EMERGING MARKETS INCOME FUND II INC, N-30D, 1997-08-14

EMERGING MARKETS INCOME FUND II INC
N-30D, 1997-08-14

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<PAGE>
The Emerging Markets
Income Fund II Inc

Annual Report

MAY 31, 1997

- ----------------------------------------------------------------------
The Emerging Markets Income Fund II Inc
- --------------------------------------------------------------------------

<PAGE>

THE EMERGING MARKETS
INCOME FUND II INC

July 22, 1997

Dear Shareholder:

We are pleased to provide you with this annual report for The Emerging Markets
Income Fund II Inc (the "Fund") as of May 31, 1997. Included are market
commentary, audited financial statements, the related report of the independent
accountants and other information about the Fund.

The net asset value of the Fund increased from $13.54 per share on May 31, 1996
to $17.19 per share on May 31, 1997. Dividends of $1.504 per share from net
investment income, $0.0635 per share from realized net short-term capital gains
and $0.0825 per share from realized net long-term capital gains were declared
during the year. Assuming reinvestment of these dividends in additional shares
of the Fund, the net asset value return for the year ended May 31, 1997 was
41.77%. In comparison, the Salomon Brothers Brady Bond Index returned 32.21%
during the same period.

The Fund continued to provide investors with stable current income through its
broad exposure to government sponsored debt instruments issued by emerging
market economies. Investments in securities of emerging market issuers,
including obligations of sovereign governments and companies, totaled
approximately 98% of the Fund's total investments at May 31, 1997. The remainder
of the Fund's assets was invested primarily in short-term investments.

EMERGING MARKETS REVIEW

Emerging markets performed well over the past 12 months, and continued to enjoy
investor support. The sector posted gains in 11 of the past 12 months. The
exception was March when volatility increased as a result of the Federal
Reserve's interest rate hike and the possibility that further rate increases
were forthcoming. The Fed's decision to hold rates steady since then has helped
the market.

In general, the positive economic and political settings in many key countries,
combined with favorable market conditions and attractive yields, have encouraged
investors to increase their allocations in this sector. The upgrading by
Standard &Poor's ("S&P") of 12 Argentine corporates to investment grade, based
on a change of rating methodology, had a positive impact on the market, as well
as the victory of the pro-reform UDF party in Bulgaria and the Peruvian
Government's resolution of the hostage crisis. In addition, prospects for
economic growth in Latin America are especially bright, with annual GDP growth
rates of 4% to 6% expected over the next two years. In Russia, the government's
reform efforts have been well-received by the market, and the tax collection
problems, a restraint on economic growth, are being addressed.

Latin America Mexico's prepayment of its outstanding debt to the U.S. and the
reduction of its outstanding balance to the International Monetary Fund (the
"IMF") were evidence of that country's

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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

much-improved balance of payments situation. In the July elections, the ruling
PRI will maintain control of the Senate.

Brazil's announcement that it would conduct a Mexican-style Brady swap against
a 30-year global bond in early June buoyed the market. The operation will help
to establish a more complete yield curve with conventional and less complicated
debt assets.

Argentina aggressively tapped the markets early this year, taking advantage of
favorable global conditions. In April, a change in rating methodology was
undertaken by S&P. Under certain circumstances, a sovereign's country rating is
no longer a ceiling for its corporate issuers. This allowed for the upgrading of
12 Argentine corporate ratings to BBB-. This represents an investment-grade
rating two notches above the sovereign and spurred a strong rally in the bonds
that were upgraded.

Venezuela's privatization efforts and restructurings are continuing, and the
Government is planning a longer-term debt management strategy that would reduce
the amount budgeted for debt service from 40% of the budget to 25% by 2000.
Venezuela continues to benefit from higher world oil prices.

Ecuador's political instability earlier this year caused a great deal of
volatility. Interim President Fabian Alarcon remains committed to correcting the
fiscal imbalances created by his predecessor's government. Finance Ministry
officials confirmed that the government used the net proceeds of the recent
US$500 million Eurobond issue to buy back Brady debt.

With the successful end to the hostage crisis and its Brady transaction closed,
Peru is expected to concentrate on fiscal reforms and economic accountability.
Economic trends have improved over the past six months: GDP growth is strong,
reserves are at record levels, inflation is in the single digits, trade trends
are improving and its privatization program is successful.

Eastern Europe In Russia, President Yeltsin's return from a prolonged illness
has provided an element of stability. Yeltsin has promised to reform the tax
system, as tax revenues fell to only 57% of projected levels at the end of the
first quarter. Progress on the inflation front reflects high real interest rates
and tight monetary policy.

Following a period of declining economic activity and a weak currency, Bulgaria
has embarked on an impressive turnaround. In exchange for IMF support, Bulgaria
has agreed to launch a currency board and to implement tight fiscal and monetary
policies. With the victory of the pro-reform UDF party, there is both the
incentive and the political majority to deliver swift economic reform. The key
to success here will be the extent of structural reforms, the pace of
privatization and the strengthening of the banking sector.

* * *

<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

has approved, subject to the vote of the Fund's shareholders, new investment
management and investment advisory and administration agreements for the Fund.
The agreements are substantially similar to the existing agreements and would
take effect upon shareholder approval and the closing of the proposed
transaction. The closing of the transaction is also subject to certain
additional closing conditions.

As another current matter, in response to recent amendments to Maryland
corporate law, the Board of Directors recently reviewed various corporate
governance provisions in the Fund's By-Laws and approved amendments to the
Fund's By-Laws to (1) increase the percentage of stockholder voting power that
is required to call a special meeting of its stockholders to a majority of the
votes entitled to be cast at the meeting and (2) reduce the minimum permissible
board committee size to one director.

1We thank you for your ongoing interest and confidence in the Fund. In our
continuing effort to provide timely and relevant information to our
shareholders, a recorded Fund update is available 24 hours a day by calling
1-800-421-4777. This line provides current information relating to the Fund,
including portfolio manager outlook and market commentary, as well as price
information. Should you require specific information regarding your Emerging
Markets Income Fund II stock account, or for information regarding the Fund's
Dividend Reinvestment Plan, please call American Stock Transfer & Trust Company
at 1-800-937-5449. If you are calling from within New York City, please call
1-718-921-8200.

Sincerely,

/s/ ALAN H. RAPPAPORT /s/ MICHAEL S. HYLAND
Alan H. Rappaport Michael S. Hyland
Chairman of the Board President

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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

STATEMENT OF INVESTMENTS MAY 31, 1997

BONDS -- 87.9%
- ------------------------------------------------------------------------------------------------------------------------------------
Principal
Amount Value
000's(a) (Note 2a)
- ------------------------------------------------------------------------------------------------------------------------------------

<S> <C> <C>
ARGENTINA - 12.1%
1,310+ Republic of Argentina, FRB, Series L, 6.75%, 3/31/05*.............. $ 1,222,746
Peso 5,000+ Republic of Argentina, Global Bond, 11.75%, 2/12/07##.............. 5,465,178
1,350 Republic of Argentina, Global Bond, 11%, 10/09/06.................. 1,474,875
55,750+ Republic of Argentina, Par Bond, Series L, 5.5%, 3/31/23*.......... 37,631,250
-----------
TOTAL ARGENTINA.................................................... 45,794,049
-----------
BRAZIL - 20.2%
10,131+ Federal Republic of Brazil, Capitalization (C) Bond, 8%, 4/15/14(b) 8,028,783
33,000 Federal Republic of Brazil, DCB, Series L, 6.9375%, 4/15/12*....... 27,225,000
33,500+ Federal Republic of Brazil, Investment (Exit) Bond, 6%, 9/15/13.... 25,336,050
18,000+ Federal Republic of Brazil, NMB, Series L, 6.9375%, 4/15/09*....... 15,705,000
-----------
TOTAL BRAZIL....................................................... 76,294,833
-----------
BULGARIA - 2.0%
282 Republic of Bulgaria, Discount Bond, Tranche A, 6.5625%, 7/28/24*.. 195,134
10,500+ Republic of Bulgaria, IAB, 6.5625%, 7/28/11*....................... 7,172,813
-----------
TOTAL BULGARIA..................................................... 7,367,947
-----------
COSTA RICA - 5.5%
526+ Costa Rica, Interest Bond, Series B, 6.66406%, 5/21/05*............ 499,853
8,400+ Costa Rica, Principal Bond, Series A, 6.25%, 5/21/10............... 7,140,000
16,000+ Costa Rica, Principal Bond, Series B, 6.25%, 5/21/15............... 12,960,000
-----------
TOTAL COSTA RICA................................................... 20,599,853
-----------
ECUADOR - 6.4%
37,823+ Republic of Ecuador, PDI Bond, 6.4375%, 2/27/15*(b)............... 24,301,028
-----------
INDONESIA - 0.6%
1,250 Polysindo International Finance Company B.V., 11.375%, 6/15/06..... 1,343,750
1,000+ Tjiwi Kimia International Finance Co., 13.25%, 8/01/01............. 1,130,000
-----------
TOTAL INDONESIA.................................................... 2,473,750
-----------

</TABLE>

See accompanying notes to financial statements.

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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

STATEMENT OF INVESTMENTS MAY 31, 1997 (CONTINUED)

BONDS (concluded)

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Principal
Amount Value
000's(a) (Note 2a)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>

MEXICO - 7.0%
3,000+ Grupo Industrial Durango, 12%, 7/15/01............................. $ 3,273,750
13,000+ United Mexican States, Global Bond, 11.5%, 5/15/26................. 14,423,500
11,500+ United Mexican States, Par Bond, Series B, 6.25%, 12/31/19.........
(including 11,500,000 rights, expiring 6/30/03)................... 8,682,500
------------
TOTAL MEXICO....................................................... 26,379,750
------------

PANAMA - 6.3%

12,100 Republic of Panama, IRB, 3.5%, 7/17/14*........................... 9,097,688
16,892 Republic of Panama, PDI Bond, 6.5625%, 7/17/16*(b)................ 14,749,125
-----------
TOTAL PANAMA...................................................... 23,846,813
-----------
PERU - 4.0%
17,750 Republic of Peru, FLIRB, 3.25%, 3/07/17*,##(c).................... 10,050,937
8,000 Republic of Peru, PDI Bond, 4%, 3/07/17*.......................... 5,025,000
-----------
TOTAL PERU........................................................ 15,075,937
-----------

POLAND - 5.2%
20,880+ Republic of Poland, PDIBond, 4%, 10/27/14*........................ 17,617,500
3,000+ Republic of Poland, RSTABond, 3.25%, 10/27/24*.................... 1,852,500
----------
TOTAL POLAND...................................................... 19,470,000
----------
SOUTH AFRICA - 0.5%
ZAL 9,000 Republic of South Africa Notes, 12%, 2/28/05...................... 1,753,556
----------

URUGUAY - 1.2%
1,750 Uruguay, DCB, Series B, 6.5%, 2/18/07*............................ 1,723,750
3,000 Uruguay, NMB, 6.625%, 2/18/06*.................................... 2,977,500
----------
TOTAL URUGUAY..................................................... 4,701,250
----------
VENEZUELA - 16.9%
44,000+ Republic of Venezuela, DCB, Series DL, 6.5%, 12/18/07*............ 40,122,500
3,333+ Republic of Venezuela, FLIRB, Series A, 6.75%, 3/31/07*........... 3,047,914
714+ Republic of Venezuela, FLIRB, Series B, 6.75%, 3/31/07*........... 653,124
26,000 Republic of Venezuela, Par Bond, Series A, 6.75%, 3/31/20.........
(including 130,000 rights, expiring 3/31/20)..................... 19,825,000
----------
TOTAL VENEZUELA................................................... 63,648,538
----------
TOTAL BONDS (cost $301,326,477).................................. 331,707,304
-----------
</TABLE>

See accompanying notes to financial statements.

5
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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

STATEMENT OF INVESTMENTS MAY 31, 1997 (CONCLUDED)

- ------------------------------------------------------------------------------------------------------------------------------------
Principal
Amount Value
000's(a) (Note 2a)
- ------------------------------------------------------------------------------------------------------------------------------------

LOAN PARTICIPATIONS++ -- 24.0%
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
The People's Democratic Republic of Algeria,.......................
10,500 Tranche A, 6.91%, 9/04/06* (Chase Manhattan)..................... $ 9,030,000
16,000 Tranche 3, 6.5%, 3/04/10* (Chase Manhattan)(d)................... 11,630,000

Republic of Jamaica,
444 Tranche A, 6.625%, 10/15/00* (Chase Manhattan)................... 431,078
5,500 Tranche B, 6.625%, 11/15/04* (Chase Manhattan, Morgan Guaranty...
Trust Company of New York)..................................... 4,785,000

Kingdom of Morocco,
4,500+ Tranche A, 6.8125%, 1/01/09* (Chase Manhattan, Morgan
Guaranty Trust Company of New York)............................ 4,038,750
36,235 Tranche B, 6.8125%, 1/01/04* (Chase Manhattan, Morgan
Stanley Emerging Markets, Inc.)................................ 36,552,354

Russia,
27,750 Bank for Foreign Economic Affairs, Vnesheconombank#
(Chase Manhattan, Merrill Lynch)............................... 23,969,062
----------
TOTAL LOAN PARTICIPATIONS (cost $79,723,338)....................... 90,436,244
----------
TOTAL INVESTMENTS-- 111.9% (cost $381,049,815).................... 422,143,548
----------

REPURCHASE AGREEMENT -- 2.8%
- ------------------------------------------------------------------------------------------------------------------------------------

10,619 Union Bank of Switzerland, 5.5%, cost $10,619,000, dated 5/30/97,
$10,623,867 due 6/02/97, (collateralized by $10,581,000 U.S. Treasury
Bond, 7.25%, due 5/15/16, valued at $10,832,299)............... 10,619,000
----------
LIABILITIES IN EXCESS OF OTHER ASSETS - (14.7)%.................... (55,510,135)

NET ASSETS - 100.0% (EQUIVALENT TO $17.19 PER SHARE ON
21,946,825 common shares outstanding)............................ $377,252,413
============
- -----------------------------------------
<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) Securities valued at $2,548,125 as of May 31, 1997 were segregated to be
available for the purchase of delayed delivery securities with a cost of
$2,410,625.
(d) At May 31, 1997, a portion of the security has been purchased on a delayed
delivery basis.
* 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.
# Non-income producing. Security is currently in default.
## Pursuant to Rule 144A under the Securities Act of 1933, this security
can only be sold to qualified institutional investors.

</TABLE>

<TABLE>

<S> <C> <C> <C>
DCB - Debt Conversion Bond. NMB - New Money Bond.
FLIRB - Front Loaded Interest Reduction Bond. PDI - Past Due Interest.
FRB - Floating Rate Bond. Peso - Argentina Peso.
IAB - Interest Arrears Bond. RSTA - Revolving Short Term Agreement.
IRB - Interest Reduction Bond. ZAL - South African Rand.

</TABLE>

See accompanying notes to financial statements.

<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 ASSETS AND LIABILITIES MAY 31, 1997

ASSETS

<TABLE>
<S> <C>
Investments, at value (cost-- $381,049,815).......................................... $422,143,548
Repurchase agreement................................................................. 10,619,000
Cash................................................................................. 847
Receivable for securities sold....................................................... 57,258,341
Interest receivable.................................................................. 6,656,143
Unamortized organization expenses.................................................... 24,592
Prepaid expenses .................................................................... 21,823
------------
Total assets ........................................................... 496,724,294
------------

LIABILITIES
Loan payable (Note 5) .............................................................. 100,000,000
Payable for securities purchased ................................................... 18,376,875
Accrued interest expense on loan .................................................... 448,439
Accrued management fee (Note 3) ..................................................... 375,116
Other accrued expenses .............................................................. 271,451
--------------
Total liabilities ...................................................... 119,471,881
--------------

NET ASSETS
Common Stock ($.001 par value, authorized 100,000,000 shares;
21,946,825 shares outstanding) .................................................. 21,947
Additional paid-in capital ......................................................... 306,927,999
Undistributed net investment income ................................................. 5,487,984
Accumulated net realized gain on investments ....................................... 20,202,874
Net unrealized appreciation on investments and foreign currency translations ........ 44,611,609
---------------
Net assets............................................................... $377,252,413
===============

NET ASSET VALUE PER SHARE ($377,252,413 / 21,946,825 shares) ........................ $17.19
===============

</TABLE>

See accompanying notes to financial statements.

<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, 1997

<TABLE>

NET INVESTMENT INCOME

<S> <C> <C>
INCOME
Interest (includes discount accretion of $14,311,073) ............................... $ 49,550,659

EXPENSES
Interest on loan....................................................... $6,666,276
Management fee ........................................................ 4,048,105
Custodian ............................................................. 186,446
Audit and tax services ................................................ 76,652
Printing .............................................................. 74,342
Legal ................................................................. 55,219
Transfer agent ........................................................ 43,243
Directors' fees and expenses .......................................... 36,022
Listing fees .......................................................... 33,829
Amortization of organization expenses ................................. 26,984
Other ................................................................. 58,161 11,305,279
----------- -----------
Net investment income................................................................ 38,245,380
-----------

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS
Net Realized Gain (Loss) on:
Investments...................................................................... 22,629,441
Foreign currency transactions.................................................... (59,883)
-----------
22,569,558
-----------

Change in Net Unrealized Appreciation (Depreciation) on:
Investments and written options.................................................. 55,311,372
Translation of other assets and liabilities
denominated in foreign currencies............................................ (1,950)

-----------
55,309,422
-----------
Net realized gain and change in net unrealized appreciation (depreciation)........... 77,878,980
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS........................................... $116,124,360
============

</TABLE>

See accompanying notes to financial statements.

<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>

For the Year For the Year
Ended Ended
May 31, 1997 May 31, 1996
- ------------------------------------------------------------------------------------------------------------------------------------

<S> <C> <C>
OPERATIONS
Net investment income ............................................ $ 38,245,380 $ 42,016,993
Net realized gain on investments and foreign currency transactions 22,569,558 12,942,278
Change in net unrealized appreciation (depreciation).............. 55,309,422 41,682,100
------------ ------------
Net increase in net assets from operations ....................... 116,124,360 96,641,371
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income ............................................ (32,934,033) (28,135,808)
Net realized gains ............................................... (3,204,236) (7,928,468)
Total dividends and distributions to shareholders................. (36,138,269) (36,064,276)
------------ ------------
CAPITAL SHARE TRANSACTIONS
Value of shares issued in reinvestment of dividends
(89,691 shares issued)....................................... 1,317,325 --
------------ ------------
Total increase in net assets...................................... 81,303,416 60,577,095

NET ASSETS
Beginning of period............................................... 295,948,997 235,371,902
------------ ------------
End of period (includes undistributed net investment income
of $5,487,984 and $217,132, respectively).................... $377,252,413 $295,948,997
============ ============
</TABLE>

STATEMENT OF CASH FLOWS FOR THE YEAR ENDED MAY 31, 1997

<TABLE>

<S> <C>

CASH FLOWS FROM OPERATING ACTIVITIES:
Purchases of securities and options ................................................ $(706,607,761)
Net sales of short-term investments ................................................. 55,881,000
Proceeds from sales of securities, options and principal paydowns ................... 671,495,981
------------
20,769,220

Net investment income .............................................................. 38,245,380
Accretion of discount on investments ................................................ (14,311,073)
Interest on payment-in-kind bonds ................................................... (5,609,820)
Amortization of organization expenses ............................................... 26,984
Net change in receivables/payables related to operations ............................ (4,426,015)
------------
Net cash provided by operating activities............................................ 34,694,676
------------

CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid ...................................................................... (36,138,269)
Value of shares issued in reinvestment of dividends ................................. 1,317,325
------------
Net cash used by financing activities .............................................. (34,820,944)
------------

Net decrease in cash ............................................................... (126,268)
Cash at beginning of period ........................................................ 127,115
------------
Cash at end of period .............................................................. $ 847
============

</TABLE>

See accompanying notes to financial statements.
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

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. 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.

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 affect the reported
amounts and disclosures in the financial statements. Actual results may differ
from those estimates.

(A) SECURITIES VALUATION. In valuing the Fund's assets, all securities and
options for which market quotations are readily available are valued (i) at
the last sale price prior to the time of determination if there was a sale
on the date of determination, (ii) at the mean between the last current bid
and asked 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>

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 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>

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 (CONCLUDED)

(I) OPTION CONTRACTS. When the Fund writes or purchases a call or a put
option, an amount equal to the premium received or paid by the Fund is
recorded as a liability or asset, the value of which is marked-to-market
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, 1997, the Fund paid interest expense of $6,673,610.

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 & Co., Inc.
("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, 1997, Oppenheimer and the Investment Adviser owned 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.

Oppenheimer Group, Inc., the ultimate parent company of the Investment
Manager, has entered into an agreement with PIMCO Advisors, L.P. and its
affiliates which, if consummated, would have the effect of transferring the
Investment Manager's responsibilities under the investment management and the
investment advisory and administration agreements for the Fund to a new entity
under the control of PIMCO Advisors. In that connection, the Board of Directors
of the Fund has approved, subject to the vote of the Fund's shareholders, new
investment management and investment advisory and administration agreements for
the Fund. The agreements are substantially similar to the existing agreements
And would take effect upon shareholder approval and the closing

<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)

3. MANAGEMENT AND ADVISORY FEES AND OTHER TRANSACTIONS (CONCLUDED)

of the proposed transaction. The closing of the transaction is also subject to
certain additional closing conditions.

4. PORTFOLIO ACTIVITY AND TAX INFORMATION

Cost of purchases and proceeds from sales of securities, excluding
short-term investments and written options, for the year ended May 31, 1997
aggregated $722,246,136 and $710,697,284, respectively. The federal income tax
cost basis of the Fund's investments and repurchase agreement at May 31, 1997
was $391,861,044. Gross unrealized appreciation and depreciation amounted to
$41,847,035 and $945,531, respectively, resulting in a net unrealized
appreciation on investments of $40,901,504.

As a result of differing book and tax treatment for foreign currency
losses for the year ended May 31, 1997, $40,495 has been reclassified from
Accumulated Net Realized Gain on Investments to Undistributed Net Investment
Income.

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 0.5% and the maturity
date is November 6, 1997. The collateral for the loan was valued at $224,216,771
on May 31, 1997 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, 1997 was $90,436,244.

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.

The Fund may have difficulty disposing of participations/assignments
because the market for certain instruments may not be highly liquid.

7. "WHEN AND IF" ISSUED BONDS

"When and if" issued bonds are recorded as investments in the Fund's
portfolio and marked-to-market to reflect the current value of the bonds. When
the Fund sells a "when and if" issued bond, an unrealized gain or loss is
recorded equal to the difference between the selling price and purchase

<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 (CONCLUDED)

7. "WHEN AND IF" ISSUED BONDS (CONCLUDED)

cost of the bond. Settlement of trades (i.e., receipt and delivery) of the "when
and if" issued bond is contingent upon the successful issuance of such bond. In
the event its sponsor is unable to successfully issue the security, all trades
in "when and if" issued bonds become null and void, and, accordingly, the Fund
will reverse any gain or loss recorded on such transactions.

For the year ended May 31, 1997, the Fund sold approximately $28.5 million
of "when and if" issued Russian IANbonds and recorded an unrealized gain of
$3,518,125. Settlement of the transaction and recognition of the realized gain
is contingent upon the successful closing of Russia's Brady bond plan before
December 31, 1997.

8. 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, 1997, the Fund has a concentration risk
in sovereign debt of emerging market countries.

9. 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, 1997, the Fund did
not have any outstanding forward contracts.

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 into a
closing transaction because of an illiquid secondary market. As of May 31, 1997,
the Fund did not have any outstanding option transactions.

10. DIVIDEND SUBSEQUENT TO MAY 31, 1997

On June 2, 1997, the Board of Directors of the Fund declared a common stock
dividend of $0.4125 per share from net investment income. The dividend was
payable on June 30, 1997 to shareholders of record June 17, 1997.

<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:

Year Year Year
Ended Ended Ended Period Ended
May 31, May 31, May 31, May 31,
1997 1996 1995 1994(a)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period...... $13.54 $10.77 $12.97 $14.02
------ ------ ------ ------
Net investment income..................... 1.74 1.92 1.69 1.22
Net realized gain (loss) and change in
unrealized appreciation (depreciation)
on securities and foreign currency

translations........................... 3.56 2.50 (2.24) (1.03)
------ ------ ------ ------
Total from investment operations.......... 5.30 4.42 (0.55) 0.19
------ ------ ------ ------
Dividends to shareholders from net
investment income...................... (1.50) (1.29) (1.36) (1.06)
Dividends to shareholders from net
realized capital gains................. (0.15) (0.36) (0.29) (0.14)
------ ------ ------ ------
Total dividends and
distributions to shareholders.......... (1.65) (1.65) (1.65) (1.20)
------ ------ ------ ------
Offering costs on issuance of common stock -- -- -- (0.04)
------ ------ ------ ------
Net increase (decrease) in net asset value 3.65 2.77 (2.20) (1.05)
------ ------ ------ ------
Net asset value, end of period............ $17.19 $13.54 $10.77 $12.97
------ ------ ------ ------
------ ------ ------ ------
Per share market value, end of period..... $15.75 $13.88 $11.88 $14.00
Total investment return based on market
price per share (c).................... 26.84% 32.72% -2.18% 8.29%(b)
Ratios/Supplemental data:
Net assets, end of period.............. $377,252,413 $295,948,997 $235,371,902 $283,481,270
Ratio of operating expenses to
average net assets................. 1.37% 1.43% 1.45% 1.38%(d)
Ratio of interest expense to
average net assets................. 1.97% 2.78% 2.96% 1.02%(d)
Ratio of total expenses to
average net assets................. 3.34% 4.21% 4.41% 2.40%(d)
Ratio of net investment income to
average net assets................. 11.29% 16.20% 15.42% 8.98%(d)
Portfolio turnover rate................ 172.20% 93.50% 58.16% 23.15%
Bank loan outstanding, end of period... $100,000,000 $100,000,000 $100,000,000 $100,000,000
Interest rate on bank loan, end of period 6.50% 6.60156% 7.5625% 6.375%
Weighted average bank loan............. $100,000,000 $100,000,000 $100,000,000 $66,348,974
Weighted average interest rate......... 6.67% 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.

</TABLE>

See accompanying notes to financial statements.

<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, 1997, 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 three 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, 1997 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 14, 1997

<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
August 31, 1996............................. 10,367 .47 15,085 .69
November 30, 1996........................... 9,927 .46 39,475 1.80
February 28, 1997........................... 8,948 .40 19,218 .88
May 31, 1997................................ 9,003 .41 4,101 .19

<FN>
- ---------------------------------------------------
*Totals expressed in thousands of dollars except per share amounts.

**For the period June 25, 1993 (commencement of operations) through August 31,
1993.

</TABLE>

See accompanying notes to financial statements.

<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

PURSUANT TO CERTAIN RULES OF THE SECURITIES AND EXCHANGE COMMISSION, THE
FOLLOWING ADDITIONAL DISCLOSURE IS PROVIDED.

FORM OF TERMS AND CONDITIONS OF AMENDED AND RESTATED DIVIDEND REINVESTMENT AND
CASH PURCHASE PLAN

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

<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

payment date and (ii) the Trading Day prior to the "ex-dividend" date next
succeeding the dividend or distribution payment date.

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

19
<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

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.

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

<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

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.

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.

<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

DIRECTORS
CHARLES F. BARBER
Consultant; formerly Chairman,
ASARCOIncorporated

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,
Johns 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
NOEL B. DAUGHERTY
Secretary
JENNIFER G. MUZZEY
Assistant Secretary
AMY W. YEUNG
Assistant Treasurer
LAURIE A. PITTI
Assistant Treasurer

THE EMERGING MARKETS
INCOME FUND II INC

7 World Trade Center
New York, New York 10048

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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American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005

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BULK RATE
U.S. POSTAGE
PAID
STATEN ISLAND, NY
PERMIT No. 169
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