<PAGE> 1
-------------------------------
THE EMERGING MARKETS
FLOATING RATE FUND INC.
ANNUAL REPORT
-------------------------------
FEBRUARY 29, 1996
-----------------
AMERICAN STOCK TRANSFER & TRUST COMPANY BULK RATE
40 WALL STREET U.S. POSTAGE
NEW YORK, NEW YORK 10005 PAID
STATEN ISLAND, NY
PERMIT NO.
169
-----------------
<PAGE> 2
THE EMERGING MARKETS FLOATING RATE FUND INC.
April 19, 1996
Dear Shareholder:
The net asset value of each of your shares of The Emerging Markets Floating Rate
Fund (the "Fund") at February 29, 1996 was $13.66. We are very pleased that this
represents a 30.75% net asset value return for the twelve months ended February
29, 1996, assuming the reinvestment of dividends in additional shares of the
Fund. For the same period, the Salomon Brothers Brady Bond Index, which we use
as a measure of performance for the overall market for emerging market debt,
gained 41.03%. As you know, the Fund's objective is to achieve high current
income by investing primarily in floating rate securities of emerging market
sovereign and corporate issuers.
The annual meeting of shareholders of the Fund will be held on June 20, 1996 at
10:00 a.m. at Advantage Advisers headquarters, Oppenheimer Tower, World
Financial Center, in New York City. We hope those of you who are able to will
attend.
On the following pages, you will find audited financial statements for the
fiscal year ended February 29, 1996, the related report of independent
accountants and other information about the Fund.
MARKET OVERVIEW
After declining early in 1995 as a result of the sell-off that followed the
devaluation of the Mexican peso in December 1994, emerging market debt recovered
over the last three quarters of 1995. The recovery continued into January 1996
driven by the continued improvement of fundamentals in the major Latin American
countries and the effect of additional funds flowing into the market. However,
by February 1996, instability in the U.S. bond market caused by investor
anticipation of an increase in interest rates by the Federal Reserve,
contributed to a sell-off in the emerging debt market, as measured by a 6.18%
decline in the Salomon Brothers Brady Bond Index for the month. Despite the
global impact of fluctuations in the U.S. fixed-income markets, we believe the
fundamental outlook for the Fund's core country holdings in the emerging debt
market continues to be positive.
PORTFOLIO REVIEW
Brazilian Brady bonds gained 39.16% for the fiscal year ended February 29, 1996.
Brazil represented 15.33% of the Fund's total investments as of that date. By
the end of February, legislative delays and a potential congressional
investigation of an accounting scandal surrounding Brazil's seventh-largest
financial institution, Banco Nacional, overshadowed prospects for a significant
economic recovery into the second quarter and a stabilizing political situation.
We continue to view the momentum of developments in Brazil as positive and
sustainable for the foreseeable future.
<PAGE> 3
THE EMERGING MARKETS FLOATING RATE FUND INC.
For the fiscal year ended February 29, 1996, Argentine Brady bonds gained
48.32%. Argentine bonds were 11.44% of the Fund's total investments as of that
date. In February, market gains followed partial congressional approval of
Argentine President Menem's "super powers" legislation, which would grant the
government special powers to cut and alter taxes without prior congressional
approval. These gains were erased by the wide Brady bond market sell-off.
Current market prices for Argentine Brady bonds reflect the view that the law is
likely to be ratified in the Senate in its original format.
Polish Brady bonds gained 60.66% during the twelve months ended February 29,
1996, reflecting the Moody's Investors Service upgrade of Polish Brady bonds to
the investment grade rating of Baa. Poland represented 5.56% of total
investments as of February 29, 1996. In February, the Cabinet of Prime Minister
Wlodzimierz Cimoszewicz was overwhelmingly approved by the government's powerful
lower chamber, the Sejm. The installation of Mr. Cimoszewicz as Prime Minister
is a very positive step for Poland as he is widely respected across the
political spectrum.
Ecuadorian Brady bonds gained 53.12% during the fiscal year ended February 29,
1996, reflecting that country's continued economic development. The Ecuadorian
congress recently approved the sale of 39% of the shares of the newly-formed
electricity companies that will be reshaped from assets of the state-owned
electric company. Ecuador represented 7.63% of total investments on February 29,
1996.
Bulgarian Brady bonds gained 46.51% during the twelve months ended February 29,
1996. Nevertheless, Bulgarian Brady bonds are likely to experience continued
volatility in the near term. Brady bond investors have been willing to ignore
Bulgarian fundamentals due to the attraction of Bulgarian Bradys as a higher
yielding asset and their value as an instrument for risk diversification. We
believe that the time has come for Bulgaria to effectively address the slow
progress of its economic reforms, particularly in the banking sector, in order
to satisfy the investment community. Bulgaria represented 5.05% of total
investments on February 29, 1996.
The Mexican economy is beginning to show significant signs of recovery as
confirmed by the strong economic performance in the third and fourth quarters of
1995. Mexican Brady bonds reflected that progress and gained 33.96% during the
fiscal year ended February 29, 1996. It is likely that local interest rates in
Mexico will remain volatile in the short term as market participants remain
unsure of the near-term inflation trend. We remain underweighted in Mexican
issues, at 4.95% of total investments as of February 29, 1996.
During the quarter we added to positions in Argentina and Ecuador based on our
favorable outlook for these countries. We reduced our position in Poland
following the price appreciation which accompanied announcement of Poland's
investment grade credit rating.
We encourage you to read the financial statements that follow for further
details about the Fund's investments. A recorded update of developments
affecting emerging market debt
<PAGE> 4
THE EMERGING MARKETS FLOATING RATE FUND INC.
securities is available by calling (800) 421-4777. The update also includes
specific information about the Fund, its portfolio, country allocations and
recent performance.
Cordially,
/s/ Alan H. Rappaport /s/ Michael S. Hyland
- --------------------- ---------------------
Alan H. Rappaport Michael S. Hyland
Chairman of the Board President
<PAGE> 5
THE EMERGING MARKETS FLOATING RATE FUND INC.
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS
February 29, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
(000) SOVEREIGN BONDS -- 70.9% (NOTE 2)
------------------------------------------------------------------------------------------------------------
<C> <S> <C>
ARGENTINA -- 11.0%
$ 8,750 Republic of Argentina, FRB, 6.8125%, 3/31/05*................................... $ 6,245,312
-----------
BRAZIL -- 14.8%
1,885 Federal Republic of Brazil, C Bond, 8.00%, 4/15/14**............................ 1,131,108
1,250 Federal Republic of Brazil, EIB, 6.8125%, 4/15/06*.............................. 892,187
10,500 Federal Republic of Brazil, DCB, 6.875%, 4/15/12*............................... 6,345,938
-----------
8,369,233
-----------
BULGARIA -- 4.9%
5,900 Republic of Bulgaria, IAB, 6.25%, 7/28/11*...................................... 2,758,250
-----------
COSTA RICA -- 3.3%
2,176 Costa Rica Interest Bond, Series B, 6.09375%, 5/21/05*.......................... 1,871,340
-----------
ECUADOR -- 7.4%
10,415 Republic of Ecuador, PDI Bond, 6.0625%, 2/28/15*,**............................. 4,165,832
-----------
HUNGARY -- 4.0%
2,300 National Bank of Hungary, 7.95%, 11/01/03....................................... 2,282,750
-----------
MEXICO -- 4.8%
1,550 United Mexican States, Discount Bond, Series A, 6.76563%, 12/31/19
(including 2,384,000 rights)*................................................. 1,102,438
2,250 United Mexican States, Discount Bond, Series C, 6.60938%, 12/31/19
(including 3,461,000 rights)*................................................. 1,600,313
-----------
2,702,751
-----------
PANAMA -- 3.1%
2,000 Republic of Panama, FRN, 6.75%, 5/10/02*........................................ 1,750,000
-----------
PHILIPPINES -- 4.8%
3,000 Republic of the Philippines, DCB, Series B, 6.50%, 12/01/09*.................... 2,715,000
-----------
POLAND -- 5.3%
2,000 Republic of Poland, Discount Bond, 6.875%, 10/27/24*............................ 1,725,000
1,750 Republic of Poland, PDI Bond, 3.75%, 10/27/14*.................................. 1,308,125
-----------
3,033,125
-----------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
PAGE 1
<PAGE> 6
THE EMERGING MARKETS FLOATING RATE FUND INC.
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (continued)
February 29, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
(000) SOVEREIGN BONDS (CONCLUDED) (NOTE 2)
------------------------------------------------------------------------------------------------------------
<C> <S> <C>
URUGUAY -- 2.6%
$ 2,000 Uruguay Debt Conversion Bond, 6.4375%, 2/18/07*................................. $ 1,460,000
-----------
VENEZUELA -- 4.9%
2,500 Republic of Venezuela, FLIRB, Series A, 6.8125%, 3/31/07*....................... 1,396,875
2,500 Republic of Venezuela, DCB, 6.5625%, 12/18/07*.................................. 1,381,250
-----------
2,778,125
-----------
TOTAL SOVEREIGN BONDS (cost $38,921,991)........................................ 40,131,718
-----------
CORPORATE BONDS -- 12.8%
------------------------------------------------------------------------------------------------------------
BASIC INDUSTRIES -- 3.5%
2,000 Grupo Industrial Durango, 9.25%, 11/18/96*,#.................................... 1,965,000
-----------
CONSUMER CYCLICALS -- 1.8%
1,000 Cole National Group Inc., 11.25%, 10/01/01...................................... 1,005,000
-----------
CONSUMER NON-CYCLICALS -- 3.5%
2,000 Empresa Distribuidora Sur S.A., 9.25%, 8/16/97*................................. 1,980,000
-----------
INDUSTRIAL/MANUFACTURING -- 1.4%
1,000 Venture Holdings Trust, 9.75%, 4/01/04.......................................... 820,000
-----------
MEDIA/TELECOMMUNICATIONS -- .9%
1,000 U.S. Banknote Corp., 11.625%, 8/01/02........................................... 500,000
-----------
TRANSPORTATION -- 1.7%
1,000 Petro PSC Properties, 12.50%, 6/01/02........................................... 960,000
-----------
TOTAL CORPORATE BONDS (cost $7,899,485)......................................... 7,230,000
-----------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
PAGE 2
<PAGE> 7
THE EMERGING MARKETS FLOATING RATE FUND INC.
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (concluded)
February 29, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
(000) LOAN PARTICIPATIONS -- 12.7% (NOTE 2)
------------------------------------------------------------------------------------------------------------
<C> <S> <C>
Republic of Jamaica, Tranche A, 6.40625%, 10/15/00*
$ 1,444 (Chase Manhattan, New York)(T)................................................ $ 1,321,667
Kingdom of Morocco, Tranche B, 6.75%, 1/01/04*
7,529 (Morgan Stanley Emerging Markets Inc, Merrill Lynch)(T)....................... 5,882,353
-----------
TOTAL LOAN PARTICIPATIONS (cost $7,251,638)..................................... 7,204,020
-----------
WARRANTS(a)
------------------------------------------------------------------------------------------------------------
Petro PSC Properties (exercise price of $0, expiring on 7/1/97; exchangeable for
$55,380 principal amount of Notes or an equivalent number of shares)
1,000 Warrants (cost $35,535)................................................................ 34,000
-----------
TOTAL INVESTMENTS -- 96.4% (cost $54,108,649)................................... 54,599,738
-----------
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES -- 3.6%.......................... 2,031,393
-----------
NET ASSETS -- 100.0%
(equivalent to $13.66 per share on 4,147,134 common shares outstanding)....... $56,631,131
-----------
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<C> <S>
* Rate shown reflects current rate on instrument with variable rate or step coupon rates.
** Payment-in-kind security for which part of the interest earned is capitalized as additional principal.
# Pursuant to Rule 144A under the Securities Act of 1933, this security can only be sold to qualified
institutional investors.
T Participation interests were acquired through the financial institutions indicated parenthetically.
(a) Non-income producing security.
DCB -- Debt Conversion Bond.
EIB -- Eligible Interest Bond.
FLIRB -- Front Loaded Interest Reduction Bond.
FRB -- Floating Rate Bond.
FRN -- Floating Rate Note.
IAB -- Interest in Arrears Bond.
PDI -- Past Due Interest.
</TABLE>
See accompanying notes to financial statements.
PAGE 3
<PAGE> 8
THE EMERGING MARKETS FLOATING RATE FUND INC.
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
February 29, 1996
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost -- $54,108,649)................................................... $54,599,738
Receivable for investments sold............................................................... 874,750
Interest receivable........................................................................... 1,441,795
Unamortized organization expenses............................................................. 67,980
Prepaid expenses.............................................................................. 14,468
-----------
Total assets.......................................................................... 56,998,731
-----------
LIABILITIES
Due to custodian.............................................................................. 186,331
Accrued audit and tax return preparation fees................................................. 63,205
Accrued management fee (Note 3)............................................................... 52,059
Accrued printing and mailing fees............................................................. 30,347
Accrued legal fee............................................................................. 20,197
Other accrued expenses........................................................................ 15,461
-----------
Total liabilities..................................................................... 367,600
-----------
NET ASSETS
Common Stock ($.001 par value, authorized 100,000,000 shares;
4,147,134 shares outstanding)............................................................... 4,147
Additional paid-in capital.................................................................... 57,445,100
Undistributed net investment income........................................................... 169,932
Accumulated net realized loss on investments.................................................. (1,479,137)
Net unrealized appreciation on investments.................................................... 491,089
-----------
Net assets............................................................................ $56,631,131
-----------
NET ASSET VALUE PER SHARE ($56,631,131 / 4,147,134 shares).................................... $13.66
-----------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
PAGE 4
<PAGE> 9
THE EMERGING MARKETS FLOATING RATE FUND INC.
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the Year Ended February 29, 1996
<TABLE>
<S> <C> <C>
INCOME
Interest (includes discount accretion of $2,097,477)....................................... $ 7,745,002
EXPENSES
Management fee.................................................................. $580,428
Audit and tax services.......................................................... 72,152
Printing........................................................................ 44,121
Legal........................................................................... 41,133
Directors' fees and expenses.................................................... 28,770
Amortization of deferred organization expenses.................................. 24,206
Listing fee..................................................................... 19,482
Transfer agent.................................................................. 18,051
Custodian....................................................................... 12,256
Other........................................................................... 33,256 873,855
-------- -----------
Net investment income........................................................... 6,871,147
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
Net Realized Loss on Investments........................................................... (1,163,346)
Change in Net Unrealized Appreciation on Investments....................................... 8,401,614
-----------
Net realized loss and change in net unrealized appreciation................................ 7,238,268
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS................................................. $14,109,415
-----------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
PAGE 5
<PAGE> 10
THE EMERGING MARKETS FLOATING RATE FUND INC.
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
FEBRUARY 29, FEBRUARY 28,
1996 1995(a)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS
Net investment income................................................ $ 6,871,147 $ 5,138,856
Net realized loss on investments..................................... (1,163,346) (315,791)
Change in net unrealized appreciation (depreciation)................. 8,401,614 (7,910,525)
--------------- ------------
Net increase (decrease) in net assets from operations................ 14,109,415 (3,087,460)
--------------- ------------
DIVIDENDS
From net investment income........................................... (6,925,715) (4,914,356)
--------------- ------------
CAPITAL SHARE TRANSACTIONS
Net proceeds from issuance of 4,140,000 shares....................... -- 57,349,228
--------------- ------------
Total increase in net assets......................................... 7,183,700 49,347,412
NET ASSETS
Beginning of period.................................................. 49,447,431 100,019
--------------- ------------
End of period (includes undistributed net investment income of
$169,932 and $224,500, respectively)............................... $56,631,131 $49,447,431
--------------- ------------
</TABLE>
- --------------------------------------------------------------------------------
(a) For the period March 25, 1994 (commencement of operations) through February
28, 1995.
See accompanying notes to financial statements.
PAGE 6
<PAGE> 11
THE EMERGING MARKETS FLOATING RATE FUND INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION
The Emerging Markets Floating Rate Fund Inc. (the "Fund") was incorporated in
Maryland on January 21, 1994 and is registered as a non-diversified, closed-end,
management investment company under the Investment Company Act of 1940, as
amended. The Fund commenced operations on March 25, 1994. The Fund seeks to
maintain a high level of current income by investing primarily in a portfolio of
floating rate debt securities of emerging market sovereign and corporate
issuers. As a secondary objective, the Fund seeks capital appreciation.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles
("GAAP"). The preparation of financial statements in accordance with GAAP
requires management to make estimates and assumptions that affect the reported
amounts and disclosures in the financial statements. Actual results may differ
from those estimates.
(a) SECURITIES VALUATION. In valuing the Fund's assets, all securities for
which market quotations are readily available are valued (i) at the last sale
price prior to the time of determination if there were a sale on the date of
determination, (ii) at the mean between the last current bid and asked prices if
there were no sales price on such date and bid and asked quotations are
available, and (iii) at the bid price if there were 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 at
the close of business of that market. However, when 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 which approximates market 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 on securities purchased is accreted on an effective yield basis over
the life of the security. The Fund uses the specific identification method for
determining realized gain or loss on sale of investments.
PAGE 7
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THE EMERGING MARKETS FLOATING RATE FUND INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
(c) FEDERAL INCOME TAXES. The Fund has complied and intends to continue to
comply with the requirements of the Internal Revenue Code of 1986, as amended,
applicable to regulated investment companies, and to distribute all of its
income and capital gains, if any, to its shareholders. Therefore, no federal
income tax or excise tax provision is required.
(d) DIVIDENDS AND DISTRIBUTIONS. The Fund declares and pays dividends to
shareholders monthly from net investment income. Net realized gains, if any, in
excess of loss carryovers are expected to be distributed annually. Dividends and
distributions to shareholders are recorded on the ex-dividend date. The amount
of dividends and distributions from net investment income and net realized gains
are determined in accordance with federal income tax regulations, which may
differ from GAAP. 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
tax basis treatment; temporary differences do not require reclassifications.
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 dividends in excess of net investment income or distributions in
excess of net realized capital gains.
(e) UNAMORTIZED ORGANIZATION EXPENSES. Organization expenses amounting to
$115,541 were incurred in connection with the organization of the Fund. These
expenses have been deferred and are being amortized ratably over a five-year
period from commencement of operations.
(f) REPURCHASE AGREEMENTS. When entering into repurchase agreements, it is the
Fund's policy to take possession, through its custodian, of the underlying
collateral and to monitor its value at the time the arrangement is entered into
and on a daily basis 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.
NOTE 3. MANAGEMENT AND ADVISORY FEES AND OTHER TRANSACTIONS
The Fund entered into a management agreement with Advantage Advisers, Inc. (the
"Investment Manager"), a subsidiary of Oppenheimer & Co., Inc. ("Oppenheimer"),
pursuant to which the Investment Manager, among other things, supervises the
Fund's investment program and monitors the performance of the Fund's service
providers.
The Investment Manager and the Fund entered into an investment advisory and
administration agreement with Salomon Brothers Asset Management Inc (the
"Investment Adviser") pursuant to which the Investment Adviser provides
investment advisory and administrative services to the Fund. The Investment
Adviser is responsible for the
PAGE 8
<PAGE> 13
THE EMERGING MARKETS FLOATING RATE FUND INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
management of the Fund's portfolio in accordance with the Fund's investment
objectives and policies and for making decisions to buy, sell, or hold
particular securities and is responsible for day-to-day administration of the
Fund.
The Fund pays the Investment Manager a monthly fee at an annual rate of 1.10% of
the Fund's average weekly net assets for its services, out of which the
Investment Manager pays the Investment Adviser a monthly fee at an annual rate
of .65% of the Fund's average weekly net assets for its services.
At February 29, 1996, Oppenheimer and the Investment Adviser owned 3,567 and
4,230 shares of the Fund, respectively.
Certain officers and/or directors of the Fund are also officers and/or directors
of the Investment Manager or the Investment Adviser.
The Fund pays each Director not affiliated with the Investment Manager or the
Investment Adviser a fee of $5,000 per year, a fee of $700 for attendance at
each in-person meeting and $100 for participation in each telephonic meeting and
reimbursement for travel and out-of-pocket expenses for each board and committee
meeting attended.
NOTE 4. PORTFOLIO ACTIVITY
Purchases and sales of investment securities, other than short-term investments,
for the year ended February 29, 1996, aggregated $36,496,756 and $37,431,326,
respectively. The federal income tax cost basis of the Fund's investments at
February 29, 1996 was substantially the same as the cost basis for financial
reporting. Gross unrealized appreciation and depreciation amounted to $2,489,427
and $1,998,338, respectively, resulting in a net unrealized appreciation for
federal income tax purposes of $491,089.
For federal income tax purposes, the Fund has a capital loss carryforward as of
February 29, 1996 of approximately $1,479,000 of which approximately $316,000
and $1,163,000 expires in 2003 and 2004, respectively. To the extent future
capital gains are offset by such capital losses, the Fund does not anticipate
distributing such gains to shareholders.
NOTE 5. LOAN PARTICIPATIONS
The Fund invests in fixed and floating rate loans arranged through private
negotiations between a foreign sovereign entity and one or more financial
institutions. The Fund's investment in any such loan may be in the form of a
participation in or an assignment of the loan.
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
PAGE 9
<PAGE> 14
THE EMERGING MARKETS FLOATING RATE FUND INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (concluded)
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.
The Fund may have difficulty disposing of participations and assignments because
the market for such instruments is not highly liquid.
NOTE 6. CREDIT AND MARKET RISK
The yields of emerging market debt obligations and high yield corporate debt
obligations reflect, among other things, perceived credit risk. The Fund's
investment in securities rated below investment grade typically involve 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. At
February 29, 1996, the Fund has a concentration of credit risk in sovereign debt
of emerging market countries.
NOTE 7. EVENTS SUBSEQUENT TO FEBRUARY 29, 1996
On March 1, 1996, the Board of Directors of the Fund declared a common stock
dividend from net investment income of $0.1325 per share payable on March 29,
1996 to shareholders of record on March 12, 1996.
On April 1, 1996, the Board of Directors of the Fund declared a common stock
dividend from net investment income of $0.1325 per share payable on April 30,
1996 to shareholders of record on April 16, 1996.
PAGE 10
<PAGE> 15
THE EMERGING MARKETS FLOATING RATE FUND INC.
- -----------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
DATA FOR A SHARE OF COMMON STOCK OUTSTANDING THROUGHOUT THE PERIOD:
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
FEBRUARY 29, FEBRUARY 28,
1996 1995(a)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of period................................. $ 11.92 $ 14.02
------- ------------
Net investment income................................................ 1.66 1.24
Net realized and unrealized gain (loss) on securities................ 1.75 (1.98)
------- ------------
Total from investment operations..................................... 3.41 (.74)
Dividends from net investment income................................. (1.67) (1.19)
Offering costs on issuance of common stock........................... -- (.17)
------- ------------
Net increase (decrease) in net asset value........................... 1.74 (2.10)
------- ------------
Net asset value, end of period....................................... $ 13.66 $ 11.92
======= ============
Per share market value, end of period................................ $ 13.75 $ 11.75
Total investment return(c)........................................... 33.31% (8.17%)(b)
Ratios/supplemental data:
Net assets, end of period (000)...................................... $56,631 $ 49,447
Ratio of total expenses to average net assets........................ 1.65% 1.73%(d)
Ratio of net investment income to average net assets................. 12.99% 10.00%(d)
Portfolio turnover rate.............................................. 70.36% 60.84%
</TABLE>
- --------------------------------------------------------------------------------
(a) For the period March 25, 1994 (commencement of investment operations)
through February 28, 1995.
(b) Return calculated based on beginning of period price of $14.02 (initial
offering price of $15.00 less sales load of $0.98) and end of period market
value of $11.75 per share. This calculation is not annualized.
(c) Total investment return is calculated assuming a purchase of common stock
at the current market price on the first day and a sale at the current
market price on the last day of each period reported. For 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.
(d) Annualized.
See accompanying notes to financial statements.
PAGE 11
<PAGE> 16
THE EMERGING MARKETS FLOATING RATE FUND INC.
- --------------------------------------------------------------------------------
SELECTED QUARTERLY FINANCIAL INFORMATION
SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):
<TABLE>
<CAPTION>
NET REALIZED GAIN
(LOSS) & CHANGE IN
NET UNREALIZED
NET INVESTMENT APPRECIATION
INCOME (DEPRECIATION)
------------------ ---------------------
QUARTERS ENDED(a) TOTAL PER SHARE TOTAL PER SHARE
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
May 31, 1994(b).................................................... $ 834 $ .20 $ (2,171) $ (.52)
August 31, 1994.................................................... 1,188 .29 2,380 .57
November 30, 1994.................................................. 1,433 .34 (1,396) (.33)
February 28, 1995.................................................. 1,684 .41 (7,039) (1.70)
May 31, 1995....................................................... 1,753 .42 2,874 .70
August 31, 1995.................................................... 1,721 .42 67 .01
November 30, 1995.................................................. 1,704 .41 1,163 .28
February 29, 1996.................................................. 1,693 .41 3,134 .76
</TABLE>
- --------------------------------------------------------------------------------
(a) Totals expressed in thousands of dollars except per share amounts.
(b) For the period March 25, 1994 (commencement of investment operations)
through May 31, 1994.
See accompanying notes to financial statements.
PAGE 12
<PAGE> 17
THE EMERGING MARKETS FLOATING RATE FUND INC.
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
The Emerging Markets Floating Rate Fund Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of The Emerging Markets Floating Rate
Fund Inc. (the "Fund") at February 29, 1996, the results of its operations for
the year then ended, and the changes in its net assets and the financial
highlights for the year then ended and for the period March 25, 1994
(commencement of investment operations) through February 28, 1995, in conformity
with generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at February 29, 1996 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PRICE WATERHOUSE LLP
New York, New York
April 11, 1996
PAGE 13
<PAGE> 18
THE EMERGING MARKETS FLOATING RATE FUND INC.
- ---------------------------------------------------------------------------
OTHER INFORMATION
Pursuant to certain rules of the Securities and Exchange Commission the
following additional disclosure is provided.
Pursuant to the Fund's Dividend Reinvestment and Cash Purchase Plan (the "Plan")
holders of Common Stock whose shares of Common Stock are registered in their own
names may elect to have all distributions automatically reinvested by American
Stock Transfer & Trust Company (the "Plan Agent") in Fund shares pursuant to the
Plan. Each registered shareholder will receive from the Fund, as soon as
practicable, an authorization card to be signed and returned if the shareholder
elects to participate in the Plan. Holders of Common Stock who do not
participate in the Plan will receive distributions in cash paid by check in
dollars mailed directly to the holder by American Stock Transfer & Trust
Company, as dividend paying agent. Investors that own shares registered in the
name of a bank, broker-dealer or other nominee should consult with such nominee
as to participation in the Plan through such nominee, and may be required to
have their shares registered in their own names in order to participate in the
Plan.
The Plan Agent serves as agent for the holders of Common Stock in administering
the Plan. After the Fund declares a dividend on the Common Stock or determines
to make a capital gains distribution, the Plan Agent will, as agent for the
participants, receive the cash payment and use it to buy the Fund's Common Stock
in the open market, on the New York Stock Exchange or elsewhere, for the
participants' accounts. The Fund does not intend to issue any new shares of
Common Stock in connection with the Plan.
Participants have the option of making additional cash payments to the Plan
Agent, monthly, in a minimum amount of $250, for investment in the Fund's Common
Stock. The Plan Agent will use all such funds received from participants to
purchase shares of Common Stock 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 Plan Agent, it is suggested
that participants send in voluntary cash payments to be received by the Plan
Agent approximately ten 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 Plan Agent not less than 48 hours before such payment
is to be invested.
The Plan Agent maintains all shareholder accounts in the Plan and furnishes
written confirmations of all transactions in an account, including information
needed by shareholders for personal and tax records. Shares of Common Stock in
the account of each Plan participant will be held by the Plan Agent in the name
of the participant, and each shareholder's proxy will include those shares
purchased pursuant to the Plan.
In the case of holders of Common Stock, such as banks, broker-dealers or other
nominees, that hold shares for others who are beneficial owners, the Plan Agent
will administer the Plan on the basis of the number of shares of Common Stock
certified from time to time by the
PAGE 14
<PAGE> 19
THE EMERGING MARKETS FLOATING RATE FUND INC.
- ---------------------------------------------------------------------------
OTHER INFORMATION (concluded)
holders as representing the total amount registered in such holders' names and
held for the account of beneficial owners who are participants in the Plan.
There is no charge to participants for reinvesting dividends or capital gains
distributions or voluntary cash payments. The Plan Agent's fees for the
reinvestment of dividends and capital gains distributions and voluntary cash
payments will be paid by the Fund. However, each participant will pay a pro rata
share of brokerage commissions incurred with respect to the Plan Agent's open
market purchases in connection with the reinvestment of dividends and capital
gains distributions and voluntary cash payments made by the participant.
Brokerage charges for purchasing small amounts of stock for individual accounts
through the Plan are expected to be less than the usual brokerage charges for
such transactions, because the Plan Agent will be purchasing stock for all
participants in blocks and prorating the lower commission thus attainable.
The receipt of dividends and distributions under the Plan will not relieve
participants of any income tax which may be payable on such dividends or
distributions.
Experience under the Plan may indicate that changes in the Plan are desirable.
Accordingly, the Fund and the Plan Agent reserve the right to terminate the Plan
as applied to any voluntary cash payments made and any dividend or distribution
paid subsequent to notice of the termination sent to participants of the Plan at
least 30 days before the record date for such dividend or distribution. The Plan
also may be amended by the Fund or the Plan Agent, but (except when necessary or
appropriate to comply with applicable law, rules or policies of a regulatory
authority) only by at least 30 days' written notice to participants in the Plan.
All correspondence concerning the Plan should be directed to the Plan Agent at
40 Wall Street, 46th floor, New York, New York 10005.
PAGE 15
<PAGE> 20
THE EMERGING MARKETS FLOATING RATE FUND INC.
- -----------
DIRECTORS
CHARLES F. BARBER
Consultant; formerly Chairman,
ASARCO Incorporated
LESLIE H. GELB
President, The Council on
Foreign Relations
MICHAEL S. HYLAND
President;
Managing Director, Salomon Brothers Inc
President, Salomon Brothers
Asset Management Inc
ALAN H. RAPPAPORT
Chairman of the Board;
Executive Vice President,
Oppenheimer & Co., Inc.
RIORDAN ROETT
Professor and Director,
Latin American Studies Program,
Paul H. Nitze School of Advanced
International Studies,
Johns Hopkins University
JESWALD W. SALACUSE
Henry J. Braker Professor of Commercial
Law, and formerly Dean, The Fletcher
School of Law & Diplomacy
Tufts University
- ---------
OFFICERS
ALAN H. RAPPAPORT
Chairman of the Board
MICHAEL S. HYLAND
President
PETER WILBY
Executive Vice President
LAWRENCE H. KAPLAN
Executive Vice President
ALAN M. MANDEL
Treasurer
LAURIE A. PITTI
Assistant Treasurer
TANA E. TSELEPIS
Secretary
- ----------------------------
THE EMERGING MARKETS
FLOATING RATE FUND INC.
7 World Trade Center
New York, New York 10048
TELEPHONE
1-800-725-6666
INVESTMENT MANAGER
Advantage Advisers, Inc.
Oppenheimer Tower
World Financial Center
New York, New York 10281
INVESTMENT ADVISER
Salomon Brothers Asset Management Inc
7 World Trade Center
New York, New York 10048
CUSTODIAN
The Chase Manhattan Bank, N.A.
Four Metrotech Center
Brooklyn, New York 11245
DIVIDEND DISBURSING AND TRANSFER AGENT
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
LEGAL COUNSEL
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
NEW YORK STOCK EXCHANGE SYMBOL
EFL
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