UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED

MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number: 811-22037

Stone Harbor Investment Funds

(Exact name of registrant as specified in charter)

1290 Broadway, Suite 1100

Denver, CO 80203

(Address of principal executive offices) (Zip code)

Adam J. Shapiro, Esq.

c/o Stone Harbor Investment Partners LP

31 West 52nd Street, 16th Floor

New York, NY 10019

(Name and address of agent for service)

With copies To:

John M. Loder, Esq.

Ropes & Gray LLP

One International Place

Boston, MA 02110-2624

Registrant’s telephone number, including area code: (303) 623-2577

Date of fiscal year end: May 31

Date of reporting period: June 1, 2010 - May 31, 2011

Item 1. Report to Stockholders.

Table of Contents

Shareholder Letter	1
Disclosure of Fund Expenses	4
Summaries of Portfolio Holdings	5
Growth of a $10,000 Investment
Stone Harbor Emerging Markets Debt Fund	7
Stone Harbor High Yield Bond Fund	8
Stone Harbor Local Markets Fund	9
Report of Independent Registered Public Accounting Firm	10
Statements of Investments
Stone Harbor Emerging Markets Debt Fund	11
Stone Harbor High Yield Bond Fund	24
Stone Harbor Local Markets Fund	40
Statements of Assets & Liabilities	46
Statements of Operations	47
Statements of Changes in Net Assets	48
Financial Highlights
Stone Harbor Emerging Markets Debt Fund	49
Stone Harbor High Yield Bond Fund	50
Stone Harbor Local Markets Fund	51
Notes to Financial Statements	52
Additional Information	60
Approval of Investment Advisory Agreements	61
Trustees and Officers	63

Stone Harbor Investment Funds	Shareholder Letter
	May 31, 2011

Dear Shareholder,

The year ended May 2011 has been another excellent period for credit-focused, fixed income investors. While returns were not as dramatic as in the previous year, where the market recovery helped the Stone Harbor Funds to achieve gains in excess of 20% (see pages 7-9 for complete performance information), all three of our institutional funds achieved impressive mid-teens returns for the period. We continue to believe that against the backdrop of a below-trend economic recovery in developed economies, and their associated accommodative monetary policies, the outlook for credit-based strategies remains very favorable for the near- to intermediate-term. Once again, we thank you for your support and commitment to Stone Harbor Investment Partners.

Market Overview

From a global economic point of view, the last twelve months have been strikingly similar to the previous twelve months, albeit one year deeper into a very sub-par developed market economic recovery, following the sharp 2008 recession. On the positive side of the global economic landscape, strong growth in China and most of the major emerging market economies has been led by inter-regional trade and the development of an emerging middle class consumer market. This shift is propelling global commodity-producing developed economies like Canada and Australia, as well as commodity exporting emerging market economies. Also of positive note has been the surprisingly strong growth of the core of Northern Continental Europe (i.e., Germany, France, and the Nordic region), driven very much by high value added exports to emerging economies. It is quite the opposite case for the European Union as a whole, which has been dragged down by struggling peripheral economies, mostly along the Mediterranean.

On the mixed to negative side, the economic performance of the US could best be described as a “fits and starts” economy. While exports and investment have been healthy, overall growth has been offset by the run-off of government stimulus programs. More importantly, the persistent oversupply in the housing market, coupled with the slow pace of job creation have severely impacted consumer spending. The US, as well as all world economies, has also been encumbered by a series of external shocks over the last year. The tragic earthquake and follow-on events in Japan have not only severely damaged that economy, but have also had knock-on effects through the global industrial supply chain, acutely hampering global auto production, as an example. The political instability in North Africa and the Middle East region has sharply increased energy prices worldwide, putting a drag on global consumer growth, and undermining confidence amidst political uncertainties. Finally, the continuing saga of the still unresolved European sovereign debt crisis heightens volatility and reinforces focus on the perilous state of developed market government finances.

Financial markets have been dominated by instability surrounding the above-mentioned external shocks, as well as by ongoing extraordinarily accommodative interest rate policies of major

developed market central banks. This dynamic has been most highlighted by the US Federal Reserve’s so-called quantitative easing policy of buying mortgage securities, the second round of which is expiring in June of 2011. These policies have been aimed at maintaining low mortgage rates in the US, and perhaps driving liquidity into other financial assets to boost confidence and spur consumer spending. This contrasts with tightening monetary conditions in many emerging markets economies, where many central banks are raising interest rates in an attempt to prevent inflation from accelerating in their rapidly growing economies.

Although certainly affected by some of the global volatility, the high yield corporate bond market, which is dominated by US corporations, continued its strong recovery from the 2008 downturn. The total return of the Fund’s benchmark, the Citigroup High Yield Market Capped Index, was 17.32% for the twelve months ended May 31, 2011. Yields on the broad market fell from 9.23% at the beginning of the period to 7.39% at the end of the reporting period, with risk premiums, or credit spreads, declining from 708 basis points above comparable US Treasury bonds to 524 basis points above at May 31, 2011. The largest gaining sectors in this market were the global cyclical industries, energy producers and the still recovering financial sectors.

Emerging markets fixed income also experienced strong performance for the twelve month period. Driven by rallies in base interest rates, as well as continued improvements in underlying emerging market sovereign credit quality, a direct contrast from most developed market governments, the JP Morgan Emerging Markets Bond Index Global Diversified, the benchmark index for the US dollar-denominated Stone Harbor Emerging Markets Debt Fund, returned 12.52% for the twelve months ended May 31, 2011, as market yields fell from 6.57% at the beginning of the period to 5.86% at May 31, 2011. Risk premiums, or spreads over comparable US Treasury bonds, fell from 338 basis points to 290 basis points. In the Stone Harbor Local Markets Fund, which invests in non-US dollar-based emerging market bond and currency markets, the benchmark for the fund returned 20.18% for the twelve month period.

Looking ahead, the world economy continues on a slow-to-moderate expansion, but facing considerable headwinds. We believe growth should remain strong in most emerging markets, driven by the aforementioned factors, while inflationary pressures in many of those regions will start to moderate, giving central banks more breathing room. The developed markets will again remain mixed in terms of economic strength, with natural demand growth facing the headwinds of fiscal reforms in the public sector in most major markets. Deficit reduction and fiscal balance are timely issues in many developed markets, crimping aggregate demand. In many cases, such as in Greece, the adjustments needed in the face of the mounting related-debt issues cause extreme hardship and also extreme market volatility. Current fixes in Greece are at best temporary, and uncertainty surrounding Greece’s solvency and that of other peripheral European nations will continue to be a concern. In the US, the benefit of the dollar’s position as the world’s reserve currency has helped temper market reaction to the federal budget

Stone Harbor Investment Funds Annual Report  |  May 31, 2011 1

Stone Harbor Investment Funds	Shareholder Letter
	May 31, 2011

situation, but unless the situation is dealt with, the US potentially faces similar issues.

At Stone Harbor, we will continue to focus on capturing excess return from stable to improving credit situations in corporate and sovereign markets worldwide, while being alert to crises as well as economic softness. We believe credit quality runs in cycles, and corporations globally, as well as governments in emerging markets, are on the expansionary part of these cycles. We remain vigilant to potential changes in that outlook and somewhat cautious that developed market debt stresses will continue to pose major risks for all.

Performance Review

Stone Harbor Emerging Markets Debt Fund

The Stone Harbor Emerging Markets Debt Fund return for the twelve months ended May 31, 2011 was 16.30% (net of expenses) and 17.05% (gross of expenses). This compares to a benchmark return of 12.52% for the JP Morgan Emerging Market Bond Index Global Diversified. During this period, emerging market sovereign credit spreads in most countries within the benchmark tightened. Commodity prices rose, led first by food prices, then later by energy, a move that was exacerbated by the Jasmine Revolution in Tunisia and subsequent uprisings in the Middle East. Risk assets, in general, performed well. The US dollar, however, continued on a sustained weakening trend, as a combination of low interest rates and worries about rising fiscal uncertainty drove global investors to diversify away from the greenback.

Throughout this period, the portfolio was positioned to favor select high beta credits that had strong valuation support, including Argentina and Venezuela. Argentina’s country benchmark total return for the twelve-month period was 39.69%; Venezuela’s performance was 27.10%. Both countries benefited from strong demand for high yielding assets, as well as idiosyncratic developments. As a major oil exporter, Venezuela benefits from higher crude prices; the country’s improved debt repayment capacity, in our view, was reflected in higher bond prices. Argentina’s strong growth performance amidst a period of relative political calm aided bond market stability, and led to tightening of credit spreads.

The portfolio was also positioned for an improving environment for corporate prosperity in many key emerging markets. Tactical allocations to select corporate bonds increased throughout the period in recognition of attractive corporate debt valuations, and given our opportunistic view on the potential for spread compression in many corporate credits. Corporate investments in the portfolio focused on commodity producers in sub-investment grade countries, on companies focused on domestic consumption in higher growth economies and on other companies, which are deleveraging either organically or via Merger & Acquisition activity.

Excess returns of 466 basis points for the period (gross basis) resulted from country/corporate selection decisions and issue selection decisions in roughly equal proportions. Country selection

decisions, including allocations to sovereign and corporate debt, enhanced performance by 215 basis points. Issue selection decisions boosted returns by 206 basis points.

Key contributors to outperformance in country selection included overweight positions in Venezuela and Iraq, and underweight positions in Lebanon. Allocations to debt of companies domiciled in Argentina, Brazil, China, Egypt, India, Indonesia, Mexico, Russia Singapore, South Africa, Ukraine and United Arab Emirates also drove outperformance. In issue selection, the key contributors to excess returns included allocations to foreign exchange markets in Brazil, Colombia, Indonesia, Malaysia, Mexico, Russia and South Africa. In addition, allocations to long duration debt in Argentina enhanced returns.

Stone Harbor High Yield Bond Fund

The Stone Harbor High Yield Bond Fund return for the twelve months ended May 31, 2011 was 17.14% (net of expenses) and 17.69% (gross of expenses). This compares to a benchmark return of 17.32% for the Citigroup High Yield Market Capped Index. Despite a rocky start, the high yield market resumed an upward trajectory and delivered strong gains, dipping below breakeven in only two of the trailing twelve months, as doubts lingered regarding the sustainability of a synchronized global recovery. Firmly anchored by strong corporate earnings, declining default risk and a robust new issue market, high yield bonds showed resilience in the face of large swings in equities.

Exogenous shocks remained key drivers of market volatility throughout the reporting period. The threat of a European debt crisis subsided and resurfaced intermittently, adding to the uneven progression of the global economic recovery. A catalyst to a modest market correction in November, sovereign debt concerns yielded to political instability in the Middle East and North Africa, which gained traction in the first few months of the year. More importantly, contagion to bordering countries, including Libya, nursed fears of potential production disruptions and realized speculation of surging oil prices. A headline-driven sell-off in global equity prices was compounded by news of a devastating earthquake and subsequent tsunami in Japan, as well as the ensuing threat of a nuclear crisis. Investors immediately took a more cautious view towards global growth estimates, as the outlook for long-term US debt was downgraded from “stable” to “negative” on uncertainty surrounding the ballooning deficit.

Despite an overall reduction in risk, high yield bonds held within a tight range, supported by upside fundamentals signaling trend-like economic growth and a broadening recovery, although the message was somewhat obscured by a lagging jobs market and depressed home prices. As external headwinds were eclipsed by quarterly earnings, credit spreads tightened notably in the first half of April, but drifted wider heading into May. Both the manufacturing and services sectors experienced some cooling, with global industrial production levels dipping, a decline that was not completely unexpected given the impact of Japan-related supply chain disruptions. Mounting signs of a slowdown in global growth fostered

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Stone Harbor Investment Funds	Shareholder Letter
	May 31, 2011

some risk aversion towards the end of May, a bias that was exacerbated by a meaningful downturn in most sectors of the economy.

While we acknowledge that the downside risks to a pickup in growth in the second half of the year have certainly increased relative to where the economy stood six months ago, we believe that the brunt of the pullback can be attributed to the transitory after-shocks of global events. Particularly in light of the extent to which credit spreads have widened, we remain constructive on high yield and believe credit risk assets have room to tighten as the recovery resumes and gains traction. As a result, we are currently favoring the single B sector as the best market subcomponent to benefit from narrowing credit spreads, as well as the least vulnerable to losses from rising underlying Treasury rates. Within industries, we are increasingly tilting our portfolios towards a sustainable recovery in the consumer sector of the economy, as well as a broadening out of the industrial recovery.

Stone Harbor Local Markets Fund

The Stone Harbor Local Markets Fund return for the period ended May 31, 2011 was 16.82% (net of expenses) and 17.74% (gross of expenses). This compares to a benchmark return of 19.12% for the JP Morgan Global Bond Index-Emerging Markets Global Diversified. During the reporting period, emerging local currency debt markets outperformed all other emerging debt markets, aided significantly by the weakness in the US dollar, continued strong growth and prudent countercyclical monetary policies in most emerging markets. In addition, market performance was also driven by strong, ongoing portfolio and foreign direct investment inflows into emerging markets.

Throughout the reporting period, the portfolio favored faster growing economies in Latin America and Asia, with overweight allocations in Brazil, Colombia, Mexico, China, Indonesia and Malaysia. The portfolio’s underweight positions have been concentrated in Central and Eastern Europe, where a mix of more limited growth prospects and short-term policymaking have reduced the attractiveness of local debt markets, in our view. Importantly, this view was not shared by all investors over the trailing twelve months. Hungary’s local debt market total return during the period, for example, was 36.26% despite the country’s tepid growth and heavy public debt load. The strong performance of the Euro versus the US dollar (+16.98%, source: Bloomberg) further reflected optimism over the Eurozone’s prospects that we did not share.

The period was also marked by the imposition of the US Federal Reserve’s second attempt at quantitative easing, which many policymakers in emerging markets decried as a source of destabilizing capital inflows. Appreciation of emerging market currencies led the Brazilian Finance Minister to coin the phrase “currency wars” in September 2010 to describe the US Fed’s efforts to effectively devalue its currency via beggar-thy-neighbor policy. In response, the Brazilians and policymakers in other emerging market countries sought measures to reduce inflows by imposing taxes on capital inflows. In the particular case of Brazil, new financial

transaction taxes were imposed, which had the immediate impact of a steepening Brazil local debt yield curve, as foreign investors reconsidered ways to effectively invest in local Brazilian debt.

As food prices increased from mid-summer 2010 through the start of 2011, many global investors questioned whether emerging market central banks were falling behind the curve in terms of their willingness to normalize monetary policy and fight inflation. This concern also led to a sharp correction in local interest rates at the close of 2010, and prompted many investors, including ourselves, to shorten duration in local debt portfolios. However, our view throughout the period was that central bankers in most emerging markets, particularly in key Latin American and Asian countries, had strong inflation-fighting credentials. We also believed that the acceleration of food prices was unlikely to continue indefinitely. As a result, we began to increase duration positions in select markets where valuations were particularly attractive. Brazil, Mexico and South Africa were three key examples.

Of the country selection decisions that detracted from performance, the most important was our underweight position in Hungary. Conversely, underweight allocations in Thailand and Turkey enhanced performance. In issue selection, the key investment decision was our allocation to long duration Brazil fixed rate debt, which detracted from overall returns.

Sincerely,

Thomas W. Brock

Chairman of the Board of Trustees

Beta: A measurement of sensitivity of performance relative to changes in benchmark performance. A beta of 1.0 implies up and down movements of roughly the same magnitude as the benchmark. A higher beta means higher risk associated with the benchmark.

The percentage of the Funds’ assets invested in securities in a particular rating category will vary. The following terms pertain to Standard & Poor’s ratings, although the Funds may also make use of Moody’s and Fitch ratings.

Sub-investment grade: Obligations rated ‘BB’, ‘B’, ‘CCC’, ‘CC’ and ‘C’ are regarded as having significant speculative characteristics. ‘BB’ indicates the least degree of speculation and ‘C’ the highest. While such obligations will likely have some quality and protective characteristics, these may be outweighed by large uncertainties or major exposures to adverse conditions.

Single B Sector: An obligation rated ‘B’ is more vulnerable to non-payment than obligations rated ‘BB’, but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial, or economic conditions will likely impair the obligor’s capacity or willingness to meet its financial commitment on the obligation.

Stone Harbor Investment Funds Annual Report  |  May 31, 2011 3

Stone Harbor Investment Funds	Disclosure of Fund Expenses
	May 31, 2011(Unaudited)

Example. As a shareholder of a Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments and/or redemption fees (if applicable) and (2) ongoing costs, including management fees and other Fund expenses. The below examples are intended to help you understand your ongoing costs (in dollars) of investing in a Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The examples are based on an investment of $1,000 invested on December 1, 2010 and held until May 31, 2011.

Actual Expenses. The first line of each table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes. The second line of each table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in a Fund and other mutual funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect transactional costs, such as redemption fees, sales charges (loads) or exchange fees. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

	Beginning Account Value 12/01/2010	Ending Account Value 05/31/2011	Expense Ratio(1)	Expenses Paid During Period(2)
STONE HARBOR EMERGING MARKETS DEBT FUND
Institutional Class
Actual	$1,000.00	$1,052.70	0.75%	$3.84
Hypothetical (5% return before expenses)	$1,000.00	$1,021.19	0.75%	$3.78
STONE HARBOR HIGH YIELD BOND FUND
Institutional Class
Actual	$1,000.00	$1,078.50	0.55%	$2.85
Hypothetical (5% return before expenses)	$1,000.00	$1,022.19	0.55%	$2.77
STONE HARBOR LOCAL MARKETS FUND
Institutional Class
Actual	$1,000.00	$1,084.70	1.00%	$5.20
Hypothetical (5% return before expenses)	$1,000.00	$1,019.95	1.00%	$5.04
(1)          Annualized, based on the Fund’s most recent fiscal half-year expenses. (2)         Expenses are equal to the Fund’s annualized ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half year (182), divided by 365. Note this expense example is typically based on a six-month period.

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Stone Harbor Investment Funds	Summaries of Portfolio Holdings
	May 31, 2011

Under SEC Rules, all funds are required to include in their annual and semi-annual shareholder reports a presentation of portfolio holdings in a table, chart or graph by reasonably identifiable categories. The following tables, which present holdings as a percent of total net assets (“TNA”), are provided in compliance with such requirements.

STONE HARBOR EMERGING MARKETS DEBT FUND
Country Breakdown	% of TNA
Mexico	8.23%
Russia	8.20%
Argentina	7.59%
Venezuela	7.19%
Brazil	7.18%
Colombia	6.33%
Indonesia	5.45%
South Africa	5.23%
Malaysia	5.15%
Iraq	3.35%
Philippines	3.26%
Turkey	3.21%
Poland	3.09%
Panama	3.04%
Ukraine	3.00%
China	2.05%
Kazakhstan	2.01%
Uruguay	1.91%
Croatia	1.45%
Peru	1.40%
Qatar	1.18%
El Salvador	0.89%
United Arab Emirates	0.74%
Chile	0.72%
India	0.43%
South Korea	0.37%
Jamaica	0.24%
Hong Kong	0.20%
Dominican Republic	0.19%
Egypt	0.17%
Ghana	0.16%
Singapore	0.16%
Barbados	0.11%
Pakistan	0.08%
Gabon	0.01%
Total	93.97%
Money Market Mutual Funds	6.80%
Liabilities in Excess of Other Assets	0.77%
Total Net Assets	100.00%

STONE HARBOR HIGH YIELD BOND FUND
Industry Breakdown	% of TNA
Healthcare	8.23%
Electric	6.23%
Services Other	5.04%
Gaming	4.78%
Exploration & Production	4.65%
Metals/Mining/Steel	4.65%
Media Cable	4.50%
Retail Non Food/Drug	4.46%
Technology	4.43%
Wirelines	4.05%
Drillers/Services	3.51%
Media Other	3.34%
Wireless	3.32%
Paper/Forest Products	3.19%
Food & Beverage	3.07%
Gas Pipelines	3.04%
Chemicals	2.88%
Containers/Packaging	2.64%
Leisure	2.04%
Aerospace/Defense	1.98%
Automotive	1.85%
Publishing/Printing	1.70%
Building Products	1.28%
Industrial Other	1.27%
Construction Machinery	1.13%
Gas Distributors	1.13%
Banking	1.01%
Consumer Products	0.75%
Transportation - Non Air/Rail	0.75%
Retail Food/Drug	0.73%
Textile/Apparel	0.69%
Non Captive Finance	0.68%
Refining	0.56%
Satellite	0.47%
REITS	0.41%
Restaurants	0.40%
Environmental Services	0.35%
Property & Casualty Insurance	0.25%
Financial Other	0.24%
Pharmaceuticals	0.23%
Life	0.05%
Railroads	0.03%
Airlines	0.02%
Lodging	0.01%
Total	96.02%
Money Market Mutual Funds	2.95%
Other Assets in Excess of Liabilities	1.03%
Total Net Assets	100.00%

Stone Harbor Investment Funds Annual Report  |  May 31, 2011 5

Stone Harbor Investment Funds	Summaries of Portfolio Holdings
	May 31, 2011

STONE HARBOR LOCAL MARKETS FUND
Country Breakdown	% of TNA
Brazil	12.75%
Mexico	11.17%
Indonesia	9.61%
Malaysia	9.47%
European Union	6.17%
Colombia	6.06%
Thailand	4.55%
Poland	4.19%
Turkey	4.10%
South Africa	4.06%
Venezuela	1.96%
Hungary	1.45%
Philippines	0.56%
Argentina	0.28%
Russia	0.16%
Total	76.54%
Money Market Mutual Funds	21.19%
Other Assets in Excess of Liabilities	2.27%
Total Net Assets	100.00%

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Stone Harbor Investment Funds	Growth of $10,000 Investment
	May 31, 2011 (Unaudited)

STONE HARBOR EMERGING MARKETS DEBT FUND

Comparison of Change in Value of $10,000 Investment in Stone Harbor Emerging Markets Debt Fund and the JP Morgan Emerging Market Bond Global Diversified Index.

The JP Morgan EMBI Global Diversified Index limits the weights of those index countries with larger debt stocks by only including specified portions of these countries’ eligible current face amounts outstanding. The countries covered in the EMBI Global Diversified are identical to those covered by the EMBI Global.

Average Annual Total Returns

	1 Year	3 Years	Since Inception	Inception Date
Stone Harbor Emerging Markets Debt Fund	16.30%	11.10%	11.57%	8/16/07
JP Morgan EMBI Global Diversified Index	12.52%	9.38%	10.00%

The performance data quoted represents past performance and does not guarantee future results. Current performance may be lower or higher than the performance quoted. Average annual total returns reflect the reinvestment of dividends and capital gains distributions and include all fee waivers and expense reimbursements. Without the fee waivers and expense reimbursements, total return figures would have been lower. The performance data quoted does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Investment return and principal value will vary, and shares, when redeemed, may be worth more or less than their original cost. Index returns do not include the effects of sales charges, management fees or transaction costs. It is not possible to invest directly in an index.

Stone Harbor Investment Funds Annual Report  |  May 31, 2011 7

Stone Harbor Investment Funds	Growth of $10,000 Investment
	May 31, 2011 (Unaudited)

STONE HARBOR HIGH YIELD BOND FUND

Comparison of Change in Value of $10,000 Investment in Stone Harbor High Yield Bond Fund and the Citigroup High Yield Market Capped Index.

The Citigroup High Yield Market Capped Index represents a modified version of the High Yield Market Index by delaying the entry of “fallen angel” issues (corporate or municipal bonds that were investment-grade when issued but have since been downgraded) and capping the par value of individual issuers at US $5 billion par amount outstanding.

Average Annual Total Returns

	1 Year	3 Years	Since Inception	Inception Date
Stone Harbor High Yield Bond Fund	17.14%	9.20%	8.63%	8/16/07
Citigroup HY Market Capped Index	17.32%	10.63%	9.75%

The performance data quoted represents past performance and does not guarantee future results. Current performance may be lower or higher than the performance quoted. Average annual total returns reflect the reinvestment of dividends and capital gains distributions and include all fee waivers and expense reimbursements. Without the fee waivers and expense reimbursements, total return figures would have been lower. The performance data quoted does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Investment return and principal value will vary, and shares, when redeemed, may be worth more or less than their original cost. Index returns do not include the effects of sales charges, management fees or transaction costs. It is not possible to invest directly in an index.

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Stone Harbor Investment Funds	Growth of $10,000 Investment
	May 31, 2011 (Unaudited)

STONE HARBOR LOCAL MARKETS FUND

Comparison of Change in Value of $10,000 Investment in Stone Harbor Local Markets Fund and the JP Morgan GBI-EM Global Diversified Index.

The JP Morgan GBI-EM Global Diversified Index consists of regularly traded, liquid fixed rate, domestic currency government bonds to which international investors can gain exposure. The weightings among the countries are more evenly distributed within this index.

Total Returns

	1 Month	3 Months	Since Inception	Inception Date
Stone Harbor Local Markets Fund	(0.43)%	6.60%	16.82%	6/30/10
JP Morgan GBI-EM Global Diversified Index	(1.20)%	6.52%	19.12%

The performance data quoted represents past performance and does not guarantee future results. Current performance may be lower or higher than the performance quoted. Average annual total returns reflect the reinvestment of dividends and capital gains distributions and include all fee waivers and expense reimbursements. Without the fee waivers and expense reimbursements, total return figures would have been lower. The performance data quoted does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Investment return and principal value will vary, and shares, when redeemed, may be worth more or less than their original cost. Index returns do not include the effects of sales charges, management fees or transaction costs. It is not possible to invest directly in an index.

Stone Harbor Investment Funds Annual Report  |  May 31, 2011 9

Stone Harbor Investment Funds Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Trustees of Stone Harbor Investment Funds:

We have audited the accompanying statements of assets and liabilities of Stone Harbor Investment Funds (the “Funds”), comprising the Stone Harbor Emerging Markets Debt Fund, Stone Harbor High Yield Bond Fund, and Stone Harbor Local Markets Fund, including the statements of investments, as of May 31, 2011, and the related statements of operations for the year then ended for Stone Harbor Emerging Markets Debt Fund and Stone Harbor High Yield Bond Fund and the period June 30, 2010 (Inception) to May 31, 2011 for Stone Harbor Local Markets Fund, the statements of changes in net assets for each of the two years in the period then ended for Stone Harbor Emerging Markets Debt Fund and Stone Harbor High Yield Bond Fund and the period June 30, 2010 (Inception) to May 31, 2011 for Stone Harbor Local Markets Fund, and the financial highlights for each of the periods presented. These financial statements and financial highlights are the responsibility of the Funds’ management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Funds are not required to have, nor were we engaged to perform, an audit of their internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Funds’ internal control over financial reporting. Accordingly, we express no such opinion. An audit also 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, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of May 31, 2011, by correspondence with the custodian and brokers; where replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of each of the funds constituting the Stone Harbor Investment Funds as of May 31, 2011, the results of their operations for the year then ended for Stone Harbor Emerging Markets Debt Fund and Stone Harbor High Yield Bond Fund and the period June 30, 2010 (Inception) to May 31, 2011 for Stone Harbor Local Markets Fund, the changes in their net assets for each of the two years in the period then ended for Stone Harbor Emerging Markets Debt Fund and Stone Harbor High Yield Bond Fund and the period June 30, 2010 (Inception) to May 31, 2011 for Stone Harbor Local Markets Fund, and the financial highlights for each of the periods presented, in conformity with accounting principles generally accepted in the United States of America.

DELOITTE & TOUCHE LLP

Denver, Colorado

July 27, 2011

10 www.shiplp.com

Stone Harbor Emerging Markets Debt Fund	Statements of Investments
	May 31, 2011

	Currency	Rate			Maturity Date		Principal Amount *		Market Value (Expressed in U.S. $)
SOVEREIGN DEBT OBLIGATIONS - 61.65%
Argentina - 6.41%
Republic of Argentina:
			7.000	%		04/17/2017	$	16,741,851	$	15,143,934
			0.000	%		03/31/2023		184,000		128,800	(1)(2)
			6.000	%		03/31/2023		480,000		360,000	(1)(2)
	EUR		7.820	%		12/31/2033		674,467		703,217
	EUR		7.820	%		12/31/2033		3,630,646		3,748,832	(3)
			8.280	%		12/31/2033		5,262,176		4,525,471
	ARS		5.820	%		12/31/2033		41,817,229		13,679,889	(2)(3)
			0.000	%		12/15/2035		1,738,812		287,339	(3)
	EUR		0.000	%		12/15/2035		46,703,000		9,493,436	(3)
										48,070,918
Brazil - 2.24%
Nota Do Tesouro Nacional	BRL		10.000	%		01/01/2021		6,205,000		3,431,351
Republic of Brazil:
			5.875	%		01/15/2019		3,933,000		4,515,084
			8.875	%		10/14/2019		100,000		135,500
			4.875	%		01/22/2021		3,035,000		3,190,544
			8.750	%		02/04/2025		3,931,000		5,498,486
			10.125	%		05/15/2027		32,000		49,840
										16,820,805
Colombia - 5.25%
Bogota Distrio Capital	COP		9.750	%		07/26/2028		5,065,000,000		3,593,791	(2)(4)
Republic of Colombia:
			7.375	%		01/27/2017		4,595,000		5,588,669
			7.375	%		03/18/2019		2,764,000		3,427,360
			11.750	%		02/25/2020		1,113,000		1,719,585
			8.125	%		05/21/2024		25,000		32,937
			8.375	%		02/15/2027		25,000		31,500
	COP		9.850	%		06/28/2027		5,775,000,000		4,348,409
			7.375	%		09/18/2037		15,610,000		19,707,625
			6.125	%		01/18/2041		790,000		865,050
										39,314,926
Croatia - 1.45%
Croatian Government:
			6.750	%		11/05/2019		1,529,000		1,642,146	(4)
			6.625	%		07/14/2020		1,906,000		2,021,313	(5)
			6.375	%		03/24/2021		7,007,000		7,238,231	(5)
										10,901,690

See Notes to Financial Statements.

Stone Harbor Investment Funds Annual Report  |  May 31, 2011 11

Stone Harbor Emerging Markets Debt Fund	Statements of Investments
	May 31, 2011

	Currency	Rate			Maturity Date		Principal Amount *		Market Value (Expressed in U.S. $)
El Salvador - 0.89%
Republic of El Salvador:			7.375	%		12/01/2019	$	220,000	$	243,100	(5)
			7.375	%		12/01/2019		2,068,000		2,285,140	(4)
			7.750	%		01/24/2023		15,000		17,138	(4)
			8.250	%		04/10/2032		1,000,000		1,122,500	(4)
			7.650	%		06/15/2035		2,895,000		3,003,562	(4)
										6,671,440
Gabon - 0.01%
Republic of Gabon			8.200	%		12/12/2017		50,000		58,812	(5)
Ghana - 0.16%
Republic of Ghana			8.500	%		10/04/2017		1,051,000		1,181,061	(4)
Indonesia - 2.53%
Republic of Indonesia:
			6.875	%		01/17/2018		1,278,000		1,481,649	(4)
			11.625	%		03/04/2019		2,170,000		3,175,036	(5)
			11.625	%		03/04/2019		4,628,000		6,771,458	(4)
			5.875	%		03/13/2020		189,000		207,428	(4)
			6.625	%		02/17/2037		2,050,000		2,288,312	(4)
			7.750	%		01/17/2038		4,045,000		5,038,452	(4)
										18,962,335
Iraq - 2.64%
Republic of Iraq			5.800	%		01/15/2028		21,394,000		19,762,707	(4)
Malaysia - 1.88%
Malaysian Government:
			7.500	%		07/15/2011		495,000		497,486
	MYR		5.094	%		04/30/2014		12,240,000		4,263,200
	MYR		3.741	%		02/27/2015		8,065,000		2,701,728
	MYR		3.835	%		08/12/2015		19,604,000		6,609,553
										14,071,967
Mexico - 6.09%
Mexican Bonos:
	MXN		7.750	%		12/14/2017		34,840,000		3,226,215
	MXN		8.000	%		06/11/2020		100,440,000		9,403,993
	MXN		10.000	%		12/05/2024		27,890,000		3,026,979
	MXN		7.500	%		06/03/2027		10,000,000		873,238
	MXN		8.500	%		05/31/2029		37,660,000		3,572,359
United Mexican States:
			5.625	%		01/15/2017		11,494,000		12,927,876
			5.125	%		01/15/2020		1,692,000		1,823,976
			8.000	%		09/24/2022		2,012,000		2,706,140
			8.300	%		08/15/2031		3,645,000		4,988,183
			7.500	%		04/08/2033		2,442,000		3,076,920
										45,625,879

See Notes to Financial Statements.

12 www.shiplp.com

Stone Harbor Emerging Markets Debt Fund	Statements of Investments
	May 31, 2011

	Currency	Rate			Maturity Date		Principal Amount *		Market Value (Expressed in U.S. $)
Pakistan - 0.08%
Islamic Republic of Pakistan			7.125	%		03/31/2016	$	692,000	$	619,340	(4)
Panama - 3.04%
Republic of Panama:
			5.200	%		01/30/2020		7,602,000		8,229,165
			9.375	%		01/16/2023		25,000		34,188
			7.125	%		01/29/2026		600,000		729,000
			8.875	%		09/30/2027		4,255,000		5,978,275
			9.375	%		04/01/2029		5,196,000		7,690,080
			6.700	%		01/26/2036		100,000		116,750
										22,777,458
Peru - 1.09%
Republic of Peru			8.750	%		11/21/2033		5,990,000		8,171,858
Philippines - 3.26%
Republic of Philippines:
			9.375	%		01/18/2017		70,000		91,000
	PHP		4.950	%		01/15/2021		119,000,000		2,778,317
			7.500	%		09/25/2024		4,593,000		5,540,306
			5.500	%		03/30/2026		2,002,000		2,019,518
			9.500	%		02/02/2030		6,533,000		9,366,689
			7.750	%		01/14/2031		3,215,000		3,962,487
			6.375	%		01/15/2032		520,000		562,900
			6.375	%		10/23/2034		116,000		125,785
										24,447,002
Poland - 3.09%
Republic or Poland:
			6.375	%		07/15/2019		17,624,000		20,135,420
	EUR		4.000	%		03/23/2021		665,000		888,144
			5.125	%		04/21/2021		2,083,000		2,153,301
										23,176,865
Qatar - 0.44%
State of Qatar			5.250	%		01/20/2020		3,052,000		3,265,640	(4)
Russia - 7.18%
Russian Federation:
			5.000	%		04/29/2020		500,000		513,125	(4)
			5.000	%		04/29/2020		800,000		821,000	(5)
			12.750	%		06/24/2028		3,470,000		6,176,600	(4)
			7.500	%		03/31/2030		39,262,913		46,290,975	(4)(6)
										53,801,700

See Notes to Financial Statements.

Stone Harbor Investment Funds Annual Report  |  May 31, 2011 13

Stone Harbor Emerging Markets Debt Fund	Statements of Investments
	May 31, 2011

	Currency	Rate			Maturity Date		Principal Amount *		Market Value (Expressed in U.S. $)
South Africa - 5.05%
Republic of South Africa:
			6.500	%		06/02/2014	$	1,028,000	$	1,158,042
			8.500	%		06/23/2017		45,000		56,250	(2)
	ZAR		8.000	%		12/21/2018		24,070,000		3,495,212
			6.875	%		05/27/2019		2,023,000		2,409,393
	ZAR		7.250	%		01/15/2020		8,560,000		1,178,763
			5.500	%		03/09/2020		4,923,000		5,370,993
	ZAR		6.750	%		03/31/2021		41,360,000		5,438,548
			5.875	%		05/30/2022		10,552,000		11,744,376
	ZAR		10.500	%		12/21/2026		40,810,000		7,013,213
										37,864,790
Turkey - 2.79%
Republic of Turkey:
			7.000	%		09/26/2016		159,000		182,691
			7.000	%		03/11/2019		135,000		155,858
			7.500	%		11/07/2019		12,634,000		15,072,362
			7.000	%		06/05/2020		372,000		429,846
			7.375	%		02/05/2025		1,820,000		2,155,790
			6.875	%		03/17/2036		1,305,000		1,438,762
			7.250	%		03/05/2038		1,285,000		1,480,963
										20,916,272
Ukraine - 1.72%
Ukraine Government:
			6.385	%		06/26/2012		5,205,000		5,374,162	(4)
			7.650	%		06/11/2013		2,386,000		2,535,125	(4)
			6.875	%		09/23/2015		1,723,000		1,787,613	(5)
			7.750	%		09/23/2020		3,094,000		3,175,991	(4)
										12,872,891
Uruguay - 1.91%
Republic of Uruguay:
			9.250	%		05/17/2017		3,467,000		4,533,102
			8.000	%		11/18/2022		1,895,497		2,414,389
			6.875	%		09/28/2025		1,313,650		1,566,528
			7.875	%		01/15/2033		1,390,800		1,734,328	(7)
			7.625	%		03/21/2036		3,280,000		4,059,000
										14,307,347
Venezuela - 2.45%
Republic of Venezuela:
			5.750	%		02/26/2016		4,168,000		3,110,370	(4)
			13.625	%		08/15/2018		10,000		9,650
			13.625	%		08/15/2018		1,669,000		1,610,585	(4)
			7.000	%		12/01/2018		120,000		82,500	(4)
			7.750	%		10/13/2019		4,611,000		3,166,604	(4)
			12.750	%		08/23/2022		10,861,400		9,340,804	(4)
			9.000	%		05/07/2023		1,480,000		1,013,800	(4)
										18,334,313

See Notes to Financial Statements.

14 www.shiplp.com

Stone Harbor Emerging Markets Debt Fund	Statements of Investments
	May 31, 2011

	Rate			Maturity Date		Principal Amount *		Market Value (Expressed in U.S. $)
TOTAL SOVEREIGN DEBT OBLIGATIONS								$	461,998,016
(Cost $442,406,035)
BANK LOANS - 0.75%(8)
Brazil - 0.13%
Virgolino de Oliveira - GVO Loan		5.273	%		03/11/2015	$	1,000,000		1,000,000
Indonesia - 0.62%
PT Bumi Resources		11.250	%		08/07/2013		1,337,000		1,415,883
PT Bumi Tranche A		13.720	%		03/02/2012		1,777,960		1,777,960	(2)
PT Bumi Tranche B		13.720	%		03/02/2012		1,419,040		1,419,040	(2)
									4,612,883
TOTAL BANK LOANS									5,612,883
(Cost $5,520,739)
CONVERTIBLE CORPORATE BONDS - 0.08%
Indonesia - 0.08%
BLT International Corp.		12.000	%		02/10/2015		600,000		611,130
TOTAL CONVERTIBLE CORPORATE BONDS									611,130
(Cost $600,000)
CORPORATE BONDS - 24.58%
Argentina - 0.51%
Capex SA		10.000	%		03/10/2018		1,342,000		1,335,021	(5)
Empresa Distribuidora Y Comercializadora Norte		9.750	%		10/25/2022		962,000		986,050	(5)
Inversiones y Representaciones SA:
		11.500	%		07/20/2020		100,000		112,050	(4)
		11.500	%		07/20/2020		636,000		721,663	(5)
Tarjeta Naranja SA		9.000	%		01/28/2017		625,000		648,269	(5)
									3,803,053
Barbados - 0.11%
Columbus International, Inc.		11.500	%		11/20/2014		695,000		803,211	(4)

See Notes to Financial Statements.

Stone Harbor Investment Funds Annual Report  |  May 31, 2011 15

Stone Harbor Emerging Markets Debt Fund	Statements of Investments
	May 31, 2011

	Rate			Maturity Date		Principal Amount *		Market Value (Expressed in U.S. $)
Brazil - 2.26%
Banco Cruzeiro do Sul SA:
		8.875	%		09/22/2020	$	900,000	$	888,840	(4)
		8.875	%		09/22/2020		984,000		971,798	(5)
BM&FBovespa SA:
		5.500	%		07/16/2020		200,000		206,764	(4)
		5.500	%		07/16/2020		842,000		870,352	(5)
BR Malls International Finance Ltd.:
		8.500	%		01/21/2049		160,000		169,952	(4)
		8.500	%		01/21/2049		482,000		511,980	(5)
BR Properties SA:
		9.000	%		10/07/2015		579,000		595,733	(5)
		9.000	%		10/07/2049		300,000		308,670	(4)
Cia de Saneamento Basico do Estado de Sao Paulo		6.250	%		12/16/2020		580,000		595,950	(5)
General Shopping Finance Ltd.:
		10.000	%		11/09/2015		1,751,000		1,847,077	(5)
		10.000	%		11/09/2049		246,000		259,899	(4)
Gerdau Trade, Inc.:
		5.750	%		01/30/2021		424,000		427,180	(5)
		5.750	%		01/30/2021		700,000		705,250	(4)
Hypermarcas SA		6.500	%		04/20/2021		1,388,000		1,391,470	(5)
Marfrig Holding Europe BV		8.375	%		05/09/2018		876,000		868,554	(5)
Minerva Overseas II Ltd.:
		10.875	%		11/15/2019		538,000		594,759	(4)
		10.875	%		11/15/2019		633,000		699,782	(5)
Mirabela Nickel Ltd.		8.750	%		04/15/2018		392,000		396,900	(5)
Odebrecht Drilling Norbe VIII/IX Ltd.:
		6.350	%		06/30/2021		350,000		370,125	(4)
		6.350	%		06/30/2021		1,265,000		1,337,738	(5)
OGX Petroleo e Gas Participacoes SA		8.500	%		06/01/2018		1,732,000		1,781,362	(5)
Telemar Norte Leste SA:
		5.500	%		10/23/2020		100,000		98,620	(4)
		5.500	%		10/23/2020		595,000		586,789	(5)
Virgolino de Oliveira Finance Ltd.		10.500	%		01/28/2018		424,000		452,917	(4)
									16,938,461
Chile - 0.72%
Codelco, Inc.:
		7.500	%		01/15/2019		450,000		555,505	(4)
		6.150	%		10/24/2036		4,295,000		4,845,933	(4)
									5,401,438

See Notes to Financial Statements.

16 www.shiplp.com

Stone Harbor Emerging Markets Debt Fund	Statements of Investments
	May 31, 2011

	Rate			Maturity Date		Principal Amount *		Market Value (Expressed in U.S. $)
China - 2.05%
China Liansu Group Holdings Ltd.		7.875	%		05/13/2016	$	1,685,000	$	1,628,131	(5)
China Oriental Group Co. Ltd.:
		8.000	%		08/18/2015		300,000		311,625	(4)
		8.000	%		08/18/2015		543,000		564,041	(5)
Evergrande Real Estate Group Ltd.:
		13.000	%		01/27/2015		106,000		110,643	(5)
		13.000	%		01/27/2015		407,000		424,826	(4)
Hidili Industry International Development Ltd.		8.625	%		11/04/2015		1,267,000		1,255,914	(4)
Kaisa Group Holdings Ltd.		13.500	%		04/28/2015		1,257,000		1,274,284	(4)
MIE Holdings Corp.		9.750	%		05/12/2016		1,586,000		1,576,167	(5)
Sinochem Overseas Capital Co. Ltd.		4.500	%		11/12/2020		4,384,000		4,195,400	(5)
Sino-Forest Corp.:
		6.250	%		10/21/2017		100,000		93,375	(4)
		6.250	%		10/21/2017		470,000		438,863	(5)
Texhong Textile Group Ltd.:
		7.625	%		01/19/2016		343,000		336,569	(5)
		7.625	%		01/19/2016		858,000		841,912	(4)
West China Cement Ltd.:
		7.500	%		01/25/2016		824,000		809,580	(4)
		7.500	%		01/25/2016		1,138,000		1,118,085	(5)
Yanlord Land Group Ltd.		9.500	%		05/04/2017		349,000		357,306	(4)
									15,336,721
Colombia - 0.11%
Gruposura Finance		5.700	%		05/18/2021		813,000		810,967	(5)
Dominican Republic - 0.19%
Cap Cana SA:
		10.000	%		04/30/2016		1,103,320		772,324	(2)(4)
		10.000	%		04/30/2016		1,279,402		639,701	(2)(4)
									1,412,025
Egypt - 0.17%
Orascom Telecom Finance SCA		7.875	%		02/08/2014		1,239,000		1,287,011	(4)
Hong Kong - 0.20%
Hutchison Whampoa International 10 Ltd.		6.000	%		10/28/2049		698,000		722,460	(3)(4)
PCCW-HKT Capital No 4 Ltd.		4.250	%		02/24/2016		749,000		758,168
									1,480,628
India - 0.43%
Axis Bank Ltd.		7.125	%		06/28/2022		311,000		310,222	(3)
Bank of India		6.994	%		03/03/2049		344,000		339,253	(3)
ICICI Bank Ltd.:
		5.750	%		11/16/2020		200,000		199,994	(4)
		5.750	%		11/16/2020		608,000		607,982	(5)
Vedanta Resources PLC		8.250	%		06/07/2021		1,715,000		1,732,150	(5)
									3,189,601

See Notes to Financial Statements.

Stone Harbor Investment Funds Annual Report  |  May 31, 2011 17

Stone Harbor Emerging Markets Debt Fund	Statements of Investments
	May 31, 2011

	Currency	Rate			Maturity Date		Principal Amount *		Market Value (Expressed in U.S. $)
Indonesia - 0.66%
Bakrie Telecom Pte Ltd.			11.500	%		05/07/2015	$	1,270,000	$	1,330,325	(4)
BLT Finance BV			7.500	%		05/15/2014		644,000		555,253	(4)
BSP Finance BV			10.750	%		11/01/2011		300,000		298,110
Bumi Investment Pte Ltd.:
			10.750	%		10/06/2017		300,000		343,110	(4)
			10.750	%		10/06/2017		325,000		371,703	(5)
European Bank for Reconstruction & Development	IDR		7.200	%		06/08/2016		15,130,000,000		1,785,891
Indosat Palapa Co. BV			7.375	%		07/29/2020		241,000		269,028	(5)
										4,953,420
Jamaica - 0.24%
Digicel Group Ltd.:
			9.125	%		01/15/2015		408,000		423,300	(5)
			8.250	%		09/01/2017		1,160,000		1,223,800	(4)
			10.500	%		04/15/2018		150,000		170,250	(4)
										1,817,350
Kazakhstan - 2.01%
BTA Bank JSC:
			10.750	%		07/01/2018		1,159,562		1,043,606	(5)(6)
			10.750	%		07/01/2018		4,666,676		4,200,008	(4)(6)
			26.180	%		07/01/2020		500,000		32,500	(4)(17)
			0.000	%		07/01/2020		2,515,532		163,510	(3)(5)
KazMunayGas National Co.:
			7.000	%		05/05/2020		739,000		828,604	(5)
			7.000	%		05/05/2020		5,615,000		6,295,819	(4)
			6.375	%		04/09/2021		1,071,000		1,144,631	(5)
Zhaikmunai LLP:
			10.500	%		10/19/2015		200,000		215,500	(4)
			10.500	%		10/19/2015		1,037,000		1,117,367	(5)
										15,041,545
Malaysia - 3.27%
Penerbangan Malaysia BHD			5.625	%		03/15/2016		1,195,000		1,340,850	(4)
Petroliam Nasional BHD:
			7.750	%		08/15/2015		335,000		406,271	(5)
			7.625	%		10/15/2026		840,000		1,109,766	(4)
Petronas Capital Ltd.:
			5.250	%		08/12/2019		630,000		683,206	(5)
			5.250	%		08/12/2019		2,749,000		2,981,167	(4)
			7.875	%		05/22/2022		12,024,000		15,649,477	(4)
Petronas Global Sukuk Ltd.			4.250	%		08/12/2014		2,240,000		2,372,496	(5)
										24,543,233

See Notes to Financial Statements.

18 www.shiplp.com

Stone Harbor Emerging Markets Debt Fund	Statements of Investments
	May 31, 2011

	Currency	Rate			Maturity Date			Principal Amount *			Market Value (Expressed in U.S. $)
Mexico - 2.14%
Alestra SA			11.750	%		08/11/2014	$		587,000	$		676,518
Axtel SAB de CV:
			7.625	%		02/01/2017			17,000			16,363	(5)
			9.000	%		09/22/2019			271,000			270,322	(4)
Bank of New York Mellon SA Institucion de Banca Multiple			9.625	%		05/02/2021			2,583,000			2,679,862	(2)(5)
Cemex Espana Luxembourg	EUR		8.875	%		05/12/2017			54,000			78,100	(2)(4)
Cemex Finance Europe BV	EUR		4.750	%		03/05/2014			483,000			657,723
Cemex SAB de CV:
			5.301	%		09/30/2015			2,251,000			2,225,676	(3)(5)
			9.000	%		01/11/2018			100,000			104,750	(4)
			9.000	%		01/11/2018			847,000			887,233	(5)
Desarrolla Homex SAB de CV			7.500	%		09/28/2015			215,000			220,375
Hipotecaria Su Casita SA de CV:
			8.500	%		10/04/2016			67,000			28,810	(4)
			8.500	%		10/04/2016			195,000			87,750	(2)(5)
Pemex Finance Ltd.			9.150	%		11/15/2018			1,250,000			1,442,018
Pemex Project Funding Master Trust:
	EUR		5.500	%		02/24/2025			2,275,000			3,160,995	(4)
			6.625	%		06/15/2035			3,034,000			3,150,051
Urbi Desarrollos Urbanos SAB de CV			9.500	%		01/21/2020			308,000			343,420	(4)
												16,029,966
Peru - 0.31%
Banco Continental SA via Continental Senior Trustees Cayman Ltd.			5.500	%		11/18/2020			766,000			714,992	(5)
Banco de Credito del Peru/Panama			5.375	%		09/16/2020			561,000			535,755	(5)
Inkia Energy Ltd.			8.375	%		04/04/2021			785,000			805,803	(5)
Southern Copper Corp.			6.750	%		04/16/2040			267,000			272,577
												2,329,127
Qatar - 0.74%
Qtel International Finance Ltd.:
			7.875	%		06/10/2019			779,000			935,579	(4)
			4.750	%		02/16/2021			567,000			552,825	(5)
			5.000	%		10/19/2025			1,738,000			1,607,650	(5)
			5.000	%		10/19/2025			2,622,000			2,425,350	(4)
												5,521,404
Russia - 1.02%
Alfa Bank OJSC Via Alfa Bond Issuance PLC:
			7.875	%		09/25/2017			100,000			104,750	(4)
			7.875	%		09/25/2017			658,000			689,255	(5)
Alliance Oil Co. Ltd.			9.875	%		03/11/2015			271,000			300,471	(4)
ALROSA Finance SA			7.750	%		11/03/2020			378,000			414,383	(5)
Evraz Group SA			6.750	%		04/27/2018			1,714,000			1,729,854	(5)
Novatek Finance Ltd.			6.604	%		02/03/2021			1,672,000			1,774,410	(5)
Severstal OAO Via Steel Capital SA:
			6.700	%		10/25/2017			613,000			629,091	(5)
			6.700	%		10/25/2017			750,000			769,688	(4)
Vimpel Communications Via VIP Finance Ireland Ltd. OJSC			7.748	%		02/02/2021			1,167,000			1,237,020	(5)
												7,648,922

See Notes to Financial Statements.

Stone Harbor Investment Funds Annual Report  |  May 31, 2011 19

Stone Harbor Emerging Markets Debt Fund	Statements of Investments
	May 31, 2011

	Currency	Rate			Maturity Date			Principal Amount *			Market Value (Expressed in U.S. $)
Singapore - 0.16%
STATS ChipPAC Ltd.:
			7.500	%		08/12/2015	$		234,000	$		254,475	(4)
			7.500	%		08/12/2015			389,000			423,037	(5)
			5.375	%		03/31/2016			510,000			513,825	(5)
												1,191,337
South Africa - 0.18%
Gold Fields Orogen Holding BVI Ltd.			4.875	%		10/07/2020			544,000			529,720	(4)
Myriad International Holding BV:
			6.375	%		07/28/2017			100,000			108,625	(4)
			6.375	%		07/28/2017			650,000			706,063	(5)
												1,344,408
South Korea - 0.37%
Export Import Bank of Korea			8.125	%		01/21/2014			2,447,000			2,813,194
Turkey - 0.42%
Yuksel Insaat AS			9.500	%		11/10/2015			3,237,000			3,123,705	(4)
Ukraine - 0.83%
Avangardco Investments Public Ltd.			10.000	%		10/29/2015			646,000			642,770
DTEK Finance BV			9.500	%		04/28/2015			860,000			929,514	(4)
Ferrexpo Finance PLC			7.875	%		04/07/2016			886,000			914,795	(5)
Metinvest BV			8.750	%		02/14/2018			2,424,000			2,590,650	(5)
MHP SA			10.250	%		04/29/2015			585,000			623,756	(4)
Mriya Agro Holding PLC			10.950	%		03/30/2016			510,000			513,188	(5)
												6,214,673
United Arab Emirates - 0.74%
DP World Ltd.			6.850	%		07/02/2037			1,770,000			1,718,670	(4)
Dubai Holding Commercial Operations MTN Ltd.:
	EUR		4.750	%		01/30/2014			150,000			195,897
	GBP		6.000	%		02/01/2017			1,300,000			1,807,041
Dubai Sukuk Centre Ltd.			0.685	%		06/13/2012			1,993,000			1,865,448	(3)
												5,587,056
Venezuela - 4.74%
Petroleos de Venezuela SA:
			4.900	%		10/28/2014			37,064,039			27,381,059
			5.000	%		10/28/2015			2,669,366			1,755,108
			5.250	%		04/12/2017			6,000,000			3,655,500
			8.500	%		11/02/2017			3,818,000			2,734,642	(4)
												35,526,309
TOTAL CORPORATE BONDS												184,148,765
(Cost $180,335,164)

See Notes to Financial Statements.

20 www.shiplp.com

Stone Harbor Emerging Markets Debt Fund	Statements of Investments
	May 31, 2011

	Currency	Rate			Maturity Date			Principal Amount *			Market Value (Expressed in U.S. $)
CREDIT LINKED NOTES - 6.26%
Argentina - 0.46%
Cablevision SA			9.375	%		02/12/2018	$		3,459,000	$		3,467,648	(9)
Brazil - 2.55%
Nota Do Tesouro Nacional:
	BRL		10.000	%		01/01/2017			600,000			344,920	(12)
	BRL		10.000	%		01/01/2017			1,000,000			573,602	(13)
	BRL		10.000	%		01/01/2017			1,000,000			573,221	(13)
	BRL		10.000	%		01/01/2021			2,000,000			1,102,836	(13)
	BRL		10.000	%		01/01/2021			2,000,000			1,102,837	(13)
	BRL		10.000	%		01/01/2021			3,000,000			1,801,616	(14)
	BRL		10.000	%		01/01/2021			4,000,000			2,211,991	(15)
	BRL		10.000	%		01/01/2021			5,000,000			2,764,989	(10)
	BRL		10.000	%		01/01/2021			6,000,000			3,317,986	(9)
	BRL		10.000	%		01/01/2021			9,600,000			5,308,778	(14)
												19,102,776
Colombia - 0.98%
Colombia CGM:
	COP		11.000	%		07/24/2020			3,500,000,000			2,308,176	(14)
	COP		11.000	%		07/24/2020			5,700,000,000			3,759,030	(14)
	COP		10.000	%		07/24/2024			1,952,000,000			1,242,290	(14)
												7,309,496
Indonesia - 1.56%
Republic of Indonesia:
	IDR		11.500	%		09/18/2019			3,900,000,000			575,142	(15)
	IDR		11.000	%		11/16/2020			4,600,000,000			668,537	(12)
	IDR		12.800	%		06/15/2021			7,000,000,000			1,127,644	(13)
	IDR		12.800	%		06/15/2021			17,000,000,000			2,708,687	(10)
	IDR		8.250	%		07/15/2021			7,400,000,000			922,237	(9)
	IDR		8.250	%		07/15/2021			7,411,000,000			923,607	(13)
	IDR		8.250	%		07/15/2021			14,200,000,000			1,770,113	(12)
	IDR		11.000	%		09/15/2025			9,000,000,000			1,294,300	(12)
	IDR		10.000	%		02/15/2028			13,000,000,000			1,703,913	(15)
												11,694,180
Iraq - 0.71%
Republic of Iraq	JPY		2.286	%		01/01/2028			600,000,000			5,299,963	(3)(16)
TOTAL CREDIT LINKED NOTES												46,874,063
(Cost $45,470,562)
PARTICIPATION NOTES - 0.65%
Argentina - 0.21%
Endesa Costanera SA			11.304	%		03/30/2012			456,000			456,000	(3)(10)
Hidroelec el Chocon SA			8.061	%		03/01/2015			1,100,00			1,100,000	(11)
												1,556,000
Ukraine - 0.44%
Ukreximbank Biz Finance PLC			8.375	%		04/27/2015			3,166,000			3,340,130	(4)
TOTAL PARTICIPATION NOTES												4,896,130
(Cost $4,843,718)

See Notes to Financial Statements.

Stone Harbor Investment Funds Annual Report  |  May 31, 2011 21

Stone Harbor Emerging Markets Debt Fund	Statements of Investments
	May 31, 2011

	Shares		Market Value (Expressed in U.S. $)
SHORT TERM INVESTMENTS - 6.80%
Money Market Mutual Funds - 6.80%
Dreyfus Cash Advantage Plus Fund
(0.042% 7-Day Yield)		50,972,750	$	50,972,750
TOTAL SHORT TERM INVESTMENTS				50,972,750
(Cost $50,972,750)
Total Investments - 100.77%			$	755,113,737
(Cost $730,148,968)
Liabilities in Excess of Other Assets - (0.77)%				(5,766,068	)
Net Assets - 100.00%			$	749,347,669

* The principal/contract amount of each security is stated in the currency in which the bond is denominated (U.S. Dollar unless otherwise notated). See below.

ARS	Argentine Peso	IDR	Indonesian Rupiah
BRL	Brazilian Real	JPY	Japanese Yen
CNY	Chinese Yen	MXN	Mexican Peso
COP	Colombian Peso	MYR	Malaysian Ringgit
EUR	Euro Currency	RUB	Russian Ruble
GBP	Great Britain Pound	ZAR	South African Rand

⁽¹⁾ Security is currently in default/non-income producing.

⁽²⁾ This security has been valued by management at its fair value determined in good faith pursuant to procedures approved by the Board of Trustees. Total market value of fair valued securities amounts to $25,273,467 which represents approximately 3.37% of net assets as of May 31, 2011.

⁽³⁾ Floating or variable rate security. Interest rate disclosed is that which is in effect at May 31, 2011.

⁽⁴⁾ Securities were issued pursuant to Regulation S under the Securities Act of 1933, which exempts securities offered and sold outside of the United States from registration. Such securities cannot be sold in the United States without either an effective registration statement filed pursuant to the Securities Act of 1933, or pursuant to an exemption from registration. These securities have been deemed liquid under procedures approved by the Fund’s Board of Trustees. As of May 31, 2011, the aggregate market value of those securities was $211,367,070, representing 28.21% of net assets.

⁽⁵⁾ Security exempt from registration under Rule 144A of the Securities Act of 1933. Under procedures approved by the Board of Trustees, such securities have been determined to be liquid by the Investment Advisor and may normally be sold to qualified institutional buyers in transactions exempt from registration. Total market value of Rule 144A securities amounts to $76,110,973, which represents approximately 10.16% of net assets as of May 31, 2011.

⁽⁶⁾ Step bond. Coupon increases periodically based upon a predetermined schedule. Interest rate disclosed is that which is in effect at May 31, 2011.

⁽⁷⁾ Pay-in-kind securities.

⁽⁸⁾ Bank loans generally pay interest at rates which are periodically determined by reference to a base lending rate plus a premium. All loans carry a variable rate of interest. These base lending rates are generally (i) the Prime Rate offered by one or more major United States banks, (ii) the lending rate offered by one or more European banks such as the London Interbank Offered Rate (“LIBOR”) or (iii) the Certificate of Deposit rate. Rate shown represents the weighted average rate at May 31, 2011. Bank Loans, while exempt from registration, under the Securities Act of 1933 (the “1933 Act”), contain certain restrictions on resale and cannot be sold publicly. Floating rate bank loans often require prepayments from excess cash flow or permit the borrower to repay at its election. The degree to which borrowers repay, whether as a contractual requirement or at their election, cannot be predicted with accuracy. As a result, the actual remaining maturity may be substantially less than the stated maturity shown.

⁽⁹⁾ The underlying security is issued by Deutsche Bank AG London.

⁽¹⁰⁾ The underlying security is issued by Credit Suisse First Boston.

⁽¹¹⁾ The underlying security is issued by Bley Investment.

⁽¹²⁾ The underlying security is issued by HSBC Bank.

⁽¹³⁾ The underlying security is issued by JP Morgan Chase.

⁽¹⁴⁾ The underlying security is issued by Citigroup Global Markets.

⁽¹⁵⁾ The underlying security is issued by Barclays Bank PLC.

⁽¹⁶⁾ The underlying security is issued by Merrill Lynch.

⁽¹⁷⁾ Zero coupon bond reflects effective yield on date of purchase.

See Notes to Financial Statements.

22 www.shiplp.com

Stone Harbor Emerging Markets Debt Fund	Statements of Investments
	May 31, 2011

Common Abbreviations:

AS - Anonim Sirket is the Turkish term for Incorporation.

BHD - Berhad is the Malaysian term for public limited company.

BV - Besloten Vennootschap a Dutch private limited liability company.

CGM - Citigroup Global Markets.

JSC - Joint Stock Co.

LLP - Limited Liability Partnership.

Ltd. - Limited.

MTN - Medium Term Note.

OJSC - Open Joint Stock Co.

PLC - Public Limited Co.

Pte - Private.

SA - Generally designates corporations in various countries, mostly those employing the civil law.

SA de CV - A variable capital company.

SAB de CV - A variable capital company.

SCA - Soceite en Commandite par actions is the French equivalent of a limited partnership.

OUTSTANDING FORWARD FOREIGN CURRENCY CONTRACTS

Contract Description	Contracted Amount		Purchase/Sale Contract	Settlement Date	Current Value		Unrealized Appreciation/ (Depreciation)
BRL		12,465,149	Purchase	06/02/2011	$	7,897,082	$	234,180
BRL		12,465,150	Sale	06/02/2011		7,897,082		9,782
CNY		28,149,000	Purchase	08/09/2011		4,358,188		101,046
CNY		37,208,050	Purchase	11/14/2011		5,795,060		37,194
CNY		46,122,798	Purchase	05/16/2012		7,256,291		13,350
RUB		199,445,312	Purchase	08/19/2011		7,068,673		28,673
							$	424,225
CNY		28,149,000	Sale	08/09/2011	$	4,358,188	$	(27,143	)
CNY		43,251,798	Sale	11/14/2011		6,736,358		(10,417	)
CNY		6,043,748	Purchase	11/14/2011		941,298		(3,702	)
EUR		13,240,955	Sale	07/14/2011		19,034,132		(323,542	)
GBP		1,122,000	Sale	07/14/2011		1,844,697		(28,123	)
JPY		436,083,000	Sale	07/14/2011		5,350,953		(17,094	)
							$	(410,021	)

See Notes to Financial Statements.

Stone Harbor Investment Funds Annual Report  |  May 31, 2011 23

Stone Harbor High Yield Bond Fund	Statements of Investments
	May 31, 2011

	Rate			Maturity Date		Principal Amount *		Market Value (Expressed in U.S. $)
CORPORATE BONDS - 91.39%
Aerospace/Defense - 1.91%
CPI International Acquisition, Inc.		8.000	%		02/15/2018	$	2,225,000	$	2,250,031	(1)
Huntington Ingalls Industries, Inc.		7.125	%		03/15/2021		2,125,000		2,228,594	(1)
TransDigm, Inc.		7.750	%		12/15/2018		2,900,000		3,095,750	(1)
Triumph Group, Inc.		8.625	%		07/15/2018		1,575,000		1,750,219
									9,324,594
Automotive - 1.68%
Allison Transmission, Inc.		7.125	%		05/15/2019		1,100,000		1,097,250	(1)
Chrysler Group LLC:
		8.000	%		06/15/2019		750,000		751,875	(1)
		8.250	%		06/15/2021		1,200,000		1,203,000	(1)
Commercial Vehicle Group, Inc.		7.875	%		04/15/2019		650,000		667,875	(1)
Ford Motor Co.:
		7.450	%		07/16/2031		910,000		1,037,843
		8.900	%		01/15/2032		25,000		30,091
Pinafore LLC		9.000	%		10/01/2018		1,975,000		2,177,438	(1)
TRW Automotive, Inc.		8.875	%		12/01/2017		550,000		620,125	(1)
Uncle Acquisition 2010 Corp.		8.625	%		02/15/2019		575,000		606,625	(1)
									8,192,122
Banking - 0.89%
E*Trade Financial Corp.		12.500	%		11/30/2017		1,670,000		2,016,525	(2)
Provident Funding Associates LP:
		10.250	%		04/15/2017		1,025,000		1,137,750	(1)
		10.125	%		02/15/2019		1,125,000		1,170,000	(1)
									4,324,275
Building Products - 1.21%
American Standard Americas		10.750	%		01/15/2016		715,000		752,538	(1)
Associated Materials LLC		9.125	%		11/01/2017		150,000		155,438	(1)
Griffon Corp.		7.125	%		04/01/2018		1,025,000		1,050,625	(1)
Interface, Inc.		7.625	%		12/01/2018		1,225,000		1,316,875
Interline Brands, Inc.		7.000	%		11/15/2018		550,000		565,812
Norcraft Cos. LP:
		10.500	%		12/15/2015		850,000		894,625	(1)
		10.500	%		12/15/2015		1,125,000		1,184,062
									5,919,975
Chemicals - 2.84%
Ineos Group Holdings PLC		8.500	%		02/15/2016		2,165,000		2,238,069	(1)
Koppers, Inc.		7.875	%		12/01/2019		1,875,000		2,043,750
Lyondell Chemical Co.		8.375	%		08/15/2015		945,000		0	(1)(3)(4)
MacDermid, Inc.		9.500	%		04/15/2017		1,875,000		2,010,938	(1)
Momentive Performance Materials, Inc.:
		11.500	%		12/01/2016		1,100,000		1,190,750
		9.000	%		01/15/2021		2,120,000		2,273,700	(1)
NewMarket Corp.		7.125	%		12/15/2016		1,405,000		1,467,354
Nova Chemicals Corp.		8.375	%		11/01/2016		2,375,000		2,665,937
									13,890,498

See Notes to Financial Statements.

24 www.shiplp.com

Stone Harbor High Yield Bond Fund	Statements of Investments
	May 31, 2011

	Rate			Maturity Date			Principal Amount *			Market Value (Expressed in U.S. $)
Construction Machinery - 1.13%
Case New Holland, Inc.		7.875	%		12/01/2017	$		950,000	$		1,061,625	(1)
The Manitowoc Co., Inc.:
		9.500	%		02/15/2018			1,975,000			2,197,187
		8.500	%		11/01/2020			100,000			109,250
United Rentals North America, Inc.		8.375	%		09/15/2020			2,050,000			2,142,250
											5,510,312
Consumer Products - 0.75%
Armored Autogroup, Inc.		9.250	%		11/01/2018			1,025,000			1,044,219	(1)
Elizabeth Arden, Inc.		7.375	%		03/15/2021			850,000			896,750
NBTY, Inc.		9.000	%		10/01/2018			800,000			862,000	(1)
Visant Corp.		10.000	%		10/01/2017			800,000			850,000
											3,652,969
Containers/Packaging - 2.58%
ARD Finance SA		11.125	%		06/01/2018			200,000			207,000	(1)(2)
Ardagh Packaging Finance PLC		9.125	%		10/15/2020			2,050,000			2,265,250	(1)
BWAY Holding Co.		10.000	%		06/15/2018			1,275,000			1,428,000
Graham Packaging Co. LP		8.250	%		10/01/2018			975,000			1,067,625
Owens Illinois, Inc.		7.800	%		05/15/2018			325,000			357,500
Pregis Corp.		12.375	%		10/15/2013			750,000			748,125
Radnor Holdings Corp.		11.000	%		03/15/2010			25,000			2	(3)(4)
Reynolds Group Issuer, Inc.:
		7.750	%		10/15/2016			1,850,000			1,988,750	(1)
		9.000	%		04/15/2019			2,250,000			2,399,063	(1)
		8.250	%		02/15/2021			650,000			664,625	(1)
Reynolds Group, Inc.		8.500	%		05/15/2018			975,000			1,018,875	(1)
Solo Cup Co.		8.500	%		02/15/2014			490,000			452,025
											12,596,840
Drillers/Services - 3.33%
Basic Energy Services, Inc.		7.125	%		04/15/2016			1,150,000			1,184,500
Bristow Group, Inc.		7.500	%		09/15/2017			1,205,000			1,271,275
CHC Helicopter SA		9.250	%		10/15/2020			2,175,000			2,120,625	(1)
Complete Production Services, Inc.		8.000	%		12/15/2016			1,975,000			2,088,563
Exterran Holdings, Inc.		7.250	%		12/01/2018			1,125,000			1,161,562	(1)
Hercules Offshore LLC		10.500	%		10/15/2017			2,255,000			2,407,213	(1)
Hornbeck Offshore Services, Inc.		8.000	%		09/01/2017			1,875,000			1,931,250
Offshore Group Investments Ltd.:
		11.500	%		08/01/2015			125,000			138,125	(1)
		11.500	%		08/01/2015			515,000			570,362
Parker Drilling Co.		9.125	%		04/01/2018			200,000			219,000
PHI, Inc.		8.625	%		10/15/2018			800,000			854,000
SESI LLC		6.375	%		05/01/2019			1,100,000			1,100,000	(1)
Trinidad Drilling Ltd.		7.875	%		01/15/2019			1,150,000			1,219,000	(1)
											16,265,475
Electric - 5.40%
The AES Corp.:
		7.750	%		10/15/2015			850,000			930,750
		9.750	%		04/15/2016			925,000			1,075,313

See Notes to Financial Statements.

Stone Harbor Investment Funds Annual Report  |  May 31, 2011 25

Stone Harbor High Yield Bond Fund	Statements of Investments
	May 31, 2011

	Rate			Maturity Date			Principal Amount *			Market Value (Expressed in U.S. $)
		8.000	%		10/15/2017	$		2,225,000	$		2,416,906
Calpine Corp.:
		7.875	%		07/31/2020			2,250,000			2,396,250	(1)
		7.500	%		02/15/2021			1,925,000			2,011,625	(1)
Dynegy Holdings, Inc.:
		8.375	%		05/01/2016			3,070,000			2,555,775
		7.125	%		05/15/2018			500,000			352,500
		7.750	%		06/01/2019			460,000			338,100
		7.625	%		10/15/2026			25,000			17,375
Edison Mission Energy:
		7.750	%		06/15/2016			1,825,000			1,665,313
		7.000	%		05/15/2017			150,000			124,875
		7.200	%		05/15/2019			1,540,000			1,255,100
		7.625	%		05/15/2027			1,135,000			862,600
GenOn Energy, Inc.:
		9.500	%		10/15/2018			1,650,000			1,744,875
		9.875	%		10/15/2020			1,875,000			1,982,812
NRG Energy, Inc.:
		7.625	%		05/15/2019			775,000			775,969	(1)
		8.500	%		06/15/2019			2,300,000			2,392,000
		8.250	%		09/01/2020			1,235,000			1,272,050
		7.875	%		05/15/2021			2,200,000			2,208,250	(1)
											26,378,438
Environmental Services - 0.35%
Clean Harbors, Inc.		7.625	%		08/15/2016			1,591,000			1,706,347
Exploration & Production - 4.55%
Atlas Pipeline Partners LP		8.750	%		06/15/2018			225,000			244,125
Concho Resources, Inc.		7.000	%		01/15/2021			1,450,000			1,522,500
Denbury Resources, Inc.		8.250	%		02/15/2020			1,346,000			1,494,060
Eagle Rock Energy Partners LP		8.375	%		06/01/2019			1,525,000			1,530,719	(1)
Encore Acquisition Co.		9.500	%		05/01/2016			1,000,000			1,127,500
Linn Energy LLC:
		6.500	%		05/15/2019			250,000			250,625	(1)
		7.750	%		02/01/2021			3,225,000			3,418,500	(1)
MEG Energy Corp.		6.500	%		03/15/2021			1,875,000			1,896,094	(1)
NFR Energy LLC:
		9.750	%		02/15/2017			225,000			222,188	(1)
		9.750	%		02/15/2017			1,075,000			1,061,562	(1)
Penn Virginia Corp.		10.375	%		06/15/2016			1,450,000			1,638,500
Plains Exploration & Production Co.:
		7.625	%		06/01/2018			800,000			854,000
		7.625	%		04/01/2020			1,050,000			1,113,000
Quicksilver Resources, Inc.:
		8.250	%		08/01/2015			200,000			212,000
		11.750	%		01/01/2016			700,000			815,500
SandRidge Energy, Inc.:
		8.000	%		06/01/2018			575,000			606,625	(1)
		8.750	%		01/15/2020			1,000,000			1,092,500
		7.500	%		03/15/2021			2,000,000			2,072,500	(1)

See Notes to Financial Statements.

26 www.shiplp.com

Stone Harbor High Yield Bond Fund	Statements of Investments
	May 31, 2011

	Rate			Maturity Date			Principal Amount *			Market Value (Expressed in U.S. $)
Venoco, Inc.		8.875	%		02/15/2019	$		1,050,000	$		1,064,437	(1)
											22,236,935
Financial Other - 0.24%
International Lease Finance Corp.		8.250	%		12/15/2020			1,025,000			1,153,125
Food & Beverage - 2.91%
Cott Beverages, Inc.		8.375	%		11/15/2017			900,000			967,500
Dean Foods Co.:
		7.000	%		06/01/2016			2,225,000			2,241,688
		9.750	%		12/15/2018			2,425,000			2,625,063	(1)
Del Monte Foods Co.		7.625	%		02/15/2019			3,475,000			3,564,047	(1)
Michael Foods, Inc.		9.750	%		07/15/2018			725,000			801,125	(1)
Pinnacle Foods Finance LLC:
		9.250	%		04/01/2015			1,825,000			1,920,812
		10.625	%		04/01/2017			400,000			431,000
		8.250	%		09/01/2017			1,550,000			1,652,687
											14,203,922
Gaming - 4.31%
American Casino & Entertainment Properties LLC		11.000	%		06/15/2014			675,000			723,938
Ameristar Casinos, Inc.		7.500	%		04/15/2021			1,475,000			1,537,688	(1)
Boyd Gaming Corp.		9.125	%		12/01/2018			2,025,000			2,108,531	(1)
Caesars Entertainment Operating Co., Inc		12.750	%		04/15/2018			1,165,000			1,199,950
Harrah’s Operating Co., Inc.		5.375	%		12/15/2013			1,100,000			1,039,500
Isle of Capri Casinos, Inc.:
		7.000	%		03/01/2014			2,300,000			2,294,250
		7.750	%		03/15/2019			1,225,000			1,251,031	(1)
Jacobs Entertainment, Inc.		9.750	%		06/15/2014			205,000			210,125
MGM Resorts International:
		5.875	%		02/27/2014			2,025,000			2,014,875
		6.875	%		04/01/2016			1,140,000			1,095,825
		10.000	%		11/01/2016			1,025,000			1,114,688	(1)
		11.125	%		11/15/2017			800,000			932,000
		9.000	%		03/15/2020			875,000			977,812
Pinnacle Entertainment, Inc.:
		7.500	%		06/15/2015			2,605,000			2,676,637
		8.625	%		08/01/2017			775,000			856,375
		8.750	%		05/15/2020			950,000			1,028,375
											21,061,600
Gas Distributors - 1.13%
Inergy LP:
		8.750	%		03/01/2015			556,000			597,700
		6.875	%		08/01/2021			2,150,000			2,217,188	(1)
Niska Gas Storage US LLC		8.875	%		03/15/2018			2,200,000			2,376,000
Regency Energy Partners LP		6.875	%		12/01/2018			300,000			317,250
											5,508,138
Gas Pipelines - 2.99%
ANR Pipeline Co.:
		7.375	%		02/15/2024			60,000			75,049

See Notes to Financial Statements.

Stone Harbor Investment Funds Annual Report  |  May 31, 2011 27

Stone Harbor High Yield Bond Fund	Statements of Investments
	May 31, 2011

	Rate			Maturity Date			Principal Amount *			Market Value (Expressed in U.S. $)
		7.000	%		06/01/2025	$		10,000	$		11,531
Copano Energy LLC:
		7.750	%		06/01/2018			675,000			710,438
		7.125	%		04/01/2021			1,525,000			1,544,062
Crosstex Energy, Inc.		8.875	%		02/15/2018			1,950,000			2,125,500
El Paso Corp.:
		7.250	%		06/01/2018			1,500,000			1,772,358
Series GMTN		7.800	%		08/01/2031			1,900,000			2,317,343
MarkWest Energy Partners LP:
Series B		8.750	%		04/15/2018			850,000			944,562
		6.750	%		11/01/2020			475,000			491,625
		6.500	%		08/15/2021			650,000			658,937
Sabine Pass LNG LP		7.250	%		11/30/2013			2,175,000			2,262,000
Targa Resources Partners LP:
		7.875	%		10/15/2018			775,000			827,312	(1)
		6.875	%		02/01/2021			850,000			848,938	(1)
											14,589,655
Healthcare - 8.07%
Alere, Inc.:
		7.875	%		02/01/2016			1,350,000			1,415,812
		9.000	%		05/15/2016			1,625,000			1,730,625
American Renal Holdings, Inc.		8.375	%		05/15/2018			1,875,000			1,968,750
Biomet, Inc.		11.625	%		10/15/2017			1,400,000			1,578,500
CDRT Merger Sub, Inc.		8.125	%		06/01/2019			1,350,000			1,365,187	(1)
Community Health Systems, Inc.		8.875	%		07/15/2015			4,325,000			4,476,375
ConvaTec Healthcare E SA		10.500	%		12/15/2018			2,100,000			2,278,500	(1)
DaVita, Inc.		6.625	%		11/01/2020			850,000			875,500
HCA Holdings, Inc.		7.750	%		05/15/2021			275,000			289,094	(1)
HCA, Inc.:
		6.375	%		01/15/2015			1,100,000			1,138,500
		9.250	%		11/15/2016			2,200,000			2,359,500
		9.625	%		11/15/2016			2,013,000			2,158,942	(2)
HealthSouth Corp.		8.125	%		02/15/2020			3,425,000			3,784,625
IASIS Healthcare LLC		8.375	%		05/15/2019			1,500,000			1,513,125	(1)
Multiplan, Inc.		9.875	%		09/01/2018			850,000			922,250	(1)
Radiation Therapy Services, Inc.		9.875	%		04/15/2017			2,275,000			2,317,656
Surgical Care Affiliates, Inc.:
		8.875	%		07/15/2015			984,000			1,018,440	(1)(2)
		10.000	%		07/15/2017			1,275,000			1,326,000	(1)
United Surgical Partners International, Inc.:
		8.875	%		05/01/2017			125,000			132,969
		9.250	%		05/01/2017			1,220,000			1,300,825	(2)
Vanguard Health Holding Co. II LLC		8.000	%		02/01/2018			4,525,000			4,739,938
Vanguard Health Systems, Inc.		10.625	%		02/01/2016			1,150,000			748,938	(1)(5)
											39,440,051
Industrial Other - 1.25%
Dematic SA		8.750	%		05/01/2016			925,000			943,500	(1)
Park-Ohio Industries, Inc.		8.125	%		04/01/2021			1,250,000			1,284,375	(1)
RBS Global, Inc.		8.500	%		05/01/2018			3,550,000			3,869,500
											6,097,375

See Notes to Financial Statements.

28 www.shiplp.com

Stone Harbor High Yield Bond Fund	Statements of Investments
	May 31, 2011

	Rate			Maturity Date		Principal Amount *		Market Value (Expressed in U.S. $)
Leisure - 2.04%
AMC Entertainment, Inc.:
		8.000	%		03/01/2014	$	550,000	$	558,250
		9.750	%		12/01/2020		3,725,000		3,971,781	(1)
Cinemark USA, Inc.:
		8.625	%		06/15/2019		1,775,000		1,948,063
		7.375	%		06/15/2021		1,175,000		1,175,000	(1)
Regal Cinemas Corp.		8.625	%		07/15/2019		1,700,000		1,827,500
Regal Entertainment Group		9.125	%		08/15/2018		475,000		507,062
									9,987,656
Media Cable - 4.14%
Atlantic Broadband Finance LLC		9.375	%		01/15/2014		1,710,000		1,744,200
Cablevision Systems Corp.:
		8.625	%		09/15/2017		925,000		1,047,563
		7.750	%		04/15/2018		525,000		572,250
		8.000	%		04/15/2020		750,000		826,875
CCO Holdings LLC		7.000	%		01/15/2019		425,000		436,156
Cequel Communications Holdings I LLC		8.625	%		11/15/2017		1,175,000		1,254,312	(1)
CSC Holdings LLC:
		8.500	%		06/15/2015		800,000		872,000
		7.625	%		07/15/2018		325,000		356,281
		8.625	%		02/15/2019		475,000		549,812
DISH DBS Corp.:
		7.125	%		02/01/2016		960,000		1,029,600
		7.875	%		09/01/2019		2,750,000		3,007,813
		6.750	%		06/01/2021		850,000		862,750	(1)
Insight Communications Co., Inc.		9.375	%		07/15/2018		575,000		646,875	(1)
Kabel BW Erste Beteiligungs GmbH		7.500	%		03/15/2019		1,075,000		1,124,719	(1)
Mediacom LLC		9.125	%		08/15/2019		500,000		545,000
Ono Finance II PLC		10.875	%		07/15/2019		675,000		752,625	(1)
Unitymedia Hesson GmbH & Co.		8.125	%		12/01/2017		125,000		133,438	(1)
UPC Holding BV		9.875	%		04/15/2018		1,900,000		2,137,500	(1)
Virgin Media Finance PLC:
		9.125	%		08/15/2016		725,000		766,687
Series 1		9.500	%		08/15/2016		1,100,000		1,262,250	(1)
		8.375	%		10/15/2019		275,000		310,750
									20,239,456
Media Other - 3.28%
Bonten Media Acquisition Co.		9.000	%		06/01/2015		514,131		388,169	(1)(2)
Citadel Broadcasting Corp.		7.750	%		12/15/2018		400,000		434,500	(1)
Entravision Communications Corp.		8.750	%		08/01/2017		2,125,000		2,268,437
Fox Acquisition Sub LLC		13.375	%		07/15/2016		1,665,000		1,885,613	(1)
Interep National Radio Sales, Inc., Series B		10.000	%		07/01/2008		4,000		0	(3)(4)
Lamar Media Corp.:
		6.625	%		08/15/2015		710,000		729,525
Series B		6.625	%		08/15/2015		1,680,000		1,722,000
Series C		6.625	%		08/15/2015		200,000		205,000
Radio One, Inc.		12.500	%		05/11/2016		2,442,833		2,528,332	(1)(2)
Sinclair Television Group, Inc.:
		9.250	%		11/01/2017		800,000		898,000	(1)

See Notes to Financial Statements.

Stone Harbor Investment Funds Annual Report  |  May 31, 2011 29

Stone Harbor High Yield Bond Fund	Statements of Investments
	May 31, 2011

	Rate			Maturity Date			Principal Amount *			Market Value (Expressed in U.S. $)
		8.375	%		10/15/2018	$		1,325,000	$		1,421,063
Univision Communications, Inc.:
		7.875	%		11/01/2010			1,900,000			2,023,500	(1)
		6.875	%		05/15/2019			600,000			603,000	(1)
		8.500	%		05/15/2021			900,000			931,500	(1)
											16,038,639
Metals/Mining/Steel - 4.59%
APERAM:
		7.375	%		04/01/2016			850,000			885,063	(1)
		7.750	%		04/01/2018			1,425,000			1,478,438	(1)
Atkore International, Inc.		9.875	%		01/01/2018			2,074,000			2,260,660	(1)
Cloud Peak Energy Resources LLC:
		8.250	%		12/15/2017			400,000			438,000
		8.500	%		12/15/2019			1,450,000			1,624,000
Consol Energy, Inc.:
		8.000	%		04/01/2017			1,175,000			1,292,500
		8.250	%		04/01/2020			800,000			892,000
Drummond Co., Inc.:
		9.000	%		10/15/2014			325,000			342,875	(1)
		7.375	%		02/15/2016			1,475,000			1,515,562
FMG Resources August 2006 Property Ltd.		7.000	%		11/01/2015			1,115,000			1,165,175	(1)
JMC Steel Group		8.250	%		03/15/2018			1,600,000			1,660,000	(1)
Mirabela Nickel Ltd.		8.750	%		04/15/2018			2,325,000			2,354,062	(1)
Novelis, Inc.		8.375	%		12/15/2017			1,800,000			1,971,000
Penn Virginia Resource Partners LP		8.250	%		04/15/2018			2,130,000			2,263,125
Taseko Mines Ltd.		7.750	%		04/15/2019			2,225,000			2,269,500
											22,411,960
Non Captive Finance - 0.27%
Ally Financial, Inc.		6.250	%		12/01/2017			790,000			816,787	(1)
PHH Corp.		9.250	%		03/01/2016			450,000			502,875
											1,319,662
Paper/Forest Products - 3.19%
Ainsworth Lumber Co. Ltd.		11.000	%		07/29/2015			1,946,250			1,938,952	(1)(2)
Boise Paper Holdings LLC		8.000	%		04/01/2020			2,000,000			2,170,000
Cascades, Inc.:
		7.750	%		12/15/2017			1,750,000			1,863,750
		7.875	%		01/15/2020			225,000			238,500
Catalyst Paper Corp.		11.000	%		12/15/2016			1,475,000			1,349,625	(1)
Graphic Packaging International, Inc.		9.500	%		06/15/2017			2,155,000			2,413,600
Mercer International, Inc.		9.500	%		12/01/2017			1,650,000			1,817,062
NewPage Corp.		11.375	%		12/31/2014			1,215,000			1,178,550
Verso Paper Holdings LLC, Series B		11.375	%		08/01/2016			1,075,000			1,118,000
Xerium Technologies, Inc.		8.875	%		06/15/2018			1,500,000			1,507,500	(1)
											15,595,539
Property & Casualty Insurance - 0.24%
CNO Financial Group, Inc.		9.000	%		01/15/2018			1,100,000			1,193,500	(1)

See Notes to Financial Statements.

30 www.shiplp.com

Stone Harbor High Yield Bond Fund	Statements of Investments
	May 31, 2011

	Rate			Maturity Date			Principal Amount *			Market Value (Expressed in U.S. $)
Publishing/Printing - 1.59%
Baker & Taylor, Inc.		11.500	%		07/01/2013	$		1,295,000	$		1,087,800	(1)
Cenveo Corp.:
		7.875	%		12/01/2013			3,400,000			3,374,500
		8.375	%		06/15/2014			650,000			606,125
		10.500	%		08/15/2016			350,000			354,375	(1)
		8.875	%		02/01/2018			500,000			510,000
Dex One Corp.		12.000	%		01/29/2017			15,236			7,009	(2)
IDEARC, Inc.		8.000	%		11/15/2016			1,265,000			0	(3)(4)
The McClatchy Co.		11.500	%		02/15/2017			1,205,000			1,325,500
Nielsen Finance LLC		7.750	%		10/15/2018			450,000			484,875	(1)
											7,750,184
Refining - 0.56%
Petroplus Finance Ltd.:
		6.750	%		05/01/2014			1,585,000			1,561,225	(1)
		7.000	%		05/01/2017			925,000			883,375	(1)
		9.375	%		09/15/2019			300,000			309,000	(1)
											2,753,600
REITS - 0.41%
CB Richard Ellis Services, Inc.		11.625	%		06/15/2017			1,675,000			1,984,875
Restaurants - 0.40%
DineEquity, Inc.		9.500	%		10/30/2018			975,000			1,072,500	(1)
Dunkin’ Brands, Inc.		9.625	%		12/01/2018			821,000			832,281	(1)
Sbarro, Inc.		10.375	%		02/01/2015			225,000			46,125	(3)
											1,950,906
Retail Food/Drug - 0.73%
Albertsons, Inc.:
		8.700	%		05/01/2030			725,000			676,062
		8.000	%		05/01/2031			550,000			484,000
American Stores Co.:
		7.900	%		05/01/2017			550,000			548,625
		8.000	%		06/01/2026			1,465,000			1,355,125
Series MTNB		7.100	%		03/20/2028			600,000			492,000
											3,555,812
Retail Non Food/Drug - 4.46%
The Bon Ton Department Stores, Inc.		10.250	%		03/15/2014			1,380,000			1,411,050
Claire’s Stores, Inc.:
		9.250	%		06/01/2015			550,000			548,625
		9.625	%		06/01/2015			1,243,762			1,246,871	(2)
		8.875	%		03/15/2019			1,150,000			1,109,750	(1)
Express LLC		8.750	%		03/01/2018			1,300,000			1,417,000
JC Penney Corp., Inc.		7.400	%		04/01/2037			1,475,000			1,430,750
Limited Brands, Inc.:
		7.000	%		05/01/2020			1,075,000			1,161,000
		6.625	%		04/01/2021			625,000			654,688
		6.950	%		03/01/2033			1,350,000			1,263,938
		7.600	%		07/15/2037			400,000			397,000
Macy’s Retail Holdings, Inc.		7.875	%		08/15/2036			325,000			358,193

See Notes to Financial Statements.

Stone Harbor Investment Funds Annual Report  |  May 31, 2011 31

Stone Harbor High Yield Bond Fund	Statements of Investments
	May 31, 2011

	Rate			Maturity Date			Principal Amount *			Market Value (Expressed in U.S. $)
Michaels Stores, Inc.		7.750	%		11/01/2018	$		725,000	$		744,937	(1)
Needle Merger Sub Corp.		8.125	%		03/15/2019			1,050,000			1,068,375	(1)
Neiman Marcus Group, Inc.		10.375	%		10/15/2015			1,200,000			1,269,000
Petco Animal Supplies, Inc.		9.250	%		12/01/2018			1,200,000			1,293,000	(1)
QVC, Inc.		7.500	%		10/01/2019			1,150,000			1,244,875	(1)
RadioShack Corp.		6.750	%		05/15/2019			2,250,000			2,255,625	(1)
Toys R Us Delaware, Inc.		7.375	%		09/01/2016			375,000			391,875	(1)
Toys R Us Property Co. I LLC		10.750	%		07/15/2017			2,200,000			2,497,000
											21,763,552
Satellite - 0.47%
Intelsat Jackson Holdings SA:
		9.500	%		06/15/2016			900,000			949,500
		7.250	%		04/01/2019			375,000			379,688	(1)
		8.500	%		11/01/2019			900,000			967,500
											2,296,688
Services Other - 5.04%
American Residential Services LLC		12.000	%		04/15/2015			1,075,000			1,173,094	(1)
ARAMARK Corp.		8.500	%		02/01/2015			3,070,000			3,208,150
ARAMARK Holdings Corp.		8.625	%		05/01/2016			1,475,000			1,515,563	(1)(2)
Brickman Group Holdings, Inc.		9.125	%		11/01/2018			2,250,000			2,345,625	(1)
Education Management LLC:
		8.750	%		06/01/2014			1,200,000			1,227,000
		10.250	%		06/01/2016			215,000			225,212
The Geo Group, Inc.		7.750	%		10/15/2017			2,300,000			2,478,250
GXS Worldwide, Inc.		9.750	%		06/15/2015			2,175,000			2,223,937
Interactive Data Corp.		10.250	%		08/01/2018			1,875,000			2,095,313	(1)
Iron Mountain, Inc.:
		8.750	%		07/15/2018			1,200,000			1,261,500
		8.000	%		06/15/2020			375,000			397,500
		8.375	%		08/15/2021			325,000			349,375
The ServiceMaster Co.:
		10.750	%		07/15/2015			1,800,000			1,912,500	(1)(2)
		7.450	%		08/15/2027			325,000			271,375
Trans Union LLC		11.375	%		06/15/2018			1,875,000			2,175,000
West Corp.:
		8.625	%		10/01/2018			350,000			370,562	(1)
		7.875	%		01/15/2019			1,350,000			1,378,688	(1)
											24,608,644
Technology - 3.74%
Buccaneer Merger Sub, Inc.		9.125	%		01/15/2019			1,050,000			1,130,063	(1)
CommScope, Inc.		8.250	%		01/15/2019			1,750,000			1,841,875	(1)
Fidelity National Information Services, Inc.		7.875	%		07/15/2020			575,000			636,813
First Data Corp.		12.625	%		01/15/2021			1,165,000			1,272,762	(1)
iGate Corp.		9.000	%		05/01/2016			1,750,000			1,806,875	(1)
MEMC Electronic Materials, Inc.		7.750	%		04/01/2019			1,725,000			1,776,750	(1)
NXP BV		9.750	%		08/01/2018			2,125,000			2,465,000	(1)
Seagate HDD Cayman		7.750	%		12/15/2018			2,075,000			2,194,312	(1)
Sensata Technologies BV		6.500	%		05/15/2019			1,175,000			1,194,094	(1)

See Notes to Financial Statements.

32 www.shiplp.com

Stone Harbor High Yield Bond Fund	Statements of Investments
	May 31, 2011

	Rate			Maturity Date			Principal Amount *			Market Value (Expressed in U.S. $)
SSI Investments II		11.125	%		06/01/2018	$		1,700,000	$		1,904,000
SunGard Data Systems, Inc.:
		7.375	%		11/15/2018			1,625,000			1,665,625
		7.625	%		11/15/2020			375,000			390,937
											18,279,106
Textile/Apparel - 0.69%
Levi Strauss & Co.:
		8.875	%		04/01/2016			725,000			759,438
		7.625	%		05/15/2020			925,000			941,187
Quiksilver, Inc.		6.875	%		04/15/2015			1,700,000			1,670,250
											3,370,875
Transportation - Non Air/Rail - 0.74%
CMA CGM SA		8.500	%		04/15/2017			1,000,000			915,000	(1)
General Maritime Corp.		12.000	%		11/15/2017			1,775,000			1,570,875
Teekay Corp.		8.500	%		01/15/2020			1,025,000			1,124,937
											3,610,812
Wireless - 3.32%
Crown Castle International Corp.		9.000	%		01/15/2015			3,050,000			3,400,750
MetroPCS Wireless, Inc.:
		7.875	%		09/01/2018			1,300,000			1,405,625
		6.625	%		11/15/2020			975,000			975,000
Nextel Communications, Inc., Series D		7.375	%		08/01/2015			2,325,000			2,351,156
NII Capital Corp.		7.625	%		04/01/2021			600,000			639,750
SBA Telecommunications, Inc.		8.250	%		08/15/2019			700,000			774,375
Sprint Capital Corp.		8.750	%		03/15/2032			3,825,000			4,240,969
Wind Acquisition Finance SA:
		11.750	%		07/15/2014			975,000			1,138,312	(1)
		12.250	%		07/15/2017			1,039,917			1,292,097	(1)(2)
											16,218,034
Wirelines - 3.97%
Cincinnati Bell, Inc.:
		8.250	%		10/15/2017			975,000			998,156
		8.750	%		03/15/2018			1,150,000			1,115,500
		8.375	%		10/15/2020			50,000			50,750
Citizens Communications Co.:
		7.875	%		01/15/2027			125,000			123,750
		9.000	%		08/15/2031			4,555,000			4,777,056
Embarq Corp.		7.995	%		06/01/2036			1,575,000			1,722,910
ITC Deltacom, Inc.		10.500	%		04/01/2016			2,025,000			2,197,125
Level 3 Financing, Inc.:
		9.250	%		11/01/2014			576,000			596,160
		4.215	%		02/15/2015			225,000			217,125	(6)
		10.000	%		02/01/2018			2,100,000			2,283,750
Qwest Corp.:
		7.500	%		06/15/2023			425,000			428,719
		6.875	%		09/15/2033			2,150,000			2,125,812
Windstream Corp.:
		7.875	%		11/01/2017			675,000			741,656
		7.750	%		10/15/2020			400,000			432,000

See Notes to Financial Statements.

Stone Harbor Investment Funds Annual Report  |  May 31, 2011 33

Stone Harbor High Yield Bond Fund	Statements of Investments
	May 31, 2011

	Currency	Rate			Maturity Date		Principal Amount*		Market Value (Expressed in U.S. $)
Windstream Corp.:
			7.750	%		10/01/2021	$	515,000	$	560,063
			7.500	%		04/01/2023		1,000,000		1,035,000
										19,405,532
TOTAL CORPORATE BONDS										446,387,678
(Cost $416,578,734)
CONVERTIBLE CORPORATE BONDS - 1.94%
Aerospace/Defense - 0.07%
Alliant Techsystems, Inc.			2.750	%		09/15/2011		331,000		334,310
Airlines - 0.02%
AirTran Holdings, Inc.			5.250	%		11/01/2016		80,000		118,100
Automotive - 0.17%
Cie Generale des Etablissements Michelin, Series ML	EUR		1.197	%		01/01/2017		166,631		270,540	(4)(5)
Suzuki Motor Corp., Series 4	JPY		0.000	%		03/29/2013		25,000,000		309,080	(1)(5)
TRW Automotive, Inc.			3.500	%		12/01/2015		130,000		266,337	(1)
										845,957
Building Products - 0.03%
Cemex SAB de CV:
			3.250	%		03/15/2016		49,000		49,184	(1)
			3.750	%		03/15/2018		100,000		100,500	(1)
										149,684
Containers/Packaging - 0.06%
Owens-Brockway Glass Container, Inc.			3.000	%		06/01/2015		278,000		289,815	(1)
Drillers/Services - 0.18%
Hercules Offshore, Inc.			3.375	%		06/01/2038		252,000		238,770	(7)
Newpark Resources, Inc.			4.000	%		10/01/2017		199,000		244,770
Subsea 7 SA, Series ACY			2.250	%		10/11/2013		300,000		373,500
										857,040
Exploration & Production - 0.03%
InterOil Corp.			2.750	%		11/15/2015		9,000		8,235
Quicksilver Resources, Inc.			1.875	%		11/01/2024		138,000		145,762
										153,997
Financial Other - 0.00%(8)
Ares Capital Corp.			5.125	%		06/01/2016		18,000		18,495	(1)
Food & Beverage - 0.11%
Smithfield Foods, Inc.			4.000	%		06/30/2013		163,000		191,118
Tyson Foods, Inc.			3.250	%		10/15/2013		280,000		361,550
										552,668
Healthcare - 0.16%
Amylin Pharmaceuticals, Inc.			3.000	%		06/15/2014		192,000		176,160
Hologic, Inc.			2.000	%		12/15/2037		84,000		82,425	(7)

See Notes to Financial Statements.

34 www.shiplp.com

Stone Harbor High Yield Bond Fund	Statements of Investments
	May 31, 2011

	Currency	Rate			Maturity Date		Principal Amount*		Market Value (Expressed in U.S. $)
Life Technologies Corp.			3.250	%		06/15/2025	$	498,000	$	529,125
										787,710
Industrial Other - 0.02%
Altra Holdings, Inc.			2.750	%		03/01/2031		68,000		78,965	(1)
Lodging - 0.01%
Home Inns & Hotels Management, Inc.			2.000	%		12/15/2015		56,000		58,870	(1)
Metals/Mining/Steel - 0.04%
RTI International Metals, Inc.			3.000	%		12/01/2015		134,000		173,697
Pharmaceuticals - 0.23%
Gilead Sciences, Inc.			1.000	%		05/01/2014		282,000		317,603	(1)
PDL BioPharma, Inc.			3.750	%		05/01/2015		74,000		76,127
Savient Pharmaceuticals, Inc.			4.750	%		02/01/2018		74,000		79,550
Shire PLC, Series SHP			2.750	%		05/09/2014		375,000		432,656
Teva Pharmaceutical Finance Co. LLC, Series C			0.250	%		02/01/2026		175,000		206,719
										1,112,655
Property & Casualty Insurance - 0.01%
Radian Group, Inc.			3.000	%		11/15/2017		71,000		55,114
Railroads - 0.03%
Greenbrier Cos., Inc.			3.500	%		04/01/2018		152,000		156,560	(1)
Technology - 0.68%
Alcatel-Lucent, Series ALU	EUR		5.000	%		01/01/2015		2,000,000		72,383	(4)
Alcatel Lucent USA, Inc.:
Series A			2.875	%		06/15/2023		330,000		296,175
Series B			2.750	%		06/15/2025		90,000		89,437
Callidus Software, Inc.			4.750	%		06/01/2016		94,000		92,881	(1)
Comtech Telecommunications Corp.			3.000	%		05/01/2029		284,000		296,780
Digital River, Inc.			2.000	%		11/01/2030		255,000		257,550	(1)
Hon Hai Precision Industry Co. Ltd.			0.000	%		10/12/2013		100,000		103,250	(5)
Intel Corp.			3.250	%		08/01/2039		148,000		184,260
Ixia			3.000	%		12/15/2015		271,000		307,585	(1)
Lam Research Corp.			0.500	%		05/15/2016		41,000		42,333	(1)
Mentor Graphics Corp.			4.000	%		04/01/2031		183,000		185,745	(1)
Micron Technology, Inc.			1.875	%		06/01/2027		232,000		265,060
Novellus Systems, Inc.			2.625	%		05/15/2041		44,000		47,630	(1)
ON Semiconductor Corp.:
Series B			0.221	%		04/15/2024		280,000		341,250	(5)
			2.625	%		12/15/2026		223,000		285,161
SanDisk Corp.			1.500	%		08/15/2017		127,000		145,733
WebMD Health Corp.:
			2.250	%		03/31/2016		40,000		38,750	(1)
			2.500	%		01/31/2018		100,000		99,625	(1)
Xilinx, Inc.			3.125	%		03/15/2037		146,000		182,683
										3,334,271

See Notes to Financial Statements.

Stone Harbor Investment Funds Annual Report  |  May 31, 2011 35

Stone Harbor High Yield Bond Fund	Statements of Investments
	May 31, 2011

	Rate			Maturity Date		Principal Amount/Shares*		Market Value (Expressed in U.S. $)
Transportation Non Air/Rail - 0.01%
Ultrapetrol Bahamas Ltd.		7.250	%		01/15/2017	$	31,000	$	30,651	(1)
Wirelines - 0.08%
Earthlink, Inc.		3.250	%		11/15/2026		360,000		380,700	(7)
TOTAL CONVERTIBLE CORPORATE BONDS									9,489,259
(Cost $8,910,065)
BANK LOANS - 1.83%(9)
Building Products - 0.04%
Collins & Aikman Floorcoverings, Inc. Loan:
		2.810	%		06/14/2011		146,939		141,612
		2.809	%		06/21/2011		18,367		17,702
		2.807	%		06/30/2011		7,113		6,855
									166,169
Electric - 0.81%
Texas Competitive Electric Holdings Co., LLC - 2017 Term Loan:
		4.706	%		06/09/2011		2,429,552		1,923,750
		4.768	%		08/09/2011		2,578,057		2,041,339
									3,965,089
Gaming - 0.47%
Caesers Entertainment Operating Co., Inc. - Term - B-2 Loan:
		3.194	%		06/27/2011		766,868		715,679
		3.274	%		07/25/2011		1,708,132		1,594,110
									2,309,789
Non Captive Finance - 0.41%
iStar Financial, Inc. Tranche A 2 Loan		7.000	%		06/10/2011		2,000,000		2,019,822
Publishing/Printing - 0.10%
Merrill Communications LLC - Loan (Second Lien):
		13.750	%		06/30/2011		150,000		150,562
		14.000	%		07/29/2011		6,152		6,175
R.H. Donnelley, Inc. - Loan:
		9.000	%		06/30/2011		30,793		23,018
		9.000	%		07/29/2011		111,820		83,586
		9.000	%		08/31/2011		116,534		87,109
Tribune Co. - Tranche X Advance		5.000	%		12/31/2010		192,000		129,520	(3)
									479,970
TOTAL BANK LOANS									8,940,839
(Cost $8,622,492)
COMMON STOCKS - 0.47%
Chemicals - 0.04%
LyondellBasell Industries NV							4,658		204,067

See Notes to Financial Statements.

36 www.shiplp.com

Stone Harbor High Yield Bond Fund	Statements of Investments
	May 31, 2011

	Rate			Maturity Date		Principal Amount/Shares*		Market Value (Expressed in U.S. $)
Gas Pipelines - 0.05%
El Paso Corp.							11,346		238,833
Media Cable - 0.36%
Charter Communications, Inc.							31,035	$	1,753,167	(10)
Publishing/Printing - 0.01%
Dex One Corp.							12,498		29,245	(10)
SuperMedia, Inc.							998		4,332	(10)
									33,577
Technology - 0.01%
Veeco Instruments, Inc.							1,236		71,181	(10)
TOTAL COMMON STOCKS									2,300,825
(Cost $4,351,320)
PREFERRED STOCKS - 0.33%
Banking - 0.12%
Wells Fargo & Co.		7.500	%		12/31/2049		345		374,325
Wintrust Financial Corp.		7.500	%		12/15/2013		3,450		184,520
									558,845
Electric - 0.02%
AES Trust III		6.750	%		10/15/2029		600		29,490
PPL Corp.		8.750	%		05/11/2014		1,300		71,175
									100,665
Exploration & Production - 0.07%
Apache Corp.		6.000	%		08/01/2013		5,210		346,621
Food & Beverage - 0.05%
Archer-Daniels-Midland Co.		6.250	%		06/01/2011		5,700		232,674
Life - 0.05%
Hartford Financial Services Group, Inc.		7.250	%		04/01/2013		3,400		89,352
MetLife, Inc.		5.000	%		09/11/2013		1,850		153,014
									242,366
Metals/Mining/Steel - 0.02%
AngloGold Ashanti Holdings Finance PLC		6.000	%		09/15/2013		950		49,761
Molycorp, Inc.		5.500	%		03/01/2014		550		67,050
									116,811
Technology - 0.00%(8)
Unisys Corp.		6.250	%		03/01/2014		70		5,771
TOTAL PREFERRED STOCKS									1,603,753
(Cost $1,450,754)

See Notes to Financial Statements.

Stone Harbor Investment Funds Annual Report  |  May 31, 2011 37

Stone Harbor High Yield Bond Fund	Statements of Investments
	May 31, 2011

	Shares		Market Value (expressed in U.S. $)
RIGHTS AND WARRANTS - 0.06%
Media Other - 0.06%
Citadel Broadcasting Corp. expires 06/03/2030		8,540	$	288,225	(10)
Publishing/Printing - 0.00%
Readers Digest expires 02/19/2014		1,498		0	(4)(10)
TOTAL RIGHTS AND WARRANTS				288,225
(Cost $576,017)
SHORT TERM INVESTMENTS - 2.95%
Money Market Mutual Funds - 2.95%
Dreyfus Cash Advantage Plus Fund
(0.042% 7-Day Yield)		14,383,985		14,383,985
TOTAL SHORT TERM INVESTMENTS				14,383,985
(Cost $14,383,985)
Total Investments - 98.97%			$	483,394,564
(Cost $454,873,367)
Other Assets in Excess of Liabilities - 1.03%				5,030,693
Net Assets - 100.00%			$	488,425,257

* The principal/contract amount of each security is stated in the currency in which the bond is denominated (U.S. Dollar unless otherwise notated). See below.

EUR         Euro Currency

JPY         Japanese Yen

⁽¹⁾  Security exempt from registration under Rule 144A of the Securities Act of 1933. Under procedures approved by the Board of Trustees, such securities have been determined to be liquid by the Investment Advisor and may normally be sold, to qualified institutional buyers in transactions exempt from registration. Total market value of Rule 144A securities amounts to $179,747,244, which represents approximately 36.80% of net assets as of May 31, 2011.

⁽²⁾ Pay-in-kind securities.

⁽³⁾ Security is currently in default/non-income producing.

⁽⁴⁾ This security has been valued by management at its fair value determined in good faith pursuant to procedures approved by the Board of Trustees. Total market value of fair valued securities amounts to $342,925, which represents approximately 0.07% of net assets as of May 31, 2011.

⁽⁵⁾ Zero coupon bond reflects effective yield on the date of purchase.

⁽⁶⁾ Floating or variable rate security. Interest rate disclosed is that which is in effect at May 31, 2011.

⁽⁷⁾ Step bond. Coupon increases periodically based upon a predetermined schedule. Interest rate disclosed is that which is in effect at May 31, 2011.

⁽⁸⁾ Amount represents less than 0.005% of net assets.

⁽⁹⁾ Bank loans generally pay interest at rates which are periodically determined by reference to a base lending rate plus a premium. All loans carry a variable rate of interest. These base lending rates are generally (i) the Prime Rate offered by one or more major United States banks, (ii) the lending rate offered by one or more European banks such as the London Interbank Offered Rate (“LIBOR”) or (iii) the Certificate of Deposit rate. Rate shown represents the weighted average rate at May 31, 2011. Bank Loans, while exempt from registration, under the Securities Act of 1933 (the “1933 Act”), contain certain restrictions on resale and cannot be sold publicly. Floating rate bank loans often require prepayments from excess cash flow or permit the borrower to repay at its election. The degree to which borrowers repay, whether as a contractual requirement or at their election, cannot be predicted with accuracy. As a result, the actual remaining maturity may be substantially less than the stated maturity shown.

⁽¹⁰⁾ Non-income producing security.

See Notes to Financial Statements.

38 www.shiplp.com

Stone Harbor High Yield Bond Fund	Statements of Investments
	May 31, 2011

Common Abbreviations:

BV - Besloten Vennootschap a Dutch private limited liability company.

GmbH - Gesellschaft mit bescharankter Haftung is the German term for limited liability company.

LLC - Limited Liability Corp.

LP - Limited Partnership.

Ltd. - Limited.

NV - Naamloze Vennootschap is the Dutch term for a public limited liability corporation.

PLC - Public Limited Co.

REIT - Real Estate Investment Trust.

SA - Generally designates corporations in various countries, mostly those employing the civil law.

Sab de CV - A variable capital company.

OUTSTANDING FORWARD FOREIGN CURRENCY CONTRACTS

Contract Description	Contracted Amount		Purchase/Sale Contract	Settlement Date		Current Value		Unrealized (Depreciation)
EUR		284,000	Sale		07/15/2011		$408,245	$(6,647)
JPY		25,258,000	Sale		07/15/2011		309,929	(989)
								$(7,636)

See Notes to Financial Statements.

Stone Harbor Investment Funds Annual Report  |  May 31, 2011 39

Stone Harbor Local Markets Fund	Statements of Investments
	May 31, 2011

	Currency	Rate			Maturity Date		Principal Amount *		Market Value (Expressed in U.S. $)
SOVEREIGN DEBT OBLIGATIONS - 46.37%
Argentina - 0.28%
Republic of Argentina	ARS		5.820	%		12/31/2033		5,245,786	$	1,716,081	(1)(2)
Brazil - 2.74%
Nota Do Tesouro Nacional:
	BRL		10.000	%		01/01/2014		5,160,000		3,100,680
	BRL		10.000	%		01/01/2021		24,342,000		13,461,070
										16,561,750
Colombia - 3.80%
Bogota Distrio Capital	COP		9.750	%		07/26/2028		16,300,000,000		11,565,410	(2)(3)
Republic of Colombia:
	COP		7.750	%		04/14/2021		2,559,000,000		1,667,776
	COP		9.850	%		06/28/2027		13,003,000,000		9,790,884
										23,024,070
Hungary - 1.45%
Hungarian Government:
	HUF		7.500	%		10/24/2013		174,500,000		969,395
	HUF		8.000	%		02/12/2015		1,395,780,000		7,834,629
										8,804,024
Malaysia - 9.47%
Malaysian Government:
	MYR		3.835	%		08/12/2015		39,625,000		13,359,699
	MYR		4.262	%		09/15/2016		102,400,000		35,160,565
	MYR		4.012	%		09/15/2017		23,460,000		7,895,979
	MYR		4.378	%		11/29/2019		580,000		198,728
	MYR		4.160	%		07/15/2021		2,300,000		774,116
										57,389,087
Mexico - 11.17%
Mexican Bonos:
	MXN		8.000	%		12/17/2015		1,440,000		133,605
	MXN		7.750	%		12/14/2017		131,100,000		12,139,976
	MXN		8.000	%		06/11/2020		407,190,000		38,124,370
	MXN		10.000	%		12/05/2024		79,400,000		8,617,504
	MXN		8.500	%		05/31/2029		65,020,000		6,167,680
Mexican Udibonos:
	MXN		5.000	%		06/16/2016		45,809		4,421
	MXN		3.500	%		12/14/2017		3,481,454		314,294
	MXN		4.000	%		06/13/2019		23,408,195		2,185,854
										67,687,704
Philippines - 0.56%
Republic of Philippines	PHP		4.950	%		01/15/2021		145,000,000		3,385,344

See Notes to Financial Statements.

40 www.shiplp.com

Stone Harbor Local Markets Fund	Statements of Investments
	May 31, 2011

	Currency	Rate			Maturity Date		Principal Amount *		Market Value (Expressed in U.S. $)
Poland - 4.19%
Republic of Poland:
	PLN		5.500	%		04/25/2015		38,585,000	$	14,107,939
	PLN		3.000	%		08/24/2016		11,562,368		4,329,145
	PLN		5.250	%		10/25/2017		16,062,000		5,706,237
	PLN		5.500	%		10/25/2019		2,755,000		974,432
	PLN		5.250	%		10/25/2020		740,000		254,682
										25,372,435
South Africa - 4.06%
Republic of South Africa:
	ZAR		8.000	%		12/21/2018		10,419		1,513
	ZAR		7.250	%		01/15/2020		10,690,000		1,472,077
	ZAR		6.750	%		03/31/2021		121,700,000		16,002,692
	ZAR		10.500	%		12/21/2026		41,530,000		7,136,945
										24,613,227
Thailand - 4.55%
Thailand Government:
	THB		3.625	%		05/22/2015		99,050,000		3,288,937
	THB		3.125	%		12/11/2015		739,800,000		24,091,262
	THB		3.875	%		06/13/2019		4,775,000		160,047
										27,540,246
Turkey - 4.10%
Republic of Turkey:
	TRY		10.000	%		02/15/2012		14,733,470		9,808,773
	TRY		8.060	%		08/08/2012		1,300,000		736,783	(4)
	TRY		8.936	%		11/07/2012		22,900,000		12,680,010	(4)
	TRY		10.000	%		06/17/2015		2,520,000		1,620,051
										24,845,617
TOTAL SOVEREIGN DEBT OBLIGATIONS										280,939,585
(Cost $271,142,668)
CORPORATE BONDS - 8.27%
Colombia - 0.14%
Emgesa SA ESP:
	COP		8.750	%		01/25/2021		59,000,000		34,929	(3)
	COP		8.750	%		01/25/2021		636,000,000		376,523	(5)
Empresas Publicas de Medellin ESP	COP		8.375	%		02/01/2021		802,000,000		463,773	(5)
										875,225

See Notes to Financial Statements.

Stone Harbor Investment Funds Annual Report  |  May 31, 2011 41

Stone Harbor Local Markets Fund	Statements of Investments
	May 31, 2011

	Currency	Rate			Maturity Date		Principal Amount *			Market Value (Expressed in U.S. $)
European Union - 6.17%
Asian Development Bank	ZAR		6.500	%		09/15/2015		4,650,000	$		640,663
European Bank for Reconstruction & Development:
	BRL		9.250	%		09/10/2012		2,500,000			1,596,601
	MXN		7.300	%		05/23/2013		8,500,000			763,169
	IDR		7.200	%		06/08/2016		27,000,000,000			3,186,984
European Investment Bank:
	ZAR		8.000	%		10/21/2013		3,810,000			570,960
	ZAR		7.500	%		06/01/2016		42,000,000			6,053,462
	ZAR		9.000	%		12/21/2018		139,000,000			21,003,045
	ZAR		9.051	%		12/31/2018		5,280,000			409,394	(4)
International Bank for Reconstruction & Development:
	RUB		10.000	%		04/05/2012		39,350,000			1,465,284
	ZAR		6.626	%		05/14/2012		6,500,000			900,762	(4)
	RUB		6.000	%		11/29/2012		21,500,000			775,202
											37,365,526
Venezuela - 1.96%
Petroleos de Venezuela SA			4.900	%		10/28/2014		16,090,000			11,886,487
TOTAL CORPORATE BONDS											50,127,238
(Cost $48,289,469)
CREDIT LINKED NOTES - 21.90%
Brazil - 10.01%
Nota Do Tesouro Nacional:
	BRL		10.000	%		01/01/2014		2,670,000			1,601,069	(6)
	BRL		10.000	%		01/01/2014		2,670,000			1,602,085	(6)
	BRL		10.000	%		01/01/2014		4,300,000			2,575,776	(7)
	BRL		10.000	%		01/01/2014		7,000,000			4,206,348	(6)
	BRL		10.000	%		01/01/2021		1,000,000			600,539	(8)
	BRL		10.000	%		01/01/2021		1,100,000			607,397	(8)
	BRL		10.000	%		01/01/2021		1,200,000			663,597	(7)
	BRL		10.000	%		01/01/2021		2,000,000			1,104,358	(8)
	BRL		10.000	%		01/01/2021		2,000,000			1,105,995	(7)
	BRL		10.000	%		01/01/2021		2,600,000			1,435,665	(8)
	BRL		10.000	%		01/01/2021		3,000,000			1,656,536	(8)
	BRL		10.000	%		01/01/2021		4,825,000			2,660,593	(6)
	BRL		10.000	%		01/01/2021		5,000,000			2,748,534	(7)
	BRL		10.000	%		01/01/2021		6,000,000			3,313,072	(8)
	BRL		10.000	%		01/01/2021		6,800,000			3,760,384	(9)
	BRL		10.000	%		01/01/2021		7,825,000			4,314,847	(6)
	BRL		10.000	%		01/01/2021		8,000,000			4,423,982	(10)
	BRL		10.000	%		01/01/2021		11,000,000			6,046,775	(7)
	BRL		10.000	%		01/01/2021		11,280,000			6,237,814	(9)
	BRL		10.000	%		01/01/2021		18,000,000			9,953,959	(9)
											60,619,325

See Notes to Financial Statements.

42 www.shiplp.com

Stone Harbor Local Markets Fund	Statements of Investments
	May 31, 2011

	Currency	Rate			Maturity Date		Principal Amount /Shares*			Market Value (Expressed in U.S. $)
Colombia - 2.12%
Colombia CGM:
	COP		11.000	%		07/24/2020		1,200,000,000	$		791,375	(8)
	COP		11.000	%		07/24/2020		2,000,000,000			1,318,958	(8)
	COP		11.000	%		07/24/2020		2,300,000,000			1,510,452	(8)
	COP		11.000	%		07/24/2020		12,018,000,000			7,925,618	(8)
	COP		10.000	%		07/24/2024		185,000,000			117,738	(8)
	COP		10.000	%		07/24/2024		903,000,000			574,686	(8)
	COP		10.000	%		07/24/2024		919,000,000			584,869	(8)
											12,823,696
Indonesia - 9.61%
Republic of Indonesia:
	IDR		9.500	%		06/15/2015		7,500,000,000			968,309	(11)
	IDR		9.500	%		06/15/2015		8,500,000,000			1,095,425	(6)
	IDR		9.500	%		06/15/2015		18,500,000,000			2,384,160	(10)
	IDR		10.000	%		07/15/2017		12,000,000,000			1,606,373	(7)
	IDR		11.500	%		09/15/2019		13,254,000,000			1,954,598	(6)
	IDR		12.800	%		06/15/2021		5,800,000,000			934,333	(10)
	IDR		12.800	%		06/15/2021		5,800,000,000			934,673	(11)
	IDR		12.800	%		06/15/2021		8,000,000,000			1,289,204	(11)
	IDR		12.800	%		06/15/2021		8,300,000,000			1,337,549	(11)
	IDR		12.800	%		06/15/2021		10,000,000,000			1,611,505	(11)
	IDR		12.800	%		06/15/2021		12,000,000,000			1,933,806	(11)
	IDR		12.800	%		06/15/2021		16,000,000,000			2,549,353	(7)
	IDR		12.800	%		06/15/2021		19,800,000,000			3,189,620	(10)
	IDR		12.800	%		06/15/2021		23,452,000,000			3,777,927	(6)
	IDR		12.800	%		06/15/2021		24,800,000,000			3,995,079	(9)
	IDR		12.800	%		06/15/2021		50,600,000,000			8,151,251	(10)
	IDR		8.250	%		07/15/2021		25,000,000,000			3,116,396	(11)
	IDR		8.250	%		07/15/2021		32,300,000,000			4,025,438	(10)
	IDR		8.250	%		07/15/2021		47,000,000,000			5,857,448	(6)
	IDR		11.000	%		09/15/2025		4,072,000,000			587,388	(6)
	IDR		11.000	%		09/15/2025		7,800,000,000			1,121,727	(11)
	IDR		11.000	%		09/15/2025		16,500,000,000			2,372,884	(11)
	IDR		11.000	%		09/15/2025		23,700,000,000			3,408,324	(11)
											58,202,770
Russia - 0.16%
Russian Federation	RUB		10.550	%		07/06/2011		27,800,000			1,000,238	(9)
TOTAL CREDIT LINKED NOTES											132,646,029
(Cost $128,576,943)
SHORT TERM INVESTMENTS - 21.19%
Money Market Mutual Funds - 21.19%
Dreyfus Cash Advantage Plus Fund
(0.042% 7-Day Yield)								128,349,251			128,349,251

See Notes to Financial Statements.

Stone Harbor Investment Funds Annual Report  |  May 31, 2011 43

Stone Harbor Local Markets Fund	Statements of Investments
	May 31, 2011

	Market Value (Expressed in U.S. $)
TOTAL SHORT TERM INVESTMENTS	$	128,349,251
(Cost $128,349,251)
Total Investments - 97.73%	$	592,062,103
(Cost $576,358,331)
Other Assets In Excess of Liabilities - 2.27%		13,731,046
Net Assets - 100.00%	$	605,793,149

* The principal/contract amount of each security is stated in the currency in which the bond is denominated (U.S. Dollar unless otherwise notated). See below.

ARS	Argentinian Peso	MYR	Malaysian Ringgit
BRL	Brazilian Real	PHP	Philippine Peso
CNY	Chinese Yen	PLN	Polish Zloty
COP	Colombian Peso	RUB	Russian Ruble
HUF	Hungarian Forint	THB	Thai Baht
IDR	Indonesian Rupiah	TRY	Turkish Lira
MXN	Mexican Peso	ZAR	South African Rand

⁽¹⁾ Floating or variable rate security. Interest rate disclosed is that which is in effect at May 31, 2011.

⁽²⁾ This security has been valued by management at its fair value determined in good faith pursuant to procedures approved by the Board of Trustees. Total market value of fair valued securities amounts to $13,281,491, which represents approximately 2.19% of net assets as of May 31, 2011.

⁽³⁾ Securities were issued pursuant to Regulation S under the Securities Act of 1933, which exempts securities offered and sold outside of the United States from registration. Such securities cannot be sold in the United States without either an effective registration statement filed pursuant to the Securities Act of 1933, or pursuant to an exemption from registration. These securities have been deemed liquid under procedures approved by the Fund’s Board of Trustees. As of May 31, 2011, the aggregate market value of those securities was $11,600,339, representing 1.91% of net assets.

⁽⁴⁾ Zero coupon bond reflects effective yield on the date of purchase.

⁽⁵⁾ Security exempt from registration under Rule 144A of the Securities Act of 1933. Under procedures approved by the Board of Trustees, such securities have been determined to be liquid by the Investment Advisor and may normally be sold to qualified institutional buyers in transactions exempt from registration. Total market value of Rule 144A securities amounts to $840,296, which represents approximately 0.14% of net assets as of May 31, 2011.

⁽⁶⁾ The underlying security is issued by JP Morgan Chase.

⁽⁷⁾ The underlying security is issued by Credit Suisse First Boston.

⁽⁸⁾ The underlying security is issued by Citigroup Global Markets.

⁽⁹⁾ The underlying security is issued by Barclays Bank PLC.

⁽¹⁰⁾ underlying The security is issued by Deutsche Bank AG London.

⁽¹¹⁾ underlying The security is issued by HSBC Bank.

Common Abbreviations:

CGM - Citigroup Global Markets.

ESP - Empresa de Servicios Publicos is the Colombian term for Public Service Company.

SA - Generally designates corporations in various countries mostly employing civil law.

See Notes to Financial Statements.

44 www.shiplp.com

Stone Harbor Local Markets Fund	Statements of Investments
	May 31, 2011

OUTSTANDING FORWARD FOREIGN CURRENCY CONTRACTS

Contract Description	Contracted     Amount		Purchase/Sale     Contract	Settlement     Date	Current Value	Unrealized     Appreciation
BRL		9,143,205	Purchase	06/02/2011	$5,792,522		$171,772
BRL		9,143,205	Sale	06/02/2011	5,792,521		7,330
BRL		10,398,000	Purchase	07/05/2011	6,542,503		142,503
CNY		28,595,325	Purchase	08/09/2011	4,427,291		52,801
CNY		20,839,061	Purchase	11/14/2011	3,245,632		21,785
CNY		37,678,111	Purchase	05/16/2012	5,927,725		13,752
COP		3,658,000,000	Purchase	06/28/2011	2,027,716		27,716
IDR		34,440,000,000	Purchase	06/27/2011	4,015,016		15,016
MXN		51,570,200	Purchase	06/27/2011	4,448,698		48,698
MYR		12,200,000	Purchase	06/27/2011	4,044,080		44,080
MYR		57,938,900	Purchase	07/05/2011	19,197,435		671,310
PLN		53,292,650	Purchase	06/27/2011	19,371,608		321,608
RUB		60,543,000	Sale	06/17/2011	2,160,481		9,363
RUB		60,543,000	Purchase	06/17/2011	2,160,481		60,481
RUB		76,747,500	Purchase	06/27/2011	2,735,933		35,933
RUB		80,026,000	Purchase	07/01/2011	2,851,441		51,441
RUB		80,026,000	Sale	07/01/2011	2,851,441		10,977
RUB		520,256,560	Purchase	07/06/2011	18,527,788		217,787
RUB		307,194,750	Purchase	07/27/2011	10,916,082		96,082
RUB		77,145,385	Purchase	08/19/2011	2,734,160		4,160
THB		159,768,000	Purchase	06/27/2011	5,262,242		12,242
TRY		10,113,480	Purchase	06/27/2011	6,306,876		6,876
ZAR		77,941,610	Purchase	06/27/2011	11,395,114		295,114
							$2,338,827
CNY		28,595,325	Sale	08/09/2011	$4,427,290		$(35,254)
CNY		5,430,650	Purchase	11/14/2011	845,810		(4,190)
CNY		26,269,711	Sale	11/14/2011	4,091,441		(9,124)
MYR		57,938,900	Sale	07/05/2011	19,197,435		(104,043)
PHP		58,829,700	Purchase	07/28/2011	1,354,010		(8,179)
RUB		368,779,370	Purchase	07/27/2011	13,104,473		(93,853)
TRY		6,566,150	Purchase	06/27/2011	4,094,723		(5,277)
							$(259,920)

See Notes to Financial Statements.

Stone Harbor Investment Funds Annual Report  |  May 31, 2011 45

Stone Harbor Investment Funds	Statements of Assets & Liabilites
	May 31, 2011

	Stone Harbor Emerging Markets Debt Fund		Stone Harbor High Yield Bond Fund		Stone Harbor Local Markets Fund
ASSETS:
Investments, at value(1)	$	755,113,737	$	483,394,564	$	592,062,103
Cash		3,090,867		11,212		15,037,018
Foreign currency, at value (Cost $2,174, $-0 and $11,669, respectively)		2,365		–		12,096
Unrealized appreciation on forward foreign currency contracts		424,225		–		2,338,827
Receivable for investments sold		19,387,195		223,975		4,645,270
Receivable for fund shares sold		2,513,407		241,118		37,094,180
Interest receivable		12,746,559		9,900,883		14,745,417
Dividends receivable		–		14,362		–
Prepaid and other assets		14,846		22,146		20,109
Total Assets		793,293,201		493,808,260		665,955,020
LIABILITIES:
Payable due to broker		110,000		–		580,000
Payable for investments purchased		42,870,371		3,042,615		58,827,467
Payable for fund shares redeemed		13,482		2,014,698		–
Unrealized depreciation on forward foreign currency contracts		410,021		7,636		259,920
Payable to advisor		317,889		167,424		299,873
Payable to administrator		35,774		35,134		24,143
Payable for trustee fees		6,944		6,944		6,944
Other payables		181,051		108,552		163,524
Total Liabilities		43,945,532		5,383,003		60,161,871
Net Assets	$	749,347,669	$	488,425,257	$	605,793,149
NET ASSETS CONSIST OF:
Paid-in capital	$	722,953,342	$	448,348,087	$	588,915,977
Undistributed/(overdistributed) net investment income		1,037,266		129,248		(27,562	)
Accumulated net realized gain/(loss) on investments and translation of assets and liabilities denominated in foreign currency		399,120		11,434,428		(655,670	)
Net unrealized appreciation on investments and translation of assets and liabilities denominated in foreign currency		24,957,941		28,513,494		17,560,404
Net Assets	$	749,347,669	$	488,425,257	$	605,793,149
PRICING OF SHARES:
Institutional Class
Net Assets	$	749,347,669	$	488,425,257	$	605,793,149
Shares of beneficial interest outstanding (unlimited number of shares, par value of $0.001 per share authorized)		66,925,355		48,832,904		54,032,190
Net assets value, offering and redemption price per share	$	11.20	$	10.00	$	11.21
(1) Cost of Investments	$	730,148,968	$	454,873,367	$	576,358,331

See Notes to Financial Statements.

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Stone Harbor Investment Funds	Statements of Operations
	For the Year Ended May 31, 2011

	Stone Harbor Emerging Markets Debt Fund		Stone Harbor High Yield Bond Fund		Stone Harbor Local Markets Fund (1)
INVESTMENT INCOME:
Interest (net of foreign withholding tax of $3,999, $70 and $15,807, respectively)	$	26,677,398	$	36,121,507	$	11,223,347
Dividends		–		89,778		–
Other income		1,813		922,922		–
Total Investment Income		26,679,211		37,134,207		11,223,347
EXPENSES:
Investment advisory fee		2,365,512		2,229,441		1,373,164
Administration fee		275,912		344,743		123,137
Custodian fees		94,433		32,198		96,387
Audit fees		73,047		73,047		72,184
Printing fees		5,882		5,804		5,661
Legal fees		61,619		61,618		46,080
Trustee fees		24,153		24,153		25,397
Transfer agent fees		36,488		27,156		24,208
Registration fees		83,760		33,812		67,889
Insurance fees		16,388		39,035		3,597
Other		3,675		5,020		3,221
Total expenses before waiver		3,040,869		2,876,027		1,840,925
Less fees waived by investment advisor		(83,978)		(423,643)		(10,036)
Total Net Expenses		2,956,891		2,452,384		1,830,889
Net Investment Income		23,722,320		34,681,823		9,392,458
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS:
Net realized gain/(loss) on:
Investments		5,039,735		17,338,202		(189,093)
Foreign currency transactions		1,880,003		(24,381)		811,215
Net realized gain		6,919,738		17,313,821		622,122
Change in unrealized appreciation/(depreciation) on:
Investments		19,239,463		17,448,082		15,703,772
Translation of assets and liabilities denominated in foreign currencies		17,417		(7,703)		1,856,632
Net change		19,256,880		17,440,379		17,560,404
Net Realized and Unrealized Gain on Investments		26,176,618		34,754,200		18,182,526
Net Increase in Net Assets Resulting from Operations	$	49,898,938	$	69,436,023	$	27,574,984

⁽¹⁾ For the period June 30, 2010 (Inception) to May 31, 2011.

See Notes to Financial Statements.

Stone Harbor Investment Funds Annual Report  |  May 31, 2011 47

Stone Harbor Investment Funds	Statements of Changes in Net Assets
	May 31, 2011

	Stone Harbor Emerging Markets Debt Fund						Stone Harbor High Yield Bond Fund						Stone Harbor Local Markets Fund
	For the Year Ended May 31, 2011			For the Year Ended May 31, 2010			For the Year Ended May 31, 2011			For the Year Ended May 31, 2010			For the Period June 30, 2010 (Inception) to May 31, 2011
OPERATIONS:
Net investment income	$	23,722,320		$	7,972,731		$	34,681,823		$	28,652,485		$	9,392,458
Net realized gain on investments		6,919,738			11,619,476			17,313,821			5,807,602			622,122
Net change in unrealized appreciation on investments and foreign currency translations		19,256,880			1,889,753			17,440,379			25,039,605			17,560,404
Net increase in net assets resulting from operations		49,898,938			21,481,960			69,436,023			59,499,692			27,574,984
DISTRIBUTIONS TO SHAREHOLDERS:
Institutional Class
From net investment income		(24,375,551	)		(8,618,487	)		(34,395,574	)		(28,484,852	)		(9,743,385	)
From net realized gains		(9,643,963	)		(1,703,347	)		(6,870,389	)		–			(954,427	)
Net decrease in net assets from distributions to shareholders		(34,019,514	)		(10,321,834	)		(41,265,963	)		(28,484,852	)		(10,697,812	)
CAPITAL SHARE TRANSACTIONS:
Institutional Class
Proceeds from sale of shares		601,352,890			120,511,062			91,159,822			168,548,608			580,987,585
Issued to shareholders in reinvestment of distributions		32,341,186			9,893,837			39,501,275			26,880,125			10,631,445
Cost of shares redeemed		(78,251,861	)		(55,291,995	)		(78,370,360	)		(41,688,947	)		(2,703,053	)
Net increase in net assets from capital share transactions		555,442,215			75,112,904			52,290,737			153,739,786			588,915,977
Net Increase in Net Assets		571,321,639			86,273,030			80,460,797			184,754,626			605,793,149
NET ASSETS:
Beginning of period		178,026,030			91,753,000			407,964,460			223,209,834			–
End of period	$	749,347,669		$	178,026,030		$	488,425,257		$	407,964,460		$	605,793,149
Includes undistributed/(overdistributed) net investment income of:	$	1,037,266		$	278,613		$	129,248		$	(95,135	)	$	(27,562	)
OTHER INFORMATION:
Share Transactions:
Institutional Class
Beginning shares		16,992,367			9,952,470			43,581,412			26,613,415			–
Shares sold		53,869,983			11,360,440			9,968,502			18,456,848			53,300,605
Shares reinvested		2,923,915			955,219			3,225,739			2,893,977			977,555
Shares redeemed		(6,860,910	)		(5,275,762	)		(7,942,749	)		(4,382,828	)		(245,970	)
Shares outstanding - end of period		66,925,355			16,992,367			48,832,904			43,581,412			54,032,190

See Notes to Financial Statements.

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Stone Harbor Emerging Markets Debt Fund	Financial Highlights
	For a share outstanding through the periods presented.

Institutional Class	For the Year Ended May 31, 2011		For the Year Ended May 31, 2010		For the Year Ended May 31, 2009		For the Period August 16, 2007 (Inception) to May 31, 2008
Net asset value - beginning of period	$	10.48	$	9.22	$	10.34	$	10.00
Income/(loss) from investment operations:
Net investment income		0.67 (1)		0.75		0.59		0.46
Net realized and unrealized gain/(loss) on investments		1.00		1.44		(1.18)		0.58
Total income/(loss) from investment operations		1.67		2.19		(0.59)		1.04
Less distributions to common shareholders:
From net investment income		(0.63)		(0.79)		(0.53)		(0.54)
From net realized gains		(0.32)		(0.14)		–		(0.16)
From tax return of capital		–		–		–		(0.00) (2)
Total distributions		(0.95)		(0.93)		(0.53)		(0.70)
Net Increase/(Decrease) in Net Asset Value		0.72		1.26		(1.12)		0.34
Net asset value - end of period	$	11.20	$	10.48	$	9.22	$	10.34
Total Return(3)(4)		16.30%		24.25%		(5.10)%		10.46%
Ratios/Supplemental Data:
Net assets, end of period (in thousands)	$	749,348	$	178,026	$	91,753	$	19,587
Ratio of expenses to average net assets with fee waivers/reimbursements		0.75%		0.75%		0.75%		0.75%(5)
Ratio of expenses to average net assets without fee waivers/reimbursements		0.77%		0.91%		1.33%		2.27%(5)
Ratio of net investment income to average net assets with fee waivers/reimbursements		6.02%		6.80%		9.32%		5.91%(5)
Portfolio turnover rate		82%		125%		84%		143%

⁽¹⁾  Calculated using average shares throughout the period.

⁽²⁾  Less than $(0.005) per share.

⁽³⁾  Total returns would have been lower had various fees and expenses not been waived and reimbursed during the period. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in a Fund (assuming reinvestment of all dividends and distributions).

⁽⁴⁾  Total returns for periods of less than one year are not annualized.

⁽⁵⁾  Annualized.

See Notes to Financial Statements.

Stone Harbor Investment Funds Annual Report  |  May 31, 2011 49

Stone Harbor High Yield Bond Fund	Financial Highlights
	For a share outstanding through the periods presented.

Institutional Class	For the Year Ended May 31, 2011		For the Year Ended May 31, 2010		For the Year Ended May 31, 2009		For the Period August 16, 2007 (Inception) to May 31, 2008
Net asset value - beginning of period	$	9.36	$	8.39	$	9.92	$	10.00
Income/(loss) from investment operations:
Net investment income		0.77 (1)		0.73		0.70		0.58
Net realized and unrealized gain/(loss) on investments		0.78		0.96		(1.53)		(0.08)
Total income/(loss) from investment operations		1.55		1.69		(0.83)		0.50
Less distributions to common shareholders:
From net investment income		(0.76)		(0.72)		(0.70)		(0.57)
From net realized gains		(0.15)		–		–		(0.01)
From tax return of capital		–		–		–		(0.00) (2)
Total distributions		(0.91)		(0.72)		(0.70)		(0.58)
Net Increase/(Decrease) in Net Asset Value		0.64		0.97		(1.53)		(0.08)
Net asset value - end of period	$	10.00	$	9.36	$	8.39	$	9.92
Total Return(3)(4)		17.14%		20.53%		(7.77)%		5.09%
Ratios/Supplemental Data:
Net assets, end of period (in thousands)	$	488,425	$	407,964	$	223,210	$	106,912
Ratio of expenses to average net assets with fee waivers/reimbursements		0.55%		0.55%		0.55%		0.55%(5)
Ratio of expenses to average net assets without fee waivers/reimbursements		0.65%		0.67%		0.88%		1.21%(5)
Ratio of net investment income to average net assets with fee waivers/reimbursements		7.78%		8.13%		9.07%		7.81%(5)
Portfolio turnover rate		60%		36%		16%		11%

⁽¹⁾  Calculated using average shares throughout the period.

⁽²⁾  Less than $(0.005) per share.

⁽³⁾  Total returns would have been lower had various fees and expenses not been waived and reimbursed during the period. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in a Fund (assuming reinvestment of all dividends and distributions).

⁽⁴⁾  Total returns for periods of less than one year are not annualized.

⁽⁵⁾  Annualized.

See Notes to Financial Statements.

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Stone Harbor Local Markets Fund	Financial Highlights
	For a share outstanding through the period presented.

Institutional Class	For the Period June 30, 2010 (Inception) to May 31, 2011
Net asset value - beginning of period	$	10.00
Income from investment operations:
Net investment income		0.51 (1)
Net realized and unrealized gain on investments		1.14
Total income from investment operations		1.65
Less distributions to common shareholders:
From net investment income		(0.39)
From net realized gains		(0.05)
Total distributions		(0.44)
Net Increase in Net Asset Value		1.21
Net asset value - end of period	$	11.21
Total Return(2)(3)		16.82%
Ratios/Supplemental Data:
Net assets, end of period (in thousands)	$	605,793
Ratio of expenses to average net assets with fee waivers/reimbursements		1.00%(4)
Ratio of expenses to average net assets without fee waivers/reimbursements		1.01%(4)
Ratio of net investment income to average net assets with fee waivers/reimbursements		5.13%(4)
Portfolio turnover rate		102%

⁽¹⁾  Calculated using average shares throughout the period.

⁽²⁾  Total returns would have been lower had various fees and expenses not been waived and reimbursed during the period. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in a Fund (assuming reinvestment of all dividends and distributions).

⁽³⁾  Total returns for periods of less than one year are not annualized.

⁽⁴⁾  Annualized.

Stone Harbor Investment Funds Annual Report  |  May 31, 2011 51

Stone Harbor Investment Funds	Notes to Financial Statements
	May 31, 2011

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Stone Harbor Investment Funds, which consists of Stone Harbor Emerging Markets Debt Fund, Stone Harbor High Yield Bond Fund, Stone Harbor Local Markets Fund and Stone Harbor Emerging Markets Corporate Debt Fund (each, a “Fund” and together, the “Funds”) is a Massachusetts business trust (the “Trust”), organized on February 20, 2007 and registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. Each Fund is a non-diversified portfolio with an investment objective to maximize total return. Shares of each Fund are currently divided into two classes, designated Institutional Class Shares and Distributor Class Shares. As of the date of this report, the Stone Harbor Emerging Markets Corporate Debt Fund had not launched and there were no outstanding shares for the Distributor Class of each Fund. The Declaration of Trust permits the Trustees to create additional funds and share classes.

The following is a summary of significant accounting policies consistently followed by the Funds in the preparation of their financial statements. The policies are in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of the financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates.

(a) Investment Valuation: Debt securities, including bank loans and linked notes, are generally valued at the mean between the bid and asked prices provided by independent pricing services or brokers that are based on transactions in debt obligations, quotations from dealers, market transactions in comparable securities and various other relationships between securities. Equity securities for which market quotations are available are generally valued at the last sale price or official closing price on the primary market or exchange on which they trade. Publicly traded foreign

government debt securities are typically traded internationally in the over-the-counter market, and are valued at the mean between the bid and asked prices as of the close of business of that market. When prices are not readily available, or are determined not to reflect fair value, such as when the value of a security has been significantly affected by events after the close of the exchange or market on which the security is principally traded, but before the Funds calculate their net asset value, the Funds may value these investments at fair value as determined in accordance with the procedures approved by the Funds’ Board of Trustees. Short-term obligations with maturities of 60 days or less are valued at amortized cost, which approximates market value. Money market mutual funds are valued at their net asset value.

A three tier hierarchy has been established to measure fair value based on the extent of use of “observable inputs” as compared to “unobservable inputs” for disclosure purposes and requires additional disclosures about these valuations measurements. Inputs refer broadly to the assumptions that the market participants would use in pricing a security. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the security developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs are inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the security developed based on the best information available in the circumstances.

The three-tier hierarchy is summarized as follows:

Level 1 –	Quoted and Unadjusted Prices in active markets for identical investments
Level 2 –	Other Significant Observable Inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.)
Level 3 –	Significant Unobservable Inputs (including the Fund’s own assumptions in determining the fair value of investments)

The following is a summary of each Fund’s investments and financial instruments based on the three tier hierarchy as of May 31, 2011:

Investments in Securities at Value*	Level 1 - Quoted and Unadjusted Prices		Level 2 - Other Significant Observable Inputs			Level 3 - Significant Unobservable Inputs		Total
Stone Harbor Emerging Markets Debt Fund
Sovereign Debt Obligations	$	–	$	444,179,286		$	17,818,730	$	461,998,016
Bank Loans		–		2,415,883			3,197,000		5,612,883
Convertible Corporate Bonds		–		611,130			–		611,130
Corporate Bonds		–		179,891,028			4,257,737		184,148,765
Credit Linked Notes		–		46,874,063			–		46,874,063
Participation Notes		–		4,896,130			–		4,896,130
Short Term Investments		50,972,750		–			–		50,972,750
Total	$	50,972,750	$	678,867,520		$	25,273,467	$	755,113,737
Other Financial Instruments**
Assets
Forward Foreign Currency Contracts	$	–	$	424,225		$	–	$	424,225
Liabilities
Forward Foreign Currency Contracts		–		(410,021	)		–		(410,021	)
Total	$	–	$	14,204		$	–	$	14,204

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Stone Harbor Investment Funds	Notes to Financial Statements
	May 31, 2011

Investments in Securities at Value*	Level 1 - Quoted and Unadjusted Prices		Level 2 - Other Significant Observable Inputs		Level 3 - Significant Unobservable Inputs		Total
Stone Harbor High Yield Bond Fund
Corporate Bonds	$	–	$	446,387,676	$	2	$	446,387,678
Convertible Corporate Bonds		–		9,146,336		342,923		9,489,259
Bank Loans		–		8,940,839		–		8,940,839
Common Stocks		2,300,825		–		–		2,300,825
Preferred Stocks		–		1,603,753		–		1,603,753
Rights and Warrants		288,225		–		–		288,225
Short Term Investments		14,383,985		–		–		14,383,985
Total	$	16,973,035	$	466,078,604	$	342,925	$	483,394,564
Other Financial Instruments**
Liabilities
Forward Foreign Currency Contracts	$	–	$	(7,636)	$	–	$	(7,636)
Total	$	–	$	(7,636)	$	–	$	(7,636)
Investments in Securities at Value*	Level 1 - Quoted and Unadjusted Prices		Level 2 - Other Significant Observable Inputs		Level 3 - Significant Unobservable Inputs		Total
Stone Harbor Local Markets Fund
Sovereign Debt Obligations	$	–	$	267,658,094	$	13,281,491	$	280,939,585
Corporate Bonds		–		50,127,238		–		50,127,238
Credit Linked Notes		–		132,646,029		–		132,646,029
Short Term Investments		128,349,251		–		–		128,349,251
Total	$	128,349,251	$	450,431,361	$	13,281,491	$	592,062,103
Other Financial Instruments**
Assets
Forward Foreign Currency Contracts	$	–	$	2,338,827	$	–	$	2,338,827
Liabilities
Forward Foreign Currency Contracts		–		(259,920)		–		(259,920)
Total	$	–	$	2,078,907	$	–	$	2,078,907

* For detailed Industry/Country descriptions, see accompanying Statement of Investments.

** Other financial instruments are derivative instruments not reflected in the Statement of Investments.

There were no significant transfers into or out of Levels 1 and 2 during the period.

The following is a reconciliation of assets in which significant unobservable inputs (Level 3) were used in determining fair value:

Investments in Securities at Value	Balance as of May 31, 2010		Accrued Discount/ Premium			Realized Gain/(Loss)*		Change in Unrealized Appreciation/ (Depreciation)*		Net Purchases/ Sales			Transfers in and/or out of Level 3			Balance as of May 31, 2011		Net Change in Unrealized Appreciation/ (Depreciation) Included in the Statement of Operations Attributable to Level 3 Investments Still Held at May 31, 2011
Stone Harbor Emerging Markets Debt Fund
Sovereign Debt Obligations	$	414,800	$	(8,868	)	$	96,677	$	734,451	$	12,965,816		$	3,615,854		$	17,818,730	$	1,330,921
Bank Loans		–		219,386			–		–		2,977,614			–			3,197,000		–
Corporate Bonds		812,778		(13,733	)		57,596		48,352		3,352,744			–			4,257,737		48,982
Credit Linked Notes		10,408,722		27,057			975,181		317,105		(9,011,823	)		(2,716,242	)		–		–
Total	$	11,636,300	$	223,842		$	1,129,454	$	1,099,908	$	10,284,351		$	899,612		$	25,273,467	$	1,379,903

Stone Harbor Investment Funds Annual Report  |  May 31, 2011 53

Stone Harbor Investment Funds	Notes to Financial Statements
	May 31, 2011

Investments in Securities at Value	Balance as of May 31, 2010		Accrued Discount/ Premium			Realized Gain/(Loss)*		Change in Unrealized Appreciation/ (Depreciation)*			Net Purchases/ Sales			Transfers in and/or out of Level 3			Balance as of May 31, 2011		Net Change in Unrealized Appreciation/ (Depreciation) Included in the Statement of Operations Attributable to Level 3 Investments Still Held at May 31, 2011
Stone Harbor High Yield Bond Fund
Corporate Bonds	$	2,230,500	$	487		$	124,569	$	97,315		$	(436,344	)	$	(2,016,525	)	$	2	$	(28,140	)
Convertible Corporate Bonds		–		(836	)		–		22,916			320,843			–			342,923		22,916
Bank Loans		399,936		–			14,384		(48,782	)		(42,305	)		(323,233	)		–		–
Total	$	2,630,436	$	(349	)	$	138,953	$	71,449		$	(157,806	)	$	(2,339,758	)	$	342,925	$	(5,224	)
Stone Harbor Local Markets Fund
Sovereign Debt Obligations	$	–	$	(23,214	)	$	–	$	291,975		$	13,012,730		$	–		$	13,281,491	$	291,975
Total	$	–	$	(23,214	)	$	–	$	291,975		$	13,012,730		$	–		$	13,281,491	$	291,975

* Realized gain and change in unrealized appreciation/(depreciation) are included in the related amounts on the investment in the Statement of Operations.

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

(b) Security Transactions and Investment Income: Security transactions are accounted for on a trade date basis. Interest income, adjusted for amortization of premium and accretion of discount, is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date. Foreign dividend income is recorded on the ex-dividend date or as soon as practical after the Funds determine the existence of a dividend declaration after exercising reasonable due diligence. The cost of investments sold is determined by use of the specific identification method. To the extent any issuer defaults on an expected interest payment, the Funds’ policy is to generally halt any additional interest income accruals and consider the realizability of interest accrued up to the date of default.

(c) Foreign Currency Translation: The books and records of the Funds are maintained in U.S. dollars. Investment valuations and other assets and liabilities initially expressed in foreign currencies are converted each business day into U.S. dollars based upon current exchange rates. Prevailing foreign exchange rates may generally be obtained at the close of the NYSE (normally, 4:00 p.m. Eastern time). The portion of realized and unrealized gains or losses on investments due to fluctuations in foreign currency exchange rates is not separately disclosed and is included in realized and unrealized gains or losses on investments, when applicable.

(d) Foreign Securities: The Funds may directly purchase securities of foreign issuers. Investing in securities of foreign issuers involves special risks not typically associated with investing in securities of U.S. issuers. The risks include possible revaluation of currencies, the ability to repatriate funds, less complete financial information about companies and possible future adverse political and economic

developments. Moreover, securities of many foreign issuers and their markets may be less liquid and their prices more volatile than those of securities of comparable U.S. issuers.

(e) Risk Exposure and the Use of Derivative Instruments: The Funds’ investment objectives not only permit the Funds to purchase investment securities, they also allow the Funds to enter in various types of derivatives contracts. In doing so, the Funds employ strategies in differing combinations to permit them to increase, decrease, or change the level or types of exposure to market factors. Central to those strategies are features inherent to derivatives that may make them more attractive for this purpose than equity or debt securities; they require little or no initial cash investment, they can focus exposure on only certain selected risk factors, and they may not require the ultimate receipt or delivery of the underlying security (or securities) to the contract. This may allow the Funds to pursue their objectives more quickly and efficiently than if they were to make direct purchases or sales of securities capable of effecting a similar response to market factors.

Risk Factors. In pursuit of their investment objectives, the Funds may seek to use derivatives to increase or decrease their exposure to the following risk factors, among others:

Interest Rate Risk. Interest rate risk refers to the fluctuations in value of fixed-income securities resulting from the inverse relationship between price and yield. For example, an increase in general interest rates will tend to reduce the market value of already issued fixed-income investments, and a decline in general interest rates will tend to increase their value. In addition, debt securities with longer maturities, which tend to have higher yields, are subject to potentially greater fluctuations in value from changes in interest rates than obligations with shorter maturities.

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Stone Harbor Investment Funds	Notes to Financial Statements
	May 31, 2011

Credit Risk. Credit risk relates to the ability of the issuer to meet interest and principal payments, or both, as they come due. In general, lower grade, higher yield bonds are subject to credit risk to a greater extent than lower yield, higher quality bonds.

Foreign Exchange Rate Risk. Foreign exchange rate risk relates to the change in the U.S. dollar value of a security held that is denominated in a foreign currency. The U.S. dollar value of a foreign currency denominated security will decrease as the dollar appreciates against the currency, while the U.S. dollar value will increase as the dollar depreciates against the currency.

Equity Risk. Equity risk relates to the change in value of equity securities as they relate to increases or decreases in the general market.

The Funds’ use of derivatives can result in losses due to unanticipated changes in these risk factors and the overall market. In instances where the Funds are using derivatives to decrease, or hedge, exposures to market risk factors for securities held by the Funds, there are also risks that those derivatives may not perform as expected resulting in losses for the combined or hedged positions.

Derivatives may have little or no initial cash investment relative to their market value exposure and therefore can produce significant gains or losses in excess of their cost. This use of embedded leverage allows the Fund to increase its market value exposure relative to it net assets and can substantially increase the volatility of the Funds’ performance.

Additional associated risks from investing in derivatives also exist and potentially could have significant effects on the valuation of the derivative and the Funds. Typically, the associated risks are not the risks that the Funds are attempting to increase or decrease exposure to, per their investment objectives, but are the additional risks from investing in derivatives.

Examples of these associated risks are liquidity risk, which is the risk that the Funds will not be able to sell the derivative in the open market in a timely manner, and counterparty credit risk, which is the risk that the counterparty will not fulfill its obligation to the Funds. Associated risks can be different for each type of derivative and are discussed by each derivative type below in the notes that follow.

Forward Foreign Currency Contracts. The Funds may engage in currency transactions with counterparties to hedge the value of portfolio securities denominated in particular currencies against fluctuations in relative value, to gain or reduce exposure to certain currencies, or to generate income or gains. A forward foreign currency contract is an agreement between two parties to buy and sell a currency at a set price on a future date. The contract is marked-to-market daily and the change in value is recorded by the Funds as an unrealized gain or loss. When a forward foreign currency contract is extinguished, through either delivery or offset by entering into another forward foreign currency contract, the Funds record a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value of the contract at the time it was extinguished.

Forward foreign currency contracts involve elements of market risk in excess of the amounts reflected in the Statements of Assets and Liabilities. The Funds bear the risk of an unfavorable change in the foreign exchange rate underlying the forward foreign currency contract. Risks may also arise upon entering into these contracts from the potential inability of the counterparties to meet the terms of their contracts.

Credit Linked Notes: The Funds may invest in Credit Linked Notes to obtain economic exposure to high yield, emerging markets or other securities. Investments in a Credit Linked Note typically provide the holder with a return based on the return of an underlying reference instrument, such as an emerging market bond. Like an investment in a bond, investments in credit linked securities represent the right to receive periodic income payments (in the form of distributions) and payment of principal at the end of the term of the security. In addition to the risks associated with the underlying reference instrument, an investment in a Credit Linked Note is also subject to the risk that the counterparty will be unwilling or unable to meet its obligations under the note. Because Credit Linked Notes are derivatives, an investment in these instruments is generally subject to the risks associated with derivatives.

Stone Harbor Investment Funds Annual Report  |  May 31, 2011 55

Stone Harbor Investment Funds	Notes to Financial Statements
	May 31, 2011

The following is a summary of the fair valuations of derivative instruments categorized by risk exposure:

Fair values of derivative instruments on the Statement of Assets and Liabilities as of May 31, 2011:

	Foreign  Exchange Contracts
Stone Harbor Emerging Markets Debt Fund
Assets:
Unrealized appreciation on forward foreign currency contracts	$	424,225
Liabilities:
Unrealized depreciation on forward foreign currency contracts	$	(410,021)
Stone Harbor High Yield Bond Fund
Assets:
Unrealized appreciation on forward foreign currency contracts	$	–
Liabilities:
Unrealized depreciation on forward foreign currency contracts	$	(7,636)
Stone Harbor Local Markets Fund
Assets:
Unrealized appreciation on forward foreign currency contracts	$	2,338,827
Liabilities:
Unrealized depreciation on forward foreign currency contracts	$	(259,920)

The effect of derivative instruments on the Statement of Operations for the period ended May 31, 2011:

	Foreign  Exchange Contracts
Stone Harbor Emerging Markets Debt Fund
Net Realized Loss on:
Foreign currency transactions	$	(1,119,119)
Change in Unrealized Appreciation on:
Translation of assets and liabilities denominated in foreign currencies	$	28,905
Stone Harbor High Yield Bond Fund
Net Realized Loss on:
Foreign currency transactions	$	(25,768)
Change in Unrealized Depreciation on:
Translation of assets and liabilities denominated in foreign currencies	$	(7,636)
Stone Harbor Local Markets Fund
Net Realized Gain on:
Foreign currency transactions	$	351,378
Change in Unrealized Appreciation on:
Translation of assets and liabilities denominated in foreign currencies	$	2,078,907

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Stone Harbor Investment Funds	Notes to Financial Statements
	May 31, 2011

(f) Loan Participations and Assignments: The Funds may invest in loans arranged through private negotiation between one or more financial institutions. The Funds’ investment in any such loan may be in the form of a participation in or an assignment of the loan. In connection with purchasing participations, the Funds 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 Funds may not benefit directly from any collateral supporting the loan in which they have purchased the participation.

The Funds assume the credit risk of the borrower, the lender that is selling the participation and any other persons interpositioned between the Funds and the borrower. In the event of the insolvency of the lender selling the participation, the Funds may be treated as a general creditor of the lender and may not benefit from any set off between the lender and the borrower.

(g) Credit and Market Risk: The Funds invest in high yield and emerging market instruments that are subject to certain credit and market risks. The yields of high yield and emerging market debt obligations reflect, among other things, perceived credit and market risks. The Funds’ investment in securities rated below investment grade typically involves risks not associated with higher rated securities including, among others, greater risk related to 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 Funds. The Funds’ investment in non-dollar denominated securities may also result in foreign currency losses caused by devaluations and exchange rate fluctuations. Investments in derivatives are also subject to credit and market risks.

(h) Distributions to Shareholders: Dividends and distributions to shareholders, which are determined in accordance with income tax regulations, are recorded on the ex-date. Income distributions, if any are generally declared and paid on a quarterly basis. Capital gain distributions, if any, are declared and paid at least annually.

(i) Classifications of Distributions: Net investment income (loss) and net realized gain (loss) may differ for financial statement and tax purposes. The character of distributions made during the year from net investment income or net realized gains may differ from its ultimate characterization for federal income tax purposes. Also, due to the timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the fiscal year in which the income or realized gain was recorded by a Fund.

The tax character of the distributions paid by the Funds during the years ended May 31, 2011, and May 31, 2010, was as follows:

Stone Harbor Emerging Markets Debt Fund
	For the Year Ended May 31, 2011		For the Year Ended May 31, 2010
Ordinary Income	$	30,268,192	$	10,321,834
Long-Term Capital Gain		3,751,322		–
Tax Return of Capital		–		–
Total	$	34,019,514	$	10,321,834
Stone Harbor High Yield Bond Fund
	For the Year Ended May 31, 2011		For the Year Ended May 31, 2010
Ordinary Income	$	37,432,474	$	28,484,852
Long-Term Capital Gain		3,833,489		–
Tax Return of Capital		–		–
Total	$	41,265,963	$	28,484,852
Stone Harbor Local Markets Fund
			For the Period Ended May 31, 2011
Ordinary Income			$	10,697,812
Long-Term Capital Gain				–
Tax Return of Capital				–
Total			$	10,697,812

As of May 31, 2011, the components of distributable earnings on a tax basis were as follows:

Stone Harbor Emerging Markets Debt Fund
Undistributed Ordinary Income	$	1,827,502
Accumulated Capital Gains/(Loss)		899,020
Unrealized Appreciation/(Depreciation)		23,682,009
Cumulative Effect of Other Timing Difference*		(14,204	)
Total	$	26,394,327
Stone Harbor High Yield Bond Fund
Undistributed Ordinary Income	$	2,353,392
Accumulated Capital Gains/(Loss)		9,217,158
Unrealized Appreciation/(Depreciation)		28,506,438
Cumulative Effect of Other Timing Difference*		182
Total	$	40,077,170
Stone Harbor Local Markets Fund
Undistributed Ordinary Income	$	1,530,108
Accumulated Capital Gains/(Loss)		–
Unrealized Appreciation/(Depreciation)		16,767,828
Cumulative Effect of Other Timing Difference*		(1,420,764	)
Total	$	16,877,172

*Other temporary differences due to timing, consist primarily of mark-to-market on forward foreign currency contracts.

Stone Harbor Investment Funds Annual Report  |  May 31, 2011 57

Stone Harbor Investment Funds	Notes to Financial Statements
	May 31, 2011

The tax components of distributable earnings are determined in accordance with income tax regulations which may differ from the composition of net assets reported under accounting principles generally accepted in the United States. Accordingly, for the period ended May 31, 2011, certain differences were reclassified. These differences were primarily due to the differing tax treatment of certain investments and the amounts reclassified did not affect net assets.

The reclassifications were as follows:

	Stone Harbor Emerging Markets Debt Fund			Stone Harbor High Yield Bond Fund			Stone Harbor Local Markets Fund
Paid-in Capital	$	–		$	550,704		$	–
(Over)/ Undistributed Income	$	1,411,884		$	(61,866	)	$	323,365
Accumulated Net Realized Losses	$	(1,411,884	)	$	(488,838	)	$	(323,365	)

(j) Expenses: Direct expenses are charged to the Funds; general expenses of the Trust are allocated to the Funds based on each Fund’s relative net assets.

(k) Federal and Other Taxes: No provision for income taxes is included in the accompanying financial statements, as the Funds intend to distribute to shareholders all taxable investment income and realized gains and otherwise comply with Subchapter M of the Internal Revenue Code applicable to regulated investment companies.

The Funds evaluate tax positions taken (or expected to be taken) in the course of preparing the Funds’ tax returns to determine whether these positions meet a “more-likely-than-not” standard that, based on the technical merits, have a more than fifty percent likelihood of being sustained by a taxing authority upon examination. A tax position that meets the “more-likely-than-not” recognition threshold is measured to determine the amount of benefit to recognize in the financial statements.

Management of the Funds analyzes all open tax years, as defined by the Statute of Limitations, for all major jurisdictions, including federal tax authorities and certain state tax authorities. As of and during the fiscal year ended May 31, 2011, the Funds did not have a liability for any unrecognized tax benefits. The Funds’ federal and state income and federal excise tax returns for all tax years since inception are subject to examination by the Internal Revenue Service and state departments of revenue.

Under the Regulated Investment Company Modernization Act of 2010 (the “Act”), net capital losses recognized in tax years beginning after December 22, 2010 may be carried forward indefinitely, and the character of the losses is retained as short-term and/or long-term. Under the law in effect prior to the Act, net capital losses were carried forward for eight years and treated as short-term. As a

transition rule, the Act requires that post enactment net capital losses be used before pre-enactment net capital losses.

2. APPLICATION OF RECENT ACCOUNTING PRONOUNCEMENTS

In January 2010, the FASB issued ASU No. 2010-06 “Fair Value Measurements and Disclosures: Improving Disclosures about Fair Value Measurements” (ASU No. 2010-06). ASU No. 2010-06 provides for disclosure of significant transfers in and out of the fair value hierarchy Levels 1 and 2, and the reasons for these transfers. In addition, ASU No. 2010-06 provides for separate disclosure about purchases, sales, issuances and settlements in the Level 3 hierarchy roll forward activity. ASU No. 2010-06 is effective for interim and annual periods beginning after December 31, 2009 except for the provisions relating to purchases, sales, issuances and settlements of Level 3 investments, which are effective for fiscal years beginning after December 15, 2010. Stone Harbor Emerging Markets Debt Fund and Stone Harbor High Yield Bond Fund adopted the disclosure provisions of ASU 2010-06 for their fiscal year beginning June 1, 2010 and Stone Harbor Local Markets Fund adopted the disclosure provisions of ASU 2010-06 for the period beginning June 30, 2010 (Inception), and all Funds will adopt the Level 3 purchase, sales, issuances and settlement provisions for their fiscal year beginning June 1, 2011. To date, the adoption of ASU No. 2010-06 has not had an impact on the Funds’ financial position, the results of its operations, or disclosures.

3. ADVISORY FEES

Stone Harbor Investment Partners LP is the Trust’s investment adviser. Under the investment advisory agreement the Trust pays an investment advisory fee calculated daily and paid monthly of 0.60%, 0.50% and 0.75% of the average daily net assets for Stone Harbor Emerging Markets Debt Fund, Stone Harbor High Yield Bond Fund, and Stone Harbor Local Markets Fund, respectively.

The Adviser has contractually agreed to waive fees and reimburse expenses with respect to each of the Funds so that the Net Annual Operating Expenses (exclusive of acquired Fund fees and expenses, brokerage expenses, interest expense, taxes and extraordinary expenses) of the Stone Harbor Emerging Markets Debt Fund Institutional Class, Stone Harbor High Yield Bond Fund Institutional Class and Stone Harbor Local Markets Fund Institutional Class will not exceed 0.75%, 0.55% and 1.00%, respectively. This undertaking is in effect through September 30, 2011 and is reevaluated on an annual basis.

The Adviser will be permitted to recover, on a class by class basis, expenses it has borne through the undertakings described above to the extent that a Fund’s expenses in later periods fall below the annual rates set forth in the relevant undertaking. A Fund will not be obligated to pay any such deferred fees and expenses more than three years after the end of the fiscal year in which the fee and expense was deferred. As of May 31, 2011, deferred fees and expenses that were eligible to be recovered amounted to $501,296, $1,259,770 and $10,036 for the Stone Harbor Emerging Markets

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Stone Harbor Investment Funds	Notes to Financial Statements
	May 31, 2011

Debt Fund, Stone Harbor High Yield Bond Fund and Stone Harbor Local Markets Fund, respectively.

4. INVESTMENTS

During the year ended May 31, 2011 the aggregate cost of purchases and proceeds from sales of investments (excluding short-term investments) were as follows:

	Stone Harbor Emerging Markets Debt Fund		Stone Harbor High Yield Bond Fund		Stone Harbor Local Markets Fund
Purchases of investments	$	790,753,756	$	302,869,195	$	640,836,323
Sales of investments	$	303,598,619	$	256,029,652	$	193,483,592

At May 31, 2011 the aggregate gross unrealized appreciation and depreciation of investments for federal income purposes were substantially as follows:

Stone Harbor Emerging Markets Debt Fund
Gross appreciation on investments (excess of value over tax cost)	$	27,198,213
Gross depreciation on investments (excess of tax cost over value)		(3,509,376	)
Net appreciation/(depreciation) on foreign currency and derivatives		(6,828	)
Net unrealized appreciation		23,682,009
Cost of investments for income tax purposes	$	731,424,900
Stone Harbor High Yield Bond Fund
Gross appreciation on investments (excess of value over tax cost)	$	34,214,423
Gross depreciation on investments (excess of tax cost over value)		(5,700,282	)
Net appreciation/(depreciation) on foreign currency and derivatives		(7,703	)
Net unrealized appreciation		28,506,438
Cost of investments for income tax purposes	$	454,880,423
Stone Harbor Local Markets Fund
Gross appreciation on investments (excess of value over tax cost)	$	16,630,515
Gross depreciation on investments (excess of tax cost over value)		(1,719,319	)
Net appreciation/(depreciation) on foreign currency and derivatives		1,856,632
Net unrealized appreciation		16,767,828
Cost of investments for income tax purposes	$	577,150,907

The Funds elect to defer to the period ending May 31, 2012 the following losses recognized during the period November 1, 2010 through May 31, 2011:

	Capital		Currency
Stone Harbor Emerging Markets Debt Fund		–		–
Stone Harbor High Yield Bond Fund		–		9,401
Stone Harbor Local Markets Fund		–		–

5. SHARES OF BENEFICIAL INTEREST

At May 31, 2011, the Trust had an unlimited number of shares of beneficial interest authorized with a par value of $0.001 per share. The Funds have the ability to issue multiple classes of shares. Each share of a class represents an identical interest and has the same rights, except that each class bears certain direct expenses, including those specifically related to the distribution of its shares. Transactions in shares of the Institutional Class can be found on the Statement of Changes in Net Assets.

6. OTHER

Board of Trustees Compensation: No officer, trustee or employee of the Adviser or any of its affiliates receives any compensation from the Funds for serving as an officer or trustee of the Funds. The Trust pays each Trustee who is not an interested person, as defined by the 1940 Act, of the Adviser or any of its affiliates a fee of $24,000 per year. Interested Trustees of the Trust are not compensated by the Trust. All Trustees are reimbursed for reasonable travel and out-of pocket expenses incurred to attend such meetings.

Stone Harbor Investment Funds Annual Report  |  May 31, 2011 59

Stone Harbor Investment Funds	Additional Information
	May 31, 2011

FUND PORTFOLIO HOLDINGS

The SEC has adopted the requirement that all registered investment companies file a complete schedule of portfolio holdings with the SEC for their first and third fiscal quarters on Form N-Q. For the Funds, this would be for the fiscal quarters ending August 31 and February 28. The Form N-Q filing must be made within 60 days of the end of the quarter. The Funds’ Forms N-Q will be available on the SEC’s website at http://www.sec.gov., or they may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC (call 1-800-732-0330 for information on the operation of the Public Reference Room).

PROXY VOTING

A description of the policies and procedures that the Funds use to determine how to vote proxies relating to portfolio securities and information regarding how the Funds voted proxies relating to portfolio securities for the period ending June 30, 2010 will be available without a charge, upon request, by contacting Stone Harbor Investment Funds at 1-866-699 8158 or on the SEC website at http://www.sec.gov.

SHAREHOLDER TAX INFORMATION

Certain tax information regarding the Trust is required to be provided to shareholders based upon each Fund’s income and distributions for the year ended May 31, 2011.

	Stone Harbor Emerging Markets Debt Fund			Stone Harbor High Yield Bond Fund			Stone Harbor Local Markets Fund
Dividends Received Deduction Percentage		0.00	%		0.18	%		0.00	%
Qualified Dividend Income Percentage		0.00	%		0.18	%		0.00	%

Pursuant to Section 852(b)(3) of the Internal Revenue Code, the Stone Harbor Emerging Markets Debt Fund and the Stone Harbor High Yield Bond Fund designate $3,751,322 and $3,833,489, respectively, as long term capital gain dividends.

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Stone Harbor Investment Funds	Approval of Investment Advisory Agreements
	May 31, 2011

Each Fund’s investment advisory agreement (each an “Agreement” and, together, the “Agreements”) is subject to annual approval by (i) the vote of a majority of the entire Board of Trustees, or of a majority of the outstanding voting securities (as defined in the Investment Company Act of 1940 (the “1940 Act”)), of the applicable Fund, and (ii) the vote of a majority of the Trustees who are not interested persons of the Funds (the “Independent Trustees”). Each Agreement is terminable with respect to a Fund by the Adviser, a majority of the Trustees, or a vote of a majority of the outstanding voting securities of the applicable Fund, without penalty, by not less than 60 days’ prior written notice. Each Agreement will terminate automatically in the event of its assignment (as defined for purposes of the 1940 Act).

The Board of Trustees, including the Independent Trustees, meets over the course of the year with representatives of Stone Harbor Investment Partners LP, each Fund’s investment adviser (the “Adviser”), including the Funds’ respective portfolio managers, and regularly reviews detailed information regarding the investment program and performance of each Fund. The Board of Trustees also receives periodic updates between meetings. The Trustees, including the Independent Trustees, met on April 20, 2011 to review the Agreements for Stone Harbor Emerging Markets Fund, Stone Harbor High Yield Fund and Stone Harbor Local Markets Fund and to determine whether to approve the continuation of the Agreements for an additional one year period. The Agreement for Stone Harbor Emerging Markets Corporate Debt Fund was not required to be re approved at this time. The Trustees considered all information they deemed reasonably necessary to evaluate the terms thereof. In connection with this meeting, the Trustees received materials to assist them with their review. These materials included, among other things, (i) information on each Fund’s investment performance and the performance of a group of similar mutual funds (some of which was prepared by a third party); (ii) information on each Fund’s advisory fees and other expenses, including information comparing each Fund’s expenses to the fees charged to institutional accounts managed by the Adviser and to a group of similar funds prepared by a third party and information about any applicable expense caps; and (iii) information about the profitability of each Agreement to the Adviser. In considering whether to approve the continuation of each Agreement, the Board of Trustees, including the Independent Trustees, did not identify any single factor as determinative. Individual Trustees may have evaluated the information presented differently from one another, giving different weights to various factors. Matters considered by the Trustees, including the Independent Trustees, in connection with their approval of the Agreements included, but were not limited to, the following:

The nature, extent and quality of the services provided to the Funds under the Agreements.

The Trustees considered the nature, extent and quality of the services provided by the Adviser to the Funds. In this regard, the Trustees took into account the experience of each Fund’s portfolio management team and of the Adviser’s senior management, and the time and attention they devote to the Funds.

After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regarding each Agreement, that the nature, extent and quality of the services provided by the Adviser supported the renewal of the Agreements.

Investment performance of the Funds and the Adviser.

The Trustees reviewed performance information for Stone Harbor Emerging Market Debt Fund and Stone Harbor High Yield Fund for the one year period ended February 28, 2011 and since each Fund’s inception and for Stone Harbor Local Markets Fund for the period ended February 28, 2011 since that Fund’s inception on July 1, 2010. The Trustees also reviewed more recent performance information provided at the meeting. The review included a comparison of each Fund’s performance to the performance of a group of comparable funds selected by a third party and each Fund’s respective benchmark. The Trustees also considered the Adviser’s performance and reputation generally and its investment techniques, risk management controls and decision making processes.

After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regarding each Agreement, that these factors supported the renewal of the Agreements.

The costs of the services to be provided and profits to be realized by the Adviser from its relationship with the Funds.

The Trustees considered the fees charged to each Fund for advisory services as well as the total expense level of each Fund. The Adviser furnished information to the Trustees compiled by a third party showing a comparison of each Fund’s advisory fees and total expense levels compared to a group of similar mutual funds selected by the third party. The Trustees considered that the Funds, because they were smaller than most of the funds to which they were being compared, could not take advantage of economies of scale (which can reduce fund expenses) to the same extent as those larger funds. The Trustees noted that each Fund is subject to expense caps, and each Fund’s advisory fee and net expense ratio (after application of the expense caps) is below the medians for comparable groups of mutual funds. The Adviser also provided information about the costs to it of providing services to the Funds and information about its profitability with respect to its management of the Funds, as well as information about the advisory fees it charges to institutional separate accounts with similar strategies and information about differences in such fees. In this regard, the Trustees noted that the effective management fee rate received by the Adviser (after application of expense caps and waivers) is lower for the Funds than it is for similarly managed institutional accounts. The Trustees also considered the demands and complexity of the investment management of the Funds as compared to the complexity of managing separate accounts.

After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regarding each Agreement, that the advisory fees for each of the Funds were fair

Stone Harbor Investment Funds Annual Report  |  May 31, 2011 61

Stone Harbor Investment Funds	Approval of Investment Advisory Agreements
	May 31, 2011

and reasonable, and that the costs of these services generally and the related profitability of the Adviser in respect of its relationship with the Funds supported the renewal of the Agreements.

Economies of Scale.

The Trustees considered to what extent economies of scale would likely be realized as the Funds grow and whether those economies would be shared with the Funds through breakpoints in their investment advisory fees or other means, such as expense caps. The Trustees noted that because the Funds are relatively new and relatively small in size, the Funds in the near term were not expected to generate any significant economies of scale. The Trustees also noted that the Adviser proposed to maintain the Funds’ fee waiver/expense reimbursement arrangement at current levels until September 30, 2012.

After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regarding each Agreement, that the extent to which economies of scale would be shared with the Funds supported the approval of the Agreements.

The Trustees also considered other factors, which included but were not limited to the following:

— Whether each Fund has operated in accordance with its investment objective and each Fund’s record of compliance with its investment restrictions, and the compliance programs of the Funds and the Adviser. They also considered the compliance related resources the Adviser provided to the Funds, including resources designed to ensure compliance with the investment objectives, policies and restrictions of each Fund.

— So called “fallout benefits” to the Adviser, such as the benefits from offering its institutional clients the ability to invest in a registered investment company.

Based on their evaluation of all factors they deemed to be material, including those factors described above, the Trustees, including the Independent Trustees, concluded that the existing investment advisory agreements for Stone Harbor Emerging Markets Fund, Stone Harbor High Yield Fund, and Stone Harbor Local Markets Fund should be continued through June 20, 2012.

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Stone Harbor Investment Funds	Trustees & Officers
	May 31, 2011 (Unaudited)

The business and affairs of each Fund are managed under the direction of its Board of Trustees. The Board of Trustees approves all significant agreements between a Fund and the persons or companies that furnish services to the Fund, including agreements with its distributor, investment adviser, administrator, custodian and transfer agent. The day to day operations of the Fund are delegated to the Fund’s Adviser and administrator.

The name, age and principal occupations for the past five years of the Trustees and officers of the Funds are listed below, along with the number of portfolios in the Fund complex overseen by and the other directorships held by each Trustee. Except as otherwise noted, the address of each Trustee and officer is c/o Stone Harbor Investment Partners LP, 31 W. 52nd Street, 16th Floor, New York, New York 10019. The Trust’s Statement of Additional Information includes additional information about the Trustees and is available without a charge, upon request, by calling 1-866-699-8158.

INDEPENDENT TRUSTEES
Name & Age	Position with the Trust	Term of Office and Length of Time Served(1)	Principal Occupation(s) During Past Five Years	Number of Portfolios in Fund Complex Overseen by Trustee(2)	Other Directorships by Trustee
Alan Brott Age: 68	Chairman of Audit Committee; Trustee	Since June 21, 2007	Columbia University Graduate School of Business – Associate Professor, 2000-Present; Consultant, 1991-Present; Partner, Ernst & Young LLP, 1978-1991; Various Postions, Ernst & Young LLP, 1966-1978.	5	Bank of America – two closed end registered hedge funds. Governor Capital Management – one closed end registered hedge fund.
Heath B. McLendon Age: 78	Trustee	Since June 21, 2007	Citigroup – Chairman of Equity Research Oversight Committee (retired December 31, 2006).	5	None
Patrick Sheehan Age: 63	Trustee	Since June 21, 2007	Retired; formerly, Citigroup Asset Management – Managing Director and Fixed Income Portfolio Manager, 1991-2002.	5	None
INTERESTED TRUSTEE
Name & Age	Position with the Trust	Term of Office and Length of Time Served(1)	Principal Occupation(s) During Past Five Years	Number of Portfolios in Fund Complex Overseen by Trustee(2)	Other Directorships by Trustee
Thomas W. Brock* Age: 64	Chairman; Trustee	Since June 21, 2007	Stone harbor Investment Partners LP – Chief Executive Officer, 2006-Present; Columbia University Graduate School of Business – Associate Professor, 1998-2006.	5	Bank of America – two closed end registered hedge funds; Liberty All Star Funds – two closed end funds.

⁽¹⁾ Trustees serve for an indefinite term, unless a trustee early retires, resigns or is removed from office.

⁽²⁾ For purposes of this table, the Stone Harbor Fund Complex includes each series of the Stone Harbor Investment Funds (the “Funds”) and the Stone Harbor Emerging Markets Income Fund, which shares an investment adviser with the Funds.

* Mr. Brock is an interested Trustee because of his position with Stone Harbor.

Stone Harbor Investment Funds Annual Report  |  May 31, 2011 63

Stone Harbor Investment Funds	Trustees & Officers
	May 31, 2011 (Unaudited)

OFFICERS
Name & Age	Position with the Trust	Term of Office and Length of Time Served(1)	Principal Occupation(s) During Past Five Years	Other Directorships by Trustee
Peter J. Wilby Age: 52	President	Since June 21, 2007	Co portfolio manager of the Funds; since April 3, 2006, Chief Investment Officer of Stone Harbor Investment Partners LP; prior to April 3, 2006, Chief Investment Officer – North American Fixed Income; joined Citigroup or its predecessor firms in 1989.	N/A
Pablo Cisilino Age: 43	Executive Vice President	Since June 21, 2007	Co portfolio manager of Emerging Markets Debt Fund; since July 1, 2006, Senior Portfolio Manager of Stone Harbor Investment Partners LP; from June 1, 2004 to July 1, 2006, Executive Director for Sales and Trading in Emerging Markets at Morgan Stanley Inc; prior to June 1, 2004, Vice President for local markets and FX sales and trading, Goldman Sachs; joined Goldman Sachs in 1994.	N/A
James E. Craige Age: 43	Executive Vice President	Since June 21, 2007	Co portfolio manager of Emerging Markets Debt Fund; since April 3, 2006, Senior Portfolio Manager of Stone Harbor Investment Partners LP; prior to April 3, 2006, Managing Director and Senior Portfolio Manager at Salomon Brothers Asset Management Inc.; joined Salomon Brothers Asset Management Inc. in 1992.	N/A
Thomas K. Flanagan Age: 58	Executive Vice President	Since June 21, 2007	Co portfolio manager of Emerging Markets Debt Fund; since April 3, 2006, Senior Portfolio Managerof Stone Harbor Investment Partners LP; prior to April 3, 2006, Managing Director and Senior Portfolio Manager at Salomon Brothers Asset Management Inc.; joined Salomon Brothers Asset Management Inc. in 1991.	N/A
David Oliver Age: 51	Executive Vice President	Since September 29, 2008	Co portfolio manager of Emerging Markets Debt Fund; since June 1, 2008 Senior Portfolio Manager of Stone Harbor, from 1986 to June 1, 2008 Managing Director in Emerging Market sales and trading Citigroup.	N/A
Beth A. Semmel Age: 50	Executive Vice President	Since June 21, 2007	Co portfolio manager of High Yield Bond Fund; since April 3, 2006, Senior Portfolio Manager of Stone Harbor Investment Partners LP; Prior to April 3, 2006, Managing Director, Senior Portfolio Manager and Senior Trader for all high yield securities portfolios at Salomon Brothers Asset Management Inc.; joined Salomon Brothers Asset Management Inc. in 1993.	N/A

⁽¹⁾ Officers are typically elected every year, unless an officer early retires, resigns or is removed from office.

64 www.shiplp.com

Stone Harbor Investment Funds	Trustees & Officers
	May 31, 2011 (Unaudited)

OFFICERS (continued)
Name & Age	Position with the Trust	Term of Office and Length of Time  Served(1)	Principal Occupation(s) During Past Five Years	Other Directorships by Trustee
Jeffrey S. Scott Age: 51	Chief Compliance Officer	Since June 21, 2007	Since April 3, 2006, Chief Compliance Officer of Stone Harbor Investment Partners LP; from October 2006 to March 2007, Director of Compliance, New York Life Investment Management LLC; from July 1998 to September 2006, Chief Compliance Officer, Salomon Brothers Asset Management Inc.	N/A
James J. Dooley Age: 55	Treasurer	Since June 21, 2007	Since April 3, 2006, Head of Operations, Technology and Finance of Stone Harbor Investment Partners LP; from August 2004 to March 2006, Senior Operations Manager of Institutional Asset Management, Citigroup Asset Management; from October 2002 to August 2004, Managing Director, Global Operations & Application Development, AIG Global Investment Group; from May 2001 to September 2002, President and Chief Operating Officer, Financial Technologies International.	N/A
Adam J. Shapiro Age: 47	Secretary; Anti Money Laundering Officer	Since June 21, 2007	Since April 3, 2006, General Counsel of Stone Harbor Investment Partners LP; from April 2004 to March 2006, General Counsel, North American Fixed Income, Salomon Brothers Asset Management Inc.; from August 1999 to March 2004, Director of Product and Business Development, Citigroup Asset Management.	N/A
Patrick D. Buchanan Age: 39	Assistant Treasurer	Since April 23, 2008	Since October 15, 2007, Senior Fund Controller for ALPS Fund Services, Inc.; from February 2005 to October 2007, Director of Accounting for Madison Capital Management LLC; from August 2003 to February, 2005, Manager of Fund Accounting for Janus Capital Group	N/A

⁽¹⁾ Officers are typically elected every year, unless an officer early retires, resigns or is removed from office.

Stone Harbor Investment Funds Annual Report  |  May 31, 2011 65

OFFICERS AND TRUSTEES

Alan Brott, Trustee

Heath B. McLendon, Trustee

Patrick Sheehan, Trustee

Thomas W. Brock, Chairman

Peter J. Wilby, President

Pablo Cisilino, Exec. Vice President

James E. Craige, Exec. Vice President

Thomas K. Flanagan, Exec. Vice President

David Oliver, Exec. Vice President

Beth A. Semmel, Exec. Vice President

Jeffrey S. Scott, Chief Compliance Officer

Adam Shapiro, Secretary/Anti-Money Laundering Officer

James J. Dooley, Treasurer

Patrick Buchanan, Assistant Treasurer

INVESTMENT ADVISER

Stone Harbor Investment Partners LP

31 W. 52nd Street 16th Floor

New York, New York 10019

ADMINISTRATOR & FUND ACCOUNTANT

ALPS Fund Services, Inc.

1290 Broadway, Suite 1100

Denver, Colorado 80203

DISTRIBUTOR

ALPS Distributors, Inc.

1290 Broadway, Suite 1100

Denver, Colorado 80203

TRANSFER AGENT

ALPS Fund Services, Inc.

1290 Broadway, Suite 1100

Denver, Colorado 80203

CUSTODIAN

The Bank of New York Mellon

One Wall Street New York,

New York 10286

LEGAL COUNSEL

Ropes & Gray LLP

1211 Avenue of the Americas

New York, New York 10036

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Deloitte & Touche LLP

555 17th Street, Suite 3600

Denver, Colorado 80202

This report and its financial statements are submitted for the general information of the shareholders of the Funds. The report is not authorized for distribution to prospective investors in the Funds unless preceded or accompanied by a prospectus.

SHF000135 12/11

Item 2. Code of Ethics.

(a) The Registrant, as of the end of the period covered by this report, has adopted a code of ethics that applies to the Registrant’s principal executive officer, principal financial officer, principal accounting officer or controller or any persons performing similar functions on behalf of the Registrant.

(b) Not applicable.

(c) During the period covered by this report, no amendments to the provisions of the code of ethics adopted in Item 2(a) above were made.

(d) During the period covered by this report, no implicit or explicit waivers to the provisions of the code of ethics adopted in Item 2(a) above were granted.

(e) Not applicable.

(f) The Registrant’s Code of Ethics is attached as an Exhibit hereto.

Item 3. Audit Committee Financial Expert.

The Board of Trustees of the Registrant has determined that the Registrant has at least one audit committee financial expert serving on its Audit Committee. The Board of Trustees has designated Alan J. Brott as the Registrant’s “Audit Committee Financial Expert.” Mr. Brott is “independent” as defined in paragraph (a)(2) of Item 3 to Form N-CSR.

Item 4. Principal Accountant Fees and Services.

(a) Audit Fees: For the Registrant’s fiscal years ended May 31, 2010 and May 31, 2011, the aggregate fees billed for professional services rendered by the principal accountant for the audit of the Registrant’s annual financial statements were $125,000 and $187,500 respectively.

(b) Audit-Related Fees: For the Registrant’s fiscal years ended May 31, 2010 and May 31, 2011, there were no fees billed for assurance and related services by the principal accountant that were reasonably related to the performance of the audit of the Registrant’s financial statements and were not reported in paragraph (a) of this Item 4.

(c) Tax Fees: For the Registrant’s fiscal years ended May 31, 2010 and May 31, 2011, the aggregate fees billed for professional services rendered by the principal accountant for tax compliance, tax advice and tax planning were $9,860 and $13,515, respectively. The fiscal year 2010 and 2011 tax fees were for services pertaining to federal and state income tax return review, review of year-end dividend distributions and excise tax preparation.

(d) All Other Fees: For the Registrant’s fiscal years ended May 31, 2010 and May 31, 2011, aggregate fees billed to the Registrant by the principal accountant for services provided by the principal accountant other than the services reported in paragraphs (a) through (c) of this Item 4 were $0 and $0, respectively.

(e)(1) Audit Committee Pre-Approval Policies and Procedures: All services to be performed by the Registrant’s principal accountant must be pre-approved by the Registrant’s Audit Committee.

(e)(2) No services described in paragraphs (b) through (d) of this Item 4 were approved by the Registrant’s audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.

(f) Not applicable.

(g) Not applicable.

(h) Not applicable.

Item 5. Audit Committee of Listed Registrants.

Not applicable.

Item 6. Investments.

(a) Schedule of Investments is included as part of the Report to Stockholders filed under Item 1 of this Form N-CSR.

(b) Not applicable.

Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.

Not applicable.

Item 8. Portfolio Managers of Closed-End Management Investment Companies.

Not applicable.

Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.

Not applicable to Registrant.

Item 10. Submission of Matters to Vote of Security Holders.

There have been no material changes to the procedures by which shareholders may recommend nominees to the Registrant’s Board of Trustees, where those changes were implemented after the Registrant last provided disclosure in response to the requirements of Item 407(c)(2) of Regulation S-K, or this Item.

Item 11. Controls and Procedures.

(a) The Registrant’s principal executive officer and principal financial officer have concluded that the Registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended) are effective based on their evaluation of these controls and procedures as of a date within 90 days of the filing date of this report.

(b) There was no change in the Registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940, as amended) during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting.

Item 12. Exhibits.

 (a)(1) Registrant’s Code of Ethics for Senior Financial Officers, which is the subject of the disclosure required by Item 2 of Form N-CSR, was filed as Exhibit 12(a)(1) to the Registrant’s Certified Shareholder Report on Form N-CSR, File No. 811-22037, on August 7, 2009.

 (a)(2) The certifications required by Rule 30a-2(a) of the Investment Company Act of 1940, as amended, and Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto as Exhibit 99.Cert.

 (a)(3) Not applicable.

(b) The certifications by the Registrant’s principal executive officer and principal financial officer, as required by Rule 30a-2(b) of the Investment Company Act of 1940, as amended, and Section 906 of the Sarbanes-Oxley Act of 2002 are attached hereto as Exhibit 99.906Cert.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Stone Harbor Investment Funds
By:	/s/ Peter J. Wilby
	Peter J. Wilby
	President/Principal Executive
	Officer
Date:	August 5, 2011

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

By:	/s/ Peter J. Wilby
	Peter J. Wilby
	President/Principal Executive
	Officer
Date:	August 5, 2011
By:	/s/ James J. Dooley
	James J. Dooley
	Treasurer, Chief Financial Officer/
	Principal Financial Officer
Date:	August 5, 2011