10036
Co-Chairman of the Board;
Managing Director, Allianz Dresdner Asset LEGAL COUNSEL
Management of America L.P. Simpson Thacher & Bartlett
Managing Director and 425 Lexington Avenue
Chief Executive Officer, New York, New York 10017
PIMCO Funds Distributors LLC
NEW YORK STOCK EXCHANGE SYMBOL
Officers EMD
HEATH B. MCLENDON
Co-Chairman of the Board
STEPHEN J. TREADWAY
Co-Chairman of the Board
LEWIS E. DAIDONE
Executive Vice President and Treasurer
JAMES E. CRAIGE
Executive Vice President
THOMAS K. FLANAGAN
Executive Vice President
NEWTON SCHOTT
Executive Vice President
PETER J. WILBY
Executive Vice President
ANTHONY PACE
Controller
CHRISTINA T. SYDOR
Secretary
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
FIRST-CLASS MAIL
U.S. POSTAGE
PAID
BROOKLYN, NY
PERMIT No. 1726
EMDSEMI 2/02
The Emerging Markets
Income Fund Inc
Semi-Annual Report
FEBRUARY 28, 2002
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The Emerging Markets Income Fund Inc
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