SALOMON BROTHERS EMERGING MARKETS INCOME FUND INC.
Letter From the Chairman
Dear Shareholder:
Despite their usual volatility, emerging market debt securities as a whole
delivered buoyant, double-digit returns over the last six months, far outpacing
other fixed-income securities as well as general equity returns. The robust
performance was driven by the elections of market-friendly governments in the
key nations of Brazil and Ecuador. And the rising price of oil lifted the
economies of several commodity-oriented emerging nations, particularly Russia
and Ecuador. While emerging economies were hampered somewhat by lingering
geopolitical uncertainty, we believe that over the longer term, potential growth
in these developing economies and attractive yields make emerging market debt a
useful addition to a well-balanced investment portfolio.
No matter what the future holds, there are several things you can do now to best
position your investment portfolio for whatever comes next:
o First and foremost, you should talk with your financial adviser, who will work
with you to find the best solutions for your individual investing needs.
o Secondly, now is a great time to review your investment plan. Every successful
investment strategy begins with a plan, so whether you already have one or
not, times like these provide the perfect opportunity to make sure your
portfolio is on track. Even if your long-term goals haven't changed, your
financial adviser can help you to decide what you can do now to achieve them
in the ever-changing market.
As always, thank you for your confidence in our investment management teams.
Please read on to learn more about your Fund's performance and the Manager's
strategy.
Sincerely,
/s/ R. Jay Gerken
R. Jay Gerken
Chairman and Chief Executive Officer
March 14, 2003
[PHOTO}
R. Jay Gerken
Chairman and
Chief Executive
Officer
SALOMON BROTHERS EMERGING MARKETS INCOME FUND INC.
Manager Overview
Performance Review
During the semi-annual period ended February 28, 2003, Salomon Brothers Emerging
Markets Income Fund Inc. ("Fund") (formerly known as The Emerging Markets Income
Fund Inc) performed very well posting a gain of 27.85% (based on its NAV) and
26.72% (based on market price), significantly outperforming the J.P. Morgan
Emerging Markets Bond Index Plus ("EMBI+"), i a recognized index for this
market, which returned 16.32%. Based on NAV, the Fund also considerably
outperformed its Lipper peer group of closed-end emerging markets debt funds,
which returned 20.03% for the period. ii
During the six months ended February 28, 2003, the Fund distributed income
dividends to shareholders totaling $0.83 per share. The table below shows the
annualized distribution yield and six-month total return based on the Fund's
February 28, 2003 net asset value ("NAV") per share and its New York Stock
Exchange ("NYSE") closing price. iii PAST PERFORMANCE IS NOT INDICATIVE OF
FUTURE RESULTS.
Total Return
Price Annualized for the Six-
Per Share Distribution Yield iv Month Period iv
------------- --------------------- ---------------
$14.09 (NAV) 11.71% 27.85%
$14.60 (NYSE) 11.30% 26.72%
Market Overview
The period was characterized by a number of developments that affected
investors' assessments of risk. Corporate misdeeds at Enron Corp., WorldCom
Inc., Tyco International Ltd. and Global Crossing Ltd. shook investor confidence
across virtually all risk-oriented markets. Investors also became concerned
about the uncertain outlook for the U.S. economic growth, especially in light of
expectations of the possible military action in Iraq. As a result, risk assets
globally traded poorly with the U.S. equity market declining more than 7% v
during the fiscal period. With an uncertain and weakening outlook for U.S.
economic growth, investors anticipated an interest rate reduction by the Federal
Reserve ("Fed"). vi The Fed eased credit conditions on November 6th when it cut
the short-term federal funds ratevii by 50 basis points (i.e., half a percentage
point), to 1.25%, the lowest level in 41 years. This rate cut contributed to the
equity market rally in the fourth calendar quarter and eased investors' concerns
towards riskier asset classes.
Emerging Markets Debt
Emerging markets debt, as measured by the EMBI+, returned 16.32% for the period.
The markets remained volatile during the first half of the reporting period but
staged a year-end rally that continued into January and February of 2003.
Country performance was solid and the performance of all countries' markets
reflected in the Index, with the exception of Venezuela, posted gains for the
fiscal period. The market performance during this period was primarily driven by
presidential elections in Brazil and Ecuador and the resulting pro-market
reforms that the winning candidates put forth. The market rally for emerging
markets debt was also supported by stronger-than-expected economic data in
SALOMON BROTHERS EMERGING MARKETS INCOME FUND INC.
the U.S. as well as by higher oil prices, which increased revenues for many
oil-exporting countries in the emerging markets. During the period, oil prices
increased by more than $10 per barrel to almost $40.
During the period, EMBI+ sovereign spreads (i.e., the difference between yields
on sovereign debt and U.S. Treasuries) tightened by 179 basis points (1.79%),
closing at 707 basis points (7.07%) over U.S. Treasuries. This is important as
declining spreads often indicate a declining risk perception in the market and
generally lead to an increase in bond prices. Return volatility was
approximately 10%, substantially below long-term historical levels of 15-16%.
Developments in some of the key emerging markets over the period are described
below. (The performances of the following debt markets are measured by the
EMBI+.)
Brazil. The market for Brazilian debt, which was the second best performer in
the EMBI+ during this period, posted a gain of 30.57%. The Brazilian market
rebounded following presidential elections in October as markets reacted
favorably to comments from new President Lula and his top advisers. The Fund's
overweight position in Brazilian debt relative to the EMBI+ positively
contributed to its performance during this period. As of the period's close,
approximately 25% of the Fund's total investments were invested in Brazilian
debt.
Ecuador. Despite its inability to secure an agreement with the International
Monetary Fund ("IMF"),viii the country returned 24.61% for the period. This
performance was primarily due to the austerity decree passed by newly elected
President Gutierrez in January which demonstrated the government's determination
to implement prudent fiscal measures. As a result of which, the country has
subsequently reached agreement with the IMF on a new program. During this fiscal
period, the Fund remained overweighted Ecuadorian debt relative to the EMBI+,
which helped the performance of the Fund.
Colombia. The market for Colombian debt finished the fiscal period on a strong
note, returning 20.79% for the period. The country continued to make progress in
economic and political reforms and has gained important support from the U.S.
During the period the Fund remained overweighted Colombian debt relative to the
benchmark.
Mexico. The country's strong credit fundamentals combined with higher oil prices
supported the performance of Mexico's debt market, which returned 9.63% for the
period. Mexico's strong fiscal position has enabled the country to avoid budget
cuts in the current economic slowdown. The primary risk to stability is
political, as President Fox continues to work with the congressional opposition.
The Fund is currently market-weight Mexico relative to the EMBI+.
Venezuela. Faced with political instability and economic turmoil, Venezuela's
market returned negative 4.42%. The general strike organized by opposition
parties started on December 2nd with the stated goal of removing President
Chavez from office. The strike has shut down most commerce in the country
including the oil industry, the largest generator of tax revenues and export
earnings. The strike started winding down at the end of January, however, it has
already had a devastating impact on the domestic economy. We believe this will
have a long-term negative effect on the country's ability to service its debt.
The Fund continues to have no exposure to Venezuela.
SALOMON BROTHERS EMERGING MARKETS INCOME FUND INC.
Turkey. The market returned 19.97% for the period as the country's strategic
importance combined with significant IMF support has attracted investor
interest. The domestic economy has stabilized with a return of investor
confidence, a decline in interest rates and a stronger currency. In addition,
the market reacted positively to the outcome of the November general elections
that were won by the Justice and Development Party ("AKP"). While the Fund's
overweighted position in Turkey versus the EMBI+ helped the Fund during the
period, we reduced the allocation to an underweighted position as we were
concerned that Turkey's inability to approve U.S. troops' deployment on Turkish
soil may impair the potential for economic aid.
Russia. The Russian debt market generated a return of 22.35% for the period.
Despite the slowdown of industrial production, Russia's macroeconomic
fundamentals remain strong and its economy continues to benefit from high oil
prices. President Putin used this period of prosperity to promote his reform
agenda. Last December, Moody's Investors Serviceix upgraded Russia's credit
rating to Ba2. While we are happy with Russia's progress, we have reduced the
Fund's exposure as we are concerned that Russian bond prices may have overshot
real economic improvements in Russia.
Bulgaria. The market for Bulgarian debt returned 10.15% for the period as
investors were encouraged by the announcement that Bulgaria was among the 10
countries invited to join the European Union in 2004. Based on the government's
fiscal performance and active management of its liabilities, Fitch Ratingsx
upgraded Bulgaria's long-term foreign-currency ratings to BB from BB-. The Fund
remained overweight Bulgarian debt relative to the EMBI+ during most of the
period, but we have reduced this exposure to an underweight position. As in the
case with Russia, we are concerned that Bulgarian bonds have become overpriced.
Market Outlook
We think that higher yields available through emerging markets debt should
support investor interest in these markets in 2003. Our main concern at this
point would be increased risk volatility in global markets, which we remain
vigilant in monitoring. We anticipate that the U.S. economy will improve as the
year progresses. However, we believe that the timing of a recovery will be
influenced by the manner and timeliness in which the geopolitical issues abroad,
specifically the tensions in Iraq, are resolved.
Looking for Additional Information?
Salomon Brothers Emerging Markets Income Fund Inc. is traded on the New York
Stock Exchange under the symbol "EMD" and its closing market price is available
in most newspapers under the New York Stock Exchange listings. Daily net asset
value closing prices are available online under symbol XEMDX. Barron's and The
Wall Street Journal's Monday editions carry closed-end fund tables that will
provide weekly net asset value per share information. In addition, the Fund
issues a quarterly allocation press release that can be found on most major
financial web sites.
In a continuing effort to provide information concerning Salomon Brothers
Emerging Markets Income Fund Inc., shareholders may call 1-888-777-0102 or
1-800-SALOMON (toll free), Monday through Friday from 8:00 a.m. to 6:00 p.m.
Eastern Standard Time (EST), for the Fund's current net asset value, market
price and other information regarding the Fund's portfolio holdings and
allocations.
SALOMON BROTHERS EMERGING MARKETS INCOME FUND INC.
Thank you for your investment in Salomon Brothers Emerging Markets Income Fund
Inc. We look forward to continuing to help you meet your investment objectives.
Sincerely,
/s/ Peter J. Wilby /s/ James E. Craige
Peter J. Wilby, CFA James E. Craige, CFA
President Executive Vice President
March 14, 2003
The information provided in this letter by the Manager is not intended to be a
forecast of future events, a guarantee of future results or investment advice.
Views expressed may differ from those of the firm as a whole. Portfolio holdings
and breakdowns are as of February 28, 2003 and are subject to change. Please
refer to pages 6 through 9 for a list and percentage breakdown of the Fund's
holdings.
-------------------------------------------------------------------------------
i 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. Please note that an investor cannot invest
directly in an index.
ii Lipper is a major independent mutual fund tracking organization. Average
annual returns are based on the six-month period ended February 28, 2003,
calculated among 12 funds in the closed-end emerging markets debt fund
category with reinvestment of dividends and capital gains, excluding sales
charges.
iii NAV is a price that reflects the market value of the Fund's underlying
portfolio. However, the price at which an investor may buy or sell shares
of the Fund is at the Fund's market price as determined by supply of and
demand for the Fund's common shares.
iv Total returns are based on changes in NAV or the market price,
respectively. Total returns assume the reinvestment of all dividends
and/or capital gains distributions in additional shares. Annualized
distribution yield is the Fund's current quarterly income dividend rate,
annualized, and then divided by the NAV or the market price noted in this
report. The annualized distribution yield assumes a current quarterly
income dividend rate of $0.4125 for four quarters. This rate is as of
February 28, 2003 and is subject to change.
v Based upon the performance of the S&P 500 Index, which is a market
capitalization-weighted index of 500 widely held common stocks. Please
note that an investor cannot invest directly in an index.
vi The Fed is responsible for the formulation of a policy designed to promote
economic growth, full employment, stable prices and a sustainable pattern
of international trade and payments.
vii The federal funds rate is the interest rate that banks with excess
reserves at a Federal Reserve district bank charge other banks that need
overnight loans. The federal funds rate often points to the direction
of U.S. interest rates.
viii The IMF is an international organization of various member countries
established to promote international monetary cooperation, exchange
stability and orderly exchange arrangements.
ix Moody's Investors Service is a nationally recognized credit rating agency.
x Fitch Ratings is a nationally recognized credit rating service.
SALOMON BROTHERS EMERGING MARKETS INCOME FUND INC.
Schedule of Investments (unaudited)
February 28, 2003
Face
Amount+ Security(a) Value
-------------------------------------------------------------------------------------------------------
Sovereign Bonds -- 88.2%
Argentina -- 2.2%
Republic of Argentina:
50 ARS 10.000% due 9/19/08 (b)..................................... $ 13
5,323,000 Due 4/10/05 (b) ............................................ 1,383,980
1,000,000 Series E, zero coupon due 10/15/03 (b) ..................... 225,000
-----------
1,608,993
-----------
Brazil -- 24.9%
Federal Republic of Brazil:
435,000 11.250% due 7/26/07.......................................... 378,450
3,300,000 11.500% due 3/12/08.......................................... 2,825,625
1,050,000 9.375% due 4/7/08 ........................................... 824,250
3,600,000 14.500% due 10/15/09 ........................................ 3,379,500
4,900,000 12.000% due 4/15/10 ......................................... 4,109,875
327,000 12.250% due 3/6/30........................................... 254,324
4,740,929 C Bond, 8.000% due 4/15/14 .................................. 3,540,881
2,525,000 DCB, Series L, 2.625% due 4/15/12 (c) ....................... 1,573,391
1,720,588 NMB, Series L, 2.625% due 4/15/09 (c) ....................... 1,271,085
-----------
18,157,381
-----------
Bulgaria -- 2.3%
Republic of Bulgaria:
880,000 8.250% due 1/15/15........................................... 1,005,125
725,000 Discount Bond, Series A, 2.1875% due 7/28/24 (c)............. 706,875
-----------
1,712,000
-----------
Colombia -- 5.2%
Republic of Colombia:
1,800,000 7.625% due 2/15/07........................................... 1,746,000
625,000 9.750% due 4/23/09........................................... 659,375
725,000 10.000% due 1/23/12.......................................... 728,263
550,000 10.750% due 1/15/13.......................................... 565,675
100,000 8.375% due 2/15/27........................................... 78,250
-----------
3,777,563
-----------
Costa Rica -- 1.8%
Republic of Costa Rica:
200,000 6.914% due 1/31/08 (d)....................................... 201,250
750,000 8.050% due 1/31/13 (d)....................................... 762,188
350,000 9.995% due 8/1/20 (d)........................................ 377,125
-----------
1,340,563
-----------
-------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
Page 6
SALOMON BROTHERS EMERGING MARKETS INCOME FUND INC.
Schedule of Investments (unaudited) (continued)
February 28, 2003
Face
Amount+ Security(a) Value
-------------------------------------------------------------------------------------------------------
Ecuador -- 4.7%
Republic of Ecuador:
4,825,000 12.000% due 11/15/12 ........................................ $ 3,232,750
426,000 6.000% due 8/15/30 (c)....................................... 208,101
-----------
3,440,851
-----------
El Salvador -- 1.8%
Republic of El Salvador:
575,000 7.750% due 1/24/23........................................... 597,281
750,000 8.250% due 4/10/32 .......................................... 720,000
-----------
1,317,281
-----------
Mexico -- 16.4%
United Mexican States:
1,725,000 6.625% due 3/3/15 ............................................ 1,696,106
1,075,000 11.375% due 9/15/16 .......................................... 1,464,688
4,525,000 8.125% due 12/30/19 .......................................... 4,812,338
3,725,000 8.300% due 8/15/31 ........................................... 3,959,675
-----------
11,932,807
-----------
Panama -- 4.8%
Republic of Panama:
1,300,000 9.625% due 2/8/11 ........................................... 1,410,500
1,200,000 9.375% due 1/16/23 .......................................... 1,225,500
825,000 8.875% due 9/30/27........................................... 829,125
-----------
3,465,125
-----------
Peru -- 2.4%
Republic of Peru:
925,000 9.875% due 2/6/15............................................ 964,312
931,000 PDI Bond, 4.500% due 3/7/17 (c).............................. 768,075
-----------
1,732,387
-----------
Philippines -- 5.0%
Republic of the Philippines:
500,000 8.375% due 3/12/09........................................... 503,750
675,000 9.000% due 2/15/13........................................... 660,825
225,000 9.375% due 1/18/17........................................... 228,937
2,200,000 10.625% due 3/16/25.......................................... 2,261,820
-----------
3,655,332
-----------
Poland -- 1.4%
1,039,780 Republic of Poland, PDI Bond, 7.000% due 10/27/14 ............. 1,048,098
-----------
Russia -- 10.6%
5,250,000 Russian Government, 12.750% due 6/24/28 ....................... 7,730,625
-----------
-------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
Page 7
SALOMON BROTHERS EMERGING MARKETS INCOME FUND INC.
Schedule of Investments (unaudited) (continued)
February 28, 2003
Face
Amount+ Security(a) Value
-------------------------------------------------------------------------------------------------------
Turkey -- 4.3%
Republic of Turkey:
2,750,000 11.500% due 1/23/12.......................................... $ 2,856,563
275,000 11.000% due 1/14/13.......................................... 277,406
-----------
3,133,969
-----------
Uruguay -- 0.4%
Republic of Uruguay:
275,000 7.875% due 3/25/09........................................... 132,687
315,791 DCB, Series B, 2.3125% due 2/19/07 (c)....................... 170,527
-----------
303,214
-----------
Total Sovereign Bonds (Cost -- $63,084,963)........................ 64,356,189
-----------
Loan Participations (c)(e) -- 4.8%
3,714,561 Kingdom of Morocco, Tranche A, 2.1875% due 1/2/09
(CS First Boston Corp., J.P. Morgan Chase & Co.,
UBSAG) (Cost -- $3,422,756) ................................. 3,454,542
-----------
Corporate Bonds -- 4.8%
PEMEX Project Funding Master Trust:
450,000 6.125% due 8/15/08 (d)....................................... 457,875
1,500,000 9.125% due 10/13/10.......................................... 1,719,375
1,250,000 8.000% due 11/15/11 ......................................... 1,340,625
-----------
Total Corporate Bonds (Cost -- $3,299,783)......................... 3,517,875
-----------
Warrants
--------------
Warrants (d)(f) -- 0.0%
500 Asia Pulp & Paper (Exercise price of $7.8375 per share expiring
on 3/15/05. Each warrant exercisable for 12.914 shares of
Asia Pulp & Paper) (Cost -- $0)................................ 5
-----------
-------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
Page 8
SALOMON BROTHERS EMERGING MARKETS INCOME FUND INC.
*9
Schedule of Investments (unaudited) (continued)
February 28, 2003
Face
Amount Security(a) Value
------------------------------------------------------------------------------------------------------
Repurchase Agreements -- 2.2%
$1,000,000 Greenwich Capital Markets, Inc., 1.280% due 3/3/03; Proceeds at
maturity -- $1,000,107; (Fully collateralized by U.S. Treasury
Notes, 3.875% due 2/15/13; Market value -- $1,021,090) ...... $ 1,000,000
611,000 UBSPaineWebber Inc., 1.270% due 3/3/03; Proceeds at
maturity -- $611,065; (Fully collateralized by U.S. Treasury
Bonds, 9.125% due 5/15/18; Market value -- $624,713) ........ 611,000
-----------
Total Repurchase Agreements (Cost -- $1,611,000)............... 1,611,000
-----------
Total Investments -- 100% (Cost -- $71,418,502*)............... $72,939,611
===========
===============================================================================
+ Principal denominated in U.S. dollars unless otherwise indicated.
(a) All securities are segregated as collateral pursuant to a revolving credit
facility.
(b) Security is currently in default.
(c) Rate shown reflects current rate on instrument with variable rate or step
coupon rates.
(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 institu tional buyers.
(e) Participation interests were acquired through the financial institutions
indicated parenthetically.
(f) Non-income producing security.
* Aggregate cost for Federal income tax purposes is substantially the same.
Abbreviations used in this schedule:
----------------------------------------
ARS -- Argentina Peso.
C Bond -- Capitalization Bond.
DCB -- Debt Conversion Bond.
NMB -- New Money Bond.
PDI -- Past Due Interest.
----------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
Page 9
SALOMON BROTHERS EMERGING MARKETS INCOME FUND INC.
Statement of Assets and Liabilities (unaudited)
February 28, 2003
Assets:
Investments, at value (Cost -- $71,418,502)........................................ $72,939,611
Foreign currency, at value (Cost -- $12,609)....................................... 3,949
Receivable for securities sold..................................................... 8,891,271
Interest receivable................................................................ 1,734,427
Prepaid expenses................................................................... 21,451
-----------
Total Assets....................................................................... 83,590,709
-----------
Liabilities:
Loan payable (Note 4).............................................................. 20,000,000
Payable for securities purchased................................................... 5,772,600
Loan interest payable.............................................................. 81,819
Management fee payable ............................................................ 44,285
Payable to bank ................................................................... 68
Accrued expenses................................................................... 119,468
-----------
Total Liabilities.................................................................. 26,018,240
-----------
Total Net Assets..................................................................... $57,572,469
===========
Net Assets:
Common stock ($0.001 par value, 100,000,000 shares authorized;
4,087,174 shares outstanding).................................................... $ 4,087
Capital paid in excess of par value ............................................... 56,542,779
Undistributed net investment income................................................ 420,913
Accumulated net realized loss from security transactions and options............... (907,759)
Net unrealized appreciation of investments and foreign currencies.................. 1,512,449
-----------
Total Net Assets..................................................................... $57,572,469
===========
Net Asset Value, per share ($57,572,469 / 4,087,174 shares outstanding).............. $14.09
======
----------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
Page 10
SALOMON BROTHERS EMERGING MARKETS INCOME FUND INC.
Statement of Operations (unaudited)
For the Six Months Ended February 28, 2003
INCOME:
Interest (includes amortization of net premium/discount accretion of $510,116)..... $ 4,188,223
------------
EXPENSES:
Interest expense (Note 4).......................................................... 266,130
Management fee (Note 2)............................................................ 211,497
Audit and legal.................................................................... 70,570
Advisory fee (Note 2).............................................................. 68,240
Shareholder communications......................................................... 29,847
Custody............................................................................ 24,462
Directors' fees ................................................................... 14,357
Loan fees.......................................................................... 13,617
Shareholder servicing fees......................................................... 9,084
Listing fees....................................................................... 8,677
Other.............................................................................. 7,980
-----------
Total Expenses..................................................................... 724,461
-----------
Net Investment Income................................................................ 3,463,762
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, OPTIONS
AND FOREIGN CURRENCIES (NOTE 3):
Realized Gain (Loss) From:
Security transactions (excluding short-term securities).......................... 1,240,836
Options purchased................................................................ 700,208
Foreign currency transactions.................................................... (10,398)
-----------
Net Realized Gain.................................................................. 1,930,646
-----------
Change in Net Unrealized Appreciation From:
Security transactions ........................................................... 7,280,296
Foreign currency transactions.................................................... 11,349
-----------
Increase in Net Unrealized Appreciation............................................ 7,291,645
-----------
Net Gain on Investments, Options and Foreign Currencies.............................. 9,222,291
-----------
Increase in Net Assets From Operations .............................................. $12,686,053
===========
-----------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
Page 11
SALOMON BROTHERS EMERGING MARKETS INCOME FUND INC.
Statements of Changes in Net Assets
For the Six Months Ended February 28, 2003 (unaudited)
and the Year Ended August 31, 2002
2003 2002
-----------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income............................................. $ 3,463,762 $ 6,777,592
Net realized gain (loss).......................................... 1,930,646 (1,433,598)
Increase (decrease) in net unrealized appreciation................ 7,291,645 (3,178,046)
------------ ------------
Increase in Net Assets From Operations............................ 12,686,053 2,165,948
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income............................................. (3,361,876) (6,689,090)
------------ ------------
Decrease in Net Assets From Distributions to Shareholders......... (3,361,876) (6,689,090)
------------ ------------
FUND SHARE TRANSACTIONS:
Proceeds from shares issued on reinvestment of dividends
(16,071 and 28,215 shares issued, respectively)................. 199,718 362,926
------------ ------------
Increase in Net Assets From Fund Share Transactions............... 199,718 362,926
------------ ------------
Increase (Decrease) in Net Assets................................... 9,523,895 (4,160,216)
NET ASSETS:
Beginning of period............................................... 48,048,574 52,208,790
------------ ------------
End of period*.................................................... $ 57,572,469 $ 48,048,574
============ ============
* Includes undistributed net investment income of:................. $420,913 $329,425
============ ============
-----------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
Page 12
SALOMON BROTHERS EMERGING MARKETS INCOME FUND INC.
Statement of Cash Flows (unaudited)
For the Six Months Ended February 28, 2003
CASH FLOWS PROVIDED (USED) BY OPERATING ACTIVITIES:
Purchases of long-term portfolio investments....................................... $(73,832,623)
Proceeds from disposition of long-term portfolio investments and principal paydowns 74,267,594
Net purchases of short-term portfolio investments.................................. (289,792)
------------
145,179
Net investment income.............................................................. 3,463,762
Adjustments to reconcile net investment income to net cash
provided by operating activites:
Accretion of net premium/discount on investments................................. (510,116)
Net change in receivables/payables related to operations......................... 47,481
Net change in unrealized depreciation of foreign currencies...................... 11,349
------------
Net Cash Flows Provided by Operating Activities.................................... 3,157,655
------------
CASH FLOWS PROVIDED (USED) BY FINANCING ACTIVITIES:
Distributions paid................................................................. (3,361,876)
Proceeds from reinvestment of dividends............................................ 199,718
------------
Net Cash Flows Used by Financing Activities........................................ (3,162,158)
------------
Net Decrease in Cash................................................................. (4,503)
Cash, Beginning of period............................................................ 8,384
------------
Cash, End of period.................................................................. $ 3,881
============
-----------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
Page 13
SALOMON BROTHERS EMERGING MARKETS INCOME FUND INC.
Notes to Financial Statements (unaudited)
Note 1. Organization and Significant Accounting Policies
Salomon Brothers Emerging Markets Income Fund Inc. ("Fund"), formerly known as
The Emerging Markets Income Fund Inc, 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 $0.001 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 under normal conditions invests at least 80% of its net
assets plus any borrowings for investment purposes in debt securities of
governments and government-related issuers located in emerging market countries
(including participations in loans between governments and financial
institutions), and of entities organized to restructure outstanding debt of such
issuers, and in debt securities of corporate issuers located in emerging market
countries.
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 accounting principles generally accepted in the
United States of America ("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 and
options 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
price 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 and premium on securities purchased is accreted and amortized 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
Page 14
SALOMON BROTHERS EMERGING MARKETS INCOME FUND INC.
Notes to Financial Statements (unaudited) (continued)
translated into U.S. dollar amounts at the date of valuation using the 12:00
noon rate of exchange reported by Reuters. Purchases and sales of portfolio
securities and income and expense items denominated in foreign currencies are
translated into U.S. dollars at rates of exchange prevailing on the respective
dates of such transactions. Net realized gains and losses on foreign currency
transactions represent net gains and losses from sales and maturities of forward
currency contracts, disposition of foreign currencies, currency gains and losses
realized between the trade and settlement dates on securities transactions and
the difference between the amount of income accrued and the U.S. dollar
equivalent amount actually received. The Fund does not isolate that portion of
gains and losses on investments which is due to changes in foreign exchange
rates from that which is due to changes in market prices of the securities. Such
fluctuations are included with the net realized and unrealized gain or loss from
investments. 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 tax purposes are reported as tax return of
capital.
(g) 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, 2003, the Fund paid interest expense of $289,872.
Page 15
SALOMON BROTHERS EMERGING MARKETS INCOME FUND INC.
Notes to Financial Statements (unaudited) (continued)
(h) YEAR END TAX RECLASSIFICATIONS. The character of income and gains to be
distributed are determined in accordance with income tax regulations which may
differ from GAAP. At August 31, 2002, reclassifications were made to the capital
accounts of the Fund to reflect permanent book/tax differences and income and
gains available for distributions under income tax regulations. Net investment
income, net realized loss and net assets were not affected by this change.
(i) CHANGE IN ACCOUNTING POLICY. In November 2000, the American Institute of
Certified Public Accountants ("AICPA") issued a revised Audit and Accounting
Guide for Investment Companies ("Guide"). This revised version is effective for
financial statements issued for fiscal years beginning after December 15, 2000.
The revised Guide requires the Fund to amortize premium and accrete all
discounts on all fixed-income securities. The Fund adopted this requirement
September 1, 2001 and recorded adjustments to decrease the cost of securities
and decrease accumulated undistributed net investment income by $3,040 to
reflect the cumulative effect of this change up to the date of the adoption.
This change does not affect the Fund's net asset value, but does change the
classification of certain amounts in the statement of operations.
Note 2. Management and Advisory Fees and Other Transactions
For the period from September 1, 2002 through December 15, 2002, the Fund was a
party to an investment advisory agreement with PIMCO Funds Advisors LLC
("PIMCO"), an indirect wholly-owned subsidiary of Allianz Dresdner Asset
Management of America L.P., formerly known as PIMCO Advisors L.P., a
wholly-owned subsidiary of Allianz AG, pursuant to which PIMCO, among other
things, supervised the Fund's investment program, including advising and
consulting with the Fund's investment manager regarding the Fund's overall
investment strategy. During that same period, the Fund was also a party to a
management and administration agreement with Salomon Brothers Asset Management
Inc ("SBAM"), an indirect wholly-owned subsidiary of Citigroup Inc.
("Citigroup"), pursuant to which SBAM, among other things, was responsible for
the day-to-day management of the Fund's portfolio, including making investment
strategy decisions for the Fund and managing and investing the assets of the
Fund in accordance with its stated policies. SBAM also provided administration
and stockholder services for the Fund pursuant to the agreement.
Effective December 16, 2002, the Fund entered into a new investment advisory and
administration agreement with SBAM. Under the terms of the new investment
advisory and administration agreement, which was approved by shareholders at the
Annual Meeting of Stockholders held on December 11, 2002, SBAM provides all
management, advisory and administration services for the Fund. PIMCO has ceased
to act as investment adviser for the Fund. SBAM has delegated certain
administrative services to Smith Barney Fund Management LLC ("SBFM"), another
indirect wholly-owned subsidiary of Citigroup and an affiliate of SBAM, pursuant
to a Sub-Administration Agreement between SBAM and SBFM.
The Fund currently pays SBAM a monthly fee at an annual rate of 1.05% of the
Fund's average weekly net assets for its services. Prior to December 16, 2002,
the Fund paid PIMCO an advisory fee calculated at an annual rate of 0.50% of the
Fund's average weekly net assets and paid SBAM a management fee calculated at an
annual rate of 0.70% of the Fund's average weekly net assets.
Certain officers and/or directors of the Fund are officers and/or directors
of SBAM.
Page 16
SALOMON BROTHERS EMERGING MARKETS INCOME FUND INC.
Notes to Financial Statements (unaudited) (continued)
Note 3. Portfolio Activity
For the six months ended February 28, 2003, the aggregate cost of purchases and
proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
Purchases ....................................................... $74,007,663
===========
Sales ........................................................... $75,351,156
===========
At February 28, 2003, the aggregate gross unrealized appreciation and
depreciation of investments for Federal income tax purposes were substantially
as follows:
Gross unrealized appreciation ................................... $ 5,589,609
Gross unrealized depreciation ................................... (4,068,500)
-----------
Net unrealized appreciation...................................... $ 1,521,109
===========
Note 4. Loan
At February 28, 2003, the Fund had a $23,000,000 loan available pursuant to a
revolving credit and security agreement of which the Fund had $20,000,000
outstanding with CXC LLC, an affiliate of Citigroup, a commercial paper conduit
issuer for which Citicorp North America, Inc., an affiliate of SBAM, acts as
administrative agent. 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.
Note 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. At February 28, 2003,
the Fund held loan participations with a total cost of $3,422,756.
In connection with purchasing loan 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 the 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.
Page 17
SALOMON BROTHERS EMERGING MARKETS INCOME FUND INC.
Notes to Financial Statements (unaudited) (continued)
Note 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.
At February 28, 2003, the Fund did not hold any "when and if" issued bonds.
Note 7. Credit and Market Risk
The yields of emerging market debt obligations reflect, among other things,
perceived credit risk. The Fund's investment in securities rated below
investment grade typically involves risks not associated with higher rated
securities including, among others, overall greater risk of timely and ultimate
payment of interest and principal, greater market price volatility and less
liquid secondary market trading. The consequences of political, social, economic
or diplomatic changes may have disruptive effects on the market prices of
investments held by the Fund. The Fund's investment in non-dollar-denominated
securities may also result in foreign currency losses caused by devaluations and
exchange rate fluctuations. At February 28, 2003, the Fund has a concentration
of 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.
Note 8. Option Contracts
The Fund may from time to time enter into option contracts. Premiums paid when
put or call options are purchased by the Fund, represent investments, which are
marked-to-market daily. When a purchased option expires, the Fund will realize a
loss in the amount of the premium paid. When the Fund enters into a closing
sales transaction, the Fund will realize a gain or loss depending on whether the
proceeds from the closing sales transaction are greater or less than the premium
paid for the option. When the Fund exercises a put option, it will realize a
gain or loss from the sale of the underlying security and the proceeds from such
sale will be decreased by the premium originally paid. When the Fund exercises a
call option, the cost of the security which the Fund purchases upon exercise
will be increased by the premium originally paid.
At February 28, 2003, the Fund did not hold any purchased call or put option
contracts.
When the Fund writes a call or put option, an amount equal to the premium
received by the Fund is recorded as a liability, the value of which is
marked-to-market daily. When a written option expires, the Fund realizes a gain
equal to the amount of the premium received.
Page 18
SALOMON BROTHERS EMERGING MARKETS INCOME FUND INC.
Notes to Financial Statements (unaudited) (continued)
When the Fund enters into a closing purchase transaction, the Fund realizes a
gain or loss depending upon whether the cost of the closing transaction is
greater or less than the premium originally received, without regard to any
unrealized gain or loss on the underlying security, and the liability related to
such option is eliminated. When a written call option is exercised the proceeds
of the security sold will be increased by the premium originally received. When
a written put option is exercised, the amount of the premium originally received
will reduce the cost of the security which the Fund purchased upon exercise.
When written index options are exercised, settlement is made in cash.
The Fund enters into options for hedging purposes. The risk associated with
purchasing options is limited to the premium originally paid. The risk in
writing a covered call option is that the Fund gives up the opportunity to
participate in any increase in the price of the underlying security beyond the
exercise price. The risk in writing a put option is that the Fund is exposed to
the risk of loss if the market price of the underlying security declines. The
risk in writing a call option is that the Fund is exposed to the risk of loss if
the market price of the underlying security increases.
For the six months ended February 28, 2003, the Fund did not enter into any
written covered call or put option contracts.
Note 9. 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 foreign currency 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.
The Fund enters into forward foreign currency contracts to facilitate settlement
of foreign currency denominated portfolio transactions or to manage foreign
currency exposure associated with foreign currency denominated securities.
Forward foreign currency 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 foreign currency contract. Risks may also arise upon entering into these
contracts from the potential inability of the counterparties to meet the terms
of their contracts.
At February 28, 2003, the Fund did not have any open forward foreign currency
contracts.
Note 10. Dividend Subsequent to February 28, 2003
On January 23, 2003, the Board of Directors of the Fund declared a common stock
dividend of $0.4125 per share from net investment income. The dividend is
payable on March 28, 2003 to shareholders of record on March 18, 2003.
Page 19
SALOMON BROTHERS EMERGING MARKETS INCOME FUND INC.
Notes to Financial Statements (unaudited) (continued)
Note 11. Capital Loss Carryforward
At August 31, 2002, the Fund had, for Federal income tax purposes, a capital
loss carryforward of approximately $1,220,000, available to offset future
capital gains. 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.
The amount and expiration of the carryforwards are indicated below. Expiration
occurs on August 31 of the year indicated:
2007 2010
---------- -------
Carryforward Amounts ........................ $1,163,000 $57,000
Page 20
SALOMON BROTHERS EMERGING MARKETS INCOME FUND INC.
Financial Highlights
Data for a share of common stock outstanding throughout the year ended
August 31, unless otherwise noted:
2003(1)(2) 2002(2) 2001 2000 1999 1998
-------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period ..... $11.80 $12.91 $14.01 $11.16 $ 7.83 $21.89
------ ------ ------ ------ ------ ------
Income (Loss) From Operations:
Net investment income(3)................ 0.86 1.67 1.68 1.72 1.88 2.02
Net realized and unrealized
gain (loss)(3) ....................... 2.26 (1.13) (1.13) 2.78 3.83 (10.84)
------ ------ ------ ------ ------ ------
Total Income (Loss) From Operations..... 3.12 0.54 0.55 4.50 5.71 (8.82)
------ ------ ------ ------ ------ ------
Less Distributions From:
Net investment income................... (0.83) (1.65) (1.65) (1.65) (2.41) (2.03)
Net realized gains...................... -- -- -- -- -- (2.98)
Capital................................. -- -- -- -- (0.02) --
In excess of net realized capital gains -- -- -- -- -- (0.23)
------ ------ ------ ------ ------ ------
Total Distributions....................... (0.83) (1.65) (1.65) (1.65) (2.43) (5.24)
------ ------ ------ ------ ------ ------
Increase in Net Asset Value
Due to Shares Issued on
Reinvestment of Dividends............... -- -- -- -- 0.05 --
------ ------ ------ ------ ------ ------
Net Asset Value, End of Period............ $14.09 $11.80 $12.91 $14.01 $11.16 $ 7.83
====== ====== ====== ======== ====== ======
Market Value, End of Period............... $14.60 $12.30 $13.15 $13.9375 $12.50 $ 9.50
====== ====== ====== ======== ====== ======
Total Return, Based on Market
Price Per Share(4)...................... 26.72%++ 6.10% 7.14% 27.51% 62.97% (35.00)%
Ratios to Average Net Assets:
Total expenses, including interest
expense............................... 2.89%+ 2.96% 4.76% 5.00% 5.03% 3.79%
Total expenses, excluding interest
expense (operating expenses).......... 1.83%+ 1.51% 1.71% 1.73% 1.85% 1.73%
Net investment income(3)................ 13.82%+ 13.24% 12.87% 13.33% 18.13% 11.56%
Supplemental Data:
Net assets, end of period (000s)........ $57,572 $48,049 $52,209 $56,313 $44,377 $29,523
Portfolio turnover rate ................ 111% 168% 195% 136% 87% 141%
Loan outstanding, end of period (000s).. $20,000 $20,000 $20,000 $20,000 $20,000 $20,000
Weighted average loan (000s)............ $20,000 $20,000 $20,000 $20,000 $20,000 $20,000
Weighted average interest rate on loans. 2.65%+ 3.70% 7.94% 8.26% 6.48% 6.44%
Before applicable reimbursement from
SBAM, net investment income per share
and expense ratios would have been:
Net investment income................... -- $1.63 -- -- -- --
Expense ratio, including interest
expense............................... -- 3.26% -- -- -- --
Expense ratio, excluding interest
expense (operating expenses).......... -- 1.81% -- -- -- --
--------------------------------------------------------------------------------------------------------------
(1) For the six months ended February 28, 2003 (unaudited).
(2) Per share amounts have been calculated using the monthly average
shares method.
(3) Without the adoption of the change in the accounting method discussed in
Note 1 to the financial statements, for the year ended August 31, 2002,
those amounts would have been $1.68, $1.14 and 13.29% for net investment
income, net realized and unrealized loss and ratio of net investment
income to average net assets, respectively. Per share, ratios and
supplemental data for the periods prior to September 1, 2001 have not
been restated to reflect this change in presentation.
(4) For the purpose of this calculation, dividends are assumed to be reinvested
at prices obtained under the Fund's dividend reinvestment plan and the
broker commission paid to purchase or sell a share is excluded.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
Page 21
SALOMON BROTHERS EMERGING MARKETS INCOME FUND INC.
Form of Terms and Conditions of Amended and Restated Dividend Reinvestment
and Cash Purchase Plan (unaudited)
Pursuant to certain rules of the Securities and Exchange Commission, the
following additional disclosure is provided.
Each shareholder holding shares of common stock ("Shares") of Salomon Brothers
Emerging Markets Income Fund Inc. ("Fund"), formerly known as The Emerging
Markets Income Fund Inc, will be deemed to have elected to be a participant in
the Amended and Restated Dividend Reinvestment and Cash Purchase Plan ("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 ("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.
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.
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.
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 22
SALOMON BROTHERS EMERGING MARKETS INCOME FUND INC.
Form of Terms and Conditions of Amended and Restated Dividend Reinvestment
and Cash Purchase Plan (unaudited) (continued)
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.
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.
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.
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
Page 23
SALOMON BROTHERS EMERGING MARKETS INCOME FUND INC.
Form of Terms and Conditions of Amended and Restated Dividend Reinvestment
and Cash Purchase Plan (unaudited) (continued)
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.
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.
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.
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.
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.
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
Page 24
SALOMON BROTHERS EMERGING MARKETS INCOME FUND INC.
Form of Terms and Conditions of Amended and Restated Dividend Reinvestment
and Cash Purchase Plan (unaudited) (continued)
amended or terminated by the Agent, with the Fund's prior written consent, on at
least 30 days' written notice to Participants. Notwithstanding the preceding two
sentences, the Agent or the Fund may amend or supplement the Plan at any time or
times when necessary or appropriate to comply with applicable law or rules or
policies of the Securities and Exchange Commission or any other regulatory
authority. Upon any termination, the Agent will cause a certificate or
certificates for the full Shares held by each Participant under the Plan and
cash adjustment for any fraction to be 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.
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.
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.
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.
All correspondence concerning the Plan should be directed to the Agent at 59
Maiden Lane, New York, New York 10038.
----------------------------
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 25
SALOMON BROTHERS EMERGING MARKETS INCOME FUND INC.
Directors Salomon Brothers Emerging
Markets Income Fund Inc.
LESLIE H. GELB
125 Broad Street
R. JAY GERKEN 10th Floor, MF-2
New York, New York 10004
RIORDAN ROETT Telephone 1-888-777-0102
JESWALD W. SALACUSE
INVESTMENT MANAGER
Salomon Brothers Asset Management Inc
399 Park Avenue
Officers New York, New York 10022
R. JAY GERKEN CUSTODIAN
Chairman and State Street Bank and Trust Company
Chief Executive Officer 225 Franklin Street
Boston, Massachusetts 02110
PETER J. WILBY
President DIVIDEND DISBURSING AND TRANSFER AGENT
American Stock Transfer & Trust Company
LEWIS E. DAIDONE 59 Maiden Lane
Executive Vice President and New York, New York 10038
Chief Administrative Officer
INDEPENDENT ACCOUNTANTS
JAMES E. CRAIGE PricewaterhouseCoopers LLP
Executive Vice President 1177 Avenue of the Americas
New York, New York 10036
THOMAS K. FLANAGAN
Executive Vice President LEGAL COUNSEL
Simpson Thacher & Bartlett
FRANCES M. GUGGINO 425 Lexington Avenue
Controller New York, New York 10017
CHRISTINA T. SYDOR NEW YORK STOCK EXCHANGE SYMBOL
Secretary EMD
Salomon Brothers
Emerging Markets
Income Fund Inc.
Semi-Annual Report
February 28, 2003
------------------------------------------------
Salomon Brothers Asset Management
------------------------------------------------
American Stock Transfer & Trust Company
59 Maiden Lane
New York, New York 10038
EMDSEMI 2/03
03-4679