The Emerging Markets
Income Fund Inc
October 11, 2001
Dear Shareholders:
We are pleased to provide the annual report for The Emerging Markets Income Fund
Inc. (the "Fund") as of August 31, 2001. In this report we summarize the
period's prevailing economic and market conditions and outline our investment
strategy. A detailed summary of the Fund's performance can be found in the
appropriate sections that follow.
During the year ended August 31, 2001, the net asset value ("NAV") 1 of the Fund
decreased from $14.01 per share at August 31, 2000 to $12.91 per share at August
31, 2001. Dividends of $1.65 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 year ended August 31, 2001 based on NAV
was 4.34%. In comparison, the J.P. Morgan Emerging Markets Bond Index Plus
("EMBI+"),2 a standard measure of return for emerging markets debt, returned
4.21% for the same time period.
EMERGING MARKETS DEBT
Emerging markets debt returned 4.21% during the Fund's annual period as measured
by the EMBI+. Developments in Argentina and Brazil set the tone for emerging
markets for the period. Argentinian debt, the worst performer in the EMBI+,
returned negative 16.16% and Brazilian debt, suffering from Argentine contagion,
returned negative 0.30%. Combined, the debt of these two countries represents
41% of the EMBI+ based on market capitalization. Historically, this weak
performance from the largest credits has tended to drag down returns across all
countries in the market. In contrast, the performance of the other 16 emerging
market countries represented in the EMBI+ outperformed the overall EMBI+ return.
In our opinion, the market's ability to view problems on a country-by-country
basis without extrapolating isolated problems into systemic risks is a positive
development.
---------------
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 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.
2 The J. P. Morgan Emerging Markets Bond Index Plus ("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.
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
The U.S. Federal Reserve Board ("Fed") began easing (i.e., lowering) short-term
interest rates in January 2001. The Fed's changing bias was caused by evidence
that U.S. economic growth had slowed considerably in 2001. The economic slowdown
in the U.S. and the fragile Argentine economy have negatively impacted Latin
American growth. Additionally, the acts of terrorism on September 11, 2001
prompted a Fed rate cut of 50 basis points 3, which brought overnight rates to
3.00% at the close of the period. Barring a sudden recovery of the economy or
financial markets, we expect the Fed's easing bias to continue.
Crude oil prices, an important driver of value in the emerging debt markets,
continue to remain at higher levels. Fiscal balances and monetary reserves
improved substantially as higher oil prices contributed to overall credit
quality in Russia, Venezuela, Colombia and Mexico, all of which are oil
producers. Crude oil prices per barrel fluctuated during the period, ranging
from a low of $23.45 to a high of $30.14. Crude oil prices closed the period at
about $27.35. This year, OPEC 4 is proactively intervening to defend the price
band; its latest intervention occurred on September 1st when it cut production
by one million barrels per day. We feel its success is largely a matter of
politics, particularly those concerned with the continuing commonality of
interests among and actions of Saudi Arabia, Venezuela and Iran. We believe oil
prices will be stable or slightly, weaker in the future. We feel these prices
will modestly benefit from the demand of oil importers. The spike upward in
crude prices following the attacks of September 11th was not surprising to us.
Since then, however, crude oil prices have returned to lower levels.
Return volatility for emerging markets debt generally remained below historical
levels. However, the combination of the uncertainty surrounding Turkey's
economic reform and the continued Argentine recession triggered a recent
increase in volatility levels.
Colombian debt, the top performer in the EMBI+, returned 32.34% during the
period, as measured by the EMBI+. Oil prices and export growth were important
contributors to the Colombian economy last year. The global slowdown and lower
coffee and oil prices are beginning to take their toll on the economy. These
developments have led the Colombian Central Bank to lower interest rates this
year. We maintained our slightly overweight position in Colombian debt for the
period.
Russian debt returned 23.38% for the annual period as measured by the EMBI+.
Russian debt continued to perform well as oil prices drove the economy. Russia's
foreign reserves approached new highs as they reached $37 billion in August
2001. Domestic consumption has also contributed to growth; GDP 5 growth was 5.5%
for the first seven months in 2001. Combined with strong fiscal results and an
appreciating ruble, the public sector debt-to-GDP ratio fell from 78% at the end
of 2000 and is projected to reach 60% by the end of 2001. We believe Russia's
improving fundamentals may lead to credit-rating upgrades over the medium term.
-------------
3 A basis point is equal to one hundredth of one percent (0.01%).
4 The Organization of Petroleum Exporting Countries (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
which 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 Gross Domestic Product ("GDP") is the market value of the goods and services
produced by labor and property. GDP comprises consumer and government
purchases, private domestic investments and net exports of goods and services.
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
Mexican debt returned 12.80% as measured by the EMBI+ for the period. The
Mexican economy benefited from rising oil prices as reflected in its overall
levels of growth and fiscal strength. The market continues to anticipate an
upgrade of Mexican debt to investment grade status by Standard & Poor's.
However, we believe the recent terrorist attacks will delay this decision as the
global slowdown and the U.S. recession may gain momentum. We maintained our
exposure to Mexican debt because we believe Mexico is one of the most stable
countries in the emerging markets and the position presently reflects our
overall defensive nature.
Venezuelan debt returned 10.05% for the period, as measured by the EMBI+. Oil
price strength continues to drive the Venezuelan economy as fiscal and external
accounts have shown marked improvement. A clear measure of the positive impact
that rising oil prices have had on Venezuelan credit quality is the level of
international reserves. The stock of international reserves, approximately $23
billion, exceeds the stock of external debt.
Brazilian debt returned negative 0.30% for the period as measured by the EMBI+.
The spike in volatility in international financial markets combined with
concerns about weakness in the Brazilian currency negatively impacted the
economy and led the Brazilian Central Bank to raise the Selic, the overnight
lending rate. We believe the key issue for Brazil remains the sustainability of
its public sector debt in an environment where Argentina's problems have kept
the exchange rate and local interest rates under pressure. The market welcomed
the recent announcement by the IMF 6 granting an extension of a $15 billion line
of credit. We maintained our slight underweighting in Brazilian debt as measured
by the EMBI+.
Argentinian debt returned negative 16.16% as measured by the EMBI+, and was the
Index's worst performer during the period. The country continues to struggle
with a weak economy. We believe Argentina must restore economic growth to
effectively manage its debt service obligations. After a series of false starts
in March, the Argentinian government has installed an economic team led by
Domingo Cavallo. Cavallo, the Harvard trained economist, won an international
reputation for helping Argentina defeat hyper-inflation in the early 1990's. The
market reacted positively to the appointment, but the rating agencies downgraded
Argentina's debt rating three times over the period from B1/BB- to Caa1/B-. In
July, the government enacted a zero-deficit law, limiting public outlays during
each quarter to prospective receipts. We continue to remain underweight
Argentine debt while monitoring developments closely.
OUTLOOK
Emerging debt markets have come under pressure in the wake of Argentina's
three-year recession, the developed world's economic slowdown, and the poor
performance of equity markets. We continue to remain invested in a diversified
portfolio of emerging markets debt securities. That said, we have become more
defensive in our outlook and have attempted to reduce our exposure to market
risk over the past few months.
--------------
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
In a continuing effort to provide timely information concerning the Fund,
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 NAV, market price and other
information regarding the Fund's portfolio holdings and allocations. For
information regarding your account, please call American Stock Transfer & Trust
Company at 1-800-937-5449 (1-718-921-5200 if your are calling from within New
York City).
We appreciate your confidence and look forward to serving you in future years.
Sincerely,
/s/ Stephen J. Treadway /s/ Heath B. McLendon
Stephen J. Treadway Heath B. McLendon
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
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
Statement of Investments
August 31, 2001
FACE MARKET
AMOUNT (a) Bonds+ -- 93.3% VALUE
-------------------------------------------------------------------------------------------------
ARGENTINA -- 9.6%
Republic of Argentina:
Peso 200,000 8.750% due 7/10/02 .......................................... $ 154,200
3,134,000 13.969% due 4/10/05*(b) ..................................... 2,399,861
Peso 130,000 11.750% due 2/12/07 ......................................... 66,386
50 10.000% due 9/19/08*......................................... 34
1,000,000 11.375% due 3/15/10 ......................................... 619,500
500,000 12.250% due 6/19/18 ......................................... 292,500
Peso 1,579,502 BOCON, Pro 1, 3.7308% due 4/1/07* ........................... 661,516
1,760,000 FRB, Series L, 5.5625% due 3/31/05 .......................... 1,343,760
-----------
5,537,757
-----------
BRAZIL -- 30.1%
Federal Republic of Brazil:
2,600,000 9.625% due 7/15/05 .......................................... 2,393,300
427,000 12.250% due 3/6/30 .......................................... 346,297
17,996,000 11.000% due 8/17/40 ......................................... 12,952,621
1,976,471 NMB, Series L, 5.500% due 4/15/09* .......................... 1,572,530
-----------
17,264,748
-----------
BULGARIA -- 5.7%
Republic of Bulgaria:
29,000 DISC, Series A, 4.5625% due 7/28/24* ........................ 23,345
3,450,000 FLIRB, Series A, 4.5625% due 7/28/12* ....................... 2,863,500
500,940 IAB, 4.5625% due 7/28/11* ................................... 404,509
-----------
3,291,354
-----------
COLOMBIA -- 5.3%
Republic of Colombia:
3,000,000 11.750% due 2/25/20 ......................................... 2,979,000
100,000 8.375% due 2/15/27 .......................................... 74,250
-----------
3,053,250
-----------
COSTA RICA -- 0.7%
350,000 Costa Rica, 9.995% due 8/1/20# ................................ 392,875
-----------
ECUADOR -- 4.1%
Republic of Ecuador:
900,000 12.000% due 11/15/12 ........................................ 609,750
726,000 5.000% due 8/15/30*,# ....................................... 307,824
3,387,000 5.000% due 8/15/30* ......................................... 1,436,088
-----------
2,353,662
-----------
See accompanying notes to financial statements.
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 (continued)
August 31, 2001
FACE MARKET
AMOUNT (a) Bonds+ -- 93.3% (continued) VALUE
-------------------------------------------------------------------------------------------------
INDONESIA -- 0.9%
500,000 APP China Group Ltd, 14.000% due 3/15/10(c)(d) ................ $ 31,250
1,000,000 APP International Finance Company B.V., 11.750% due 10/1/05(c)(d) 262,500
1,500,000 Tjiwi Kimia International Finance Company B.V.,
10.000% due 8/1/04(c)(d)..................................... 247,500
-----------
541,250
-----------
IVORY COAST -- 0.9%
Republic of Ivory Coast:
375,000 due 3/29/18(c)(d) ........................................... 56,250
2,107,000 FLIRB, due 3/29/18(c)(d) .................................... 316,050
909,150 PDI Bond, due 3/29/18(c)(d) ................................. 140,918
-----------
513,218
-----------
JAMAICA -- 1.3%
Government of Jamaica:
350,000 10.875% due 6/10/05 ......................................... 366,625
350,000 12.750% due 9/1/07# ......................................... 380,625
-----------
747,250
-----------
MEXICO -- 8.5%
1,000,000 Hylsa S.A. de C.V., 9.250% due 9/15/07 ........................ 455,000
1,500,000 PEMEX, Project Funding Master Trust,
9.125% due 10/13/10.......................................... 1,597,500
United Mexican States:
1,000,000 11.375% due 9/15/16 ......................................... 1,212,500
1,700,000 8.125% due 12/30/19 ......................................... 1,621,375
-----------
4,886,375
-----------
PERU -- 2.8%
2,250,000 Republic of Peru, PDI Bond, 4.50% due 3/7/17* ................. 1,622,812
-----------
PHILIPPINES -- 2.9%
1,925,000 Republic of the Philippines, 9.875% due 1/15/19 ............... 1,655,500
-----------
RUSSIA -- 5.9%
Russian Government:
1,750,000 10.000% due 6/26/07 ......................................... 1,602,344
75,000 8.250% due 3/31/10 .......................................... 59,086
1,842,360 8.250% due 3/31/10# ......................................... 1,451,434
569,500 5.000% due 3/31/30*,# ....................................... 271,580
-----------
3,384,444
-----------
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 (continued)
August 31, 2001
FACE MARKET
AMOUNT (a) Bonds+ -- 93.3% (continued) VALUE
-------------------------------------------------------------------------------------------------
URUGUAY -- 1.0%
578,947 Republic of Uruguay, DCB, Series B, 4.8125% due 2/19/07* ...... $ 564,473
-----------
VENEZUELA -- 13.6%
Republic of Venezuela:
3,900,000 13.625% due 8/15/18 ......................................... 3,748,875
5,850,000 9.250% due 9/15/27 .......................................... 4,033,575
-----------
7,782,450
-----------
TOTAL BONDS (Cost -- $56,610,446).............................. 53,591,418
-----------
Loan Participations+, ++ -- 5.8%
-------------------------------------------------------------------------------------------------
The People's Democratic Republic of Algeria:
235,576 Tranche 1, 5.8125% due 9/4/06* (J.P. Morgan Chase & Co.) .... 204,951
3,735,000 Tranche 3, 5.8125% due 3/4/10* (J.P. Morgan Chase & Co.) .... 3,100,050
-----------
TOTAL LOAN PARTICIPATIONS (Cost -- $2,867,741)................. 3,305,001
-----------
NUMBER OF
CONTRACTS Purchase Call Options (d) -- 0.9%
-------------------------------------------------------------------------------------------------
450 Russian Government 5.000% due 3/31/30, Call @ 47.75, Expire 10/1/01
(Cost -- $535,500)........................................... 513,000
-----------
SHARES Rights+ (d) -- 0.0%
-------------------------------------------------------------------------------------------------
1,000 United Mexican States Rights, Expire 6/30/03 (Cost -- $0) ..... 12
-----------
WARRANTS Warrants (d) -- 0.0%
-------------------------------------------------------------------------------------------------
500+ Asia Pulp and Papers Warrants, Expire 3/15/05# (Cost -- $0) ... 0
-----------
TOTAL INVESTMENTS -- 100.0% (Cost -- $60,013,687**).............. $57,409,431
===========
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 (concluded)
August 31, 2001
------------
(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) Security is currently in default.
(d) Non-income producing security.
* Rate shown reflects rate in effect at August 31, 2001 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 was 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 institu tional investors.
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.
IAB - Interest Arrears Bond.
NMB - New Money Bond.
PDI - Past Due Interest.
Peso - Argentina Peso.
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 Assets and Liabilities
August 31, 2001
Assets
Investments, at value (Cost -- $60,013,687)...................... $57,409,431
Receivable for securities sold................................... 16,871,898
Interest receivable.............................................. 1,333,754
Prepaid expenses................................................. 7,602
-----------
Total Assets..................................................... 75,622,685
-----------
Liabilities
Payable to bank.................................................. 185,901
Loan payable (Note 4)............................................ 20,000,000
Payable for securities purchased................................. 2,928,873
Accrued interest expense on loan................................. 35,842
Management fee payable (Note 2).................................. 30,225
Advisory fee payable (Note 2).................................... 21,589
Accrued expenses................................................. 211,465
-----------
Total Liabilities................................................ 23,413,895
-----------
Net Assets....................................................... $52,208,790
===========
Net Assets
Common Stock ($0.001 par value, authorized
100,000,000; 4,042,888 shares outstanding)..................... $ 4,043
Additional paid-in capital....................................... 55,980,179
Undistributed net investment income.............................. 407,105
Accumulated net realized loss on investments..................... (1,578,347)
Net unrealized depreciation on investments and foreign currency.. (2,604,190)
-----------
Net Assets....................................................... $52,208,790
===========
Net Asset Value Per Share ($52,208,790 / 4,042,888 shares)......... $12.91
======
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 Operations
For the Year Ended August 31, 2001
INCOME
Interest (includes discount accretion of $1,748,196)................ $ 9,180,472
EXPENSES
Interest on loan........................................ $1,588,534
Management fee.......................................... 362,364
Advisory fee............................................ 258,832
Custodian............................................... 64,970
Audit and tax services.................................. 54,925
Legal................................................... 34,880
Directors' fees and expenses............................ 32,025
Printing................................................ 30,185
Listing fees............................................ 20,903
Transfer agent expenses................................. 12,045
Other.................................................. 19,413 2,479,076
--------- -----------
Net Investment Income................................................. 6,701,396
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS
Net Realized Gain on:
Investments....................................................... 2,117,039
Written Options................................................... 65,060
Foreign currency transactions..................................... 43,788
-----------
2,225,887
-----------
Change in Net Unrealized Depreciation on:
Investments....................................................... (6,648,884)
Foreign currency contracts and other assets and liabilities
denominated in foreign currencies............................... (26,530)
-----------
Increase in Net Unrealized Depreciation........................... (6,675,414)
-----------
Net Loss on Investments and Foreign Currency Transactions ............ (4,449,527)
-----------
Net Increase in Net Assets From Operations ........................... $ 2,251,869
===========
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 Changes in Net Assets
For the Year Ended August 31, 2001 and August 31, 2000
2001 2000
-----------------------------------------------------------------------------------------------
OPERATIONS
Net investment income................................. $ 6,701,396 $ 6,744,090
Net realized gain..................................... 2,225,887 2,962,700
(Increase) decrease in net unrealized depreciation.... (6,675,414) 8,313,501
----------- -----------
Increase in Net Assets From Operations................ 2,251,869 18,020,291
----------- -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income................................. (6,647,346) (6,605,849)
----------- -----------
Decrease in Net Assets From
Dividends and Distributions to Shareholders......... (6,647,346) (6,605,849)
----------- -----------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares issued in reinvestment of dividends
(22,128 and 44,240 shares issued)................... 291,491 521,742
----------- -----------
Total Increase (Decrease) in Net Assets................. (4,103,986) 11,936,184
----------- -----------
NET ASSETS
Beginning of period................................... 56,312,776 44,376,592
----------- -----------
End of period (includes undistributed net investment income of
$407,105 and $290,867, respectively)................ $52,208,790 $56,312,776
=========== ===========
Statement of Cash Flows
For the Year Ended August 31, 2001
Cash Flows Provided by Operating Activities:
Purchases of securities............................................. $(126,990,984)
Net purchases of short-term investments............................. (490,310)
Proceeds from sales of securities and principal paydowns............ 127,692,212
-------------
210,918
Net investment income............................................... 6,701,396
Adjustments to reconcile net investment income to net cash provided
by operating activities:
Accretion of discount on investments................................ (1,748,196)
Net change in receivables/payables related to operations............ 703,131
-------------
Net Cash Provided by Operating Activities........................... 5,867,249
-------------
Cash Flows Used by Financing Activities:
Proceeds from shares issued in reinvestment of dividends............ 291,491
Dividends and distributions paid.................................... (6,647,346)
-------------
Net Cash Used by Financing Activities............................... (6,355,855)
-------------
Net Decrease in Cash.................................................. (488,606)
Cash at Beginning of Period........................................... 302,705
-------------
Payable to Bank at End of Period...................................... $ (185,901)
=============
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
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. 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 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 (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
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 (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 year
ended August 31, 2001, the Fund paid interest expense of $1,603,552.
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.
At August 31, 2001, 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, 2001 aggregated
$128,140,871 and $133,912,842 respectively. The federal income tax cost basis of
the Fund's investments at August 31, 2001 was substantially the same as the cost
basis for financial reporting. Gross unrealized appreciation and depreciation
amounted to $3,145,349 and $5,749,605, respectively, resulting in a net
unrealized depreciation on investments of $2,604,256.
PAGE 14
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)
3. PORTFOLIO ACTIVITY AND TAX INFORMATION (CONTINUED)
The following written put option transactions occurred during the year ended
August 31, 2001:
NUMBER OF
CONTRACTS PREMIUM
--------- -------
Options written, outstanding at August 31, 2000 -- $ 0
Options written 482 495,840
Options canceled in closing purchase transactions (482) (495,840)
----- ---------
Options written, outstanding at August 31, 2001 -- $ 0
===== =========
4. BANK LOAN
The Fund has borrowed $20,000,000 pursuant to a secured loan agreement (the
"Loan Agreement") with INGBaring (U.S.) Capital LLC. The interest rate on the
loan is 5.78% and the maturity date is November 21, 2001. The collateral for the
loan was valued at $71,563,929 on August 31, 2001 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, 2001 was $3,305,001.
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
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 (concluded)
6. "WHEN AND IF" ISSUED BONDS (CONTINUED)
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 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, 2001, 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 AUGUST 31, 2001
On July 10, 2001, the Board of Directors of the Fund declared a dividend of
$0.4125 per share, from net investment income, payable on September 28, 2001 to
shareholders of record September 19, 2001.
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 16
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:
YEAR ENDED AUGUST 31,
-----------------------------------------------------------
2001 2000 1999 1998 1997
--------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ........ $14.01 $11.16 $ 7.83 $21.89 $18.04
------ ------ ------ ------ ------
Net investment income ....................... 1.68 1.72 1.88 2.02 2.10
Net realized gain (loss) and change in
unrealized appreciation
(depreciation) on securities and
foreign currency translations ............ (1.13) 2.78 3.83 (10.84) 5.00
------ ------ ------ ------ ------
Total from investment operations ............ 0.55 4.50 5.71 (8.82) 7.10
------ ------ ------ ------ ------
Dividends and distributions to
shareholders from:
Net investment income .................... (1.65) (1.65) (2.41) (2.03) (2.19)
Net realized capital gains ............... -- -- -- (2.98) (1.06)
Capital .................................. -- -- (0.02) -- --
Distributions in excess of net realized
capital gains ............................ -- -- -- (0.23) --
------ ------ ------ ------ ------
Total dividends and distributions to
shareholders ............................. (1.65) (1.65) (2.43) (5.24) (3.25)
------ ------ ------ ------ ------
Increase in net asset value due to shares
issued on reinvestment of dividends ...... -- -- 0.05 -- --
------ ------ ------ ------ ------
Net increase (decrease) in net asset value .. (1.10) 2.85 3.33 (14.06) 3.85
------ ------ ------ ------ ------
Net asset value, end of period .............. $12.91 $14.01 $11.16 $ 7.83 $21.89
====== ====== ====== ====== ======
Per share market value, end of period ....... $13.15 $13.9375 $12.50 $ 9.50 $19.4375
====== ======== ====== ====== ========
Total investment return based on market
price per share (a) ...................... 7.14% 27.51% 62.97% -35.00% 39.18%
Ratios to Average Net Assets:
Total expenses, including
interest expense ....................... 4.76% 5.00% 5.03% 3.79% 3.58%
Total expenses, excluding
interest expense (operating
expenses) .............................. 1.71% 1.73% 1.85% 1.73% 1.70%
Net investment income .................... 12.87% 13.33% 18.13% 11.56% 10.44%
Supplemental Data:
Net assets, end of period ................ $52,208,790 $56,312,776 $44,376,592 $29,522,593 $76,873,572
Portfolio turnover rate .................. 195% 136% 87% 141% 112%
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 .............................. 5.78% 9.06125% 7.17875% 6.28125% 6.50%
Weighted average bank loan ............... $20,000,000 $20,000,000 $20,000,000 $20,000,000 $20,000,000
Weighted average interest rate ........... 7.94% 8.26% 6.48% 6.44% 6.64%
-------------
(a) Dividends are assumed, for purposes of this calculation, to be reinvested at prices obtained under the
Fund's dividend reinvestment plan.
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
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, 2001, the results of its operations
and 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, 2001 by correspondence with the custodian and
brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
New York, New York
October 23, 2001
PAGE 18
T H E E M E R G I N G M A R K E T S I N C O M E F U N D I N C
Pursuant to certain rules of the Securities and Exchange Commission, the
following additional disclosure is provided.
Form of Terms and Conditions of Amended and Restated Dividend Reinvestment and
Cash Purchase Plan (unaudited)
1. Each shareholder holding shares of common stock ("Shares") of The Emerging
Markets Income Fund II Inc (the "Fund") will be deemed to have elected to be a
participant in the Amended and Restated Dividend Reinvestment and Cash Purchase
Plan (the "Plan"), unless the shareholder specifically elects in writing
(addressed to the Agent at the address below or to any nominee who holds Shares
for the shareholder in its name) to receive all income dividends and
distributions of capital gains in cash, paid by check, mailed directly to the
record holder by or under the direction of American Stock Transfer & Trust
Company as the Fund's dividend-paying agent (the "Agent"). A shareholder whose
Shares are held in the name of a broker or nominee who does not provide an
automatic reinvestment service may be required to take such Shares out of
"street name" and register such Shares in the shareholder's name in order to
participate, otherwise dividends and distributions will be paid in cash to such
shareholder by the broker or nominee. Each participant in the Plan is referred
to herein as a "Participant." The Agent will act as Agent for each Participant,
and will open accounts for each Participant under the Plan in the same name as
their Shares are registered.
2. Unless the Fund declares a dividend or distribution payable only in the form
of cash, the Agent will apply all dividends and distributions in the manner set
forth below.
3. If, on the determination date, the market price per Share equals or exceeds
the net asset value per Share on that date (such condition, a "market premium"),
the Agent will receive the dividend or distribution in newly issued Shares of
the Fund on behalf of Participants. If, on the determination date, the net asset
value per Share exceeds the market price per Share (such condition, a "market
discount"), the Agent will purchase Shares in the open-market. The determination
date will be the fourth New York Stock Exchange trading day (a New York Stock
Exchange trading day being referred to herein as a "Trading Day") preceding the
payment date for the dividend or distribution. For purposes herein, "market
price" will mean the average of the highest and lowest prices at which the
Shares sell on the New York Stock Exchange on the particular date, or if there
is no sale on that date, the average of the closing bid and asked quotations.
4. Purchases made by the Agent will be made as soon as practicable commencing on
the Trading Day following the determination date and terminating no later than
30 days after the dividend or distribution payment date except where temporary
curtailment or suspension of purchase is necessary to comply with applicable
provisions of federal securities law; provided, however, that such purchases
will, in any event, terminate on the earlier of (i) 60 days after the dividend
or distribution payment date and (ii) the Trading Day prior to the "ex-dividend"
date next succeeding the dividend or distribution payment date.
PAGE 19
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 20
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 7 World Trade Center
Consultant; formerly Chairman, New York, New York 10048
ASARCO Inc. For information call (toll free)
1-888-777-0102
LESLIE H. GELB
President, The Council INVESTMENT MANAGER
on Foreign Relations Salomon Brothers Asset Management Inc
125 Broad Street
HEATH B. MCLENDON New York, New York 10004
Co-Chairman of the Board;
Managing Director, Salomon INVESTMENT ADVISER
Smith Barney Inc. PIMCO Advisors L.P.
President and Director, Smith Barney Fund 800 Newport Center Drive
Management LLC and Travelers Newport Beach, California 92660
Investment Advisers, Inc.
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
40 Wall Street
JESWALD W. SALACUSE New York, New York 10005
Henry J. Braker Professor of
Commercial Law, and formerly Dean, INDEPENDENT ACCOUNTANTS
The Fletcher School of Law & Diplomacy PricewaterhouseCoopers LLP
Tufts University 1177 Avenue of the Americas
New York, New York 10036
STEPHEN J. TREADWAY
Co-Chairman of the Board; LEGAL COUNSEL
Executive Vice President, Simpson Thacher & Bartlett
PIMCO Advisors LP 425 Lexington Avenue
Chairman and President, New York, New York 10017
PIMCO Funds Distributors LLC
NEW YORK STOCK EXCHANGE SYMBOL
EMD
Officers
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
The Emerging Markets
Income Fund Inc
Annual Report
AUGUST 31, 2001
---------------------------------------------------
The Emerging Markets Income Fund Inc
-----------------------------------------------------------------
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
EMDANN 8/01
PRSRT-STD
U.S. POSTAGE
PAID
PERMIT No. 169
STATEN ISLAND, NY