<PAGE>
[ART]
The Emerging Markets
Telecommunications
Fund, Inc.
- ----------------------
ANNUAL REPORT
MAY 31, 1998
<PAGE>
CONTENTS
Letter to Shareholders............................... 1
Portfolio Summary.................................... 7
Schedule of Investments.............................. 9
Statement of Assets and Liabilities..................12
Statement of Operations..............................13
Statement of Changes in Net Assets...................14
Statement of Cash Flows..............................15
Financial Highlights.................................16
Notes to Financial Statements........................17
Report of Independent Accountants....................22
Results of Annual Meeting of Shareholders............23
Tax Information......................................23
Description of InvestLink-SM- Program................24
- --------------------------------------------------------------------------------
<PAGE>
LETTER TO SHAREHOLDERS
July 8, 1998
DEAR SHAREHOLDER:
I am writing to report on the activities of The Emerging Markets
Telecommunications Fund, Inc. (the "Fund") for the fiscal year ended May 31,
1998.
At May 31, 1998, the Fund's net asset value ("NAV") was $16.36 per share (net of
dividends and distributions paid of $3.71 per share), as compared to $21.53 on
May 31, 1997. Total net assets at May 31, 1998 were $138,022,525.
PERFORMANCE
For the period June 1, 1997 through May 31, 1998, the Fund's total return, based
on NAV and assuming the reinvestment of dividends and distributions, fell 3.1%.
For comparative purposes, the Morgan Stanley Capital International Emerging
Markets Free Index ("EMF") declined by 28.3% in the same period.
From the commencement of investment operations on June 25, 1992 through May 31,
1998, the Fund's total return, based on NAV and assuming the reinvestment of
dividends and distributions, was 108.1%. EMF gained 35.7% during the same
period.
I attribute the Fund's outperformance of EMF over the last 12 months principally
to two factors. First, I dramatically reduced exposure to the Asia/Pacific
region throughout 1997 and into the first quarter of 1998. Total portfolio
holdings in Asia were just under 6% of assets at the end of May, versus about
11% at the same time a year ago. This also helped to shield the Fund against the
sharp sell-off in many Asian currencies.
The second factor was the extraordinary performance of one stock, Global
TeleSystems Group, Inc. ("GTS"), that has become the Fund's single largest
position. The Fund initially bought GTS shares in a private equity placement in
1994 at $7.15 per share. Following the company's initial public offering at $20
per share in February, the stock now trades in the upper $40s, representing a
profit of over 500% on the initial investment in less than four years. I will
discuss GTS's future prospects later in the report.
Because open-end funds are restricted in their ability to take part in such
private equity placements, the Fund's experience with GTS is another powerful
reason for investors to invest in a closed-end vehicle such as this one. The
overall presence of private securities has been highly additive to the Fund's
performance since inception.
- --------------------------------------------------------------------------------
1
<PAGE>
LETTER TO SHAREHOLDERS
INVESTMENT PERSPECTIVE
The dominant influence on activity in global equity markets continues to be the
severe economic crisis plaguing most of Asia. Among emerging equity markets,
Asia's have certainly taken the worst beating thus far in 1998, with Latin
America not far behind.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
1998: STOCK PRICES FALLING IN ASIA...
<S> <C>
(Morgan Stanley Capital International Emerging Markets Free Asia
Index, $US)
Year-to-date return -23.2%
January 170
170
168
161
155
151
144
142
137
142
151
150
153
161
160
159
154
152
155
157
156
February 157
164
173
184
180
183
186
187
193
193
186
181
177
181
184
191
191
190
192
190
March 195
199
203
198
194
187
187
186
189
190
190
194
194
192
193
195
196
200
198
201
200
201
April 198
197
194
191
189
191
193
193
196
195
194
191
191
187
187
186
187
186
184
185
182
May 182
180
181
181
182
180
173
173
171
172
169
163
165
165
161
161
165
167
166
163
160
156
June 154
152
146
145
147
144
143
141
140
134
133
131
127
126
132
138
135
131
130
131
131
129
129
130
Source: Bloomberg
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
...AND LATIN AMERICA
<S> <C>
(Morgan Stanley Capital International Emerging Markets Free Latin America
Index, $US)
Year-to-date return -21.0%
January 1164
1164
1174
1174
1134
1107
1074
1014
1023
1037
1035
1018
1046
1068
1051
1029
1030
1016
1017
1027
1028
February 1024
1033
1060
1070
1069
1071
1071
1074
1081
1089
1077
1073
1063
1066
1061
1063
1064
1060
1061
1077
March 1082
1087
1103
1104
1098
1092
1110
1104
1103
1112
1116
1129
1127
1132
1134
1134
1149
1169
1159
1149
1157
1158
April 1154
1158
1155
1156
1139
1146
1133
1138
1139
1139
1143
1154
1155
1144
1148
1152
1153
1139
1130
1129
1086
May 1106
1113
1127
1127
1122
1120
1097
1091
1094
1074
1060
1050
1050
1059
1014
1017
1014
1010
1007
996
955
966
June 982
978
954
980
969
991
998
1000
990
956
940
923
891
892
938
914
926
920
938
933
909
898
904
919
Source: Bloomberg
</TABLE>
- --------------------------------------------------------------------------------
2
<PAGE>
LETTER TO SHAREHOLDERS
Naturally, the plunge in Asian equity prices raises the question of whether
valuations in the Asian telecom sector have fallen to levels that warrant a
higher allocation. I discussed this topic in my last report as well, and it
continues to be highly relevant. My conclusion remains unchanged: it is not yet
the time to increase the Fund's holdings in Asian companies.
The chart below compares the valuations of Emerging Asian telecommunication
companies ("telcos") to those in Latin America and Europe according to a
standard measure (I.E., company enterprise value as a multiple of cash flow).
The data, produced by a respected research source, indicate that, even with the
sharp decline in Asian equity prices, valuations of Asian telcos are actually
higher (and meaningfully so) than those in Latin America and much closer to
those of the fully developed North American market. I am thus persuaded to avoid
most Asian exposure. I also tend to believe that the extent of the crisis in
Emerging Asia may not be fully captured in these estimates.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
ASIAN TELCOS STILL OVERVALUED*
<S> <C> <C>
(EV/EBITDA 1998E)
Latin America Emerging Asia North America
5.0 7.6 8.4
* Prices as of 7/2/98
Source: Morgan Stanley Dean Witter
</TABLE>
- --------------------------------------------------------------------------------
3
<PAGE>
LETTER TO SHAREHOLDERS
PORTFOLIO STRUCTURE
TOP 10 HOLDINGS, BY ISSUER*
<TABLE>
<CAPTION>
PERCENT OF
HOLDING COUNTRY NET ASSETS
<C> <S> <C> <C>
1. GTS Eastern Europe 7.1
2. CRT Brazil 5.0
3. CANTV Venezuela 4.4
4. MATAV Hungary 4.3
5. PLD Telekom Russia 4.1
6. Vimpel-Communications Russia 3.4
7. Milicom Intl. Global
Cellular 3.4
8. OTE Greece 3.2
9. Rostelecom Russia 3.0
10. Bell Canada Intl. Canada 2.5
</TABLE>
* Company names are abbreviations of those found in
the chart on page 8.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
COUNTRY BREAKDOWN
(AS A PERCENT OF NET ASSETS)
<S> <C>
Eastern Europe 11.05%
Global 4.41%
Greece 3.25%
Hungary 4.27%
India 3.80%
Israel 3.32%
Mexico 4.17%
Russia 10.50%
Venezuela 5.53%
Other* 26.44%
Argentina 5.29%
Brazil 15.45%
Canada 2.52%
* Other includes Central Europe, Chile, Hong Kong, Peru, Republic of Korea, Turkey and Cash & Cash
Equivalents.
</TABLE>
Given today's environment, I am structuring the portfolio to emphasize
geographical diversification and high-quality stocks. These are clearly
reflected in the Fund's broad range of country allocations and stock selections.
Even after deciding to minimize exposure to Asia, I am able to prudently
diversify the portfolio across a wide variety of nations in Latin America and
Eastern Europe.
My optimism about the Russian telecom market, for example, is such that Russia
is the Fund's second-largest country exposure (after Brazil) and three Russian
companies (PLD Telekom, Inc., Vimpel-Communications and Rostelecom) are among
the Fund's top 10 holdings. To be sure, there are substantial political and
macroeconomic concerns in Russia at present, but I am nonetheless attracted to
companies like PLD and Vimpel-Com that have strong managements and valuable
domestic franchises. The Fund has handsomely profited from the appreciation in
such shares in recent months.
Let's take a look at PLD TELEKOM, INC. ("PLD"), which provides local,
long-distance and international telecom services throughout Russia and among its
neighboring countries. PLD recently received a major boost when Rupert Murdoch's
News Corp. purchased a 38% equity interest, most of which was sold by Cable &
Wireless of the UK. The active involvement of News Corp. should provide PLD with
a reservoir of international operating expertise as well as financial deep
pockets. PLD is a classic stock for a closed-end fund, as it is thinly traded
and under-researched. I find its medium-term prospects intriguing.
GLOBAL TELESYSTEMS GROUP, INC. ("GTS"), to which I referred earlier, is a young
company that provides a broad range of telecommunications services throughout
Western and Central Europe and also does business in the former Soviet Union.
The biggest portion of GTS's operations is Hermes Europe Railtel, the first
(and, thus far, only) pan-European integrated long-distance telecommunications
network.
- --------------------------------------------------------------------------------
4
<PAGE>
LETTER TO SHAREHOLDERS
Hermes's timing is extraordinary, as it coincides with the unprecedented
liberalization of the European telecom business. Its brand-new, state-of-the-art
network, which is designed to link the major cities of Western and Central
Europe, is still under construction and should be fully operational by 2000.
Hermes currently faces no comparable cross-border competition, a window of
opportunity that I project will remain open for another two to three years. In
Russia, GTS is the leading alternative telecom provider and shrewdly operates
through a series of joint ventures.
GTS also boasts top-quality, highly experienced international management and
unusually good access to the capital markets to meet its funding needs. I
believe that it will continue to benefit investors, either through its own
successful operations or as a potential acquisition candidate.
A promising direction I have pursued is to identify companies listed in
developed-world markets that are significantly involved in emerging markets. One
such company is BELL CANADA INTERNATIONAL INC. ("BCI"), the primary overseas
investment vehicle for BCE, Inc., the dominant Canadian telecom provider. BCI,
whose initial public offering took place in late 1997, is focused on emerging
markets and holds equity stakes in wireless operators in Latin America (I.E.,
Colombia, Brazil) and Asia/Pacific (India, China, Taiwan). It is a fairly recent
addition to the portfolio.
My investment thesis for BCI is quite simple. This is a developed-world company
that sees big potential in the emerging world and is aggressively focused on
realizing that potential. BCI's emphasis on wireless telephony is a major
positive, as geographical conditions in much of Latin America and Asia are not
conducive to significant penetration by traditional wire-based service. I also
like its regional/country diversification approach, which serves to reduce
business risk while enhancing potential returns.
As exemplified by BCI, there are attractive opportunities for investment in
emerging equity markets to be found among developed nations. With the benefit of
hindsight, I made an error by not investing more heavily in such stocks earlier
during the past year, given their relative outperformance versus emerging market
telcos. The Fund, however, can hold up to 25% of the portfolio in stocks of
telecom-related companies in developed nations. Valuations are now less
compelling, but I will continue to look for situations like BCI.
OUTLOOK
Given both the high level of volatility in emerging equity markets and the lack
of any substantive evidence suggesting that the Asian economic crisis is likely
to end soon, I believe that a cautious investment stance is most appropriate in
the near term. Telecommunications stocks in most emerging markets are typically
viewed as proxies for their respective markets and, thus, should be most
influenced by bigger-picture considerations that outweigh individual-company
fundamentals.
With this in mind, I have raised the Fund's cash position to a very high level
(I.E., about 15% of total assets) and intend to act with great patience and
selectivity in making new purchases. Additionally, valuations of Asian telcos
are unattractively high, while those of Latin American telcos are comparatively
low but, because of the risk of further "contagion" from Asia, may fall even
lower.
On a more positive note, I expect that the long-awaited privatization of
Telecomunicacoes Brasileiras S.A. ("Telebras") will take place within the next
30-60 days, as the Brazilian government has promised. The growing level of
interest in the process shown by many of the world's most prominent
telecommunications providers is an encouraging reminder
- --------------------------------------------------------------------------------
5
<PAGE>
LETTER TO SHAREHOLDERS
of the great potential offered by investment in emerging market
telecommunications stocks. I believe that the results of the Telebras sale
should have favorable implications for the valuations of telecom stocks
throughout the emerging market universe.
Sincerely yours,
[SIGNATURE]
Richard W. Watt
President
Chief Investment Officer *
FROM BEA ASSOCIATES:
Like other financial and business organizations, the Fund and its portfolio
could be adversely affected if the computer systems they rely on do not properly
process date-related information and data involving the years 2000 and after. We
at BEA Associates are taking steps that we believe are reasonable to address
this problem in our own computer system and are seeking assurances that
comparable steps are being taken by the Fund's other major service providers.
BEA Associates is also attempting to evaluate the potential impact of this
problem on the issues of investment securities that the portfolio purchases. At
this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact on the Fund and portfolio.
- --------------------------------------------------------------------------------
* Richard W. Watt, who is a Managing Director of BEA Associates, is primarily
responsible for management of the Fund's assets. Mr. Watt has served the Fund in
such capacity since January 1, 1997. He joined BEA Associates on August 2, 1995.
Mr. Watt formerly was associated with Gartmore Investment Limited in London,
where he was head of emerging markets investments and research. Before joining
Gartmore Investment Limited in 1992, Mr. Watt was a Director of Kleinwort Benson
International Investments in London, where he was responsible for research,
analysis and trading of equities in Latin America and other regions. Mr. Watt is
President, Chief Investment Officer and a Director of the Fund. He also is
President, Chief Investment Officer and a Director of The Brazilian Equity Fund,
Inc., The Chile Fund, Inc., The Emerging Markets Infrastructure Fund, Inc., The
First Israel Fund, Inc., The Latin America Equity Fund, Inc., The Latin America
Investment Fund, Inc. and The Portugal Fund, Inc.
- --------------------------------------------------------------------------------
6
<PAGE>
- --------------------------------------------------------------------------------
THE EMERGING MARKETS TELECOMMUNICATIONS FUND, INC.
PORTFOLIO SUMMARY - AS OF MAY 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
SECTOR ALLOCATION
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
AS A PERCENT OF NET ASSETS
<S> <C> <C>
May 31, 1998 May 31, 1997
Cellular Communications 17.89% 11.26%
Electric Distribution 1.63% 9.33%
Electric Generation 1.53% 4.37%
Gas & Oil 3.12% 4.11%
Local and/or Long Distance Telephone
Service 27.57% 48.86%
Radio/Television 3.38% 0.00%
Telecommunications 17.88% 11.57%
Utilities 2.50% 0.00%
Other 7.20% 4.50%
Cash & Cash Equivalents 17.30% 6.01%
</TABLE>
GEOGRAPHIC ASSET BREAKDOWN
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
AS A PERCENT OF NET ASSETS
<S> <C> <C>
May 31, 1998 May 31, 1997
Asia 5.98% 11.06%
Caribbean 0.00% 1.60%
Eastern Europe 27.68% 7.63%
Europe 5.71% 5.59%
Latin America 33.28% 56.82%
Middle East 3.32% 8.51%
North America 2.52% 0.00%
Global 4.41% 5.77%
Cash & Cash Equivalents 17.10% 3.02%
</TABLE>
- --------------------------------------------------------------------------------
7
<PAGE>
- --------------------------------------------------------------------------------
THE EMERGING MARKETS TELECOMMUNICATIONS FUND, INC.
PORTFOLIO SUMMARY - AS OF MAY 31, 1998 (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
SUMMARY OF EQUITY OR EQUITY-LINKED SECURITIES BY COUNTRY/REGION
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
AS A PERCENT OF NET ASSETS
<S> <C> <C>
May 31, 1998 May 31, 1997
Argentina 5.29% 2.37%
Brazil 15.45% 13.07%
Canada 2.52% 0.00%
Central Europe 2.46% 0.00%
Chile 2.02% 19.67%
Eastern Europe 11.05% 6.02%
Greece 3.25% 0.00%
Hungary 4.27% 0.00%
India 3.80% 3.05%
Indonesia 0.00% 3.26%
Israel 3.32% 8.51%
Mexico 4.17% 2.51%
Peru 0.82% 11.84%
Portugal 0.00% 3.36%
Russia 10.50% 1.61%
Venezuela 5.53% 4.37%
Global 4.41% 5.77%
Other 4.04% 8.58%
</TABLE>
TOP 10 HOLDINGS, BY ISSUER
<TABLE>
<CAPTION>
Percent of Net
Holding Sector Country/Region Assets
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
1. Global TeleSystems Group, Inc. Cellular Communications Eastern Europe 7.1
- --------------------------------------------------------------------------------------------------------------------------------
2. Companhia Riograndense de Telecomunicacoes S.A. Telecommunications Brazil 5.0
- --------------------------------------------------------------------------------------------------------------------------------
3. Compania Anonima Nacional Telefonos de Venezuela Local and/or Long Distance
Telephone Service Venezuela 4.4
- --------------------------------------------------------------------------------------------------------------------------------
4. Magyar Tavkozlesi Rt. Local and/or Long Distance
Telephone Service Hungary 4.3
- --------------------------------------------------------------------------------------------------------------------------------
5. PLD Telekom, Inc. Local and/or Long Distance
Telephone Service Russia 4.1
- --------------------------------------------------------------------------------------------------------------------------------
6. Vimpel-Communications Cellular Communications Russia 3.4
- --------------------------------------------------------------------------------------------------------------------------------
7. Millicom International Cellular S.A. Cellular Communications Global 3.4
- --------------------------------------------------------------------------------------------------------------------------------
8. Hellenic Telecommunication Organization S.A. Telecommunications Greece 3.2
- --------------------------------------------------------------------------------------------------------------------------------
9. Rostelecom Local and/or Long Distance
Telephone Service Russia 3.0
- --------------------------------------------------------------------------------------------------------------------------------
10. Bell Canada International Inc. Telecommunications Canada 2.5
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
8
<PAGE>
- --------------------------------------------------------------------------------
THE EMERGING MARKETS TELECOMMUNICATIONS FUND, INC.
SCHEDULE OF INVESTMENTS - MAY 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
No. of Value
Description Shares (Note A)
<S> <C> <C>
- --------------------------------------------------------------------
EQUITY OR EQUITY-LINKED SECURITIES-82.40%
EQUITY OR EQUITY-LINKED SECURITIES OF TELECOMMUNICATION COMPANIES
IN EMERGING COUNTRIES-63.66%
ARGENTINA-2.18%
CEI Citicorp Holdings S.A., Class B
(Cost $2,992,824)...................... 752,703 $ 3,012,243
-----------
BRAZIL-12.02%
Companhia Riograndense de
Telecomunicacoes S.A................... 6,392,200 6,890,961
Telecomunicacoes Brasileiras S.A. ON.... 27,735,000 2,338,879
Telecomunicacoes Brasileiras S.A. PN
ADR.................................... 7,200 767,700
Telecomunicacoes de Sao Paulo S.A. PN... 10,940,556 2,339,819
Telecomunicacoes do Rio de Janeiro S.A.
PN..................................... 38,929,400 3,249,052
Telesp Celular S.A. PNB+................ 10,940,556 1,008,215
-----------
TOTAL BRAZIL (Cost $16,153,765)........................ 16,594,626
-----------
CHILE-0.22%
Compania de Telecomunicaciones de Chile
S.A., Class A.......................... 23,234 126,569
Compania de Telecomunicaciones de Chile
S.A., Class B.......................... 48,195 179,970
-----------
TOTAL CHILE (Cost $272,739)............................ 306,539
-----------
EASTERN EUROPE-9.24%
Global TeleSystems Group, Inc.*+........ 284,018 9,793,278
SPT Telecom a.s......................... 23,054 2,962,718
-----------
TOTAL EASTERN EUROPE
(Cost $4,555,976)..................................... 12,755,996
-----------
GREECE-3.25%
Hellenic Telecommunication Organization
S.A. GDR++ (Cost $3,413,247)........... 312,000 4,485,000
-----------
<CAPTION>
No. of Value
Description Shares (Note A)
- --------------------------------------------------------------------
<S> <C> <C>
HONG KONG-2.13%
Asia Satellite Telecommunications ADR... 38,000 $ 600,875
China Telecom (Hong Kong) Ltd. ADR+..... 40,000 1,425,000
Hong Kong Telecommunications Ltd.+...... 320,000 576,074
Smartone Telecommunications............. 145,000 343,367
-----------
TOTAL HONG KONG (Cost $3,260,674)...................... 2,945,316
-----------
HUNGARY-4.27%
Magyar Tavkozlesi Rt. ADR+ (Cost
$4,867,281)............................ 210,245 5,886,860
-----------
INDIA-2.80%
Mahanagar Telephone Nigam Ltd. GDR++.... 113,200 1,485,750
Mahanagar Telephone Nigam Ltd., Warrants
(expiring 06/30/00)+................... 125,000 686,250
Mahanagar Telephone Nigam Ltd., Warrants
(expiring 04/22/02)+................... 42,000 230,580
Videsh Sanchar Nigam Ltd. GDR++......... 122,605 1,455,934
-----------
TOTAL INDIA (Cost $5,021,202).......................... 3,858,514
-----------
ISRAEL-1.94%
Geotek Communications, Inc., Convertible
Preferred Series M, 8.50%*............. 100 48,579
M-Systems Flash Disk Pioneers Ltd.,
Warrants (expiring 06/30/98)+.......... 61,524 52,002
Nexus Telecommunication Systems Ltd.
(units)+(a)............................ 170,784 1,200,825
Tadiran Ltd. ADR........................ 34,000 1,368,500
-----------
TOTAL ISRAEL (Cost $2,651,033)......................... 2,669,906
-----------
MEXICO-4.17%
Grupo Iusacell, S.A. de C.V., Series L
ADR+................................... 70,100 1,121,600
Grupo Radio Centro S.A. de C.V.......... 889,000 1,262,366
</TABLE>
- --------------------------------------------------------------------------------
9
<PAGE>
- --------------------------------------------------------------------------------
THE EMERGING MARKETS TELECOMMUNICATIONS FUND, INC.
SCHEDULE OF INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
No. of Value
Description Shares (Note A)
- --------------------------------------------------------------------
<S> <C> <C>
MEXICO (CONTINUED)
Telefonos de Mexico, S.A. de C.V. ADR... 71,200 $ 3,377,550
-----------
TOTAL MEXICO (Cost $6,852,975)......................... 5,761,516
-----------
RUSSIA-10.50%
PLD Telekom, Inc.+...................... 798,975 5,617,793
Rostelecom ADR.......................... 269,300 4,140,488
Vimpel-Communications ADR+.............. 97,600 4,727,500
-----------
TOTAL RUSSIA (Cost $14,521,408)........................ 14,485,781
-----------
TURKEY-1.86%
Alcatel Teletas Telekomunikasyon
Endustri ve Ticaret A.S................ 11,862,000 1,515,470
Netas Northern Elektrik Telekomunikasyon
A.S.+.................................. 3,556,500 1,046,434
-----------
TOTAL TURKEY (Cost $2,811,293)......................... 2,561,904
-----------
VENEZUELA-5.53%
Compania Anonima Nacional Telefonos de
Venezuela ADR.......................... 197,300 6,079,306
Venworld Telecommunications+=/=......... 125,947 1,550,480
-----------
TOTAL VENEZUELA (Cost $8,632,623)...................... 7,629,786
-----------
GLOBAL-3.55%
International Wireless Communications,
Inc., Series D*+....................... 220,120 0
International Wireless Communications,
Inc., Series F*+....................... 15,440 0
International Wireless Communications,
Inc., Warrants (expiring 12/31/98)*+... 1,240 0
International Wireless Communications,
Inc., Warrants (expiring 06/29/05)*+... 1 0
Millicom International Cellular S.A.+... 119,735 4,654,698
<CAPTION>
No. of Value
Description Shares (Note A)
- --------------------------------------------------------------------
<S> <C> <C>
GLOBAL (CONTINUED)
Telesoft Partners Ltd.*#................ 250,000 $ 250,000
-----------
TOTAL GLOBAL (Cost $4,612,956)......................... 4,904,698
-----------
TOTAL EMERGING COUNTRIES (Cost $80,619,996)............
87,858,685
-----------
EQUITY SECURITIES OF TELECOMMUNICATION COMPANIES IN DEVELOPED
COUNTRIES-4.98%
CANADA-2.52%
Bell Canada International Inc.+ (Cost
$3,202,802)............................ 135,900 3,482,438
-----------
CENTRAL EUROPE-2.46%
Central European Media Enterprises Ltd.+
(Cost $3,858,055)...................... 149,300 3,396,575
-----------
TOTAL DEVELOPED COUNTRIES (Cost $7,060,857)............
6,879,013
-----------
EQUITY SECURITES OF COMPANIES PROVIDING OTHER ESSENTIAL SERVICES IN
THE DEVELOPMENT OF AN EMERGING COUNTRY'S INFRASTRUCTURE-13.76%
ARGENTINA-3.11%
Camuzzi Argentina S.A.*+................ 1,383,478 2,631,375
Sodigas del Sur S.A.*................... 421,485 783,962
Sodigas Pampeana S.A.*.................. 583,264 886,561
-----------
TOTAL ARGENTINA (Cost $3,032,673)...................... 4,301,898
-----------
BRAZIL-3.43%
Companhia de Saneamento Basico do Estado
de Sao Paulo ON........................ 19,396,000 3,288,172
<CAPTION>
Par (000)
-------------
<S> <C> <C>
Enersul, Convertible Bond, 16.00%,
09/01/98............................... BRL 1,000 1,442,713
-----------
TOTAL BRAZIL (Cost $6,423,469)......................... 4,730,885
-----------
</TABLE>
- --------------------------------------------------------------------------------
10
<PAGE>
- --------------------------------------------------------------------------------
THE EMERGING MARKETS TELECOMMUNICATIONS FUND, INC.
SCHEDULE OF INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
No. of Value
Description Shares (Note A)
- --------------------------------------------------------------------
<S> <C> <C>
CHILE-1.60%
Chilectra S.A........................... 44,615 $ 269,503
Compania de Consumidores de Gas de
Santiago S.A........................... 57,580 156,835
Compania Electrica del Rio Maipo S.A.... 554,300 280,042
Compania General de Electricidad S.A.... 89,822 285,102
Cristalerias de Chile S.A............... 61,242 266,357
Empresa Electrica Pehuenche S.A......... 350,918 262,081
Empresa Nacional de Electricidad S.A.... 325,000 167,051
Empresas Emel S.A....................... 16,402 281,023
Enersis S.A............................. 490,000 244,327
-----------
TOTAL CHILE (Cost $2,299,487).......................... 2,212,321
-----------
EASTERN EUROPE-1.81%
Elektrim Spolka Akcyjna S.A. (Cost
$1,793,760)............................ 189,947 2,497,441
-----------
INDIA-1.00%
Morgan Stanley India Investment Fund,
Inc.+ (Cost $1,377,207)................ 172,100 1,376,800
-----------
ISRAEL-1.38%
Kardan Technology Ventures L.P.*+#...... 250,000 250,000
PEC Israel Economic Corp.+.............. 74,620 1,650,968
-----------
TOTAL ISRAEL (Cost $2,111,400)......................... 1,900,968
-----------
PERU-0.82%
Ontario-Quinta A.V.V.* (Cost
$1,054,682)............................ 1,026,885 1,130,247
-----------
REPUBLIC OF KOREA-0.05%
Samsung Display Services Co. (Cost
$57,235)............................... 1,838 65,163
-----------
GLOBAL-0.56%
Emerging Markets Ventures, L.P.*+# (Cost
$771,212).............................. 771,169 771,169
-----------
TOTAL OTHER ESSENTIAL SERVICES (Cost $18,921,125)......
18,986,892
-----------
TOTAL EQUITY OR EQUITY-LINKED SECURITIES (Cost
$106,601,978)......................................... 113,724,590
-----------
<CAPTION>
Par Value
Description (000) (Note A)
- --------------------------------------------------------------------
<S> <C> <C>
FIXED RATE INVESTMENT-0.30%
GLOBAL-0.30%
International Wireless Communications,
Inc. Senior Secured Notes,
14.00%-25.00%, 08/17/02*(b) (Cost
$381,401).............................. USD 385 $ 418,695
-----------
SHORT-TERM INVESTMENTS-0.20%
CHILEAN MUTUAL FUNDS-0.20%
<CAPTION>
No. of
Shares
-------------
<S> <C> <C>
Fondo Mutuo Santander................... 35,362 156,822
Fondo Mutuo Security Check.............. 27,298 120,858
-----------
TOTAL SHORT-TERM INVESTMENTS (Cost $277,513)...........
277,680
-----------
TOTAL INVESTMENTS-82.90%
(Cost $107,260,892) (Notes A,D)....................... 114,420,965
CASH AND OTHER ASSETS IN EXCESS OF
LIABILITIES-17.10%.................................... 23,601,560
-----------
NET ASSETS-100.00%..................................... $138,022,525
-----------
-----------
- ---------------------------------------------------------
* Not readily marketable security.
+ Security is non-income producing.
++ SEC Rule 144A security. Such securities are traded
only among "qualified institutional buyers."
=/= Restricted security (See Note F).
# As of May 31, 1998, the Fund committed to investing
an additional $1,000,000, $750,000 and $2,028,831 of
capital in Telesoft Partners Ltd., Kardan Technology
Ventures L.P. and Emerging Markets Ventures, L.P.,
respectively.
(a) Includes 170,784 warrants, expiring 11/28/00, with a
market value of $5,337.
(b) As of March 31, 1998, this investment ceased accruing
interest.
ADR American Depositary Receipts.
BRL Brazilian Real.
GDR Global Depositary Receipts.
ON Ordinary Shares.
PN Preferred Shares.
PNB Preferred Shares, Class B.
USD United States Dollars.
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
11
<PAGE>
- --------------------------------------------------------------------------------
THE EMERGING MARKETS TELECOMMUNICATIONS FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES - MAY 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments, at value (Cost
$107,260,892) (Note A)................. $114,420,965
Cash (including $6,410 of foreign
currencies with a cost of $6,409) (Note
A)..................................... 21,255,828
Receivables:
Investments sold...................... 8,934,020
Dividends............................. 534,965
Interest.............................. 45,324
Prepaid expenses and other assets....... 23,900
------------
Total Assets............................ 145,215,002
------------
LIABILITIES
Payables:
Investments purchased................. 6,728,741
Investment advisory fee (Note B)...... 303,193
Administration fees (Note B).......... 42,199
Other accrued expenses................ 118,344
------------
Total Liabilities....................... 7,192,477
------------
NET ASSETS (applicable to 8,434,919
shares of common stock outstanding)
(Note C)............................... $138,022,525
------------
------------
NET ASSET VALUE PER SHARE ($138,022,525
DIVIDED BY 8,434,919)................. $16.36
------------
------------
NET ASSETS CONSIST OF
Capital stock, $0.001 par value;
8,434,919 shares issued and outstanding
(100,000,000 shares authorized)........ $ 8,435
Paid-in capital......................... 116,183,960
Accumulated net realized gain on
investments and foreign currency
related transactions................... 14,688,434
Net unrealized appreciation in value of
investments and translation of other
assets and liabilities denominated in
foreign currencies..................... 7,141,696
------------
Net assets applicable to shares
outstanding............................ $138,022,525
------------
------------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
12
<PAGE>
- --------------------------------------------------------------------------------
THE EMERGING MARKETS TELECOMMUNICATIONS FUND, INC.
STATEMENT OF OPERATIONS - FOR THE FISCAL YEAR ENDED MAY 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME
Income (Note A):
Dividends............................. $ 2,474,815
Interest.............................. 1,046,598
Less: Foreign taxes withheld.......... (162,768)
------------
Total Investment Income............... 3,358,645
------------
Expenses:
Investment advisory fees (Note B)..... 1,985,605
Administration fees (Note B).......... 285,971
Custodian fees........................ 257,218
Printing.............................. 140,445
Accounting fees....................... 126,744
Audit and legal fees.................. 81,627
Transfer agent fees................... 39,345
Directors' fees....................... 37,169
Insurance............................. 18,849
NYSE listing fees..................... 16,577
Other................................. 24,648
Brazilian taxes (Note A).............. 160,503
Chilean repatriation taxes (Note A)... 666,658
------------
Total Expenses........................ 3,841,359
------------
Net Investment Loss................... (482,714)
------------
NET REALIZED AND UNREALIZED LOSS ON
INVESTMENTS AND FOREIGN CURRENCY
RELATED TRANSACTIONS
Net realized gain/(loss) from:
Investments........................... 38,152,314
Foreign currency related
transactions......................... (623,477)
Net change in unrealized appreciation in
value of investments and translation of
other assets and liabilities
denominated in foreign currencies...... (49,357,447)
------------
Net realized and unrealized loss on
investments and foreign currency
related transactions................... (11,828,610)
------------
NET DECREASE IN NET ASSETS RESULTING
FROM OPERATIONS........................ $(12,311,324)
------------
------------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
13
<PAGE>
- --------------------------------------------------------------------------------
THE EMERGING MARKETS TELECOMMUNICATIONS FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Fiscal Years Ended
May 31,
-----------------------------
1998 1997
<S> <C> <C>
-----------------------------
INCREASE/(DECREASE) IN NET ASSETS
Operations:
Net investment income/(loss).......... $ (482,714) $ 891,960
Net realized gain on investments and
foreign currency related
transactions......................... 37,528,837 23,679,428
Net change in unrealized appreciation
in value of investments and
translation of other assets and
liabilities denominated in foreign
currencies........................... (49,357,447) 419,091
------------ ------------
Net increase/(decrease) in net
assets resulting from operations... (12,311,324) 24,990,479
------------ ------------
Dividends and distributions to
shareholders:
Net investment income................. (789,507) (2,247,555)
Net realized gain on investments and
foreign currency related
transactions......................... (30,504,043) (17,743,203)
------------ ------------
Total dividends and distributions to
shareholders....................... (31,293,550) (19,990,758)
------------ ------------
Total increase/(decrease) in net
assets............................. (43,604,874) 4,999,721
------------ ------------
NET ASSETS
Beginning of year....................... 181,627,399 176,627,678
------------ ------------
End of year (including undistributed net
investment income of $789,507 for the
fiscal year ended May 31, 1997)........ $138,022,525 $181,627,399
------------ ------------
------------ ------------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
14
<PAGE>
- --------------------------------------------------------------------------------
THE EMERGING MARKETS TELECOMMUNICATIONS FUND, INC.
STATEMENT OF CASH FLOWS - FOR THE FISCAL YEAR ENDED MAY 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INCREASE/(DECREASE) IN CASH FROM
Operating Activities:
Investment income received............ $ 3,407,790
Operating expenses paid............... (3,899,408)
-------------
Net decrease in cash from operating
activities............................. $ (491,618)
Investing Activities:
Purchases of long-term portfolio
investments.......................... (232,896,950)
Proceeds from disposition of
short-term portfolio investments,
net.................................. 5,238,304
Proceeds from disposition of long-term
portfolio investments................ 275,349,967
Proceeds from notes receivable........ 629,321
-------------
Net increase in cash from investing
activities............................. 48,320,642
Financing Activities:
Cash dividends paid .................. (31,293,550)
------------
Net increase in cash.................... 16,535,474
Cash at beginning of year............... 4,720,354
------------
Cash at end of year (Note A)............ $ 21,255,828
------------
------------
RECONCILIATION OF NET DECREASE IN NET
ASSETS RESULTING FROM OPERATIONS TO NET
DECREASE IN CASH FROM OPERATING
ACTIVITIES
Net decrease in net assets resulting
from operations........................ $(12,311,324)
Adjustments:
Decrease in dividend and interest
receivable........................... 49,146
Decrease in accrued expenses.......... (77,830)
Decrease in prepaid expenses.......... 19,780
Net realized and unrealized loss on
investments and foreign currency
related transactions................. 11,828,610
-------------
Total adjustments....................... 11,819,706
------------
NET DECREASE IN CASH FROM OPERATING
ACTIVITIES............................. $ (491,618)
------------
------------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
15
<PAGE>
- --------------------------------------------------------------------------------
THE EMERGING MARKETS TELECOMMUNICATIONS FUND, INC.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share of common
stock outstanding, total investment return, ratios to average net assets and
other supplemental data for each period indicated. This information has been
derived from information provided in the financial statements and market price
data for the Fund's shares.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Fiscal Years Ended For the Period
May 31, June 25, 1992*
----------------------------------------------------- through
1998 1997 1996 1995 1994 May 31, 1993
<S> <C> <C> <C> <C> <C> <C>
----------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period......... $21.53 $20.94 $19.20 $20.90 $14.95 $13.84 **
--------- --------- --------- --------- --------- ---------------
Net investment income/(loss)................. (0.06) 0.10 0.27 0.11 0.13 0.16
Net realized and unrealized gain/(loss) on
investments and foreign currency related
transactions................................ (1.40) 2.86 1.91 0.01 7.03+ 1.20
--------- --------- --------- --------- --------- ---------------
Net increase/(decrease) in net assets
resulting from operations................... (1.46) 2.96 2.18 0.12 7.16 1.36
--------- --------- --------- --------- --------- ---------------
Dividends and distributions to shareholders:
Net investment income...................... (0.09) (0.27) (0.04) (0.04) (0.15) (0.14 )
Net realized gain on investments and
foreign currency related transactions..... (3.62) (2.10) (0.40) (1.78) (1.06) (0.11 )
--------- --------- --------- --------- --------- ---------------
Total dividends and distributions to
shareholders................................ (3.71) (2.37) (0.44) (1.82) (1.21) (0.25 )
--------- --------- --------- --------- --------- ---------------
Net asset value, end of period............... $16.36 $21.53 $20.94 $19.20 $20.90 $14.95
--------- --------- --------- --------- --------- ---------------
--------- --------- --------- --------- --------- ---------------
Market value, end of period.................. $13.000 $17.375 $17.375 $17.750 $22.750 $14.500
--------- --------- --------- --------- --------- ---------------
--------- --------- --------- --------- --------- ---------------
Total investment return(a)................... (4.57)% 14.31% 0.21% (13.94)% 64.74% 5.85 %
--------- --------- --------- --------- --------- ---------------
--------- --------- --------- --------- --------- ---------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000 omitted)...... $138,023 $181,627 $176,628 $161,925 $176,253 $125,338
Ratio of expenses to average net assets,
including taxes............................. 2.32 (b) 1.90 (b) 1.77% 1.89% 1.81% 1.99 %(c)
Ratio of net investment income/(loss) to
average net assets.......................... (0.29)% 0.52% 1.40% 0.53% 0.63% 2.02 %(c)
Portfolio turnover rate...................... 162.58% 42.14% 27.71% 14.29% 43.98% 22.55 %
Average commission rate per share(d)......... $0.0020 $0.0012 -- -- -- --
</TABLE>
- ---------------------------------------------------------------------------
* Commencement of investment operations.
** Initial public offering price of $15.00 per share less underwriting
discount of $1.05 per share and offering expenses of $0.11 per share.
+ Includes a $0.03 per share increase to the Fund's net asset value per
share resulting from the antidilutive impact of shares issued pursuant
to the Fund's automatic Dividend Reinvestment Plan in January 1994.
(a) Total investment return at market value is based on the changes in
market price of a share during the period and assumes reinvestment of
dividends and distributions, if any, at actual prices pursuant to the
Fund's dividend reinvestment program. Total investment return does not
reflect brokerage commissions or initial underwriting discounts and
has not been annualized.
(b) Ratios shown are inclusive of Brazilian transaction and Chilean
repatriation taxes. If such taxes had not been imposed, the ratio of
expenses to average net assets would have been 1.82% for both fiscal
years ended May 31, 1998 and May 31, 1997.
(c) Annualized.
(d) Computed by dividing the total amount of brokerage commissions paid by
the total shares of investment securities purchased and sold during
the respective periods for which commissions were charged, as required
by the SEC for fiscal years beginning on or after September 1, 1995.
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
16
<PAGE>
- --------------------------------------------------------------------------------
THE EMERGING MARKETS TELECOMMUNICATIONS FUND, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE A. SIGNIFICANT ACCOUNTING POLICIES
The Emerging Markets Telecommunications Fund, Inc. (the "Fund") was incorporated
in Maryland on February 11, 1992 and commenced investment operations on June 25,
1992. The Fund is registered under the Investment Company Act of 1940, as
amended, as a closed-end, non-diversified management investment company.
Significant accounting policies are as follows:
MANAGEMENT ESTIMATES: The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make certain
estimates and assumptions that may affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those estimates.
PORTFOLIO VALUATION: Investments are stated at value in the accompanying
financial statements. All securities for which market quotations are readily
available are valued at the closing price quoted for the securities prior to the
time of determination (but if bid and asked quotations are available, at the
mean between the last current bid and asked prices). Securities that are traded
over-the-counter are valued at the mean between the current bid and the asked
prices, if available. All other securities and assets are valued at the fair
value as determined in good faith by the Board of Directors. Short-term
investments having a maturity of 60 days or less are valued on the basis of
amortized cost. The Board of Directors has established general guidelines for
calculating fair value of non-publicly traded securities. At May 31, 1998, the
Fund held 13.41% of its net assets in securities valued in good faith by the
Board of Directors with an aggregate cost of $12,881,939 and fair value of
$18,514,347. The net asset value per share of the Fund is calculated on each
business day, with the exception of those days on which the New York Stock
Exchange is closed.
CASH: Deposits held at Brown Brothers Harriman & Co., the Fund's custodian, in a
variable rate account are classified as cash. At May 31, 1998, the account's
interest rate was 5.0625%, which resets on a daily basis. Amounts on deposit are
generally available on the same business day.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME: Investment transactions are
accounted for on the trade date. The cost of investments sold is determined by
use of the specific identification method for both financial reporting and
income tax purposes. Interest income is recorded on an accrual basis; dividend
income is recorded on the ex-dividend date.
TAXES: No provision is made for U.S. federal income or excise taxes as it is the
Fund's intention to continue to qualify as a regulated investment company and to
make the requisite distributions to its shareholders which will be sufficient to
relieve it from all or substantially all U.S. federal income and excise taxes.
Income received by the Fund from sources within emerging countries and other
foreign countries may be subject to withholding and other taxes imposed by such
countries.
Under certain circumstances the Fund may be subject to a maximum of 36% Israeli
capital gains tax on gains derived from the sale of certain Israeli investments.
The Fund is subject to a 10% Chilean repatriation tax with respect to all
remittances from Chile in excess of original invested capital. For the fiscal
year ended May 31, 1998, the Fund incurred $666,658 of such expense.
Effective January 23, 1997, Brazil imposes a 0.20% CONTRIBUCAO SOBRE
MOVIMENTACAO FINANCIERA ("CPMF") tax that applies to most debit transactions
carried out by
- --------------------------------------------------------------------------------
17
<PAGE>
- --------------------------------------------------------------------------------
THE EMERGING MARKETS TELECOMMUNICATIONS FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
financial institutions. For the fiscal year ended May 31, 1998, the Fund
incurred $160,503 of such expense.
FOREIGN CURRENCY TRANSACTIONS: The books and records of the Fund are maintained
in U.S. dollars. Foreign currency amounts are translated into U.S. dollars on
the following basis:
(I) market value of investment securities, assets and liabilities at the
current rate of exchange; and
(II) purchases and sales of investment securities, income and expenses at
the relevant rates of exchange prevailing on the respective dates of
such transactions.
The Fund does not isolate that portion of gains and losses in investments in
equity securities which is due to changes in the foreign exchange rates from
that which is due to change in market prices of equity securities. Accordingly,
realized and unrealized foreign currency gains and losses with respect to such
securities are included in the reported net realized and unrealized gains and
losses on investment transactions balances. However, the Fund does isolate the
effect of fluctuations in foreign exchange rates when determining the gain or
loss upon the sale or maturity of foreign currency denominated debt obligations
pursuant to U.S. federal income tax regulations, with such amount categorized as
foreign exchange gain or loss for both financial reporting and income tax
reporting purposes.
Net currency gains from valuing foreign currency denominated assets and
liabilities at period end exchange rates are reflected as a component of net
unrealized appreciation/depreciation on investments, foreign currency holdings,
and other assets and liabilities denominated in foreign currencies.
Net realized foreign exchange losses represent foreign exchange gains and losses
from sales and maturities of debt securities, transactions in foreign currencies
and forward foreign currency contracts, exchange gains or losses realized
between the trade date and settlement dates on security transactions, and the
difference between the amounts of interest and dividends recorded on the Fund's
books and the U.S. dollar equivalent of the amounts actually received.
The Fund reports certain foreign currency related transactions and foreign taxes
withheld on security transactions as components of realized gains for financial
reporting purposes, whereas such components are treated as ordinary income for
U.S. federal income tax purposes.
SECURITIES LENDING: Security loans are required at all times to have collateral
at least equal to 102% of the market value of the securities on loan; however,
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.
During the fiscal year ended May 31, 1998, the Fund earned $40,073 in securities
lending income which is included under the caption INTEREST in the Statement of
Operations. At May 31, 1998, the Fund had no securities out on loan to brokers.
DISTRIBUTIONS OF INCOME AND GAINS: The Fund distributes at least annually to
shareholders substantially all of its net investment income and net realized
short-term capital gains, if any. The Fund determines annually whether to
distribute any net realized long-term capital gains in excess of net realized
short-term capital losses, including capital loss carryovers, if any. An
additional distribution may be made to the extent necessary to avoid the payment
of a 4% U.S. federal excise tax. Dividends and distributions
- --------------------------------------------------------------------------------
18
<PAGE>
- --------------------------------------------------------------------------------
THE EMERGING MARKETS TELECOMMUNICATIONS FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
to shareholders are recorded by the Fund on the ex-dividend date.
The character of distributions made during the year from net investment income
or net realized gains may differ from their ultimate characterization for U.S.
federal income tax purposes due to U.S. generally accepted accounting
principles/tax differences in the character of income and expense recognition.
At May 31, 1998, the Fund reclassified a net investment loss of $482,714 and net
realized losses from foreign currency related transactions of $623,477 to
paid-in capital.
OTHER: Some countries require governmental approval for the repatriation of
investment income, capital or the proceeds of sales of securities by foreign
investors. In addition, if there is a deterioration in a country's balance of
payments or for other reasons, a country may impose temporary restrictions on
foreign capital remittances abroad. Amounts repatriated prior to the end of
specified periods may be subject to taxes as imposed by a foreign country.
The emerging countries' securities markets are substantially smaller, less
liquid and more volatile than the major securities markets in the United States.
A high proportion of the securities of many companies in emerging countries may
be held by a limited number of persons, which may limit the number of securities
available for investment by the Fund. The limited liquidity of emerging country
securities markets may also affect the Fund's ability to acquire or dispose of
securities at the price and time it wishes to do so.
The Fund, subject to local investment limitations, may invest up to 25% of its
assets in non-publicly traded equity securities which may involve a high degree
of business and financial risk and may result in substantial losses. Because of
the current absence of any liquid trading market for these investments, the Fund
may take longer to liquidate these positions than would be the case for publicly
traded securities. Although these securities may be resold in privately
negotiated transactions, the proceeds realized on such sales could be less than
those originally paid by the Fund. Further, companies whose securities are not
publicly traded may not be subject to the disclosure and other investor
protection requirements applicable to companies whose securities are publicly
traded.
The Fund may enter into repurchase agreements on U.S. Government securities with
primary government securities dealers recognized by the Federal Reserve Bank of
New York and member banks of the Federal Reserve System and on securities issued
by the governments of foreign countries, their instrumentalities and with
creditworthy parties in accordance with established procedures. Repurchase
agreements are contracts under which the buyer of a security simultaneously buys
and commits to resell the security to the seller at an agreed upon price and
date. Repurchase agreements are deposited with the Fund's custodian and,
pursuant to the terms of the repurchase agreement, the collateral must have an
aggregate market value greater than or equal to the repurchase price plus
accrued interest at all times. If the value of the underlying securities fall
below the value of the repurchase price plus accrued interest, the Fund will
require the seller to deposit additional collateral by the next business day. If
the request for additional collateral is not met, or the seller defaults on its
repurchase obligation, the Fund maintains the right to sell the underlying
securities at market value and may claim any resulting loss against the seller;
collectibility of such claims may be limited. At May 31, 1998, the Fund had no
such agreements.
NOTE B. AGREEMENTS
BEA Associates ("BEA") serves as the Fund's investment adviser with respect to
all investments. As
- --------------------------------------------------------------------------------
19
<PAGE>
- --------------------------------------------------------------------------------
THE EMERGING MARKETS TELECOMMUNICATIONS FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
compensation for its advisory services, BEA receives from the Fund an annual
fee, calculated weekly and paid quarterly, equal to 1.25% of the first $100
million of the Fund's average weekly net assets, 1.125% of the next $100 million
and 1.00% of amounts in excess of $200 million. For the fiscal year ended May
31, 1998, BEA earned $1,985,605 for advisory services. BEA also provides certain
administrative services to the Fund and is reimbursed by the Fund for costs
incurred on behalf of the Fund (up to $20,000 per annum). For the fiscal year
ended May 31, 1998, BEA was reimbursed $14,078 for administrative services
rendered to the Fund.
Bear Stearns Funds Management Inc. ("BSFM") serves as the Fund's U.S.
administrator. The Fund pays BSFM a monthly fee that is computed weekly at an
annual rate of 0.12% of the Fund's average weekly net assets. For the fiscal
year ended May 31, 1998, BSFM earned $211,894 for administrative services.
BankBoston, N.A., Sao Paulo ("BB") and CELFIN Administradora de Fondos de
Inversion de Capital Extranjero S.A. ("Chilean administrator") serve as the
Fund's administrators with respect to Brazilian and Chilean investments,
respectively. BB is paid for its services, out of the custody fee payable to
Brown Brothers Harriman & Co., the Fund's accounting agent and custodian, a
quarterly fee based on an annual rate of 0.10% of average month-end Brazilian
net assets of the Fund. In return for services rendered, the Chilean
administrator receives a fee computed monthly and paid quarterly at an annual
rate of 0.10% of the Fund's average weekly net assets in Chile, subject to
certain minimum annual fees and reimbursements for a predefined limit of their
expenses.
NOTE C. CAPITAL STOCK
The authorized capital stock of the Fund is 100,000,000 shares of common stock,
$0.001 par value. Of the 8,434,919 shares outstanding at May 31, 1998, BEA owned
7,169 shares.
NOTE D. INVESTMENT IN SECURITIES
For U.S. federal income tax purposes, the cost of securities owned at May 31,
1998 was $109,009,918. Accordingly, the net unrealized appreciation of
investments (including investments denominated in foreign currencies) of
$5,411,047, was composed of gross appreciation of $18,506,142 for those
investments having an excess of value over cost and gross depreciation of
$13,095,095 for those investments having an excess of cost over value.
For the fiscal year ended May 31, 1998, total purchases and sales of securities,
other than short-term investments, were $239,625,691 and $284,728,273,
respectively.
NOTE E. CREDIT AGREEMENT
The Fund, along with 18 other U.S. regulated investment companies for which BEA
serves as investment adviser, has a credit agreement with BankBoston, N.A. The
agreement provides that each fund is permitted to borrow an amount equal to the
lesser of $50,000,000 or 25% of the net assets of the fund. However, at no time
shall the aggregate outstanding principal amount of all loans to any of the 19
funds exceed $50,000,000. The line of credit will bear interest at (i) the
greater of the bank's prime rate or the Federal Funds Effective Rate plus 0.50%
or (ii) the Adjusted Eurodollar Rate plus 1.50%. The amount outstanding under
the credit agreement for the Fund averaged $15,068 with an average interest rate
of 8.50% during the fiscal year ended May 31, 1998. At May 31, 1998, the Fund
had no amounts outstanding under the credit agreement.
- --------------------------------------------------------------------------------
20
<PAGE>
- --------------------------------------------------------------------------------
THE EMERGING MARKETS TELECOMMUNICATIONS FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
NOTE F. RESTRICTED SECURITIES
Certain of the Fund's investments are restricted as to resale and are valued at
the direction of the Fund's Board of Directors in good faith, at fair value,
after taking into consideration available indications of value. The table below
shows the number of shares held, the acquisition date, aggregate cost, fair
value as of May 31, 1998, share value of such security and percent of net assets
which the security comprises.
<TABLE>
<CAPTION>
PERCENT
NUMBER VALUE OF
OF ACQUISITION FAIR VALUE PER NET
SECURITY SHARES DATE COST AT MAY 31, 1998 SHARE ASSETS
- --------------------------------------- -------- ---------- ---- --------------------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Venworld Telecommunications............ 125,947 07/14/92 $2,531,38 1,550,$480 $ 12.31 1.12
</TABLE>
The Fund may incur certain costs in connection with the disposition of the above
security.
- --------------------------------------------------------------------------------
21
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
of The Emerging Markets Telecommunications Fund, Inc.:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations, changes
in net assets, cash flows and the financial highlights present fairly, in all
material respects, the financial position of The Emerging Markets
Telecommunications Fund, Inc. (the "Fund") at May 31, 1998, and the results of
its operations, changes in its net assets, its cash flows and its financial
highlights for each of the periods presented, in conformity with generally
accepted accounting principles. 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 generally accepted
auditing standards 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 May 31, 1998 by
correspondence with the custodian, brokers and issuers, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
2400 Eleven Penn Center
Philadelphia, Pennsylvania
July 15, 1998
- --------------------------------------------------------------------------------
22
<PAGE>
RESULTS OF ANNUAL MEETING OF SHAREHOLDERS (UNAUDITED)
On September 24, 1997, the annual meeting of shareholders of The Emerging
Markets Telecommunications Fund, Inc. (the "Fund") was held and the following
matters were voted upon:
(1) To re-elect two directors to the Board of Directors of the Fund.
<TABLE>
<CAPTION>
NAME OF DIRECTOR FOR WITHHELD NON-VOTES
- ---------------------------------------- --------- -------- ---------
<S> <C> <C> <C>
James J. Cattano 7,157,528 121,066 1,156,325
William W. Priest, Jr. 7,152,585 126,009 1,156,325
</TABLE>
In addition to the directors re-elected at the meeting, Dr. Enrique R. Arzac,
Peter A. Gordon, George W. Landau, Martin M. Torino and Richard W. Watt continue
to serve as directors of the Fund.
(2) To ratify the selection of Coopers & Lybrand L.L.P. as independent public
accountants for the fiscal year ending May 31, 1998.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN NON-VOTES
--------- ------- ------- ---------
<S> <C> <C> <C> <C>
6,397,039 34,387 847,168 1,156,325
</TABLE>
TAX INFORMATION (UNAUDITED)
The Fund is required by Subchapter M of the Internal Revenue Code of 1986, as
amended, to advise its shareholders within 60 days of the Fund's fiscal year end
(March 31, 1998) as to the U.S. federal tax status of distributions received by
the Fund's shareholders in respect of such fiscal year. Of the $3.71 per share
dividend paid in respect of such fiscal year $0.46 was from ordinary income and
$3.25 was from net long-term capital gains of which $0.67 was from 28 percent
rate gains and $2.58 was from 20 percent rate gains. There were no dividends
which would qualify for the dividend received deduction available to corporate
shareholders.
The Fund does not intend to make an election under Section 853 to pass through
foreign taxes paid by the Fund to its shareholders. This information is given to
meet certain requirements of the Internal Revenue Code of 1986, as amended.
Shareholders should refer to their Form 1099-DIV to determine the amount
includable on their respective tax returns for 1998.
Because the Fund's fiscal year is not the calendar year, another notification
will be sent in respect of calendar year 1998. The notification will reflect the
amount, if any, that calendar year 1998 taxpayers will report on their U.S.
federal income tax returns. Such notification will be mailed with Form 1099-DIV
in January, 1999.
Foreign shareholders will generally be subject to U.S. withholding tax on the
amount of their dividends and distributions. They will generally not be entitled
to a foreign tax credit or deduction for the foreign withholding taxes paid by
the Fund.
In general, dividends and distributions received by tax-exempt recipients (e.g.,
IRAs and Keoghs) need not be reported as taxable income for U.S. federal income
tax purposes. However, some retirement trusts (e.g., corporate, Keoghs and
403(b)(7) plans) may need this information for their annual information
reporting.
Shareholders are advised to consult their own tax advisers with respect to the
tax consequences of their investment in the Fund.
- --------------------------------------------------------------------------------
23
<PAGE>
DESCRIPTION OF INVESTLINK* PROGRAM
The InvestLink Program is sponsored and administered by BankBoston, N.A., not by
The Emerging Markets Telecommunications Fund, Inc. (the "Fund"). BankBoston,
N.A. will act as program administrator (the "Program Administrator") of the
InvestLink Program (the "Program"). The purpose of the Program is to provide
interested investors with a simple and convenient way to invest funds and
reinvest dividends in shares of the Fund's common stock ("Shares") at prevailing
prices, with reduced brokerage commissions and fees.
An interested investor may join the Program at any time. Purchases of Shares
with funds from a participant's cash payment or automatic account deduction will
begin on the next day on which funds are invested. If a participant selects the
dividend reinvestment option, automatic investment of dividends generally will
begin with the next dividend payable after the Program Administrator receives
his enrollment form. Once in the Program, a person will remain a participant
until he terminates his participation or sells all Shares held in his Program
account, or his account is terminated by the Program Administrator. A
participant may change his investment options at any time by requesting a new
enrollment form and returning it to the Program Administrator.
A participant will be assessed certain charges in connection with his
participation in the Program. First-time investors will be subject to an initial
service charge which will be deducted from their initial cash deposit. All
optional cash deposit investments will be subject to a service charge. Sales
processed through the Program will have a service fee deducted from the net
proceeds, after brokerage commissions. In addition to the transaction charges
outlined above, participants will be assessed per share processing fees (which
include brokerage commissions.) Participants will not be charged any fee for
reinvesting dividends.
The number of Shares to be purchased for a participant depends on the amount of
his dividends, cash payments or bank account or payroll deductions, less
applicable fees and commissions, and the purchase price of the Shares. The
Program Administrator uses dividends and funds of participants to purchase
Shares of Company Common Stock in the open market. Such purchases will be made
by participating brokers as agent for the participants using normal cash
settlement practices. All Shares purchased through the Program will be allocated
to participants as of the settlement date, which is usually three business days
from the the purchase date. In all cases, transaction processing will occur
within 30 days of the receipt of funds, except where temporary curtailment or
suspension of purchases is necessary to comply with applicable provisions of the
Federal Securities laws, or when unusual market conditions make prudent
investment impracticable. In the event the Program Administrator is unable to
purchase Shares within 30 days of the receipt of funds, such funds will be
returned to the participants.
The average price of all Shares purchased by the Program Administrator with all
funds received during the time period from two business days preceding any
investment date up to the second business day preceding the next investment date
shall be the price per share allocable to a participant in connection with the
Shares purchased for his account with his funds or dividends received by the
Program Administrator during such time period. The average price of all Shares
sold by the Program Administrator pursuant to sell orders received during such
time period shall be the price per share allocable to a participant in
connection with the Shares sold for his account pursuant to his sell orders
received by the Program Administrator during such time period.
BankBoston, N.A., as Program Administrator, administers the Program for
participants, keeps records, sends statements of account to participants
- --------------------------------------------------------------------------------
24
<PAGE>
DESCRIPTION OF INVESTLINK* PROGRAM (CONTINUED)
and performs other duties relating to the Program. Each participant in the
Program will receive a statement of his account following each purchase of
Shares. The statements will also show the amount of dividends credited to such
participant's account (if applicable), as well as the fees paid by the
participant. In addition, each participant will receive copies of the Fund's
Annual Report to shareholders, proxy statements and, if applicable, dividend
income information for tax reporting purposes.
If the Fund is paying dividends on the Shares, a participant will receive
dividends through the Program for all Shares held on the dividend record date on
the basis of full and fractional Shares held in his account, and for all other
Shares of the Fund registered in his name. The Program Administrator will send
checks to the participants for the amounts of their dividends that are not to be
automatically reinvested at no cost to the participants.
Shares of the Fund purchased under the Program will be registered in the name of
the accounts of the respective participants. Unless requested, the Fund will not
issue to participants certificates for Shares of the Fund purchased under the
Program. The Program Administrator will hold the Shares in book-entry form until
a Program participant chooses to withdraw his Shares or terminate his
participation in the Program. The number of Shares purchased for a participant's
account under the Program will be shown on his statement of account. This
feature protects against loss, theft or destruction of stock certificates.
A participant may withdraw all or a portion of the Shares from his Program
account by notifying the Program Administrator. After receipt of a participant's
request, the Program Administrator will issue to such participant certificates
for the whole Shares of the Fund so withdrawn or, if requested by the
participant, sell the Shares for him and send him the proceeds, less applicable
brokerage commissions, fees, and transfer taxes, if any. If a participant
withdraws all full and fractional Shares in his Program account, his
participation in the Program will be terminated by the Program Administrator. In
no case will certificates for fractional Shares be issued. The Program
Administrator will convert any fractional Shares held by a participant at the
time of his withdrawal to cash.
Participation in any rights offering, dividend distribution or stock split will
be based upon both the Shares of the Fund registered in participants' names and
the Shares (including fractional Shares) credited to participants' Program
accounts. Any stock dividend or Shares resulting from stock splits with respect
to Shares of the Fund, both full and fractional, which participants hold in
their Program accounts and with respect to all Shares registered in their names
will be automatically credited to their accounts.
All Shares of the Fund (including any fractional share) credited to his account
under the Program will be voted as the participant directs. The participants
will be sent the proxy materials for the annual meetings of shareholders. When a
participant returns an executed proxy, all of such Shares will be voted as
indicated. A participant may also elect to vote his Shares in person at the
Shareholders' meeting.
A participant will receive tax information annually for his personal records and
to help him prepare his U.S. federal income tax return. The automatic
reinvestment of dividends does not relieve him of any income tax which may be
payable on dividends. For further information as to tax consequences of
participation in the Program, participants should consult with their own tax
advisors.
The Program Administrator in administering the Program will not be liable for
any act done in good faith or for any good faith omission to act. However, the
Program Administrator will be liable for loss or damage due to error caused by
its negligence, bad faith or
- --------------------------------------------------------------------------------
25
<PAGE>
DESCRIPTION OF INVESTLINK* PROGRAM (CONTINUED)
willful misconduct. Shares held in custody by the Program Administrator are not
subject to protection under the Securities Investors Protection Act of 1970.
The participant should recognize that neither the Fund nor the Program
Administrator can provide any assurance of a profit or protection against loss
on any Shares purchased under the Program. A participant's investment in Shares
held in his Program account is no different than his investment in directly held
Shares in this regard. The participant bears the risk of loss and the benefits
of gain from market price changes with respect to all of his Shares. Neither the
Fund nor the Program Administrator can guarantee that Shares purchased under the
Program will, at any particular time, be worth more or less than their purchase
price. Each participant must make an independent investment decision based on
his own judgment and research.
While the Program Administrator hopes to continue the Program indefinitely, the
Program Administrator reserves the right to suspend or terminate the Program at
any time. It also reserves the right to make modifications to the Program.
Participants will be notified of any such suspension, termination or
modification in accordance with the terms and conditions of the Program. The
Program Administrator also reserves the right to terminate any participant's
participation in the Program at any time. Any question of interpretation arising
under the Program will be determined in good faith by the Program Administrator
and any such good faith determination will be final.
Any interested investor may participate in the Program. To participate in the
Program, an investor who is not already a registered owner of the Shares must
make an initial investment of at least $250.00. All other cash payments or bank
account deductions must be at least $100.00, up to a maximum of $100,000.00
annually. An interested investor may join the Program by reading the Program
description, completing and signing the enrollment form and returning it to the
Program Administrator. The enrollment form and information relating to the
Program (including the terms and conditions) may be obtained by calling the
Program Administrator at one of the following telephone numbers: First Time
Investors--(800) 969-3364; Current Shareholders--(800) 730-6001. All
correspondence regarding the Program should be directed to: BankBoston, N.A.,
InvestLink Program, P.O. Box 1681, Boston, MA 02105-1681.
- --------------
*InvestLink-SM- is a service mark of Boston EquiServe Limited Partnership.
- --------------------------------------------------------------------------------
26
<PAGE>
SUMMARY OF GENERAL INFORMATION
The Fund--The Emerging Markets Telecommunications Fund, Inc.--is a closed-end,
non-diversified management investment company whose shares trade on the New York
Stock Exchange. Its investment objective is long-term capital appreciation
through investments primarily in equity securities of telecommunications
companies in emerging countries. The Fund is managed and advised by BEA
Associates ("BEA"). BEA is a diversified asset manager, handling equity,
balanced, fixed income, international and derivative based accounts. Portfolios
include international and emerging market investments, common stocks, taxable
and non-taxable bonds, options, futures and venture capital. BEA manages money
for corporate pension and profit-sharing funds, public pension funds, union
funds, endowments and other charitable institutions and private individuals. As
of June 30, 1998, BEA managed approximately $35.6 billion in assets.
SHAREHOLDER INFORMATION
The market price is published in: THE NEW YORK TIMES (daily) under the
designation "EMTel" and THE WALL STREET JOURNAL (daily), and BARRON'S (each
Monday) under the designation "EmergMktTele". The Fund's New York Stock Exchange
trading symbol is ETF. Weekly comparative net asset value (NAV) and market price
information about The Emerging Markets Telecommunications Fund, Inc.'s shares
are published each Sunday in THE NEW YORK TIMES and each Monday in THE WALL
STREET JOURNAL and BARRON's, as well as other newspapers, in a table called
"Closed-End Funds."
THE BEA GROUP OF FUNDS
LITERATURE REQUEST--Call today for free descriptive information on the
closed-end funds or a prospectus on any of the open-end mutual funds listed
below. The prospectus contains more complete information, including fees,
charges and expenses, and should be read carefully before investing or sending
money.
<TABLE>
<S> <C>
CLOSED-END FUNDS BEA ADVISOR FUNDS
SINGLE COUNTRY OPEN-END MUTUAL FUNDS
The Brazilian Equity Fund, Inc. (BZL) BEA Emerging Markets Equity Fund
The Chile Fund, Inc. (CH) BEA Global Telecommunications Fund
The First Israel Fund, Inc. (ISL) BEA High Yield Fund
The Indonesia Fund, Inc. (IF) BEA International Equity Fund
The Portugal Fund, Inc. (PGF)
MULTIPLE COUNTRY
The Emerging Markets Infrastructure
Fund, Inc. (EMG)
The Latin America Equity Fund, Inc.
(LAQ)
The Latin America Investment Fund, Inc.
(LAM)
FIXED INCOME For shareholder information or a copy
BEA Income Fund, Inc. (FBF) of a prospectus for any of the open-end
BEA Strategic Global Income Fund, Inc. mutual funds please call,
(FBI) 1-800-401-2230.
For closed-end fund information please Visit our website on the Internet:
call, 1-800-293-1232. http://www.beafunds.com
</TABLE>
- --------------------------------------------------------------------------------
<PAGE>
DIRECTORS AND CORPORATE OFFICERS
Dr. Enrique R. Arzac Director
James J. Cattano Director
Peter A. Gordon Director
George W. Landau Director
Martin M. Torino Director
William W. Priest, Jr. Chairman of the Board of Directors
Richard W. Watt Director, President and Chief
Investment Officer
Robert B. Hrabchak Investment Officer
Michael A. Pignataro Chief Financial Officer and
Secretary
Hal Liebes Senior Vice President
Rocco A. Del Guercio Vice President
Wendy S. Setnicka Treasurer
INVESTMENT ADVISER
BEA Associates
One Citicorp Center
153 East 53rd Street
New York, NY 10022
ADMINISTRATOR
Bear Stearns Funds Management Inc.
245 Park Avenue
New York, NY 10167
CUSTODIAN
Brown Brothers Harriman & Co.
40 Water Street
Boston, MA 02109
SHAREHOLDER SERVICING AGENT
BankBoston, N.A.
P.O. Box 1865
Mail Stop 45-02-62
Boston, MA 02105-1865
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
2400 Eleven Penn Center
Philadelphia, PA 19103
LEGAL COUNSEL
Willkie Farr & Gallagher
787 Seventh Avenue
New York, NY 10019-6099
This report, including the financial statements herein, is sent
to the shareholders of the Fund for their information. It is
not a prospectus, circular or representation intended for use
in the purchase or sale of shares of the Fund or of any
securities mentioned in this report.
[LOGO]
- --------------------------------------------------------------------------------
3916-AR-5/98
