July 19, 1996
The Emerging Markets
Income Fund II Inc
Dear Shareholders:
WE ARE PLEASED to provide you with this annual report for The Emerging Markets
Income Fund II Inc (the "Fund"). On the following pages, you will find audited
financial statements for the fiscal year ended May 31, 1996, the related report
of independent accountants and other information about the Fund.
During the fiscal quarter ended May 31, 1996, the net asset value of the Fund
increased from $12.69 per share at February 29, 1996 to $13.54 per share at May
31, 1996. Dividends of $0.4125 per share were declared during the quarter.
Assuming that these dividends were reinvested in additional shares of the Fund,
the net asset value return for the quarter ended May 31, 1996 was 10.49%. During
the same period, the Salomon Brothers Brady Bond Index, which we use as a
measure of the return of the overall market for emerging markets debt, returned
8.75%. The Fund's primary investment objective is to seek high current income
through investments in selected debt securities of emerging markets countries.
As a secondary objective, the Fund seeks capital appreciation.
The annual meeting of shareholders of the Fund will be held on September 16,
1996 at 10:00 a.m. at Advantage Advisers' headquarters, Oppenheimer Tower, World
Financial Center, in New York City. We hope those of you who are able to, will
attend.
Emerging Markets Review
AFTER A DIFFICULT START, emerging markets turned in a strong performance in the
quarter ended May 31, 1996. The completion of Mexico's 30-year Brady bond swap
for Eurobonds, along with speculation over the likelihood of similar deals for
other Brady countries, lent a positive tone to the market by the end of May. In
March and early April, uncertainty about U.S. interest rates rattled domestic
and foreign debt markets. By the end of the period, however, individual country
fundamentals began to have a dominant impact on performance in the emerging
markets.
The Mexican economy continues to demonstrate strong fundamental progress.
Gross domestic product in the first quarter of 1996 was down 1% in real
terms from the same period last year, which was much less than the 2.5% -
3.0% drop that government officials had predicted. The smaller-than-expected
drop came from positive performance in the industrial and primary sectors,
which grew 2.4% and 0.8% on the year, respectively.
In Ecuador, presidential elections were progressing as expected through May.
Based on first round election results, presidential hopeful Jaime Nebot was
expected to be the winner in the July elections. However, leftist candidate
Abdala Bucaram won the election in a very close vote. As a priority,
Bucaram's new government will need to resolve important issues of monetary
and fiscal policy.
<PAGE>
T H E E M E R G I N G M A R K E T S I N C O M E F U N D I I I N C
Venezuelan and International Monetary Fund authorities finalized terms of a
stand-by credit arrangement that will be implemented in conjunction with
that country's new free-market program. Venezuelan Planning Minister Teodoro
Petkoff visited New York in May to promote the initiative and address
investors' concerns regarding potential social unrest.
Outside Latin America, Russia continues to outperform the overall market. By
the end of May, President Boris Yeltsin's improving position in the polls
and a new post-reform low in monthly inflation of 2.2% in April bolstered
investor sentiment. Russia's output growth, however, has yet to be
positively impacted by these developments. Industrial production fell in the
first quarter and, while some recovery is likely in the next six months,
positive growth is not expected for the year as a whole.
In the African region, the unexpected fall in the value of South Africa's
currency, the rand, since mid-February 1996 presents investors with both
opportunities and challenges. On the positive side, it will constrain
consumer consumption and, therefore, improve the country's trade balance.
Negatively, the devaluation will boost inflation and widen the fiscal
deficit. Also, the devaluation unsettles foreign investor confidence, vital
to South Africa's ability to attract inexpensive private capital from
abroad.
Dividend Reinvestment and Cash Purchase Plan
THE BOARD OF DIRECTORS of the Fund recently approved amendments to the Fund's
Dividend Reinvestment and Cash Purchase Plan (the "Plan"), effective September
6, 1996. The Board, along with management of the Fund, believe that these
amendments are in the best interests of the Fund and its shareholders.
Under the current terms of the Plan, whenever the Fund declares a distribution
from capital gains or an income dividend payable in cash, the Plan Agent,
American Stock Transfer & Trust Company, purchases additional shares on the
open-market for shareholders participating in the Plan, regardless of whether
the Fund's shares are trading at a discount or a premium to net asset value. As
amended, the Plan provides that if the Fund's shares are trading at a premium to
net asset value, Plan participants will receive newly-issued shares rather than
shares purchased on the open-market. If the Fund's shares are trading at a
discount, the Plan Agent will purchase additional shares on the open-market. If
a discount shifts to a premium or if the Plan Agent cannot complete such
purchases within the time limits set forth in the Plan, participants will
receive the uninvested portion of the dividend or distribution in newly-issued
shares. One benefit of this new structure is that in the case of a market
premium, shares will now be issued to participants at net asset value (or 95% of
the market price if the net asset value is less than 95% of the market price) as
opposed to the current structure in which shares are purchased for participants
at the higher market price.
Shareholders who are not enrolled in the Plan may enroll by completing the
Authorization Card attached to the Terms and Conditions of the Plan located in
the back of this Annual Report. If your shares are held in the name of a broker
or nominee, you should contact your broker or nominee for more information about
your ability to participate in the Plan.
<PAGE>
T H E E M E R G I N G M A R K E T S I N C O M E F U N D I I I N C
We highly encourage those of you who are currently not participating in the Plan
to do so because the Plan offers you a prompt, simple and inexpensive way to put
your dividends and distributions to work through reinvestment in additional
shares of capital stock of the Fund. A further discussion of the benefits of
participation in the Plan follows this letter, and we encourage you to consider
the information carefully.
We encourage you to read the financial statements that follow for details about
the Fund's investments. A recorded update of developments affecting emerging
markets debt securities is available by calling (800) 421-4777. The update also
includes specific information about the Fund, its portfolio, country allocations
and recent performance.
Cordially,
Alan H. Rappaport Michael S. Hyland
Chairman of the Board President
<PAGE>
T H E E M E R G I N G M A R K E T S I N C O M E F U N D I I I N C
Automatic Dividend Reinvestment and Cash Purchase Plan
DIVIDEND REINVESTMENT PLAN
The Automatic Dividend Reinvestment and Cash Purchase Plan (the "Plan"),
administered by American Stock Transfer & Trust Company as Plan Agent for
shareholders of the Fund, offers you a prompt, simple and inexpensive way to put
your dividends and distributions to work through reinvestment in additional full
and fractional shares of capital stock of the Fund.
Money from dividends and distributions can lie idle for months at a time;
however, with the Plan, your dividends and distributions are promptly invested
for you, automatically increasing your holdings in the Fund. All paperwork is
done for you automatically by American Stock Transfer & Trust Company, and you
will receive statements from the Plan Agent to simplify your personal records.
CASH PURCHASE PLAN
The Cash Purchase Plan allows you to purchase shares of the Fund conveniently
and inexpensively, without committing large dollar amounts. Under the Cash
Purchase Plan, you have the option of making additional cash payments of at
least $250 to the Agent which will be used to purchase additional shares of the
Fund. Purchases of shares will be made monthly. You may vary the amount of each
voluntary payment as long as it is at least $250.
COST TO YOU
Except as specifically noted, you will not bear any costs of administering the
Plan. You pay only your proportionate share of the commissions paid on all
open-market purchases. Dividends and distributions, even though automatically
reinvested, continue to be taxable.
TO ENROLL
The complete Dividend Reinvestment and Cash Purchase Plan and Authorization Card
can be found at the back of this report. If you are not already a participant,
you must complete the Authorization Card and return it in the envelope provided
in order to participate. If you have any questions, contact the Plan Agent at
(718) 921-8200. If your shares are held in the name of a broker or nominee, you
should contact your broker or nominee for more information about your ability to
participate in the Plan.
<PAGE>
T H E E M E R G I N G M A R K E T S I N C O M E F U N D I I I N C
Statement of Investments May 31, 1996
<TABLE>
<CAPTION>
BONDS -- 89.4%
- --------------------------------------------------------------------------------------------------------
Principal
Amount Value
000's(a) (Note 2a)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
ARGENTINA - 6.8%
6,732 Republic of Argentina, FRB, Series L, 6.3125%, 3/31/05*,**........... $ 5,204,678
Peso 8,052 Republic of Argentina, BOCON, Pre 1, 3.4716%, 4/01/01*,**(b)......... 6,235,924
Peso 10,522 Republic of Argentina, BOCON, Pre 3, 3.4716%, 9/01/02*,**(b)......... 6,726,047
Peso 3,355 Republic of Argentina, BOCON, Pro 1, 3.4716%, 4/01/07*(b)............ 1,969,172
------------
TOTAL ARGENTINA...................................................... 20,135,821
------------
BRAZIL - 25.7%
43,491 Federal Republic of Brazil, Capitalization (C) Bond, 8%, 4/15/14**(b) 26,176,148
29,500 Federal Republic of Brazil, Investment (Exit) Bond, 6%, 9/15/13**.... 17,690,781
25,000 Federal Republic of Brazil, EI Bond, Series L, 6.5%, 4/15/06*........ 19,343,750
18,000 Federal Republic of Brazil, NMB, Series L, 6.5625%, 4/15/09*,**...... 12,768,750
------------
TOTAL BRAZIL......................................................... 75,979,429
------------
BULGARIA - 12.2%
8,750 Republic of Bulgaria, IAB, 6.25%, 7/28/11*,**........................ 4,052,344
282 Republic of Bulgaria, Discount Bond, Tranche A, 6.25%, 7/28/24*...... 143,839
99,750 Republic of Bulgaria, FLIRB, Series A, 2%, 7/28/12*,**............... 31,795,312
------------
TOTAL BULGARIA....................................................... 35,991,495
------------
COSTA RICA - 5.4%
734 Costa Rica, Interest Bond, Series B, 6.32812%, 5/21/05*,**........... 645,882
8,400 Costa Rica, Principal Bond, Series A, 6.25%, 5/21/10**............... 5,796,000
16,000 Costa Rica, Principal Bond, Series B, 6.25%, 5/21/15**............... 9,760,000
------------
TOTAL COSTA RICA..................................................... 16,201,882
------------
ECUADOR - 15.0%
103,758 Republic of Ecuador, PDI Bond, 6.0625%, 2/28/15*,**(b)............... 44,356,437
------------
HUNGARY - 1.8%
5,250 National Bank of Hungary, 8.875%, 11/01/13**......................... 5,250,000
------------
See accompanying notes to financial statements.
Page 1
</TABLE>
<PAGE>
T H E E M E R G I N G M A R K E T S I N C O M E F U N D I I I N C
Statement of Investments May 31, 1996 (continued)
BONDS (continued)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Principal
Amount Value
000's(a) (Note 2a)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
INDONESIA - 0.4%
1,000 Tjiwi Kimia International Finance Co., 13.25%, 8/01/01** ............ $ 1,110,000
------------
MEXICO - 6.3%
3,000 Grupo Industrial Durango, 12%, 7/15/01**............................. 3,000,000
17,052 United Mexico States, Global Bond, 11.5%, 5/15/26**.................. 15,815,844
------------
TOTAL MEXICO......................................................... 18,815,844
------------
PANAMA - 1.2%
5,000 Republic of Panama, IRB, 3.5%, 12/29/49* (c)......................... 2,806,250
923 Republic of Panama, Floating Rate Note, 6.62891%, 5/10/02*,** ....... 860,772
------------
TOTAL PANAMA......................................................... 3,667,022
------------
POLAND - 5.9%
3,000 Republic of Poland, RSTA Bond, 2.75%, 10/27/24*,**................... 1,642,500
20,880 Republic of Poland, PDI Bond, 3.75%, 10/27/14*,**.................... 15,725,250
------------
TOTAL POLAND......................................................... 17,367,750
------------
SOUTH AFRICA - 0.6%
ZAL 9,000 Republic of South Africa Notes, 12%, 2/28/05......................... 1,691,463
------------
URUGUAY - 1.3%
1,750 Uruguay DCB, Series B, 6.4375%, 2/18/07*,**.......................... 1,485,313
3,000 Uruguay New Money Note, 6.5625%, 2/18/06*............................ 2,505,000
------------
TOTAL URUGUAY........................................................ 3,990,313
------------
VENEZUELA - 6.8%
14,750 Republic of Venezuela, FLIRB, Series A, 6.375%, 3/31/07*,**.......... 10,444,844
13,500 Republic of Venezuela, FLIRB, Series B, 6.5%, 3/31/07*,**............ 9,559,687
------------
TOTAL VENEZUELA...................................................... 20,004,531
------------
TOTAL BONDS (cost $275,440,106)...................................... 264,561,987
------------
</TABLE>
See accompanying notes to financial statements.
Page 2
<PAGE>
T H E E M E R G I N G M A R K E T S I N C O M E F U N D I I I N C
Statement of Investments May 31, 1996 (continued)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Principal
Amount Value
000's(a) (Note 2a)
- --------------------------------------------------------------------------------------------------------
LOAN PARTICIPATIONS -- 16.2%
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
667 Government of Jamaica, Tranche A, 6.34375%, 10/15/00*
(Chase Manhattan, New York)+..................................... $ 619,985
16,000 Kingdom of Morocco, Tranche A, 6.4375%, 1/01/09*,**
(Chase Manhattan, New York, Morgan Guaranty
Trust Company of New York, ING Bank N.V.)+....................... 11,490,000
41,412 Kingdom of Morocco, Tranche B, 6.4375%, 1/01/04*
(Chase Manhattan, New York, Morgan Stanley
Emerging Markets, Inc.)+......................................... 35,743,530
------------
TOTAL LOAN PARTICIPATIONS (cost $46,267,144)......................... 47,853,515
------------
PURCHASED PUT OPTIONS -- 0.4%
- --------------------------------------------------------------------------------------------------------
10,000 Republic of Bulgaria, FLIRB due 7/28/12
(expiring 9/23/96, exercise price 30)............................ 137,000
5,000 Republic of Bulgaria, FLIRB due 7/28/12
(expiring 9/23/96, exercise price 30.25)......................... 98,500
15,000 Republic of Bulgaria, FLIRB due 7/28/12
(expiring 9/29/96, exercise price 30.3125)....................... 234,000
5,000 Republic of Bulgaria, FLIRB due 7/28/12
(expiring 10/01/96, exercise price 30.625)....................... 133,500
10,000 Republic of Bulgaria, FLIRB due 7/28/12
(expiring 11/06/96, exercise price 30)........................... 200,000
25,000 Republic of Bulgaria, FLIRB due 7/28/12
(expiring 11/12/96, exercise price 31)........................... 557,500
------------
TOTAL PURCHASED PUT OPTIONS (premium paid $2,242,000)................ 1,360,500
------------
U.S. GOVERNMENT SECURITY -- 22.5%
- --------------------------------------------------------------------------------------------------------
66,500 U.S. Treasury Bill, 4.62%, 6/06/96 (cost $66,459,036)................ 66,458,770
------------
TOTAL INVESTMENTS-- 128.5% (cost $390,408,286)...................... 380,234,772
------------
See accompanying notes to financial statements.
Page 3
</TABLE>
<PAGE>
T H E E M E R G I N G M A R K E T S I N C O M E F U N D I I I N C
Statement of Investments May 31, 1996 (continued)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Principal
Amount Value
000's(a) (Note 2a)
- --------------------------------------------------------------------------------------------------------
WRITTEN CALL OPTIONS -- (0.8)%
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
(10,000) Republic of Bulgaria, FLIRB due 7/28/12
(expiring 9/23/96, exercise price 30)............................ $ (324,000)
(5,000) Republic of Bulgaria, FLIRB due 7/28/12
(expiring 9/23/96, exercise price 30.25)......................... (154,500)
(15,000) Republic of Bulgaria, FLIRB due 7/28/12
(expiring 9/29/96, exercise price 30.3125)....................... (466,500)
(5,000) Republic of Bulgaria, FLIRB due 7/28/12
(expiring 10/01/96, exercise price 30.625)....................... (195,500)
(10,000) Republic of Bulgaria, FLIRB due 7/28/12
(expiring 11/06/96, exercise price 30)........................... (464,000)
(25,000) Republic of Bulgaria, FLIRB due 7/28/12
(expiring 11/12/96, exercise price 31)........................... (775,000)
------------
TOTAL WRITTEN CALL OPTIONS (premium received $1,853,500)............. (2,379,500)
------------
LIABILITIES IN EXCESS OF OTHER ASSETS - (27.7)%...................... (81,906,275)
------------
NET ASSETS - 100.0% (equivalent to $13.54 per share on
21,857,134 common shares outstanding)............................ $295,948,997
============
<FN>
- -----------
(a)Principal denominated in U.S. dollars unless otherwise indicated.
(b)Payment-in-kind security for which all or part of the interest earned is capitalized as additional principal.
(c)"When and if issued" security issued pursuant to Panama's Brady Plan debt restructuring. The Investment
Adviser believes that this restructuring will be completed and finalized and that the related Brady Bonds
will be issued. Accordingly, the Fund has marked-to-market its investment in this security at May 31, 1996.
*Rate shown reflects current rate on instrument with variable rates or step coupon rates.
**All or a portion of the security is segregated as collateral pursuant to a loan agreement. See Note 5.
+Participation interests were acquired through the financial institutions indicated parenthetically. See Note 6.
Abbreviations used in this statement:
BOCON - Bonos de Consolidacion.
DCB - Debt Conversion Bond.
EI - Eligible Interest.
FLIRB - Front Loaded Interest Reduction Bond.
FRB - Floating Rate Bond.
IAB - Interest Arrears Bond.
IRB - Interest Reduction Bond.
NMB - New Money Bond.
PDI - Past Due Interest.
Peso - Argentina Peso.
RSTA - Revolving Short Term Agreement.
ZAL - South African Rand.
</FN>
</TABLE>
See accompanying notes to financial statements.
Page 4
<PAGE>
T H E E M E R G I N G M A R K E T S I N C O M E F U N D I I I N C
<TABLE>
<S> <C>
Statement of Assets and Liabilities May 31, 1996
Assets
Investments, at value (cost-- $390,408,286).......................................... $380,234,772
Cash................................................................................. 127,115
Receivable for securities sold....................................................... 19,221,256
Interest receivable ................................................................. 3,922,873
Unamortized organization expenses .................................................. 51,576
Prepaid expenses .................................................................... 20,320
------------
Total assets ........................................................... 403,577,912
------------
Liabilities
Loan payable (Note 5) .............................................................. 100,000,000
Written options at value (premium received - $1,853,500) ........................... 2,379,500
Payable for securities purchased ................................................... 2,525,000
Payable for compensated foreign currency contracts ................................. 1,693,333
Accrued interest expense on loan .................................................... 455,773
Accrued management fee (Note 3) ..................................................... 299,253
Other accrued expenses .............................................................. 276,056
------------
Total liabilities ...................................................... 107,628,915
------------
Net Assets
Common Stock ($.001 par value, authorized 100,000,000 shares;
21,857,134 shares outstanding) .................................................. 21,857
Additional paid-in capital ......................................................... 305,610,764
Undistributed net investment income ................................................. 217,132
Accumulated net realized gain on investments ....................................... 797,057
Net unrealized depreciation on investments and foreign currency translations ........ (10,697,813)
------------
Net assets............................................................... $295,948,997
============
.
Net Asset Value Per Share ($295,948,997 - 21,857,134 shares) ........................ $13.54
. ======
See accompanying notes to financial statements.
Page 5
</TABLE>
<PAGE>
T H E E M E R G I N G M A R K E T S I N C O M E F U N D I I I N C
Statement of Operations For the Year Ended May 31, 1996
Net Investment Income
<TABLE>
<S> <C> <C>
Income
Interest (includes discount accretion of $14,626,561) ............................... $52,926,376
Expenses
Interest on loan....................................................... $7,208,377
Management fee ........................................................ 3,108,547
Custodian ............................................................. 99,800
Printing .............................................................. 97,284
Audit and tax services ................................................ 77,834
Transfer agent ........................................................ 73,464
Legal ................................................................. 65,422
Listing fees .......................................................... 32,318
Directors' fees and expenses .......................................... 32,036
Amortization of organization expenses ................................. 27,058
Other ................................................................. 87,243 10,909,383
---------- -----------
Net investment income................................................................ 42,016,993
-----------
Realized and Unrealized Gain (Loss) On Investments
and Foreign Currency Transactions
Net Realized Gain (Loss) on:
Investments...................................................................... 14,311,527
Foreign currency transactions.................................................... (1,369,249)
------------
12,942,278
------------
Change in Net Unrealized Appreciation (Depreciation) on:
Investments and written options.................................................. 41,412,137
Translation of foreign currency contracts and other assets and liabilities
denominated in foreign currencies............................................ 269,963
------------
41,682,100
------------
Net realized gain and change in net unrealized appreciation (depreciation)........... 54,624,378
------------
Net Increase in Net Assets from Operations........................................... $96,641,371
============
</TABLE>
See accompanying notes to financial statements.
Page 6
<PAGE>
T H E E M E R G I N G M A R K E T S I N C O M E F U N D I I I N C
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Year
Ended Ended
May 31, 1996 May 31, 1995
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations
Net investment income ..................................................... $ 42,016,993 $ 37,024,845
Net realized gain (loss) on investments and foreign currency transactions . 12,942,278 (25,497,473)
Change in net unrealized appreciation (depreciation) ...................... 41,682,100 (23,559,467)
------------ ------------
Net increase (decrease) in net assets from operations ..................... 96,641,371 (12,032,095)
------------ ------------
Dividends and Distributions to Shareholders from
Net investment income ..................................................... (28,135,808) (29,701,991)
Net realized gains ........................................................ (7,928,468) (6,362,282)
------------ ------------
Total dividends to shareholders............................................ (36,064,276) (36,064,273)
------------ ------------
Capital Share Transactions
Offering expenses charged to paid-in capital............................... -- (13,000)
------------ ------------
Total increase (decrease) in net assets.................................... 60,577,095 (48,109,368)
Net Assets
Beginning of period........................................................ 235,371,902 283,481,270
------------ ------------
End of period (included undistributed net investment income
of $217,132 for the year ended May 31, 1996).......................... $295,948,997 $235,371,902
============ ============
Statement of Cash Flows For the Year Ended May 31, 1996
Cash Flows from Operating Activities:
Purchases of securities and options ................................................ $(337,324,041)
Net purchases of short-term investments ............................................. (61,998,652)
Proceeds from sales of securities, options and principal paydowns ................... 406,222,874
-------------
6,900,181
Net investment income .............................................................. 42,016,993
Accretion of discount on investments ................................................ (14,626,561)
Interest on payment-in-kind bonds ................................................... (5,481,088)
Amortization of organization expenses ............................................... 27,058
Net change in receivables/payables related to operations ............................ 1,026,366
-------------
Net cash provided by operating activities............................................ 29,862,949
-------------
Cash Flows from Financing Activities:
Dividends paid ...................................................................... (36,064,276)
-------------
Net cash used by financing activities .............................................. (36,064,276)
-------------
Net decrease in cash ............................................................... (6,201,327)
Cash at beginning of period ........................................................ 6,328,442
-------------
Cash at end of period .............................................................. $ 127,115
=============
See accompanying notes to financial statements.
Page 7
</TABLE>
<PAGE>
T H E E M E R G I N G M A R K E T S I N C O M E F U N D I I I N C
Notes to Financial Statements
1. Organization
The Emerging Markets Income Fund II Inc (the "Fund") was incorporated in
Maryland on April 27, 1993 and is registered as a non-diversified, closed-end,
management investment company under the Investment Company Act of 1940, as
amended. The Board of Directors authorized 100 million shares of $.001 par value
common stock.
2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles
("GAAP"). The preparation of financial statements in accordance with GAAP
requires management to make estimates and assumptions that effect 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 prices if there was no sales price on such date and bid and asked
quotations are available, and (iii) at the bid price if there was no sales
price on such date and only bid quotations are available. Publicly traded
foreign government debt securities are typically traded internationally in
the over-the-counter market, and are valued at the mean between the last
current bid and asked price as of the close of business of that market.
However, where the spread between bid and asked price exceeds five percent
of the par value of the security, the security is valued at the bid price.
Securities may also be valued by independent pricing services which use
prices provided by market-makers or estimates of market values obtained
from yield data relating to instruments or securities with similar
characteristics. Short-term investments having a maturity of 60 days or
less are valued at amortized cost, unless the Board of Directors determines
that such valuation does not constitute fair value. Securities for which
reliable quotations are not readily available and all other securities and
assets are valued at fair value as determined in good faith by, or under
procedures established by, the Board of Directors.
(b) Securities transactions and investment income. Securities transactions
are recorded on the trade date. Interest income is accrued on a daily
basis. Discount on securities purchased is accreted on an effective yield
basis over the life of the security. The Fund uses the specific
identification method for determining realized gain or loss on investments
sold.
(c) Foreign currency translation. The books and records of the Fund are
maintained in U.S. dollars. Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at the date of valuation using the 12:00 noon rate of
exchange reported by Reuters. Purchases and sales of portfolio securities
and income and expense items denominated in foreign currencies are
translated into U.S. dollars at rates of exchange prevailing on the
respective dates of such transactions. Net realized gains and losses on
foreign currency transactions represent net gains and losses from sales and
maturities of forward currency contracts, disposition of foreign
currencies, currency gains and losses realized between the trade and
settlement dates on securities transactions and the difference between the
amount of net investment 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
Page 8
<PAGE>
T H E E M E R G I N G M A R K E T S I N C O M E F U N D I I I N C
Notes to Financial Statements (continued)
2. Significant Accounting Policies (continued)
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) Organization expenses. Organization expenses amounting to $135,000 were
incurred in connection with the organization of the Fund. These costs have
been deferred and are being amortized ratably over a five year period from
commencement of operations.
(f) 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 at all times during the term of the repurchase
agreement to ensure that it always 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.
(g) Distribution of income and gains. The Fund declares and pays
distributions 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
generally accepted accounting principles due primarily to differences in
the treatment of foreign currency gains/losses and deferral of wash sales
and post-October losses incurred by the Fund. These "book/tax" differences
are either considered temporary or permanent in nature. To the extent these
differences are permanent in nature, such amounts are reclassified within
the capital accounts based on their federal income tax basis treatment;
temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income and net realized capital
gains for financial reporting purposes but not for tax purposes are
reported as distributions in excess of net investment income or
distributions in excess of net realized capital gains. To the extent they
exceed net investment income and net realized capital gains for tax
purposes, they are reported as tax return of capital.
(h) Forward foreign currency contracts. A forward foreign currency contract
is a commitment to purchase or sell a foreign currency at a future date at
a negotiated forward rate. The contract is marked to market to reflect the
change in the currency exchange rate. The change in market value is
recorded by the Fund as an unrealized gain or loss. The Fund records a
realized gain or loss on delivery of the currency or at the time the
forward contract is extinguished (compensated) by entering into a closing
transaction prior to delivery. This gain or loss, if any, is included in
net realized gain (loss) on foreign currency transactions.
Page 9
<PAGE>
T H E E M E R G I N G M A R K E T S I N C O M E F U N D I I I N C
Notes to Financial Statements (continued)
2. Significant Accounting Policies (continued)
(i) Option contracts. When a Fund writes or purchases a call or a put
option, an amount equal to the premium received or paid by the Fund is
recorded as a liability or asset, the value of which is marked-to-market
daily to reflect the current market value of the option. When the option
expires, the Fund realizes a gain or loss equal to the amount of the
premium received or paid. When the Fund exercises an option or enters into
a closing transaction by purchasing or selling an offsetting option, it
realizes a gain or loss without regard to any unrealized gain or loss on
the underlying security. When a written call option is exercised, the Fund
realizes a gain or loss from the sale of the underlying security and the
proceeds from such sale are increased by the premium originally received on
the option.
(j) Cash flow information. The Fund invests in securities and distributes
dividends from net investment income and net realized gains from investment
transactions which are paid in cash. These activities are reported in the
Statement of Changes in Net Assets. Additional information on cash receipts
and cash payments is presented in the Statement of Cash Flows. For the year
ended May 31, 1996, the Fund paid interest expense of $7,298,785.
3. Management and Advisory Fees and Other Transactions
The Fund entered into a management agreement with Advantage Advisers, Inc.
(the "Investment Manager"), a subsidiary of Oppenheimer, pursuant to which the
Investment Manager, among other things, supervises the Fund's investment program
and monitors the performance of the Fund's service providers.
The Investment Manager and the Fund entered into an investment advisory and
administration agreement with Salomon Brothers Asset Management Inc (the
"Investment Adviser"), an affiliate of Salomon Brothers Inc, pursuant to which
the Investment Adviser provides investment advisory and administrative services
to the Fund. The Investment Adviser is responsible on a day-to-day basis for the
management of the Fund's portfolio in accordance with the Fund's investment
objectives and policies and for making decisions to buy, sell, or hold
particular securities and is responsible for day-to-day administration of the
Fund.
The Fund pays the Investment Manager a monthly fee at an annual rate of
1.20% of the Fund's average weekly net assets for its services, out of which the
Investment Manager pays the Investment Adviser a monthly fee at an annual rate
of .70% of the Fund's average weekly net assets for its services.
At May 31, 1996, Oppenheimer and the Investment Adviser each own 3,697 and
4,849 shares of the Fund, respectively. Certain officers and/or directors of the
Fund are officers and/or directors of the Investment Manager or the Investment
Adviser.
The Fund pays each Director not affiliated with the Investment Manager or
the Investment Adviser a fee of $5,000 per year, plus a fee of $700 and
reimbursement for travel and out-of-pocket expenses for each board meeting
attended.
4. Portfolio Activity and Federal Income Tax Status
Cost of purchases and proceeds from sales of securities, excluding
short-term investments and written options, for the year ended May 31, 1996
aggregated $325,550,530 and $416,043,169, respectively. The federal income tax
cost basis of the Fund's investments at May 31, 1996 was $390,505,955.
Page 10
<PAGE>
T H E E M E R G I N G M A R K E T S I N C O M E F U N D I I I N C
Notes to Financial Statements (continued)
4. Portfolio Activity and Federal Income Tax Status (continued)
Gross unrealized appreciation and depreciation amounted to $8,460,193 and
$18,731,376, respectively, resulting in a net unrealized depreciation on
investments of $10,271,183.
For federal income tax purposes, capital and foreign currency losses
incurred after October 31 within the taxable year are deemed to arise on the
first business day of the Fund's next taxable year. The Fund incurred and
elected to defer net capital and foreign currency losses of $4,235,371 and
$11,172,399, respectively during the year ended May 31, 1995 and recognized such
losses in the year ended May 31, 1996. In addition, during the year ended May
31, 1996, the Fund utilized net capital loss carryforward of $7,428,806.
As a result of differing book and tax treatment for foreign currency losses
for the year ended May 31, 1996, $7,998,144 has been reclassified from
Accumulated Net Realized Gain on Investments to Undistributed Net Investment
Income. For federal income tax purposes, foreign currency losses include net
realized losses on foreign currency transactions of $1,369,250 and net realized
currency losses on sale of securities of $6,628,894. Net realized currency
losses on sale of securities are included in Net Realized Gain on Investments in
the Statement of Operations. However, for federal income tax purposes, such
losses will be treated as a reduction of net investment income.
Transactions in options written during the year ended May 31, 1996 were as
follows:
Principal Premium
Amount Received
------ --------
Options outstanding at May 31, 1995.............. $ - $ -
Options written.................................. 70,000,000 1,853,000
Options terminated in closing purchase
transactions.................................. - -
Options expired.................................. - -
Options exercised................................ - -
----------- ----------
Options outstanding at May 31, 1996.............. $70,000,000 $1,853,500
=========== ==========
During the year ended May 31, 1996, net realized gain from purchased option
transactions amounted to $132,520.
5. Bank Loan
The Fund has borrowed $100,000,000 pursuant to a secured loan agreement
(the "Loan Agreement") with Morgan Guaranty Trust Company of New York. The
interest rate on the loan is equal to six month LIBOR plus 1% and the maturity
date is November 6, 1996. The collateral for the loan was valued at $228,778,539
on May 31, 1996 and is being held in a segregated account by the Fund's
custodian. In accordance with the terms of the Loan Agreement, the Fund must
maintain a level of collateral to debt of not less than 190%.
6. Loan Participations/Assignments
The Fund invests in fixed and floating rate loans arranged through private
negotiations between a foreign sovereign entity and one or more financial
institutions ("lenders"). The Fund's investment in any such loan may be in the
form of a participation in or an assignment of the loan. The market value of the
Fund's loan participations at May 31, 1996 was $47,853,515.
Page 11
<PAGE>
T H E E M E R G I N G M A R K E T S I N C O M E F U N D I I I N C
Notes to Financial Statements (continued)
6. Loan Participations/Assignments (continued)
In connection with purchasing participations, the Fund generally will have
no right to enforce compliance by the borrower with the terms of the loan
agreement relating to the loan, nor any rights of set-off against the borrower,
and the Fund may not benefit directly from any collateral supporting the loan in
which it has purchased the participation. As a result, the Fund will assume the
credit risk of both the borrower and the lender that is selling the
participation. In the event of 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.
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 May 31, 1996, the Fund has a concentration risk
in sovereign debt of emerging market countries.
8. Financial Instruments with Off-Balance Sheet Risk
The Fund enters into forward foreign currency contracts ("forward
contracts") to facilitate settlement of foreign currency denominated portfolio
transactions or to manage foreign currency exposure associated with foreign
currency denominated securities. Forward contracts involve elements of market
risk in excess of the amount reflected in the Statement of Assets and
Liabilities. The Fund bears the risk of an unfavorable change in the foreign
exchange rate underlying the forward contract. Risks may also arise upon
entering into these contracts from the potential inability of the counter
parties to meet the terms of their contracts. As of May 31, 1996, all forward
contracts which the Fund has entered into have been compensated by the Fund with
offsetting closing transactions.
The Fund enters into option transactions to hedge against possible changes
in the market value of certain securities held. The risk in writing a covered
call option is that the Fund may forego the opportunity of profit if the market
price of the underlying security increases and the option is exercised. In
addition, there is the risk that the Fund may not be able to enter a closing
transaction because of an illiquid secondary market.
9. Dividend Subsequent to May 31, 1996
On June 3, 1996, the Board of Directors of the Fund declared a common stock
dividend of $0.4125 per share from net investment income, payable June 28, 1996
to shareholders of record June 18, 1996.
Page 12
<PAGE>
T H E E M E R G I N G M A R K E T S I N C O M E F U N D I I I N C
Financial Highlights
Data for a share of common stock outstanding throughout the period:
<TABLE>
<CAPTION>
Year Year
Ended Ended Period Ended
May 31, May 31, May 31,
1996 1995 1994(a)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net investment income.......................... $ 1.92 $ 1.69 $ 1.22
Net realized gain (loss) and change in
unrealized appreciation (depreciation) on
securities and foreign currency translations 2.50 (2.24) (1.03)
------- ------- -------
Total from investment operations............... 4.42 (0.55) 0.19
------- ------- -------
Dividends to shareholders from net
investment income........................... (1.29) (1.36) (1.06)
Dividends to shareholders from net
realized capital gains...................... (0.36) (0.29) (0.14)
Offering costs on issuance of common stock..... -- -- (0.04)
------- ------- -------
Net increase (decrease) in net asset value..... 2.77 (2.20) (1.05)
Net asset value, beginning of period........... 10.77 12.97 14.02
------- ------- -------
Net asset value, end of period................. $13.54 $10.77 $12.97
======= ======= =======
Per share market value, end of period.......... $13.88 $11.88 $14.00
Total investment return based on market
price per share (c)......................... 32.72% -2.18% 8.29%(b)
Ratios/Supplemental data:
Net assets, end of period................... $295,948,997 $235,371,902 $283,481,270
Ratio of operating expenses to
average net assets...................... 1.43% 1.45% 1.38%(d)
Ratio of interest expense to
average net assets...................... 2.78% 2.96% 1.02%(d)
Ratio of total expenses to
average net assets...................... 4.21% 4.41% 2.40%(d)
Ratio of net investment income to
average net assets...................... 16.20% 15.42% 8.98%(d)
Portfolio turnover rate..................... 93.50% 58.16% 23.15%
Bank loan outstanding, end of period........ $100,000,000 $100,000,000 $100,000,000
Interest rate on bank loan, end of period... 6.60156% 7.5625% 6.375%
Weighted average bank loan.................. $100,000,000 $100,000,000 $ 66,348,974
Weighted average interest rate.............. 7.21% 7.12% 4.87%(d)
<FN>
- ----------------
(a) For the period June 25, 1993 (commencement of operations) through May 31, 1994.
(b) Return calculated based on beginning period price of $14.02 (initial offering price of $15.00 less sales load
of $0.98) and end of period market value of $14.00 per share. This calculation is not annualized.
(c) Dividends are assumed, for purposes of this calculation, to be reinvested at prices obtained under the Fund's
dividend reinvestment plan.
(d) Annualized.
</FN>
See accompanying notes to financial statements.
Page 13
</TABLE>
<PAGE>
T H E E M E R G I N G M A R K E T S I N C O M E F U N D I I I N C
Selected Quarterly Financial Information
Summary of quarterly results of operations (unaudited):
<TABLE>
<CAPTION>
Net Realized Gain
(Loss) &Change in
Net Investment Net Unrealized
Income Appreciation (Depreciation)
Per Per
Quarters Ended* Total Share Total Share
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
August 31, 1993**........................... $ 3,644 $.17 $14,086 $ .64
November 30, 1993........................... 7,869 .36 17,599 .81
February 28, 1994........................... 6,585 .30 (12,663) (.58)
May 31, 1994................................ 8,511 .39 (41,458) (1.90)
August 31, 1994............................. 8,536 .39 (5,787) (.27)
November 30, 1994........................... 9,293 .42 (21,503) (.98)
February 28, 1995........................... 9,157 .42 (53,616) (2.45)
May 31, 1995................................ 10,039 .46 31,849 1.46
August 31, 1995............................. 10,387 .48 3,358 .15
November 30, 1995........................... 9,897 .45 10,421 .48
February 29, 1996........................... 10,271 .47 24,630 1.13
May 31, 1996................................ 11,462 .52 16,215 .74
<FN>
- --------------
*Totals expressed in thousands of dollars except per share amounts.
**For the period June 25, 1993 (commencement of operations) through August 31, 1993.
</FN>
</TABLE>
See accompanying notes to financial statements.
Page 14
<PAGE>
T H E E M E R G I N G M A R K E T S I N C O M E F U N D I I I N C
Report of Independent Accountants
To the Board of Directors and Shareholders of
The Emerging Markets Income Fund II Inc
In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations, of
changes in net assets and of cash flows and the financial highlights present
fairly, in all material respects, the financial position of The Emerging Markets
Income Fund II Inc (the "Fund") at May 31, 1996, the results of its operations
and cash flows for the year then ended, and the changes in its net assets for
each of the two years in the period then ended and the financial highlights for
each of the two years in the period then ended and for the period June 25, 1993
(commencement of operations) through May 31, 1994, 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 our audits,
which included confirmation of securities at May 31, 1996 by correspondence with
the custodian and brokers, and the application of alternative auditing
procedures where confirmations from brokers were not received, provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
July 12, 1996
Page 15
<PAGE>
T H E E M E R G I N G M A R K E T S I N C O M E F U N D I I I N C
Form of Terms and Conditions of Amended and Restated Dividend Reinvestment
and Cash Purchase Plan
1. Each shareholder holding shares of common stock ("Shares") of The Emerging
Markets Income Fund II Inc (the "Fund") will be deemed to have elected to be a
participant in the Amended and Restated Dividend Reinvestment and Cash Purchase
Plan (the "Plan"), unless the shareholder specifically elects in writing
(addressed to the Agent at the address below or to any nominee who holds Shares
for the shareholder in its name) to receive all income dividends and
distributions of capital gains in cash, paid by check, mailed directly to the
record holder by or under the direction of American Stock Transfer & Trust
Company as the Fund's dividend-paying agent (the "Agent"). Shareholders who have
previously elected not to participate in the Plan may elect to be a participant
in the Plan by completing and returning the attached Authorization Card to the
Agent at the address below or to any nominee who holds Shares for the
shareholder in its name. Notwithstanding the foregoing, a shareholder whose
Shares are held in the name of a broker or nominee who does not provide an
automatic reinvestment service may be required to take such Shares out of
"street name" and register such Shares in the shareholder's name in order to
participate, otherwise dividends and distributions will be paid in cash to such
shareholder by the broker or nominee. Each participant in the Plan is referred
to herein as a "Participant." The Agent will act as Agent for each Participant,
and will open accounts for each Participant under the Plan in the same name as
their Shares are registered.
2. Unless the Fund declares a dividend or distribution payable only in the form
of cash, the Agent will apply all dividends and distributions in the manner set
forth below.
3. If, on the determination date, the market price per Share equals or exceeds
the net asset value per Share on that date (such condition, a "market premium"),
the Agent will receive the dividend or distribution in newly issued Shares of
the Fund on behalf of Participants. If, on the determination date, the net asset
value per Share exceeds the market price per Share (such condition, a "market
discount"), the Agent will purchase Shares in the open-market. The determination
date will be the fourth New York Stock Exchange trading day (a New York Stock
Exchange trading day being referred to herein as a "Trading Day") preceding the
payment date for the dividend or distribution. For purposes herein, "market
price" will mean the average of the highest and lowest prices at which the
Shares sell on the New York Stock Exchange on the particular date, or if there
is no sale on that date, the average of the closing bid and asked quotations.
4. Purchases made by the Agent will be made as soon as practicable commencing on
the Trading Day following the determination date and terminating no later than
30 days after the dividend or distribution payment date except where temporary
curtailment or suspension of purchase is necessary to comply with applicable
provisions of federal securities law; provided, however, that such purchases
will, in any event, terminate on the earlier of (i) 60 days after the dividend
or distribution payment date and (ii) the Trading Day prior to the "ex-dividend"
date next succeeding the dividend or distribution payment date.
Page 16
<PAGE>
T H E E M E R G I N G M A R K E T S I N C O M E F U N D I I I N C
5. If (i) the Agent has not invested the full dividend amount in open-market
purchases by the date specified in paragraph 4 above as the date on which such
purchases must terminate or (ii) a market discount shifts to a market premium
during the purchase period, then the Agent will cease making open-market
purchases and will receive the uninvested portion of the dividend amount in
newly issued Shares (x) in the case of (i) above, at the close of business on
the date the Agent is required to terminate making open-market purchases as
specified in paragraph 4 above or (y) in the case of (ii) above, at the close of
business on the date such shift occurs; but in no event prior to the payment
date for the dividend or distribution.
6. In the event that all or part of a dividend or distribution amount is to be
paid in newly issued Shares, such Shares will be issued to Participants in
accordance with the following formula: (i) if, on the valuation date, the net
asset value per Share is less than or equal to the market price per Share, then
the newly issued Shares will be valued at net asset value per Share on the
valuation date; provided, however, that if the net asset value is less than 95%
of the market price on the valuation date, then such Shares will be issued at
95% of the market price and (ii) if, on the valuation date, the net asset value
per Share is greater than the market price per Share, then the newly issued
Shares will be issued at the market price on the valuation date. The valuation
date will be the dividend or distribution payment date, except that with respect
to Shares issued pursuant to paragraph 5 above, the valuation date will be the
date such Shares are issued. If a date that would otherwise be a valuation date
is not a Trading Day, the valuation date will be the next preceding Trading Day.
7. Participants have the option of making additional cash payments to the Agent,
monthly, in a minimum amount of $250, for investment in Shares. The Agent will
use all such funds received from Participants to purchase Shares in the open
market on or about the first business day of each month. To avoid unnecessary
cash accumulations, and also to allow ample time for receipt and processing by
the Agent, Participants should send in voluntary cash payments to be received by
the Agent approximately 10 days before an applicable purchase date specified
above. A Participant may withdraw a voluntary cash payment by written notice, if
the notice is received by the Agent not less than 48 hours before such payment
is to be invested.
8. Purchases by the Agent pursuant to paragraphs 4 and 7 above may be made on
any securities exchange on which the Shares are traded, in the over-the-counter
market or in negotiated transactions, and may be on such terms as to price,
delivery and otherwise as the Agent shall determine. Funds held by the Agent
uninvested will not bear interest, and it is understood that, in any event, the
Agent shall have no liability in connection with any inability to purchase
Shares within the time periods herein provided, or with the timing of any
purchases effected. The Agent shall have no responsibility as to the value of
the Shares acquired for the Participant's account. The Agent may commingle
amounts of all Participants to be used for open-market purchases of Shares and
the price per Share allocable to each Participant in connection with such
purchases shall be the average price (including brokerage commissions) of all
Shares purchased by the Agent.
Page 17
<PAGE>
T H E E M E R G I N G M A R K E T S I N C O M E F U N D I I I N C
9. The Agent will maintain all Participants' accounts in the Plan and will
furnish written confirmations of all transactions in each account, including
information needed by Participants for personal and tax records. The Agent will
hold Shares acquired pursuant to the Plan in noncertificated form in the
Participant's name or that of its nominee, and each Participant's proxy will
include those Shares purchased pursuant to the Plan. The Agent will forward to
Participants any proxy solicitation material and will vote any Shares so held
for Participants only in accordance with the proxy returned by Participants to
the Fund. Upon written request, the Agent will deliver to Participants, without
charge, a certificate or certificates for the full Shares.
10. The Agent will confirm to Participants each acquisition made for their
respective accounts as soon as practicable but not later than 60 days after the
date thereof. Although Participants may from time to time have an undivided
fractional interest (computed to three decimal places) in a Share of the Fund,
no certificates for fractional shares will be issued. Dividends and
distributions on fractional shares will be credited to each Participant's
account. In the event of termination of a Participant's account under the Plan,
the Agent will adjust for any such undivided fractional interest in cash at the
market value of the Fund's Shares at the time of termination less the pro rata
expense of any sale required to make such an adjustment.
11. Any share dividends or split shares distributed by the Fund on Shares held
by the Agent for Participants will be credited to their respective accounts. In
the event that the Fund makes available to Participants rights to purchase
additional Shares or other securities, the Shares held for Participants under
the Plan will be added to other Shares held by the Participants in calculating
the number of rights to be issued to Participants.
12. The Agent's service fee for handling capital gains distributions or income
dividends will be paid by the Fund. Participants will be charged a pro rata
share of brokerage commissions on all open-market purchases.
13. Participants may terminate their accounts under the Plan by notifying the
Agent in writing. Such termination will be effective immediately if notice is
received by the Agent not less than 10 days prior to any dividend or
distribution record date; otherwise such termination will be effective on the
first Trading Day after the payment date for such dividend or distribution with
respect to any subsequent dividend or distribution. The Plan may be amended or
terminated by the Fund as applied to any voluntary cash payments made and any
income dividend or capital gains distribution paid subsequent to written notice
of the change or termination sent to Participants at least 30 days prior to the
record date for the income dividend or capital gains distribution. The Plan may
be amended or terminated by the Agent, with the Fund's prior written consent, on
at least 30 days' written notice to Participants. Notwithstanding the preceding
two sentences, the Agent or the Fund may amend or supplement the Plan at any
time or times when necessary or appropriate to comply with applicable law or
rules or policies of the Securities and Exchange Commission or any other
regulatory authority. Upon any termination, the Agent will cause a certificate
or certificates for the full Shares held by each Participant under the Plan and
cash adjustment for any fraction to be delivered to each Participant without
charge.
Page 18
<PAGE>
T H E E M E R G I N G M A R K E T S I N C O M E F U N D I I I N C
14. Any amendment or supplement shall be deemed to be accepted by each
Participant unless, prior to the effective date thereof, the Agent receives
written notice of the termination of the Participant's account under the Plan.
Any such amendment may include an appointment by the Agent in its place and
stead of a successor Agent under these terms and conditions, with full power and
authority to perform all or any of the acts to be performed by the Agent under
these terms and conditions. Upon any such appointment of an Agent for the
purpose of receiving dividends and distributions, the Fund will be authorized to
pay to such successor Agent, for each Participant's account, all dividends and
distributions payable on Shares of the Fund held in each Participant's name or
under the Plan for retention or application by such successor Agent as provided
in these terms and conditions.
15. In the case of Participants, such as banks, broker-dealers or other
nominees, which hold Shares for others who are beneficial owners ("Nominee
Holders"), the Agent will administer the Plan on the basis of the number of
Shares certified from time to time by each Nominee Holder as representing the
total amount registered in the Nominee Holder's name and held for the account of
beneficial owners who are to participate in the Plan.
16. The Agent shall at all times act in good faith and use its best efforts
within reasonable limits to insure the accuracy of all services performed under
this Agreement and to comply with applicable law, but assumes no responsibility
and shall not be liable for loss or damage due to errors unless such error is
caused by its negligence, bad faith, or willful misconduct or that of its
employees.
17. All correspondence concerning the Plan should be directed to the Agent at 40
Wall Street, 46th Floor, New York, New York 10005.
18. These terms and conditions shall be governed by the laws of the State of New
York.
Dated: June 18, 1993, as amended and
restated September 6, 1996
ACKNOWLEDGED AND ACCEPTED:
American Stock Transfer
& Trust Company
By: /s/ GERALD RUDDY
-------------------------------------
Name: Gerald Ruddy
Title: Vice President
Page 19
<PAGE>
THE EMERGING MARKETS INCOME FUND II INC
AUTHORIZATION CARD
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| THIS FORM IS FOR SHAREHOLDERS WHO HOLD SHARES IN |
| THEIR OWN NAMES. IF YOUR SHARES ARE HELD THROUGH A |
| BROKERAGE FIRM, BANK OR OTHER NOMINEE, YOU SHOULD |
| CONTACT YOUR NOMINEE TO ARRANGE FOR IT TO PARTICI- |
| PATE IN THE PLAN ON YOUR BEHALF. |
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AUTHORIZATION FOR REINVESTMENT OF DIVIDENDS
AND DISTRIBUTIONS
(Please read carefully before signing.)
I hereby authorize The Emerging Markets Income Fund II Inc (the "Fund") to pay
to American Stock Transfer & Trust Company for my account all income dividends
and capital gains distributions payable to me on shares of Common Stock of the
Fund now or hereafter registered in my name.
I hereby appoint American Stock Transfer & Trust Company as my Agent and
authorize the Agent to apply all such income dividends and capital gains
distributions in accordance with the Terms and Conditions of the Amended and
Restated Dividend Reinvestment and Cash Purchase Plan set forth accompanying
this Authorization Card.
The authorization and appointment is given with the understanding that I may
terminate it at any time by terminating my account under the Plan as provided in
such Amended and Restated Terms and Conditions.
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Please sign exactly as your shares are Participant
registered. All persons whose names
appear on the share certificates must sign.
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Participant
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Date
YOU SHOULD NOT RETURN THIS FORM IF YOU WISH TO RECEIVE YOUR DIVIDENDS
OR DISTRIBUTIONS IN CASH.
THIS IS NOT A PROXY.
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This authorization form, when signed, should be mailed to:
American Stock Transfer & Trust Company
40 Wall Street, 46th Floor
New York, New York 10005
Attn: The Emerging Markets Income Fund II Inc
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T H E E M E R G I N G M A R K E T S I N C O M E F U N D I I I N C
(Left Column)
Directors
CHARLES F. BARBER
Consultant; formerly Chairman,
ASARCO Incorporated
LESLIE H. GELB
President, The Council
on Foreign Relations
MICHAEL S. HYLAND
President;
Managing Director, Salomon Brothers Inc
President, Salomon Brothers
Asset Management Inc
ALAN H. RAPPAPORT
Chairman of the Board;
Executive Vice President,
Oppenheimer &Co., Inc.
RIORDAN ROETT
Professor and Director,
Latin American Studies Program,
Paul H. Nitze School of Advanced
International Studies,
John Hopkins University
JESWALD W. SALACUSE
Henry J. Braker Professor of
Commercial Law, and formerly Dean,
The Fletcher School of Law & Diplomacy
Tufts University
Officers
ALAN H. RAPPAPORT
Chairman of the Board
MICHAEL S. HYLAND
President
PETER J. WILBY
Executive Vice President
THOMAS K. FLANAGAN
Executive Vice President
LAWRENCE H. KAPLAN
Executive Vice President and General Counsel
ALAN M. MANDEL
Treasurer
TANA E. TSELEPIS
Secretary
JENNIFER G. MUZZEY
Assistant Secretary
AMY W. YEUNG
Assistant Treasurer
LAURIE A. PITTI
Assistant Treasurer
(Right Column)
The Emerging Markets
Income Fund II Inc
7 World Trade Center
New York, New York 10048
1-800-SALOMON (1-800-725-6666)
INVESTMENT MANAGER
Advantage Advisers, Inc.
Oppenheimer Tower
World Financial Center
New York, New York 10281
INVESTMENT ADVISER
Salomon Brothers Asset Management Inc
7 World Trade Center
New York, New York 10048
CUSTODIAN
Brown Brothers Harriman & Co.
40 Water Street
Boston, Massachusetts 02109
DIVIDEND DISBURSING AND TRANSFER AGENT
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
LEGAL COUNSEL
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
NEW YORK STOCK EXCHANGE SYMBOL
EDF
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This report is submitted for the general information of the shareholders of The
Emerging Markets Income Fund II Inc. It is not authorized for distribution to
prospective investors unless accompanied or preceded by an effective Prospectus
for the Fund, which contains information concerning the Fund's investment
policies and expenses as well as other pertinent information.
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The Emerging Markets
Income Fund II Inc
Annual Report
MAY 31, 1996
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The Emerging Markets Income Fund II Inc
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