The Emerging Markets
Income Fund II Inc
December 27, 2001
Dear Shareholder:
We are pleased to provide this semiannual report for The Emerging Markets Income
Fund II Inc ("Fund") for the six-month period ended November 30, 2001. In this
report, we summarize what we believe to be the period's prevailing economic and
market conditions. In the sections that follow, we provide a detailed summary of
the Fund's performance. We hope you find this report to be useful and
informative.
The net asset value ("NAV")1 of the Fund decreased from $11.53 per share as of
May 31, 2001 to $10.96 per share as of November 30, 2001. In addition, dividends
of $0.825 per share from net investment income were paid during the period.
Assuming reinvestment of these dividends in additional shares of the Fund, the
total return based on net asset value for the six months ended November 30, 2001
was 2.32%. In comparison, the J.P. Morgan Emerging Bond Markets Index Plus
("EMBI+")2 returned negative 5.88% for the same period. Past performance is not
indicative of future results.
EMERGING MARKETS DEBT OVERVIEW
Developments in Argentina set the tone for emerging markets for the period.
Argentina, the worst performer in the EMBI+, returned negative 55.77%. The
country, mired in a four-year recession, began the year as the largest weighted
country in the EMBI+ at more than 22%. In December, after the conclusion of the
Fund's semiannual period, that weighting had been reduced to 4.27%. On a more
positive note and in a difficult period for financial markets globally, the
remaining 16 countries comprising the EMBI+ outperformed the index, with six of
the countries posting double-digit returns.
At the commencement of the Fund's semiannual period in June 2001, the U.S.
Federal Reserve Board ("Fed") had already embarked on its fiscal easing policy.
Rates stood at 4.00% in June and ended the Fund's semiannual period at 2.00%.
This significant easing was a result of continued slow
--------------
1 The NAV is calculated by subtracting total liabilities from the closing value
of all securities held by the Fund (plus all other assets) and dividing the
results (total net assets) by the total number of shares outstanding. The NAV
fluctuates with changes in the value of the securities in which the Fund has
invested. However, the price at which the investor may buy or sell shares of
the Fund is at their market (NYSE) price, as determined by supply and demand.
2 The EMBI+ is a total-return index that tracks the traded market for U.S.
dollar-denominated Brady bonds and other similar sovereign restructured bonds
traded in the emerging markets. Please note that an investor cannot directly
invest in an index.
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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
U.S. economic growth as well as the September 11 terrorist attacks. On December
11, 2001 (after the close of the Fund's reporting period) the Fed further
reduced the benchmark federal funds interest rate ("fed funds rate") 3 by 25
basis points 4, or 0.25%, the eleventh cut of the year. The fed funds rate
currently stands at 1.75%, the lowest in 40 years.
Oil prices, an important driver of value in emerging-debt markets, experienced
considerable price volatility this period. A number of factors contributed to
this volatility, including a global oversupply of oil, reduced air travel, a
slowing U.S. economy and confusion over OPEC pricing. Oil prices traded in a
range from $28.51 to $18.03 per barrel as investors focused on the declining
demand for oil. Prices closed the quarter at $19.44 per barrel. OPEC continues
to regulate production as it attempts to defend the price band. OPEC is
scheduled to meet on December 28, 2001 if non-OPEC members such as Russia,
Mexico and Norway do not meet its demand for output cuts.
Return volatility 5 for emerging markets debt remained below historical levels.
12-month volatility ending November 30, 2001 was 14.02%. However, the
combination of the uncertainty surrounding the September 11 attacks and the
continued Argentine recession has triggered a recent increase in volatility
levels closer to historical averages.
LATIN AMERICA
Latin America as a region returned negative 14.35% for the semiannual period,
underperforming the EMBI+ return by more than 8%. The region continues to be
influenced by the Argentine recession and its contagion effects on neighboring
Latin economies. On a positive note, Brazilian debt prices diverged from
Argentina's negative performance, as Brazil produced the EMBI+'s second-best
monthly return of 7.81% in November.
ARGENTINA returned negative 55.77% for the semiannual period, the worst
performance in the EMBI+. The country continues to struggle with a weak economy
and the likelihood of a debt default. In July, the market focused on the
difficulties involved in revitalizing the economy. August saw positive momentum
as the International Monetary Fund 6 ("IMF") announced an additional $8 billion
would be injected into the Argentine economy to help alleviate short-term
pressure on deposits and reserves. However, the positive momentum was halted in
October and November when Standard & Poor's ("S&P") lowered Argentina's external
debt rating twice, from CCC+ to CC and more recently to SD (Selective Default).
The SD rating was served when limitations on bank-deposit cash withdrawals were
imposed by the Argentine government.
Our strategy concerning Argentina's debt has been consistent throughout the
Fund's semiannual period, as we have maintained a meaningful underweight to
Argentine securities relative to the EMBI+ since the beginning of the period. We
had been concerned that Argentina's inability to roll
---------------
3 The fed funds rate is the interest rate that banks with excess reserves at a
Federal Reserve district bank charge other banks that need overnight loans.
The fed funds rate often points to the direction of U.S. interest rates.
4 A basis point is 0.01%, or one one-hundredth of a percent.
5 Return volatility is the standard deviation of monthly returns over the period
being measured.
6 The IMF is an international organization of 183 member countries, established
to promote international monetary cooperation, exchange stability, and orderly
exchange arrangements.
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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
over maturing debt in a difficult credit-market environment would increase the
risk premium in Argentine securities and thus increase the likelihood of credit
default. We were also concerned that this increase in risk premium would
translate into higher domestic interest rates, which would further depress the
economy and prolong a four-year recession. This depressed economic environment,
we felt, would further increase friction within an already tenuous political
environment. To us, without a drastic change in domestic policy that would spur
economic growth, or a massive debt underwriting by an official lender such as
the IMF, significantly lower prices in Argentine debt securities were warranted.
Trips to Argentina in May and August led us to the conclusion that newly
announced domestic policy actions would not lead to economic growth. In
addition, numerous meetings with officials from the IMF, U.S. Treasury,
Inter-American Development Bank ("IADB") 7 and the World Bank 8 led us to
believe that support from official lenders would only come after numerous fiscal
targets were met. Without economic growth, we felt that these targets would be
difficult to achieve. Accordingly, while significantly underweight Argentina at
the start of the year, we continued to sell positions as the year unfolded. This
proved to be fortuitous, as subsequent to the close of the Fund's semiannual
period on November 30, Argentina has announced a debt moratorium (default) on
all external debt obligations and, as of this writing, is in the process of
determining who will be its fourth President in as many weeks.
BRAZIL returned 4.05% for the semiannual period, outperforming the EMBI+ by 10%.
The breakaway from Argentine contagion and return to positive performance was
the most convincing change in the Latin sector this period. The key issue for
Brazil remains the sustainability of its public-sector debt in an environment
where Argentina's problems keep the exchange rate and local interest rates under
pressure. The market welcomed the August announcement by the IMF granting an
extension of a $15 billion line of credit. Positive local developments are still
balanced by negative news out of Argentina, but this is changing and
opportunities may arise soon. We maintained our slight overweight to Brazil
relative to the benchmark for the period.
MEXICO returned 6.91% for the semiannual period, outperforming the EMBI+ by more
than 12%. The Mexican economy benefited from oil prices in the $20 range as
reflected in its overall levels of growth and fiscal strength. The market
continues to anticipate an S&P investment-grade upgrade but the rating agency
may delay its decision until the U.S. economy shows signs of recovery. We have
maintained our exposure to Mexican debt since we think it is one of the most
stable countries in the emerging markets.
EASTERN EUROPE/MIDDLE EAST/AFRICA
Non-Latin American countries outperformed Latin American countries during the
period as the region returned 15.56% and outperformed the EMBI+ by more than
20%. Russia, Turkey, Bulgaria, the Philippines and Poland boosted non-Latin
performance for the period.
--------------
7 The IADB was established to help accelerate economic and social development in
Latin America and the Caribbean.
8 The World Bank helps developing countries fight poverty and establish economic
growth that is stable, sustainable and equitable. One of the ways that the
World Bank provides assistance is by lending countries money.
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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
RUSSIA, the second-best performer in the EMBI+, returned an impressive 23.41%
for the semiannual period. The Russian economy continues to benefit from oil
prices in the $20 range as reflected in its overall levels of growth and fiscal
strength. Russia's foreign reserves are approaching new highs, reaching $38
billion in October. Domestic consumption has also contributed to growth; GDP
growth was 5.5% for the first seven months of 2001. Moody's Investors Service
revised its foreign-currency bond rating on two separate occasions from B3 to
Ba3 due to Russia's improved capacity to service its debt. Russia's improving
fundamentals has led to credit-rating upgrades recently as we remained
overweight Russian debt for the period.
TURKEY returned 14.26% for the semiannual period as measured by the EMBI+.
During July and August, important laws were passed and the necessary
restructuring of the Turkish banking sector commenced. The government embarked
on a widely publicized campaign to strengthen the lira and the IMF and World
Bank disbursed an additional US$4.2 billion to Turkey. More recently, market
sentiment improved toward Turkey thanks to the increasing likelihood of a new
international-support package enhanced by its current geopolitical position. The
country has enough resources on hand to meet its financing requirements for the
rest of the year. Since the September 11 terrorist attacks, we have taken an
overweight position in Turkish sovereign debt, which has contributed positively
to the Fund's performance. We continue to monitor developments closely.
OUTLOOK
The poor performance in emerging markets debt for the six months ended November
30, 2001 (negative 5.88% for the EMBI+) was achieved amid high financial-markets
volatility and Argentina's continued fiscal turmoil. EMBI+ ex-Argentina returned
9.31%, strong performance in such volatile financial markets. EMBI+ sovereign
spreads 9 closed the period at 1,069 basis points. We continue to remain
invested in what we believe to be a diversified portfolio of emerging markets
debt securities.
ANNUAL SHAREHOLDERS MEETING
The Fund held its annual shareholders meeting on November 13, 2001. At the
meeting, shareholders elected each of the nominees proposed for election to the
Fund's Board of Directors. The following table provides information concerning
the matter voted on at the meeting.
ELECTION OF DIRECTORS
NOMINEES VOTES FOR VOTES WITHHELD
---------- ---------- --------------
Leslie H. Gelb 22,166,140 312,957
Riordan Roett 22,206,948 272,149
Stephen J. Treadway 22,207,159 271,938
In a continuing effort to provide timely information about the Fund,
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 account, please call American Stock
Transfer & Trust Company at 1-800-937-5449, or 1-718-921-8200 if you are calling
from within New York City.
--------------
9 Sovereign bonds are bonds issued by non-U.S. governments. Yield spread is the
difference between yields on securities of the same quality but different
maturities or the difference between yields on securities of the same maturity
but different quality.
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Thank you for your investment in the Fund. We look forward to helping you pursue
your investment goals in the years to come.
Sincerely,
/s/ Stephen J. Treadway /s/ Heath B. McLendon
Stephen J. Treadway 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
The information provided in this commentary represents the opinion of the Fund's
managers and is not intended to be a forecast of future events, a guarantee of
future results or investment advice. Further, there is no assurance that certain
securities will remain in or out of the Fund's portfolio. Please refer to pages
6 through 9 for a list and percentage breakdown of the Fund's holdings. Also,
please note any discussion of the Fund's holdings is as of November 30, 2001 and
is subject to change.
Page 5
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 (unaudited)
November 30, 2001
Face
Amount (a) Bonds -- 90.2% Value
------------------------------------------------------------------------------------------------------
Argentina -- 4.5%
Republic of Argentina:
Peso 5,210,000 8.750% due 7/10/02 .............................................. $ 1,827,978
2,100,000 14.250% due 11/30/02* ........................................... 866,250
26,126,000 24.505% due 4/10/05*(b) ......................................... 12,017,960
500,000 11.750% due 2/12/07# ............................................ 100,000
Peso 1,944,182 BOCON, Pro 1, 3.2124% due 4/1/07* ............................... 431,591
-----------
15,243,779
-----------
Brazil -- 21.9%
Federal Republic of Brazil:
450,000 9.625% due 7/15/05 .............................................. 415,688
552,000 12.750% due 1/15/20 ............................................. 481,620
24,568,000 12.250% due 3/6/30 .............................................. 20,207,180
72,078,000 11.000% due 8/17/40 ............................................. 52,508,823
1,676,470 NMB, Series L, 3.250% due 4/15/09* .............................. 1,299,788
-----------
74,913,099
-----------
Bulgaria -- 4.2%
Republic of Bulgaria:
10,250,000 FLIRB, Series A, 4.5625% due 7/28/12* ........................... 8,872,687
6,682,500 IAB, 4.5625% due 7/28/11* ....................................... 5,617,477
-----------
14,490,164
-----------
Colombia -- 4.0%
Republic of Colombia:
970,000 8.700% due 2/15/16 .............................................. 745,881
12,910,000 11.750% due 2/25/20 ............................................. 12,861,588
-----------
13,607,469
-----------
Costa Rica -- 1.0%
Republic of Costa Rica:
800,000 9.995% due 8/1/20# .............................................. 906,000
2,500,000 Principal Bond, Series B, 6.250% due 5/21/15 .................... 2,450,000
-----------
3,356,000
-----------
Ecuador -- 4.9%
Republic of Ecuador:
14,000,000 12.000% due 11/15/12 ............................................ 9,817,500
9,284,000 5.000% due 8/15/30* ............................................. 4,061,750
6,220,000 5.000% due 8/15/30*, # .......................................... 2,721,250
-----------
16,600,500
-----------
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 (unaudited) (continued)
November 30, 2001
Face
Amount (a) Bonds -- 90.2% (continued) Value
-------------------------------------------------------------------------------------------------------
Indonesia -- 0.6%
2,000,000 APP China Group Ltd, 14.000% due 3/15/10#(c)(d) ................... $ 285,000
5,804,260 Pt Polytama Propindo, 11.250% due 6/15/07(c)(d) ................... 885,150
Tjiwi Kimia International Finance Company B.V.:
5,000,000 10.000% due 8/1/04(c)(d) ........................................ 825,000
1,000,000 13.250% due 8/1/49(c)(d) ........................................ 162,500
-----------
2,157,650
-----------
Ivory Coast -- 0.7%
16,225,000 Republic of Ivory Coast, due 3/31/18(c)(d) ........................ 2,433,750
-----------
Jamaica -- 0.2%
500,000 Government of Jamaica, 12.750% due 9/1/07# ........................ 547,500
-----------
Mexico -- 9.4%
2,000,000 Hylsa S.A. de C.V., 9.250% due 9/15/07 ............................ 790,000
PEMEX, Project Funding Master Trust,
10,200,000 9.125% due 10/13/10 ............................................. 10,786,500
5,000,000 8.000% due 11/15/11 ............................................. 4,980,000
United Mexican States:
4,270,000 9.875% due 2/1/10 ............................................... 4,727,958
7,000,000 11.375% due 9/15/16 ............................................. 8,529,500
2,450,000 8.125% due 12/30/19 ............................................. 2,344,037
25,000 8.300% due 8/15/31 .............................................. 24,000
-----------
32,181,995
-----------
Panama -- 2.1%
8,185,185 Republic of Panama, IRB, 4.750% due 7/17/14* ...................... 7,325,741
-----------
Peru -- 1.0%
Republic of Peru:
1,285,000 FLIRB, 4.000% due 3/7/17* ....................................... 878,619
3,440,000 PDI Bond, 4.500% due 3/7/17* .................................... 2,588,600
-----------
3,467,219
-----------
Philippines -- 2.4%
9,325,000 Republic of the Philippines, 9.875% due 1/15/19 ................... 8,258,453
-----------
Russia -- 20.8%
Russian Government:
11,225,000 10.00% due 6/26/07 .............................................. 10,930,344
9,375,000 8.250% due 3/31/10 .............................................. 7,886,719
247,611 8.250% due 3/31/10# ............................................. 208,303
96,600,000 5.000% due 3/31/30* ............................................. 51,831,937
538,300 5.000% due 3/31/30*,# ........................................... 288,831
-----------
71,146,134
-----------
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 (unaudited) (continued)
November 30, 2001
Face
Amount (a) Bonds -- 90.2% (concluded) Value
-------------------------------------------------------------------------------------------------------
Turkey -- 4.9%
18,000,000 Republic of Turkey, 11.875% due 1/15/30 ........................... $ 16,627,500
-----------
Uruguay -- 0.7%
Uruguay:
1,013,156 DCB, Series B, 4.8125% due 2/19/07* ............................. 982,762
1,588,234 NMB, 7.250% due 2/19/06* ........................................ 1,548,528
-----------
2,531,290
-----------
Venezuela -- 6.9%
Republic of Venezuela:
10,104,000 13.625% due 8/15/18 ............................................. 9,139,068
750,000 DISC, Series W-A, 3.1875% due 3/31/20* .......................... 549,375
7,000,000 DISC, Series W-B, 3.000% due 3/31/20* ........................... 5,127,500
10,756,902 NMB, 4.875% due 12/18/05 ........................................ 8,820,660
-----------
23,636,603
-----------
Total Bonds (Cost -- $328,888,367) ................................ 308,524,846
-----------
Loan Participations+ -- 5.9%
-------------------------------------------------------------------------------------------------------
The People's Democratic Republic of Algeria:
30,589 Tranche 1, 4.3125% due 9/4/06* (J.P. Morgan Chase & Co.) ........ 27,912
11,272,442 Tranche 3, 4.3125% due 3/4/10* (J.P. Morgan Chase & Co.) ........ 9,553,394
2,062,500 Government of Jamaica, Tranche B, 4.4375% due 11/15/04*
(J.P. Morgan Chase & Co.)........................................ 1,882,031
3,000,000 Russian Government, Foreign Trade Obligation(d) (Bank of America).. 1,620,000
Kingdom of Morocco:
7,524,898 Tranche A, 5.09375% due 1/1/09* (Credit Suisse First Boston Inc.,
J.P. Morgan Chase & Co., Morgan Stanley Dean Witter & Co.)..... 6,603,098
441,160 Tranche B, 5.09375% due 1/1/04*(Morgan Stanley Emerging
Markets, Inc.)................................................. 387,117
-----------
Total Loan Participations (Cost -- $20,091,749).................... 20,073,552
-----------
U.S. Government Obligations -- 3.2%
-------------------------------------------------------------------------------------------------------
11,000,000 U.S. Treasury Notes, 3.000% due 11/30/03 (Cost -- $11,030,937) .... 11,030,943
-----------
Shares Rights (d)-- 0.1%
-------------------------------------------------------------------------------------------------------
60,158,000 United Mexican States Rights, expire 6/30/03 (Cost -- $691,928) ... 360,948
-----------
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 (unaudited) (concluded)
November 30, 2001
Warrants Warrants (d) -- 0.0% Value
-------------------------------------------------------------------------------------------------------
2,000 Asia Pulp and Papers Warrants, expire 3/15/05# (Cost -- $0) ....... $ 0
------------
Face
Amount(a) Repurchase Agreement -- 0.6%
-------------------------------------------------------------------------------------------------------
1,976,000 UBS Warburg LLC, 2.050%, $1,976,338 due 12/3/01
(collateralized by $1,657,000 U.S. Treasury Bond
due 2/15/23, valued at $2,017,398) (Cost -- $1,976,000).......... 1,976,000
------------
Total Investments -- 100.0% (Cost -- $362,678,981**)............... $341,966,289
============
---------------
(a) Face amount 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) Security is currently in default.
(d) Non-income producing security.
* Rate shown reflects rate in effect at November 30, 2001 on instrument
with variable rates or step coupon rates.
** Aggregate cost for federal income tax purposes is substantially the same.
+ Participation interests were acquired through the financial institutions
indicated parenthetically. See Note 5.
# Security is exempt from registration under Rule 144A of the Securities
Act of 1933. This security may be resold in transactions that are exempt
from registration, normally to qualified institutional buyers.
Abbreviations used in this statement:
BOCON - Bonos De Consolidacion.
DCB - Debt Conversion Bond.
DISC - Discount Bond.
FLIRB - Front Loaded Interest Reduction Bond.
IAB - Interest Arrears Bond.
IRB - Interest Reduction Bond.
NMB - New Money Bond.
PDI - Past Due Interest.
Peso - Argentina Peso.
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 Assets and Liabilities (unaudited)
November 30, 2001
ASSETS
Investments, at value (cost -- $362,678,981)....................................... $341,966,289
Receivable for securities sold..................................................... 22,208,987
Interest receivable................................................................ 9,366,784
Prepaid expenses................................................................... 2,702
------------
Total Assets....................................................................... 373,544,762
------------
LIABILITIES
Payable to bank.................................................................... 213,516
Loan payable (Note 4).............................................................. 100,000,000
Payable for securities purchased................................................... 12,805,472
Loan interest payable.............................................................. 101,308
Management fee payable (Note 2).................................................... 249,965
Accrued expenses................................................................... 317,947
------------
Total Liabilities.................................................................. 113,688,208
------------
Net Assets......................................................................... $259,856,554
============
NET ASSETS
Common Stock ($0.001 par value, authorized
100,000,000; 23,714,959 shares outstanding)...................................... $ 23,715
Additional paid-in capital......................................................... 326,985,715
Undistributed net investment income................................................ 4,668,123
Accumulated net realized loss on investments....................................... (51,108,605)
Net unrealized depreciation on investments and foreign currencies.................. (20,712,394)
------------
Net Assets......................................................................... $259,856,554
============
NET ASSET VALUE PER SHARE ($259,856,554 / 23,714,959 shares)......................... $10.96
======
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 Operations (unaudited)
For the Six Months Ended November 30, 2001
INCOME
Interest (includes discount accretion of $3,809,776)............................... $ 24,712,494
EXPENSES
Interest on loan................................................................... 2,849,834
Management fee..................................................................... 1,543,781
Custodian.......................................................................... 88,135
Printing........................................................................... 30,195
Audit and tax services............................................................. 28,548
Legal.............................................................................. 25,071
Directors' fees and expenses....................................................... 16,653
Transfer agent expenses............................................................ 16,104
Listing fees....................................................................... 15,954
Other............................................................................. 18,331
------------
Total Expenses..................................................................... 4,632,606
------------
Net Investment Income................................................................ 20,079,888
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, WRITTEN OPTIONS
AND FOREIGN CURRENCY TRANSACTIONS
Net Realized Gain (Loss) on:
Investments...................................................................... 270,915
Written options.................................................................. 243,400
Foreign currency transactions.................................................... (5,810)
------------
Net Realized Gain.................................................................. 508,505
------------
Net Change in Unrealized Depreciation on:
Investments...................................................................... (14,596,872)
Foreign currency contracts and other assets and liabilities
denominated in foreign currencies.............................................. (6,721)
------------
Increase in Net Unrealized Depreciation.......................................... (14,603,593)
------------
Net Loss on Investments and Foreign Currency Transactions ........................... (14,095,088)
------------
NET INCREASE IN NET ASSETS FROM OPERATIONS .......................................... $ 5,984,800
============
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 Changes in Net Assets
For the Six Months Ended November 30, 2001 (unaudited)
and the Year Ended May 31, 2001
November 30 May 31
-------------------------------------------------------------------------------------------------------
OPERATIONS
Net investment income............................................. $ 20,079,888 $ 41,328,073
Net realized gain................................................. 508,505 26,800,386
Increase in net unrealized depreciation........................... (14,603,593) (13,291,512)
------------ ------------
Increase in Net Assets From Operations............................ 5,984,800 54,836,947
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income............................................. (19,484,501) (38,751,801)
Net realized gains................................................ -- --
------------ ------------
Decrease in Net Assets From
Distributions to Shareholders................................... (19,484,501) ( 38,751,801)
------------ ------------
FUND SHARE TRANSACTIONS
Proceeds from shares issued in reinvestment of dividends
(127,564 and 153,712 shares issued)............................. 1,458,615 1,752,961
------------ ------------
Total Increase (Decrease) in Net Assets............................. (12,041,086) 17,838,107
------------ ------------
NET ASSETS
Beginning of period............................................... 271,897,640 254,059,533
------------ ------------
End of period (includes undistributed net investment income of
$4,668,123 and $4,072,736, respectively)........................ $259,856,554 $271,897,640
============ ============
Statement of Cash Flows (unaudited)
For the Six Months Ended November 30, 2001
Cash Flows From Operating Activities:
Purchases of long-term portfolio investments....................................... $(514,913,828)
Proceeds from disposition of long-term portfolio investments and principal paydowns 520,245,769
Net purchases of short-term portfolio investments.................................. (1,331,000)
-------------
4,000,941
Net investment income.............................................................. 20,079,888
Adjustments to reconcile net investment income to net cash
provided by operating activities:
Accretion of discount on investments............................................. (3,809,776)
Net change in receivables/payables related to operations......................... (2,458,551)
-------------
Net Cash Provided by Operating Activities........................................ 17,812,502
-------------
Cash Flows Used by Financing Activities:
Proceeds from reinvestment of dividends............................................ 1,458,615
Cash dividends paid................................................................ (19,484,501)
-------------
Net Cash Used by Financing Activities.............................................. (18,025,886)
-------------
Net Decrease in Cash................................................................. (213,384)
Cash at Beginning of Period.......................................................... 132
-------------
Payable to Bank at End of Period..................................................... $ (213,516)
=============
See accompanying notes to financial statements.
Page 12
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 (unaudited)
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. As a secondary objective, the Fund seeks capital appreciation. In
pursuit of these objectives, the Fund invests primarily in U.S. dollar
denominated debt securities of government and government related issuers located
in emerging market countries, and of entities organized to restructure the
outstanding debt of these issuers.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with accounting principles generally accepted in the
United States of America ("GAAP"). The preparation of financial statements in
accordance with GAAP requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial statements. Actual
results may differ from those estimates.
(A) SECURITIES VALUATION. In valuing the Fund's assets, all securities and
options for which market quotations are readily available are valued (i) at
the last sale price prior to the time of determination if there was a sale
on the date of determination, (ii) at the mean between the last current bid
and asked price if there was no sales price on such date and bid and asked
quotations are available, and (iii) at the bid price if there was no sales
price on such date and only bid quotations are available. Publicly traded
foreign government debt securities are typically traded internationally in
the over-the-counter market, and are valued at the mean between the last
current bid and asked price as of the close of business of that market.
However, where the spread between bid and asked price exceeds five percent
of the par value of the security, the security is valued at the bid price.
Securities may also be valued by independent pricing services which use
prices provided by market-makers or estimates of market values obtained
from yield data relating to instruments or securities with similar
characteristics. Short-term investments having a maturity of 60 days or
less are valued at amortized cost, unless the Board of Directors determines
that such valuation does not constitute fair value. Securities for which
reliable quotations are not readily available and all other securities and
assets are valued at fair value as determined in good faith by, or under
procedures established by, the Board of Directors.
(B) SECURITIES TRANSACTIONS AND INVESTMENT INCOME. Securities transactions
are recorded on the trade date. Interest income is accrued on a daily
basis. Market discount or premium on securities purchased is accreted or
amortized, respectively, 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
Page 13
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 (unaudited) (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 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 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.
Page 14
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 (unaudited) (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONCLUDED)
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.
(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, the value of which is marked-to-market 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 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. If a
written put option is exercised, the amount of the premium received reduces
the cost of the security that the Fund purchased upon exercise of the
option.
(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 six
months ended November 30, 2001, the Fund paid interest expense of
$3,022,889.
2. MANAGEMENT AND ADVISORY FEES AND OTHER TRANSACTIONS
The Fund has entered into a management agreement with PIMCO Advisors,
Division of Allianz Dresdner Asset Managment of America 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 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 November 30, 2001 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
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 (unaudited) (continued)
3. PORTFOLIO ACTIVITY AND TAX INFORMATION
Cost of purchases and proceeds from sales of securities, excluding
short-term investments for the six months ended November 30, 2001 aggregated
$516,592,180 and $441,996,309, respectively. The federal income tax cost basis
of the Fund's investments at November 30, 2001 was substantially the same as the
cost basis for financial reporting. Gross unrealized appreciation and
depreciation amounted to $17,360,830 and $38,073,522, respectively, resulting in
a net unrealized depreciation on investments of $20,712,692.
The following written put option transactions occurred during the six
months ended November 30, 2001.
Number of
Contracts Premium
--------- ---------
Options written, outstanding at May 31, 2001 1,120 $ 985,200
Options canceled in closing purchase transactions (1,120) (985,200)
------ ---------
Options written, outstanding at November 30, 2001 -- $ --
====== =========
In the year ended May 31, 2001, permanent book/tax differences were
reclassified from accumulated net realized loss on investments to undistributed
net investment income.
4. LOAN
At November 30, 2001, the Fund had outstanding a $100,000,000 loan pursuant
to a revolving credit and security agreement with CXC Inc., a commercial paper
conduit issuer for which Citicorp North America Inc. acts as administrative
agent. The loans generally bear interest at a variable rate based on the
weighted average interest rates of the underlying commercial paper or LIBOR,
plus any applicable margin. Securities held by the Fund are subject to a lien,
granted to the lenders, to the extent of the borrowing outstanding and any
additional expenses.
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 November 30, 2001 was $20,073,552.
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.
Page 16
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 (unaudited) (continued)
5. LOAN PARTICIPATIONS/ASSIGNMENTS (CONCLUDED)
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.
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 November 30, 2001, 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 November 30, 2001, the Fund has no
outstanding forward contracts.
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. The risk in writing a put option is that the Fund may incur a loss if
the market price of the underlying security decreases and the option is
exercised. As of November 30, 2001, the Fund has no outstanding option
contracts.
Page 17
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 (unaudited) (concluded)
9. DIVIDEND SUBSEQUENT TO MAY 31, 2001
On October 23, 2001, 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 December 28, 2001 to shareholders of record December 18, 2001.
10. CAPITAL LOSS CARRYFORWARD
At May 31, 2001, the Fund had, for Federal income tax purposes, a capital
loss carryforward of approximately $45,948,000, 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
--------- ---------
$34,136,600 $11,811,400
Page 18
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:
Period Ended Year Ended
November 30, -----------------------------------------
2001 May 31, May 31, May 28, May 29,
(unaudited) 2001 2000 1999 1998
--------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period..... $11.53 $10.84 $ 9.71 $ 15.03 $ 17.19
------ ------ -------- ------- --------
Income (Loss) From Operations:
Net investment income................. 0.85 1.80 1.36 1.78 1.68
Net realized and unrealized gain (loss) (0.59) 0.54 1.41 (4.45) (0.86)
------ ------ -------- ------- --------
Total Income (Loss) From Operations...... 0.26 2.34 2.77 (2.67) 0.82
------ ------ -------- ------- --------
Less Distribution From:
Net investment income................. (0.83) (1.65) (1.65) (1.80) (1.59)
Net realized capital gains............ -- -- -- (0.88) (1.39)
------ ------ -------- ------- --------
Total Distributions...................... (0.83) ( 1.65) (1.65) (2.68) (2.98)
------ ------ -------- ------- --------
Increase in Net Asset Value Due to Shares
Issued on Reinvestment of Dividends... -- -- 0.01 0.03 --
------ ------ -------- ------- --------
Net Increase (Decrease) in Net
Asset Value........................... (0.57) 0.69 1.13 (5.32) (2.16)
------ ------ -------- ------- --------
Net Asset Value, End of Period........... $10.96 $11.53 $ 10.84 $ 9.71 $ 15.03
====== ====== ======== ======= ========
Per Share Market Value, End of Period.... $12.20 $12.65 $10.8125 $11.875 $15.4375
====== ====== ======== ======= ========
Total Return Based on Market
Price Per Share (a)................... 3.52% 35.06% 5.83% -0.43% 17.51%
Ratios to Average Net Assets:
Total expenses, including interest
expense............................. 3.58%(b) 4.55% 4.45% 4.00% 3.14%
Total expenses, excluding interest
expense (operating expenses)........ 1.38%(b) 1.37% 1.39% 1.35% 1.35%
Net investment income................. 15.53%(b) 15.41% 13.52% 17.52% 10.16%
Supplemental Data:
Net assets, end of period (000)....... $259,857 $271,898 $254,060 $225,007 $335,080
Portfolio turnover rate............... 137% 225% 93% 148% 136%
Loan outstanding, end of period (000). $100,000 $100,000 $100,000 $100,000 $100,000
Asset coverage (000).................. $359,857 $371,898 $354,010 $325,507 $435,080
Weighted average loan (000)........... $100,000 $100,000 $100,000 $100,000 $100,000
Weighted average interest rate
on loans............................ 5.70%(b) 8.55% 7.55% 6.11% 6.46%
----------------
(a) Dividends are assumed, for purposes of this calculation, to be reinvested at
prices obtained under the Fund's dividend reinvestment plan.
(b) Annualized.
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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
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 20
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.
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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
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 22
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.
The report is transmitted to the shareholders of the Fund for their information.
This is not a prospectus, circular or representation intended for use in the
purchase of shares of the Fund or any securities mentioned in this report.
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940 that the Fund may purchase at market prices from time to
time shares of its common stock in the open market.
Page 23
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 The Emerging Markets
Income Fund II Inc
CHARLES F. BARBER, Emeritus Director
Consultant; formerly Chairman, 125 Broad Street
ASARCO Inc. 10th Floor, MF-2
New York, New York 10004
LESLIE H. GELB For information call (toll free)
President, The Council 1-888-777-0102
on Foreign Relations
HEATH B. MCLENDON INVESTMENT MANAGER
Co-Chairman of the Board; PIMCO Advisors, Division of Allianz Dresdner
Managing Director, Salomon Asset Management of America L.P.
Smith Barney Inc. 800 Newport Center Drive
President and Director, Smith Barney Fund Newport Beach, California 92660
Management LLC and Travelers Investment
Advisers, Inc. INVESTMENT ADVISER
Salomon Brothers Asset Management Inc
RIORDAN ROETT 125 Broad Street
Professor and Director, 10th Floor, MF-2
Latin American Studies Program, New York, New York 10004
Paul H. Nitze School of Advanced
International Studies, CUSTODIAN
Johns Hopkins University Brown Brothers Harriman & Co.
40 Water Street
JESWALD W. SALACUSE Boston, Massachusetts 02109
Henry J. Braker Professor of
Commercial Law, and formerly Dean, DIVIDEND DISBURSING AND TRANSFER AGENT
The Fletcher School of Law & Diplomacy American Stock Transfer & Trust Company
Tufts University 40 Wall Street
New York, New York 10005
STEPHEN J. TREADWAY
Co-Chairman of the Board; INDEPENDENT ACCOUNTANTS
Managing Director, Allianz Dresdner Asset PricewaterhouseCoopers LLP
Management of America L.P. 1177 Avenue of the Americas
Managing Director and New York, New York 10036
Chief Executive Officer,
PIMCO Funds Distributors LLC LEGAL COUNSEL
Simpson Thacher & Bartlett
Officers 425 Lexington Avenue
New York, New York 10017
HEATH B. MCLENDON
Co-Chairman of the Board NEW YORK STOCK EXCHANGE SYMBOL
EDF
STEPHEN J. TREADWAY
Co-Chairman of the Board
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
ANTHONY PACE
Controller
CHRISTINA T. SYDOR
Secretary
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The Emerging Markets
Income Fund II Inc
Semi-Annual Report
November 30, 2001
------------------------------------------------------------
The Emerging Markets Income Fund II Inc
----------------------------------------------------------
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
--------------------
FIRST-CLASS MAIL
U.S. POSTAGE
PAID
BROOKLYN, NY
PERMIT No. 1726
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EDFSEMI 11/01