<PAGE>
THE EMERGING MARKETS FLOATING RATE FUND INC.
October 8, 1998
Dear Shareholder:
We are pleased to provide this semi-annual report for The Emerging Markets
Floating Rate Fund Inc. ('Fund') as of August 31, 1998. Included are market
commentary, a schedule of the Fund's investments as of August 31, 1998 and
financial statements for the six months ended August 31, 1998.
During the six-month period ended August 31, 1998, the net asset value of the
Fund decreased from $15.55 per share to $9.55 per share. Dividends from net
investment income totaling $0.80 per share were paid during this period.
Assuming reinvestment of these dividends in additional shares of the Fund, the
total return based on net asset value for the six months ended August 31, 1998
was - 35.17%. In comparison, the JP Morgan Emerging Markets Bond Index Plus
('EMBI+'), which we use as a measure of the return for the emerging debt market,
returned - 30.85.
On August 31, 1998, the Fund, as a percentage of total investments, was 100%
invested in securities of emerging market issuers.
EMERGING MARKETS DEBT SECURITIES
Despite an initial period of strength in the six-month period ending August 31,
1998, the emerging debt market performed poorly due to continued fall-out from
Asian countries combined with Russia's economic and political turmoil. Toward
the end of the period these problems exerted pressure on Latin American credits
as investors reduced their exposure to all emerging markets countries.
Russia's dramatic decline during the period was due to a number of factors: 1)
the government forced a restructuring of all domestic debt; 2) the ruble was
devalued; 3) Yeltsin dismissed his Cabinet and re-appointed Viktor Chernomyrdin
as Prime Minister; and 4) the Duma refused to approve Chernomyrdin. These
developments devastated Russian dollar denominated bond prices (prices declined
as much as 25% in a single day). The timing of the debt restructuring and
devaluation, coming less than a month after Russia's latest International
Monetary Fund ('IMF') financing, was a tremendous shock to the market and caused
a wide-spread sell-off across all emerging markets.
LATIN AMERICA
In Latin America, investor attention has been focused on Brazil. The first round
of presidential elections, held on October 4, resulted in the re-election of
President Cardoso. Brazil's economy has been managed with a combination of tight
monetary policy and relatively lax fiscal policy over the past few years. This
policy combination has helped Brazil solve its inflation problems but has led to
a build-up of domestic debt. This debt build-up is worrisome in the current
environment because it may lead to a loss in confidence on the part of Brazilian
investors, putting pressure on the country's currency.
Separately, officials in Venezuela, Mexico, and Saudi Arabia began discussions
regarding the oversupply of oil in world markets and the resulting decline in
oil prices. Venezuela's Energy Minister, Erwin Arrieta, however, stated that
Venezuela would not agree to further oil production cuts, and Brent futures for
September delivery fell to a new low of $11.82 a barrel.
Argentina. The IMF mission completed its review of Argentina, announcing that
the country has met all of its targets for the first half of 1998. In the
political arena, in a surprising announcement -- President
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THE EMERGING MARKETS FLOATING RATE FUND INC.
Menem said that he would not run for reelection in 1999. This came just days
after the Peronist Party sought a supreme court ruling to prohibit Menem from
running again (the constitution prohibits the president from running for a
second term). Despite Menem's popularity, the continuing battle would have
diminished his political validity dramatically. As the dispute was threatening
party unity, Menem's decision was viewed as a positive development.
Brazil. During the period, Brazil made substantial progress on the privatization
front. Sao Paulo state electricity distributor (formerly CESPE, now Elektro) was
sold to the US utility company Enron for BRL1.48 billion. The bid exceeded the
BRL743.6 million minimum, a 99% premium. Additionally, 76 bidders registered for
the sale of the 12 Telebras subsidiaries. Telebras was sold at a 60% premium of
the minimum asking price, at BRL22 billion. Separately, the TBC was cut by 125
basis points to 19.75%. This move brings the rate below its pre-crisis level of
20.7%, from which it was doubled last October in response to contagion effects
from the Asian crisis.
Ecuador. The country's inability to institute reform measures continues to be
disappointing. Specifically, the government has incurred continuous delays in
the auction of a 35% stake in state-owned telephone company EMETEL. This delay
has frustrated the market. In addition, following the failure by congress to
pass an increase in the value added tax, the sucre devalued 7.5%. On a more
positive note, in Ecuador's presidential elections, Jamil Mahuad was the
official first-round winner with 34.9% of the vote, followed by Alvaro Noboa
with 26.6%. Mahuad is an experienced politician with a respected economic team
and is believed to be the candidate with the ability to stabilize the economy.
Mexico. The opposition PAN and PRD have agreed to work with the ruling PRI
deputies in the lower house of Congress on the issue of FOBAPROA. And, it would
seem that a compromise on the issue is in fact on the horizon. The alternative,
as proposed by the PRI, separates FOBAPROA liabilities into two groups: those of
small debtors and those of millionaires. The compromise came due to opposition
concerns that the plan favored specific business interests.
Peru. Royal Dutch Shell and Mobil pulled out of the Camisea gas project, a
natural gas exploration project in the southeastern jungle. This cancellation
was primarily due to three factors: 1) Peru's Energy Law does not allow the same
company to explore, produce and distribute energy resources, 2) gas exports to
Brazil are favored by Shell and Mobil but denounced by the government and 3)
according to the government, Shell and Mobil were attempting to charge
'excessive' thermal energy prices. This cancellation is a major setback for
Peru, as US$500 million had already been invested by the consortium in the first
stage of the project. Despite these developments, Moody's raised Peru's
sovereign debt ceiling to Ba3 from B2, citing prudent fiscal and monetary
policies and an outlook for strong growth. Moody's stated that the move was
based on the country's progress, which included macroeconomic stabilization and
high average rates of growth over the past several years. Also noted was the
completion of both Paris and London Club debt restructurings, which have reduced
external debt from US$33.5 billion to US$28.2 billion and have significantly
lessened the near-term debt service by improving the amortization profile. The
rating increase complements Standard & Poor's previously assigned BB rating.
Venezuela. During the period, after months of negotiations, the IMF and the
government agreed on the terms of a 'shadow' program. Unlike the previous
stand-by agreement, this program will not entail any financial support from the
IMF, only technical assistance. In the final month of the period, however,
Venezuela's market sentiment was suffering, due to two main factors. First,
Moody's downgraded Venezuela's sovereign ceiling to B1 from Ba2, having placed
the rating on watch for possible downgrade on May 8. Moody's pointed to the
government's inability to address the domestic
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THE EMERGING MARKETS FLOATING RATE FUND INC.
implications of external shocks. Second, the privatization of the state aluminum
complex, CVG, was canceled. Although the coalition formed by Kaiser Aluminum and
Billiton would have only paid US$1.55 billion, with only US$200 million going to
the government, psychologically, the sale would have had a positive impact. The
two events, occurring only a day apart, diminished much of Venezuela's positive
market sentiment.
EASTERN EUROPE
Bulgaria. Moody's upgraded Bulgaria's foreign currency rating to B2 from B3,
citing improved credit risk with the election of a reform-oriented government
and establishment of a currency board. For comparison, the upgrade puts Bulgaria
on par with Peru and one notch below Brazil and Ecuador. Additionally, the IMF
approved the fourth tranche of a US$510 million standby loan. Bulgaria's strides
in decreasing inflation and promoting growth during the past year have been
significant: inflation was near 1.5% in February, down from levels above 100% a
year ago, and negative 0.1% in March. This was largely due to falling fuel
prices.
Russia. As mentioned previously, sentiment with regard to Russia plummeted
during the period. The timing of Yeltsin's decision to dissolve the cabinet and
remove Prime Minister Sergei Kiriyenko, replacing him with former PM Viktor
Chernomyrdin, was unfortunate. This came at a time when the investment community
needs to be convinced of Russia's commitment to promoting political continuity,
and therefore effectively implementing fiscal reform.
In conclusion, emerging debt markets continue to be negatively impacted by the
global trend of investors reducing their appetite for risk. Beginning with Asian
currency problems in the fall of 1997 and compounded by the extended Japanese
recession and recent weakness in US equity prices, investors are demanding a
higher risk premium for investing in credit sensitive fixed income assets. In
this environment, countries whose fiscal or monetary fundamentals fall short of
investor expectations are punished severely. Russia's problems, which we listed
earlier, occurred in this risk-averse investment environment. The investment
environment limited the range of Russia's policy response and compounded the
severity of the sell-off which spilled-over to all other emerging market
credits. We expect this highly volatile period for emerging markets debt to
continue. The elements required for stability must come from a variety of
sources both inside and outside the emerging debt markets. These elements
include an economic recovery in Japan and stability in US equity prices and an
end to political turmoil in Russia. When stability returns, emerging markets
debt will again trade on credit fundamentals. While we are optimistic that the
worst of the crisis has passed, market volatility will continue to be extremely
high and market sentiment will be cautious.
Given the nature of today's market, we wish to remind you that, while the Fund
may offer higher reward potential, the risks of investments in emerging markets
securities may be greater.
* * *
In a continuing effort to provide timely information concerning The Emerging
Markets Floating Rate Fund Inc., shareholders may call 1-888-777-0102 (toll
free), Monday through Friday from 8:00 am to 6:00 pm EST for the Fund's current
net asset value, market price and other information regarding the
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THE EMERGING MARKETS FLOATING RATE FUND INC.
Fund's portfolio holdings and allocations. For information concerning your EFL
stock account, please call American Stock Transfer & Trust Company at
1-800-937-5449 (1-718-921-8200 if you are calling from within New York City).
We appreciate the confidence you have demonstrated in the past and hope to
continue to serve you in the future years.
Cordially,
<TABLE>
<S> <C>
WILLIAM D. CVENGROS HEATH B. MCLENDON
William D. Cvengros Heath B. McLendon
Co-Chairman of the Board Co-Chairman of the Board
</TABLE>
PETER J. WILBY
Peter J. Wilby
Executive Vice President
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THE EMERGING MARKETS FLOATING RATE FUND INC.
- -----------------------------------------------
Schedule of Investments (unaudited)
August 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT Sovereign Bonds -- 73.4% VALUE
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Argentina -- 5.5%
$ 712,500 Republic of Argentina, FRB, Series L, 6.625% due 3/31/05(a)................... $ 481,383
2,000,000 Republic of Argentina, Global Bond, 9.750% due 9/19/27........................ 1,260,000
-----------
1,741,383
-----------
Brazil -- 20.6%
10,000,000 Federal Republic of Brazil, DCB, Series L, 6.6875% due 4/15/12(a)............. 4,887,500
2,910,000 Federal Republic of Brazil, EI Bond, Series L, 6.625% due 4/15/06(a).......... 1,607,775
-----------
6,495,275
-----------
Bulgaria -- 5.5%
1,400,000 Republic of Bulgaria, FLIRB, Series A, 2.500% due 7/28/12(a).................. 525,000
2,750,000 Republic of Bulgaria, IAB, 6.6875% due 7/28/11(a)............................. 1,201,406
-----------
1,726,406
-----------
Ecuador -- 4.8%
4,810,111 Republic of Ecuador, Bearer, PDI Bond, 6.625% due 2/27/15(a)(b)............... 1,503,160
-----------
Ivory Coast -- 7.4%
8,000,000 Ivory Coast, PDI Bond, 2.000% due 3/29/18(a).................................. 2,320,000
-----------
Mexico -- 5.4%
1,950,000 United Mexican States, Global Bond, 11.500% due 5/15/26....................... 1,691,625
-----------
Panama -- 5.4%
1,938,456 Republic of Panama, Bearer Bond, 6.750% due 5/14/02(a)........................ 1,705,841
-----------
Peru -- 6.5%
1,000,000 Republic of Peru, Discount Bond, 6.625% due 3/8/27(a)......................... 660,000
3,300,000 Republic of Peru, FLIRB, 3.250% due 3/7/17(a)................................. 1,402,500
-----------
2,062,500
-----------
Russia -- 5.6%
12,104,018 Russia, IAN, 6.625% due 12/15/15(a)(c)........................................ 1,755,083
-----------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
PAGE 5
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THE EMERGING MARKETS FLOATING RATE FUND INC.
- -----------------------------------------------
Schedule of Investments (unaudited) (continued)
August 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT Sovereign Bonds -- 73.4% (continued) VALUE
- ----------------------------------------------------------------------------------------------------------
<C> <S> <C>
Venezuela -- 6.7%
$ 5,202,370 Republic of Venezuela, DCB, Series DL, 6.625% due 12/18/07(a)................. $ 2,126,469
-----------
Total Sovereign Bonds (Cost -- $36,039,396).................................. 23,127,742
-----------
<CAPTION>
Loan Participations -- 26.6%
- ----------------------------------------------------------------------------------------------------------
<C> <S> <C>
The People's Democratic Republic of Algeria:
1,272,727 Tranche A, 7.3125% due 3/4/00 (Chase Manhattan)(a)(d)....................... 1,056,363
1,909,090 Tranche 1, 6.625% due 9/4/06 (Chase Manhattan)(a)(d)........................ 1,145,458
2,600,000 South Korea, 2 Year Tranche, 8.28125% due 4/8/00 (Morgan Guaranty Trust
Company of New York)(a)(d).................................................. 2,340,000
5,176,472 Kingdom of Morocco, Tranche B, 6.4375% due 1/1/04
(Morgan Stanley Emerging Markets Inc, Merrill Lynch)(a)(d).................. 3,830,589
-----------
Total Loan Participations (Cost -- $9,630,992)............................... 8,372,410
-----------
Total Investments -- 100% (Cost -- $45,670,388*)............................ $31,500,152
-----------
-----------
</TABLE>
- --------------------------------------------------------------------------------
(a) Rate shown reflects current rate on instrument with variable rate or step
coupon rates.
(b) Payment-in-kind security for which part of the income earned is capitalized
as additional principal.
(c) Pursuant to Rule 144A under the Securities Act of 1933, this security can
only be sold to qualified institutional investors.
(d) Participation interests were acquired through the financial institutions
indicated parenthetically.
* Aggregate cost for Federal income tax purposes is substantially the same.
DCB -- Debt Conversion Bond.
EI -- Eligible Interest.
FLIRB -- Front Loaded Interest Reduction Bond.
FRB -- Floating Rate Bond.
IAB -- Interest in Arrears Bond.
IAN -- Interest in Arrears Notes.
PDI -- Past Due Interest.
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
PAGE 6
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THE EMERGING MARKETS FLOATING RATE FUND INC.
- ---------------------------------------------------------------
Statement of Assets and Liabilities (unaudited)
August 31, 1998
<TABLE>
<S> <C>
ASSETS
Investments, at value (Cost -- $45,670,388)................................................ $31,500,152
Receivable for securities sold............................................................. 8,694,651
Interest receivable........................................................................ 1,379,101
Deferred organization cost................................................................. 12,408
-----------
Total Assets............................................................................... 41,586,312
-----------
LIABILITIES
Payable for securities purchased........................................................... 1,224,804
Payable to bank............................................................................ 54,615
Accrued management fee..................................................................... 48,231
Accrued other expenses..................................................................... 146,632
-----------
Total Liabilities.......................................................................... 1,474,282
-----------
Total Net Assets........................................................................... $40,112,030
-----------
-----------
NET ASSETS
Common stock ($0.001 par value, authorized 100,000,000 shares; 4,201,143 shares
outstanding).............................................................................. $ 4,201
Additional paid-in capital................................................................. 58,281,584
Undistributed net investment income........................................................ 65,975
Accumulated net realized loss on investments............................................... (4,069,494)
Net unrealized depreciation on investments................................................. (14,170,236)
-----------
Total Net Assets........................................................................... $40,112,030
-----------
-----------
NET ASSET VALUE PER SHARE ($40,112,030 [div] 4,201,143 shares)................................. $9.55
-----
-----
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
PAGE 7
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THE EMERGING MARKETS FLOATING RATE FUND INC.
- ------------------------------------------------
Statement of Operations (unaudited)
For the Six Months Ended August 31, 1998
<TABLE>
<S> <C> <C>
INCOME
Interest (includes discount accretion of $1,220,179)............................ $ 3,881,659
EXPENSES
Management fees (Note 2)........................................................ $343,142
Audit fees...................................................................... 31,931
Legal fees...................................................................... 24,329
Directors' fees................................................................. 16,524
Transfer agent fees............................................................. 15,814
Custodian fees.................................................................. 12,164
Amortization of deferred organization costs..................................... 11,248
Shareholder reporting fees...................................................... 9,629
Listing fees.................................................................... 7,955
Other........................................................................... 9,621 482,357
-------- ------------
Net Investment Income............................................................... 3,399,302
------------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS
Net realized loss on investments................................................ (5,236,162)
Change in net unrealized appreciation on investments............................ (20,039,110)
------------
Net Realized Loss and Change in Net Unrealized Appreciation......................... (25,275,272)
------------
NET DECREASE IN NET ASSETS FROM OPERATIONS.......................................... $(21,875,970)
------------
------------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
PAGE 8
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THE EMERGING MARKETS FLOATING RATE FUND INC.
- -----------------------------------------------------------------
Statements of Changes in Net Assets
For the Six Months Ended August 31, 1998 (unaudited)
and the Year Ended February 27, 1998
<TABLE>
<CAPTION>
AUGUST 31 FEBRUARY 27
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS
Net investment income....................................................... $ 3,399,302 $ 6,309,864
Net realized gain (loss).................................................... (5,236,162) 2,745,383
Change in net unrealized appreciation....................................... (20,039,110) (2,464,970)
------------ -----------
Net Increase (Decrease) in Net Assets From Operations....................... (21,875,970) 6,590,277
------------ -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income....................................................... (3,333,327) (6,380,527)
Net realized gains.......................................................... -- (5,047,163)
------------ -----------
Decrease in Net Assets From Distributions to Shareholders................... (3,333,327) (11,427,690)
------------ -----------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares issued in reinvestment of dividends (13,156 and 20,513
shares issued, respectively).............................................. 179,246 328,431
------------ -----------
Decrease in Net Assets.......................................................... (25,030,051) (4,508,982)
NET ASSETS
Beginning of period......................................................... 65,142,081 69,651,063
------------ -----------
End of period (includes undistributed net investment income of $65,975 and
$0, respectively)......................................................... $ 40,112,030 $65,142,081
------------ -----------
------------ -----------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
PAGE 9
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THE EMERGING MARKETS FLOATING RATE FUND INC.
- --------------------------------------------------------
Notes to Financial Statements (unaudited)
Note 1. Organization and Significant Accounting Policies
The Emerging Markets Floating Rate Fund Inc. ('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.
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 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.
(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
PAGE 10
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THE EMERGING MARKETS FLOATING RATE FUND INC.
- --------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
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 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 2. Management and Advisory Fees and Other Transactions
The Fund has entered into a management agreement with Value Advisors LLC
('Investment Manager'), a subsidiary of PIMCO Advisors L.P. ('PIMCO'), 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 agreement with the Investment Manager was approved by shareholders at an
annual meeting held on October 14, 1997, and has been in effect since the
closing of the sale of the Investment Manager by Oppenheimer Group Inc. to
PIMCO, which occurred on November 4, 1997. The Investment Manager was the
transferee of the investment management responsibilities for the Fund which were
previously provided by Advantage Advisers, Inc.
PAGE 11
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THE EMERGING MARKETS FLOATING RATE FUND INC.
- --------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
The Investment Manager and the Fund have entered into an investment advisory and
administration agreement with Salomon Brothers Asset Management Inc ('Investment
Adviser'), a wholly-owned subsidiary of Salomon Smith Barney Holdings Inc.
('SSBH'), pursuant to which the Investment Adviser provides investment advisory
and administrative services to the Fund. The Investment Adviser is responsible
on a day-to-day basis for the management of the Fund's portfolio in accordance
with the Fund's investment objectives and policies and for making decisions to
buy, sell, or hold particular securities and is responsible for day-to-day
administration of the Fund. The agreement with the Investment Adviser was most
recently approved by shareholders at a special meeting held on January 15, 1998.
Approval of the agreement was necessary due to the merger of Salomon Inc., which
had been the ultimate parent company of the Investment Adviser, with and into
SSBH, which occurred on November 28, 1997.
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 0.65% of the Fund's average weekly net assets for its services.
At August 31, 1998, the Investment Adviser owned 4,230 shares of the Fund.
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 3. Portfolio Activity and Federal Income Tax Status
Purchases and sales of investment securities, other than short-term investments,
for the six months ended August 31, 1998, aggregated $42,711,259 and
$35,187,726, respectively. The federal income tax cost basis of the Fund's
investments at August 31, 1998 was substantially the same as the cost basis for
financial reporting. Gross unrealized appreciation and depreciation amounted to
$0 and $14,170,236, respectively, resulting in a net unrealized depreciation of
$14,170,236.
Note 4. 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 the loan.
PAGE 12
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THE EMERGING MARKETS FLOATING RATE FUND INC.
- --------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
In connection with purchasing loan participations, the Fund generally will have
no right to enforce compliance by the borrower with the terms of the loan
agreement relating to the loan, nor any rights of set-off against the borrower,
and the Fund may not benefit directly from any collateral supporting the loan in
which it has purchased the participation. As a result, the Fund will assume the
credit risk of both the borrower and the lender that is selling the
participation. In the event of the insolvency of the lender selling the
participation, the Fund may be treated as a general creditor of the lender and
may not benefit from any set-off between the lender and the borrower. The Fund
may have difficulty disposing of participations because the market for such
instruments is not highly liquid.
Note 5. Credit and Market Risk
The yields on 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
August 31, 1998, the Fund has a concentration of credit risk in sovereign debt
of emerging market countries.
Note 6. Dividends Subsequent to August 31, 1998
On September 1, and October 1, 1998, the Board of Directors of the Fund declared
a dividend from net investment income, each in the amount of $0.1325 per share,
payable on September 25, and October 30, 1998 to shareholders of record on
September 15, and October 13, 1998, respectively.
PAGE 13
<PAGE>
<PAGE>
THE EMERGING MARKETS FLOATING RATE FUND INC.
- --------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
Note 7. Bylaw Amendment
The Board of Directors of the Fund recently reviewed and approved various
amendments to the Fund's bylaws. For example, the bylaws provision relating to
timely notice for proposals to be brought before an annual meeting of
stockholders (other than a proposal under Rule 14a-8 of the Securities Exchange
Act of 1934 to be included in the Fund's proxy statement) have been amended. As
amended, a stockholder's notice must be delivered to the Fund not less than 60
days nor more than 90 days prior to the first anniversary of the preceding
year's annual meeting. An exception applies in the event the date of the annual
meeting is substanially advanced or delayed from the anniversary date. The Board
believes that the amended timely notice provisions will provide greater
certainty to stockholders because previously, timely notice keyed off the date
of the current year's meeting or the date public disclosure of the current
year's meeting is made. In addition, the provisions provide that any business to
be brought before a special meeting of stockholders must be specified in the
notice of meetings or otherwise properly brought before the meeting by or at the
direction of the Board of Directors. Finally, upon recommendation of the Fund's
Maryland counsel, other changes to certain bylaw provisions were made to conform
to the bylaw provisions of more recently organized Maryland companies.
PAGE 14
<PAGE>
<PAGE>
THE EMERGING MARKETS FLOATING RATE FUND INC.
- ------------------------------------------
Financial Highlights
Data for a share of common stock outstanding throughout each period:
<TABLE>
<CAPTION>
1998(1) 1998 1997 1996 1995(2)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD...................... $ 15.55 $ 16.71 $ 13.66 $ 11.92 $ 14.02
------- ------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income................................. 0.81 1.51 1.56 1.66 1.24
Net realized and unrealized gain (loss)............... (6.01) 0.07 3.10 1.75 (1.98)
------- ------- ------- ------- -------
Total Income (Loss) From Operations....................... (5.20) 1.58 4.66 3.41 (0.74)
------- ------- ------- ------- -------
LESS DISTRIBUTIONS FROM:
Net investment income................................. (0.80) (1.53) (1.61) (1.67) (1.19)
Net realized gains.................................... -- (1.21) -- -- --
------- ------- ------- ------- -------
Total Distributions....................................... (0.80) (2.74) (1.61) (1.67) (1.19)
------- ------- ------- ------- -------
OFFERING COSTS ON ISSUANCE OF COMMON STOCK................ -- -- -- -- (0.17)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD............................ $ 9.55 $ 15.55 $ 16.71 $ 13.66 $ 11.92
------- ------- ------- ------- -------
------- ------- ------- ------- -------
MARKET VALUE, END OF PERIOD............................... $10.125 $ 16.50 $17.125 $ 13.75 $ 11.75
------- ------- ------- ------- -------
------- ------- ------- ------- -------
TOTAL RETURN(3)........................................... (34.98)%'DD' 14.04% 38.28% 33.31% (8.17)%*
NET ASSETS, END OF PERIOD (000)........................... $40,112 $65,142 $69,651 $56,631 $49,447
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................. 1.59%'D' 1.49% 1.52% 1.65% 1.73%'D'
Net investment income................................. 11.17%'D' 9.19% 10.28% 12.99% 10.00%'D'
PORTFOLIO TURNOVER RATE................................... 65% 214% 120% 70% 61%
</TABLE>
- --------------------------------------------------------------------------------
(1) For the six months ended August 31, 1998 (unaudited).
(2) For the period March 25, 1994 (commencement of investment operations)
through February 28, 1995.
(3) Total 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.
* 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.
'DD' Total return is not annualized, as it may not be representative of the
total return for the year.
'D' Annualized.
PAGE 15
<PAGE>
<PAGE>
THE EMERGING MARKETS FLOATING RATE FUND INC.
- -----------------------------------------------------------------------
Selected Quarterly Financial Information (unaudited)
Summary of quarterly results of operations:
<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, 1996.................................................. $1,760 $ 0.42 $ 3,725 $ 0.90
August 31, 1996............................................... 1,646 0.40 1,768 0.43
November 30, 1996............................................. 1,597 0.38 4,663 1.12
February 28, 1997............................................. 1,508 0.36 2,708 0.65
May 31, 1997.................................................. 1,581 0.38 1,184 0.28
August 31, 1997............................................... 1,627 0.39 1,444 0.35
November 30, 1997............................................. 1,558 0.37 (4,210) (1.01)
February 27, 1998............................................. 1,544 0.37 1,862 0.45
May 29, 1998.................................................. 1,638 0.39 (2,338) (0.56)
August 31, 1998............................................... 1,761 0.42 (22,937) (5.45)
</TABLE>
- --------------------------------------------------------------------------------
(a) Totals expressed in thousands of dollars except per share amounts.
PAGE 16
<PAGE>
<PAGE>
THE EMERGING MARKETS FLOATING RATE FUND INC.
- ---------------------------------------
Other Information
Year 2000. The investment management services provided to the Fund by the
Investment Adviser depend in large part on the smooth functioning of its
computer systems. Many computer software systems in use today cannot recognize
the year 2000, but revert to 1900 or some other date, due to the manner in which
the dates were encoded or calculated. The capability of these systems to
recognize the year 2000 could have a negative impact on the Investment Adviser's
provision of investment advisory services, including handling of securities
trades, pricing and account services. The Investment Adviser has advised the
Fund that it has been reviewing all of their computer systems and actively
working on necessary changes to its systems to prepare for the year 2000 and
expects that given the extensive testing which it is undertaking, its systems
will be year 2000 compliant before such date. In addition, the Investment
Adviser has been advised by certain of the Fund's service providers that they
are also in the process of modifying their systems with the same goal. There
can, however, be no assurance that the Investment Adviser or any other service
provider will be successful in achieving year 2000 compliance, or that
interaction with other non-complying computer systems will not impair services
to the Fund at that time.
PAGE 17
<PAGE>
<PAGE>
THE EMERGING MARKETS FLOATING RATE FUND INC.
PURSUANT TO CERTAIN RULES OF THE SECURITIES AND EXCHANGE COMMISSION, THE
FOLLOWING ADDITIONAL DISCLOSURE IS PROVIDED.
- --------------------------------------------------------------------------------
Form of Terms and Conditions of Amended and Restated Dividend Reinvestment
and Cash Purchase Plan
1. Each shareholder initially purchasing shares of common stock ('Shares') of
The Emerging Markets Floating Rate Fund Inc. ('Fund') on or after September 6,
1996 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.
2. Unless the Fund declares a dividend or distribution payable only in the form
of cash, the Agent will apply all dividends and distributions in the manner set
forth below.
3. If, on the determination date, the market price per Share equals or exceeds
the net asset value per Share on that date (such condition, a 'market premium'),
the Agent will receive the dividend or distribution in newly issued Shares of
the Fund on behalf of Participants. If, on the determination date, the net asset
value per Share exceeds the market price per Share (such condition, a 'market
discount'), the Agent will purchase Shares in the open-market. The determination
date will be the fourth New York Stock Exchange trading day (a New York Stock
Exchange trading day being referred to herein as a 'Trading Day') preceding the
payment date for the dividend or distribution. For purposes herein, 'market
price' will mean the average of the highest and lowest prices at which the
Shares sell on the New York Stock Exchange on the particular date, or if there
is no sale on that date, the average of the closing bid and asked quotations.
4. Purchases made by the Agent will be made as soon as practicable commencing on
the Trading Day following the determination date and terminating no later than
30 days after the dividend or distribution payment date except where temporary
curtailment or suspension of purchase is necessary to comply with applicable
provisions of federal securities law; provided, however, that such purchases
will, in any event, terminate on the Trading Day prior to the 'ex-dividend' date
next succeeding the dividend or distribution payment date.
PAGE 18
<PAGE>
<PAGE>
THE EMERGING MARKETS FLOATING RATE FUND INC.
5. If (i) the Agent has not invested the full dividend amount in open-market
purchases by the date specified in paragraph 4 above as the date on which such
purchases must terminate or (ii) a market discount shifts to a market premium
during the purchase period, then the Agent will cease making open-market
purchases and will receive the uninvested portion of the dividend amount in
newly issued Shares (x) in the case of (i) above, at the close of business on
the date the Agent is required to terminate making open-market purchases as
specified in paragraph 4 above or (y) in the case of (ii) above, at the close of
business on the date such shift occurs; but in no event prior to the payment
date for the dividend or distribution.
6. In the event that all or part of a dividend or distribution amount is to be
paid in newly issued Shares, such Shares will be issued to Participants in
accordance with the following formula: (i) if, on the valuation date, the net
asset value per share is less than or equal to the market price per Share, then
the newly issued Shares will be valued at net asset value per Share on the
valuation date; provided, however, that if the net asset value is less than 95%
of the market price on the valuation date, then such Shares will be issued at
95% of the market price and (ii) if, on the valuation date, the net asset value
per share is greater than the market price per Share, then the newly issued
Shares will be issued at the market price on the valuation date. The valuation
date will be the dividend or distribution payment date, except that with respect
to Shares issued pursuant to paragraph 5 above the valuation date will be the
date such Shares are issued. If a date that would otherwise be a valuation date
is not a Trading Day, the valuation date will be the next preceding Trading Day.
7. Participants have the option of making additional cash payments to the Agent,
monthly, in a minimum amount of $250, for investment in Shares. The Agent will
use all such funds received from Participants to purchase Shares in the open
market on or about the first business day of each month. To avoid unnecessary
cash accumulations, and also to allow ample time for receipt and processing by
the Agent, Participants should send in voluntary cash payments to be received by
the Agent approximately 10 days before an applicable purchase date specified
above. A Participant may withdraw a voluntary cash payment by written notice, if
the notice is received by the Agent not less than 48 hours before such payment
is to be invested.
8. Purchases by the Agent pursuant to paragraphs 4 and 7 above may be made on
any securities exchange on which the Shares of the Fund are traded, in the
over-the-counter market or in negotiated transactions, and may be on such terms
as to price, delivery and otherwise as the Agent shall determine. Funds held by
the Agent uninvested will not bear interest, and it is understood that, in any
event, the Agent shall have no liability in connection with any inability to
purchase Shares within the time periods herein provided, or with the timing of
any purchases effected. The Agent shall have no responsibility as to the value
of the Shares acquired for the Participant's account. The Agent may commingle
amounts of all Participants to be used for open-market purchases of Shares and
the price per Share allocable to each Participant in connection with such
purchases shall be the average price (including brokerage commissions) of all
Shares purchased by the Agent.
9. The Agent will maintain all Participants' accounts in the Plan and will
furnish written confirmations of all transactions in each account, including
information needed by Participants for personal and tax records. The Agent will
hold Shares acquired pursuant to the Plan in
PAGE 19
<PAGE>
<PAGE>
THE EMERGING MARKETS FLOATING RATE FUND INC.
noncertificated form in the Participant's name or that of its nominee, and each
Participant's proxy will include those Shares purchased pursuant to the Plan.
The Agent will forward to Participants any proxy solicitation material and will
vote any Shares so held for Participants only in accordance with the proxy
returned by Participants to the Fund. Upon written request, the Agent will
deliver to Participants, without charge, a certificate or certificates for the
full Shares.
10. The Agent will confirm to Participants each acquisition made for their
respective accounts as soon as practicable but not later than 60 days after the
date thereof. Although Participants may from time to time have an undivided
fractional interest (computed to three decimal places) in a Share of the Fund,
no certificates for fractional shares will be issued. Dividends and
distributions on fractional shares will be credited to each Participant's
account. In the event of termination of a Participant's account under Plan, the
Agent will adjust for any such undivided fractional interest in cash at the
market value of the Fund's Shares at the time of termination less the pro rata
expense of any sale required to make such an adjustment.
11. Any share dividends or split shares distributed by the Fund on Shares held
by the Agent for Participants will be credited to their respective accounts. In
the event that the Fund makes available to Participants rights to purchase
additional Shares or other securities, the Shares held for Participants under
the Plan will be added to other Shares held by the Participants in calculating
the number of rights to be issued to Participants.
12. The Agent's service fee for handling capital gains distributions or income
dividends will be paid by the Fund. Participants will be charged a pro rata
share of brokerage commissions on all open-market purchases.
13. Participants may terminate their accounts under the Plan by notifying the
Agent in writing. Such termination will be effective immediately if notice is
received by the Agent not less than 10 days prior to any dividend or
distribution record date; otherwise such termination will be effective on the
first Trading Day after the payment date for such dividend or distribution with
respect to any subsequent dividend or distribution. The Plan may be amended or
terminated by the Fund as applied to any voluntary cash payments made and any
income dividend or capital gains distribution paid subsequent to written notice
of the change or termination sent to Participants at least 30 days prior to the
record date for the income dividend or capital gains distribution. The Plan may
be amended or terminated by the Agent, with the Fund's prior written consent, on
at least 30 days' written notice to Participants. Notwithstanding the preceding
two sentences, the Agent or the Fund may amend or supplement the Plan at any
time or times when necessary or appropriate to comply with applicable law or
rules or policies of the Securities and Exchange Commission or any other
regulatory authority. Upon any termination, the Agent will cause a certificate
or certificates for the full Shares held by each Participant under the Plan and
cash adjustment for any fraction to be delivered to each Participant without
charge. If the Participant elects by notice to the Agent in writing in advance
of such termination to have the Agent sell part or all of a Participant's Shares
and remit the proceeds to Participant, the Agent is authorized to deduct a
brokerage commission for this transaction from the proceeds.
14. Any amendment or supplement shall be deemed to be accepted by each
Participant unless, prior to the effective date thereof, the Agent receives
written notice of the termination of the Participant's account under the Plan.
Any such amendment may include an appointment by the
PAGE 20
<PAGE>
<PAGE>
THE EMERGING MARKETS FLOATING RATE FUND INC.
Agent in its place and stead of a successor Agent under these terms and
conditions, with full power and authority to perform all or any of the acts to
be performed by the Agent under these terms and conditions. Upon any such
appointment of an Agent for the purpose of receiving dividends and
distributions, the Fund will be authorized to pay to such successor Agent, for
each Participant's account, all dividends and distributions payable on Shares of
the Fund held in each Participant's name or under the Plan for retention or
application by such successor Agent as provided in these terms and conditions.
15. In the case of Participants, such as banks, broker-dealers or other
nominees, which hold Shares for others who are beneficial owners ('Nominee
Holders'), the Agent will administer the Plan on the basis of the number of
Shares certified from time to time by each Nominee Holder as representing the
total amount registered in the Nominee Holder's name and held for the account of
beneficial owners who are to participate in the Plan.
16. The Agent shall at all times act in good faith and use its best efforts
within reasonable limits to insure the accuracy of all services performed under
this Agreement and to comply with applicable law, but assumes no responsibility
and shall not be liable for loss or damage due to errors unless such error is
caused by its negligence, bad faith, or willful misconduct or that of its
employees.
17. All correspondence concerning the Plan should be directed to the Agent at 40
Wall Street, 46th Floor, New York, New York 10005.
PAGE 21
<PAGE>
<PAGE>
THE EMERGING MARKETS FLOATING RATE FUND INC.
- ------------
Directors
CHARLES F. BARBER
Consultant; formerly Chairman,
ASARCO Incorporated
WILLIAM D. CVENGROS
Co-Chairman of the Board;
Chief Executive Officer and
President of Value Advisors LLC and
President of PIMCO Advisors L.P.
LESLIE H. GELB
President, The Council on
Foreign Relations
HEATH B. MCLENDON
Co-Chairman of the Board;
Managing Director, Salomon Smith Barney Inc.; President and Director,
Mutual
Management Corp. and Travelers
Investment Advisers, Inc.;
Chairman, Smith Barney Strategy
Advisors Inc.
RIORDAN ROETT
Professor and Director,
Latin American Studies Program,
Paul H. Nitze School of Advanced
International Studies,
Johns Hopkins University
JESWALD W. SALACUSE
Henry J. Braker Professor of Commercial
Law, and formerly Dean, The Fletcher
School of Law & Diplomacy
Tufts University
- ---------
Officers
WILLIAM D. CVENGROS
Co-Chairman of the Board
HEATH B. MCLENDON
Co-Chairman of the Board
STEPHEN J. TREADWAY
President
LEWIS E. DAIDONE
Executive Vice President and Treasurer
THOMAS K. FLANAGAN
Executive Vice President
NEWTON B. SCHOTT
Executive Vice President
PETER J. WILBY
Executive Vice President
ANTHONY PACE
Assistant Controller
- --------------------------------
The Emerging Markets
Floating Rate Fund Inc.
7 World Trade Center
New York, New York 10048
TELEPHONE
1-888-777-0102
INVESTMENT MANAGER
Value Advisors LLC
800 Newport Center Drive
Suite 100
Newport Beach, California 92660
INVESTMENT ADVISER
Salomon Brothers Asset Management Inc
7 World Trade Center
New York, New York 10048
CUSTODIAN
The Chase Manhattan Bank
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
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
LEGAL COUNSEL
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
NEW YORK STOCK EXCHANGE SYMBOL
EFL
STATEMENT OF DIFFERENCES
------------------------
The dagger symbol shall be expressed as .................................. 'D'
The double dagger symbol shall be expressed as ........................... 'DD'
The division sign shall be expressed as .................................. [div]
