Stone Harbor Emerging Markets Income Fund : Semi-Annual Report - May 31, 2021

May 31, 2021

Semi-Annual Report

Emerging Markets Income Fund

As permitted by regulations adopted by the U.S. Securities and Exchange Commission, paper copies of the Fund's annual and semi- annual shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports. Instead, the reports will be made available on the Fund's website www.shiplpcef.com, and you will be notified by mail each time a report is posted and provided with a website link to access the report.

If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other communications from the Fund electronically anytime by contacting your financial intermediary (such as a broker-dealer or bank) or, if you are a direct investor, by enrolling at www.shiplpcef.com.

You may elect to receive all future reports in paper free of charge. If you invest through a financial intermediary, you can contact your financial intermediary to request that you continue to receive paper copies of your shareholder reports. If you invest directly with the Fund, you can call 1-866-390-3910 to let the Fund know you wish to continue receiving paper copies of your shareholder reports. Your election to receive reports in paper will apply to all funds held in your account if you invest through your financial intermediary or all funds held with the fund complex if you invest directly with the Fund.

Distribution Policy

May 31, 2021

Stone Harbor Emerging Markets Income Fund (the "Fund"), acting pursuant to a U.S. Securities and Exchange Commission exemptive order and with the approval of the Fund's Board of Trustees (the "Board"), has adopted a plan, consistent with its investment objectives and policies to support a level distribution of income, capital gains and/or return of capital (the "Plan"). In accordance with the Plan, the Fund currently distributes $0.07 per share on a monthly basis.

The fixed amount distributed per share is subject to change at the discretion of the Fund's Board. Under the Plan, the Fund will typically distribute most or all of its available investment income to its shareholders, consistent with its primary investment objectives and as required by the Internal Revenue Code of 1986, as amended (the "Code"). The Fund may also distribute long term capital gains and short term capital gains and return capital to shareholders in order to maintain a level distribution. Each monthly distribution to shareholders is expected to be at the fixed amount established by the Board, except for extraordinary distributions and potential distribution rate increases or decreases to enable the Fund to comply with the distribution requirements imposed by the Code. In addition, the Fund currently distributes more than its net income and net realized capital gains, and therefore, a portion of the distribution is a return of capital. A return of capital may occur, for example, when some or all of the money that a shareholder invested in the Fund is paid back to that shareholder. A return of capital distribution does not necessarily reflect the Fund's investment performance and should not be confused with 'yield' or 'income'. When distributions exceed total return performance, the difference will reduce the Fund's net asset value per share. The amounts and sources of distributions reported to shareholders during the fiscal year are only estimates and are not provided for tax or financial reporting purposes. The actual amounts and sources of the amounts for tax or financial reporting purposes will depend upon the Fund's investment experience during the year and are subject to change.

Shareholders should not draw any conclusions about the Fund's investment performance from the amount of these distributions or from the terms of the Plan. The Fund's total return performance on net asset value is presented in its financial highlights table.

The Board may amend, suspend or terminate the Fund's Plan without prior notice if it deems such action to be in the best interest of the Fund or its shareholders. The suspension or termination of the Plan could have the effect of creating a trading discount (if the Fund's stock is trading at or above net asset value) or widening an existing trading discount. The Fund is subject to risks that could have an adverse impact on its ability to maintain level distributions. Examples of potential risks include, but are not limited to, economic downturns impacting the markets, investments in foreign securities, foreign currency fluctuations and changes in the Code. Please refer to the Fund's prospectus for a more complete description of its risks.

Table of Contents

Shareholder Letter	2
Summary of Portfolio Holdings	5
Growth of $10,000 Investment	6
Statement of Investments	7
Statement of Assets & Liabilities	15
Statement of Operations	16
Statements of Changes in Net Assets	17
Statement of Cash Flows	18
Financial Highlights	19
Notes to Financial Statements	20
Summary of Dividend Reinvestment Plan	31
Additional Information	32
Board Approval of Investment Advisory Agreement	34
Benchmark Descriptions and Definitions	36

Stone Harbor Emerging Markets Income Fund	Shareholder Letter
	May 31, 2021 (Unaudited)

Dear Investor,

We believe that emerging market ("EM") bonds and currencies provide attractive returns for long‐term total return investors and that the key to investing in the sector is a disciplined investment process. Our job is to appraise the credit quality of the various countries and companies in which we invest and to trust the results of our analysis even when-or especially when-they offer different conclusions from those of the market.

In the past 6 months, as global growth accelerated, EM bond markets recovered, but performance was negatively impacted by the decline of the US treasury market. Over the 6 month period as yields rose, the 7‐10 year portion of US treasury market declined by 3.5%. At the same time, the returns of benchmarks for the three distinct sectors of EM debt ‐‐ hard currency sovereign debt, local currency debt and corporate debt showed ‐‐ positive returns of 0.48%, 0.99% and 1.91%, respectively.

For shareholders in the Stone Harbor Emerging Markets Income Fund ("EDF" or "Fund"), our investment process led us to invest in more attractively priced issues that performed well despite rising US Treasury yields. Based on our research, we believed that market prices of several high yielding credits in particular were too low relative to the underlying fundamentals. These decisions reflected our view that the most probable macroeconomic scenario was a synchronized global liftoff in growth as novel coronavirus ("COVID‐19") vaccine rollouts broadened in the developed world, allowing for the global economy to reopen. So far, with some fits and starts in certain regions, this view has been correct. With the recent commitment of G7 countries to deliver at least 870 million COVID‐19 vaccine doses to countries in need, we think the vaccination of EM populations will only accelerate over the next six months.

Our positioning in high yielding EM debt also took into account large scale support from the International Monetary Fund (IMF). Already, the IMF has disbursed approximately $115 billion of nearly US$1 trillion in available aid to developing countries. More support will come soon as the IMF Executive Board approves an additional US$650 billion in Special Drawing Rights (SDRs). SDRs allow EM countries to effectively boost their foreign currency reserves with no conditionality at very low cost. The current interest rate on SDRs is 0.05% per annum. This unprecedented level of support helps countries manage their way out of the pandemic and positions them to better capitalize on the recovery.

As important as our top down macroeconomic view, our fundamental analyses gave us confidence to invest in several out‐of‐favor credits and countries that subsequently performed well as markets recovered. We discuss several of these positions in the performance section of this report.

Looking forward, we remain optimistic about the prospects for emerging markets and EM debt. Several factors underpin this view, including.

• Global and EM growth accelerated in the second quarter of 2021. We expect above‐trend growth to continue in many EMs over the rest of this year and through 2022 as the abundance of vaccine supply in some countries spills over to those with less abundance.
• The pace of change in EM vaccination distribution is indeed improving rapidly. We believe this development will continue to support strong growth in many developing countries in the months to come.
• Commodity price strength, a product of both pent‐up demand and constrained supply, provides many resource‐rich developing countries powerful fiscal support, which enhances the capacity of EMs to repay their debts.
• External vulnerabilities, as measured by current account balances, are lower today than at any point in the past decade as a result of the cumulative effect of long‐term currency depreciation and the recent declines in domestic demand.
• Unlike central banks from advanced economies, many EM central banks have begun to hike policy interest rates from low levels, proactively insuring against the risk of rising inflation.

As we have noted in the past, the latitude to adjust risk levels in the portfolio based on our fundamental economic and credit views, and according to our assessment of the macroeconomic environment, is an important advantage in managing the fund through times of market stress and calm. Our investment process focuses on allocating to the various sectors of EM debt, each of which tend to behave differently in various macroeconomic environments. We believe these allocation decisions provide diversification benefits and have enabled the Fund to outperform broad measures of the markets in which we invest.

In addition, we can also vary the amount of leverage used by the Fund. In general, we employ leverage to seek higher yields and higher returns.

Throughout the reporting period, leverage consisted primarily of short‐term reverse repurchase agreements. The implied borrowing costs of the repurchase agreements averaged approximately 1.18% per annum for the 6 months ended May 31, 2021. The level of gross leverage reached a maximum of 31.18% of managed assets on April 9, 2021 and a minimum of 23.99% on March 6, 2021. By the end of the reporting period, leverage was 28.15%. The Fund's management team varied borrowing levels to reflect the team's outlook on EM risk, increasing borrowings when it felt opportunities had improved and reducing borrowings when, in the team's judgment, macroeconomic risks had risen.

2	www.shiplpcef.com

Stone Harbor Emerging Markets Income Fund	Shareholder Letter
	May 31, 2021 (Unaudited)

The Fund uses various derivative instruments to implement its strategies. These derivatives are utilized to manage the Fund's credit risk, interest rate risk, foreign exchange risk and efficiently gain certain investment exposure. These derivative positions may increase or decrease the Fund's exposure to these risks. At the end of the reporting period the Fund had market exposure to derivatives of approximately $1.5 million. Over the course of the reporting period, derivative positions generated net realized gain of approximately $268,000 and $449,000 in unrealized depreciation for a net decrease in operations of approximately $181,000.

Performance Review

The total return on net asset value ("NAV") and market price of EDF for the 6 months ended 31 May 2021(1) (net of expenses) was 8.78%(2) and 20.30%(3), respectively. For the same period, the Fund had an average premium to its NAV of 18.50%. As noted earlier, benchmarks for the three sectors of EM debt(4) - hard currency sovereign debt, local currency sovereign debt, and corporate debt - delivered total returns of 0.48%, 0.99%, and 1.91%, respectively, during the reporting period.

At the sector level, hard currency sovereign debt was both the largest position in the Fund (75.2% of total assets(5)) and the largest contributor to performance, accounting for 6.34% in total return(6). The position size reflected our understanding that markets remained apprehensive about the credit quality of many emerging markets despite data that showed improving growth, better fiscal positions and benign current account balances. This concern was reflected in wide credit spreads in bonds from some non‐investment grade countries, particularly in comparison to comparably rated securities in the US high yield bond market. Local currency debt, which comprised a smaller portion of the portfolio (27.0%), contributed 1.30% to the portfolio's overall return. EM corporate debt, with the smallest sector weight (15.6%), contributed 2.89%.

Within the hard currency sovereign debt portion of the Fund, the largest contributors to performance were two oil exporting countries, Ecuador and Angola. Rising oil prices and improving oil fundamentals continued to support the repayment capacity of most oil producing countries and those two in particular. During the reporting period, our position in Ecuador returned 36.88% and contributed 3.16% to the portfolio's overall total return. Despite the market's fear that a populist with radical spending proposals would win the presidential election on 7 February, Ecuadorians ultimately elected a center‐right conservative, Guillermo Lasso. Although he faces a fragmented National Assembly, his victory improved the probability of achieving the goals of the recently approved 27 month, US$5 billion IMF Extended Fund Facility ("EFF") program. The election result further confirms our confidence in the attractiveness of Ecuadorean debt and we added additional exposure on confirmation of Lasso's win.

In Angola, the government's commitment to stabilize public finances through gains in revenue from improving economic growth and lower expenses from spending constraint has kept the country on track with its IMF program. The Fund approved a US$487.5 million disbursement in January following the fourth review of the IMF EFF. In addition, Angola is likely to receive up to US$3.2 billion in debt relief in 2021 and another US$4 billion by the end of 2022 from China and other bilateral lenders. The Fund's position in Angola generated a total return of 17.03% and contributed 1.28% to the portfolio's overall return.

In contrast to Ecuador and Angola, the Fund's position in Argentina detracted from performance, contributing ‐1.77% in total return. Argentine bonds declined 17.45% over the reporting period. Notwithstanding the mark‐to‐market losses, we view Argentina as one of Fund's most attractive exposures. Argentina restructured approximately US$65 billion in its external sovereign debt last year and has only modest US dollar coupon payments and amortizations due in the next two years, which we view as very manageable. Bond prices fell steeply earlier this year on headlines that the country's current Vice President (and former President) Cristina Fernandez de Kirchner wanted to delay negotiations with the IMF on a new lending program. While a delay is likely until after the October elections, current market pricing of the already‐restructured debt is extreme, in our view, and recent news that Argentina has negotiated a payment plan for debt arrears with the Paris Club creditor group signals willingness to pay. We added to the Fund's exposure in February after prices fell, trimmed it marginally as prices recovered from their lows, but remain overweight given our assessment on the country's fundamentals and the potential upside from current valuations.

In local currency debt, the top contributors include bonds from South Africa and Mexico, which contributed 0.78% and 0.45%, respectively to the Fund's total return. EDF's position in South Africa returned 23.12% as the rand appreciated by 12.26% and the average yield on local bonds fell from 9.9% to 9.7%. Though headline inflation, driven by a combination of rising fuel and food prices, has increased recently, we believe underlying inflation pressure remains benign. With headline inflation running in the low 4% per annum, domestic bonds yielding in excess of 9% trade with very high real yields in excess of 5%. We view this as compelling, particularly when compared to negative absolute and real yields available in government bonds from the developed market. Accordingly, we continue to view South Africa's local bond market as attractive.

Mexico's local bonds also offer attractive real yields and the country benefits from its close relationship with and proximity to the US for trade and capital flows. The fund's position in Mexico generated a total return of 8.62%, with most of the gains from capital appreciation on bonds. In addition, the peso appreciated by 1.01% relative to the US dollar over the period. Banxico, Mexico's central bank, provides a strong monetary policy anchor for domestic bond yields, in our view, and recently surprised the market with an early hike in its policy interest rate to stave off inflationary threats. We continue to view domestic bonds from Mexico as a core position.

Semi-Annual Report | May 31, 2021

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