Salomon Brothers Emerging Markets Income Fund Inc.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM N-Q

 

QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED

MANAGEMENT INVESTMENT COMPANY

Investment Company Act file number 811-7066

 

Salomon Brothers Emerging Markets Income Fund Inc.

(Exact name of registrant as specified in charter)

 

125 Broad Street, New York, NY 10004

(Address of principal executive offices) (Zip code)

Robert I. Frenkel, Esq.

Legg Mason & Co., LLC

300 First Stamford Place

Stamford, CT 06902

(Name and address of agent for service)

 

Registrant’s telephone number, including area code: 1-800-725-6666

Date of fiscal year end: August 31

Date of reporting period: May 31, 2006

 

ITEM 1. SCHEDULE OF INVESTMENTS

SALOMON BROTHERS EMERGING MARKETS

INCOME FUND INC.

FORM N-Q

MAY 31, 2006

Salomon Brothers Emerging Markets Income Fund Inc.

 

Schedule of Investments (unaudited)

   May 31, 2006

 

Face
Amount†		         

Security (a)

    Value
SOVEREIGN BONDS — 82.9%   
Argentina — 3.5%   
     Republic of Argentina:   
500,000     DEM   

7.000% due 3/18/04 (b)

    $ 101,698
1,000,000     EUR   

9.000% due 4/26/06 (b)

      392,996
550,000     EUR   

8.250% due 7/6/10 (b)

      210,854
950,000     DEM   

11.750% due 11/13/26 (b)

      182,318
1,911,962     ARS   

Discount Bonds, 5.830% due 12/31/33

      673,228
    

GDP Linked Securities:

   
10,662,020     ARS   

0.000% due 12/15/35 (b)(c)

      274,714
600,000     EUR   

0.000% due 12/15/35 (b)(c)

      71,220
490,000       

0.000% due 12/15/35 (b)(c)

      44,835
    

Medium-Term Notes:

   
500,000,000     ITL   

7.000% due 3/18/04 (b)

      99,824
1,000,000     EUR   

10.000% due 2/22/07 (b)

      402,620
100,000       

Par Bonds, 1.330% due 12/31/38

      34,875
           
     Total Argentina      2,489,182
           
Brazil — 19.6%   
    

Federative Republic of Brazil:

   
6,470,000       

11.000% due 8/17/40

      7,885,312
    

Collective Action Securities:

   
4,938,000       

8.000% due 1/15/15

      5,150,334
755,000       

8.750% due 2/4/25

      808,794
           
     Total Brazil      13,844,440
           
Chile — 1.7%   
1,225,000        Republic of Chile, Collective Action Securities, 5.526% due 1/28/08      1,231,125
           
Colombia — 4.8%   
    

Republic of Colombia:

   
325,000       

10.750% due 1/15/13

      390,325
1,645,000       

11.750% due 2/25/20

      2,237,200
175,000       

8.125% due 5/21/24

      184,187
460,000       

10.375% due 1/28/33

      602,600
           
     Total Colombia      3,414,312
           
Ecuador — 2.2%   
1,570,000        Republic of Ecuador, 9.000% due 8/15/30 (c)(d)      1,544,488
           
El Salvador — 1.8%   
    

Republic of El Salvador:

   
670,000       

7.750% due 1/24/23 (d)

      713,550
490,000       

8.250% due 4/10/32 (d)

      520,625
           
     Total El Salvador      1,234,175
           
Indonesia — 0.5%   
300,000        Republic of Indonesia, 8.500% due 10/12/35 (d)      325,680
           
Malaysia — 2.9%   
1,125,000        Federation of Malaysia, 8.750% due 6/1/09      1,217,687
840,000        Penerbangan Malaysia Berhad, 5.625% due 3/15/16 (d)      815,413
           
     Total Malaysia      2,033,100
           
Mexico — 13.7%   
    

United Mexican States:

   
325,000       

11.375% due 9/15/16

      442,813
    

Medium-Term Notes:

   
5,610,000       

5.625% due 1/15/17

      5,224,312

See Notes to Schedule of Investments.

 

1

Salomon Brothers Emerging Markets Income Fund Inc.

 

Schedule of Investments (unaudited) (continued)

   May 31, 2006

 

Face
Amount†		       

Security (a)

    Value
Mexico — 13.7% (continued)   
935,000     

8.300% due 8/15/31

    $ 1,066,835
    

Series A:

   
566,000     

6.375% due 1/16/13

      568,264
2,331,000     

6.625% due 3/3/15

      2,361,303
           
     Total Mexico      9,663,527
           
Panama — 3.2%   
     Republic of Panama:   
725,000     

9.625% due 2/8/11

      819,250
320,000     

8.875% due 9/30/27

      375,200
494,000     

9.375% due 4/1/29

      603,297
494,000     

6.700% due 1/26/36

      469,918
           
     Total Panama      2,267,665
           
Peru — 3.1%   
    

Republic of Peru:

   
1,818,750     

FLIRB, 4.500% due 3/7/17

      1,746,000
456,620     

PDI, 5.000% due 3/7/17

      440,638
           
     Total Peru      2,186,638
           
Philippines — 1.5%   
840,000      Republic of the Philippines, 10.625% due 3/16/25      1,054,200
           
Russia — 9.8%   
    

Russian Federation:

   
750,000     

11.000% due 7/24/18 (d)

      1,045,312
275,000     

12.750% due 6/24/28 (d)

      469,219
5,030,000     

5.000% due 3/31/30 (d)

      5,369,525
           
     Total Russia      6,884,056
           
South Africa — 1.6%   
1,075,000      Republic of South Africa, 6.500% due 6/2/14      1,101,875
           
Turkey — 6.8%   
     Republic of Turkey:   
250,000     

11.750% due 6/15/10

      292,188
775,000     

11.500% due 1/23/12

      933,875
75,000     

11.000% due 1/14/13

      90,188
1,279,000     

7.000% due 6/5/20

      1,231,037
605,000     

11.875% due 1/15/30

      862,125
373,000     

8.000% due 2/14/34

      371,601
    

Collective Action Securities, Notes:

   
675,000     

9.500% due 1/15/14

      766,125
280,000     

7.375% due 2/5/25

      270,200
           
     Total Turkey      4,817,339
           
Ukraine — 1.0%   
675,000      Republic of Ukraine, 8.235% due 8/5/09 (d)      717,188
           
Uruguay — 1.0%   
    

Republic of Uruguay, Benchmark Bonds:

   
175,000     

7.500% due 3/15/15

      174,125
554,382     

7.875% due 1/15/33 (e)

      534,979
           
     Total Uruguay      709,104
           
Venezuela — 4.2%   
     Bolivarian Republic of Venezuela:   
139,000     

Bonds, 5.750% due 2/26/16

      124,231
75,000     

5.375% due 8/7/10 (d)

      72,188

See Notes to Schedule of Investments.

 

2

Salomon Brothers Emerging Markets Income Fund Inc.

 

Schedule of Investments (unaudited) (continued)

   May 31, 2006

 

Face
Amount†		         

Security (a)

    Value
Venezuela — 4.2% (continued)   
1,053,000       

8.500% due 10/8/14

    $ 1,138,556
675,000       

7.650% due 4/21/25

      684,281
    

Collective Action Securities:

   
100,000       

9.375% due 1/13/34

      119,725
700,000       

Notes, 10.750% due 9/19/13

      845,250
           
     Total Venezuela      2,984,231
           
    

TOTAL SOVEREIGN BONDS
(Cost — $57,224,538)

      58,502,325
           
CORPORATE BONDS & NOTES — 11.9%   
Brazil — 0.4%   
275,000        Vale Overseas Ltd., Notes, 6.250% due 1/11/16      265,375
           
Chile — 0.3%   
225,000        Corporacion Nacional del Cobre-Codelco, Notes, 5.500% due 10/15/13 (d)      217,684
           
Mexico — 5.3%   
     Grupo Transportacion Ferroviaria Mexicana SA de CV, Senior Notes:   
40,000       

10.250% due 6/15/07

      41,600
100,000       

9.375% due 5/1/12

      107,000
20,000       

12.500% due 6/15/12

      22,200
     Pemex Project Funding Master Trust:   
115,000       

6.125% due 8/15/08

      115,287
800,000       

9.125% due 10/13/10

      884,000
1,800,000       

8.000% due 11/15/11

      1,926,000
275,000       

Guaranteed Bonds, 10.000% due 9/15/27

      332,750
4,000,000      MXN    Telefonos de Mexico SA de CV, Senior Notes, 8.750% due 1/31/16      327,054
           
     Total Mexico      3,755,891
           
Russia — 5.5%   
2,400,000        Gaz Capital SA, Notes, 8.625% due 4/28/34 (d)      2,826,480
1,030,000        Russian Agricultural Bank, Notes, 7.175% due 5/16/13 (d)      1,032,575
           
     Total Russia      3,859,055
           
Venezuela — 0.4%   
330,000        Petrozuata Finance Inc., 8.220% due 4/1/17      311,850
           
    

TOTAL CORPORATE BONDS & NOTES
(Cost — $8,436,310)

      8,409,855
           
Warrants                
WARRANTS — 0.3%   
1,500        Bolivarian Republic of Venezuela, Oil-linked payment obligations, Expires 4/15/20*      52,500
16,000        United Mexican States, Series XW05, Expires 11/9/06*      32,000
13,000        United Mexican States, Series XW10, Expires 10/10/06*      46,800
12,000        United Mexican States, Series XW20, Expires 9/1/06*      81,000
           
    

TOTAL WARRANTS
(Cost — $166,000)

      212,300
           

 

See Notes to Schedule of Investments.

 

3

Salomon Brothers Emerging Markets Income Fund Inc.

 

Schedule of Investments (unaudited) (continued)

   May 31, 2006

 

Contracts         

Security

    Value
PURCHASED OPTIONS — 0.1%   
2,000,000      EUR    Argentina, Call @ 30 Euro, expires 8/18/06      14,116
2,000,000      EUR    Argentina, Call @ 30 Euro, expires 9/27/06      14,116
           
    

TOTAL PURCHASED OPTIONS
(Cost — $171,386)

      28,232
           
    

TOTAL INVESTMENTS BEFORE SHORT-TERM INVESTMENT
(Cost — $65,998,234)

    $ 67,152,712
           
Face
Amount		                
SHORT-TERM INVESTMENT — 4.8%   
Repurchase Agreement — 4.8%   
$3,416,000       

Merrill Lynch, Pierce, Fenner & Smith Inc. repurchase agreement dated 5/31/06, 5.020% due 6/1/06; Proceeds at maturity - $3,416,476; (Fully collateralized by U.S. Treasury Note, 4.125% due 8/15/08; Market value - $3,488,193)
(Cost — $3,416,000)

      3,416,000
           
    

TOTAL INVESTMENTS — 100.0% (Cost — $69,414,234#)

      70,568,712
           
* Non-income producing security.
† Face amount denominated in U.S. dollars, unless otherwise noted.
(a) All securities are segregated as collateral pursuant to an outstanding loan agreement and futures contracts.
(b) Security is currently in default.
(c) Variable rate security. Interest rate disclosed is that which is in effect at May 31, 2006.
(d) 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. This security has been deemed liquid pursuant to guidelines approved by the Board of Directors, unless otherwise noted.
(e) Payment-in-kind security for which part of the income earned may be paid as additional principal.
# Aggregate cost for federal income tax purposes is substantially the same.

Abbreviations used in this schedule:

ARS - Argentine Peso

DEM - German Mark

EUR - Euro

FLIRB - Front-Loaded Interest Reduction Bonds

GDP - Gross Domestic Product

ITL - Italian Lira

MXN - Mexican Peso

PDI - Past Due Interest

 

See Notes to Schedule of Investments.

 

4

Notes to Schedule of Investments (unaudited)

1. Organization and Significant Accounting Policies

The Salomon Brothers Emerging Markets Income Fund Inc. (the “Fund”) was incorporated in Maryland and is registered as a non-diversified, closed-end management investment company under the Investment Company Act of 1940, as amended, (the “1940 Act”).

The following are significant accounting policies consistently followed by the Fund and are in conformity with U.S. generally accepted accounting principles (“GAAP”).

(a) Investment Valuation. Debt securities are valued at the mean between the bid and asked prices provided by an independent pricing service that are based on transactions in debt obligations, quotations from bond dealers, market transactions in comparable securities and various other relationships between securities. Equity securities for which market quotations are available are valued at the last sale price or official closing price on the primary market or exchange on which they trade. When prices are not readily available, or are determined not to reflect fair value, such as when the value of a security has been significantly affected by events after the close of the exchange or market on which the security is principally traded, but before the Fund calculates its net asset value, the Fund may value these investments at fair value as determined in accordance with the procedures approved by the Fund’s Board of Directors. Short-term obligations with maturities of 60 days or less are valued at amortized cost, which approximates market value.

(b) Repurchase Agreements. When entering into repurchase agreements, it is the Fund’s policy that its custodian or a third party custodian take possession of the underlying collateral securities, the market value of which at least equals the principal amount of the repurchase transaction, including accrued interest. To the extent that any repurchase transaction exceeds one business day, the value of the collateral is marked-to-market to ensure the adequacy of the collateral. If the seller defaults, and the market value of the collateral declines or if bankruptcy proceedings are commenced with respect to the seller of the security, realization of the collateral by the Fund may be delayed or limited.

(c) Financial Futures Contracts. The Fund may enter into financial futures contracts typically to hedge a portion of the portfolio. Upon entering into a financial futures contract, the Fund is required to deposit cash or securities as initial margin. Additional securities are also segregated up to the current market value of the financial futures contracts. Subsequent payments, known as variation margin, are made or received by the Fund each day, depending on the daily fluctuation in the value of the underlying financial instruments. The Fund recognizes an unrealized gain or loss equal to the daily variation margin. When the financial futures contracts are closed, a realized gain or loss is recognized equal to the difference between the proceeds from (or cost of) the closing transactions and the Fund’s basis in the contracts.

The risks associated with entering into financial futures contracts include the possibility that a change in the value of the contract may not correlate with the changes in the value of the underlying instruments. In addition, investing in financial futures contracts involves the risk that the Fund could lose more than the original margin deposit and subsequent payments required for a futures transaction. Risks may also arise upon entering into these contracts from the potential inability of the counterparties to meet the terms of their contracts.

(d) Foreign Currency Translation. Investment securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts based upon prevailing exchange rates on the date of valuation. Purchases and sales of investment securities and income and expense items denominated in foreign currencies are translated into U.S. dollar amounts based upon prevailing exchange rates on the respective dates of such transactions.

Foreign security and currency transactions may involve certain considerations and risks not typically associated with those of U.S. dollar denominated transactions as a result of, among other factors, the possibility of lower levels of governmental supervision and regulation of foreign securities markets and the possibility of political or economic instability.

(e) Credit and Market Risk. The Fund invests in high yield and emerging market instruments that are subject to certain credit and market risks. The yields of high yield and emerging market debt obligations reflect, among other things, perceived credit and market risks. The Fund’s investment in securities rated below investment grade typically

 

5

Notes to Schedule of Investments (unaudited) (continued)

involve risks not associated with higher rated securities including, among others, greater risk related to 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.

(f) Security Transactions. Security transactions are accounted for on a trade date basis.

2. Investments

At May 31, 2006, the aggregate gross unrealized appreciation and depreciation of investments for federal income tax purposes were substantially as follows:

 

Gross unrealized appreciation

    $ 2,855,922  

Gross unrealized depreciation

      (1,701,444 )
        

Net unrealized appreciation

    $ 1,154,478  
        

At May 31, 2006, the Fund had the following open futures contracts:

 

     Number of
Contracts		    Expiration
Date		   

Basis

Value

    Market
Value		    Unrealized
Gain

Contracts to Sell:

               

U.S Treasury 10 Year Note

    60    6/06    $ 6,441,805    $ 6,304,687    $ 137,118

U.S Treasury 10 Year Note

    40    9/06      4,209,105      4,196,875      12,230
                  

Net Unrealized Gain on Open Futures Contracts

                $ 149,348
                  

 

6

ITEM 2. CONTROLS AND PROCEDURES.

 

  (a) The registrant’s principal executive officer and principal financial officer have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a- 3(c) under the Investment Company Act of 1940, as amended (the “1940 Act”)) are effective as of a date within 90 days of the filing date of this report that includes the disclosure required by this paragraph, based on their evaluation of the disclosure controls and procedures required by Rule 30a-3(b) under the 1940 Act and 15d-15(b) under the Securities Exchange Act of 1934

 

  (b) There were no changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act) that occurred during the registrant’s last fiscal quarter that have materially affected, or are likely to materially affect the registrant’s internal control over financial reporting.

 

ITEM 3. EXHIBITS.

Certifications pursuant to Rule 30a-2(a) under the Investment Company Act of 1940, as amended, are attached hereto.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Salomon Brothers Emerging Markets Income Fund Inc.

 

By /s/ R. Jay Gerken

R. Jay Gerken

Chief Executive Officer

Date: July 28, 2006

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

By /s/ R. Jay Gerken

R. Jay Gerken

Chief Executive Officer

Date: July 28, 2006

 

By /s/ Frances M. Guggino

Frances M. Guggino

Chief Financial Officer

Date: July 28, 2006