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)
Robert I. Frenkel, Esq.
Salomon Brothers Asset Management Inc
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: November 30, 2003
ITEM 1. REPORT TO STOCKHOLDERS.
The Semi-Annual Report to Stockholders is filed herewith.
SALOMON BROTHERS EMERGING MARKETS INCOME FUND II INC.
LETTER FROM THE CHAIRMAN
[PHOTO]
R. Jay Gerken, CFA
Chairman and Chief Executive Officer
Dear Shareholder,
I am pleased to report that the fund outperformed the J.P. Morgan Emerging
Markets Bond Plus Index ("EMBI+")/i/ in terms of its net asset value
("NAV")/ii/ and its New York Stock Exchange ("NYSE") market price returns, and
also performed better than its Lipper category average over the fund's fiscal
period./iii/
Over the six months ended November 30, 2003, the fund returned 13.88% in terms
of its market price and 7.17% based upon its NAV. In comparison, the EMBI+
returned 4.52% and the fund's Lipper emerging markets debt closed-end funds
category average, which is based on each fund's NAV, returned 6.44% over the
same period./iv/ In addition to performing well over the short term, the fund
finished first in its Lipper category over one-, three-, five-, and 10-year
periods as of the period's close./1/
During these six months, the fund distributed dividends to shareholders
totaling approximately $0.825 per share. The table below shows the six-month
total return based on the fund's November 30, 2003 NAV per share and its
closing price. Past performance is not indicative of future results.
FUND PERFORMANCE AS OF NOVEMBER 30, 2003
Six-Month
Total
Price Per Share Return
---------------- ---------
$14.02 (NAV) 7.17%
---------------- ---------
$16.72 (NYSE) 13.88%
Total returns are based on changes in NAV or the market price, respectively.
Total return assumes the reinvestment of all dividends and/or capital gains
distributions in additional shares. The returns are as of November 30, 2003
and are subject to change.
/1/ Past performance is not indicative of future results. Rankings in the
Lipper emerging markets debt closed-end funds category are based on average
annual total returns assuming reinvestment of dividends and capital gains,
as of November 30, 2003. Each fund is ranked within a universe of funds
similar in portfolio characteristics and capitalizations, as defined by
Lipper, Inc. The fund's shares were ranked 1 out of 12 funds for the 1-, 3-
and 5-year periods, and 1 out of 9 funds for the 10-year period.
SALOMON BROTHERS EMERGING MARKETS INCOME FUND II INC.
Early in the summer, a sell-off in the U.S. Treasury bond market and concerns
that inflation could pick-up initially caused global bond markets to pull back
virtually across the board. The sovereign debt markets rebounded as the period
advanced after the Treasury markets stabilized and investors refocused their
attention on fundamentals in improving emerging market economies. The fund's
return surpassed the EMBI+'s return over the period as a result of the
manager's positioning of assets within various emerging markets. The fund
particularly benefited from its overall exposure to Latin America relative to
the EMBI+.
In today's low interest rate environment, bonds trading in emerging markets may
seem even more appealing given their higher yields compared to investment-grade
issues and capital appreciation potential. Remember, however, that these bonds
carry more credit risk than investment-grade issues, as well as political and
economic risks associated with individual emerging market countries, which is
why it is critical to perform a thorough analysis before carefully investing in
these bonds. In our opinion, this is all the more reason why investing in
emerging markets with a professional fund manager may be a more prudent
strategy than buying these bonds directly. Fund managers may provide the
diversification and diligent credit analysis that is so important in seeking to
manage risk.
Information About Your Fund
In recent months several issues in the mutual fund industry have come under the
scrutiny of federal and state regulators. The fund's Adviser and some of its
affiliates have received requests for information from various government
regulators regarding market timing, late trading, fees and other mutual fund
issues in connection with various investigations. The fund has been informed
that the Adviser and its affiliates are responding to those information
requests, but are not in a position to predict the outcome of these requests
and investigations.
As always, thank you for your continued confidence in our stewardship of your
assets.
Sincerely,
/s/ R. Jay Gerken
R. Jay Gerken, CFA
Chairman and Chief Executive Officer
December 15, 2003
SALOMON BROTHERS EMERGING MARKETS INCOME FUND II INC .
The information provided 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 November 30, 2003 and are subject
to change. Please refer to pages 4 through 7 for a list and percentage
breakdown of the fund's holdings.
All index performance reflects no deduction for fees, expenses or taxes.
/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
plus other assets, less the fund's liabilities. 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/ Past performance does not guarantee future results. 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. High-yield bonds are subject to additional
risks such as the increased risk of default because of the lower credit
quality of the issues.
/iv/ Lipper, Inc. is a major independent mutual-fund tracking organization. The
return is based on the six-month period ended November 30, 2003,
calculated among 12 funds in the fund's Lipper emerging markets debt
closed-end funds category, including the reinvestment of dividends and
capital gains, if any.
SALOMON BROTHERS EMERGING MARKETS INCOME FUND II INC .
SCHEDULE OF INVESTMENTS (unaudited)
November 30, 2003
Face
Amount Security (a) Value
--------------------------------------------------------------------
SOVEREIGN BONDS -- 88.3%
Brazil -- 25.3%
Federal Republic of Brazil:
$20,045,000 11.000% due 8/17/40 (b)................. $ 20,596,237
64,649,025 C Bond, 8.000% due 4/15/14.............. 62,366,106
FLIRB, Series L:
23,851,389 Bearer, 2.000% due 4/15/09 (b)(c)...... 22,181,792
10,511,771 Registered, 2.000% due 4/15/09 (c)..... 9,775,947
-------------
114,920,082
-------------
Bulgaria -- 4.8%
Republic of Bulgaria:
15,725,000 8.250% due 1/15/15...................... 18,358,938
3,675,000 DISC, Series A, 1.9375% due 7/28/24 (c). 3,635,953
-------------
21,994,891
-------------
Colombia -- 4.7%
Republic of Colombia:
865,000 10.750% due 1/15/13..................... 953,662
20,050,000 10.375% due 1/28/33..................... 20,551,250
-------------
21,504,912
-------------
Costa Rica -- 1.6%
Republic of Costa Rica:
6,000,000 8.050% due 1/31/13...................... 6,480,000
800,000 9.995% due 8/1/20 (d)................... 952,000
-------------
7,432,000
-------------
Ecuador -- 4.8%
23,500,000 Republic of Ecuador, 12.000% due 11/15/12. 21,678,750
-------------
El Salvador -- 1.5%
Republic of El Salvador:
3,650,000 7.750% due 1/24/23...................... 3,768,625
2,975,000 8.250% due 4/10/32...................... 2,841,125
-------------
6,609,750
-------------
Mexico -- 11.5%
United Mexican States:
3,000,000 6.375% due 1/16/13...................... 3,087,000
10,250,000 11.375% due 9/15/16..................... 14,401,250
See Notes to Financial Statements.
Page 4
SALOMON BROTHERS EMERGING MARKETS INCOME FUND II INC .
SCHEDULE OF INVESTMENTS (unaudited) (continued)
November 30, 2003
Face
Amount Security (a) Value
----------------------------------------------------------
Mexico -- 11.5% (continued)
$26,775,000 8.300% due 8/15/31........... $ 29,586,375
5,250,000 7.500% due 4/8/33............ 5,348,438
--------------
52,423,063
--------------
Panama -- 4.5%
Republic of Panama:
5,176,000 9.375% due 1/16/23........... 5,615,960
7,500,000 8.875% due 9/30/27........... 7,824,375
4,890,000 9.375% due 4/1/29............ 5,501,250
1,743,679 IRB, 1.9375% due 7/17/14 (c). 1,647,777
--------------
20,589,362
--------------
Peru -- 4.8%
Republic of Peru:
4,500,000 FLIRB, 4.500% due 3/7/17 (c). 3,937,500
19,528,500 PDI, 5.000% due 3/7/17 (c)... 18,063,862
--------------
22,001,362
--------------
Philippines -- 4.3%
Republic of Philippines:
18,000,000 8.250% due 1/15/14........... 16,965,000
2,525,000 10.625% due 3/16/25.......... 2,607,063
--------------
19,572,063
--------------
Russia -- 12.8%
Russian Federation:
1,325,000 11.000% due 7/24/18.......... 1,762,250
60,065,000 5.000% due 3/31/30 (c)....... 56,348,478
--------------
58,110,728
--------------
Turkey -- 4.8%
Republic of Turkey:
15,000,000 9.500% due 1/15/14........... 16,443,750
4,225,000 11.875% due 1/15/30.......... 5,381,594
--------------
21,825,344
--------------
See Notes to Financial Statements.
Page 5
SALOMON BROTHERS EMERGING MARKETS INCOME FUND II INC .
SCHEDULE OF INVESTMENTS (unaudited) (continued)
November 30, 2003
Face
Amount Security (a) Value
-------------------------------------------------------------------------------------------------------------------------------
Venezuela -- 2.9%
Republic of Venezuela:
$ 850,000 6.750% due 3/31/20....................................................................... $ 765,000
9,000,000 9.250% due 9/15/27....................................................................... 7,488,000
5,142,720 DCB, 1.875% due 12/18/07 (c)............................................................. 4,795,586
------------
13,048,586
------------
TOTAL SOVEREIGN BONDS (Cost -- $398,144,439)............................................... 401,710,893
------------
LOAN PARTICIPATIONS (E) -- 3.7%
Jamaica -- 0.2%
687,500 Government of Jamaica, Tranche B, 2.000% due 11/15/04
(J.P. Morgan Chase & Co.) (c)............................................................. 646,250
------------
Morocco -- 3.0%
Kingdom of Morocco:
13,989,461 Tranche A, 2.03125% due 1/2/09 (CS First Boston Corp.,
J.P. Morgan Chase & Co., and UBS Financial Services Inc.) (c)........................... 13,744,645
88,218 Tranche B, 2.03125% due 1/2/04 (Morgan Stanley Co. Inc.) (c)............................. 84,690
------------
13,829,335
------------
Russia -- 0.5%
3,000,000 Russian Government, Foreign Trade Obligation (Bank of America) (f)(g)...................... 2,370,000
------------
TOTAL LOAN PARTICIPATIONS (Cost -- $16,271,719)............................................ 16,845,585
------------
CORPORATE BONDS -- 4.6%
Mexico -- 4.6%
18,300,000 PEMEX, Project Funding Master Trust, 7.375% due 12/15/14................................... 19,306,500
1,225,000 Petroleos Mexicanos, 9.500% due 9/15/27.................................................... 1,430,188
------------
TOTAL CORPORATE BONDS (Cost -- $21,507,258)................................................ 20,736,688
------------
Warrants/
Rights
-----------
WARRANTS AND RIGHTS (G)(H) -- 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 Right................................................................. 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 (unaudited) (continued)
November 30, 2003
Face
Amount Security Value
------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS -- 3.4%
$7,174,000 Merrill Lynch Government Security, 1.000% due 12/1/03; Proceeds at maturity -- $7,174,598;
(Fully collateralized by U.S. Treasury Bills, due 1/15/04 to 4/15/04;
Market value -- $7,317,480).............................................................. $ 7,174,000
8,426,000 Morgan Stanley & Co. Inc., 1.000% due 12/1/03; Proceeds at maturity -- $8,426,702;
(Fully collateralized by U.S. Treasury Strips, due 5/15/06 to 2/15/12;
Market value -- $8,678,780).............................................................. 8,426,000
------------
TOTAL REPURCHASE AGREEMENTS (Cost -- $15,600,000)......................................... 15,600,000
------------
TOTAL INVESTMENTS -- 100.0% (Cost -- $451,523,416*)....................................... $454,893,166
============
--------
(a)All securities are segregated as collateral pursuant to a revolving credit
facility.
(b)All or a portion of this security is segregated as collateral for reverse
repurchase agreements.
(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 interests were acquired through the financial institutions
indicated parenthetically.
(f)Security is currently in default.
(g)Security is valued in accordance with fair valuation procedures.
(h)Non-income producing security.
* Aggregate cost for Federal income tax purposes is substantially the same.
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
PDI -- Past Due Interest
See Notes to Financial Statements.
Page 7
SALOMON BROTHERS EMERGING MARKETS INCOME FUND II INC .
STATEMENT OF ASSETS AND LIABILITIES (unaudited)
November 30, 2003
ASSETS:
Investments, at value (Cost -- $451,523,416)................................................... $454,893,166
Foreign currency, at value (Cost -- $4,201).................................................... 1,405
Cash........................................................................................... 1,875,720
Interest receivable............................................................................ 7,376,551
Receivable from broker -- variation margin..................................................... 820,313
Prepaid expenses............................................................................... 3,101
------------
Total Assets................................................................................... 464,970,256
------------
LIABILITIES:
Loan payable (Note 4).......................................................................... 100,000,000
Payable for open reverse repurchase agreement.................................................. 25,000,000
Interest payable............................................................................... 385,037
Management fee payable......................................................................... 288,987
Accrued expenses............................................................................... 184,212
------------
Total Liabilities.............................................................................. 125,858,236
------------
Total Net Assets.................................................................................. $339,112,020
============
NET ASSETS:
Common stock ($0.001 par value, 100,000,000 shares authorized; 24,191,594 shares outstanding).. $ 24,192
Additional paid-in capital..................................................................... 326,696,962
Overdistributed net investment income.......................................................... (5,345,560)
Accumulated net realized gain from investment transactions and foreign currencies.............. 14,950,675
Net unrealized appreciation of investments, futures contracts and foreign currencies........... 2,785,751
------------
Total Net Assets.................................................................................. $339,112,020
============
Net Asset Value, per share ($339,112,020 / 24,191,594 shares outstanding)......................... $14.02
======
See Notes to Financial Statements.
Page 8
SALOMON BROTHERS EMERGING MARKETS INCOME FUND II INC .
SCHEDULE OF OPERATIONS (unaudited)
For the Six Months Ended November 30, 2003
INCOME:
Interest...................................................... $ 17,920,625
------------
EXPENSES:
Management fee (Note 2)....................................... 1,717,291
Interest expense (Note 4)..................................... 1,127,142
Custody....................................................... 68,530
Audit and legal............................................... 52,245
Shareholder communications.................................... 50,364
Directors' fees............................................... 25,070
Shareholder servicing fees.................................... 21,050
Listing fees.................................................. 18,298
Loan fees..................................................... 8,197
Insurance..................................................... 4,250
Other......................................................... 4,854
------------
Total Expenses................................................ 3,097,291
------------
Net Investment Income............................................ 14,823,334
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FUTURES
CONTRACTS AND FOREIGN CURRENCIES (NOTES 1, 3 AND 6):
Realized Gain (Loss) From:
Investment transactions...................................... 41,028,624
Foreign currency transactions................................ (52,915)
------------
Net Realized Gain............................................. 40,975,709
------------
Change in Net Unrealized Appreciation From:
Investments.................................................. (32,637,040)
Foreign currencies........................................... 53,001
------------
Decrease in Net Unrealized Appreciation....................... (32,584,039)
------------
Net Gain on Investments, Futures Contracts and Foreign Currencies 8,391,670
------------
Increase in Net Assets From Operations........................... $ 23,215,004
============
See Notes to Financial Statements.
Page 9
SALOMON BROTHERS EMERGING MARKETS INCOME FUND II INC .
STATEMENTS OF CHANGES IN NET ASSETS
For the Six Months Ended November 30, 2003 (unaudited)
and the Year Ended May 31, 2003
November 30 May 31
--------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income................................................................ $ 14,823,334 $ 35,687,878
Net realized gain.................................................................... 40,975,709 22,134,421
Increase (decrease) in net unrealized appreciation................................... (32,584,039) 35,956,144
------------ ------------
Increase in Net Assets From Operations............................................... 23,215,004 93,778,443
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income................................................................ (19,905,640) (39,505,644)
------------ ------------
Decrease in Net Assets From Distributions to Shareholders............................ (19,905,640) (39,505,644)
------------ ------------
FUND SHARE TRANSACTIONS:
Proceeds from shares issued in reinvestment of dividends (84,679 and 266,970 shares
issued, respectively)............................................................... 1,226,990 3,083,557
------------ ------------
Increase in Net Assets From Fund Share Transactions.................................. 1,226,990 3,083,557
------------ ------------
Increase in Net Assets.................................................................. 4,536,354 57,356,356
NET ASSETS:
Beginning of period.................................................................. 334,575,666 277,219,310
------------ ------------
End of period*....................................................................... $339,112,020 $334,575,666
============ ============
* Includes overdistributed net investment income of:.................................... $(5,345,560) $(210,339)
============ ============
See Notes to Financial Statements.
Page 10
SALOMON BROTHERS EMERGING MARKETS INCOME FUND II INC.
STATEMENT OF CASH FLOWS (unaudited)
For the Six Months Ended November 30, 2003
CASH FLOWS PROVIDED (USED) BY OPERATING AND INVESTING ACTIVITIES:
Interest received...................................................... $ 16,160,124
Operating expenses paid................................................ (1,977,277)
Net purchases of short-term investments................................ (15,202,000)
Realized loss on foreign currency transactions......................... (52,915)
Net change in unrealized depreciation on futures contracts............. (581,203)
Net change in unrealized appreciation on foreign currencies............ 53,001
Net purchases of long-term investments................................. (649,065,114)
Proceeds from disposition of long-term investments..................... 648,147,233
Open receivable from variation margin.................................. (820,313)
Interest paid.......................................................... (1,135,725)
-------------
Net Cash Flows Used By Operating and Investing Activities.............. (4,474,189)
-------------
CASH FLOWS PROVIDED (USED) BY FINANCING ACTIVITIES:
Cash dividends paid on Common Stock.................................... (19,905,640)
Proceeds from reverse repurchase agreement............................. 25,000,000
Proceeds from reinvestment of dividends................................ 1,226,990
-------------
Net Cash Flows Provided By Financing Activities........................ 6,321,350
-------------
Net Increase in Cash...................................................... 1,847,161
Cash, Beginning of period................................................. 29,964
-------------
Cash, End of period....................................................... $ 1,877,125
=============
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................................. $ 23,215,004
-------------
Accretion of discount on investments................................... (2,633,380)
Amortization of premium on investments................................. 856,906
Increase in investments, at value...................................... (85,449,938)
Decrease in interest receivable........................................ 15,973
Decrease in receivable for investments sold............................ 81,157,528
Decrease in prepaid expenses........................................... 18,298
Decrease in payable of investments purchased........................... (20,800,258)
Decrease in interest payable on loan................................... (8,583)
Increase in variation margin receivable................................ (820,313)
Decrease in accrued expenses........................................... (25,426)
-------------
Total Adjustments...................................................... (27,689,193)
-------------
Net Cash Flows Used By Operating and Investing Activities................. $ (4,474,189)
=============
See Notes to Financial Statements.
Page 11
SALOMON BROTHERS EMERGING MARKETS INCOME FUND II INC.
NOTES TO FINANCIAL STATEMENTS (unaudited)
NOTE 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Salomon Brothers Emerging Markets Income Fund II Inc. ("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
$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) INVESTMENT TRANSACTIONS AND INVESTMENT INCOME. Investment transactions are
recorded on the trade date. Interest income is accrued on a daily basis. Market
discount or premium on securities
Page 12
SALOMON BROTHERS EMERGING MARKETS INCOME FUND II INC.
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
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. 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 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
provisions 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, at least, 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
Page 13
SALOMON BROTHERS EMERGING MARKETS INCOME FUND II INC.
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
considered temporary or permanent in nature. To the extent these differences
are permanent in nature, such amounts are reclassified within the capital
accounts based on their Federal income tax basis treatment; temporary
differences do not require reclassification. Dividends and distributions which
exceed net investment income and net realized capital gains for financial
reporting purposes but not for tax purposes are reported as distributions in
excess of net investment income or distributions in excess of net realized
capital gains. To the extent they exceed net investment income and net realized
capital gains for tax purposes, they are reported as tax return of capital.
(g) FORWARD FOREIGN CURRENCY CONTRACTS. A forward foreign currency contract is
a commitment to purchase or sell a foreign currency at a future date at a
negotiated forward rate. The contract is marked to market to reflect the change
in the currency exchange rate. The change in market value is recorded by the
Fund as an unrealized gain or loss. The Fund records a realized gain or loss on
delivery of the currency or at the time the forward 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) 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.
(i) YEAR END TAX RECLASSIFICATIONS. The character of income and gains to be
distributed is determined in accordance with income tax regulations which may
differ from GAAP.
NOTE 2. MANAGEMENT AND ADVISORY FEES AND OTHER TRANSACTIONS
The Fund entered into a new investment advisory and administration agreement
with Salomon Brothers Asset Management Inc. ("SBAM"), an indirect wholly-owned
subsidiary of Citigroup Inc. ("Citigroup"). SBAM provides all management,
advisory and administration services 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.
Certain officers and/or directors of the Fund are officers and/or directors of
SBAM.
Page 14
SALOMON BROTHERS EMERGING MARKETS INCOME FUND II INC.
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
NOTE 3. PORTFOLIO ACTIVITY
For the six months ended November 30, 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 $628,264,856
============
Sales.... $566,989,705
============
At November 30, 2003, the aggregate gross unrealized appreciation and
depreciation of investments for Federal income tax purposes were substantially
as follows:
Gross unrealized appreciation $ 9,918,555
Gross unrealized depreciation (6,548,805)
-----------
Net unrealized appreciation.. $ 3,369,750
===========
NOTE 4. LOAN
At November 30, 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 November 30, 2003,
the total cost of the Fund's loan participations was $16,271,719.
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
Page 15
SALOMON BROTHERS EMERGING MARKETS INCOME FUND II INC.
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
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. FUTURES CONTRACTS
The Fund may enter into futures contracts, which involves paying or receiving
variation margin, which will be recorded as unrealized gain or loss until the
contract is closed. When the contract is closed, a realized gain or loss is
recognized. Outstanding contracts may involve elements of market risk in excess
of amounts reported in the financial statements.
At November 30, 2003, the Fund had the following open futures contracts:
Sold Number of Market Unrealized
Contracts Contracts Expiration Basis Value Value Loss
--------- --------- ---------- ------------ ------------ ----------
U.S. Treasury 10 Year
Note............... 1,250 12/03 $139,926,609 $140,507,812 $(581,203)
NOTE 7. REVERSE REPURCHASE AGREEMENTS
The Fund may enter into reverse repurchase agreements in which a Fund sells
portfolio securities and agrees to repurchase them from the buyer at a
particular date and price. Whenever a Fund enters into a reverse repurchase
agreement, the custodian delivers liquid assets in an amount at least equal to
the repurchase price market-to-market daily (including accrued interest), and
subsequently monitors the account to ensure that sure equivalent value is
maintained. A Fund pays interest on amounts obtained pursuant to reverse
repurchase agreements. Reverse repurchase agreements are considered to be
borrowings by a Fund. Transactions in reverse repurchase agreements for the
Fund during the six months ended November 30, 2003 were as follows:
Average Weighted Maximum
Daily Average Amount
Fund Balance Interest Rate Outstanding
---- ---------- ------------- -----------
Emerging Markets Income Fund II . $3,879,781 1.15% $15,000,000
Interest rates on reverse repurchase agreements ranged from 1.10% to 1.20%
during the six months ended November 30, 2003. Interest expense on reverse
repurchase agreements totaled $22,695.
Page 16
SALOMON BROTHERS EMERGING MARKETS INCOME FUND II INC.
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
In addition, at November 30, 2003, the Fund had the following open reverse
repurchase agreements:
Face
Amount Security Value
----------- ---------------------------------------------------------------- -----------
$10,000,000 Reverse Repurchase Agreement with CS First Boston Corp.,
dated 10/23/03 bearing 1.100% to be repurchased at
$10,090,139 on 8/17/04, collateralized by: $11,816,249 Federal
Republic of Brazil, 11.000% due 8/17/40....................... $10,000,000
15,000,000 Reverse Repurchase Agreement with J.P. Morgan Chase & Co.,
dated 11/5/03 bearing 1.200% to be repurchased at
$15,080,000 on 4/15/04, collateralized by: $18,600,000 Federal
Republic of Brazil, FLRIB, Series L, Bearer, 2.000% due
4/15/09....................................................... 15,000,000
-----------
Total Reverse Repurchase Agreements
(Cost -- $25,000,000)......................................... $25,000,000
===========
NOTE 8. CREDIT AND MARKET RISK
The yields of emerging market debt obligations reflect, among other things,
perceived credit risk. The Fund's investment in securities rated below
investment grade typically involves risks not associated with higher rated
securities including, among others, overall greater risk of timely and ultimate
payment of interest and principal, greater market price volatility and less
liquid secondary market trading. The consequences of political, social,
economic or diplomatic changes may have disruptive effects on the market prices
of investments held by the Fund. The Fund's investment in
non-dollar-denominated securities may also result in foreign currency losses
caused by devaluations and exchange rate fluctuations. At November 30, 2003,
the Fund has a concentration of risk in sovereign debt of emerging market
countries.
NOTE 9. 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 November 30, 2003, the Fund did not hold any purchased call or put option
contracts.
Page 17
SALOMON BROTHERS EMERGING MARKETS INCOME FUND II INC.
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
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 six months ended November 30, 2003, the Fund did not enter into any
written covered call or put option contracts.
NOTE 10. DIVIDEND SUBSEQUENT TO NOVEMBER 30, 2003
On October 24, 2003, the Board of Directors of the Fund declared a short term
capital gain of $0.4125 per share from net investment income. The dividend is
payable on December 26, 2003 to shareholders of record on December 16, 2003.
NOTE 11. ADDITIONAL INFORMATION
The Fund has received the following information from Citigroup Asset Management
("CAM"), the Citigroup business unit which includes the Fund's Investment
Manager and other investment advisory companies, all of which are indirect,
wholly-owned subsidiaries of Citigroup. CAM is reviewing its entry, through an
affiliate, into the transfer agent business in the period 1997-1999. As CAM
currently understands the facts, at the time CAM decided to enter the transfer
agent business, CAM sub-contracted for a period of five years certain of the
transfer agency services to a third party and also concluded a revenue
guarantee agreement with this sub-contractor providing that the sub-contractor
would guarantee certain benefits to CAM or its affiliates (the "Revenue
Guarantee Agreement"). In connection with the subsequent purchase of the
sub-contractor's business by an affiliate of the current sub-transfer
Page 18
SALOMON BROTHERS EMERGING MARKETS INCOME FUND II INC.
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
agent (PFPC Inc.) used by CAM on many of the funds it manages, this Revenue
Guarantee Agreement was amended eliminating those benefits in exchange for
arrangements that included a one-time payment from the sub-contractor.
The Boards of CAM-managed funds (the "Boards") were not informed of the Revenue
Guarantee Agreement with the sub-contractor at the time the Boards considered
and approved the transfer agent arrangements. Nor were the Boards informed of
the subsequent amendment to the Revenue Guarantee Agreement when that occurred.
CAM has begun to take corrective actions. CAM will pay to the applicable funds
$16 million (plus interest) that CAM and its affiliates received from the
Revenue Guarantee Agreement and its amendment. The Fund did not implement the
contractual arrangement described above and therefore will not receive any
portion of the payment. CAM also plans an independent review to verify that the
transfer agency fees charged by CAM were fairly priced as compared to
competitive alternatives. CAM is instituting new procedures and making changes
designed to ensure no similar arrangements are entered into in the future.
CAM has briefed the SEC, the New York State Attorney General and other
regulators with respect to this matter, as well as the U.S. Attorney who is
investigating the matter. CAM is cooperating with governmental authorities on
this matter, the ultimate outcome of which is not yet determinable.
The Fund's transfer agent is American Stock Transfer & Trust Company, which is
not affiliated with CAM or PFPC Inc.
Page 19
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)(2) 2003(2) 2002 2001 2000 1999
----------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period............ $13.88 $11.63 $11.53 $10.84 $9.71 $15.03
------ ------ ------ ------ ----- ------
Income (Loss) From Operations:
Net investment income (3).................... 0.62 1.49 1.37 1.80 1.36 1.78
Net realized and unrealized gain (loss) (3).. 0.35 2.40 0.37 0.54 1.41 (4.45)
-- -- -- -- -- -----
Total Income (Loss) From Operations............. 0.97 3.89 1.74 2.34 2.77 (2.67)
-- -- -- -- -- -----
Less Distributions From:
Net investment income........................ (0.83) (1.65) (1.65) (1.65) (1.65) (1.80)
Net realized gains........................... -- -- -- -- -- (0.88)
- - - - - -----
Total Distributions............................. (0.83) (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 Period.................. $14.02 $13.88 $11.63 $11.53 $10.84 $9.71
====== ====== ====== ====== ====== =====
Market Value, End of Period..................... $16.72 $15.53 $13.88 $12.65 $10.8125 $11.875
====== ====== ====== ====== ======== =======
Total Return, Based on Market Price
Per Share (4).................................. 13.88%++ 28.76% 26.23% 35.06% 5.83% (0.43)%
Ratios to Average Net Assets:
Total expenses, including interest expense... 1.89%+ 2.37% 3.06% 4.55% 4.45% 4.00%
Total expenses, excluding interest expense
(operating expenses)........................ 1.20%+ 1.37% 1.40% 1.37% 1.39% 1.35%
Net investment income (3).................... 9.06%+ 13.59% 13.60% 15.41% 13.52% 17.52%
Supplemental Data:
Net Assets, End of Period (000s)................ $339,112 $334,576 $277,219 $271,898 $254,060 $225,007
Portfolio Turnover Rate......................... 138% 237% 233% 225% 93% 148%
Loan Outstanding, End of Period (000s).......... $100,000 $100,000 $100,000 $100,000 $100,000 $100,000
Asset Coverage (000s)........................... $439,112 $434,576 $377,219 $371,898 $354,010 $325,507
Asset Coverage for Loan Outstanding............. 439% 435% 377% 372% 354% 326%
Weighted Average Loan (000s).................... $100,000 $100,000 $100,000 $100,000 $100,000 $100,000
Weighted Average Interest Rate on Loans......... 2.17% 2.60% 4.40% 8.55% 7.55% 6.11%
--------------------------------------------------------------------------------
(1)For the six months ended November 30, 2003 (unaudited).
(2)Per share amounts have been calculated using the monthly average shares
method.
(3)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.
(4)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.
++Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized.
Page 20
SALOMON BROTHERS EMERGING MARKETS INCOME FUND II INC.
ADDITIONAL SHAREHOLDER INFORMATION (unaudited)
Result of Annual Meeting of Shareholders
The Annual Meeting of Shareholders of Salomon Brothers Emerging Markets Income
Fund II Inc. was held on September 18, 2003, for the purpose of considering and
voting upon the election of Directors. The following table provides information
concerning the matter voted upon at the Meeting:
1. Election of Directors*
Nominees Votes For Votes Withheld
-------- ---------- --------------
Carol L. Colman.................. 22,379,997 276,963
Daniel P. Cronin................. 22,382,382 274,578
William R. Hutchinson............ 22,384,065 272,895
At November 30, 2003, in addition to Carol L. Colman, Daniel P. Cronin and
William R. Hutchinson, the other Directors of the Fund were as follows:
Leslie H. Gelb
R. Jay Gerken
Riordan Roett
Jeswald W. Salacuse
Page 21
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. 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 22
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 commingle
amounts of all Participants to be used for open-market purchases of Shares and
the price per Share allocable to each Participant in
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) (continued)
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 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
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)
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.
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.
Page 25
SALOMON BROTHERS EMERGING MARKETS INCOME FUND II INC.
DIRECTORS
CAROL L. COLMAN
DANIEL P. CRONIN
LESLIE H. GELB
R. JAY GERKEN, CFA
WILLIAM R. HUTCHINSON
RIORDAN ROETT
JESWALD W. SALACUSE
OFFICERS
R. JAY GERKEN, CFA
Chairman and Chief Executive Officer
PETER J. WILBY, CFA
President
ANDREW B. SHOUP
Senior Vice President and Chief Administrative Officer
JAMES E. CRAIGE, CFA
Executive Vice President
THOMAS K. FLANAGAN, CFA
Executive Vice President
FRANCES M. GUGGINO
Controller
ROBERT I. FRENKEL
Secretary and Chief Legal Officer
SALOMON BROTHERS EMERGING MARKETS INCOME FUND II INC.
125 Broad Street
10th Floor, MF-2
New York, New York 10004
Telephone 1-888-777-0102
INVESTMENT MANAGER
Salomon Brothers Asset Management Inc
399 Park Avenue
New York, New York 10022
CUSTODIAN
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
DIVIDEND DISBURSING AND TRANSFER AGENT
American Stock Transfer & Trust Company
59 Maiden Lane
New York, New York 10038
INDEPENDENT AUDITORS
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
LEGAL COUNSEL
Simpson Thacher & Bartlett LLP
425 Lexington Avenue
New York, New York 10017
NEW YORK STOCK EXCHANGE SYMBOL
EDF
Page 26
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SALOMON BROTHERS
EMERGING MARKETS
INCOME FUND II INC.
SEMI-ANNUAL REPORT
[GRAPHIC]
November 30, 2003
SALOMON BROTHERS
Asset Management
American Stock Transfer & Trust Company
59 Maiden Lane
New York, New York 10038
EDFSEMI 11/03
03-5887
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- 3(c) under the
Investment Company Act of 1940, as amended (the "1940 Act")) are
effective as of a date within 90 days of the filing date of this
report that includes the disclosure required by this paragraph,
based on their evaluation of the disclosure controls and
procedures required by Rule 30a-3(b) under the 1940 Act and
15d-15(b) under the Securities Exchange Act of 1934.
(b) There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the 1940
Act) that occurred during the registrant's last fiscal half-year
(the registrant's second fiscal half-year in the case of an
annual report) that have materially affected, or are likely to
materially affect the registrant's internal control over
financial reporting.
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
Salomon Brothers Emerging Markets Income Fund II Inc.
Date: January 30, 2004
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
Salomon Brothers Emerging Markets Income Fund II Inc.
Date: January 30, 2004
By: /s/ Andrew B. Shoup
(Andrew B. Shoup)
Chief Administrative Officer of
Salomon Brothers Emerging Markets Income Fund II Inc.
Date: January 30, 2004