UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-7686
SALOMON BROTHERS EMERGING MARKETS INCOME FUND II INC.
(Exact name of registrant as specified in charter)
125 Broad Street, New York, NY 10004
(Address of principal executive offices) (Zip code)
Christina T. Sydor, Esq.
300 First Stamford Place
Stamford, CT 06902
(Name and address of agent for service)
Registrant's telephone number, including area code:
(800)-725-6666
Date of fiscal year end: May 31
Date of reporting period: MAY 31, 2003
ITEM 1. REPORT TO STOCKHOLDERS.
The ANNUAL Report to Stockholders is filed herewith.
SALOMON BROTHERS EMERGING MARKETS INCOME FUND II INC.
Letter From the Chairman
DEAR SHAREHOLDER,
The philosopher Bertrand Russell famously remarked that, "Change is one thing,
progress is another." You will notice in the following pages that we have begun
to implement some changes to your shareholder report and we will be reflecting
other changes in future reports. Our aim is to make meaningful improvements in
reporting on the management of your Fund and its performance, not just to enact
change for change's sake. Please bear with us during this transition period.
On an administrative note, the Fund changed its name from The Emerging Markets
Income Fund II Inc to Salomon Brothers Emerging Markets Income Fund II Inc.
effective April 21, 2003. The Fund continues to trade on the NYSE under the
symbol "EDF." The management of the Fund has not changed; Salomon Brothers Asset
Management Inc has always been responsible for the day-to-day management of the
Fund. Salomon Brothers Asset Management Inc has a rich tradition of investing
for nearly a century and a portfolio management staff with decades of investment
industry experience managing money through a variety of market conditions. As a
shareholder, you should know that your money continues to be managed by a
seasoned portfolio management team that is skilled at spotting opportunities
worldwide.
We know that you have questions about fund managers' decisions and plans, and we
want to be sure that you have easy access to the information you need. Keeping
investors informed is, and always will be, one of my top priorities as Chairman
of your Fund. To that end, we encourage you to contact Investor Relations at
1-800-SALOMON.
As always, thank you for entrusting your assets to us. We look forward to
helping you continue to meet your financial goals. Please read on to learn more
about your Fund's performance and the Manager's strategy.
Sincerely,
/s/ R. Jay Gerken
R. Jay Gerken, CFA
Chairman and Chief Executive Officer
June 18, 2003
[PICTURE R. JAY GERKEN}
R. JAY
GERKEN, CFA
Chairman and Chief Executive Officer
SALOMON BROTHERS EMERGING MARKETS INCOME FUND II INC.
Manager Overview
PERFORMANCE REVIEW
During the 12 months ended May 31, 2003, the Salomon Brothers Emerging Markets
Income Fund II Inc. ("Fund"), generated a strong performance record, posting a
total return of 39.24% based on its net asset value ("NAV") and 28.76% based on
its market price. The Fund outperformed the J.P. Morgan Emerging Markets Bond
Index Plus ("EMBI+"), /i/ the Fund's benchmark, which returned 27.65% for the
period.
During the period, the Fund distributed dividends to shareholders totaling $1.65
per share. The table below shows the 12-month total returns based on the Fund's
May 31, 2003 net asset value ("NAV") per share and its New York Stock Exchange
("NYSE") closing price. /ii/ PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE
RESULTS.
TOTAL RETURN
PRICE FOR THE
PER SHARE 12-MONTH PERIOD /iii/
------------ ---------------
$13.88 (NAV) 39.24%
$15.53 (NYSE) 28.76%
MARKET OVERVIEW
The 12-month period was a challenging one for global markets./iv/ Investor
confidence was shaken by volatile U.S. and global equity markets, the uncertain
outlook for U.S. economic growth, reports of alleged corporate misdeeds at
several high-profile firms, and the ongoing threat of terrorist activity.
In addition to these global developments, the markets for emerging market debt
were also affected by the political and fiscal uncertainty in Brazil and
Ecuador, Argentina's economic difficulties (after it defaulted on its debt),
upcoming Turkish general elections, as well as deteriorating fundamentals in
Venezuela. Despite all these issues, the emerging markets debt markets started a
rally in October 2002 that has continued to date. As of May 31, 2003, sovereign
spreads (the difference between yields on sovereign debt issues and those on
U.S. Treasuries), a common gauge of risk premium, registered at 553 basis points
(or 5.53%) over U.S. Treasuries, which was 488 basis points (or 4.88%) tighter
than that on September 30, 2002.
The market rally has been broad-based as all countries in the EMBI+ posted gains
for 2003 through the end of May of this year. Overall market performance was
heavily influenced by returns in Latin American countries as markets welcomed
ambitious political and economic reform programs introduced by the newly elected
leaders of Brazil and Ecuador. During the period, the debt markets for Brazil
and Ecuador posted gains of 36.43% and 36.92%, respectively. The market also
continued to support Russia as the country enjoyed strong fiscal performance,
improved domestic demand and credit rating upgrades. Returning 38.41%, Russia
was the best-performing market in the EMBI+ during the period. The market rally
in Russia was also supported by higher oil prices, an important source of
revenues for many oil-exporting countries in the emerging markets.
FUND PERFORMANCE
The Fund's overweight positions in Brazil and Ecuador positively contributed to
its performance this year. Its overweight position in Brazil relative to the
EMBI+ was a major contributor both on an absolute and relative basis, as Brazil
currently constitutes a large percentage of the EMBI+ (approximately 21%). The
Fund's use of leverage also positively contributed to its performance as its
borrowing costs were significantly below the return on invested assets.
SALOMON BROTHERS EMERGING MARKETS INCOME FUND II INC.
Our decision to underweight Russia and Argentina versus the Fund's benchmark
hurt our relative performance this year. While we are happy with Russia's
progress, we slightly reduced the Fund's exposure to this market during the
period as we became concerned that valuations of Russian debt ran ahead of the
fundamental improvements in this country.
LOOKING FOR ADDITIONAL INFORMATION?
The Salomon Brothers Emerging Markets Income Fund II Inc. is traded under the
symbol "EDF" and its closing market price is available in most newspapers under
the New York Stock Exchange listings. The daily net asset value closing price is
available online under symbol XEDFX. Barron's and The Wall Street Journal's
Monday editions carry closed-end fund tables that will provide other additional
information. In addition, the Fund issues a quarterly allocation press release
that can be found on most major financial web sites.
In a continuing effort to provide information concerning the Salomon Brothers
Emerging Markets Income Fund II Inc., shareholders may call 1-888-777-0102 or
1-800-SALOMON (toll free), Monday through Friday from 8:00 a.m. to 6:00 p.m.
Eastern Time (ET), for the Fund's current net asset value, market price and
other information regarding the Fund's portfolio holdings and allocations. A
description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities is available without charge,
upon request, by telephoning the Fund (toll-free) at 1-800-446-1013 and by
visiting the SEC's web site at www.sec.gov.
Thank you for your investment in the Salomon Brothers Emerging Markets Income
Fund II Inc. We appreciate that you have entrusted us to manage your money and
value our relationship with you.
Sincerely,
/s/ Peter J. Wilby /s/ James E. Craige
Peter J. Wilby, CFA James E. Craige, CFA
President and Portfolio Manager Executive Vice President and
Portfolio Manager
June 18, 2003
The information provided in this letter by the Manager is not intended to be a
forecast of future events, a guarantee of future results or investment advice.
Views expressed may differ from those of the firm as a whole.
Portfolio holdings and breakdowns are as of May 31, 2003 and are subject to
change. Please refer to pages 4 through 7 for a list and percentage brekdown of
the Fund's holdings.
-------------
i 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 markets. Please note that an investor cannot invest
directly in an index.
ii NAV is a price that reflects the value of the Fund's underlying portfolio.
However, the price at which an investor may buy or sell shares of the Fund
is at the Fund's market price as determined by supply of and demand for the
Fund's common shares.
iii Total returns are based on changes in NAV or the market price, respectively.
Total returns assume the reinvestment of all dividends, distributions and/or
capital gains in additional shares.
iv Foreign securities are subject to certain risks of overseas investing,
including currency fluctuations and changes in political and economic
conditions, which could result in significant market fluctuations. These
risks are magnified in emerging or developing markets.
SALOMON BROTHERS EMERGING MARKETS INCOME FUND II INC.
Schedule of Investments
May 31, 2003
FACE
AMOUNT SECURITY(A) VALUE
---------------------------------------------------------------------------------------------
Sovereign Bonds -- 89.5%
ARGENTINA -- 0.1%
$ 1,950,000 Republic of Argentina, Series E, zero coupon due 10/15/03 (b).... $ 487,500
-----------
BRAZIL -- 26.7%
Federal Republic of Brazil:
50,000 10.000% due 1/16/07 ......................................... 767,625
1,350,000 11.250% due 7/26/07 ......................................... 1,422,563
4,550,000 12.000% due 4/15/10 ......................................... 4,754,750
12,843,000 12.250% due 3/6/30 .......................................... 13,131,968
18,820,000 11.000% due 8/17/40 ......................................... 17,526,125
16,685,606 C Bond, 8.000% due 4/15/14 .................................. 14,891,903
52,725,000 DCB, Series L, 2.1875% due 4/15/12 (c) ...................... 39,148,313
7,835,294 NMB, Series L, 2.1875% due 4/15/09 (c) ...................... 6,483,706
-----------
98,126,953
-----------
BULGARIA -- 3.4%
Republic of Bulgaria:
7,500,000 8.250% due 1/15/15 ........................................ 8,925,000
3,675,000 DISC,Series A, 2.1875% due 7/28/24 (c)..................... 3,576,234
-----------
12,501,234
-----------
COLOMBIA -- 5.7%
Republic of Colombia:
1,675,000 7.625% due 2/15/07 ....................................... 1,773,406
4,965,000 10.000% due 1/23/12 ...................................... 5,560,800
1,225,000 10.750% due 1/15/13 ...................................... 1,427,125
970,000 8.700% due 2/15/16 ....................................... 960,300
9,040,000 11.750% due 2/25/20 ...................................... 11,385,880
-----------
21,107,511
-----------
COSTA RICA -- 2.2%
Republic of Costa Rica:
1,500,000 6.914% due 1/31/08 (d)................................... 1,586,250
5,175,000 8.050% due 1/31/13 (d) .................................. 5,472,562
800,000 9.995% due 8/1/20 (d).................................... 925,000
-----------
7,983,812
-----------
ECUADOR -- 8.8%
38,200,000 Republic of Ecuador, 12.000% due 11/15/12 ................. 32,231,250
-----------
SEE NOTES TO FINANCIAL STATEMENTS.
----------------------------------------------------------------------------------------------
Page 4
SALOMON BROTHERS EMERGING MARKETS INCOME FUND II INC.
Schedule of Investments (continued)
May 31, 2003
FACE
AMOUNT SECURITY(A) VALUE
----------------------------------------------------------------------------------------------
EL SALVADOR -- 1.9%
Republic of El Salvador:
$3,650,000 7.750% due 1/24/23....................................... $ 3,896,375
2,975,000 8.250% due 4/10/32 ...................................... 2,989,875
-----------
6,886,250
-----------
MEXICO -- 7.6%
United Mexican States:
16,750,000 8.300% due 8/15/31 ...................................... 19,873,875
7,475,000 7.500% due 4/8/33 ...................................... 8,179,519
-----------
28,053,394
-----------
PANAMA -- 2.7%
Republic of Panama:
6,750,000 9.375% due 1/16/23 ..................................... 7,695,000
500,000 8.875% due 9/30/27....................................... 541,250
1,822,938 IRB, 5.000% due 7/17/14 (c) ............................. 1,654,316
-----------
9,890,566
-----------
PERU -- 4.8%
Republic of Peru:
1,025,000 9.125% due 1/15/08 ..................................... 1,142,875
1,625,000 9.875% due 2/6/15 ...................................... 1,867,531
10,000,000 FLIRB, 4.500% due 3/7/17 (c) ........................... 8,250,000
7,142,400 PDI, 5.000% due 3/7/17 (c).............................. 6,249,600
-----------
17,510,006
-----------
PHILIPPINES -- 5.4%
Republic of Philippines:
750,000 9.000% due 2/15/13...................................... 808,575
4,400,000 9.375% due 1/18/17...................................... 4,889,280
7,250,000 9.875% due 1/15/19 ..................................... 7,982,250
5,360,000 10.625% due 3/16/25 .................................... 6,231,000
-----------
19,911,105
-----------
RUSSIA -- 14.2%
Russian Federation:
29,300,000 10.000% due 6/26/07 ................................... 35,965,750
12,375,000 8.250% due 3/31/10 .................................... 14,385,938
1,325,000 11.000% due 7/24/18 ................................... 1,910,070
-----------
52,261,758
-----------
TURKEY -- 3.9%
Republic of Turkey:
12,375,000 11.500% due 1/23/12 .................................. 13,102,031
1,325,000 11.000% due 1/14/13 .................................. 1,361,437
-----------
14,463,468
-----------
SEE NOTES TO FINANCIAL STATEMENTS.
----------------------------------------------------------------------------------------------
Page 5
SALOMON BROTHERS EMERGING MARKETS INCOME FUND II INC.
Schedule of Investments (continued)
May 31, 2003
FACE
AMOUNT SECURITY(A) VALUE
----------------------------------------------------------------------------------------------
VENEZUELA -- 2.1%
Republic of Venezuela:
$ 4,761,905 DCB, 2.3125% due 12/18/07 (c) ........................ $ 3,855,655
4,436,076 NMB, Series A, 2.4375% due 12/18/05 (c) .............. 3,740,167
-----------
7,595,822
-----------
Total Sovereign Bonds (Cost -- $294,046,263) ............ 329,010,629
-----------
Loan Participations (e) -- 4.9%
JAMAICA -- 0.3%
1,031,250 Government of Jamaica, Tranche B, 2.125% due 11/15/04
(J.P. Morgan Chase & Co.) (c).......................... 948,750
-----------
MOROCCO -- 4.0%
Kingdom of Morocco:
15,124,866 Tranche A, 2.1875% due 1/2/09 (CS First Boston Corp.,
J.P. Morgan Chase & Co., UBS AG) (c)................. 14,500,965
176,454 Tranche B, 2.1875% due 1/2/04 (Morgan Stanley Emerging
Markets, Inc.) (c)................................... 171,160
-----------
14,672,125
-----------
RUSSIA -- 0.6%
3,000,000 Russian Government, Foreign Trade Obligation
(Bank of America) (b) (f).............................. 2,370,000
-----------
Total Loan Participations (Cost -- $17,641,467) ......... 17,990,875
-----------
Corporate Bonds -- 5.5%
MEXICO -- 5.5%
18,300,000 PEMEX Project Funding Master Trust, 7.375% due 12/15/14
(Cost -- $20,155,437) (d).............................. 20,267,250
-----------
WARRANTS/
RIGHTS
----------------------------------------------------------------------------------------------
Warrants and Rights (g) -- 0.0%
2,000 Warrants Asia Pulp & Paper (Exercise price of $7.8375 per share expiring
on 3/15/05. Each warrant exercisable for 12.914 shares of
common stock.) (d)..................................... 0
55,335 Rights Venezuela Discount Rights (f) ........................... 0
-----------
Total Warrants and Rights (Cost -- $0)................... 0
-----------
SEE NOTES TO FINANCIAL STATEMENTS.
----------------------------------------------------------------------------------------------
Page 6
SALOMON BROTHERS EMERGING MARKETS INCOME FUND II INC.
Schedule of Investments (continued)
May 31, 2003
FACE
AMOUNT SECURITY VALUE
----------------------------------------------------------------------------------------------
Repurchase Agreement -- 0.1%
$ 398,000 UBS Financial Services Inc., 1.200% due 6/2/03; Proceeds
at maturity -- $398,040; (Fully collateralized by
U.S. Treasury Bonds, 5.250% due 11/15/28;
Market value -- $406,345) (Cost -- $398,000).............. $ 398,000
------------
Total Investments -- 100.0% (Cost -- $332,241,167*)......... $367,666,754
------------
------------
----------
(a) All securities are segregated as collateral pursuant to a revolving credit
facility.
(b) Security is currently in default.
(c) Rate shown reflects current rate on instrument with variable rate or step
coupon rates.
(d) 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.
(e) Participation interest was acquired through the financial institutions
indicated parenthetically.
(f) Security is valued in accordance with fair valuation procedures.
(g) Non-income producing security.
* Aggregate cost for Federal income tax purposes is $332,957,408.
Abbreviations used in this schedule:
--------------------------------------
C Bond -- Capitalization Bond
DCB -- Debt Conversion Bond
DISC -- Discount Bond
FLIRB -- Front Loaded Interest Reduction Bond
IRB -- Interest Reduction Bond
NMB -- New Money Bond
PDI -- Past Due Interest
SEE NOTES TO FINANCIAL STATEMENTS.
-----------------------------------------------------------------------------------------
Page 7
SALOMON BROTHERS EMERGING MARKETS INCOME FUND II INC.
Statement of Assets and Liabilities
May 31, 2003
ASSETS:
Investments, at value (Cost -- $332,241,167)....................................... $367,666,754
Foreign currency, at value (Cost -- $85,553)....................................... 29,756
Cash............................................................................... 208
Receivable for securities sold..................................................... 81,157,528
Interest receivable................................................................ 7,392,524
Prepaid expenses................................................................... 21,399
------------
TOTAL ASSETS....................................................................... 456,268,169
------------
LIABILITIES:
Loan payable (Note 4).............................................................. 100,000,000
Payable for securities purchased................................................... 20,800,258
Loan interest payable.............................................................. 393,620
Management fee payable ............................................................ 291,504
Accrued expenses................................................................... 207,121
------------
TOTAL LIABILITIES.................................................................. 121,692,503
------------
TOTAL NET ASSETS..................................................................... $334,575,666
------------
------------
NET ASSETS:
Common stock ($0.001 par value, 100,000,000 shares authorized;
24,106,915 shares outstanding)................................................... $ 24,107
Additional paid-in capital ........................................................ 325,470,057
Overdistributed net investment income.............................................. (210,339)
Accumulated net realized loss from investment transactions and options............. (26,077,949)
Net unrealized appreciation of investments and foreign currencies.................. 35,369,790
------------
TOTAL NET ASSETS..................................................................... $334,575,666
------------
------------
NET ASSET VALUE, PER SHARE ($334,575,666 / 24,106,915 shares outstanding)............ $13.88
------
------
SEE NOTES TO FINANCIAL STATEMENTS.
----------------------------------------------------------------------------------------------------
Page 8
SALOMON BROTHERS EMERGING MARKETS INCOME FUND II INC.
Statement of Operations
For the Year Ended May 31, 2003
INCOME:
Interest (includes amortization of net premium/discount of $5,223,577)............. $ 41,919,413
------------
EXPENSES:
Management fee (Note 2)............................................................ 2,900,322
Interest expense (Note 4).......................................................... 2,638,119
Audit and legal.................................................................... 170,213
Loan fees.......................................................................... 163,392
Shareholder communications......................................................... 140,246
Custody............................................................................ 105,888
Shareholder servicing fees......................................................... 38,062
Directors' fees ................................................................... 32,755
Listing fees....................................................................... 29,785
Other............................................................................. 12,753
------------
TOTAL EXPENSES..................................................................... 6,231,535
------------
NET INVESTMENT INCOME................................................................ 35,687,878
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS,
OPTIONS AND FOREIGN CURRENCIES (NOTES 3, 6 AND 7):
Realized Gain (Loss) From:
Investment transactions ......................................................... 21,312,274
Options purchased................................................................ 852,104
Foreign currency transactions.................................................... (29,957)
------------
NET REALIZED GAIN.................................................................. 22,134,421
------------
Change in Net Unrealized Appreciation From:
Investments ..................................................................... 35,918,617
Foreign currencies............................................................... 37,527
------------
INCREASE IN NET UNREALIZED APPRECIATION............................................ 35,956,144
------------
NET GAIN ON INVESTMENTS, OPTIONS AND FOREIGN CURRENCIES ............................. 58,090,565
------------
INCREASE IN NET ASSETS FROM OPERATIONS .............................................. $ 93,778,443
------------
------------
-----------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS.
Page 9
SALOMON BROTHERS EMERGING MARKETS INCOME FUND II INC.
Statements of Changes in Net Assets
For the Years Ended May 31,
2003 2002
-----------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income............................................. $ 35,687,878 $ 36,111,841
Net realized gain (loss).......................................... 22,134,421 (154,039)
Increase in net unrealized appreciation........................... 35,956,144 5,519,340
------------ ------------
INCREASE IN NET ASSETS FROM OPERATIONS............................ 93,778,443 41,477,142
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income............................................. (39,505,644) (39,076,504)
------------ ------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO SHAREHOLDERS......... (39,505,644) (39,076,504)
------------ ------------
FUND SHARE TRANSACTIONS:
Proceeds from shares issued on reinvestment of dividends
(266,970 and 252,550 shares issued, respectively)............... 3,083,557 2,921,032
------------ ------------
INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS............... 3,083,557 2,921,032
------------ ------------
INCREASE IN NET ASSETS.............................................. 57,356,356 5,321,670
NET ASSETS:
Beginning of year................................................. 277,219,310 271,897,640
------------ ------------
END OF YEAR*...................................................... $334,575,666 $277,219,310
------------ ------------
------------ ------------
* Includes overdistributed net investment income of:............... $(210,339) $(2,663,332)
------------ ------------
------------ ------------
SEE NOTES TO FINANCIAL STATEMENTS.
-----------------------------------------------------------------------------------------------------
Page 10
SALOMON BROTHERS EMERGING MARKETS INCOME FUND II INC.
Statement of Cash Flows
For the Year Ended May 31, 2003
CASH FLOWS PROVIDED (USED) BY OPERATING
AND INVESTING ACTIVITIES:
Interest received.................................................................. $ 36,307,871
Operating expenses paid............................................................ (3,549,852)
Net short-term sales............................................................... 12,956,104
Realized loss on foreign currency.................................................. (29,957)
Net change in unrealized depreciation on foreign currency.......................... 37,527
Purchase of long-term investments.................................................. (801,165,235)
Proceeds from disposition of long-term securities.................................. 794,633,387
Interest paid on bank loans........................................................ (2,774,380)
------------
NET CASH FLOWS PROVIDED BY OPERATING AND INVESTING ACTIVITIES...................... 36,415,465
------------
CASH FLOWS PROVIDED (USED) BY FINANCING ACTIVITIES:
Cash dividends paid on Common Stock................................................ (39,505,644)
Proceeds from reinvestment of dividends............................................ 3,083,557
------------
NET CASH FLOWS USED BY FINANCING ACTIVITIES........................................ (36,422,087)
------------
NET DECREASE IN CASH................................................................. (6,622)
Cash, Beginning of year.............................................................. 36,586
------------
CASH, END OF YEAR.................................................................... $ 29,964
------------
------------
RECONCILIATION OF INCREASE IN NET ASSETS FROM OPERATIONS TO NET CASH FLOWS
PROVIDED (USED) BY OPERATING AND INVESTING ACTIVITIES:
INCREASE IN NET ASSETS FROM OPERATIONS............................................. $ 93,778,443
------------
Accretion of discount on securities................................................ (5,597,393)
Amortization of premium on investments............................................. 373,816
Increase in investments, at value.................................................. (9,066,012)
Increase in interest receivable.................................................... (387,965)
Increase in receivable for securities sold......................................... (54,282,284)
Decrease in prepaid expenses....................................................... 54,939
Increase in payable of securities purchased........................................ 11,689,557
Decrease in interest payable on loan............................................... (136,261)
Decrease in accrued expenses....................................................... (11,375)
------------
TOTAL ADJUSTMENTS.................................................................. (57,362,978)
------------
NET CASH FLOWS PROVIDED BY OPERATING AND INVESTING ACTIVITIES...................... $ 36,415,465
------------
------------
SEE NOTES TO FINANCIAL STATEMENTS.
-------------------------------------------------------------------------------------------------------
Page 11
SALOMON BROTHERS EMERGING MARKETS INCOME FUND II INC.
Notes to Financial Statements
Note 1. Organization and Significant Accounting Policies
Salomon Brothers Emerging Markets Income Fund II Inc. ("Fund"), formerly known
as The Emerging Markets Income Fund II Inc, 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 $0.001 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 under normal conditions invests at least 80% of its
net assets plus any borrowings for investment purposes in debt securities of
government and government related issuers located in emerging market countries
(including participations in loans between governments and financial
institutions), and of entities organized to restructure the outstanding debt of
such issuers, and in debt securities of corporate issuers located in emerging
market countries.
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.
Page 12
SALOMON BROTHERS EMERGING MARKETS INCOME FUND II INC.
Notes to Financial Statements (continued)
(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 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 the 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. 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.
Page 13
SALOMON BROTHERS EMERGING MARKETS INCOME FUND II INC.
Notes to Financial Statements (continued)
(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 foreign currency 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.
(j) YEAR END TAX RECLASSIFICATIONS. The character of income and gains to be
distributed are determined in accordance with income tax regulations which may
differ from GAAP. At May 31, 2003, reclassifications were made to the capital
accounts of the Fund to reflect permanent book/tax differences and income and
gains available for distributions under income tax regulations. Accordingly, a
portion of overdistributed net investment income amounting to $6,061,240 has
been reclassified to paid-in capital. Net investment income, net realized loss
and net assets were not affected by this change.
Note 2. Management and Advisory Fees and Other Transactions
For the period from June 1, 2002 through December 15, 2002, the Fund was a party
to a management agreement with PIMCO Funds Advisors LLC ("PIMCO"), an indirect
wholly-owned subsidiary of Allianz Dresdner AssetManagement of America L.P., a
wholly-owned subsidiary of Allianz AG, pursuant to which PIMCO, among other
things, supervised the Fund's investment program, including advising and
consulting with the Fund's investment manager regarding the Fund's overall
investment strategy. During that same period, the Fund was also a party to an
investment advisory and administration agreement with Salomon Brothers
Asset Management Inc
Page 14
SALOMON BROTHERS EMERGING MARKETS INCOME FUND II INC.
Notes to Financial Statements (continued)
("SBAM"), an indirect wholly-owned subsidiary of Citigroup Inc. ("Citigroup"),
pursuant to which SBAM, among other things, was responsible for the day-to-day
management of the Fund's portfolio, including making investment strategy
decisons for the Fund and managing and investing the assets of the Fund in
accordance with its stated policies. SBAM also provided administration and
stockholder services for the Fund pursuant to the agreement.
Effective December 16, 2002, the Fund entered into a new investment advisory and
administration agreement with SBAM. Under the terms of the new investment
advisory and administration agreement, which was approved by shareholders at the
Special Joint Meeting of Stockholders held on December 11, 2002, SBAM provides
all management, advisory and administration services for the Fund. PIMCO has
ceased to act as investment manager for the Fund. SBAM has delegated certain
administrative services to Smith Barney Fund Management LLC ("SBFM"), another
indirect wholly-owned subsidiary of Citigroup and an affiliate of SBAM, pursuant
to a Sub-Administration Agreement between SBAM and SBFM.
The Fund currently pays SBAM a monthly fee at an annual rate of 1.05% of the
Fund's average weekly net assets for its services. Prior to December 16, 2002,
the Fund paid PIMCO an advisory fee calculated at an annual rate of 1.20% of the
Fund's average weekly net assets, out of which PIMCO paid SBAM a management fee
calculated at an annual rate of 0.70% of the Fund's average weekly net assets.
At May 31, 2003, Citigroup Global Markets Inc., formerly known as Salomon
Smith Barney Inc., another indirect wholly-owned subsidiary of Citigroup, held
1,500 shares of the Fund.
Certain officers and/or directors of the Fund are officers and/or directors of
SBAM.
Note 3. Portfolio Activity
For the year ended May 31, 2003, the aggregate cost of purchases and proceeds
from sales of investments (including maturities of long-term investments, but
excluding short-term investments) were as follows:
Purchases .................................................. $812,854,792
------------
------------
Sales ...................................................... $848,915,671
------------
------------
At May 31, 2003, the aggregate gross unrealized appreciation and depreciation of
investments for Federal income tax purposes were as follows:
Gross unrealized appreciation .............................. $ 36,761,522
Gross unrealized depreciation .............................. (2,052,176)
------------
Net unrealized appreciation ................................ $ 34,709,346
------------
------------
Page 15
SALOMON BROTHERS EMERGING MARKETS INCOME FUND II INC.
Notes to Financial Statements (continued)
Note 4. Loan
At May 31, 2003, the Fund had a $110,000,000 loan available pursuant to a
revolving credit and security agreement of which the Fund had $100,000,000
outstanding with CXC LLC, an affiliate of Citigroup, a commercial paper conduit
issuer for which Citicorp North America, Inc., an affiliate of SBAM, 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.
Note 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. At May 31, 2003, the
total cost of the Fund's loan participations was $17,641,467
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.
Note 6. 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, 2003, the Fund has a concentration of
risk in sovereign debt of emerging market countries.
Page 16
SALOMON BROTHERS EMERGING MARKETS INCOME FUND II INC.
Notes to Financial Statements (continued)
Note 7. Option Contracts
The Fund may from time to time enter into option contracts. Premiums paid when
put or call options are purchased by the Fund, represent investments, which are
marked-to-market daily. When a purchased option expires, the Fund will realize a
loss in the amount of the premium paid. When the Fund enters into a closing
sales transaction, the Fund will realize a gain or loss depending on whether the
proceeds from the closing sales transaction are greater or less than the premium
paid for the option. When the Fund exercises a put option, it will realize a
gain or loss from the sale of the underlying security and the proceeds from such
sale will be decreased by the premium originally paid. When the Fund exercises a
call option, the cost of the security which the Fund purchases upon exercise
will be increased by the premium originally paid.
At May 31, 2003, the Fund did not hold any purchased call or put option
contracts.
When the Fund writes a call or put option, an amount equal to the premium
received by the Fund is recorded as a liability, the value of which is
marked-to-market daily. When a written option expires, the Fund realizes a gain
equal to the amount of the premium received.
When the Fund enters into a closing purchase transaction, the Fund realizes a
gain or loss depending upon whether the cost of the closing transaction is
greater or less than the premium originally received, without regard to any
unrealized gain or loss on the underlying security, and the liability related to
such option is eliminated. When a written call option is exercised the proceeds
of the security sold will be increased by the premium originally received. When
a written put option is exercised, the amount of the premium originally received
will reduce the cost of the security which the Fund purchased upon exercise.
When written index options are exercised, settlement is made in cash.
The Fund enters into options for hedging purposes. The risk associated with
purchasing options is limited to the premium originally paid. The risk in
writing a covered call option is that the Fund gives up the opportunity to
participate in any increase in the price of the underlying security beyond the
exercise price. The risk in writing a put option is that the Fund is exposed to
the risk of loss if the market price of the underlying security declines. The
risk in writing a call option is that the Fund is exposed to the risk of loss if
the market price of the underlying security increases.
During the year ended May 31, 2003, the Fund did not enter into any written
covered call or put option contracts.
Note 8. Dividend Subsequent to May 31, 2003
On May 2, 2003, the Board of Directors of the Fund declared a common stock
dividend of $0.4125 per share from net investment income. The dividend is
payable on June 27, 2003 to shareholders of record on June 17, 2003.
Page 17
SALOMON BROTHERS EMERGING MARKETS INCOME FUND II INC.
Notes to Financial Statements (continued)
Note 9. Capital Loss Carryforward
At May 31, 2003, the Fund had, for Federal income tax purposes, a capital loss
carryforward of approximately $13,409,000, available to offset future capital
gains. 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 expiration of the carryforwards are indicated below. Expiration
occurs on May 31 of the year indicated:
2007 2008 2010
--------- ---------- ---------
Carryforward Amounts ........... $1,369,000 $11,811,000 $229,000
In addition, the Fund had $12,132,456 of capital losses realized after October
31, 2002, which were deferred for tax purposes to the first day of the following
fiscal year.
Note 10. Income Tax Information and Distributions to Shareholders
At May 31,2003, the tax basis components of distributable earnings were:
Accumulated capital losses .................................... $(13,409,636)
------------
------------
Unrealized appreciation ....................................... $ 34,653,549
------------
------------
The difference between book basis and tax basis unrealized appreciation is
attributable primarily to wash sale loss deferrals.
The tax character of distributions paid during the year ended May 31, 2003 was:
Ordinary income ............................................... $ 39,505,644
------------
------------
Page 18
SALOMON BROTHERS EMERGING MARKETS INCOME FUND II INC.
Financial Highlights
Data for a share of common stock outstanding throughout the year ended May 31,
unless otherwise noted:
2003(1) 2002 2001 2000 1999
--------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF YEAR............... $11.63 $11.53 $10.84 $ 9.71 $15.03
------ ------ ------ ------ ------
INCOME (LOSS) FROM OPERATIONS
Net investment income (2)..................... 1.49 1.37 1.80 1.36 1.78
Net realized and unrealized gain (loss) (2)... 2.40 0.37 0.54 1.41 (4.45)
------ ------ ------ ------ ------
Total Income (Loss) From Operations.............. 3.89 1.74 2.34 2.77 (2.67)
------ ------ ------ ------ ------
LESS DISTRIBUTIONS FROM:
Net investment income......................... (1.65) (1.65) (1.65) (1.65) (1.80)
Net realized gains............................ -- -- -- -- (0.88)
------ ------ ------ ------ ------
Total Distributions.............................. (1.65) (1.65) (1.65) (1.65) (2.68)
------ ------ ------ ------ ------
INCREASE IN NET ASSET VALUE
DUE TO SHARES ISSUED ON
REINVESTMENT OF DIVIDENDS..................... 0.01 0.01 -- 0.01 0.03
------ ------ ------ ------ ------
NET ASSET VALUE, END OF YEAR..................... $13.88 $11.63 $11.53 $10.84 $ 9.71
------ ------ ------ ------ ------
------ ------ ------ ------ ------
MARKET VALUE, END OF YEAR........................ $15.53 $13.88 $12.65 $10.8125 $11.875
------ ------ ------ -------- ------
------ ------ ------ -------- ------
TOTAL RETURN, BASED ON MARKET
PRICE PER SHARE (3)........................... 28.76% 26.23% 35.06% 5.83% (0.43)%
RATIOS TO AVERAGE NET ASSETS:
Total expenses, including interest expense.... 2.37% 3.06% 4.55% 4.45% 4.00%
Total expenses, excluding interest
expense (operating expenses)................ 1.37% 1.40% 1.37% 1.39% 1.35%
Net investment income (2)..................... 13.59% 13.60% 15.41% 13.52% 17.52%
SUPPLEMENTAL DATA:
Net assets, end of year (000s)................ $334,576 $277,219 $271,898 $254,060 $225,007
Portfolio turnover rate ...................... 237% 233% 225% 93% 148%
Loan outstanding, end of year (000s).......... $100,000 $100,000 $100,000 $100,000 $100,000
Asset coverage (000s)......................... $434,576 $377,219 $371,898 $354,010 $325,507
Asset coverage for loan outstanding .......... 435% 377% 372% 354% 326%
Weighted average loan (000s).................. $100,000 $100,000 $100,000 $100,000 $100,000
Weighted average interest rate on loans....... 2.60% 4.40% 8.55% 7.55% 6.11%
---------------------------------------------------------------------------------------------------------------
(1) Per share amounts have been calculated using the monthly average shares
method.
(2) Effective June 1, 2001, the Fund adopted a change in the accounting method
that requires the Fund to amortize premiums and accrete all discounts.
Without the adoption of this change for the year ended May 31, 2002, the
ratio of net investment income to average net assets would have been 13.65%.
Per share information, ratios and supplemental data for the periods prior to
June 1, 2001 have not been restated to reflect this change in presentation.
In addition, the impact of this change to net investment income and net
realized and unrealized gain per share was less than $0.01.
(3) For the purposes of this calculation, dividends are assumed to be reinvested
at prices obtained under the Fund's dividend reinvestment plan and the
broker commission paid to purchase or sell a share is excluded.
Page 19
SALOMON BROTHERS EMERGING MARKETS INCOME FUND II INC.
Report of Independent Auditors
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
SALOMON BROTHERS EMERGING MARKETS INCOME FUND II INC.
In our opinion, the accompanying statement of assets and liabilities, including
the schedule 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 Salomon Brothers
Emerging Markets Income Fund II Inc. ("Fund") at May 31, 2003, 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 of America.
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 of America,
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, 2003 by correspondence with the custodian
and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
New York, New York 10036
July 18, 2003
Page 20
SALOMON BROTHERS EMERGING MARKETS INCOME FUND II INC.
Additional Information (unaudited)
INFORMATION ABOUT DIRECTORS AND OFFICERS
The business and affairs of Salomon Brothers Emerging Markets Income Fund II
Inc. ("Fund") are managed under the direction of the Board of Directors.
Information pertaining to the Directors and Officers of the Fund is set forth
below.
NUMBER OF
PORTFOLIOS ADVISED
BY SBAM(2)
TERM OF PRINCIPAL AND OVERSEEN BY
POSITION(S) OFFICE(1) AND OCCUPATION(S) DIRECTOR OTHER
HELD WITH LENGTH OF DURING PAST (INCLUDING DIRECTORSHIPS
NAME, ADDRESS AND AGE FUND(1) TIME SERVED FIVE YEARS THE FUND) HELD BY DIRECTOR
---------------------------------------------------------------------------------------------------------
NON-INTERESTED DIRECTORS:
Carol L. Colman Director and Since President, 32 None
Colman Consulting Co. Member of 2003 Colman
278 Hawley Road the Audit Consulting Co.
North Salem, NY 10560 Committee,
Age 57 Class III
Daniel P. Cronin Director and Since Associate General 32 None
Pfizer Inc. Member of 2003 Counsel, Pfizer Inc.
235 East 42nd Street the Audit
New York, NY 10017 Committee,
Age 57 Class III
Leslie H. Gelb Director and Since President, 32 Britannica.com;
The Council on Foreign Member of 1994 The Council on Director of two
Relations the Audit Foreign Relations registered
58 East 68th Street Committee, investment
New York, NY 10021 Class I companies
Age 66 advised by
Advantage
Advisers, Inc.
("Advantage")
Riordan Roett Director and Since Professor and Director 32 The Latin
The Johns Hopkins University Member of 1995 Latin American Studies America Equity
1740 Massachusetts Ave, NW the Audit Program, The Johns Fund, Inc.
Washington, DC 20036 Committee, Hopkins University
Age 64 Class I
Jeswald W. Salacuse Director and Since Henry J. Braker 32 Director of two
Tufts University Member of 1994 Professor of registered
The Fletcher School of the Audit Commercial Law and investment
Law & Diplomacy Committee, formerly Dean, The companies
160 Packard Avenue Class II Fletcher School of advised by
Medford, MA 02155 Law & Diplomacy, Advantage
Age 65 Tufts University
Page 21
SALOMON BROTHERS EMERGING MARKETS INCOME FUND II INC.
Additional Information (unaudited) (continued)
NUMBER OF
PORTFOLIOS ADVISED
BY SBAM(2)
TERM OF PRINCIPAL AND OVERSEEN BY
POSITION(S) OFFICE(1) AND OCCUPATION(S) DIRECTOR OTHER
HELD WITH LENGTH OF DURING PAST (INCLUDING DIRECTORSHIPS
NAME, ADDRESS AND AGE FUND(1) TIME SERVED FIVE YEARS THE FUND) HELD BY DIRECTOR
---------------------------------------------------------------------------------------------------------
INTERESTED DIRECTOR:
R. Jay Gerken, CFA Director, Since Managing Director 219 None
CGM Chairman 2002 of Citigroup Global
399 Park Avenue and Chief Markets Inc. ("CGM");
4th Floor Executive Officer, Chairman, President,
New York, NY 10022 Class II Chief Executive Officer
Age 52 and Director of
Smith Barney Fund
Management LLC
("SBFM"), Travelers
Investment Adviser, Inc.
("TIA") and Citi Fund
Management Inc.
OFFICERS:
Peter J. Wilby, CFA President Since Managing Director N/A N/A
CGM 1994 of CGM and Salomon
399 Park Avenue Brothers Asset
4th Floor Management Inc ("SBAM")
New York, NY 10022 since January 1996
Age 44
Lewis E. Daidone Executive Vice Since Managing Director of N/A N/A
CGM President and 1998 CGM; Director and
125 Broad Street Chief Senior Vice President
11th Floor Administrative of SBFM and TIA;
New York, NY 10004 Officer Former Chief
Age 45 Financial Officer and
Treasurer of the
mutual funds affiliated
with Citigroup
James E. Craige, CFA Executive Vice Since Managing Director of N/A N/A
CGM President 1999 CGM and SBAM
399 Park Avenue since December 1998;
4th Floor Director of CGM and
New York, NY 10022 SBAM since January
Age 36 1998
Page 22
SALOMON BROTHERS EMERGING MARKETS INCOME FUND II INC.
Additional Information (unaudited) (continued)
NUMBER OF
PORTFOLIOS ADVISED
BY SBAM(2)
TERM OF PRINCIPAL AND OVERSEEN BY
POSITION(S) OFFICE(1) AND OCCUPATION(S) DIRECTOR OTHER
HELD WITH LENGTH OF DURING PAST (INCLUDING DIRECTORSHIPS
NAME, ADDRESS AND AGE FUND(1) TIME SERVED FIVE YEARS THE FUND) HELD BY DIRECTOR
---------------------------------------------------------------------------------------------------------
Thomas K. Flanagan, CFA Executive Vice Since Managing Director N/A N/A
CGM President 1994 of CGM and SBAM
399 Park Avenue since December 1998;
4th Floor Prior to December
New York, NY 10022 1998, Director of
Age 50 CGM and SBAM
Frances M. Guggino Controller Since Vice President N/A N/A
CGM 2002 of CGM
125 Broad Street
10th Floor
New York, NY 10004
Age 45
Christina T. Sydor Secretary Since Managing Director N/A N/A
CGM 1998 of CGM; General
300 First Stamford Place Counsel and
4th Floor Secretary of
Stamford, CT 06902 SBFM and TIA
Age 52
---------------
(1) The Fund's Board of Directors is divided into three classes: Class I, Class
II and Class III. The terms of office of the Class I, II and III Directors
expire at the Annual Meetings of Stockholders in the year 2005, year 2003
and year 2004, respectively, or thereafter in each case when their
respective successors are duly elected and qualified. The Fund's executive
officers are chosen each year at the first meeting of the Fund's Board of
Directors following the Annual Meeting of Stockholders, to hold office until
the meeting of the Board following the next Annual Meeting of Stockholders
and until their successors are duly elected and qualified.
(2) Number of portfolios advised by Salomon Brothers Asset Management Inc
("SBAM") or affiliates of SBAM.
Page 23
SALOMON BROTHERS EMERGING MARKETS INCOME FUND II INC.
Form of Terms and Conditions of Amended and Restated Dividend Reinvestment
and Cash Purchase Plan (unaudited)
Pursuant to certain rules of the Securities and Exchange Commission, the
following additional disclosure is provided.
Each shareholder holding shares of common stock ("Shares") of the Salomon
Brothers Emerging Markets Income Fund II Inc., formerly known as The Emerging
Markets Income Fund II Inc ("Fund") will be deemed to have elected to be a
participant in the Amended and Restated Dividend Reinvestment and Cash Purchase
Plan ("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 ("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.
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.
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.
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 24
SALOMON BROTHERS EMERGING MARKETS INCOME FUND II INC.
Form of Terms and Conditions of Amended and Restated Dividend Reinvestment
and Cash Purchase Plan (unaudited) (continued)
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.
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.
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.
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
Page 25
SALOMON BROTHERS EMERGING MARKETS INCOME FUND II INC.
Form of Terms and Conditions of Amended and Restated Dividend Reinvestment
and Cash Purchase Plan (unaudited) (continued)
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.
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.
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.
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.
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.
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
Page 26
SALOMON BROTHERS EMERGING MARKETS INCOME FUND II INC.
Form of Terms and Conditions of Amended and Restated Dividend Reinvestment
and Cash Purchase Plan (unaudited) (continued)
prior to the record date for the income dividend or capital gains distribution.
The Plan may be amended or terminated by the Agent, with the Fund's prior
written consent, on at least 30 days' written notice to Participants.
Notwithstanding the preceding two sentences, the Agent or the Fund may amend or
supplement the Plan at any time or times when necessary or appropriate to comply
with applicable law or rules or policies of the Securities and Exchange
Commission or any other regulatory authority. Upon any termination, the Agent
will cause a certificate or certificates for the full Shares held by each
Participant under the Plan and cash adjustment for any fraction to be delivered
to each Participant without charge.
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.
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.
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.
All correspondence concerning the Plan should be directed to the Agent at 59
Maiden Lane, New York, New York 10038.
-------------------------------------------------------------------------------
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 27
SALOMON BROTHERS EMERGING MARKETS INCOME FUND II INC.
Directors Salomon Brothers Emerging Markets Income Fund II Inc.
CAROL L. COLMAN 125 Broad Street
10th Floor, MF-2
DANIEL P. CRONIN New York, New York 10004
Telephone 1-888-777-0102
LESLIE H. GELB
INVESTMENT MANAGER
R. JAY GERKEN, CFA Salomon Brothers Asset Management Inc
399 Park Avenue
RIORDAN ROETT New York, New York 10022
JESWALD W. SALACUSE CUSTODIAN
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
Officers
DIVIDEND DISBURSING AND TRANSFER AGENT
R. JAY GERKEN, CFA American Stock Transfer & Trust Company
Chairman and Chief Executive Officer 59 Maiden Lane
New York, New York 10038
PETER J. WILBY, CFA
President INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
LEWIS E. DAIDONE 1177 Avenue of the Americas
Executive Vice President and New York, New York 10036
Chief Administrative Officer
LEGAL COUNSEL
JAMES E. CRAIGE, CFA Simpson Thacher & Bartlett LLP
Executive Vice President 425 Lexington Avenue
New York, New York 10017
THOMAS K. FLANAGAN, CFA
Executive Vice President NEW YORK STOCK EXCHANGE SYMBOL
EDF
FRANCES M. GUGGINO
Controller
CHRISTINA T. SYDOR
Secretary
Salomon Brothers Emerging Markets
Income Fund II Inc.
Annual Report
May 31, 2003
American Stock Transfer & Trust Company
59 Maiden Lane
New York, New York 10038
EDFANN 5/03
03-5062
ITEM 2. CODE OF ETHICS.
Not applicable.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. [RESERVED]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
The Board of Directors of the Fund has delegated the authority to
develop policies and procedures relating to proxy voting to the
Manager. The Manager is part of Citigroup Asset Management ("CAM"), a
group of investment adviser affiliates of Citigroup, Inc.
("Citigroup"). Along with the other investment advisers that comprise
CAM, the Manager has adopted a set of proxy voting policies and
procedures (the "Policies") to ensure that the Manager votes proxies
relating to equity securities in the best interest of clients.
In voting proxies, the Manager is guided by general fiduciary
principles and seeks to act prudently and solely in the best interest
of clients. The Manager attempts to consider all factors that could
affect the value of the investment and will vote proxies in the manner
that it believes will be consistent with efforts to maximize
shareholder values. The Manager may utilize an external service
provider to provide it with information and/or a recommendation with
regard to proxy votes. However, such recommendations do not relieve the
Manager of its responsibility for the proxy vote.
In the case of a proxy issue for which there is a stated position in
the Policies, CAM generally votes in accordance with such stated
position. In the case of a proxy issue for which there is a list of
factors set forth in the Policies that CAM considers in voting on such
issue, CAM votes on a case-by-case basis in accordance with the general
principles set forth above and considering such enumerated factors. In
the case of a proxy issue for which there is no stated position or list
of factors that CAM considers in voting on such issue, CAM votes on a
case-by-case basis in accordance with the general principles set forth
above. Issues for which there is a stated position set forth in the
Policies or for which there is a list of factors set forth in the
Policies that CAM considers in voting on such issues fall into a
variety of categories, including election of directors, ratification of
auditors, proxy and tender offer defenses, capital structure issues,
executive and director compensation, mergers and corporate
restructurings, and social and environmental issues. The stated
position on an issue set forth in the Policies can always be
superseded, subject to the duty to act solely in the best interest of
the beneficial owners of accounts, by the investment management
professionals responsible for the account whose shares are being voted.
Issues applicable to a particular industry may cause CAM to abandon a
policy that would have otherwise applied to issuers generally. As a
result of the independent investment advisory services provided by
distinct CAM business units, there may be occasions when different
business units or different portfolio managers within the same business
unit vote differently on the same issue.
In furtherance of the Manager's goal to vote proxies in the best
interest of clients, the Manager follows procedures designed to
identify and address material conflicts that may arise between the
Manager's interests and those of its clients before voting proxies on
behalf of such clients. To seek to identify conflicts of interest, CAM
periodically notifies CAM employees (including employees of the
Manager) in writing that they are under an obligation (i) to be aware
of the potential for conflicts of interest with respect to voting
proxies on behalf of client accounts both as a result of their personal
relationships and due to special circumstances that may arise during
the conduct of CAM's and the Manager's business, and (ii) to bring
conflicts of interest of which they become aware to the attention of
compliance personnel. The Manager also maintains and considers a list
of significant relationships that could present a conflict of interest
for the Manager in voting proxies. The Manager is also sensitive to the
fact that a significant, publicized relationship between an issuer and
a non-CAM affiliate might appear to the public to influence the manner
in which the Manager decides to vote a proxy with respect to such
issuer. Absent special circumstances or a significant, publicized
non-CAM affiliate relationship that CAM or the Manager for prudential
reasons treats as a potential conflict of interest because such
relationship might appear to the public to influence the manner in
which the Manager decides to vote a proxy, the Manager generally takes
the position that non-CAM relationships between Citigroup and an issuer
(e.g. investment banking or banking) do not present a conflict of
interest for the Manager in voting proxies with respect to such issuer.
Such position is based on the fact that the Manager is operated as an
independent business unit from other Citigroup business units as well
as on the existence of information barriers between the Manager and
certain other Citigroup business units.
CAM maintains a Proxy Voting Committee, of which the Manager personnel
are members, to review and address conflicts of interest brought to its
attention by compliance personnel. A proxy issue that will be voted in
accordance with a stated position on an issue or in accordance with the
recommendation of an independent third party is not brought to the
attention of the Proxy Voting Committee for a conflict of interest
review because the Manager's position is that to the extent a conflict
of interest issue exists, it is resolved by voting in accordance with a
pre-determined policy or in accordance with the recommendation of an
independent third party. With respect to a conflict of interest brought
to its attention, the Proxy Voting Committee first determines whether
such conflict of interest is material. A conflict of interest is
considered material to the extent that it is determined that such
conflict is likely to influence, or appear to influence, the Manager's
decision-making in voting proxies. If it is determined by the Proxy
Voting Committee that a conflict of interest is not material, the
Manager may vote proxies notwithstanding the existence of the conflict.
If it is determined by the Proxy Voting Committee that a conflict of
interest is material, the Proxy Voting Committee is responsible for
determining an appropriate method to resolve such conflict of interest
before the proxy affected by the conflict of interest is voted. Such
determination is based on the particular facts and circumstances,
including the importance of the proxy issue and the nature of the
conflict of interest. Methods of resolving a material conflict of
interest may include, but are not limited to, disclosing the conflict
to clients and obtaining their consent before voting, or suggesting to
clients that they engage another party to vote the proxy on their
behalf.
ITEM 8. [RESERVED]
ITEM 9. CONTROLS AND PROCEDURES.
(a The registrant's principal executive officer and principal financial
officer have concluded that the registrant's disclosure controls and
procedures (as defined in Rule 30a-2(c) under the Investment Company
Act of 1940, as amended) are effective based on their evaluation of
the disclosure controls and procedures as of a date within 90 days
of the filing date of this document.
(b)In the last 90 days, there have been no significant changes in the
Registrant's internal controls or in other factors that could
significantly affect these controls.
ITEM 10. EXHIBITS.
(a) Not applicable.
(b) Attached hereto.
Exhibit 99.CERT Certifications pursuant to section 302 of the
Sarbanes-Oxley Act of 2002
Exhibit 99.906CERT Certifications pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this Report to be
signed on its behalf by the undersigned, there unto duly authorized.
SALOMON BROTHERS EMERGING MARKETS INCOME FUND II INC.
By: /s/ R. Jay Gerken
R. Jay Gerken
Chief Executive Officer of
The Emerging Markets Income Fund II Inc.
Date: July 31, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ R. Jay Gerken
(R. Jay Gerken)
Chief Executive Officer of
The Emerging Markets Income Fund II Inc.
Date: July 31, 2003
By: /s/ Lewis E. Daidone
Chief Administrative Officer of
The Emerging Markets Income Fund II Inc.
Date: July 31,2003