The Emerging Markets
Income Fund II Inc
June 28, 2000
Dear Shareholder:
We are pleased to provide this annual report for The Emerging Markets Income
Fund II Inc (the "Fund") as of May 31, 2000. Included are market commentary, a
statement of the Fund's investments and financial statements for the 12 months
ended May 31, 2000.
The net asset value of the Fund increased from $9.71 per share on May 28, 1999
to $10.84 per share on May 31, 2000. Dividends of $1.65 per share from net
investment income were declared during this period. Assuming reinvestment of
these dividends in additional shares of the Fund, the total return based on net
asset value for the year ended May 31, 2000 was 30.73%. In comparison, the J.P.
Morgan Emerging Bond Markets Index Plus ("EMBI+") 1 posted a return of 22.45%
for the same period.
EMERGING MARKET DEBT
Emerging markets debt returned 22.45% for the Fund's fiscal year as measured by
the EMBI+. Rising oil prices and rising interest rates were the predominant
fundamental factors impacting returns during the year. Individual country
returns were dominated by Russia, which gained 129%. Overall market performance
was good with seven other index countries generating double-digit returns and
only two index countries with negative returns for the period.
The performance of the Fund and the emerging debt markets was particularly
strong in light of the difficult fixed-income environment. The U.S. Federal
Reserve Board ("Fed") raised interest rates six times during the Fund's fiscal
year, moving the Federal Funds rate from 4.75% to 6.50%. This aggressive stance
by the Fed was an attempt to slow the rate of U.S. economic growth and to keep
inflation under control. Spreads on investment-grade securities were volatile
during the fiscal year. The spread widening in mortgages and investment-grade
corporate debt reflected increased investor concerns about the magnitude of
future interest rate increases. The aggressive Fed activity and widening spreads
led to subpar returns in most fixed-income asset classes other than emerging
markets debt. The Salomon Smith Barney Broad Investment Grade ("BIG") Index 2
returned 2.02% during the Fund's fiscal year while the Salomon Smith Barney High
Yield Market Index 3 declined 3.83% over the same period.
Commodity prices in general and oil prices, in particular, moved higher during
the year. Oil prices began the fiscal year at $16 per barrel and ended the year
at over $29 with several spikes over the $30 level. A price increase of this
magnitude has a beneficial effect on all oil producers. Russia, Venezuela and
Algeria all experienced measurable improvements in their credit quality over the
fiscal year due to rising oil and gas prices.
1 The EMBI+ is a total return index that tracks the traded market for U.S.
dollar-denominated Brady and other similar sovereign restructured bonds traded
in the emerging market.
2 The Salomon Smith Barney Broad Investment Grade ("BIG") Bond Index includes
institutionally traded U.S. Treasury Bonds, government-sponsored bonds (U.S.
Agency and supranational), mortgage-backed securities and corporate
securities.
3 The Salomon Smith Barney High Yield Market Index covers a significant portion
of the below-investment-grade U.S. corporate bond market.
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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
Return volatility for emerging markets debt averaged 9.17% for the Fund's fiscal
year. This level represents a sharp decline from year-earlier levels of 27%. The
recent volatility level reflects reduced leverage and a more stable overall
environment in the emerging markets.
The spread on the index ended the fiscal year at 784 basis points over U.S.
Treasuries. Spreads opened the fiscal year at 1,157 basis points over
Treasuries, widened to 1,214 basis points in early August and generally
tightened over the balance of the year. J.P. Morgan & Co. adjusted the EMBI+ in
April 2000 to reflect the reorganization of the former Soviet Union debt into
Russian global bonds. This adjustment tightened the index spreads (over
Treasuries) by 120 basis points.
Individual country performance during the quarter followed the pattern of 1999,
with strong outperformance concentrated in a handful of countries. Russia,
Brazil, Bulgaria and Morocco outperformed the index over the Fund's fiscal year.
In addition, Venezuela, Mexico, Argentina and Peru all generated double-digit
returns, although these returns were below index levels.
No country experienced a wider range of fundamental developments than Russia
during the Fund's fiscal year:
* Boris Yeltsin resigned his presidency and Vladimir Putin was elected
President.
* Duma elections in December reduced the influence of the Communist party and
made the moderate bloc the largest faction in Congress. This development
presumably creates a more constructive environment for Duma-government
relations.
* The Duma passed the 2000 budget which emphasizes increased tax collection and
deficit reduction.
* The first quarter federal budget surplus was 0.7% of GDP as revenue from tax
collections soared.
* The Russian government agreed on terms to exchange defaulted former Soviet
debt for new Eurobonds. The terms reduce Russia's debt burden by over 50% on a
net present value basis. The deal is expected to close during the third
quarter of 2000.
These events helped Russia generate the best returns of any index country, up
129% during the Fund's fiscal year.
Economic news from Brazil improved during the Fund's fiscal year. The current
account deficit and the central government primary surplus were consistently
better than expected. The factors behind this good fiscal result include a
combination of one-off revenue events and very disciplined expenditure control.
Brazilian government officials have made substantial progress in dealing with
the country's debt problems. The ratio of net public debt to GDP has stabilized
at approximately 50%. The appreciation of the country's currency, the real in
recent months has reduced the local currency value of external and dollar-linked
domestic debt. The budgetary success in recent months signals a brighter
financing outlook for the balance of 2000. In addition, negotiations with the
International Monetary Fund ("IMF") have led to a lowering of the target for
foreign reserves, giving the central bank additional flexibility in supporting
the local currency. The government has a very ambitious legislative agenda for
the next session of congress. A number of the Constitutional amendments have the
potential to make lasting improvements in Brazil's fiscal accounts. Brazil
returned 26.58% for the fiscal year, second highest of all index countries.
Bulgaria and Morocco each outperformed the index over the Fund's fiscal year.
Both countries demonstrated the benefits of consistently applied economic
policies. The Bulgarian currency board has helped stabilize the economy, as it
recovers from the Kosovo conflict. GDP is expected to grow
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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
at a 4% rate in 2000. Bulgarian debt returned 25.31% during the Fund's fiscal
year. Morocco is suffering through its second consecutive year of drought. The
contraction of the agriculture sector should be offset by growth in the
nonagriculture sector to leave overall GDP unchanged in 2000. Despite this
challenging economic environment, we expect the Moroccan fiscal deficit to
remain stable at 1% of GDP. Morocco returned 23.98% during the fiscal year.
Mexico's foreign currency debt rating was upgraded by Moody's to investment
grade (Baa3). The ratings agency cited sound fiscal policies, increased
political stability and a reduced debt burden in explaining its rationale for
the upgrade. Mexico has been viewed as a safe haven in the emerging markets. It
generated returns of 15.96% during the fiscal year, driven by the ratings
upgrade, rising oil prices, strong exports and an unusually calm political
environment. The ratings upgrade attracted additional investors into emerging
markets debt as Mexico was added to investment-grade debt indexes.
Venezuela returned 16.14% for the fiscal year. Oil price strength has continued
to be a bright spot for the Venezuelan economy. The additional revenue from oil
has helped limit the size of the federal budget deficit during a period of
economic contraction. Venezuela financed its 1999 deficit domestically, without
turning to international capital markets. The government has stated its
intention to pursue an exchange of Brady bonds for longer dated global bonds
during 2000. Political uncertainty weighed on Venezuelan debt during the latter
part of the fiscal year. Elections were postponed from late May and rescheduled
for late July. We expect President Chavez to be reelected in July.
OUTLOOK
The overall tone in emerging markets remains positive. We believe spreads of 700
basis points over U.S. Treasuries represent good value, especially in light of
the strong economic fundamentals and stable politics in most emerging countries.
The technical picture in emerging markets is also encouraging. Market liquidity
remains at very satisfactory levels while hedge fund activity in the market has
been curtailed, leading to a reduction in volatility.
Annual Shareholders Meeting
The Fund held a special meeting on February 24, 2000. At the meeting,
shareholders approved a new management agreement with PIMCO Advisors L.P. and a
new investment advisory and administration agreement among PIMCO Advisors L.P.,
Salomon Brothers Asset Management Inc and the Fund. The following table provides
information concerning the matters voted on at the meeting.
1. Approval of New Management Agreement between PIMCO Advisors L.P. and the Fund
Votes For Votes Against Votes Abstained
--------- ------------ ---------------
20,267,497 295,770 304,116
2. Approval of New Investment Advisory and Administration Agreement among PIMCO
Advisors L.P., Salomon Brothers Asset Management Inc and the Fund
Votes For Votes Against Votes Abstained
--------- ------------ ---------------
20,383,296 232,991 251,103
Page 3
<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
In a continuing effort to provide timely information about The Emerging Markets
Income Fund II Inc., shareholders can call 1-888-777-0102 (toll free), Monday
through Friday from 8:00 a.m. to 6:00 p.m. (EST), for the Fund's current net
asset value, market price and other information regarding the Fund's portfolio
holdings and allocations. For information regarding your Emerging Markets Income
Fund II Inc. stock account, please call American Stock Transfer & Trust Company
at 1-800-937-5449 (1-718-921-8200 if you are calling from within New York City).
Thank you for your investment in The Emerging Markets Income Fund II Inc. We
look forward to helping you pursue your investment goals in the years to come.
Sincerely,
/s/ William D. Cvengros /s/ Heath B. McLendon
William D. Cvengros Heath B. McLendon
Co-Chairman of the Board Co-Chairman of the Board
/s/ Peter J. Wilby /s/ James E. Craige
Peter J. Wilby James E. Craige
Executive Vice President Executive Vice President
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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, 2000
<TABLE>
<CAPTION>
Principal
Amount (a) Bonds+ -- 72.6% Value
----------------------------------------------------------------------------------------------------
<S> <C> <C>
Argentina -- 4.6%
Republic of Argentina:
Peso 4,700,000 8.750% due 7/10/02............................................. $ 4,087,181
1,000,000 14.250% due 11/30/02*.......................................... 990,000
6,000,000 11.595% due 4/10/05*(b)........................................ 5,640,000
Peso 7,000,000 11.750% due 2/12/07............................................ 5,705,742
Peso 500,000 11.750% due 2/12/07#........................................... 407,553
------------
16,830,476
------------
Brazil -- 14.6%
4,000,000 Companhia Energetica De Sao Paulo, 9.125%, 6/26/07*.............. 3,880,000
Federal Republic of Brazil:
11,161,000 14.500% due 10/15/09........................................... 11,495,830
7,003,000 12.250% due 3/6/30............................................. 6,197,655
3,078,521 Capitalization (C) Bond, 8.000% due 4/15/14(c)................. 2,168,433
17,500,000 DCB, Series L, 7.4375% due 4/15/12*............................ 12,545,312
4,875,000 DISC, Series ZL, 7.375% due 4/15/24*........................... 3,668,438
13,000,000 FLRB, Series L, 7.375% due 4/15/09*............................ 9,555,000
3,895,182 MYDFA Trust Certificates, 7.1875% due 9/15/07*................. 3,218,394
------------
52,729,062
------------
Bulgaria -- 3.4%
18,000,000 Republic of Bulgaria, FLIRB, Series A, 2.750% due 7/28/12*....... 12,206,278
------------
Columbia -- 4.6%
Republic of Columbia:
1,425,000 7.270% due 6/15/03............................................. 1,225,500
2,150,000 10.875% due 3/9/04............................................. 1,945,750
7,350,000 13.580% due 8/13/05*........................................... 6,670,125
3,000,000 7.625% due 2/15/07............................................. 2,137,500
5,825,000 11.750% due 2/25/20............................................ 4,601,750
------------
16,580,625
------------
Costa Rica -- 0.6%
2,500,000 Costa Rica, Principal Bond, Series B, 6.250% due 5/21/15......... 2,225,000
------------
See accompanying notes to financial statements.
Page 5
</TABLE>
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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 (continued)
May 31, 2000
<TABLE>
<CAPTION>
Principal
Amount (a) Bonds -- 72.6% (continued) Value
----------------------------------------------------------------------------------------------------
<S> <C> <C>
Croatia -- 1.8%
Republic of Croatia, FRN:
422,888 7.0625% due 7/31/06*........................................... $ 391,171
7,073,182 7.0625% due 7/31/10*........................................... 6,259,766
------------
6,650,937
------------
Ecuador -- 1.1%
10,725,000 Republic of Ecuador, DISC, 6.000% due 2/28/25*(d)................ 4,021,875
------------
Indonesia -- 1.5%
2,000,000 APP China Group Ltd, 14.000% due 3/15/2010(e).................... 1,240,000
5,804,260 Pt Polytama Propindo, 11.250% due 6/15/07(f)..................... 740,043
Tjiwi Kimia International Finance Company B.V.:
1,000,000 13.250% due 8/1/01............................................. 845,000
5,000,000 10.000% due 8/1/04............................................. 2,750,000
------------
5,575,043
------------
Ivory Coast -- 0.7%
16,225,000 Republic of Ivory Coast, 2.000% due 3/31/18*..................... 2,596,000
------------
Mexico -- 6.7%
3,000,000 Grupo Industrial Durango, 12.000% due 7/15/01.................... 3,007,500
2,000,000 Hylsa S.A. de C.V., 9.250% due 9/15/07........................... 1,800,000
2,800,000 Petroleos Mexicanos, 9.250% due 3/30/18.......................... 2,492,000
15,680,000 United Mexican States, 11.375% due 9/15/16....................... 16,926,560
------------
24,226,060
------------
Panama -- 3.7%
Republic of Panama:
15,625,000 IRB, 4.250% due 7/17/14*....................................... 11,972,656
1,620,259 PDI, 7.0625% due 7/17/16*(c)................................... 1,246,587
------------
13,219,243
------------
Peru -- 1.5%
8,690,000 Republic of Peru, PDI Bond, 4.500% due 3/7/17*................... 5,442,113
------------
See accompanying notes to financial statements.
Page 6
</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 (continued)
May 31, 2000
<TABLE>
<CAPTION>
Principal
Amount (a) Bonds -- 72.6% (concluded) Value
----------------------------------------------------------------------------------------------------
<S> <C> <C>
Philippines -- 1.5%
6,700,000 Republic of the Philippines, 10.625% due 3/16/25................. $ 5,508,405
------------
Poland -- 1.3%
Republic of Poland:
1,750,000 Par Bond, 3.500% due 10/27/24*................................. 1,025,938
1,760,000 PDI Bond, 6.000% due 10/27/14*................................. 1,542,200
3,000,000 RSTA Bond, 4.000% due 10/27/24*................................ 1,878,750
------------
4,446,888
------------
Russia -- 11.8%
Russia Government:
1,850,000 11.750% due 6/10/03............................................ 1,628,000
2,325,000 11.750% due 6/10/03#........................................... 2,046,000
14,630,000 12.750% due 6/24/28............................................ 11,319,962
101,140,000 IAN due 12/15/15##(d).......................................... 27,813,500
------------
42,807,462
------------
Uruguay -- 0.9%
Uruguay:
1,289,472 DCB, Series B, 7.0625% due 2/18/07*............................ 1,250,788
2,117,646 NMB, 7.1875% due 2/19/06*...................................... 2,048,823
------------
3,299,611
------------
Venezuela -- 12.3%
Republic of Venezuela:
4,410,000 13.625% due 8/15/18............................................ 3,902,850
5,865,000 9.250% due 9/15/27............................................. 3,659,760
3,428,550 DCB, Series DL, 7.000% due 12/18/07*........................... 2,717,126
500,000 DISC, 7.375% due 3/31/20 (included oil obligation certificates) 372,500
29,500,029 FLIRB, Series A, 7.4375% due 3/31/07*.......................... 22,899,397
500,000 FLIRB, Series B, 7.4375% due 3/31/07*.......................... 388,125
13,106,596 NMB, 7.1875% due 12/18/05...................................... 10,419,744
------------
44,359,502
------------
Total Bonds (Cost -- $253,073,814)............................... 262,724,580
------------
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
Statement of Investments (continued)
May 31, 2000
<TABLE>
<CAPTION>
Principal
Amount (a) Loan Participations+,++ -- 13.8% Value
----------------------------------------------------------------------------------------------------
<S> <C> <C>
The People's Democratic Republic of Algeria:
5,727,267 Tranche 1, 6.625% due 9/4/06* (Chase Manhattan Bank)........... $ 4,696,359
10,250,000 Tranche 3, 7.1875% due 3/4/10* (Chase Manhattan Bank).......... 7,866,875
Yen 900,000,000 Tranche 3, 7.1875% due 3/4/10* (Chase Manhattan Bank).......... 4,889,941
Government of Jamaica:
55,526 Tranche A, 7.125% due 10/15/00* (Chase Manhattan Bank)......... 52,750
3,781,250 Tranche B, 7.5625% due 11/15/04* (Chase Manhattan Bank,
Morgan Guaranty Trust Company)............................... 3,327,500
Kingdom of Morocco:
Yen 606,866,300 Tranche A, 3.0175% due 1/1/09* (Goldman Sachs)................. 4,283,630
20,705,876 Tranche B, 7.750% due 1/1/04* (Chase Manhattan Bank,
Morgan Stanley Emerging Markets, Inc.)....................... 18,790,583
Russia Government:
3,000,000 Foreign Trade Obligation## (Bank of America)................... 671,250
20,500,000 Principal Loan, due 12/15/20##(d)
(Morgan Guaranty Trust Company of New York).................. 5,522,188
------------
Total Loan Participations (Cost -- $52,771,639).................. 50,101,076
------------
U.S. Government Obligations+ -- 8.4%
----------------------------------------------------------------------------------------------------
31,000,000 U.S. Treasury Bills due 8/31/00 (Cost -- $30,574,550)............ 30,559,524
------------
Sub-Total Investments (Cost -- $336,420,003)..................... 343,385,180
------------
Repurchase Agreements -- 5.2%
----------------------------------------------------------------------------------------------------
9,403,000 J.P. Morgan, 6.300%, dated 5/31/00, $9,404,646 due 6/1/00
(collateralized by $9,369,000 U.S. Treasury Bond, 6.375%
due 8/15/27, valued at $9,591,045) (Cost-- $9,403,000)......... 9,403,000
9,404,000 SBC Warburg Dillon Read, 6.350%, $9,405,659 due 6/1/00
(collateralized by $7,458,000 U.S. Treasury Bond, 8.750%
due 8/15/20, valued at $9,592,853) (Cost-- $9,404,000)......... 9,404,000
------------
Total Repurchase Agreements (cost-- $18,807,000)................. 18,807,000
------------
Total Investments-- 100.0% (Cost-- $355,227,003**)............... $362,192,180
============
See accompanying notes to financial statements.
Page 8
</TABLE>
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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 (concluded)
May 31, 2000
FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT MAY 31, 2000:
<TABLE>
<CAPTION>
Contracts In Exchange Contracts at Delivery Unrealized
to Deliver For Value Date Appreciation
-------------- ------------ -------------- -------- ------------
<S> <C> <C> <C> <C> <C>
Sale.......Yen 589,000,000 US $5,663,461 US $5,580,088 9/11/00 $ 83,373
Sale.......Yen 515,000,000 US $5,013,141 US $4,879,024 9/11/00 134,117
--------
$217,490
========
<FN>
------------
(a) Principal denominated in U.S. dollars unless otherwise indicated.
(b) Coupon rate is derived from a formula based on the yields of other
Argentina Global bonds.
(c) Payment-in-kind security for which all or part of the interest earned is
capitalized as additional principal.
(d) Security is currently in default.
(e) The bond is denominated in units. Each unit is equal to $1,000 and one
warrant to buy 12.914 shares of Asia Pulp & Paper at $7.8375 per share.
The warrant will expire on March 15, 2005.
(f) Payment-in-kind Security. Interest earned is capitalized as additional
principal when received by the Fund.
* Rate shown reflects current rate in effect at May 31, 2000 on instrument
with variable rates or step coupon rates.
** Aggregate cost for federal income tax purposes is substantially the same.
+ Security is segregated as collateral pursuant to a loan agreement. See
Note 4.
++ Participation interests were acquired through the financial institutions
indicated parenthetically. See Note 5.
# Pursuant to Rule 144A of the Securities Act of 1933, this security can
only be sold to qualified institu tional investors.
## Non-income producing security.
</FN>
</TABLE>
Abbreviations used in this statement:
DCB - Debt Conversion Bond.
DISC - Discount Bond.
FLIRB - Front Loaded Interest Reduction Bond.
FLRB - Floating Rate Bond.
FRN - Floating Rate Note.
IAN - Interest Arrears Note.
IRB - Interest Reduction Bond.
MYDFA - Multi Year Depository Facility Agreement.
NMB - New Money Bond.
PDI - Past Due Interest.
Peso - Argentina Peso.
RSTA - Revolving Short Term Agreement.
Yen - Japanese Yen.
See accompanying notes to financial statements.
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
Statement of Assets and Liabilities
May 31, 2000
<TABLE>
<CAPTION>
Assets
<S> <C>
Investments, at value (cost-- $336,420,003)........................................ $343,385,180
Repurchase agreements.............................................................. 18,807,000
Cash............................................................................... 518
Receivable for securities sold..................................................... 16,387,055
Interest receivable................................................................ 6,680,596
Net unrealized appreciation on forward foreign currency contracts.................. 217,490
Prepaid expenses................................................................... 20,773
------------
Total Assets....................................................................... 385,498,612
------------
Liabilities
Loan payable (Note 4).............................................................. 100,000,000
Payable for securities purchased................................................... 30,569,875
Accrued interest expense on loan................................................... 409,477
Accrued management fee (Note 2).................................................... 256,351
Other accrued expenses............................................................. 203,376
------------
Total Liabilities.................................................................. 131,439,079
------------
Net Assets......................................................................... $254,059,533
============
Net Assets
Common Stock ($0.001 par value, authorized
100,000,000; 23,433,683 shares outstanding)...................................... $ 23,434
Additional paid-in capital......................................................... 323,774,420
Undistributed net investment income................................................ 420,512
Accumulated net realized loss on investments....................................... (77,341,544)
Net unrealized appreciation on investments and foreign currencies.................. 7,182,711
------------
Net Assets......................................................................... $254,059,533
============
Net Asset Value Per Share ($ 254,059,533 / 23,433,683 shares)........................ $10.84
======
See accompanying notes to financial statements.
Page 10
</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, 2000
<TABLE>
<CAPTION>
<S> <C> <C>
Income
Interest (includes discount accretion of $12,426,955).............................. $ 44,304,351
Expenses
Interest on loan..................................................... $7,553,442
Management fee....................................................... 2,980,267
Custodian............................................................ 122,685
Legal................................................................ 62,660
Audit and tax services............................................... 55,457
Printing............................................................. 54,730
Transfer agent expenses.............................................. 37,269
Listing fees......................................................... 35,174
Directors' fees and expenses......................................... 33,579
Other................................................................ 40,377 10,975,640
---------- -----------
Net Investment Income................................................................ 33,328,711
-----------
Realized and Unrealized Gain (Loss) on Investments
and Foreign Currency Transactions
Net Realized Gain (Loss) on:
Investments...................................................................... 10,424,966
Foreign currency transactions.................................................... (201,256)
-----------
10,223,710
-----------
Net Change in Unrealized Appreciation (Depreciation) on:
Investments...................................................................... 21,090,270
Foreign currency contracts and other assets and liabilities
denominated in foreign currencies.............................................. 57,749
-----------
21,148,019
-----------
Net Gain on Investments and Foreign Currency Transactions............................ 31,371,729
-----------
Net Increase in Net Assets From Operations........................................... $64,700,440
===========
See accompanying notes to financial statements.
Page 11
</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 Changes in Net Assets
For the Year Ended May 31, 2000
and May 28, 1999
<TABLE>
<CAPTION>
May 31, May 28,
2000 1999
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations
Net investment income............................................. $ 33,328,711 $ 40,446,017
Net realized gain (loss) on investments and foreign currency
transactions.................................................... 10,223,710 (87,156,708)
Net change in unrealized appreciation (depreciation).............. 21,148,019 (11,499,098)
------------ ------------
Net Increase (Decrease) in Net Assets From Operations............. 64,700,440 (58,209,789)
------------ ------------
Dividends and Distributions to Shareholders
From net investment income........................................ (38,496,993) (40,669,385)
From net realized capital gains................................... -- (19,722,397)
------------ ------------
Net Decrease in Net Assets From
Dividends and Distributions to Shareholders..................... (38,496,993) (60,391,782)
------------ ------------
Capital Share Transactions
Proceeds from shares issued in reinvestment of dividends
(268,061 and 865,753 shares issued)............................. 2,849,104 8,528,861
------------ ------------
Total Increase (Decrease) in Net Assets............................. 29,052,551 (110,072,710)
------------ ------------
Net Assets
Beginning of year................................................. 225,006,982 335,079,692
------------ ------------
End of year (includes undistributed net investment income of
$420,512 and $7,101,419, respectively).......................... $254,059,533 $225,006,982
============ ============
</TABLE>
Statement of Cash Flows
For the Year Ended May 31, 2000
<TABLE>
<S> <C>
Cash Flows From Operating Activities:
Purchases of securities............................................................ $(307,885,435)
Net purchases of short-term investments............................................ (17,353,000)
Proceeds from sales of securities and principal paydowns........................... 340,314,678
-------------
15,076,243
Net investment income.............................................................. 33,328,711
Adjustments to reconcile net investment income to net cash
provided by operating activities:
Accretion of discount on investments............................................. (12,426,955)
Interest on payment-in-kind bonds................................................ (888,204)
Net change in receivables/payables related to operations......................... 557,743
-------------
Net Cash Provided by Operating Activities........................................ 35,647,538
-------------
Cash Flows Used by Financing Activities:
Proceeds from shares issued in reinvestment of dividends........................... 2,849,104
Dividends and distributions paid................................................... (38,496,993)
-------------
Net Cash Used by Financing Activities.............................................. (35,647,889)
-------------
Net Decrease in Cash................................................................. (351)
Cash at Beginning of Year............................................................ 869
-------------
Cash at End of Year.................................................................. $ 518
=============
See accompanying notes to financial statements.
Page 12
</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 and Significant Accounting Policies
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.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with accounting principles generally accepted in the
United States ("GAAP"). The preparation of financial statements in accordance
with GAAP requires management to make estimates and assumptions that affect the
reported amounts and disclosures in the financial statements. Actual results may
differ from those estimates.
(a) Securities valuation. In valuing the Fund's assets, all securities and
options for which market quotations are readily available are valued (i) at
the last sale price prior to the time of determination if there was a sale
on the date of determination, (ii) at the mean between the last current bid
and asked price if there was no sales price on such date and bid and asked
quotations are available, and (iii) at the bid price if there was no sales
price on such date and only bid quotations are available. Publicly traded
foreign government debt securities are typically traded internationally in
the over-the-counter market, and are valued at the mean between the last
current bid and asked price as of the close of business of that market.
However, where the spread between bid and asked price exceeds five percent
of the par value of the security, the security is valued at the bid price.
Securities may also be valued by independent pricing services which use
prices provided by market-makers or estimates of market values obtained
from yield data relating to instruments or securities with similar
characteristics. Short-term investments having a maturity of 60 days or
less are valued at amortized cost, unless the Board of Directors determines
that such valuation does not constitute fair value. Securities for which
reliable quotations are not readily available and all other securities and
assets are valued at fair value as determined in good faith by, or under
procedures established by, the Board of Directors.
(b) Securities transactions and investment income. Securities transactions
are recorded on the trade date. Interest income is accrued on a daily
basis. Discount 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 13
<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)
1. Organization and 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) Repurchase agreements. When entering into repurchase agreements, it is
the Fund's policy to take possession, through its custodian, of the
underlying collateral and to monitor its value at the time the arrangement
is entered into and during the term of the repurchase agreement to ensure
that it equals or exceeds the repurchase price. In the event of default of
the obligation to repurchase, the Fund has the right to liquidate the
collateral and apply the proceeds in satisfaction of the obligation. Under
certain circumstances, in the event of default or bankruptcy by the other
party to the agreement, realization and/or retention of the collateral may
be subject to legal proceedings.
(f) Distribution of income and gains. The Fund declares and pays
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 GAAP
due primarily to differences in the treatment of foreign currency
gains/losses and deferral of wash sales and post-October losses incurred by
the Fund. These "book/tax" differences are either considered temporary or
permanent in nature. To the extent these differences are permanent in
nature, such amounts are reclassified within the capital accounts based on
their federal income tax basis treatment; temporary differences do not
require reclassification. Dividends and distributions which exceed net
investment income and net realized capital gains for financial reporting
purposes but not for tax purposes are reported as distributions in excess
of net investment income or distributions in excess of net realized capital
gains. To the extent they exceed net investment income and net realized
capital gains for tax purposes, they are reported as tax return of capital.
(g) Forward foreign currency contracts. A forward foreign currency contract
is a commitment to purchase or sell a foreign currency at a future date at
a negotiated forward rate. The contract is marked to market to reflect the
change in the currency exchange rate. The change in market value is
recorded by the Fund as an unrealized gain or loss. The Fund records a
realized gain or loss on delivery of the currency or at the time the
forward contract is extinguished (compensated) by entering into a closing
transaction prior to delivery. This gain or loss, if any, is included in
net realized gain (loss) on foreign currency transactions.
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
Notes to Financial Statements (continued)
1. Organization and Significant Accounting Policies (concluded)
(h) Option contracts. When the Fund writes or purchases a call or a put
option, an amount equal to the premium received or paid by the Fund is
recorded as a liability or asset, and marked-to-market on each valuation
date to reflect the current market value of the option. When a written
option expires, the Fund realizes a gain equal to the amount of the premium
received. For options closed through an offsetting purchase or sale, the
difference between the premium received or paid in the initial transaction
and the amount paid or received in effecting the closing transaction is
treated as a realized gain or loss. When a written call option is
exercised, the Fund realizes a gain or loss from the sale of the underlying
security and the proceeds from such sale are increased by the premium
originally received on the option. If a written put option is exercised,
the premium reduces the cost basis of the security purchased by the Fund.
(i) Cash flow information. The Fund invests in securities and distributes
dividends from net investment income and net realized gains from investment
transactions which are paid in cash. These activities are reported in the
Statement of Changes in Net Assets. Additional information on cash receipts
and cash payments is presented in the Statement of Cash Flows. For the year
ended May 31, 2000, the Fund paid interest expense of $7,428,548.
2. Management and Advisory Fees and Other Transactions
The Fund has entered into a management agreement with PIMCO Advisors
L.P. (the "Investment Manager"), 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 have entered into an investment
advisory and administration agreement with Salomon Brothers Asset
Management Inc (the "Investment Adviser"), a wholly-owned subsidiary of
Salomon Smith Barney Holdings Inc.("SSBH"), 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 management agreement and the investment advisory and administration
agreements were transferred to the Investment Manager on November 2, 1999
from Value Advisors LLC, its wholly owned subsidiary.
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, 2000 the Investment Adviser owned 4,849 shares of the Fund.
Certain officers and/or directors of the Fund are officers and/or directors
of the Investment Manager or the Investment Adviser.
All officers and two directors of the Fund are employees of the
Investment Manager and/or the Investment Adviser.
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
Notes to Financial Statements (continued)
3. Portfolio Activity and Tax Information
Cost of purchases and proceeds from sales of securities, excluding
short-term investments for the year ended May 31, 2000 aggregated $305,718,883
and $349,611,207, respectively. The federal income tax cost basis of the Fund's
investments at May 31, 2000 was substantially the same as the cost basis for
financial reporting. Gross unrealized appreciation and depreciation amounted to
$28,688,145 and $21,722,968, respectively, resulting in a net unrealized
appreciation on investments of $6,965,177.
In the year ended May 31, 2000, permanent book/tax differences were
reclassified from accumulated net realized loss on investments to undistributed
net investment income.
4. Bank Loan
The Fund has borrowed $100,000,000 pursuant to a secured loan agreement
(the "Loan Agreement") with ING Barings (U.S.) Capital LLC. The interest rate on
the loan is 8.67125% and the maturity date is November 15, 2000. The collateral
for the loan was valued at $343,337,267 on May 31, 2000 and is being held in a
segregated account by the Fund's custodian. In accordance with the terms of the
loan agreement, the Fund must maintain a level of collateral to debt of not less
than 300%.
5. Loan Participations/Assignments
The Fund invests in fixed and floating rate loans arranged through private
negotiations between a foreign sovereign entity and one or more financial
institutions ("lenders"). The Fund's investment in any such loan may be in the
form of a participation in or an assignment of the loan. The market value of the
Fund's loan participations at May 31, 2000 was $50,101,076.
In connection with purchasing loan participations, the Fund generally will
have no right to enforce compliance by the borrower with the terms of the loan
agreement relating to the loan, nor any rights of set-off against the borrower,
and the Fund may not benefit directly from any collateral supporting the loan in
which it has purchased the participation. As a result, the Fund will assume the
credit risk of both the borrower and the lender that is selling the
participation. In the event of the insolvency of the lender selling the
participation, the Fund may be treated as a general creditor of the lender and
may not benefit from any set-off between the lender and the borrower.
When the Fund purchases assignments from lenders, the Fund will acquire
direct rights against the borrower on the loan, except that under certain
circumstances such rights may be more limited than those held by the assigning
lender.
The Fund may have difficulty disposing of participations/assignments
because the market for certain instruments may not be highly liquid.
6. "When and If" Issued Bonds
"When and if" issued bonds are recorded as investments in the Fund's
portfolio and marked-to-market to reflect the current value of the bonds. When
the Fund sells a "when and if" issued bond, an unrealized gain or loss is
recorded equal to the difference between the selling price and purchase cost of
the bond. Settlement of trades (i.e., receipt and delivery) of the "when and if"
issued bond is contingent upon the successful issuance of such bond. In the
event its sponsor is unable to successfully issue the security, all trades in
"when and if" issued bonds become null and void, and, accordingly, the Fund will
reverse any gain or loss recorded on such transactions.
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
Notes to Financial Statements (concluded)
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, 2000, the Fund has a concentration of
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 counterparties
to meet the terms of their contracts. As of May 31, 2000, the Fund has two
outstanding contracts to sell 1,104,000,000 Japanese Yen for US $10,676,602 for
a scheduled settlement of September 11, 2000.
The Fund enters into option transactions as part of its investment strategy
or to hedge against possible changes in the market value of certain securities
held. The risk in writing a 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.
9. Dividend Subsequent to May 31, 2000
On June 1, 2000, 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, 2000 to shareholders of record June 13, 2000.
10. Capital Loss Carryforward
At May 31, 2000, the Fund had, for Federal income tax purposes, a capital
loss carryforward of approximately $76,746,400, available to offset future
capital gains through May 31, 2008. To the extent that these carryforward losses
are used to offset capital gains, it is probable that any gains so offset will
not be distributed. The amount and date of expiration of the carryforward losses
is indicated below:
May 2007 May 2008
--------- ---------
$64,935,000 $11,811,400
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
Financial Highlights
Selected data for a share of common stock outstanding throughout the period:
<TABLE>
<CAPTION>
Year Ended
-----------------------------------------------------
May 31, May 28, May 29, May 31, May 31,
2000 1999 1998 1997 1996
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period...... $ 9.71 $15.03 $17.19 $13.54 $10.77
------ ------ ------ ------ ------
Net investment income..................... 1.36 1.78 1.68 1.74 1.92
Net realized gain (loss) and change in
unrealized appreciation (depreciation)
on securities and foreign currency
translations........................... 1.41 (4.45) (0.86) 3.56 2.50
------ ------ ------ ------ ------
Total from investment operations.......... 2.77 (2.67) 0.82 5.30 4.42
------ ------ ------ ------ ------
Dividends to shareholders from net
investment income...................... (1.65) (1.80) (1.59) (1.50) (1.29)
Dividends to shareholders from net
realized capital gains................. -- (0.88) (1.39) (0.15) (0.36)
------ ------ ------ ------ ------
Total dividends and
distributions to shareholders.......... (1.65) (2.68) (2.98) (1.65) (1.65)
------ ------ ------ ------ ------
Increase in net asset value due to shares
issued on reinvestment of dividends.... 0.01 0.03 -- -- --
------ ------ ------ ------ ------
Net increase (decrease) in net asset value 1.13 (5.32) (2.16) 3.65 2.77
------ ------ ------ ------ ------
Net asset value, end of period............ $10.84 $ 9.71 $15.03 $17.19 $13.54
====== ====== ====== ====== ======
Per share market value, end of period..... $10.8125 $11.875 $15.4375 $15.75 $13.88
======== ======= ======== ====== ======
Total investment return based on market
price per share (a).................... 5.83% -0.43% 17.51% 26.84% 32.72%
Ratios to Average Net Assets:
Total expenses, including interest
expense.............................. 4.45% 4.00% 3.14% 3.34% 4.21%
Total expenses, excluding interest
expense (operating expenses)......... 1.39% 1.35% 1.35% 1.37% 1.43%
Net investment income.................. 13.52% 17.52% 10.16% 11.29% 16.20%
Supplemental Data:
Net assets, end of period (000)........ $254,060 $225,007 $335,080 $377,252 $295,949
Portfolio turnover rate................ 93% 148% 136% 172% 94%
Bank loan outstanding, end of period
(000)................................ $100,000 $100,000 $100,000 $100,000 $100,000
Interest rate on bank loan, end of
period............................... 8.67125% 6.83% 6.28125% 6.50% 6.60156%
Weighted average bank loan (000)....... $100,000 $100,000 $100,000 $100,000 $100,000
Weighted average interest rate......... 7.55% 6.11% 6.46% 6.67% 7.21%
<FN>
--------------------
(a) Dividends are assumed, for purposes of this calculation, to be reinvested at
prices obtained under the Fund's dividend reinvestment plan.
Page 18
</FN>
</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
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, 2000, the results of its operations
and cash flows for the year then ended, the changes in its net assets for each
of the two years in the period then ended and the financial highlights for each
of the five years in the period then ended, in conformity with accounting
principles generally accepted in the United States. These financial statements
and financial highlights (hereafter referred to as "financial statements") are
the responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits, which included confirmation of securities at May 31,
2000 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
July 21, 2000
Page 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
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, 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
August 31, 1997............................. 8,485 .39 17,668 .80
November 30, 1997........................... 8,725 .39 (26,874) (1.21)
February 27, 1998........................... 9,829 .45 5,778 .25
May 29, 1998................................ 9,661 .45 (15,385) (.70)
August 31, 1998............................. 9,371 .42 (170,243) (7.62)
November 30, 1998........................... 11,344 .50 65,572 2.94
February 26, 1999........................... 9,629 .42 (19,300) (.85)
May 28, 1999................................ 10,102 .44 25,315 1.08
August 31, 1999............................. 9,044 .39 (732) (.03)
November 30, 1999........................... 8,728 .37 26,023 1.12
February 29, 2000........................... 7,396 .32 26,617 1.13
May 31, 2000................................ 8,161 .28 (20,536) (.81)
<FN>
--------------
*Totals expressed in thousands of dollars except per share amounts.
</FN>
</TABLE>
Page 20
<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 (unaudited)
1. Each shareholder holding shares of common stock ("Shares") of The Emerging
Markets Income Fund II Inc (the "Fund") will be deemed to have elected to be a
participant in the Amended and Restated Dividend Reinvestment and Cash Purchase
Plan (the "Plan"), unless the shareholder specifically elects in writing
(addressed to the Agent at the address below or to any nominee who holds Shares
for the shareholder in its name) to receive all income dividends and
distributions of capital gains in cash, paid by check, mailed directly to the
record holder by or under the direction of American Stock Transfer & Trust
Company as the Fund's dividend-paying agent (the "Agent"). A shareholder whose
Shares are held in the name of a broker or nominee who does not provide an
automatic reinvestment service may be required to take such Shares out of
"street name" and register such Shares in the shareholder's name in order to
participate, otherwise dividends and distributions will be paid in cash to such
shareholder by the broker or nominee. Each participant in the Plan is referred
to herein as a "Participant." The Agent will act as Agent for each Participant,
and will open accounts for each Participant under the Plan in the same name as
their Shares are registered.
2. Unless the Fund declares a dividend or distribution payable only in the form
of cash, the Agent will apply all dividends and distributions in the manner set
forth below.
3. If, on the determination date, the market price per Share equals or exceeds
the net asset value per Share on that date (such condition, a "market premium"),
the Agent will receive the dividend or distribution in newly issued Shares of
the Fund on behalf of Participants. If, on the determination date, the net asset
value per Share exceeds the market price per Share (such condition, a "market
discount"), the Agent will purchase Shares in the open-market. The determination
date will be the fourth New York Stock Exchange trading day (a New York Stock
Exchange trading day being referred to herein as a "Trading Day") preceding the
payment date for the dividend or distribution. For purposes herein, "market
price" will mean the average of the highest and lowest prices at which the
Shares sell on the New York Stock Exchange on the particular date, or if there
is no sale on that date, the average of the closing bid and asked quotations.
4. Purchases made by the Agent will be made as soon as practicable commencing on
the Trading Day following the determination date and terminating no later than
30 days after the dividend or distribution payment date except where temporary
curtailment or suspension of purchase is necessary to comply with applicable
provisions of federal securities law; provided, however, that such purchases
will, in any event, terminate on the earlier of (i) 60 days after the dividend
or distribution payment date and (ii) the Trading Day prior to the "ex-dividend"
date next succeeding the dividend or distribution payment date.
Page 21
<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 22
<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
Page 23
<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
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 24
<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,
ASARCO Incorporated
WILLIAM D. CVENGROS
Co-Chairman of the Board;
Chief Executive Officer,
President and Member of the
Board of Value Advisors LLC and
Chief Executive Officer and
President of PIMCO Advisors L.P.
LESLIE H. GELB
President, The Council
on Foreign Relations
HEATH B. MCLENDON;
Co-Chairman of the Board;
Managing Director, Salomon
Smith Barney Inc.
President, Smith Barney Mutual Fund
Management Inc.
Chairman, Smith Barney
Strategy Advisors 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
WILLIAM D. CVENGROS
Co-Chairman of the Board
HEATH B. MCLENDON
Co-Chairman of the Board
STEPHEN J. TREADWAY
President
LEWIS E. DAIDONE
Executive Vice President & Treasurer
JAMES E. CRAIGE
Executive Vice President
THOMAS K. FLANAGAN
Executive Vice President
NEWTON B. SCHOTT, JR.
Executive Vice President
PETER J. WILBY
Executive Vice President
CHRISTINA T. SYDOR
Secretary
ANTHONY PACE
Controller
The Emerging Markets
Income Fund II Inc
7 World Trade Center
New York, New York 10048
For information call (toll free)
1-888-777-0102
INVESTMENT MANAGER
Value Advisors LLC
800 Newport Center Drive
Newport Beach, California 92660
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
PricewaterhouseCoopers 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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<PAGE>
The Emerging Markets
Income Fund II Inc
Annual Report
May 31, 2000
----------------------------------------------
The Emerging Markets Income Fund II Inc
----------------------------------------------
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
EDFANN 5/00
PRSRT-STD
U.S. POSTAGE
PAID
PERMIT No. 169
STATEN ISLAND, NY
