<PAGE> 1
As filed with the Securities and Exchange Commission on May 25, 1995
<TABLE>
<S> <C>
SECURITIES ACT FILE NO. 33-91482
INVESTMENT COMPANY ACT FILE NO. 811-6403
</TABLE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
Form N-2
Registration Statement Under The Securities Act of 1933 /X/
Pre-Effective Amendment No. 2 /X/
Post-Effective Amendment No. / /
and/or
Registration Statement Under The Investment Company Act of 1940 /X/
Amendment No. 11 /X/
(check appropriate box or boxes)
------------------------
MORGAN STANLEY EMERGING MARKETS FUND, INC.
(Exact Name of Registrant as Specified in Charter)
1221 Avenue of the Americas
New York, New York 10020
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (212) 296-7100
------------------------
HAROLD J. SCHAAFF, JR.
MORGAN STANLEY EMERGING MARKETS FUND, INC.
C/O MORGAN STANLEY ASSET MANAGEMENT INC.
1221 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10020
(NAME AND ADDRESS OF AGENT FOR SERVICE)
------------------------
With copies to:
<TABLE>
<S> <C>
LEONARD B. MACKEY, JR., ESQ. PIERRE DE SAINT PHALLE, ESQ.
ROGERS & WELLS DAVIS POLK & WARDWELL
200 PARK AVENUE 450 LEXINGTON AVENUE
NEW YORK, NEW YORK 10166 NEW YORK, NEW YORK 10017
(212) 878-8000 (212) 450-4000
</TABLE>
------------------------
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after
the effective date of this registration statement.
If any securities being registered on this form will be offered on a
delayed or continuous basis in reliance on Rule 415 under the Securities Act of
1933, as amended, other than securities offered in connection with a dividend
reinvestment plan, check the following box. / /
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------
PROPOSED
PROPOSED MAXIMUM
MAXIMUM AGGREGATE
TITLE OF SECURITIES AMOUNT BEING OFFERING PRICE OFFERING AMOUNT OF
BEING REGISTERED REGISTERED PER SHARE(1) PRICE(1) REGISTRATION FEE
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 Par Value.... 5,800,000 Shares $18.25 $105,850,000 $36,501
--------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(c) under the Securities Act of 1933. Based on the
average of the high and low sales prices reported on the New York Stock
Exchange on April 17, 1995.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE> 2
CROSS REFERENCE SHEET
PARTS A AND B OF PROSPECTUS*
<TABLE>
<CAPTION>
ITEMS IN PARTS A AND B OF FORM N-2 LOCATION IN PROSPECTUS
-------------------------------------------------------------- ------------------------------
<C> <S> <C>
1. Outside Front Cover...................................... Front Cover Page
2. Inside Front and Outside Back Cover Page................. Front Cover Page; Inside Front
Cover Page; Outside Back
Cover Page
3. Fee Table and Synopsis................................... Prospectus Summary; Fee Table
4. Financial Highlights..................................... Financial Highlights
5. Plan of Distribution..................................... Front Cover Page; Prospectus
Summary; The Offer;
Distribution Arrangements
6. Selling Shareholders..................................... Not Applicable
7. Use of Proceeds.......................................... The Offer
8. General Description of the Registrant.................... Front Cover Page; Prospectus
Summary; The Fund; The
Offer; Investment
Restrictions; Investment
Objective and Policies; Risk
Factors and Special
Considerations; Common Stock
9. Management............................................... Management of the Fund;
Portfolio Transactions and
Brokerage; Expenses;
Custodians; Dividend-Paying
Agent, Transfer Agent and
Registrar; Common Stock
10. Capital Stock, Long-Term Debt and Other Securities....... Common Stock; Dividends and
Distributions; Dividend
Reinvestment and Cash
Purchase Plan; the Offer;
Taxation; Prospectus Summary
11. Defaults and Arrears on Senior Securities................ Not Applicable
12. Legal Proceedings........................................ Not Applicable
13. Table of Contents of the Statement of Additional
Information.............................................. Not Applicable
14. Cover Page............................................... Not Applicable
15. Table of Contents........................................ Not Applicable
16. General Information and History.......................... The Fund
17. Investment Objective and Policies........................ Investment Objective and
Policies; Investment
Restrictions
18. Management............................................... Management of the Fund
19. Control Persons and Principal Holders of Securities...... Not Applicable
20. Investment Advisory and Other Services................... Management of the Fund;
Custodians; Transfer Agent
and Registrar;
Dividend-Paying Agent;
Experts; Expenses
21. Brokerage Allocation and Other Practices................. Portfolio Transactions and
Brokerage
22. Tax Status............................................... Taxation
23. Financial Statements..................................... Incorporation of Financial
Statements by Reference
</TABLE>
---------------
* Pursuant to the General Instructions to Form N-2, all information required to
be set forth in Part B: Statement of Additional Information has been included
in Part A: The Prospectus. Information required to be included in Part C is
set forth under the appropriate item, so numbered in Part C of this
Registration Statement.
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
PROSPECTUS (Subject to Completion)
Dated May 25, 1995
5,800,000 Shares
Morgan Stanley
Emerging Markets Fund, Inc.
COMMON STOCK
Issuable Upon Exercise of Rights
to Subscribe for Such Shares of Common Stock
------------------------
Morgan Stanley Emerging Markets Fund, Inc. (the "Fund") is issuing to its
shareholders of record as of the close of business on May 30, 1995 (the "Record
Date") transferable rights ("Rights") entitling the holders thereof to subscribe
for up to an aggregate of 5,800,000 shares (the "Shares") of the common stock,
par value $.01 per share ("Common Stock"), of the Fund (the "Offer") at the rate
of one share of Common Stock for each three Rights held. In addition, Record
Date Shareholders (as defined below) will be entitled to subscribe, subject to
certain limitations and subject to allotment, for any Shares not acquired by
exercise of the primary subscription Rights. The number of Rights to be issued
to Record Date Shareholders (as defined below) will be rounded up to the nearest
number of Rights evenly divisible by three. In the case of shares of Common
Stock held of record by Cede & Co., the nominee for The Depository Trust
Company, or any other depository or nominee (in each instance, a "Nominee
Holder"), the number of Rights issued to such Nominee Holder will be adjusted to
permit rounding up (to the nearest number of Rights evenly divisible by three)
of the Rights to be received by beneficial holders for whom it is the holder of
record only if the Nominee Holder provides to the Fund on or before the close of
business on June , 1995 written representation of the number of Rights
required for such rounding. Shareholders of record on the Record Date and
beneficial holders with respect to whom Nominee Holders have submitted such
written representation are referred to herein as "Record Date Shareholders."
Fractional Shares will not be issued. The Rights are transferable and the Rights
and the Shares will be listed for trading on the New York Stock Exchange (the
"NYSE"). The Fund's Common Stock is traded on the NYSE under the symbol "MSF".
The Rights will be traded under the symbol "MSF.RT". See "The Offer." THE
SUBSCRIPTION PRICE PER SHARE (THE "SUBSCRIPTION PRICE") WILL BE $ .
THE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK TIME, ON June , 1995, unless
extended as described herein. The Fund announced the Offer after the close of
trading on the NYSE on April 21, 1995. The net asset value per share of Common
Stock at the close of business on April 21, 1995 and May 30, 1995 was $17.05 and
$ , respectively, and the last reported sale price of a share of Common Stock
on the NYSE on such dates was $18.125 and $ , respectively.
The Fund is a non-diversified, closed-end management investment company. The
Fund's investment objective is long-term capital appreciation through investment
primarily in emerging country equity securities. See "Investment Objective and
Policies." There can be no assurance that the Fund's investment objective will
be achieved. INVESTMENT IN THE FUND INVOLVES SPECIAL CONSIDERATIONS AND RISKS
THAT ARE NOT TYPICALLY ASSOCIATED WITH INVESTMENTS IN THE SECURITIES OF U.S.
ISSUERS, SUCH AS CONTROLS ON FOREIGN INVESTMENT, CURRENCY EXCHANGE RATE
FLUCTUATIONS AND GREATER SOCIAL, ECONOMIC AND POLITICAL UNCERTAINTY. EMERGING
COUNTRY SECURITIES MARKETS ARE GENERALLY CHARACTERIZED BY A RELATIVELY SMALL
NUMBER OF EQUITY ISSUES AND LOW TRADING VOLUMES, RESULTING IN COMPARATIVELY
GREATER PRICE VOLATILITY AND LESSER LIQUIDITY OF PORTFOLIO INVESTMENTS. IN
ADDITION, THE SECURITIES OF CERTAIN COMPANIES IN WHICH THE FUND MAY INVEST MAY
BE CONSIDERED SPECULATIVE. SEE "RISK FACTORS AND SPECIAL CONSIDERATIONS." Morgan
Stanley Asset Management Inc. serves as the Fund's Investment Manager. The
address of the Fund is 1221 Avenue of the Americas, New York, New York 10020
(telephone number (212) 296-7100).
This Prospectus sets forth concisely the information about the Fund that a
prospective investor ought to know before investing. Investors are advised to
read this Prospectus and to retain it for future reference.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
<TABLE>
<CAPTION>
SUBSCRIPTION PROCEEDS
PRICE SALES LOAD(1) TO THE FUND(2)
---------------- ---------------- -------------------
<S> <C> <C> <C>
Per Share.................................. $ (3) $ $
Total...................................... $ $ $ (4)
</TABLE>
(Footnotes on following page)
------------------------
An immediate dilution, which could be substantial, of the aggregate net
asset value of the Common Stock owned by Record Date Shareholders who do not
fully exercise their Rights is likely to occur as a result of the Offer because
the Subscription Price per Share is less than the Fund's net asset value per
share on the Record Date, and the number of shares outstanding after the Offer
is likely to increase in a greater percentage than the increase in the size of
the Fund's assets. In addition, as a result of the Offer, Record Date
Shareholders who do not fully exercise their Rights should expect that they
will, at the completion of the Offer, own a smaller proportional interest in the
Fund than would otherwise be the case. See "Risk Factors and Special
Considerations."
------------------------
MORGAN STANLEY & CO.
Incorporated
, 1995
<PAGE> 4
(Footnotes from previous page)
(1) In connection with the Offer, the Fund has agreed to pay to Morgan Stanley &
Co. Incorporated (the "Dealer Manager") and other broker-dealers included in
the selling group to be formed and managed by the Dealer Manager ("Selling
Group Members") a fee of % of the Subscription Price per Share for each
Share either issued upon the exercise of Rights as a result of their
soliciting efforts or purchased from the Dealer Manager for sale to the
public. Certain other broker-dealers that have executed and delivered a
Soliciting Dealer Agreement and have solicited the exercise of Rights will
receive fees for their soliciting efforts of % of the Subscription Price
per Share. The Fund will pay to the Dealer Manager a fee for financial
advisory and marketing services in connection with the Offer equal to % of
the aggregate Subscription Price. The Fund has agreed to indemnify the
Dealer Manager against certain liabilities under the Securities Act of 1933,
as amended. See "Distribution Arrangements." Assumes that the exercise of
all Rights was solicited by a Selling Group Member.
(2) Before deduction of expenses incurred by the Fund, estimated at $ ,
including up to an aggregate of $ to be paid to the Dealer Manager
in reimbursement of its expenses.
(3) Represents the subscription price per Share payable by holders of Rights.
Sales of Shares may be made during the Subscription Period by the Dealer
Manager and other Selling Group Members at prices set by the Dealer Manager
from time to time. See "Distribution Arrangements."
(4) Assumes that all of the Rights are exercised.
------------------------
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND, THE INVESTMENT MANAGER OR THE
DEALER MANAGER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY BY ANY PERSON IN ANY JURISDICTION IN WHICH IT IS
UNLAWFUL FOR SUCH PERSON TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCE IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY DATE
SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FEE TABLE....................................................................................... 3
PROSPECTUS SUMMARY.............................................................................. 4
FINANCIAL HIGHLIGHTS............................................................................ 10
MARKET AND NET ASSET VALUE INFORMATION.......................................................... 11
CAPITALIZATION AT MARCH 31, 1995................................................................ 11
THE FUND........................................................................................ 12
THE OFFER....................................................................................... 12
RISK FACTORS AND SPECIAL CONSIDERATIONS......................................................... 20
INVESTMENT OBJECTIVE AND POLICIES............................................................... 24
INVESTMENT RESTRICTIONS......................................................................... 27
MANAGEMENT OF THE FUND.......................................................................... 28
EXPENSES........................................................................................ 36
PORTFOLIO TRANSACTIONS AND BROKERAGE............................................................ 37
NET ASSET VALUE................................................................................. 38
DIVIDENDS AND DISTRIBUTIONS; DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN....................... 38
TAXATION........................................................................................ 39
COMMON STOCK.................................................................................... 44
DISTRIBUTION ARRANGEMENTS....................................................................... 47
DIVIDEND PAYING AGENT, TRANSFER AGENT AND REGISTRAR............................................. 48
CUSTODIANS...................................................................................... 48
EXPERTS......................................................................................... 48
LEGAL MATTERS................................................................................... 49
ADDITIONAL INFORMATION.......................................................................... 49
INCORPORATION OF FINANCIAL STATEMENTS BY REFERENCE.............................................. 49
APPENDIX A -- Form of Subscription Certificate.................................................. A-1
APPENDIX B -- Form of Notice of Guaranteed Delivery............................................. B-1
APPENDIX C -- Form of Nominee Holder Over-Subscription Exercise Form............................ C-1
APPENDIX D -- Description of Various Foreign Currency Hedges and Stock Options and Futures
Contracts......................................................................... D-1
APPENDIX E -- Countries Not Included Within The World Bank Definition of a Low or Middle Income
Economy........................................................................... E-1
</TABLE>
IN CONNECTION WITH THIS OFFERING, THE DEALER MANAGER MAY EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE RIGHTS AND THE
COMMON STOCK AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE
OVER-THE-COUNTER MARKETS OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
2
<PAGE> 5
FEE TABLE
Shareholder Transaction Expenses:
<TABLE>
<S> <C>
Sales Load (as a percentage of offering price)(1)(2)................................ .%
</TABLE>
Annual Expenses (as a percentage of net assets):
<TABLE>
<S> <C>
Management Fees..................................................................... 1.25%
Other Expenses(2)................................................................... 0.50%
----
Total Annual Expenses....................................................... 1.75%
====
</TABLE>
EXAMPLE:
<TABLE>
<CAPTION>
CUMULATIVE EXPENSES PAID FOR THE PERIOD OF:
-------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
An investor would pay the following expenses on a
$1,000 investment, assuming a 5% annual return
throughout the periods(3)........................ $55.00 $ 91.00 $129.00 $ 236.00
</TABLE>
---------------
(1) The Fund has agreed to pay to the Dealer Manager and each Selling Group
Member fees equal to % of the Subscription Price per Share for each
Share either issued upon the exercise of Rights as a result of their
soliciting efforts or purchased from the Dealer Manager for sale to the
public. Certain other broker-dealers that have executed and delivered a
Soliciting Dealer Agreement and have solicited the exercise of Rights will
receive fees for their soliciting efforts of up to % of the
Subscription Price per Share. The Fund will pay to the Dealer Manager a fee
for financial advisory and marketing services in connection with the Offer
equal to % of the aggregate Subscription Price. These fees will be
borne by the Fund and indirectly by all of the Fund's shareholders,
including those who do not exercise their Rights. Assumes that the exercise
of all Rights was solicited by a Selling Group Member. See "Distribution
Arrangements."
(2) Does not include expenses of the Fund incurred in connection with the Offer,
estimated at $ .
(3) The example reflects the Sales Load and other expenses of the Fund incurred
in connection with the Offer and assumes that all of the Rights are
exercised.
The foregoing Fee Table is intended to assist investors in understanding
the costs and expenses that an investor in the Fund will bear directly or
indirectly.
The Example set forth above assumes reinvestment of all dividends and
distributions at net asset value and an expense ratio of 1.75%. The tables above
and the assumption in the Example of a 5% annual return are required by the U.S.
Securities and Exchange Commission (the "Commission") regulations applicable to
all investment companies. The Example should not be considered a representation
of past or future expenses or annual rates of return. Actual expenses or annual
rates of return may be more or less than those assumed for purposes of the
Example. In addition, while the Example assumes reinvestment of all dividends
and distributions at net asset value, participants in the Fund's Dividend
Reinvestment and Cash Purchase Plan may receive shares purchased or issued at a
price or value different from net asset value. See "Dividends and Distributions;
Dividend Reinvestment and Cash Purchase Plan."
The figures provided under "Other Expenses" are based upon estimated
amounts for the current fiscal year. See "Management of the Fund" for additional
information.
3
<PAGE> 6
PROSPECTUS SUMMARY
The following is qualified in its entirety by the more detailed information
included elsewhere in this Prospectus.
TERMS OF THE OFFER
Morgan Stanley Emerging Markets Fund, Inc. (the "Fund") is issuing to its
shareholders of record ("Record Date Shareholders") as of the close of business
on May 30, 1995 (the "Record Date") transferable rights (the "Rights") to
subscribe for up to an aggregate of 5,800,000 shares (the "Shares") of the
common stock, par value $.01 per share (the "Common Stock"), of the Fund (the
"Offer"). Each Record Date Shareholder is being issued one Right for each full
share of Common Stock owned on the Record Date. The number of Rights to be
issued to Record Date Shareholders will be rounded up to the nearest number of
Rights evenly divisible by three. In the case of Shares held of record by a
Nominee Holder (as defined below), the number of Rights issued to such Nominee
Holder will be adjusted to permit rounding up (to the nearest number of Rights
evenly divisible by three) of the Rights to be received by beneficial holders
for whom it is the holder of record only if the Nominee Holder provides to the
Fund on or before the close of business on June , 1995 written representation
of the number of Rights required for such rounding. No fractional Shares will be
issued. The Rights entitle the holders thereof (each a "Rights Holder") to
acquire at the Subscription Price (as hereinafter defined) one Share for each
three Rights held. The Subscription Period commences on June , 1995 and ends
at 5:00 p.m., New York time, on June , 1995 unless extended by the Fund and
the Dealer Manager (the "Expiration Date"). The Rights are evidenced by
subscription certificates ("Subscription Certificates") which will be mailed to
Record Date Shareholders except as discussed below under "Foreign Restrictions."
The right of a Rights Holder to acquire during the Subscription Period at
the Subscription Price one Share for each three Rights held is hereinafter
referred to as the "Primary Subscription." All Rights may be exercised
immediately upon receipt and until 5:00 p.m. New York time, on the Expiration
Date. Rights Holders purchasing Shares in the Primary Subscription are
hereinafter referred to as "Exercising Rights Holders."
OVER-SUBSCRIPTION PRIVILEGE
Any Record Date Shareholder who fully exercises all Rights issued to such
Record Date Shareholder by the Fund is entitled to subscribe for Shares which
were not otherwise subscribed for by others in the Primary Subscription (the
"Over-Subscription Privilege"). Purchasers of Rights who are not Record Date
Shareholders are not eligible to participate in the Over-Subscription Privilege.
For purposes of determining the number of Shares that a Record Date Shareholder
may acquire pursuant to the Offer, broker-dealers whose Shares are held of
record by Cede & Co. ("Cede"), nominee for The Depository Trust Company, or by
any other depository or nominee (in each instance, a "Nominee Holder"), will be
deemed to be the holders of the Rights that are held by Cede or such other
depository or nominee on their behalf. Shares acquired pursuant to the
Over-Subscription Privilege are subject to allotment, which is more fully
discussed under "The Offer Over -- Subscription Privilege."
SUBSCRIPTION PRICE
The Subscription Price per Share is $ . The Subscription Price is
approximately a % discount to the Fund's net asset value per share on May 30,
1995 and approximately a % discount to the last reported sale price of a share
of Common Stock on the NYSE on May 30, 1995.
The Subscription Price is discussed further under "The Offer -- The
Subscription Price." In addition, information with respect to the high and low
sale prices of the Fund's Common Stock on the New York Stock Exchange Composite
Tape, quarterly trading volume on the NYSE, the high and low net asset value per
share and the premium and discount percentages of the market price of the Fund's
Common Stock to its per share net asset value for each calendar quarter since
November 1991 is summarized under "Market and Net Asset Value Information."
4
<PAGE> 7
EXERCISING RIGHTS
Rights will be evidenced by Subscription Certificates (see Appendix A) and
may be exercised by completing a Subscription Certificate and delivering it,
together with payment, either by means of a Notice of Guaranteed Delivery (see
Appendix B) or a check, to The First National Bank of Boston (the "Subscription
Agent") at the address set forth under "The Offer -- Subscription Agent."
Exercising Rights Holders will have no right to rescind or modify a purchase
after the Subscription Agent has received a completed Subscription Certificate
or Notice of Guaranteed Delivery. See "The Offer -- Exercise of Rights" and "The
Offer -- Payment for Shares." There is no minimum number of Rights that must be
exercised in order for the Offer to close.
SALE OF RIGHTS
The Rights are transferable until the last Business Day (as defined below)
prior to the Expiration Date. The Rights will be listed for trading on the NYSE.
The Fund has used its best efforts to ensure that an adequate trading market for
the Rights will exist by causing the Rights to be listed on the NYSE and by
retaining the Dealer Manager, the Subscription Agent and the Information Agent.
The Fund expects that a market for the Rights will develop and that the value of
the Rights, if any, will be reflected by the market price. Rights may be sold
directly by a Rights Holder, or may be sold through the Subscription Agent if
delivered to the Subscription Agent on or before June , 1995. Trading of the
Rights on the NYSE will be conducted on a when issued basis commencing on June
, 1995 and on a regular-way basis from June , 1995 through the last Business
Day prior to the Expiration Date. If the Subscription Agent receives Rights for
sale in a timely manner, it will use its best efforts to sell the Rights through
the Dealer Manager on the NYSE. Any commissions in connection with the sale of
Rights by the Subscription Agent will be paid by the applicable selling Rights
Holders. Neither the Fund, the Subscription Agent nor the Dealer Manager will be
responsible if Rights cannot be sold, and none of them has guaranteed any
minimum sale price for the Rights. For purposes of this Prospectus, a "Business
Day" means any day on which trading is conducted on the NYSE. See "The
Offer -- Sale of Rights."
Rights Holders are urged to obtain a recent trading price for the Rights on
the NYSE from their broker, bank, financial adviser or the financial press.
Exercising Rights Holders' inquiries should be directed to Shareholder
Communications Corporation, Investor Relations Department. See "Information
Agent" below.
DEALER MANAGER AND SOLICITING FEES
In connection with the Offer, the Fund has agreed to pay to Morgan Stanley
& Co. Incorporated, as Dealer Manager, and Selling Group Members fees equal to
% of the Subscription Price per Share for Shares either issued upon the
exercise of Rights as a result of their soliciting efforts or purchased from the
Dealer Manager for sale to the public. Certain other broker-dealers that have
executed and delivered a Soliciting Dealer Agreement and have solicited the
exercise of Rights will receive fees for their soliciting efforts of up to %
of the Subscription Price per Share. The Fund will pay to the Dealer Manager a
fee equal to % of the aggregate Subscription Price for shares of Common Stock
issued upon exercise of the Rights for financial and advisory services,
including advice with respect to the advisability, timing, size and pricing of
the Offer, the formation and management of the Selling Group Members, the
coordination of soliciting efforts among soliciting dealers, the Subscription
Agent and the Information Agent and market-making activities to assure a liquid
and orderly market for the Rights and the Shares. The Fund has also agreed to
reimburse the Dealer Manager for its out-of-pocket expenses in connection with
the Offer up to an aggregate of $ . See "Distribution Arrangements."
FOREIGN RESTRICTIONS
Subscription Certificates will not be mailed to Record Date Shareholders
whose record addresses are outside the United States (for these purposes the
United States includes its territories and possessions and the District of
Columbia) ("Foreign Record Date Shareholders"). The Rights to which such
Subscription Certificates relate will be held by the Subscription Agent for such
Foreign Record Date Shareholders'
5
<PAGE> 8
accounts until instructions are received to exercise, sell or transfer the
Rights. If no instructions have been received by 12:00 Noon, New York time,
three Business Days prior to the Expiration Date, the Rights of those Foreign
Record Date Shareholders will be transferred by the Subscription Agent to the
Dealer Manager who will use its best efforts to sell the Rights on the NYSE. The
net proceeds, if any, from the sale of those Rights by the Dealer Manager will
be remitted to the Foreign Record Date Shareholders on a pro rata basis. See
"The Offer -- Foreign Shareholders."
INFORMATION AGENT
The Information Agent for the Offer is:
Shareholder Communications Corporation
17 State Street
New York, New York 10004
Toll Free: (800) 733-8481, ext. 316
or
Call Collect: (212) 805-7000, ext. 316
IMPORTANT DATES TO REMEMBER
<TABLE>
<CAPTION>
EVENT DATE
----- ----
<S> <C>
RECORD DATE MAY 30, 1995
SUBSCRIPTION PERIOD JUNE , 1995 TO JUNE , 1995
(UNLESS EXTENDED)
EXPIRATION DATE JUNE , 1995 (UNLESS EXTENDED)
NOMINEE HOLDER OVER-SUBSCRIPTION EXERCISE FORM DUE JUNE , 1995
SUBSCRIPTION CERTIFICATES, ACCOMPANIED BY PAYMENT FOR
SHARES, OR NOTICES OF GUARANTEED DELIVERY DUE JUNE , 1995
SUBSCRIPTION CERTIFICATES AND PAYMENT FOR SHARES DUE
PURSUANT TO NOTICE OF GUARANTEED DELIVERY JUNE , 1995
</TABLE>
PURPOSE OF THE OFFER AND USE OF PROCEEDS
The Board of Directors of the Fund has determined that it is in the best
interests of the Fund and its shareholders to increase the assets of the Fund
available for investment so that the Fund will be in a better position to take
advantage of further investment opportunities in emerging countries. The Fund
believes that increasing the size of the Fund should also result in lowering the
Fund's expenses as a proportion of average net assets, although no assurance can
be given that this result will be achieved. At March 31, 1995, the Fund had net
assets of approximately $270.6 million. In addition, the Offer seeks to reward
the Fund's shareholders by giving them the right to purchase additional shares
of Common Stock at a price below market and net asset value without incurring
any commission charge. The distribution to shareholders of transferable Rights
which themselves may have intrinsic value will also afford non-participating
shareholders the potential of receiving a cash payment upon sale of such Rights,
receipt of which may be viewed as compensation for the dilution of their
interest in the Fund.
The net proceeds of the Offer, assuming all Rights are exercised in full
and the maximum solicitation fee is paid to Selling Group Members, are estimated
to be approximately $ , after deducting offering expenses payable by
the Fund estimated to be approximately $ . The net proceeds of the
Offer will be invested in accordance with the Fund's investment objective and
policies. See "Investment Objective and Policies." The Fund anticipates that the
net proceeds of the Offer will be invested in accordance with the Fund's
investment objective and policies within three months of the Expiration Date.
6
<PAGE> 9
INFORMATION REGARDING THE FUND
The Fund is a non-diversified, closed-end management investment company
registered under the U.S. Investment Company Act of 1940, as amended (the "1940
Act"), designed for U.S. and other investors desiring to invest a portion of
their assets in emerging country equity securities. As used in this Prospectus,
an "emerging country" is any country that the International Bank for
Reconstruction and Development (more commonly known as the World Bank) has
determined to have a low or middle income economy. The Fund invests primarily in
(i) equity securities of companies the principal securities trading market for
which is in an emerging country, (ii) equity securities, traded in any market,
of companies that alone or on a consolidated basis derive 50% or more of their
annual revenue from either goods produced, sales made or services performed in
emerging countries, or (iii) equity securities (including American Depositary
Receipts) of companies organized under the laws of, and with a principal office
in, an emerging country.
The Fund commenced operations on November 1, 1991, following the issuance
of 7,093 shares of Common Stock to the Investment Manager on October 24, 1991
for $100,000 and the initial public offering on October 25, 1991 of 10,522,200
shares to the public resulting in aggregate net proceeds to the Fund of
approximately $148.1 million. Since that time, the Fund has completed a rights
offering of 3,700,000 shares in June 1993 with aggregate net proceeds of
approximately $54.8 million and a second public offering of 900,000 shares in
March 1994 with aggregate net proceeds to the Fund of approximately $23.7
million. Since commencement of operations, the Fund has also issued 1,471,042
shares pursuant to its Dividend Reinvestment and Cash Purchase Plan. At March
31, 1995, the Fund had 16,630,335 shares of Common Stock outstanding, which are
listed and traded on the NYSE under the symbol "MSF". As of March 31, 1995, the
net assets of the Fund were approximately $270.6 million.
The Fund is responsible for all of its operating expenses. If the Offer is
fully subscribed, it is estimated that the Fund's annual normal operating
expenses, including advisory, administration and custodial fees, will be
approximately $ exclusive of organization expenses (which were $115,000
and are being amortized over five years) and the expenses of this Offer,
estimated to be $ which will be charged to capital. See "Expenses."
For the years ended December 31, 1992, 1993 and 1994, the Fund's expenses
(exclusive of amortization of organization expenses) were $3,516,000, $4,652,000
and $7,049,000, respectively. The Fund's annual expense ratio was 2.02%, 1.85%
and 1.75% (inclusive of amortization of organization expenses) of the Fund's
average net assets for the years ended December 31, 1992, 1993 and 1994,
respectively.
INFORMATION REGARDING THE INVESTMENT MANAGER
Morgan Stanley Asset Management Inc. (the "Investment Manager"), a wholly
owned subsidiary of Morgan Stanley Group Inc., manages the investments of the
Fund pursuant to an Investment Advisory and Management Agreement with the Fund
(the "Management Agreement"). The Investment Manager emphasizes a global
investment strategy and as of December 31, 1994 had, together with its
affiliated investment management companies, assets under management (including
assets under fiduciary control) totalling approximately $48.7 billion, of which
approximately $6.3 billion was invested in emerging country markets. The
Investment Manager is a registered investment adviser under the U.S. Investment
Advisers Act of 1940, as amended (the "Advisers Act"). See "Management of the
Fund." The Fund pays to the Investment Manager a fee, computed weekly and
payable monthly, at the annual rate of 1.25% of the Fund's average weekly net
assets. This fee is higher than that paid by most other U.S. investment
companies investing exclusively in the securities of U.S. issuers, primarily
because of the additional time and expense required of the Investment Manager in
pursuing the Fund's objective of investing in emerging country equity
securities. This investment objective entails additional time and expense
because available public information concerning emerging country equity
securities is limited in comparison to that available for U.S. companies and
accounting standards in such countries are more flexible. In addition, available
research concerning emerging country companies is not comparable to available
research concerning U.S. companies. See "Management of the Fund."
7
<PAGE> 10
INFORMATION REGARDING THE ADMINISTRATOR
United States Trust Company of New York (the "Administrator") provides
administrative services to the Fund pursuant to an Administration Agreement (the
"Administration Agreement") with the Fund. The Fund pays to the Administrator an
annual administration fee of $65,000 plus .08% of the average weekly net assets
of the Fund. See "Management of the Fund -- Administration."
INFORMATION REGARDING THE CUSTODIANS
Morgan Stanley Trust Company acts as custodian for the Fund's assets held
outside the United States and employs sub-custodians approved by the Directors
of the Fund in accordance with regulations of the Securities and Exchange
Commission. United States Trust Company of New York acts as custodian for the
Fund's assets held in the United States. See "Custodians."
DIVIDENDS, DISTRIBUTIONS AND REINVESTMENT
The Fund intends to distribute to shareholders, at least annually,
substantially all of its net investment income from dividends and interest
earnings, and also expects to distribute any net realized gains at least
annually. Unless the Fund is otherwise instructed in writing, in the manner
described under "Dividends and Distributions; Dividend Reinvestment and Cash
Purchase Plan," shareholders are presumed to have elected to have all
distributions automatically reinvested in shares of Common Stock.
RISK FACTORS AND SPECIAL CONSIDERATIONS
Dilution
An immediate dilution, which could be substantial, of the aggregate net
asset value of the Common Stock owned by Record Date Shareholders who do not
fully exercise their Rights is likely to occur as a result of the Offer because
the Subscription Price per Share is less than the Fund's net asset value per
share on the Record Date, and the number of shares outstanding after the Offer
is likely to increase in a greater percentage than the increase in the size of
the Fund's assets. In addition, as a result of the Offer, Record Date
Shareholders who do not fully exercise their Rights should expect that they
will, upon completion of the Offer, own a smaller proportional interest in the
Fund than would otherwise be the case. Although it is not possible to state
precisely the amount of any such decrease in net asset value, because it is not
known at this time what the net asset value per share will be on the Expiration
Date or what proportion of the Rights will be exercised, such dilution could be
substantial. For example, assuming that all Rights are exercised and that the
Subscription Price of $ is % below the Fund's net asset value of
$ per share as of May 30, 1995, the Fund's net asset value per share
(after payment of the financial advisory and soliciting fees and estimated
offering expenses) would be reduced by approximately $ per share. The
distribution to shareholders of transferable Rights which themselves may have
intrinsic value will afford non-participating shareholders the potential of
receiving a cash payment upon sale of such Rights, receipt of which may be
viewed as partial compensation for the possible dilution of their interest in
the Fund. No assurance can be given that a market for the Rights will develop or
as to the value, if any, that such Rights will have.
Risks Associated with Investments in Emerging Markets
Investing in emerging country equity securities involves certain
considerations not typically associated with investing in securities of U.S.
companies, including (1) currency fluctuations, (2) the cost of converting
foreign currency into U.S. dollars, (3) restrictions on foreign investment and
on repatriation of capital invested in emerging countries, (4) potential price
volatility, lesser liquidity of shares traded on emerging country securities
markets and smaller market capitalization of such securities markets, (5) higher
rates of inflation, and (6) political, social and economic risks and
uncertainty, including the risk of nationalization or expropriation of assets
and the risk of war. Recent events have illustrated the impact of these risks,
as the Mexican Government devalued the Mexican New Peso on December 20, 1994 and
then permitted the New Peso to float on December 22, 1994. Such actions had
immediate and significant adverse effects on the
8
<PAGE> 11
Mexican securities markets as well as on the currencies and securities markets
of other emerging countries. See "Risk Factors and Special
Considerations -- Foreign Currency Considerations."
Accounting, auditing, financial and other reporting standards in emerging
countries are not equivalent to U.S. standards and, therefore, disclosure of
certain material information may not be made and less information may be
available to investors investing in emerging countries than in the United
States. There is also generally less governmental regulation of the securities
industry in emerging countries than in the United States. Moreover, it may be
more difficult to obtain a judgment in a court outside the United States.
Interest and dividends paid on securities held by the Fund and gains from the
disposition of such securities may be subject to withholding taxes imposed by
emerging market countries. See "Risk Factors and Special Considerations."
Net Asset Value Discount; Non-Diversification
Since the Fund's initial public offering on October 25, 1991, the Common
Stock has traded in the market at both a discount and premium to net asset
value. The Fund cannot predict whether the Common Stock will in the future trade
at a premium or discount to net asset value and, if so, the level of such
premium or discount. Shares of closed-end investment companies frequently trade
at a discount from net asset value. The risk of the Common Stock trading at a
discount is a risk separate from the risk of a decline in the Fund's net asset
value. See "Financial Highlights -- Market and Net Asset Value Information."
The Fund is classified as a "non-diversified" investment company under the
1940 Act, which means that the Fund is not limited by the 1940 Act in the
proportion of its assets that may be invested in the securities of a single
issuer. As a non-diversified investment company, the Fund may invest a greater
proportion of its assets in the securities of a smaller number of issuers and,
as a result, will be subject to greater risk of loss with respect to its
portfolio securities. However, the Fund intends to continue to comply with the
diversification requirements imposed by the U.S. Internal Revenue Code of 1986,
as amended (the "Code"), for qualification as a regulated investment company.
See "Investment Restrictions" and "Taxation -- U.S. Federal Income Taxes."
Additional Considerations
The Fund may invest in non-publicly traded securities, engage in foreign
currency hedging transactions, and enter into stock options and stock index
futures transactions, each of which may involve special risks. See "Investment
Objective and Policies." In addition, certain special voting provisions of the
Fund's Articles of Incorporation may have the effect of depriving shareholders
of an opportunity to sell their shares at a premium over prevailing market
prices. See "Common Stock."
9
<PAGE> 12
FINANCIAL HIGHLIGHTS
The table below sets forth certain specified information for a share of
Common Stock outstanding throughout each period presented. The selected per
share data and ratios for the period from November 1, 1991 (the commencement of
operations) to December 31, 1991 and the fiscal years ended December 31, 1992,
1993 and 1994 have been audited by Price Waterhouse LLP, independent
accountants, whose report thereon was unqualified. The information should be
read in conjunction with the financial statements and notes thereto contained in
the Fund's Annual Report as of December 31, 1994, which is available upon
request from the Fund's Transfer Agent, The First National Bank of Boston, and
incorporated herein by reference.
<TABLE>
<CAPTION>
PERIOD FROM
NOVEMBER 1, 1991* YEAR ENDED DECEMBER 31,
TO ------------------------------------
DECEMBER 31, 1991 1992 1993 1994
----------------- -------- -------- --------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period.... $ 14.10 $ 14.71 $ 16.74 $ 28.20
----------------- -------- -------- --------
Offering Costs........................ (0.07) -- (0.03) (0.02)
----------------- -------- -------- --------
Net Investment Income (Loss).......... 0.05 0.02 -- (0.12)
Net Realized and Unrealized Gain
(Loss) on Investments.............. 0.67 2.03 13.96 (1.30)
----------------- -------- -------- --------
Total from Investment Operations........ 0.72 2.05 13.96 (1.42)
----------------- -------- -------- --------
Distributions:
Net Investment Income................. (0.04) (0.01) -- --
Net Realized Gain..................... -- (0.01) (1.04) (6.50)
In Excess of Net Realized Gain........ -- -- (0.45) --
----------------- -------- -------- --------
Total Distributions:.................... (0.04) (0.02) (1.49) (6.50)
----------------- -------- -------- --------
Increase (Decrease) in Net Asset Value
from Capital Share Transactions....... -- -- (0.98)+ 0.04++
----------------- -------- -------- --------
Net Asset Value, End of Period.......... $ 14.71 $ 16.74 $ 28.20 $ 20.30
============= ======== ======== ========
Per Share Market Value, End of Period... $ 14.25 $ 18.13 $ 31.63 $ 21.50
============= ======== ======== ========
TOTAL INVESTMENT RETURN
Market Value.......................... (4.84)% 27.38% 100.96%+++ (10.61)%
Net Asset Value(1).................... 4.61% 13.94% 95.22%+++ (5.33)%
RATIOS, SUPPLEMENTAL DATA
Net Assets, End of Period (In
Thousands)............................ $ 155,321 $176,904 $411,975 $321,729
----------------- -------- -------- --------
Ratio of Expenses to Average Net
Assets................................ 2.25%** 2.02% 1.85% 1.75%
Ratio of Net Investment Income (Loss) to
Average Net Assets.................... 2.32%** 0.14% (0.03)% (0.48)%
Portfolio Turnover Rate................. 2% 60% 68% 52%
</TABLE>
---------------
* Commencement of Operations.
** Annualized.
+ Consists of $.03 per share increase from reinvestment of distributions and
$1.01 decrease per share due to Common Stock issued through Rights offering
during the year ended December 31, 1993.
++ Consists of $.02 per share increase from reinvestment of distributions and
$.02 per share increase due to additional Common Stock offering during the
year ended December 31, 1994.
+++ Adjusted for Rights offering.
(1) Total investment return based on per share net asset value reflects the
effects of changes in net asset value on the performance of the Fund during
each period, and assumes dividends and distributions, if any, were
reinvested. These percentages are not an indication of the performance of a
shareholder's investment in the Fund based on market value due to
differences between the market price of the stock and the net asset value of
the Fund.
10
<PAGE> 13
MARKET AND NET ASSET VALUE INFORMATION
The Fund's currently outstanding shares of Common Stock are, and the Shares
offered by this Prospectus will be, listed on the New York Stock Exchange (the
"NYSE"). Shares of the Fund's Common Stock commenced trading on the NYSE on
October 25, 1991.
In the past, the Fund's shares have traded both at a premium and at a
discount in relation to net asset value. Although the Fund's shares recently
have been trading at a premium above net asset value, there can be no assurance
that this premium will continue after the Offer or that the shares will not
again trade at a discount. Shares of other closed-end investment companies
frequently trade at a discount from net asset value. See "Risk Factors and
Special Conditions."
The following table shows for each of the periods indicated the high and
low sale prices of the Fund's Common Stock on the New York Stock Exchange
Composite Tape, quarterly trading volume on the NYSE, the high and low net asset
value per share and the premium or discount at which the Fund's shares were
trading for each calendar quarter since the commencement of trading of the
Fund's Common Stock.
<TABLE>
<CAPTION>
MARKET PREMIUM/
PRICE QUARTERLY NET ASSET VALUE (DISCOUNT)
----------- TRADING --------------- TO NET
CALENDAR QUARTERS HIGH LOW VOLUME HIGH LOW ASSET VALUE
-------------------------------- ---- ---- --------------------- ------ ------ ----------------
(THOUSANDS OF SHARES) (END OF QUARTER)
<S> <C> <C> <C> <C> <C> <C>
Year Ended December 31, 1991
Fourth Quarter(1)............. $16 1/4 $13 3/8 2,434.4 $14.67 $13.98 (3.13)%
Year Ended December 31, 1992
First Quarter................. 18 1/8 14 1/2 2,301.8 16.97 14.80 5.33%
Second Quarter................ 19 16 1/4 1,898.8 18.11 16.69 (2.63)%
Third Quarter................. 17 1/2 16 1/8 1,158.6 17.74 16.17 (1.73)%
Fourth Quarter................ 18 1/4 15 3/4 1,277.8 17.07 15.95 8.27%
Year Ended December 31, 1993
First Quarter................. 19 1/2 16 1/2 1,067.0 16.79 15.37 11.67%
Second Quarter................ 21 1/2 18 2,943.0 18.98 16.72 9.66%
Third Quarter................. 23 7/8 19 1/8 2,942.0 20.77 17.73 14.85%
Fourth Quarter................ 31 5/8 23 1/4 3,316.0 28.20 20.72 12.15%
Year Ended December 31, 1994
First Quarter................. 32 1/2 22 1/4 5,028.0 29.24 24.73 (5.98)%
Second Quarter................ 27 3/4 22 1/2 2,607.0 24.63 22.06 9.28%
Third Quarter................. 30 1/4 25 1/2 1,789.0 28.78 23.37 3.73%
Fourth Quarter................ 30 3/8 21 1/2 2,084.0 28.44 19.86 7.34%
Year Ended December 31, 1995
First Quarter................. 21 1/2 14 3/4 3,037.0 19.62 15.05 9.10%
Second Quarter................
(through May 30, 1995)
</TABLE>
---------------
(1) From October 25, 1991, the commencement of trading, through December 31,
1991.
The last reported sale price, net asset value per share and percentage
premium (discount) to net asset value of the Common Stock on May 30, 1995 were
$ , $ and %, respectively.
CAPITALIZATION AT MARCH 31, 1995
<TABLE>
<CAPTION>
AMOUNT OUTSTANDING
AMOUNT HELD BY THE EXCLUSIVE OF AMOUNT HELD BY
TITLE OF CLASS AMOUNT AUTHORIZED FUND OR FOR ITS ACCOUNT THE FUND OR FOR ITS ACCOUNT
------------------ ------------------ ----------------------- ---------------------------
<S> <C> <C> <C>
Common Stock,
$0.01 par value 100,000,000 Shares -0- 16,630,335 Shares
</TABLE>
11
<PAGE> 14
THE FUND
The Fund, incorporated in Maryland on August 27, 1991, is a
non-diversified, closed-end management investment company registered under the
1940 Act. The Fund's investment objective is long-term capital appreciation. The
Fund seeks to achieve its objective by investing primarily in emerging country
equity securities, as defined below under "Investment Objective and Policies."
No assurance can be given that the Fund's investment objective will be realized.
Due to the risks inherent in international investments generally and emerging
country companies in particular, the Fund should be considered as a vehicle for
investing a portion of an investor's assets in foreign securities markets and
not as a complete investment program.
The Fund commenced operations on November 1, 1991, following the issuance
of 7,093 shares of Common Stock to the Investment Manager on October 24, 1991
for $100,000 and the initial public offering on October 25, 1991 of 10,522,200
shares to the public resulting in aggregate net proceeds to the Fund of
approximately $148.1 million. Since that time, the Fund has completed a rights
offering of 3,700,000 shares in June 1993 with aggregate net proceeds of
approximately $54.8 million and a second public offering of 900,000 shares in
March 1994 with aggregate net proceeds to the Fund of approximately $23.7
million. Since commencement of operations, the Fund has also issued 1,471,042
shares pursuant to its Dividend Reinvestment and Cash Purchase Plan. At March
31, 1995, the Fund had 16,630,335 shares of Common Stock outstanding, which are
listed and traded on the NYSE under the symbol "MSF". As of March 31, 1995, the
net assets of the Fund were approximately $270.6 million.
At all times, except during periods when a temporary defensive investment
strategy is appropriate, as determined by the Fund's Investment Manager, the
Fund attempts to maintain at least 65% of its total assets invested in emerging
country equity securities. The remainder of the Fund's assets under normal
circumstances are invested in the debt securities of emerging country corporate
or governmental issuers, the equity or debt securities of industrial country
corporate or governmental issuers, and in the short-term and medium-term debt
instruments described below under "Investment Objective and
Policies -- Temporary Investments."
THE OFFER
TERMS OF THE OFFER
The Fund is issuing Rights to subscribe for the Shares to Record Date
Shareholders. Each Record Date Shareholder is being issued one transferable
Right for each full share of Common Stock owned on the Record Date. The number
of Rights to be issued to Record Date Shareholders will be rounded up to the
nearest number of Rights evenly divisible by three. In the case of shares held
of record by a Nominee Holder, the number of Rights issued to such Nominee
Holder will be adjusted to permit rounding up (to the nearest number of Rights
evenly divisible by three) of the Rights to be received by beneficial holders
for whom it is the holder of record only if the Nominee Holder provides to the
Fund on or before the close of business on June , 1995 written representation
of the number of Rights required for such rounding. Accordingly, no fractional
Shares will be issued. The Rights entitle the holders thereof to acquire at the
Subscription Price one Share for each three Rights held. The Rights are
evidenced by Subscription Certificates, which will be mailed to the Record Date
Shareholders other than Foreign Record Date Shareholders. See "Foreign
Shareholders."
Completed Subscription Certificates may be delivered to the Subscription
Agent at any time during the Subscription Period, which commences on June ,
1995, and ends at 5:00 p.m., New York time, on June , 1995, unless extended by
the Fund and the Dealer Manager. See "-- Expiration of the Offer." Parties that
purchase Rights prior to the Expiration Date may purchase Shares in the Primary
Subscription, but may not participate in the Over-Subscription Privilege with
respect to such Rights. All Rights may be exercised upon receipt and until 5:00
p.m. on the Expiration Date.
Any Record Date Shareholder who fully exercises all Rights issued to such
Record Date Shareholder by the Fund is entitled to subscribe for Shares which
were not otherwise subscribed for by Exercising Rights Holders in the Primary
Subscription. Shares acquired pursuant to the Over-Subscription Privilege may be
subject to allotment, which is more fully discussed below under
"-- Over-Subscription Privilege."
12
<PAGE> 15
Rights will be evidenced by Subscription Certificates (see Appendix A) and
may be exercised by completing a Subscription Certificate and delivering it,
together with payment, either by means of a Notice of Guaranteed Delivery or a
check, to the Subscription Agent. The method by which Rights may be exercised
and Shares paid for is set forth below under "-- Exercise of Rights" and
"-- Payment for Shares." An Exercising Rights Holder will have no right to
rescind or modify a purchase after the Subscription Agent has received a
completed Subscription Certificate or Notice of Guaranteed Delivery. See
"-- Payment for Shares" below. Shares issued pursuant to an exercise of Rights
will be listed on the NYSE.
The Rights are transferable until the close of business on the last
Business Day prior to the Expiration Date and will be listed for trading on the
NYSE. Assuming a market exists for the Rights, the Rights may be purchased and
sold through usual brokerage channels, or may be sold through the Subscription
Agent if delivered to the Subscription Agent on or before June , 1995.
Although no assurance can be given that a market for the Rights will develop,
trading in the Rights on the NYSE may be conducted until and including the close
of trading on the last Business Day prior to the Expiration Date. The method by
which Rights may be transferred is set forth below under "-- Sale of Rights."
The underlying Shares will also be listed for trading on the NYSE.
PURPOSE OF THE OFFER
The Board of Directors of the Fund has determined that it is in the best
interests of the Fund and its shareholders to increase the assets of the Fund
available for investment so that the Fund will be in a better position to take
advantage of further investment opportunities in emerging countries. The Fund
believes that increasing the size of the Fund should also result in lowering the
Fund's expenses as a proportion of average net assets, although no assurance can
be given that this result will be achieved. At March 31, 1995, the Fund had net
assets of $270,591,679. In addition, the Offer seeks to reward the Fund's
shareholders by giving existing shareholders the right to purchase additional
shares of Common Stock at a price below market and net asset value without
incurring any commission charge. The distribution to shareholders of
transferable Rights which themselves may have intrinsic value will also afford
non-participating shareholders the potential of receiving a cash payment upon
sale of such Rights, receipt of which may be viewed as partial compensation for
the possible dilution of their interest in the Fund. The Board of Directors
determined to proceed with the offer of transferable rights after having
considered the dilutive effect of the Offer on shareholders who are unwilling or
unable to fully exercise their rights, as well as the alternatives of a
secondary offering and the offer of non-transferable rights.
The Investment Manager will benefit from the Offer because the Investment
Manager's fee is based on the weekly average net assets of the Fund. See
"Management of the Fund -- Investment Manager." It is not possible to state
precisely the amount of additional compensation the Investment Manager will
receive as a result of the Offer because it is not known how many Shares will be
subscribed for and because the proceeds of the Offer will be invested in
additional portfolio securities, which will fluctuate in value. However, in the
event that all the Rights are exercised in full and on the basis of the
Subscription Price of $ per Share, the Investment Manager would receive
additional annual advisory fees of approximately $ . Three of the Fund's
Directors who voted to authorize the Offer are affiliated with the Investment
Manager. These three Directors could benefit indirectly from the Offer because
of their affiliations. The other four Directors, all of whom voted to authorize
the Offer, are not affiliated with the Investment Manager or the Dealer Manager.
See "Management of the Fund."
The Fund completed a rights offering in June 1993 pursuant to which
3,700,000 shares of Common Stock were issued with aggregate net proceeds to the
Fund of approximately $54.8 million. The dilutive effect of that offering was
approximately $1.01 per share outstanding on June 25, 1993, the first date on
which the Fund's net asset value was calculated subsequent to that offering. Due
to the increase in assets resulting from the 1993 rights offering, management of
the Fund estimates that the Fund's expense ratio was approximately 0.22% lower
than it otherwise would have been.
The Fund may, in the future and at its discretion, choose to make
additional rights offerings from time to time for a number of shares and on
terms which may or may not be similar to the Offer.
13
<PAGE> 16
USE OF PROCEEDS
If all of the Rights are exercised in full at the Subscription Price of
$ per share and the maximum solicitation fee is paid to Selling Group
Members, the net proceeds to the Fund would be approximately $ , after
deducting offering expenses payable by the Fund estimated to be approximately
$ . However, there can be no assurance that all Rights will be
exercised in full. The net proceeds of the Offer will be fully invested in
investments conforming to the Fund's investment objective and policies within
three months from the Expiration Date. Pending such investment it is anticipated
that the proceeds will be invested in certain short-term and medium-term debt
instruments, as described under "Investment Objective and Policies -- Temporary
Investments."
OVER-SUBSCRIPTION PRIVILEGE
Shares not subscribed for in the Primary Subscription will be offered, by
means of the Over-Subscription Privilege, to Record Date Shareholders who have
exercised all Rights issued to them by the Fund and who wish to acquire more
than the number of Shares for which the Rights held by them are exercisable.
Record Date Shareholders should indicate, on the Subscription Certificate which
they submit with respect to the exercise of the Rights held by them, how many
Shares they are willing to acquire pursuant to the Over-Subscription Privilege.
If sufficient Shares remain, all over-subscriptions will be honored in full.
Purchasers of Rights who are not Record Date Shareholders are not eligible to
participate in the Over-Subscription Privilege.
If subscriptions for Shares pursuant to the Over-Subscription Privilege
exceed the Shares available, the available Shares will be allocated among those
Record Date Shareholders who over-subscribe based on the number of Rights
originally issued to them by the Fund so that the number of shares issued to
Record Date Shareholders who subscribe pursuant to the Over-Subscription
Privilege will generally be in proportion to the number of Shares owned by them
in the Fund on the Record Date. The percentage of remaining Shares each
over-subscribing Record Date Shareholder may acquire may be rounded up or down
to result in delivery of whole Shares. The allocation process may involve a
series of allocations in order to assure that the total number of Shares
available for over-subscriptions is distributed on a pro rata basis.
The Fund will not offer or sell any Shares which are not subscribed for
pursuant to the Primary Subscription or the Over-Subscription Privilege.
THE SUBSCRIPTION PRICE
The Subscription Price per Share is $ . The Fund announced the Offer
after the close of trading on the NYSE on April 21, 1995. The net asset value
per share of Common Stock at the close of business on April 21, 1995 and on May
30, 1995 was $17.05 and $ , respectively, and the last reported sale price
of a share of the Common Stock on the NYSE on those dates was $18.125 and
$ , respectively. The Subscription Price of $ is approximately a %
discount to the Fund's net asset value per share on May 30, 1995 and
approximately a % discount to the last reported sale price of a share of
Common Stock on the NYSE on May 30, 1995.
EXPIRATION OF THE OFFER
The Offer will expire at 5:00 p.m., New York time, on June , 1995, unless
extended by the Fund and the Dealer Manager (the "Expiration Date"). Rights will
expire on the Expiration Date and may not be exercised thereafter.
SUBSCRIPTION AGENT
The Subscription Agent is The First National Bank of Boston, which will
receive for its administrative, processing, invoicing and other services as
subscription agent a fee estimated to be approximately $ , as well as
reimbursement for all out-of-pocket expenses related to the Offer. The
Subscription Agent is also the Fund's transfer agent, dividend-paying agent and
registrar. Questions regarding the Subscription Certificates
14
<PAGE> 17
should be directed to The First National Bank of Boston, 150 Royall Street,
Canton, Massachusetts 02021 (telephone (617) 575-2700); shareholders may also
consult their brokers or nominees. Signed Subscription Certificates (see
Appendix A) should be sent by mail, hand, express mail or overnight courier,
together with payment of the Subscription Price, to The First National Bank of
Boston, Attention: Shareholder Services Division, 150 Royall Street, Mail Stop
45-01-19, Canton, Massachusetts 02021. Subscription Certificates may also be
sent by facsimile to (617) 575-2232, with the original Subscription Certificate
to be sent by one of the methods described above. Facsimiles should be confirmed
by telephone to (617) 575-2700.
INFORMATION AGENT
Any questions or requests for assistance may be directed to the Information
Agent at its telephone number and address listed below:
The Information Agent for the Offer is:
Shareholder Communications Corporation
17 State Street
New York, New York 10004
Toll Free: (800) 733-8481, ext. 316
or
Call Collect: (212) 805-7000, ext. 316
The Information Agent will receive a fee estimated to be approximately
$55,000, as well as reimbursement for all out-of-pocket expenses related to the
Offer.
SALE OF RIGHTS
The Rights are transferable until the last Business Day prior to the
Expiration Date. The Rights will be listed on the NYSE under the symbol "MSF.RT"
and may be sold over the NYSE through the usual investment channels. The Fund
has used its best efforts to ensure that an adequate trading market for the
Rights will exist by causing the Rights to be listed on the NYSE and by
retaining the Dealer Manager, the Subscription Agent and the Information Agent.
Although there can be no assurance that such a market for the Rights will
develop, trading in the Rights on the NYSE may be conducted until the close of
trading on the last Business Day prior to the Expiration Date.
Sales through Subscription Agent. Rights Holders who do not wish to
exercise any or all of their Rights may instruct the Subscription Agent to sell
any unexercised Rights. Subscription Certificates representing the Rights to be
sold by the Subscription Agent must be received by the Subscription Agent on or
before June , 1995. Upon the timely receipt by the Subscription Agent of
appropriate instructions to sell Rights, the Subscription Agent will use its
best efforts to complete the sale and the Subscription Agent will remit the
proceeds of sale, net of commissions, to the Rights Holders. If the Rights can
be sold, sales of such Rights will be deemed to have been effected at the
weighted-average price received by the Subscription Agent on the day such Rights
are sold. The selling Rights Holder will pay all brokerage commissions incurred
by the Subscription Agent. The Subscription Agent will also attempt to sell all
Rights which remain unclaimed as a result of Subscription Certificates being
returned by the postal authorities to the Subscription Agent as undeliverable as
of the fourth Business Day prior to the Expiration Date. Such sales will be made
net of commissions on behalf of the nonclaiming Record Date Shareholders. The
Subscription Agent will hold the proceeds from those sales for the benefit of
such nonclaiming Record Date Shareholders until such proceeds are either claimed
or escheat. There can be no assurance that the Subscription Agent will be able
to complete the sale of any such Rights, and neither the Fund, the Subscription
Agent nor the Dealer Manager has guaranteed any minimum sale price for the
Rights. All such Rights will be sold at the market price, if any, on the NYSE.
Other Transfers. The Rights are transferable until the close of business
on the last Business Day prior to the Expiration Date. The Rights evidenced by a
single Subscription Certificate may be transferred in whole or in part (in a
number evenly divisible by three) by delivering to the Subscription Agent a
Subscription
15
<PAGE> 18
Certificate properly endorsed for transfer, with instructions to register such
portion of the Rights evidenced thereby in the name of the transferee and to
issue a new Subscription Certificate to the transferee evidencing such
transferred Rights. In such event, a new Subscription Certificate evidencing the
balance of the Rights will be issued to the transferring Rights Holder or, if
the transferring Rights holder so instructs, to an additional transferee.
Rights Holders wishing to transfer all or a portion of their Rights should
allow up to three Business Days prior to the Expiration Date for (i) the
transfer instructions to be received and processed by the Subscription Agent;
(ii) a new Subscription Certificate to be issued and transmitted to the
transferee or transferees with respect to transferred Rights, and to the
transferor with respect to retained Rights, if any; and (iii) the Rights
evidenced by such new Subscription Certificate to be exercised or sold by the
recipients thereof. Neither the Fund, the Subscription Agent nor the Dealer
Manager shall have any liability to a transferee or transferor of Rights if
Subscription Certificates are not received in time for exercise or sale prior to
the Expiration Date.
Except for the fees charged by the Subscription Agent (which will be paid
by the Fund as described above), all commissions, fees and other expenses
(including brokerage commissions and transfer taxes) incurred in connection with
the purchase, sale or exercise of Rights will be for the account of the
transferor of the Rights, and none of such commissions, fees or expenses will be
paid by the Fund, the Subscription Agent or the Dealer Manager.
The Rights will be eligible for transfer through, and the exercise of the
Primary Subscription (but not the Over-Subscription Privilege) may be effected
through, the facilities of The Depository Trust Company ("DTC"); Rights
exercised through DTC are referred to as "DTC Exercised Rights." The holder of a
DTC Exercised Right may exercise the Over-Subscription Privilege in respect of
such DTC Exercised Right by properly executing and delivering to the
Subscription Agent, at or prior to 5:00 p.m., New York time, on the Expiration
Date, a Nominee Holder Over-Subscription Form (See Appendix C), together with
payment of the Subscription Price for the number of Shares for which the
Over-Subscription Privilege is to be exercised. Copies of the Nominee Holder
Over-Subscription Form may be obtained from the Subscription Agent.
EXERCISE OF RIGHTS
Rights may be exercised by completing and signing the reverse side of the
Subscription Certificate which accompanies this Prospectus and mailing it in the
envelope provided, or otherwise delivering the completed and signed Subscription
Certificate to the Subscription Agent, together with payment of the Subscription
Price for the Shares as described below under "Payment for Shares." Completed
Subscription Certificates must be received by the Subscription Agent prior to
5:00 p.m., New York time, on the Expiration Date (unless payment is effected by
means of a Notice of Guaranteed Delivery as described below under "-- Payment
for Shares") at the offices of the Subscription Agent at the address set forth
above. Rights may also be exercised through an Exercising Rights Holder's
broker, who may charge such Exercising Rights Holder a servicing fee.
Nominees who hold shares of Common Stock for the account of others, such as
banks, brokers, trustees or depositories for securities, should notify the
respective beneficial owners of such shares as soon as possible to ascertain
such beneficial owners' intentions and to obtain instructions with respect to
the Rights. If the beneficial owner so instructs, the nominee should complete
the Subscription Certificate and submit it to the Subscription Agent with the
proper payment. In addition, beneficial owners of Common Stock or Rights held
through such a nominee should contact the nominee and request the nominee to
effect transactions in accordance with the beneficial owner's instructions.
EXERCISE OF THE OVER-SUBSCRIPTION PRIVILEGE
Record Date Shareholders who fully exercise all Rights issued to them by
the Fund may participate in the Over-Subscription Privilege by indicating on
their Subscription Certificate the number of Shares they are willing to acquire
pursuant thereto. Persons purchasing Rights who are not Record Date Shareholders
are not eligible to participate in the Over-Subscription Privilege. There is no
limit on the number of Shares that Record Date Shareholders may seek to
subscribe for pursuant to the Over-Subscription Privilege. If sufficient
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<PAGE> 19
Shares remain after the Primary Subscription, all over-subscriptions will be
honored in full; otherwise the number of Shares issued to each Record Date
Shareholder participating in the Over-Subscription Privilege will be allocated
as described above under "-- Over-Subscription Privilege."
Banks, brokers, trustees and other nominee holders of Rights will be
required to certify to the Fund, before any Over-Subscription Privilege may be
exercised as to any particular beneficial owner, as to the aggregate number of
Rights exercised pursuant to the Primary Subscription and the number of Shares
subscribed for pursuant to the Over-Subscription Privilege by such beneficial
owner and that such beneficial owner's Primary Subscription was exercised in
full.
PAYMENT FOR SHARES
Exercising Rights Holders may choose between the following methods of
payment:
(1) An Exercising Rights Holder can send the Subscription Certificate,
together with payment for the Shares acquired on Primary Subscription and
any additional Shares subscribed for pursuant to the Over-Subscription
Privilege (for Record Date Shareholders) to the Subscription Agent based
upon the Subscription Price of $ per Share. A subscription will be
accepted when payment, together with the executed Subscription Certificate,
is received by the Subscription Agent at its Shareholders Services
Division; such payment and Subscription Certificates to be received by the
Subscription Agent no later than 5:00 p.m., New York time, on the
Expiration Date. The Subscription Agent will deposit all checks received by
it for the purchase of Shares into a segregated interest-bearing account of
the Fund (the interest from which will belong to the Fund) pending
proration and distribution of Shares. A PAYMENT PURSUANT TO THIS METHOD
MUST BE IN U.S. DOLLARS BY MONEY ORDER OR CHECK DRAWN ON A BANK LOCATED IN
THE UNITED STATES, MUST BE PAYABLE TO MORGAN STANLEY EMERGING MARKETS FUND,
INC. AND MUST ACCOMPANY A PROPERLY COMPLETED AND EXECUTED SUBSCRIPTION
CERTIFICATE FOR SUCH SUBSCRIPTION CERTIFICATE TO BE ACCEPTED AND BE
RECEIVED BY 5:00 P.M. ON THE EXPIRATION DATE.
(2) Alternatively, a subscription will be accepted by the Subscription
Agent if, prior to 5:00 p.m., New York time, on the Expiration Date, the
Subscription Agent has received a Notice of Guaranteed Delivery (See
Appendix B) by facsimile (telecopy) or otherwise from a bank, a trust
company, or a NYSE member guaranteeing delivery of (i) payment of the full
Subscription Price for the Shares subscribed for in the Primary
Subscription and any additional Shares subscribed for pursuant to the Over-
Subscription Privilege (for Record Date Shareholders), and (ii) a properly
completed and executed Subscription Certificate. The Subscription Agent
will not honor a Notice of Guaranteed Delivery unless a properly completed
and executed Subscription Certificate and full payment for the Shares is
received by the Subscription Agent by the close of business on the third
Business Day after the Expiration Date (the "Protect Period").
Within seven Business Days following the Protect Period, the Subscription
Agent will send to each Exercising Rights Holder (or, if the Common Stock is
held by a Nominee Holder, to such Nominee Holder) the share certificates
representing the Shares purchased pursuant to the Primary Subscription and, if
applicable, the Over-Subscription Privilege, along with a letter explaining the
allocation of Shares pursuant to the Over-Subscription Privilege. Any excess
payment to be refunded by the Fund to a Record Date Shareholder who is not
allocated the full amount of Shares subscribed for pursuant to the
Over-Subscription Privilege will be mailed by the Subscription Agent. An
Exercising Rights Holder will have no right to rescind or modify a purchase
after the Subscription Agent has received a properly completed and executed
Subscription Certificate or a Notice of Guaranteed Delivery. All payments by a
Rights Holder must be in United States dollars by money order or check drawn on
a bank located in the United States and payable to Morgan Stanley Emerging
Markets Fund, Inc.
Whichever of the two methods described above is used, issuance of the
Shares purchased are subject to collection of checks and actual payment. If an
Exercising Rights Holder who acquires Shares pursuant to the Primary
Subscription or Over-Subscription Privilege does not make payment of any amounts
due, the Fund
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<PAGE> 20
and the Subscription Agent reserve the right to take any or all of the following
actions: (i) find other shareholders or Rights Holders for such subscribed and
unpaid for Shares; (ii) apply any payment actually received by it toward the
purchase of the greatest whole number of Shares which could be acquired by such
holder upon exercise of the Primary Subscription and/or Over-Subscription
Privilege; and/or (iii) exercise any and all other rights or remedies to which
it may be entitled, including, without limitation, the right to set-off against
payments actually received by it with respect to such subscribed Shares.
THE METHOD OF DELIVERY OF SUBSCRIPTION CERTIFICATES AND PAYMENT OF THE
SUBSCRIPTION PRICE TO THE FUND WILL BE AT THE ELECTION AND RISK OF THE
EXERCISING RIGHTS HOLDERS, BUT IF SENT BY MAIL IT IS RECOMMENDED THAT SUCH
CERTIFICATES AND PAYMENTS BE SENT BY REGISTERED MAIL, PROPERLY INSURED, WITH
RETURN RECEIPT REQUESTED, AND THAT A SUFFICIENT NUMBER OF DAYS BE ALLOWED TO
ENSURE DELIVERY TO THE SUBSCRIPTION AGENT AND CLEARANCE OF PAYMENT PRIOR TO 5:00
P.M., NEW YORK TIME, ON THE EXPIRATION DATE. BECAUSE UNCERTIFIED PERSONAL CHECKS
MAY TAKE AT LEAST FIVE BUSINESS DAYS TO CLEAR, YOU ARE STRONGLY URGED TO PAY, OR
ARRANGE FOR PAYMENT, BY MEANS OF CERTIFIED OR CASHIER'S CHECK OR MONEY ORDER.
All questions concerning the timeliness, validity, form and eligibility of
any exercise of Rights will be determined by the Fund, whose determinations will
be final and binding. The Fund, in its sole discretion, may waive any defect or
irregularity, or permit a defect or irregularity to be corrected within such
time as it may determine, or reject the purported exercise of any Right.
Subscriptions will not be deemed to have been received or accepted until all
irregularities have been waived or cured within such time as the Fund determines
in its sole discretion. The Fund will not be under any duty to give notification
of any defect or irregularity in connection with the submission of Subscription
Certificates or incur any liability for failure to give such notification.
Nominees who hold shares of Common Stock for the account of others, such as
banks, brokers, trustees or depositories for securities, should notify the
respective beneficial owners of such shares as soon as possible to ascertain
such beneficial owners' intentions and to obtain instructions with respect to
the Rights. If the beneficial owner so instructs, the nominee should complete
the Subscription Certificate and submit it to the Subscription Agent with the
proper payment. In addition, beneficial owners of Common Stock or Rights held
through such a nominee should contact the nominee and request the nominee to
effect transactions in accordance with the beneficial owner's instructions.
DELIVERY OF SHARE CERTIFICATES
Certificates representing Shares purchased pursuant to the Primary
Subscription will be delivered to Exercising Rights Holders as soon as
practicable after the corresponding Rights have been validly exercised and full
payment for such Shares has been received and cleared. Certificates representing
Shares purchased pursuant to the Over-Subscription Privilege will be delivered
to Exercising Rights Holders as soon as practicable after the Expiration Date
and after all allocations have been effected.
FOREIGN SHAREHOLDERS
Subscription Certificates will not be mailed to Foreign Record Date
Shareholders. The Rights to which such Subscription Certificates relate will be
held by the Subscription Agent for such Foreign Record Date Shareholders'
accounts until instructions are received to exercise, sell or transfer the
Rights. If no instructions have been received by 12:00 Noon, New York time,
three Business Days prior to the Expiration Date, the Subscription Agent,
through the Dealer Manager, will use its best efforts to sell the Rights of
those Foreign Record Date Shareholders on the NYSE. The net proceeds, if any,
from the sale of those Rights by the Subscription Agent will be remitted to the
Foreign Record Date Shareholders.
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<PAGE> 21
FEDERAL INCOME TAX CONSEQUENCES
The U.S. federal income tax consequences to holders of Common Stock with
respect to the Offer will be as follows:
1. The distribution of Rights to Record Date Shareholders will not
result in taxable income to such holders nor will such holders realize
taxable income as a result of the exercise of the Rights.
2. The basis of a Right will be (a) to a holder of Common Stock to
whom it is issued and who exercises or sells the Right (i) if the fair
market value of the Right immediately after issuance is less than 15% of
the fair market value of the Common Stock with regard to which it is
issued, zero (unless the holder elects, by filing a statement with his
timely filed federal income tax return for the year in which the Rights are
received, to allocate the basis of the Common Stock between the Right and
the Common Stock based on their respective fair market values immediately
after the Right is issued), and (ii) if the fair market value of the Right
immediately after issuance is 15% or more of the fair market value of the
Common Stock with regard to which it is issued, a portion of the basis in
the Common Stock based upon their respective fair market values immediately
after the Right is issued; (b) to a holder of Common Stock to whom it is
issued and who allows the Right to expire, zero; and (c) to anyone who
purchases a Right in the market, the purchase price for a Right.
3. The holding period of a Right received by a Record Date Shareholder
includes the holding period of the Common Stock with regard to which the
Right is issued.
4. Any gain or loss on the sale of a Right will be treated as a
capital gain or loss if the Right is a capital asset in the hands of the
seller. Such a capital gain or loss will be long- or short-term, depending
on how long the Right has been held, in accordance with paragraph 3 above.
A Right will be a capital asset in the hands of the person to whom it is
issued if the Common Stock to which the Right relates would be a capital
asset in the hands of that person. If a Right is allowed to expire, there
will be no loss realized unless the Right had been acquired by purchase, in
which case there will be a loss equal to the basis of the Right.
5. If the Right is exercised by the Record Date Shareholder, the basis
of the Common Stock received will include the basis allocated to the Right
and the amount paid upon exercise of the Right.
6. If the Right is exercised, the holding period of the Common Stock
acquired begins on the date the Right is exercised.
7. Gain recognized by a foreign shareholder on the sale of a Right
will be taxed in the same manner as gain recognized on the sale of Fund
shares. See "Taxation -- U.S. Federal Income Taxes -- Foreign
Shareholders."
The Fund is required to withhold and remit to the U.S. Treasury 31% of
reportable payments paid on an account if the holder of the account is a
taxpayer to which the backup withholding rules apply and has provided the Fund
with either an incorrect taxpayer identification number or no number at all or
fails to certify that he is not subject to such withholding.
The foregoing is only a summary of the applicable federal income tax laws
and does not include any state or local tax consequences of the Offer.
Exercising Rights Holders should consult their own tax advisers concerning the
tax consequences of this transaction. See "Taxation."
NOTICE OF NET ASSET VALUE DECLINE
The Fund has, as required by the Securities and Exchange Commission,
undertaken to suspend the Offer until it amends this Prospectus if, subsequent
to May 30, 1995 (the effective date of the Fund's Registration Statement), the
Fund's net asset value declines more than 10% from its net asset value as of
that date.
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<PAGE> 22
EMPLOYEE PLAN CONSIDERATIONS
Shareholders that are employee benefit plans subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), (including
corporate savings and 401(k) plans), Keogh or H.R.10 plans of self-employed
individuals and Individual Retirement Accounts ("IRAs") and other plans eligible
for special tax treatment under the Code or subject to Section 4975 of the Code
(collectively, "Plans") should be aware that additional contributions of cash to
the Plan (other than rollover contributions or trustee-to-trustee transfers from
other Plans) in order to exercise Rights would be treated as Plan contributions
and, when taken together with contributions previously made, may subject a Plan
to excise taxes for excess or nondeductible contributions. In the case of Plans
qualified under Section 401(a) of the Code and certain other plans, additional
cash contributions could cause the maximum contribution limitations of Section
415 of the Code or other qualification rules to be violated. Furthermore, it may
be a reportable distribution and there may be other adverse tax consequences if
Rights are sold or transferred by a Plan to another account. A sale of Rights by
a Plan account to an unrelated third party and retention of cash proceeds by the
Plan account, or the direct exercise of Rights by a Plan account, should not be
treated as a taxable Plan distribution. Plans contemplating making additional
cash contributions to exercise Rights should consult with their counsel prior to
making such contributions.
Plans and other tax-exempt entities, including governmental plans, should
also be aware that if they borrow in order to finance their exercise of Rights,
they may become subject to the tax on unrelated business taxable income ("UBTI")
under Section 511 of the Code. If any portion of an Individual Retirement
Account ("IRA") is used as security for a loan, the portion so used is also
treated as distributed to the IRA depositor.
ERISA contains fiduciary responsibility requirements, and ERISA and the
Code contain prohibited transaction rules that may impact the exercise or
transfer of Rights. Due to the complexity of these rules and the penalties for
noncompliance, Plans should consult with their counsel regarding the
consequences of their exercise or transfer of Rights under ERISA and the Code.
RISK FACTORS AND SPECIAL CONSIDERATIONS
An investment in the Fund is subject to a number of risks and special
considerations, including the following:
DILUTION
An immediate dilution of the aggregate net asset value of the Common Stock
owned by Record Date Shareholders who do not fully exercise their Rights is
likely to occur as a result of the Offer because the Subscription Price per
Share is less than the Fund's net asset value per share on the Record Date, and
the number of shares outstanding after the Offer is likely to increase in a
greater percentage than the increase in the size of the Fund's assets. In
addition, as a result of the Offer, Record Date Shareholders who do not fully
exercise their Rights should expect that they will, upon completion of the
Offer, own a smaller proportional interest in the Fund than would otherwise be
the case. Although it is not possible to state precisely the amount of such a
decrease in net asset value, because it is not known at this time what the net
asset value per share will be on the Expiration Date or what proportion of the
Rights will be exercised, such dilution could be substantial. For example,
assuming that all Rights are exercised and that the Subscription Price of
$ is % below the Fund's net asset value of $ per share as of
May 30, 1995, the Fund's net asset value per share would be reduced by
approximately $ per share.
FOREIGN CURRENCY CONSIDERATIONS
The Fund's assets are invested principally in equity securities of
companies in emerging countries and substantially all of the income received by
the Fund is in foreign currencies. However, the Fund computes and distributes
its income in U.S. dollars, and the computation of income is made on the date
that the income is earned by the Fund at the foreign exchange rate in effect on
that date. Therefore, if the value of the foreign currencies in which the Fund
receives its income falls, relative to the U.S. dollar, between the earning of
the
20
<PAGE> 23
income and the time at which the Fund converts the foreign currencies to U.S.
dollars, the Fund may be required to liquidate securities in order to make
distributions if the Fund has insufficient cash in U.S. dollars to meet
distribution requirements. See "Dividends and Distributions; Dividend
Reinvestment and Cash Purchase Plan." The liquidation of investments, if
required, may have an adverse impact on the Fund's performance. In addition, if
the liquidated investments include securities that have been held less than
three months, such sales may jeopardize the Fund's status as a regulated
investment company under the Code. See "Taxation -- U.S. Federal Income Taxes."
Since the Fund invests in securities denominated or quoted in currencies
other than the U.S. dollar, changes in foreign currency exchange rates will
affect the value of securities in the Fund's portfolio and the unrealized
appreciation or depreciation of investments. For example, on December 20, 1994,
the Mexican Government devalued the Mexican New Peso and then subsequently
permitted it to float freely against other currencies. As a result of these
actions, the Mexican New Peso lost 52.8% of its value against the U.S. dollar
between December 19, 1994 and March 9, 1995. This has had a direct and
significant adverse impact on the Fund's Mexican investments, which made up
approximately 13.7% of the Fund's investment portfolio at the end of November
1994. The crisis in Mexico also has had adverse effects on the currencies and
securities markets of other emerging countries.
In addition to changes in the value of the Fund's portfolio investments
resulting from currency fluctuations, the Fund may incur costs in connection
with conversions between various currencies. Foreign exchange dealers realize a
profit based on the difference between the prices at which they are buying and
selling various currencies. Thus, a dealer normally will offer to sell a foreign
currency to the Fund at one rate, while offering a lesser rate of exchange
should the Fund desire immediately to resell that currency to the dealer. The
Fund conducts its foreign currency exchange transactions either on a spot (i.e.,
cash) basis at the spot rate prevailing in the foreign currency exchange market,
or through entering into forward, futures or options contracts to purchase or
sell foreign currencies.
The Fund may seek to protect the value of some portion or all of its
portfolio holdings against currency risks by engaging in hedging transactions.
The Fund may enter into forward currency exchange contracts and currency futures
contracts and options on such futures contracts, as well as purchase put or call
options on currencies, in U.S. or foreign markets. In order to hedge against
adverse market shifts, the Fund may purchase put and call options on stocks,
write covered call options on stocks and enter into stock index futures
contracts and related options. For a description of such hedging strategies, see
"Investment Objective and Policies -- Foreign Currency Hedging Transactions and
Stock Options and Index Futures Contracts" and Appendix D to this Prospectus.
There can be no guarantee that instruments suitable for hedging currency or
market shifts will be available at the time when the Fund wishes to use them.
Moreover, investors should be aware that in most emerging countries the markets
for certain of these hedging instruments are not highly developed and that in
many emerging countries no such markets currently exist.
INVESTMENT AND REPATRIATION RESTRICTIONS
Some emerging countries have laws and regulations that currently limit or
preclude direct foreign investment in the securities of their companies.
However, indirect foreign investment in the securities of companies listed and
traded on the stock exchanges in these countries is permitted by certain
emerging countries through specially authorized investment funds. The Fund may
invest in these investment funds subject to the provisions of the 1940 Act as
discussed below under "Investment Restrictions." If the Fund invests in such
investment funds, the Fund's shareholders will bear not only their proportionate
share of the expenses of the Fund (including operating expenses and the fees of
the Investment Manager), but also will indirectly bear similar expenses of the
underlying investment funds. See also "Taxation -- U.S. Federal Income
Taxes -- Passive Foreign Investment Companies." Consequently, the costs and
expenses of the Fund of investing in such countries may be higher than the cost
and expenses of investing in countries that permit direct foreign investment.
Certain of the investment funds referred to in the preceding paragraph are
advised by the Investment Manager. The Fund may, to the extent permitted under
the 1940 Act, invest in these investment funds. If the
21
<PAGE> 24
Fund does elect to make an investment in such an investment fund, it will only
purchase the securities of such investment fund in the secondary market.
In addition to the foregoing investment restrictions, prior governmental
approval for foreign investments may be required under certain circumstances in
some emerging countries, and the extent of foreign investment in domestic
companies may be subject to limitation in other emerging countries. Foreign
ownership limitations also may be imposed by the charters of individual
companies in emerging countries to prevent, among other concerns, violation of
foreign investment limitations.
Repatriation of investment income, capital and the proceeds of sales by
foreign investors may require governmental registration and/or approval in some
emerging countries. The Fund could be adversely affected by delays in or a
refusal to grant any required governmental registration or approval for such
repatriation or by withholding taxes imposed by emerging market countries on
interest or dividends paid on securities held by the Fund or gains from the
disposition of such securities. If for any reason the Fund were unable to
distribute an amount equal to substantially all of its investment company
taxable income (as defined for U.S. federal tax purposes) within applicable time
periods, the Fund would cease to qualify for the favorable tax treatment
afforded to regulated investment companies under the Code. See "Taxation -- U.S.
Federal Income Taxes."
EMERGING COUNTRY SECURITIES MARKETS
Trading volume in emerging country securities markets is substantially less
than that in the United States. Further, securities of some emerging country
companies are less liquid and more volatile than securities of comparable U.S.
companies. A high proportion of the shares of many emerging country issuers may
be held by a limited number of persons, which may limit the number of shares
available for investment by the Fund. A limited number of issuers in most
emerging country securities markets may represent a disproportionately large
percentage of market capitalization and trading value. In addition, the
application of certain 1940 Act provisions may limit the Fund's ability to
invest in certain emerging country issuers and to participate in public
offerings in emerging markets. The limited liquidity of emerging country
securities markets may also affect the Fund's ability to acquire or dispose of
securities at the price and time it wishes to do so. In addition, certain
emerging country securities markets are susceptible to being influenced by large
investors trading significant blocks of securities or making large dispositions
of securities resulting from the failure to meet margin calls when due.
Commissions for trading on emerging country stock exchanges are generally higher
than commissions for trading on U.S. exchanges, although the Fund endeavors to
achieve the most favorable net results on its portfolio transactions and may, in
certain instances, be able to purchase its portfolio investments on other stock
exchanges where commissions are negotiable.
In addition to their smaller size, lesser liquidity and greater volatility,
disclosure and regulatory standards in emerging country securities markets are
in many respects less stringent than U.S. standards. Furthermore, there is a low
level of monitoring and regulation of the markets and the activities of
investors in such markets, and enforcement of existing regulations has been
extremely limited. Consequently, the prices at which the Fund may acquire
investments may be affected by other market participants' anticipation of the
Fund's investing, by trading by persons with material non-public information and
by securities transactions by brokers in anticipation of transactions by the
Fund in particular securities.
Companies in emerging countries are not generally subject to uniform
accounting, auditing and financial reporting standards, practices and disclosure
requirements comparable to those applicable to U.S. companies. In particular,
the assets and profits appearing on the financial statements of an emerging
country issuer may not reflect its financial position or results of operations
in the way they would be reflected had such financial statements been prepared
in accordance with United States generally accepted accounting principles. In
addition, for companies that keep accounting records in local currency,
inflation accounting rules in some emerging countries require, for both tax and
accounting purposes, that certain assets and liabilities be restated on the
company's balance sheet in order to express items in terms of currency of
constant purchasing power. Inflation accounting may indirectly generate losses
or profits. As a result, financial data may be materially affected by
restatements for inflation and may not accurately reflect the real condition of
companies and securities markets. Also, there may be less publicly available
information about an emerging country company
22
<PAGE> 25
than about a U.S. company and there is generally less government supervision and
regulation of foreign stock exchanges, brokers and listed companies than in the
United States.
INFLATION
Most emerging countries have experienced substantial, and in some periods
extremely high and volatile, rates of inflation. Inflation and rapid
fluctuations in inflation rates have had and may continue to have very negative
effects on the economies and securities markets of certain emerging countries.
In an attempt to control inflation, wage and price controls have been imposed at
times in certain countries.
ECONOMIC AND POLITICAL RISKS
The economies of individual emerging countries may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross domestic
product, rate of inflation, currency depreciation, capital reinvestment,
resource self-sufficiency and balance of payments position. Governments of many
emerging countries have exercised and continue to exercise substantial influence
over many aspects of the private sector. In some cases, the government owns or
controls many companies, including some of the largest in the country.
Accordingly, government actions could have a significant effect on economic
conditions in an emerging country and on market conditions, prices and yields of
securities in the Fund's portfolio. Moreover, the economies of developing
countries generally are heavily dependent upon international trade and,
accordingly, have been and may continue to be adversely affected by trade
barriers, exchange controls, managed adjustments in relative currency values and
other protectionist measures imposed or negotiated by the countries with which
they trade. These economies also have been and may continue to be adversely
affected by economic conditions in the countries with which they trade. With
respect to any emerging country, there is the possibility of nationalization,
expropriation or confiscatory taxation, political changes, government
regulation, economic or social instability or diplomatic developments (including
war) which could affect adversely the economies of such countries or the value
of the Fund's investments in those countries. It also may be difficult to obtain
and enforce a judgment in a court outside of the United States.
In addition, the inter-relatedness of the economies in emerging countries
has deepened over the years, with the effect that economic difficulties in one
country often spread throughout the region. Thus, the currency devaluation
suffered by the Mexican New Peso in late December 1994 caused other emerging
country currencies to be adversely affected, increased fears of inflation in
Latin America and significantly affected emerging countries' securities markets.
Political events often have economic consequences as well, as exemplified by the
resignation of Mexico's Finance Minister on December 29, 1994 and the perceived
weakening of authority of President Ernesto Zedillo after recently being
inaugurated. In January 1995, the Mexican Government announced a new economic
program and a new accord among the Government, labor and business to address the
causes and effects of the rapid devaluation of the Mexican New Peso relative to
the U.S. dollar. The situation with respect to the Mexican economic crisis
continues to be uncertain and it is expected that significant volatility in the
valuations for Mexican securities and securities in other emerging countries
will continue. These events have adversely affected the value of the Fund's
investment portfolio and may continue to have long-term effects on the economies
of emerging countries. No assurance can be given that the Fund's portfolio will
not be further adversely affected by these and similar events.
NET ASSET VALUE DISCOUNT; NON-DIVERSIFICATION
Since the Fund's initial public offering on October 25, 1991, the Common
Stock has traded in the market at both a discount and premium to net asset
value. The Fund cannot predict whether the Common Stock will in the future trade
at a premium or discount to net asset value and, if so, the level of such
premium or discount. Shares of closed-end investment companies frequently trade
at a discount from net asset value. The risk of the Common Stock trading at a
discount is a risk separate from a decline in the Fund's net asset value. See
"Financial Highlights -- Market and Net Asset Value Information."
The Fund is classified as a non-diversified investment company under the
1940 Act, which means that the Fund is not limited by the 1940 Act in the
proportion of its assets that may be invested in the securities of a
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<PAGE> 26
single issuer. Thus, the Fund may invest a greater proportion of its assets in
the securities of a smaller number of issuers and, as a result, will be subject
to greater risk of loss with respect to its portfolio securities. The Fund,
however, intends to comply with the diversification requirements imposed by the
Code for qualification as a regulated investment company. See "Taxation -- U.S.
Federal Income Taxes" and "Investment Restrictions."
ADDITIONAL CONSIDERATIONS
The Fund may invest in non-publicly traded securities, engage in foreign
currency hedging transactions, and enter into stock options and stock index
futures transactions, each of which may involve special risks. See "Investment
Objective and Policies." In addition, certain special voting provisions of the
Fund's Articles of Incorporation may have the effect of depriving shareholders
of an opportunity to sell their shares at a premium over prevailing market
prices. See "Common Stock."
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is long-term capital appreciation. The
Fund seeks to achieve this objective by investing primarily in emerging country
equity securities. The Fund's investment objective is a fundamental policy which
may not be changed without the approval of a majority of the Fund's outstanding
voting securities. Income is not a consideration in selecting investments or an
investment objective. As used herein, a "majority of the Fund's outstanding
voting securities" means the lesser of (i) 67% of the shares represented at a
meeting at which more than 50% of the outstanding shares are represented, and
(ii) more than 50% of the outstanding shares. There is no assurance the Fund
will be able to achieve its investment objective.
Under normal conditions, at least 65% of the Fund's total assets are
invested in emerging country equity securities. As used in this Prospectus, an
emerging country is any country that the International Bank for Reconstruction
and Development (more commonly known as the World Bank) has determined to have a
low or middle income economy. There are currently over 169 countries which are
considered to be emerging countries, approximately 47 of which currently have
stock markets. These countries generally include every nation in the world
except the United States, Canada, Japan, Australia, New Zealand and most nations
located in Western Europe. A complete list of the countries not falling within
the World Bank definition of an emerging country is set forth in Appendix E.
Currently, investing in many emerging countries is not feasible or may
involve unacceptable political risks. The Fund focuses its investments on those
emerging countries in which it believes the economies are developing strongly
and in which the markets are becoming more sophisticated. The Fund intends to
invest primarily in some or all of the following emerging countries:
<TABLE>
<S> <C> <C> <C> <C> <C>
Algeria Costa Rica Indonesia Nigeria Russia Tunisia
Argentina Czech Republic Ivory Coast Pakistan Slovakia Turkey
Botswana Dominican Republic Jamaica Panama South Africa Uruguay
Brazil Ecuador Jordan Paraguay South Korea Venezuela
Bulgaria Egypt Malaysia Peru Sri Lanka Zaire
Chile Greece Mexico Philippines Thailand Zimbabwe
China Hungary Morocco Poland Trinidad &
Colombia India Nicaragua Portugal Tobago
</TABLE>
In addition, the Fund has made, and intends to continue to make,
investments in Hong Kong, Israel, Germany, United Kingdom, Singapore and Taiwan,
which are not regarded as emerging countries.
As markets in other countries develop, the Fund expects to expand and
further diversify the emerging countries in which it invests. The Fund does not
intend to invest in any security in a country where the currency is not freely
convertible to U.S. dollars, unless the Fund has obtained the necessary
governmental licensing to convert such currency or other appropriately licensed
or sanctioned contractual guarantee to protect such investment against loss of
that currency's external value, or the Fund has a reasonable expectation at the
time the investment is made that such governmental licensing or other
appropriately licensed or
24
<PAGE> 27
sanctioned guarantee would be obtained or that the currency in which the
security is quoted would be freely convertible at the time of any proposed sale
of the security by the Fund.
An emerging country equity security is defined as common and preferred
stock (including convertible preferred stock), bonds, notes and debentures
convertible into common or preferred stock, stock purchase warrants and rights,
equity interests in trusts and partnerships and American, Global or other types
of Depositary Receipts of companies: (i) the principal securities trading market
for which is in an emerging country, (ii) that alone or on a consolidated basis
derive 50% or more of their annual revenue from either goods produced, sales
made or services performed in emerging countries, or (iii) that are organized
under the laws of, and with a principal office in, an emerging country.
Determinations as to eligibility will be made by the Investment Manager based on
publicly available information and inquiries made to the companies. (See "Risk
Factors and Special Considerations" for a discussion of the nature of
information publicly available for non-U.S. companies.)
The Fund's definition of emerging country equity securities includes
securities of companies that may have characteristics and business relationships
common to companies in a country or countries other than an emerging country. As
a result, the value of the securities of such companies may reflect economic and
market forces applicable to other countries, as well as to an emerging country.
The Fund believes, however, that investment in such companies is appropriate
because the Fund invests only in those companies which, in its view, have
sufficiently strong exposure to economic and market forces in an emerging
country such that their value tends to reflect developments in such emerging
country to a greater extent than developments in another country or countries.
For example, the Fund may invest in companies organized and located in countries
other than an emerging country, including companies having their entire
production facilities outside of an emerging country, when securities of such
companies meet one or more elements of the Fund's definition of an emerging
country equity security and so long as the Fund believes at the time of
investment that the value of the company's securities will reflect principally
conditions in such emerging country.
To the extent that the Fund's assets are not invested in emerging country
equity securities, the remainder of the assets are invested in (i) debt
securities denominated in the currency of an emerging country or issued or
guaranteed by an emerging country company or the government of an emerging
country, (ii) equity or debt securities of corporate or governmental issuers
located in industrialized countries, and (iii) short-term and medium-term debt
securities of the type described below under "Temporary Investments." The Fund's
assets may be invested in debt securities when the Fund believes that, based
upon factors such as relative interest rate levels and foreign exchange rates,
such debt securities offer opportunities for long-term capital appreciation. It
is likely that many of the debt securities in which the Fund will invest will be
unrated, and whether or not rated, such securities may have speculative
characteristics. The Fund will not invest in debt securities rated below
investment grade or, if unrated, considered by the Investment Manager to be of
less than investment grade quality. In addition, for temporary defensive
purposes, the Fund may invest less than 65% of its assets in emerging country
equity securities, in which case the Fund may invest in other equity securities
or may invest in debt securities of the kind described under "Temporary
Investments" below.
The Fund invests indirectly in securities of emerging country issuers
through sponsored or unsponsored American Depositary Receipts ("ADRs"), Global
Depositary Receipts ("GDRs") and other types of Depositary Receipts (which,
together with ADRs and GDRs, are hereinafter referred to as "Depositary
Receipts"). Depositary Receipts may not necessarily be denominated in the same
currency as the underlying securities into which they may be converted. In
addition, the issuers of the stock of unsponsored Depositary Receipts are not
obligated to disclose material information in the United States and, therefore,
there may not be a correlation between such information and the market value of
the Depositary Receipts. ADRs are Depositary Receipts typically issued by a
United States bank or trust company which evidence ownership of underlying
securities issued by a foreign corporation. GDRs and other types of Depositary
Receipts are typically issued by foreign banks or trust companies, although they
also may be issued by United States banks or trust companies, and evidence
ownership of underlying securities issued by either a foreign or a United States
corporation. Generally, Depositary Receipts in registered form are designed for
use in the United States securities markets and Depositary Receipts in bearer
form are designed for use in securities markets outside
25
<PAGE> 28
the United States. For purposes of the Fund's investment policies, the Fund's
investments in ADRs, GDRs and other types of Depositary Receipts will be deemed
to be investments in the underlying securities.
The Fund purchases and holds securities for long-term capital appreciation
and does not trade for short-term gain. The portfolio turnover rate for a year
is calculated by dividing the lesser of sales or purchases of portfolio
securities during that year by the average monthly value of the Fund's portfolio
securities, excluding money market instruments. The rate of portfolio turnover
will not be a limiting factor when the Fund deems it appropriate to purchase or
sell securities for the Fund. However, the U.S. federal tax requirement that the
Fund derive less than 30% of its gross income from the sale or disposition of
securities held less than three months may limit the Fund's ability to dispose
of its securities. See "Taxation -- U.S. Federal Income Taxes." The Fund's
portfolio turnover rates for the years ended December 31, 1992, 1993 and 1994
were 60%, 68% and 52%, respectively.
NON-PUBLICLY TRADED SECURITIES
Securities in which the Fund may invest include those that are neither
listed on a stock exchange nor traded over-the-counter. As a result of the
absence of a public trading market for these securities, they may be less liquid
than publicly traded securities. Although these securities may be resold in
privately negotiated transactions, the prices realized from these sales could be
less than those originally paid by the Fund or less than what may be considered
the fair value of such securities. Furthermore, companies whose securities are
not publicly traded may not be subject to the disclosure and other investor
protection requirements which may be applicable if their securities were
publicly traded. If such securities are required to be registered under the
securities laws of one or more jurisdictions before being resold, the Fund may
be required to bear the expenses of registration. The Fund, in addition to
investing as described above, may hold illiquid securities and securities that
are not registered under the Securities Act, but that can be sold to "qualified
institutional buyers" in accordance with Rule 144A under the Securities Act.
Although as a general matter there is no limitation on the Fund's investments in
non-publicly traded securities, the Fund does not intend to invest more than 25%
of its total assets in non-publicly traded securities.
TEMPORARY INVESTMENTS
During periods in which the Investment Manager believes changes in
economic, financial or political conditions make it advisable, the Fund may for
temporary defensive purposes reduce its holdings in equity and other securities
and invest in certain short-term (less than twelve months to maturity) and
medium-term (not greater than five years to maturity) debt securities or hold
cash. The short-term and medium-term debt securities in which the Fund may
invest consist of (a) obligations of the United States or emerging country
governments, their respective agencies or instrumentalities; (b) bank deposits
and bank obligations (including certificates of deposit, time deposits and
bankers' acceptances) of U.S. or emerging country banks denominated in any
currency; (c) floating rate securities and other instruments denominated in any
currency issued by international development agencies; (d) finance company and
corporate commercial paper and other short-term corporate debt obligations of
U.S. and emerging country corporations meeting the Fund's credit quality
standards; and (e) repurchase agreements with banks and broker-dealers with
respect to such securities. The Fund intends to invest only in short-term and
medium-term debt securities that the Investment Manager believes to be of high
quality, i.e., subject to relatively low risk of loss of interest or principal
(there is currently no rating system for debt securities in most emerging
countries).
Repurchase agreements with respect to the securities described in the
preceding paragraph are contracts under which a buyer of a security
simultaneously commits to resell the security to the seller at an agreed upon
price and date. Under a repurchase agreement, the seller is required to maintain
the value of the securities subject to the repurchase agreement at not less than
their repurchase price. The Investment Manager will monitor the value of such
securities daily to determine that the value equals or exceeds the repurchase
price including accrued interest. Repurchase agreements may involve risks in the
event of default or insolvency of the seller, including possible delays or
restrictions upon the Fund's ability to dispose of the underlying securities.
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<PAGE> 29
FOREIGN CURRENCY HEDGING TRANSACTIONS AND STOCK OPTIONS AND INDEX FUTURES
CONTRACTS
In order to hedge against foreign currency exchange rate risks, the Fund
may enter into forward foreign currency exchange contracts and foreign currency
futures contracts, as well as purchase put or call options on foreign currency;
however, at present, for the currencies of most emerging countries, there is not
a viable market in which the Fund may engage in these transactions. In addition,
the Fund may seek to increase its return or may hedge all or a portion of its
portfolio investments through stock options and stock index futures contracts
with respect to securities in which the Fund may invest. There currently are
limited options and stock index futures markets in emerging countries and the
nature of the strategies adopted by the Investment Manager and the extent to
which those strategies are used will depend on the development of stock option
and stock index futures contracts by emerging country stock exchanges. The Fund
only engages in transactions in stock options and stock index futures contracts
which are traded on a recognized securities or futures exchange. For a
description of each of these instruments and an explanation of the possible
trading strategies the Fund may utilize in connection therewith, see Appendix D
to this Prospectus.
Under the regulations of the U.S. Commodity Futures Trading Commission
("CFTC"), the Fund will not be considered a "commodity pool", as defined under
such regulations, as a result of entering into the transactions in futures
contracts and related options described above, provided, among other things,
that: (1) such transactions are entered into solely for bona fide hedging
purposes, as defined under CFTC regulations; or (2) the aggregate initial margin
and premiums for any other such transactions entered into does not exceed 5% of
the Fund's total assets (after taking into account any unrealized profits and
losses).
INVESTMENT RESTRICTIONS
The following restrictions are fundamental policies of the Fund that may
not be changed without the approval of the holders of a majority of the Fund's
outstanding voting securities (as defined in "Investment Objective and
Policies"). If a percentage restriction on investment or use of assets set forth
below is adhered to at the time a transaction is effected, later changes will
not be considered a violation of the restriction. Also, if the Fund receives
from an issuer of securities held by the Fund subscription rights to purchase
securities of that issuer, and if the Fund exercises such subscription rights at
a time when the Fund's portfolio holdings of securities of that issuer would
otherwise exceed the limits set forth in paragraph 4 below, it will not
constitute a violation if, prior to receipt of securities upon exercise of such
rights, and after announcement of such rights, the Fund has sold at least as
many securities of the same class and value as it would receive on exercise of
such rights.
As a matter of fundamental policy, the Fund may not:
1. Purchase securities on margin, except such short-term credits as may be
necessary for clearance of transactions and the maintenance of margin with
respect to futures contracts.
2. Make short sales of securities or maintain a short position (except that
the Fund may maintain short positions in foreign currency contracts, options and
futures contracts).
3. Issue senior securities, borrow money or pledge its assets, except that
the Fund may borrow from a lender (i) for temporary or emergency purposes, (ii)
for such short-term credits as may be necessary for the clearance or settlement
of the transactions, (iii) to finance repurchases of its shares (see "Common
Stock"), in amounts not exceeding 10% (taken at the lower of cost or current
value) of its total assets (not including the amount borrowed), or (iv) to pay
any dividends required to be distributed in order for the Fund to maintain its
qualification as a regulated investment company under the Code or otherwise to
avoid taxation under the Code, provided that the Fund will not purchase
additional portfolio securities when its borrowings exceed 5% of its assets. The
Fund may pledge its assets to secure such borrowings.
4. Invest 25% or more of the total value of its assets in a particular
industry; provided, however, that the foregoing restriction shall not be deemed
to prohibit the Fund from purchasing the securities of any issuer pursuant to
the exercise of rights distributed to the Fund by the issuer.
5. Make any investment for the purpose of exercising control or management.
27
<PAGE> 30
6. Buy or sell commodities or commodity contracts or real estate or
interests in real estate, except that it may purchase and sell futures contracts
on stock indices and foreign currencies, securities which are secured by real
estate or commodities, and securities of companies which invest or deal in real
estate or commodities.
7. Make loans, except through repurchase agreements to the extent permitted
under applicable law.
8. Act as an underwriter except to the extent that, in connection with the
disposition of portfolio securities, it may be deemed to be an underwriter under
applicable securities laws.
In addition to the restrictions described above, some emerging countries
limit, or prohibit, all direct foreign investment in the securities of their
companies. See "Risk Factors and Special Considerations -- Investment and
Repatriation Restrictions." However, the governments of some emerging countries
have authorized the organization of investment funds to permit indirect foreign
investment in such securities. Under the 1940 Act, the Fund may neither invest
more than 5% of its total assets in the securities of any one investment fund
nor acquire more than 3% of the outstanding voting securities of any such fund.
In addition, the Fund may not invest more than 10% of its total assets in
securities issued by all investment funds. These provisions may limit the
ability of the Fund to invest in some of the special emerging country investment
funds. To the extent that this restriction limits the Fund's investments in
emerging countries, and subject to the approval of the Securities and Exchange
Commission (as to which no assurance can be given), the Fund may create its own
investment fund or may exceed these limits.
MANAGEMENT OF THE FUND
THE INVESTMENT MANAGER
The Fund employs Morgan Stanley Asset Management Inc. (the "Investment
Manager"), a wholly owned subsidiary of Morgan Stanley Group Inc., pursuant to
an Investment Advisory and Management Agreement, dated as of October 25, 1991
(the "Management Agreement"), to manage the investment and reinvestment of the
assets of the Fund, subject to the supervision of the Fund's Directors. The
Investment Manager's principal address is 1221 Avenue of the Americas, New York,
New York 10020.
The Investment Manager provides portfolio management and named fiduciary
services to various closed-end and open-end investment companies, taxable and
nontaxable institutions, international organizations and individuals investing
in United States and international equity and fixed income securities. At
December 31, 1994, the Investment Manager, together with its affiliated
investment management companies, had assets under management (including assets
under fiduciary advisory control) totaling approximately $48.7 billion, of which
approximately $6.3 billion was invested in emerging countries. The Investment
Manager has been investing in markets of emerging countries since the 1980's and
has a total staff of 294 worldwide including 24 specialists in emerging markets.
The Investment Manager is under no restriction and remains free, at any time, to
sponsor and advise new investment vehicles with investment objectives, policies
and restrictions similar or identical to those of the Fund.
As an investment adviser, the Investment Manager emphasizes a global
investment strategy and benefits from research coverage of a broad spectrum of
equity investment opportunities worldwide. The Investment Manager draws upon the
capabilities of the asset management specialists located in the various offices
of its affiliated investment management companies throughout the world,
including New York, Chicago, London, Singapore, Hong Kong, Melbourne, Tokyo and
Bombay. It also draws upon the research capabilities of Morgan Stanley Group
Inc. and its other affiliates, as well as the research and investment ideas of
other companies whose brokerage services the Investment Manager utilizes.
In providing advisory services to the Fund, the Investment Manager first
analyzes and assesses the investment outlook for the various emerging countries
in which the Fund is considering an investment. Based on this assessment, the
Investment Manager allocates the Fund's assets among the various emerging
countries. In determining the desired allocations, the Investment Manager
evaluates, among other things, an emerging country's prospects for economic and
corporate earnings growth, the direction of government policies, capital
resources and political stability.
The allocation process described above is performed by members of the
Investment Manager's senior management, including Messrs. Barton M. Biggs and
Madhav Dhar and Ms. Marianne L. Hay. Within the
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<PAGE> 31
allocation framework determined by senior management, Madhav Dhar and Marianne
L. Hay have primary responsibility for day-to-day investment decisions for the
Fund.
Barton M. Biggs is a Managing Director of Morgan Stanley & Co.
Incorporated, is Chairman of the Investment Manager and is Director of Worldwide
Research for Morgan Stanley. In his capacity as Director of Worldwide Research,
he focuses upon asset allocation, international events and the relative
attractiveness of the world's markets. He joined Morgan Stanley in 1973 as a
General Partner and Managing Director, after eight years as a managing partner
of a hedge fund, Fairfield Partners. He is a member of Morgan Stanley's
Operating Committee and Executive Committee and is a member of its Board of
Directors. Mr. Biggs formed Morgan Stanley's research department in 1973 and was
Director of Research until 1979, was Director of Global Research from 1991 to
1994, and is currently Director of Global Strategy. In 1975, he founded the
Investment Manager. He has been named to the Institutional Investor All American
Research Team ten times. He served three years as an officer in the United
States Marine Corps, and graduated from Yale University and the New York
University Graduate School of Business. He is a director of the Rand McNally
Corporation, and serves on the Yale Development Board.
Madhav Dhar is a Managing Director of Morgan Stanley & Co. Incorporated. He
joined the Investment Manager in 1984 to focus on global asset allocation and
investment strategy. He heads the Investment Manager's Emerging Markets Group
with $6.3 billion under management, and serves as the principal portfolio
manager of the global Emerging Markets portfolios. Mr. Dhar also coordinates the
Investment Manager's developing country fund effort, has been involved in the
launching of Morgan Stanley's various country funds and is a member of the
Investment Manager's Asset Allocation and Strategy Group. He holds a B.S.
(Honors) in Physics from St. Stephens College, Delhi University (India), and an
MBA from Carnegie-Mellon University.
Marianne L. Hay is a Principal of Morgan Stanley & Co. Incorporated. She
joined the Investment Manager in June 1993 as a Vice President to work with the
Investment Manager's senior management covering all emerging markets, asset
allocation, product development and client service. Ms. Hay has 16 years
investment experience. Prior to joining the Investment Manager, she was a
director of Martin Currie Investment Management, Ltd. where her responsibilities
included geographic asset allocation and portfolio management for global and
emerging markets funds, as well as being director in charge of the company's
North American clients. Prior to her tenure at Martin Currie Investment
Management, Ltd. she worked for the Bank of Scotland and the investment
management firm of Ivory and Sime plc. She graduated with an honors degree in
genetics from Edinburgh University and holds a Diploma in Education and the
qualification of the Association of the Institute of Bankers in Scotland.
Once the Fund's assets have been allocated among the emerging countries
selected for investment, the Investment Manager's portfolio managers who
specialize in investments in the region of the world in which particular
emerging countries are located (e.g., Europe, Latin America, the Far East and
the Indian Subcontinent) are responsible for selecting the industries and
companies in which the Fund invests in such countries. In selecting industries
and companies for investment, the portfolio managers consider, among other
things, relative competitive positions, labor and material costs, technologies,
research and development, profit margins, returns on investment and management.
The Investment Manager makes country allocations and investment decisions
for the Fund based on analysis of a variety of information, including, as the
Investment Manager deems appropriate, available public information, research and
discussions with management and major shareholders and others knowledgeable
concerning a relevant company.
MANAGEMENT AGREEMENT
Under the terms of the Management Agreement, the Investment Manager makes
investment decisions, prepares and makes available research and statistical
data, and supervises the purchase and sale of securities on behalf of the Fund,
including the selection of brokers and dealers to carry out the transactions,
all in accordance with the Fund's investment objective and policies, under the
direction and control of the Fund's Board of Directors. The Investment Manager
is also responsible for maintaining records and furnishing or causing to be
furnished all required records or other information of the Fund to the extent
such records,
29
<PAGE> 32
reports and other information are not maintained or furnished by the Fund's
administrators, custodians or other agents. The Investment Manager pays the
salaries and expenses of the Fund's officers and employees, as well as the fees
and expenses of the Fund's Directors, who are directors, officers or employees
of the Investment Manager or any of its affiliates, except that the Fund bears
travel expenses or an appropriate fraction thereof of officers and Directors of
the Fund who are directors, officers or employees of the Investment Manager to
the extent that such expenses relate to attendance at meetings of the Fund's
Board of Directors or any committee thereof.
The Fund pays all of its other expenses, including among others
organization expenses (but not the overhead or employee costs of the Investment
Manager); legal fees and expenses of counsel to the Fund; auditing and
accounting expenses; taxes and governmental fees; listing fees; dues and
expenses incurred in connection with membership in investment company
organizations; fees and expenses of the Fund's custodian, subcustodians,
transfer agents and registrars; fees and expenses with respect to
administration, except as may be provided otherwise pursuant to administration
agreements; expenses for portfolio pricing services by a pricing agent, if any;
expenses of preparing share certificates and other expenses in connection with
the issuance, offering and underwriting of shares issued by the Fund; expenses
relating to investor and public relations; expenses of registering or qualifying
securities of the Fund for public sale; freight, insurance and other charges in
connection with the shipment of the Fund's portfolio securities; brokerage
commissions and other costs of acquiring or disposing of any portfolio holding
of the Fund; expenses of preparation and distribution of reports, notices and
dividends to shareholders; expenses of the dividend reinvestment and cash
purchase plan (except for brokerage expenses paid by participants in such plan);
costs of stationery; any litigation expenses; and costs of shareholders' and
other meetings.
For services under the Management Agreement, the Investment Manager
receives a fee, computed weekly and payable monthly, at an annual rate of 1.25%
of the Fund's average weekly net assets. The Fund's advisory fees are higher
than advisory fees paid by most other U.S. investment companies, primarily
because of the additional time and expense required of the Investment Manager in
pursuing the Fund's objective of investing in emerging country equity
securities. Pursuant to the Management Agreement, the Investment Manager
received payments for its investment management services from the Fund in the
amounts of $2,207,000, $3,140,000 and $5,102,000 for the fiscal years ended
December 31, 1992, 1993 and 1994, respectively.
Under the Management Agreement, the Investment Manager is permitted to
provide investment advisory services to other clients, including clients who may
invest in emerging country equity securities. Conversely, information furnished
by others to the Investment Manager in the course of providing services to
clients other than the Fund may be useful to the Investment Manager in providing
services to the Fund.
The Management Agreement became effective on October 25, 1991 and continues
in effect from year to year provided such continuance is specifically approved
at least annually by (i) a vote of a majority of those members of the Board of
Directors who are not "interested persons" of the Investment Manager or the
Fund, cast in person at a meeting called for the purpose of voting on such
approval, and (ii) by a majority vote of either the Fund's Board of Directors or
the Fund's outstanding voting securities. The Management Agreement was last
approved by the Board of Directors of the Fund on March 8, 1995 and by the
shareholders of the Fund on April 30, 1992. The Management Agreement may be
terminated at any time without payment of penalty by the Fund or by the
Investment Manager upon 60 days' written notice. The Management Agreement will
automatically terminate in the event of its assignment, as defined under the
1940 Act.
The Management Agreement provides that the Investment Manager will not be
liable for any act or omission, error of judgment or mistake of law, or for any
loss suffered by the Fund in connection with matters to which the Management
Agreement relates, except for a loss resulting from willful misfeasance, bad
faith or gross negligence on the part of the Investment Manager in the
performance of its respective duties, or from reckless disregard by it of its
obligations and duties under the Management Agreement.
30
<PAGE> 33
DIRECTORS AND OFFICERS OF THE FUND
The Directors and officers of the Fund are listed below together with their
respective positions and a brief statement of their principal occupations during
the past five years and, in the case of Directors, their positions with certain
international organizations and publicly held companies.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AND ADDRESS POSITION WITH FUND AGE DURING PAST FIVE YEARS
----------------------------------- ---------------------- --- ------------------------------
<S> <C> <C> <C>
Barton M. Biggs*................... Director and Chairman 62 Chairman and Director of
1221 Avenue of the Americas of the Board Morgan Stanley Asset
New York, New York 10020 Management Inc. and Morgan
Stanley Asset Management
Limited; Managing Director of
Morgan Stanley & Co.
Incorporated; Director of
Morgan Stanley Group Inc.;
Member of International
Advisory Council of The
Thailand Fund; Director and
officer of various investment
companies managed by Morgan
Stanley Asset Management Inc.
</TABLE>
<TABLE>
<S> <C> <C> <C>
Warren J. Olsen*................... Director and President 38 Principal of Morgan Stanley
1221 Avenue of the Americas Asset Management Inc.;
New York, New York 10020 Director and officer of
various investment companies
managed by Morgan Stanley
Asset Management Inc.
John W. Croghan.................... Director 64 Chairman of Lincoln Capital
200 South Wacker Drive Management Company; Director
Chicago, Illinois 60606 of St. Paul Bancorp, Inc.,
Lindsay Manufacturing Co. and
Morgan Stanley Asia-Pacific
Fund, Inc.; Previously a
Director of Blockbuster
Entertainment Corporation.
Madhav Dhar*....................... Director 34 Managing Director of Morgan
1221 Avenue of the Americas Stanley Asset Management Inc.
New York, New York 10020
</TABLE>
31
<PAGE> 34
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AND ADDRESS POSITION WITH FUND AGE DURING PAST FIVE YEARS
----------------------------------- ---------------------- --- ------------------------------
<S> <C> <C> <C>
David B. Gill...................... Director 68 Director of The Thai Fund,
3042 Cambridge Place, N.W. Inc., The Latin American
Washington, D.C. 20007 Discovery Fund, Inc. and the
Mauritius Fund Limited; Member
of the International Advisory
Committee of Banco Surinvest
S.A.; Member of the
International Advisory Council
of The Thailand Fund;
International Adviser to Crown
Agents for Overseas
Governments and
Administrations; Member of the
Capital Markets Committee of
the Inter-American Investment
Corporation; Member of the
Advisory Counsel of Korea
Development Investment
Corporation; Chairman and
Director of Norinvest Bank;
Member of The International
Advisory Council of Investment
Management Company Chile S.A.;
Previously: Director of
Capital Markets Department of
the International Finance
Corporation; Trustee,
Batterymarch Finance
Management; Chairman and
Director of Equity Fund of
Latin America S.A. and
Commonwealth Equity Fund
Limited; and Director of
Global Securities, Inc.
Gerard E. Jones.................... Director 58 Partner in Richards & O'Neil,
43 Arch Street LLP; Director of Morgan
Greenwich, CT 06830 Stanley Institutional Fund,
Inc., PCS Cash Fund, Inc.,
Morgan Stanley Fund, Inc., The
Turkish Investment Fund, Inc.,
The Morgan Stanley High Yield
Fund, Inc., Morgan Stanley
Africa Investment Fund, Inc.,
Morgan Stanley Global
Opportunity Bond Fund, Inc.,
The India Magnum Fund N.V. and
Morgan Stanley India
Investment Fund, Inc.
</TABLE>
32
<PAGE> 35
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AND ADDRESS POSITION WITH FUND AGE DURING PAST FIVE YEARS
----------------------------------- ---------------------- --- ------------------------------
<S> <C> <C> <C>
Oscar S. Schafer................... Director 55 General Partner of Cumberland
1114 Avenue of the Americas Associates; Director of the
New York, New York 10036 Turkish Investment Fund, Inc.;
Director of Fred L. Lavanburg
Foundation; Director of Daniel
and Florence Guggenheim
Foundation.
James W. Grisham*.................. Vice President 53 Principal of Morgan Stanley
1221 Avenue of the Americas Asset Management Inc.; Officer
New York, New York 10020 of various investment
companies managed by Morgan
Stanley Asset Management Inc.
Harold J. Schaaff, Jr.*............ Vice President 34 Principal of Morgan Stanley &
1221 Avenue of the Americas Co. Incorporated; General
New York, New York 10020 Counsel and Secretary of
Morgan Stanley Asset
Management Inc.; Officer of
various investment companies
managed by Morgan Stanley
Asset Management Inc.
Joseph P. Stadler*................. Vice President 40 Vice President of Morgan
1221 Avenue of the Americas Stanley Asset Management Inc.;
New York, New York 10020 Officer of various investment
companies managed by Morgan
Stanley Asset Management Inc.;
Previously with Price
Waterhouse LLP.
Valerie Y. Lewis*.................. Secretary 39 Vice President of Morgan
1221 Avenue of the Americas Stanley Asset Management Inc.;
New York, New York 10020 Officer of various investment
companies managed by Morgan
Stanley Asset Management Inc.;
Previously with Citicorp.
Hilary D. Toole*................... Assistant Secretary 31 Associated with Morgan Stanley
1221 Avenue of the Americas Asset Management Inc.; Officer
New York, New York 10020 of various investment
companies managed by Morgan
Stanley Asset Management Inc.;
Previously with Reboul,
MacMurray, Hewitt, Maynard &
Kristol.
</TABLE>
33
<PAGE> 36
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AND ADDRESS POSITION WITH FUND AGE DURING PAST FIVE YEARS
----------------------------------- ---------------------- --- ------------------------------
<S> <C> <C> <C>
James R. Rooney*................... Treasurer 36 Assistant Vice President and
73 Tremont Street Manager of Fund
Boston, Massachusetts 02108 Administration, Mutual Funds
Service Company; Officer of
various investment companies
managed by Morgan Stanley
Asset Management Inc.;
Previously Assistant Vice
President and Manager of Fund
Compliance and Control,
Scudder Stevens & Clark Inc.
and Audit Manager, Ernst &
Young LLP.
</TABLE>
---------------
* "Interested person" of the Fund (as defined in the 1940 Act).
Mr. Biggs is a director and officer, and Messrs. Olsen, Dhar, Grisham,
Schaaff and Stadler and Ms. Lewis are officers of the Investment Manager. Ms.
Toole is an employee of the Investment Manager. Mr. Rooney is an employee of
Mutual Funds Service Company, an affiliate of United States Trust Company of New
York, the Fund's Administrator.
The officers of the Fund, together with the Investment Manager, conduct and
supervise the Fund's daily business operations. The Directors review and
supervise the actions of the officers and the Investment Manager and decide
general policy.
The Fund pays to each of its Directors who is not an officer or employee of
the Investment Manager or its affiliates, in addition to certain out-of-pocket
expenses, an annual fee of $9,000 plus $800 for each meeting of the Board of
Directors or a committee of the Board attended. Aggregate fees and expenses paid
or payable to the Board of Directors for the fiscal year ended December 31, 1994
were $81,000.
Each of the Directors who is not an "affiliated person" of the Investment
Manager within the meaning of the 1940 Act may enter into a deferred fee
arrangement (the "Fee Arrangement") with the Fund, pursuant to which such
Director defers to a later date the receipt of his Director's fees. The deferred
fees owed by the Fund are credited to a bookkeeping account maintained by the
Fund on behalf of such Director and accrue income from and after the date of
credit in an amount equal to the amount that would have been earned had such
fees (and all income earned thereon) been invested and reinvested either (i) in
shares of the Fund or (ii) at a rate equal to the prevailing rate applicable to
90-day United States Treasury Bills at the beginning of each calendar quarter
for which this rate is in effect, whichever method is elected by a Director.
Under the Fee Arrangement, deferred Director's fees (including the return
accrued thereon) will become payable in cash upon such Director's resignation
from the Board of Directors in generally equal annual installments over a period
of five years (unless the Fund has agreed to a longer or shorter payment period)
beginning on the first day of the year following the year in which such
Director's resignation occurred. In the event of a Director's death, remaining
amounts payable to him under the Fee Arrangement will thereafter be payable to
his designated beneficiary; in all other events, a Director's right to receive
payments is non-transferable. Under the Fee Arrangement, the Board of Directors
of the Fund, in its sole discretion, has reserved the right, at the request of a
Director or otherwise, to accelerate or extend the payment of amounts in the
deferred fee account at any time after the termination of a Director's service
as a director. In addition, in the event of the liquidation, dissolution or
winding up of the Fund or the distribution of all or substantially all of the
Fund's assets and property to its shareholders (other than in connection with a
reorganization or merger into another Fund advised by the Investment Manager),
all unpaid amounts in the deferred fee account maintained by the Fund will be
paid in a lump sum to Directors participating in the Fee Arrangements on the
effective date thereof.
Currently, Messrs. Croghan, Gill and Schafer are the only Directors who
have elected to enter into the Fee Arrangement with the Fund.
34
<PAGE> 37
Set forth below is a chart showing the aggregate compensation paid or
payable by the Fund to each of its Directors, as well as the total compensation
paid to each Director of the Fund by the Fund and by other U.S. registered
investment companies advised by the Investment Manager or its affiliates
(collectively, the "Fund Complex"), for their services as Directors of such
investment companies for the fiscal year ended December 31, 1994.
<TABLE>
<CAPTION>
PENSION OR
RETIREMENT TOTAL COMPENSATION NUMBER OF FUNDS
BENEFITS ACCRUED FROM THE FUND AND IN FUND COMPLEX
AGGREGATE COMPENSATION AS PART OF FUND COMPLEX PAID FOR WHICH
NAME OF DIRECTOR FROM THE FUND THE FUND'S EXPENSES TO DIRECTORS DIRECTOR SERVES
-------------------------- ---------------------- ------------------- ------------------ ---------------
<S> <C> <C> <C> <C>
Barton M. Biggs(1)........ $ 0 None $ 0 6
Warren J. Olsen(1)........ 0 None 0 15
John W. Croghan........... 15,800 None 19,430 2
Madhav Dhar(1)............ 0 None 0 1
David B. Gill............. 13,800 None 36,500 3
Gerard E. Jones........... 14,600 None 85,584 9
Oscar S. Schafer.......... 13,850 None 21,950 2
</TABLE>
---------------
(1) Each of Messrs. Biggs, Olsen and Dhar is an "interested person," as defined
in the 1940 Act of the Fund and all other U.S. registered investment
companies in the Fund Complex for which he serves as a director or trustee
and therefore does not receive any compensation from the Fund or any other
U.S. registered investment company in the Fund Complex for his services as
a director of such investment companies.
The Fund's Board of Directors has an audit committee that is responsible
for reviewing financial and accounting matters. The current members of the audit
committee are Messrs. Croghan, Gill, Jones and Schafer.
The officers and Directors of the Fund, in the aggregate, own less than 1%
of the outstanding shares of Common Stock.
To the knowledge of the Fund's management, based on a search of forms
required to be filed with the Fund and the Commission by holders of more than
five percent of the Fund's outstanding securities, the following person owned
beneficially more than 5% of the Fund's outstanding shares as of March 31, 1995:
<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL
OWNER AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP PERCENT OF CLASS
------------------------------ ------------------------------------------------ ----------------
<S> <C> <C>
Morgan Stanley Group Inc.*.... 1,000,165 shares, with shared voting power and 8.99%
1251 Avenue of the Americas shared dispositive power; 494,251 shares, with
New York, New York 10020 no voting power and shared dispositive power(1)
</TABLE>
---------------
* Includes 956,800 shares held by Morgan Stanley & Co. Incorporated, which
comprise 5.75% of shares outstanding.
(1) Based on a Schedule 13G filed with the Commission on February 14, 1995.
The Board of Directors is divided into three classes, each class having a
term of three years. Each year the term of one class expires. The Fund's By-Laws
provide that each Director holds office until the expiration of his term and
until his successor has been elected and qualified, or until his death, or until
he has resigned, or until December 31 of the year in which he reaches
seventy-three years of age, or until he has been removed as provided by statute
or the Articles of Incorporation. See "Common Stock."
The Articles of Incorporation of the Fund contain a provision permitted
under the Maryland General Corporation Law (the "MGCL") which by its terms
eliminates the personal liability of the Fund's directors to the Fund or its
shareholders for monetary damages for breach of fiduciary duty as a director,
subject to certain qualifications described below. The Articles of Incorporation
and the By-Laws of the Fund provide that the Fund will indemnify directors,
officers, employees or agents of the Fund to the full extent permitted by the
MGCL. Under Maryland law, a corporation may indemnify any director or officer
made a party to any proceeding by reason of service in that capacity unless it
is established that (1) the act or omission of the
35
<PAGE> 38
director or officer was material to the matter giving rise to the proceeding and
(A) was committed in bad faith or (B) was the result of active and deliberate
dishonesty; (2) the director or officer actually received an improper personal
benefit in money, property or services; or (3) in the case of any criminal
proceeding, the director or officer had reasonable cause to believe that the act
or omission was unlawful. The Articles of Incorporation further provide that to
the fullest extent permitted by the MGCL, and subject to the requirements of the
1940 Act, no director or officer will be liable to the Fund or its shareholders
for money damages. Under Maryland law, a corporation may restrict or limit the
liability of directors or officers to the corporation or its shareholders for
money damages, except to the extent that (1) it is proved that the person
actually received an improper benefit or profit in money, property, or services,
or (2) a judgment or other final adjudication adverse to the person is entered
in a proceeding based on a finding in the proceeding that the person's action,
or failure to act, was the result of active and deliberate dishonesty and was
material to the cause of action adjudicated in the proceeding. Nothing in the
Articles of Incorporation or the By-Laws of the Fund protects or indemnifies a
director, officer, employee or agent against any liability to which he would
otherwise be subject by reason of acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, or protects or
indemnifies a director or officer of the Fund against any liability to the Fund
or its shareholders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.
ADMINISTRATION
Under an Administration Agreement (the "Administration Agreement") between
the Fund and United States Trust Company of New York (the "Administrator"), the
Administrator provides administrative services to the Fund. Such administrative
services include maintenance of the Fund's books and records, calculations of
net asset value, preparation and filing of reports with respect to certain of
the Fund's U.S. reporting requirements, monitoring of custody arrangements with
the Fund's Custodian and other accounting and general administrative services.
The Directors of the Fund supervise and monitor the administrative services
provided by the Administrator.
The Administrator is a New York state chartered bank and trust company
which provides corporate management and administrative services to investment
companies. The Administrator's business address is 73 Tremont Street, Boston,
Massachusetts 02108.
Under the Administration Agreement, the Fund pays to the Administrator an
annual administration fee of $65,000 plus .08% of the average weekly net assets
of the Fund, computed weekly and payable monthly. Pursuant to the Administration
Agreement, the Administrator received payments for its administrative services
from the Fund in the amounts of $225,000, $291,000 and $469,000, for the fiscal
years ended December 31, 1992, 1993 and 1994, respectively.
EXPENSES
The Fund's annual operating expenses are higher than normal annual
operating expenses of most closed-end investment companies of comparable size
investing in the United States and reflect the specialized nature of the Fund,
the extent of the advisory effort involved, and the costs of communication and
other costs associated with investing in emerging countries rather than in the
United States. For the fiscal years ended December 31, 1992, 1993 and 1994, the
Fund's expenses (exclusive of amortization of organization expenses) were
$3,516,000, $4,652,000 and $7,049,000, respectively. The $115,000 in
organization expenses incurred by the Fund in connection with its initial public
offering is being amortized over five years. Expenses of the Offer will be
charged to capital. The Fund's annual expense ratio was 2.02%, 1.85% and 1.75%
of the Fund's net assets (inclusive of amortization of organization expenses)
for the fiscal years ended December 31, 1992, 1993 and 1994, respectively.
36
<PAGE> 39
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Investment Manager places orders for securities to be purchased by the
Fund. The primary objective of the Investment Manager in choosing brokers for
the purchase and sale of securities for the Fund's portfolio is to obtain the
most favorable net results taking into account such factors as price,
commission, size of order, difficulty of execution, and the degree of skill
required of the broker-dealer. The capability and financial condition of the
broker may also be criteria for the choice of that broker. The placing and
execution of orders for the Fund are also subject to restrictions under U.S.
securities laws, including certain prohibitions against trading among the Fund
and its affiliates (including the Investment Manager and its affiliates). The
Fund may utilize affiliates of the Investment Manager in connection with the
purchase or sale of securities in accordance with rules adopted or exemptive
orders issued by the Commission when the Investment Manager believes that the
charge for the transaction does not exceed usual and customary levels. In
addition, the Fund may purchase securities in a placement for which affiliates
of the Investment Manager have acted as agent to or for the issuers, consistent
with applicable rules adopted by the Commission or regulatory authorization, if
necessary. The Fund may not purchase securities from or sell securities to any
affiliate of the Investment Manager acting as principal.
The Investment Manager on behalf of the Fund may place brokerage
transactions through brokers, including Morgan Stanley & Co. Incorporated and
its affiliates, who provide it with investment research services, including
market and statistical information and quotations for the Fund's portfolio
evaluation purposes. The terms "investment research" and "market and statistical
information and quotations" include advice as to the value of securities, the
advisability of investing in, purchasing or selling securities, and the
availability of securities and potential buyers or sellers of securities, as
well as the furnishing of analyses and reports concerning issuers, industries,
securities, economic factors and trends, and portfolio strategy, each and all as
consistent with those services mentioned in Section 28(e) of the U.S. Securities
Exchange Act of 1934, as amended.
Research provided to the Investment Manager in advising the Fund is in
addition to and not in lieu of the services required to be performed by such
Investment Manager itself, and the Investment Manager's fees will not be reduced
as a result of the receipt of such supplemental information. It is the opinion
of the management of the Fund that such information is only supplementary to the
Investment Manager's own research efforts, since the information must still be
analyzed, weighed and reviewed by the Investment Manager's staff. Such
information may be useful to the Investment Manager in providing services to
clients other than the Fund, and not all such information is necessarily used by
the Investment Manager in connection with the Fund. Conversely, information
provided to the Investment Manager by brokers and dealers through whom other
clients of the Investment Manager effect securities transactions may prove
useful to the Investment Manager in providing services to the Fund.
The Fund's Board of Directors review at least annually the commissions
allocated by the Investment Manager on behalf of the Fund to determine if such
allocations were reasonable in relation to the benefits inuring to the Fund.
Brokerage commissions paid or payable by the Fund for the fiscal years
ended December 31, 1992, 1993 and 1994, were $1,700,590, $1,911,222 and
$1,270,916, respectively, of which $116,000, $284,000 and $138,000,
respectively, were paid or are payable to affiliates. The percentage of the
Fund's aggregate brokerage commissions paid or payable to affiliates for the
fiscal year ended December 31, 1994, was 10.86%.
NET ASSET VALUE
Net asset value of the Fund is determined no less frequently than the close
of business on the last business day of each week by dividing the value of the
net assets of the Fund (the value of its assets less its liabilities) by the
total number of shares of Common Stock outstanding. In valuing the Fund's
assets, all listed equity securities for which market quotations are readily
available are, regardless of purchase price, valued at the last sale price on
the date of determination. Listed securities with no such sale price and
unlisted equity securities are valued at the mean between the current bid and
asked prices, if any, of two reputable brokers.
37
<PAGE> 40
Short-term investments having a maturity of 60 days or less are valued at cost
with accrued interest or discount earned included in interest receivable. Other
securities as to which market quotations are readily available are valued at
their market values. All other securities and assets are taken at fair value as
determined in good faith by the Board of Directors, although the actual
calculation may be done by others. In instances where price cannot be determined
in accordance with the above procedures, or in instances in which the Board of
Directors determines it is impractical or inappropriate to determine price in
accordance with the above procedures, the price is at fair value as determined
in good faith in a manner as the Board of Directors may prescribe. All emerging
countries' assets or liabilities not denominated in U.S. dollars are initially
valued in the currency in which they are denominated and then are translated
into U.S. dollars at the prevailing foreign exchange rate.
DIVIDENDS AND DISTRIBUTIONS;
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
The Fund intends to continue to distribute to shareholders, at least
annually, substantially all of its net investment income from dividends and
interest earnings and also expects to distribute any net realized capital gains
annually. Pursuant to the Dividend Reinvestment and Cash Purchase Plan (the
"Plan"), each shareholder will be deemed to have elected, unless The First
National Bank of Boston (the "Plan Agent") is otherwise instructed by the
shareholder in writing, to have all distributions automatically reinvested by
the Plan Agent, in Fund shares pursuant to the Plan. Shareholders who do not
participate in the Plan will receive all distributions in cash paid by check in
U.S. dollars mailed directly to the shareholder by The First National Bank of
Boston, as paying agent. Shareholders who do not wish to have distributions
automatically reinvested should notify the Fund, c/o the Plan Agent for the
Morgan Stanley Emerging Markets Fund, Inc.
The Plan Agent serves as agent for the shareholders in administering the
Plan. If the Directors of the Fund declare an income dividend or a capital gains
distribution payable either in Common Stock or in cash, as shareholders may have
elected, non-participants in the Plan will receive cash and participants in the
Plan will receive Common Stock, to be issued by the Fund. If the market price
per share on the valuation date equals or exceeds net asset value per share on
that date, the Fund will issue new shares to participants at net asset value or,
if the net asset value is less than 95% of the market price on the valuation
date, then at 95% of the market price. The valuation date will be the dividend
or distribution payment date or, if that date is not a trading day on the
exchange on which the Common Stock is then listed, the next preceding trading
day. If net asset value exceeds the market price of the Common Stock at such
time, participants in the Plan will be deemed to have elected to receive shares
of stock from the Fund, valued at market price on the valuation date. If the
Fund should declare a dividend or capital gains distribution payable only in
cash, the Plan Agent will, as agent for the participants, buy the Common Stock
in the open market, or elsewhere, with the cash in respect of such dividend or
distribution, for the participants' account on, or shortly after, the payment
date.
Participants in the Plan have the option of making additional payments to
the Plan Agent, annually, in any amount from $100 to $3,000, for investment in
the Common Stock. The Plan Agent will use all funds received from participants
(as well as any dividends and capital gains distributions received in cash) to
purchase Fund shares in the open market on or about January 15 of each year. Any
voluntary cash payments received more than thirty days prior to such date will
be returned by the Plan Agent, and interest will not be paid on any uninvested
cash payments. To avoid unnecessary cash accumulations, and also to allow ample
time for receipt and processing by the Plan Agent, it is suggested that
participants send in voluntary cash payments to be received by the Plan Agent
approximately ten days before January 15. A participant may withdraw a voluntary
cash payment by written notice, if the notice is received by the Plan Agent not
less than forty-eight hours before such payment is to be invested.
The Plan Agent maintains all shareholder accounts in the Plan and furnishes
written confirmations of all transactions in the account, including information
needed by shareholders for personal and tax records. Shares in the account of
each Plan participant will be held by the Plan Agent in non-certificated form in
the name of the participant, and each shareholder's proxy will include those
shares purchased pursuant to the Plan.
38
<PAGE> 41
In the case of shareholders such as banks, brokers or nominees which hold
shares for others who are the beneficial owners, the Plan Agent will administer
the Plan on the basis of the number of shares certified from time to time by the
shareholder as representing the total amount registered in the shareholder's
name and held for the account of beneficial owners who are participating in the
Plan.
In the case of shareholders whose shares are held in the name of a
brokerage firm, bank or nominee the shareholders should request such brokerage
firm, bank or nominee to participate in the Plan or, if such brokerage firm,
bank or nominee cannot participate, instruct such person to register the shares
in the name of the respective shareholder, to enable such shareholder to
directly participate in the Plan. If a shareholder is participating in the Plan
through a brokerage firm, bank or nominee, and such shareholder transfers those
shares to another brokerage firm, bank or nominee, the shareholder may not be
able to participate in the Plan.
There is no charge to participants for reinvesting dividends or capital
gains distributions. The Plan Agent's fees for the handling of the reinvestment
of dividends and distributions will be paid by the Fund. However, each
participant's account will be charged a pro rata share of brokerage commissions
incurred with respect to the Plan Agent's open market purchases in connection
with the reinvestment of dividends or capital gains distributions. A participant
will also pay brokerage commissions incurred in purchases from voluntary cash
payments made by the participant. Brokerage charges for purchasing small amounts
of stock for individual accounts through the Plan are expected to be less than
the usual brokerage charges for such transactions, because the Plan Agent will
be purchasing stock for all participants in blocks and prorating the lower
commission thus attainable.
The automatic reinvestment of dividends and distributions will not relieve
participants of any income tax which may be payable on such dividends and
distributions.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Fund reserves the right to amend or terminate the Plan as
applied to any voluntary cash payment made and any dividend or distribution paid
subsequent to notice of the change sent to all shareholders at least 90 days
before the record date for such dividend or distribution. The Plan also may be
amended or terminated by the Plan Agent by at least 90 days' written notice to
all shareholders. All correspondence concerning the Plan, including requests for
additional information, should be directed to the Plan Agent for the Morgan
Stanley Emerging Markets Fund, Inc. at 150 Royall Street, Canton, Massachusetts
02021.
TAXATION
U.S. FEDERAL INCOME TAXES
The Fund has to date qualified and intends to continue to qualify and be
treated as a regulated investment company under the Code. To so qualify, the
Fund must, among other things: (a) derive at least 90% of its gross income from
dividends, interest, payments with respect to securities loans, gains from the
sale or other disposition of stock or securities and gains from the sale or
other disposition of foreign currencies, or other income (including gains from
options, futures contracts and forward contracts) derived with respect to the
Fund's business of investing in stocks, securities or currencies; (b) derive
less than 30% of its gross income from the sale or other disposition of the
following assets held for less than three months -- (i) stock and securities,
(ii) options, futures and forward contracts (other than options, futures and
forward contracts on foreign currencies), and (iii) foreign currencies (and
options, futures and forward contracts on foreign currencies) which are not
directly related to the Fund's principal business of investing in stocks and
securities (or options and futures with respect to stock or securities); and (c)
diversify its holdings so that, at the end of each quarter, (i) at least 50% of
the value of the Fund's total assets is represented by cash and cash items, U.S.
Government securities, securities of other regulated investment companies, and
other securities, with such other securities limited in respect of any one
issuer to an amount not greater in value than 5% of the Fund's total assets and
to not more than 10% of the outstanding voting securities of such issuer, and
(ii) not more than 25% of the value of the Fund's total assets is invested in
the securities (other than U.S. Government securities or securities of other
regulated investment companies) of any one issuer or of any two or more issuers
that the Fund controls and that are determined to be engaged in the same
business or similar
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<PAGE> 42
or related businesses. The Fund expects that all of its foreign currency gains
will be directly related to its principal business of investing in stock and
securities.
As a regulated investment company, the Fund will not be subject to U.S.
federal income tax on its investment company taxable income that it distributes
to its shareholders, provided that at least 90% of its investment company
taxable income for the taxable year is distributed to its shareholders; however,
the Fund will be subject to tax on its income and gains, to the extent that it
does not distribute to its shareholders an amount equal to such income and
gains. See "Passive Foreign Investment Companies" below. Investment company
taxable income includes dividends, interest and net short-term capital gains in
excess of net long-term capital losses, but does not include net long-term
capital gains in excess of net short-term capital losses. The Fund intends to
distribute annually to its shareholders substantially all of its investment
company taxable income. If necessary, the Fund intends to borrow money or
liquidate assets to make such distributions. Dividend distributions of
investment company taxable income are taxable to a U.S. shareholder as ordinary
income to the extent of the Fund's current and accumulated earnings and profits,
whether paid in cash or in shares. Since the Fund will not invest in the stock
of domestic corporations, distributions to corporate shareholders of the Fund
will not be entitled to the deduction for dividends received by corporations. If
the Fund fails to satisfy the 90% distribution requirement or fails to qualify
as a regulated investment company in any taxable year, it will be subject to tax
in such year on all of its taxable income, whether or not the Fund makes any
distributions to its shareholders.
As a regulated investment company, the Fund also will not be subject to
U.S. federal income tax on its net long-term capital gains in excess of net
short-term capital losses and capital loss carryovers from the prior eight
years, if any, that it distributes to its shareholders. If the Fund retains for
reinvestment or otherwise an amount of such net long-term capital gains, it will
be subject to a tax of up to 35% of the amount retained. The Board of Directors
of the Fund will determine at least once a year whether to distribute any net
long-term capital gains in excess of net short-term capital losses and capital
loss carryovers from prior years. The Fund expects to designate amounts retained
as undistributed capital gains in a notice to its shareholders who are
shareholders of record at the close of a taxable year of the Fund who, if
subject to U.S. federal income taxation, (a) will be required to include in
income for U.S. federal income tax purposes, as long-term capital gains, their
proportionate shares of the undistributed amount, and (b) will be entitled to
credit against their U.S. federal income tax liabilities their proportionate
shares of the tax paid by the Fund on the undistributed amount and to claim
refunds to the extent that their credits exceed their liabilities. For U.S.
federal income tax purposes, the basis of shares owned by a shareholder of the
Fund will be increased by an amount equal to 65% of the amount of undistributed
capital gains included in the shareholder's income. Distributions of net
long-term capital gains, if any, by the Fund are taxable to its shareholders as
long-term capital gains whether paid in cash or in shares and regardless of how
long the shareholder has held the Fund's shares. Such distributions of net
long-term capital gains are not eligible for the dividends received deduction.
Under the Code, net long-term capital gains will be taxed at a rate no greater
than 28% for individuals and 35% for corporations. Shareholders will be notified
annually as to the U.S. federal income tax status of their dividends and
distributions.
Shareholders receiving dividends or distributions in the form of additional
shares pursuant to the Plan should be treated for U.S. federal income tax
purposes as receiving a distribution in an amount equal to the amount of money
that the shareholders receiving cash dividends or distributions will receive,
and should have a cost basis in the shares equal to such amount.
If the net asset value of shares is reduced below a shareholder's cost as a
result of a distribution by the Fund, the distribution will be taxable even
though it, in effect, represents a return of invested capital. Investors
considering buying shares just prior to a dividend or capital gain distribution
payment date should be aware that, although the price of shares purchased at
that time may reflect the amount of the forthcoming distribution, those who
purchase just prior to the record date for a distribution will receive a
distribution which will be taxable to them. The amount of capital gains realized
and distributed (which from an investment standpoint may represent a partial
return of capital rather than income) in any given year will be the result of
action taken for the best investment of the principal of the Fund, and may
therefore vary from year to year.
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<PAGE> 43
If the Fund is the holder of record of any stock on the record date for any
dividends payable with respect to such stock, such dividends are included in the
Fund's gross income not as of the date received but as of the later of (a) the
date such stock became ex-dividend with respect to such dividends (i.e., the
date on which a buyer of the stock would not be entitled to receive the
declared, but unpaid, dividends) or (b) the date the Fund acquired such stock.
Accordingly, in order to satisfy its income distribution requirements, the Fund
may be required to pay dividends based on anticipated earnings, and shareholders
may receive dividends in an earlier year than would otherwise be the case.
Under the Code, the Fund may be subject to a 4% excise tax on a portion of
its undistributed income. To avoid the tax, the Fund must distribute annually at
least 98% of its ordinary income (not taking into account any capital gains or
losses) for the calendar year and at least 98% of its capital gain net income
for the 12-month period ending, as a general rule, on October 31 of the calendar
year. For this purpose, any income or gain retained by the Fund that is subject
to corporate income tax will be treated as having been distributed at year-end.
In addition, the minimum amounts that must be distributed in any year to avoid
the excise tax will be increased or decreased to reflect any under distribution
or over distribution, as the case may be, in the previous year. For a
distribution to qualify under the foregoing test, the distribution generally
must be declared and paid during the year. Any dividend declared by the Fund in
October, November or December of any year and payable to shareholders of record
on a specified date in such a month shall be deemed to have been received by
each shareholder on December 31 of such year and to have been paid by the Fund
not later than December 31 of such year, provided that such dividend is actually
paid by the Fund during January of the following year.
The Fund maintains accounts and calculates income by reference to the U.S.
dollar for U.S. federal income tax purposes. Investments generally are
maintained and income therefrom calculated by reference to the emerging
countries' currencies, and such calculations do not necessarily correspond to
the Fund's distributable income and capital gains for U.S. federal income tax
purposes as a result of fluctuations in currency exchange rates. Furthermore,
exchange control regulations may restrict the ability of the Fund to repatriate
investment income or the proceeds of sales of securities. These restrictions and
limitations may limit the Fund's ability to make sufficient distributions to
satisfy the 90% distribution requirement and avoid the 4% excise tax.
The Fund's transactions in foreign currencies, forward contracts, options
and futures contracts (including options and futures contracts on foreign
currencies) will be subject to special provisions of the Code that, among other
things, may affect the character of gains and losses realized by the Fund (i.e.,
may affect whether gains or losses are ordinary or capital), accelerate
recognition of income to the Fund, defer Fund losses, and affect the
determination of whether capital gains and losses are characterized as long-term
or short-term capital gains or losses. These rules could therefore affect the
character, amount and timing of distributions to shareholders. These provisions
also may require the Fund to mark-to-market certain types of the positions in
its portfolio (i.e., treat them as if they were closed out) which may cause the
Fund to recognize income without receiving cash with which to make distributions
in amounts necessary to satisfy the 90% and 98% distribution requirements for
avoiding income and excise taxes. The Fund will monitor its transactions, will
make the appropriate tax elections, and will make the appropriate entries in its
books and records when it acquires any foreign currency, option, futures
contract, forward contract, or hedged investment in order to mitigate the effect
of these rules and prevent disqualification of the Fund as a regulated
investment company and minimize the imposition of income and excise taxes.
For backup withholding purposes, the Fund may be required to withhold 31%
of reportable payments (which may include dividends, capital gain distributions,
and redemptions) to certain non-corporate shareholders. A shareholder, however,
may avoid becoming subject to this requirement by filing an appropriate form
certifying under penalty of perjury that such shareholder's taxpayer
identification number is correct and that such shareholder is not subject to
backup withholding, or is exempt from backup withholding. Backup withholding is
not an additional tax. Any amounts withheld under the backup withholding rules
from payments made to a shareholder may be credited against such shareholder's
federal income tax liability.
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Upon the sale or exchange of its shares, a shareholder will realize a
taxable gain or loss depending upon the amount realized and the shareholder's
basis in the shares. Such gain or loss will be treated as capital gain or loss
if the shares are capital assets in the shareholder's hands, and will be
long-term if the shareholder's holding period for the shares is more than 12
months and otherwise will be short-term. Any loss realized on a sale or exchange
will be disallowed to the extent that the shares disposed of are replaced
(including replacement through the reinvesting of dividends and capital gains
distributions in the Fund) within a period of 61 days beginning 30 days before
and ending 30 days after the disposition of the shares. In such a case, the
basis of the shares acquired will be adjusted to reflect the disallowed loss.
Any loss realized by a shareholder on the sale of Fund shares held by the
shareholder for six months or less will be treated for federal income tax
purposes as a long-term capital loss to the extent of any distributions of
long-term capital gains received by the shareholder with respect to such shares.
A repurchase by the Fund of shares generally will be treated as a sale of
the shares by a shareholder, provided that after the repurchase the shareholder
does not own, either directly or by attribution under Section 318 of the Code,
any shares. If, after a repurchase a shareholder continues to own, directly or
by attribution, any shares, and has not experienced a meaningful reduction in
its proportionate interest in the Fund, it is possible that any amounts received
in the repurchase by such shareholder will be taxable as a dividend to such
shareholder. If, in addition, the Fund has made such repurchases as part of a
series of redemptions, there is a risk that shareholders who do not have any of
their shares repurchased would be treated as having received a dividend
distribution as a result of their proportionate increase in the ownership of the
Fund.
Passive Foreign Investment Companies
If the Fund purchases shares in certain foreign passive investment entities
described in the Code as passive foreign investment companies ("PFIC"), the Fund
will be subject to U.S. federal income tax on a portion of any "excess
distribution" (the Fund's ratable share of distributions in any year that
exceeds 125% of the average annual distribution received by the Fund in the
three preceding years or the Fund's holding period, if shorter, and any gain
from the disposition of such shares) even if such income is distributed as a
taxable dividend by the Fund to its shareholders. Additional charges in the
nature of interest may be imposed on the Fund in respect of deferred taxes
arising from such "excess distributions." If the Fund were to invest in a PFIC
and elect to treat the PFIC as a "qualified electing fund" under the Code (and
if the PFIC were to comply with certain reporting requirements), in lieu of the
foregoing requirements the Fund would be required to include in income each year
its pro rata share of the PFIC's ordinary earnings and net realized capital
gains, whether or not such amounts were actually distributed to the Fund.
Foreign Tax Credits
Income received by the Fund from sources outside the United States may be
subject to withholding and other taxes imposed by foreign countries. If the Fund
qualifies as a regulated investment company, if certain distribution
requirements are satisfied and if, as expected, more than 50% of the value of
the Fund's total assets at the close of any taxable year consists of stocks or
securities of foreign corporations, which is expected to be the case, the Fund
may elect, for U.S. federal income tax purposes, to treat any foreign country's
income or withholding taxes paid by the Fund that can be treated as income taxes
under United States income tax principles, as paid by its shareholders. The Fund
expects to make this election. As a consequence, each shareholder will be
required to include in its income an amount equal to its allocable share of such
income taxes paid by the Fund to a foreign country's government and the
shareholders will be entitled, subject to certain limitations, to credit their
portions of these amounts against their U.S. federal income tax due, if any, or
to deduct their portions from their U.S. taxable income, if any. Shareholders
that are exempt from tax under Section 501(a) of the Code, such as pension
plans, generally will derive no benefit from the Fund's election. However, these
shareholders should not be disadvantaged because the amount of additional income
they are deemed to receive equal to their allocable share of such emerging
countries' income taxes paid by the Fund generally will not be subject to U.S.
federal income tax.
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The amount of foreign taxes that may be credited against a shareholder's
U.S. federal income tax liability will generally be limited, however, to an
amount equal to the shareholder's United States federal income tax rate
multiplied by its foreign source taxable income. For this purpose, the Fund
expects that the capital gains it distributes, whether as dividends or capital
gains distributions, will not be treated as foreign source taxable income. In
addition, this limitation must be applied separately to certain categories of
foreign source income, one of which is foreign source "passive income." For this
purpose, foreign source "passive income" includes dividends, interest, capital
gains and certain foreign currency gains. As a consequence, certain shareholders
may not be able to claim a foreign tax credit for the full amount of their
proportionate share of foreign taxes paid by the Fund. Each shareholder will be
notified within 60 days after the close of the Fund's taxable year whether,
pursuant to the election described above, the foreign taxes paid by the Fund
will be treated as paid by its shareholders for that year and, if so, the
notification will designate (i) the shareholder's portion of the foreign taxes
paid to such country and (ii) the portion of the Fund's dividends and
distributions that represents income derived from sources within the country.
Foreign Shareholders
Taxation of a shareholder who, as to the United States, is a foreign
investor depends, in part, on whether the shareholder's income from the Fund is
"effectively connected" with a United States trade or business carried on by the
shareholder.
If the foreign investor is not a resident alien and the income from the
Fund is not effectively connected with a United States trade or business carried
on by the foreign investor, distributions of net investment income and net
realized short-term capital gains will be subject to a 30% (or lower treaty
rate) United States withholding tax. Furthermore, foreign investors may be
subject to an increased United States tax on their income resulting from the
Fund's election (described above) to "pass-through" amounts of foreign taxes
paid by the Fund, but may not be able to claim a credit or deduction with
respect to the foreign taxes treated as having been paid by them. Distributions
of net realized long-term capital gains, amounts retained by the Fund which are
designated as undistributed capital gains, and gains realized upon the sale of
shares of the Fund will not be subject to United States tax unless a foreign
investor who is a nonresident alien individual is physically present in the
United States for more than 182 days during the taxable year and, in the case of
gain realized upon the sale of Fund shares, unless (i) such gain is attributable
to an office or fixed place of business in the United States or (ii) such
nonresident alien individual has a tax home in the United States and such gain
is not attributable to an office or fixed place of business located outside the
United States. However, a determination by the Fund not to distribute long-term
capital gains may reduce a foreign investor's overall return from an investment
in the Fund, since the Fund will incur a United States federal tax liability
with respect to retained long-term capital gains, thereby reducing the amount of
cash held by the Fund that is available for distribution, and the foreign
investor may not be able to claim a credit or deduction with respect to such
taxes. In the case of a foreign investor who is a nonresident alien individual,
the Fund may be required to withhold U.S. federal income tax at a rate of 31%,
unless the foreign investor files an appropriate form certifying under penalty
of perjury as to his nonresident alien status.
If a foreign investor is a resident alien or if dividends or distributions
from the Fund are effectively connected with a United States trade or business
carried on by the foreign investor, dividends of net investment income,
distributions of net short-term and long-term capital gains, amounts retained by
the Fund that are designated as undistributed capital gains and any gains
realized upon the sale of shares of the Fund will be subject to United States
income tax at the rates applicable to United States citizens or domestic
corporations. If the income from the Fund is effectively connected with a United
States trade or business carried on by a foreign investor that is a corporation,
then such foreign investor also may be subject to the 30% branch profits tax.
The tax consequences to a foreign shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described in
this section. Shareholders may be required to provide appropriate documentation
to establish their entitlement to the benefits of such a treaty. Foreign
investors are advised to consult their own tax advisers with respect to (a)
whether their income from the Fund is or is not effectively
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<PAGE> 46
connected with a United States trade or business carried on by them, (b) whether
they may claim the benefits of an applicable tax treaty and (c) any other tax
consequences to them of an investment in the Fund.
Notices
Shareholders will be notified annually by the Fund as to the United States
federal income tax status of the dividends, distributions and deemed
distributions made by the Fund to its shareholders. Furthermore, shareholders
will be sent, if appropriate, various written notices after the close of the
Fund's taxable year as to the United States federal income tax status of certain
dividends, distributions and deemed distributions that were paid (or that were
treated as having been paid) by the Fund to its shareholders during the
preceding taxable year.
OTHER TAXATION
Distributions also may be subject to state, local and foreign taxes
depending on each shareholder's particular position.
THE U.S. FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS A SUMMARY
INCLUDED FOR GENERAL INFORMATION PURPOSES ONLY. IN VIEW OF THE INDIVIDUAL NATURE
OF TAX CONSEQUENCES, EACH SHAREHOLDER IS ADVISED TO CONSULT HIS OWN TAX ADVISER
WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES TO HIM OF PARTICIPATION IN THE
FUND, INCLUDING THE EFFECT AND APPLICABILITY OF STATE, LOCAL, FOREIGN, AND OTHER
TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.
COMMON STOCK
The authorized capital stock of the Fund is 100,000,000 shares of Common
Stock ($0.01 par value), of which 16,630,335 were outstanding as of March 31,
1995. Shares of the Fund, when issued, will be fully paid and non-assessable and
will have no conversion, preemptive or other subscription rights. Holders of
Common Stock are entitled to one vote per share on all matters to be voted upon
by shareholders and are not able to cumulate their votes in the election of
Directors. Thus, holders of more than 50% of the shares voting for the election
of Directors have the power to elect 100% of the Directors. All shares are equal
as to assets, earnings and the receipt of dividends, if any, as may be declared
by the Board of Directors out of funds available therefor. In the event of
liquidation, dissolution or winding up of the Fund, each share of Common Stock
is entitled to receive its proportion of the Fund's assets remaining after
payment of all debts and expenses.
The Fund commenced operations on November 1, 1991 following the issuance of
7,093 shares of Common Stock to the Investment Manager on October 24, 1991 for
$100,000 and the initial public offering on October 25, 1991 of 10,552,200
shares to the public resulting in aggregate net proceeds to the Fund of
approximately $148.1 million. Since that time, the Fund has completed a rights
offering of 3,700,000 shares in June 1993 with aggregate net proceeds of
approximately $54.8 million, and a second public offering of 900,000 shares in
March 1994 with aggregate net proceeds to the Fund of approximately $23.7
million. Since commencement of operations, the Fund has also issued 1,471,042
shares pursuant to its Dividend Reinvestment and Cash Purchase Plan. At March
31, 1995, the Fund had 16,630,335 shares of Common Stock outstanding, which are
listed and traded on the NYSE under the symbol "MSF." As of March 31, 1995, the
net assets of the Fund were approximately $270.6 million.
The Fund does not presently intend to offer additional shares of Common
Stock other than pursuant to the Offer, except that additional shares may be
issued under the Plan. Other offerings of the Fund's shares will require
approval of the Fund's Board of Directors and may require shareholder approval.
Any such additional offerings would also be subject to the requirements of the
1940 Act, including the requirement that shares may not be sold at a price below
the then current net asset value (exclusive of underwriting discounts and
commissions) except in connection with an offering to existing shareholders or
with the consent of a majority of the Fund's shares.
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<PAGE> 47
The Fund is a closed-end investment company, and as such its shareholders
do not have the right to cause the Fund to redeem their shares of Common Stock.
The Fund, however, may repurchase shares of Common Stock from time to time in
the open market or in private transactions when it can do so at prices at or
below the current net asset value per share on terms that represent a favorable
investment opportunity. Subject to its investment limitations, the Fund may
borrow to finance the repurchase of shares. However, the payment of interest on
such borrowings will increase the Fund's expenses and consequently reduce net
income. In addition, the Fund is required under the 1940 Act to maintain "asset
coverage" of not less than 300% of its "senior securities representing
indebtedness" as such terms are defined in the 1940 Act.
The Fund's shares of Common Stock trade in the open market at a price which
is a function of several factors, including their net asset value and yield. The
shares of closed-end investment companies frequently sell at discount from, but
sometimes at a premium over, their net asset values. See "Risk Factors and
Special Considerations." There can be no assurance that it will be possible for
investors to resell shares of the Fund at or above the price at which shares may
be purchased pursuant to the Offer, or that the market price of the Fund's
shares will equal or exceed net asset value. Since the Fund may repurchase its
shares at prices below their net asset value or make a tender offer for its
shares, the net asset value of those shares that remain outstanding will be
increased, but the effect of such repurchases on the market price of the
remaining shares cannot be predicted.
The Fund's By-laws provide that if, for any fiscal quarter after the second
year following the date on which the Fund commenced operations, the average
discount from net asset value at which shares of the Fund's Common Stock have
traded is substantial, the Board of Directors of the Fund will consider, at its
next regularly scheduled quarterly meeting, taking various actions designed to
eliminate the discount, including periodic repurchases of shares, tender offers
to purchase shares from all shareholders at a price equal to net asset value or
amendments to the Fund's Articles of Incorporation to convert the Fund to an
open-end investment company. Any tender by the Fund for shares of its Common
Stock would reduce the Fund's assets and increase its per share expenses.
Shareholders of an open-end investment company may require the company to redeem
their shares at any time (except in certain circumstances as authorized by or
under the 1940 Act) at their net asset value, less such redemption charge, if
any, as might be in effect at the time of a redemption. Any amendment to the
Articles of Incorporation to convert the Fund to an open-end investment company
would require a favorable vote of 75% of the shares entitled to vote on the
matter and the amendment would have to be declared advisable by the Board of
Directors prior to its submission to shareholders. In light of the position of
the Securities and Exchange Commission that illiquid securities and securities
subject to legal or contractual limitations on resale not exceed 15% of the
total assets of a registered open-end investment company, any attempt to convert
the Fund to such a company will have to take into account the percentage of such
securities in the Fund's portfolio at the time, the conditions in the emerging
countries' securities markets and other relevant factors. The Fund cannot
predict whether, on this basis, it would be able to effect any such conversion
or whether, if relief from the Commission's position were required, it could be
obtained. The Board of Directors has no current intention to propose such a
conversion other than as required by the foregoing By-laws.
Any tender offer by the Fund will be made at a price based upon the net
asset value of the shares at the close of business on the last date of the
tender offer. No open market purchases of shares will be made by the Fund during
a tender offer. Each offer will be made and shareholders notified in accordance
with the requirements of the U.S. Securities Exchange Act of 1934, as amended
(the "1934 Act"), and the 1940 Act, either by publication or mailing or both.
Each offering document will contain such information as is prescribed by such
laws and the rules and regulations promulgated thereunder. When a tender offer
is authorized by the Fund's Board of Directors, a shareholder wishing to accept
the offer will be required to tender all (but not less than all) of the shares
owned by such shareholder (or attributed to him for federal income tax purposes
under Section 318 of the Code). The Fund will purchase all shares tendered in
accordance with the terms of the offer unless it determines to accept none of
them (based upon one of the conditions set forth below). Persons tendering
shares may be required to pay a service charge to help defray certain costs of
the transfer agent. Any such service charges will not be deducted from the
consideration paid for the tendered shares. During the period of a tender offer,
the Fund's shareholders will be able to determine the Fund's current net asset
value (which will be calculated weekly) by use of a toll-free telephone number.
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<PAGE> 48
In the event that the Fund would have to liquidate certain investments to
finance such repurchases or tenders of shares, and the portfolio securities to
be liquidated have been held less than three months, such sales may jeopardize
the Fund's status as a regulated investment company under the Code because of
the limitation imposed thereunder that not more than 30% of the Fund's gross
income may be derived from the sale of securities held for less than three
months.
The Fund's Articles of Incorporation and By-laws include provisions that
could limit the ability of others to acquire control of the Fund, to modify the
structure of the Fund or to cause it to engage in certain transactions. These
provisions, described below, also could have the effect of depriving
shareholders of an opportunity to sell their shares at a premium over prevailing
market prices by discouraging third parties from seeking to obtain control of
the Fund in a tender offer or similar transaction. In the opinion of the Fund,
however, these provisions offer several possible advantages. They potentially
require persons seeking control of the Fund to negotiate with its management
regarding the price to be paid for the shares required to obtain such control,
they promote continuity and stability and they enhance the Fund's ability to
pursue long-term strategies that are consistent with its investment objective.
The Directors are divided into three classes, each having a term of three
years, with the term of one class expiring each year. In addition, a Director
may be removed from office only with cause and only by a majority of the Fund's
shareholders, and the affirmative vote of 75% or more of the Fund's outstanding
shares is required to amend, alter or repeal the provisions in the Fund's
Articles of Incorporation relating to removal of Directors. See "Management of
the Fund -- Directors and Officers of the Fund." These provisions could delay
the replacement of a majority of the Directors and have the effect of making
changes in the Board of Directors more difficult than if such provisions were
not in place. Furthermore, the Fund's By-Laws provide that each Director holds
office until the expiration of his term and until his successor has been elected
and qualified, or until his death, or until he has resigned, or until December
31 of the year in which he reaches seventy-three years of age, or until he has
been removed as provided by statute or the Articles of Incorporation.
The affirmative vote of the holders of 75% or more of the outstanding
shares is required to (1) convert the Fund from a closed-end to an open-end
investment company, (2) merge or consolidate with any other entity, (3) dissolve
or liquidate the Fund, (4) sell all or substantially all of its assets, (5)
cease to be an investment company registered under the 1940 Act, (6) issue to
any person securities in exchange for property worth $1,000,000 or more,
exclusive of sales of securities in connection with a public offering, issuance
of securities pursuant to a dividend reinvestment plan or other stock dividend
or issuance of securities upon the exercise of any stock subscription rights, or
(7) amend, alter or repeal the above provisions in the Fund's Articles of
Incorporation. However, if such action has been approved or authorized by the
affirmative vote of at least 70% of the entire Board of Directors, the
affirmative vote of only a majority of the outstanding shares would be required
for approval, except in the case of the issuance of securities, in which case no
shareholder vote would be required unless otherwise required by applicable law.
The principal purpose of the above provisions is to increase the Fund's ability
to resist takeover attempts and attempts to change the fundamental nature of the
business of the Fund that are not supported by either the Board of Directors or
a large majority of the shareholders. These provisions make it more difficult to
liquidate, take over or open-end the Fund, and thereby discourage investors from
purchasing its shares with the hope of making a quick profit by forcing the Fund
to change its structure. These provisions, however, would apply to all actions
proposed by anyone, including management, and would make changes in the Fund's
structure accomplished through a transaction covered by the provisions more
difficult to achieve. The foregoing provisions also could impede or prevent
transactions in which holders of shares of Common Stock might obtain prices for
their shares in excess of the current market prices at which the Fund's shares
were then trading. Although these provisions could have the effect of depriving
shareholders of an opportunity to sell their shares at a premium over prevailing
market prices by discouraging a third party from seeking to obtain control of
the Fund, the Fund believes the conversion of the Fund from a closed-end to an
open-end investment company to eliminate the discount may not be desired by
shareholders, who purchased their Common Stock in preference to stock of the
many mutual funds available.
The Fund intends to hold annual meetings as required by the rules of the
NYSE. Under Maryland law and the Fund's By-laws, the Fund will call a special
meeting of its shareholders upon the written request of
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<PAGE> 49
shareholders entitled to cast at least 25% of all the votes at such meeting.
Such request for such a special meeting must state the purpose of the meeting
and the matters proposed to be acted on at it. The secretary of the Fund shall
(i) inform the shareholders who make the request of the reasonably estimated
cost of preparing and mailing a notice of the meeting, and (ii) on payment of
these costs to the Fund notify each shareholder entitled to notice of the
meeting. Notwithstanding the above, under Maryland law and the Fund's By-laws,
unless requested by shareholders entitled to cast a majority of all the votes
entitled to be cast at the meeting, a special meeting need not be called to
consider any matter which is substantially the same as a matter voted on at any
special meeting of the shareholders held during the preceding 12 months.
DISTRIBUTION ARRANGEMENTS
Morgan Stanley & Co. Incorporated will act as Dealer Manager for the Offer.
Under the terms and subject to the conditions contained in a Dealer Manager
Agreement dated the date of this Prospectus, the Dealer Manager will provide
financial advisory services and marketing assistance in connection with the
Offer. In addition, the Dealer Manager has agreed with the Fund to form and
manage a group of securities dealers ("Selling Group Members") to (a) solicit
the exercise of Rights and (b) sell to the public Shares purchased by the Dealer
Manager from the Fund as a result of the purchase and exercise of Rights by the
Dealer Manager.
The Fund has agreed to pay the Dealer Manager a fee for financial advisory
and marketing services equal to % of the Subscription Price per Share
issued upon exercise of the Rights. The Fund has also agreed to reimburse the
Dealer Manager for its out-of-pocket expenses in connection with the Offer up to
an aggregate of $ .
Pursuant to the Dealer Manager Agreement, the Fund has agreed to pay fees
equal to % of the Subscription Price per Share to the Dealer Manager and
each Selling Group Member for each Share either issued upon the exercise of
Rights as a result of the Dealer Manager's or Selling Group Member's soliciting
efforts or purchased from the Dealer Manager for sale to the public, and to the
Dealer Manager for each Share issued upon the exercise of Rights but for which
no dealer designation was made on the related Subscription Certificate.
The Fund has also agreed that, with respect to Rights exercised not as a
result of the selling or soliciting efforts of the Selling Group Members, the
Fund will pay a Soliciting Dealer Fee equal to % of the Subscription Price
per Share to any securities dealer who is not a Selling Group Member but who is
a member of the National Association of Securities Dealers, Inc. and who has
executed and delivered a Soliciting Dealer Agreement and solicited the exercise
of such Rights.
From the date of this Prospectus, the Dealer Manager and Selling Group
Members may offer and sell shares at prices set by the Dealer Manager from time
to time, which prices may be higher or lower than the Subscription Price. Prior
to the Expiration Date, each of those prices when set will not exceed the higher
of the last sale price or current asked price of the Common Stock on the NYSE,
plus, in each case, an amount equal to an exchange commission, and any offering
price set on any calendar day will not be increased more than once during that
day. Any offering by the Dealer Manager or any Selling Group Member will likely
include Shares acquired through the exercise of Rights. As a result of those
offerings, the Dealer Manager and Selling Group Members may realize profits or
losses independent of the Dealer Manager's financial advisory fee and any
Selling Group Member fee received by them.
Under applicable law, during the Subscription Period the Dealer Manager may
bid for and purchase Rights for certain purposes. Those purchases will be
subject to certain price and volume limitations when the Common Stock is being
stabilized by the Dealer Manager or when the Dealer Manager owns Rights without
an offsetting short position in the Common Stock. Those limitations provide,
among other things, that subject to certain exceptions, not more than one bid to
purchase Rights may be maintained in any one market at the same price at the
same time and that the initial bid for or purchase of Rights may not be made at
a price higher than the highest current independent bid price on the NYSE. Any
bid price may not be increased,
47
<PAGE> 50
subject to certain exceptions, unless the Dealer Manager has not purchased any
rights for a full Business Day or the independent bid price for those Rights on
the NYSE has exceeded the bid price for a full Business Day.
DIVIDEND PAYING AGENT, TRANSFER AGENT AND REGISTRAR
The First National Bank of Boston (the "Transfer Agent") is the Fund's
dividend paying agent, transfer agent and the registrar for the Fund's Common
Stock. The principal address of the Transfer Agent is 150 Royall Street, Canton,
Massachusetts 02021.
CUSTODIANS
Morgan Stanley Trust Company, an affiliate of the Investment Manager and
Morgan Stanley & Co. Incorporated, is the custodian for the Fund's assets held
outside the United States (the "International Custodian"). The principal
business address of the International Custodian is One Pierrepont Plaza,
Brooklyn, New York 11201.
Under the Custody Agreement between the International Custodian and the
Fund, the International Custodian has agreed to hold all property of the Fund
delivered to it in safekeeping in a segregated account, receive and collect all
income and transaction proceeds with respect to such property, accept and
deliver securities on the purchase, sale, redemption, exchange or conversion
thereof, pay from the Fund's account the purchase price of any securities
acquired by the Fund, as well as any taxes and other expenses payable in
connection with securities transactions, maintain all necessary books and
records with respect to the property of the Fund held by it, provide the Fund
with periodic reports regarding the Fund's account and, in general, attend to
all non-discretionary details in connection with the sale, purchase, transfer
and other dealings with the securities and other property of the Fund held by
it.
For its services, the International Custodian receives a fee calculated as
a percentage of Fund assets in its custody, plus an amount for each transaction
effected in the Fund's account. In addition, the International Custodian is
reimbursed by the Fund for any out-of-pocket expenses incurred by it in
connection with the performance of its duties under the Custody Agreement.
The International Custodian may employ one or more sub-custodians outside
the United States that are approved by the Board of Directors in accordance with
regulations under the 1940 Act. The fees and expenses of any such subcustodians
are paid by the International Custodian.
United States Trust Company of New York (the "U.S. Custodian") is the
Custodian for the Fund's assets held in the United States. The principal
business address of the U.S. Custodian is 770 Broadway, New York, New York
10003.
EXPERTS
The financial statements of the Fund for the fiscal year ended December 31,
1994 are incorporated by reference into this Prospectus in reliance upon the
report of Price Waterhouse LLP, the Fund's independent accountants, given on the
authority of said firm as experts in auditing and accounting. The address of
Price Waterhouse LLP is 1177 Avenue of the Americas, New York, New York 10036.
LEGAL MATTERS
The validity of the Shares offered hereby will be passed on for the Fund by
Rogers & Wells, New York, New York and by its special Maryland counsel, Piper &
Marbury L.L.P., Baltimore, Maryland. Certain legal matters will be passed on for
the Dealer Manager by Davis Polk & Wardwell, New York, New York.
It is likely that foreign persons, such as sub-custodians of the Fund, will
not have assets in the United States that could be attached in connection with
any U.S. action, suit or proceeding.
48
<PAGE> 51
The books and records of the Fund required under U.S. law are maintained at
the Fund's principal office in the United States and are subject to inspection
by the Securities and Exchange Commission.
ADDITIONAL INFORMATION
The Fund has filed with the Securities and Exchange Commission, Washington,
D.C. 20549, a Registration Statement under the Securities Act of 1933, as
amended, with respect to the Shares offered hereby. Further information
concerning the Shares and the Fund may be found in the Registration Statement,
of which this Prospectus constitutes a part. The Registration Statement may be
inspected without charge at the Commission's office in Washington, D.C., and
copies of all or any part thereof may be obtained from such office after payment
of the fees prescribed by the Commission.
The Fund is subject to the informational requirements of the 1934 Act and
the 1940 Act, and in accordance therewith files reports and other information
with the Commission. Such reports and other information can be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, Washington, D.C. 20549 and the Commission's regional office at
Seven World Trade Center, New York, New York 10048. Copies of such material can
be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. Such reports and other
information concerning the Fund may also be inspected at the offices of the
Commission.
INCORPORATION OF FINANCIAL STATEMENTS BY REFERENCE
The Fund's Annual Report, which includes financial statements, for the
fiscal year ended December 31, 1994, which either accompanies this Prospectus or
has previously been provided to the person to whom this Prospectus is being
sent, is incorporated herein by reference with respect to all information other
than the information set forth in the Letter to Shareholders included therein.
Any statement contained in the Fund's Annual Report that was incorporated herein
shall be deemed modified or superseded for purposes of this Prospectus to the
extent a statement contained in this Prospectus varies from such statement. Any
such statement so modified or superseded shall not, except as so modified or
superseded, be deemed to constitute a part of this Prospectus. The Fund will
furnish, without charge, a copy of its Annual Report, upon request to The First
National Bank of Boston, Attention: Shareholder Services, 150 Royall Street,
Canton, Massachusetts 02021, telephone (617) 575-2700.
49
<PAGE> 52
SAMPLE ONLY
APPENDIX A
[FORM OF SUBSCRIPTION CERTIFICATE]
SUBSCRIPTION CERTIFICATE NUMBER:
------------------------------
NUMBER OF RIGHTS:
------------------------------
CUSIP NO:
------------------------------
MORGAN STANLEY EMERGING MARKETS FUND, INC.
SUBSCRIPTION RIGHT FOR SHARES OF COMMON STOCK
This Subscription Certificate represents the number of Rights set forth in
the upper right hand corner of this Form. The registered holder hereof (the
"Holder") is entitled to acquire one (1) share of the Common Stock of Morgan
Stanley Emerging Markets Fund, Inc. (the "Fund") for each three (3) Rights held.
To subscribe for shares of Common Stock, the Holder must present to The
First National Bank of Boston, 150 Royall Street, Mail Stop 45-01-19, Canton,
Massachusetts 02021 (the "Subscription Agent"), prior to 5:00 p.m., New York
time, on the Expiration Date, either:
(1) a properly completed and executed Subscription Certificate and a
money order or check drawn on a bank located in the United States and
payable to Morgan Stanley Emerging Markets Fund, Inc. for an amount equal to
the number of Shares subscribed for in the Primary Subscription (and, if
such Holder is a Record Date Shareholder electing to exercise the
Over-Subscription Privilege, under the Over-Subscription Privilege)
multiplied by the Subscription Price; or
(2) a Notice of Guaranteed Delivery guaranteeing delivery of (i) a
properly completed and executed Subscription Certificate and (ii) a money
order or check drawn on a bank located in the United States and payable to
Morgan Stanley Emerging Markets Fund, Inc. for an amount equal to the number
of Shares subscribed for in the Primary Subscription (and, if such Holder is
a Record Date Shareholder electing to exercise the Over-Subscription
Privilege, pursuant to the Over-Subscription Privilege) multiplied by the
Subscription Price (which certificate and money order or check must then be
delivered by the close of business on the third Business Day after the
Expiration Date (the "Protect Period")).
If the Holder of this certificate is entitled to subscribe for additional
shares pursuant to the Over-Subscription Privilege, Part B of this Subscription
Certificate must be completed to indicate the maximum number of Shares for which
such privilege is being exercised.
No later than seven Business Days following the Protect Period, the
Subscription Agent will send to each Exercising Rights Holder (or, if the Fund's
Shares are held by Cede & Co., the nominee for The Depository Trust Company, or
any other depository or nominee (in each instance, a "Nominee Holder"), to such
Nominee Holder), the share certificates representing the Shares purchased
pursuant to the Primary Subscription and, if applicable, the Over-Subscription
Privilege, along with a letter explaining the allocation of Shares pursuant to
the Over-Subscription Privilege. Any excess payment to be refunded by the Fund
to a Record Date Shareholder who is not allocated the full amount of Shares
subscribed for pursuant to the Over-Subscription Privilege will be mailed by the
Subscription Agent. An Exercising Rights Holder will have no right to rescind a
purchase after the Subscription Agent has received a properly completed and
executed Subscription Certificate or a Note of Guaranteed Delivery. Any excess
payment to be refunded by the Fund to a Rights Holder will be mailed by the
Subscription Agent to him as promptly as practicable.
If the Holder does not make payment of any amounts due in respect of Shares
subscribed for, the Fund and the Subscription Agent reserve the right to (i)
find other shareholders or Rights Holders for the subscribed and unpaid for
Shares; (ii) apply any payment actually received by it toward the purchase of
the greatest whole number of Shares which could be acquired by such holder upon
exercise of the Primary Subscription and/or Over-Subscription Privilege, and/or
(iii) exercise any and all other rights and/or remedies to which it may be
entitled, including, without limitation, the right to set-off against payments
actually received by it with respect to such subscribed Shares.
This Subscription Certificate may be transferred, in the same manner and
with the same effect as in the case of a negotiable instrument payable to
specific persons, by duly completing and signing the assignment on the reverse
side hereof. Capitalized terms used but not defined in this Subscription
Certificate shall have the meanings assigned to them in the Prospectus, dated
May 30, 1995, relating to the Rights.
MORGAN STANLEY EMERGING MARKETS FUND,
INC.
THE FIRST NATIONAL BANK OF BOSTON,
as Subscription Agent
By:
---------------------------------------
THIS SUBSCRIPTION RIGHT IS TRANSFERABLE AND MAY BE COMBINED OR DIVIDED
(BUT ONLY INTO SUBSCRIPTION CERTIFICATES EVIDENCING A WHOLE NUMBER OF RIGHTS)
AT THE OFFICE OF THE SUBSCRIPTION AGENT
ANY QUESTIONS REGARDING THIS SUBSCRIPTION CERTIFICATE AND THE OFFER MAY
BE DIRECTED TO THE INFORMATION AGENT, SHAREHOLDER COMMUNICATIONS CORPORATION
17 STATE STREET, NEW YORK, NEW YORK 10004
TOLL-FREE AT (800) 733-8481, EXT. 316 OR COLLECT AT (212) 805-7000, EXT. 316
A-1
<PAGE> 53
EXPIRATION DATE: , 1995
PLEASE COMPLETE ALL APPLICABLE INFORMATION
<TABLE>
<S> <C> <C>
BY MAIL: BY OVERNIGHT COURIER: BY HAND:
The First National Bank of Boston The First National Bank of Boston BancBoston Trust Co. of New York
P.O. Box 1889 150 Royall Street 55 Broadway -- 3rd Floor
MS 45-01-19 Mail Stop 45-01-19 New York, NY 10006
Boston, MA 02105-1889 Canton, Massachusetts 02021
</TABLE>
SECTION I: TO SUBSCRIBE: I hereby irrevocably subscribe for the dollar amount
of Common Stock indicated as the total of A and B below upon the
terms and conditions specified in the Prospectus related hereto,
receipt of which is acknowledged.
TO SELL: If I have checked either the box on line C or the box on
line D, I authorize the sale of Rights by the Subscription Agent
according to the procedures described in the Prospectus. The check
for the proceeds of sale will be mailed to the address of record.
Please check (X) below:
<TABLE>
<S> <C>
/ / A. Primary / 3 = .000 X $ = $
Subscription ------------------ ------------------- ------------------ -----------------
(Rights Exercised) (Full Shares of (Subscription Price) (Amount
Common Stock Required)
Requested)
/ / B. Over-Subscription Privilege .000 X $ = $ (*)
------------------- ------------------ -----------------
(Full Shares of (Subscription Price) (Amount
Common Stock Required)
Requested)
(*) The Over-Subscription Privilege can be exercised by Record Date Shareholders only, as
described in the Prospectus.
Amount of Check or Money Order Enclosed (total of A + B) = $
Make check payable to "Morgan Stanley Emerging Markets Fund, Inc." -----------------
/ / C. Sell any remaining unexercised Rights
/ / D. Sell all of my Rights
E. The following Broker-Dealer is hereby designated as having been instrumental in the exercise of the
Rights:
/ / Morgan Stanley & Co. Incorporated Account #
------------------
/ / Other Firm: Account #
------------------------------- ------------------
Please provide your Day ( )
------------------------------------------ telephone number -------------------------------
Signature of Subscriber(s)/Seller(s) Evening ( )
-------------------------------
</TABLE>
The signature(s) must correspond with the name(s) as written upon the face of
this Subscription Certificate, in every particular, without alteration.
SECTION II: TO TRANSFER RIGHTS: (except pursuant to C and D above)
For value received, of the Rights
-------------------------------------
represented by this Subscription Certificate are assigned to
<TABLE>
<S> <C>
- -
------------- ------------ -------------- --------------------------------------------------------
Social Security Number or Tax ID of Assignee (Print Full Name of Assignee)
---------------------------------------------- --------------------------------------------------------
---------------------------------------------- --------------------------------------------------------
Signature(s) of Assignee(s) (Print Full Address including postal Zip Code)
</TABLE>
IMPORTANT: For Transfer, a Signature Guarantee must be provided by an eligible
financial institution as defined in Rule 17Ad-15 of the Securities Exchange Act
of 1934, as amended, subject to the standards and procedures adopted by the
issuer.
SIGNATURE GUARANTEED BY:
----------------------------------------------------------------------------
PROCEEDS FROM THE SALE OF RIGHTS MAY BE SUBJECT TO WITHHOLDING OF U.S. TAXES
UNLESS THE SELLER'S CERTIFIED U.S. TAXPAYER IDENTIFICATION NUMBER (OR
CERTIFICATION REGARDING FOREIGN STATUS) IS ON FILE WITH THE SUBSCRIPTION AGENT
AND THE SELLER IS NOT OTHERWISE SUBJECT TO U.S. BACKUP WITHHOLDING.
/ / CHECK HERE IF RIGHTS ARE BEING EXERCISED PURSUANT TO A NOTICE OF GUARANTEED
DELIVERY DELIVERED TO THE SUBSCRIPTION AGENT PRIOR TO THE DATE HEREOF AND
COMPLETE THE FOLLOWING:
NAME(S) OF REGISTERED OWNER(S):
WINDOW TICKET NUMBER (IF ANY):
DATE OF EXECUTION OF NOTICE OF GUARANTEED DELIVERY:
NAME OF INSTITUTION WHICH GUARANTEED DELIVERY:
A-2
<PAGE> 54
SAMPLE ONLY
APPENDIX B
[FORM OF NOTICE OF GUARANTEED DELIVERY]
NOTICE OF GUARANTEED DELIVERY OF SUBSCRIPTION RIGHTS AND
THE SUBSCRIPTION PRICE FOR SHARES OF COMMON STOCK OF
MORGAN STANLEY EMERGING MARKETS FUND, INC. SUBSCRIBED FOR IN THE
PRIMARY SUBSCRIPTION AND PURSUANT TO THE OVER-SUBSCRIPTION PRIVILEGE
As set forth in the Prospectus under "The Offer -- Payment for Shares,"
this form or one substantially equivalent hereto may be used as a means of
effecting subscription and payment for all Shares of Morgan Stanley Emerging
Markets Fund, Inc. Common Stock subscribed for in the Primary Subscription and
pursuant to the Over-Subscription Privilege. Such form may be delivered by hand
or sent by facsimile transmission, overnight courier or mail to the Subscription
Agent.
The Subscription Agent is:
The First National Bank of Boston
<TABLE>
<S> <C>
By Mail: By Facsimile:
The First National Bank of Boston (617) 575-2232
Shareholder Services Division (617) 575-2233
P.O. Box 1889 Confirm by Telephone
Mail Stop 45-01-19 (617) 575-2700
Boston, Massachusetts 02105
By Hand: By Overnight Courier:
BancBoston Trust Company The First National Bank of Boston
of New York Shareholder Services Division
55 Broadway, Third Floor Mail Stop 45-01-19
New York, New York 10006 150 Royall Street
Canton, Massachusetts 02021
</TABLE>
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS, OR TRANSMISSION
OF INSTRUCTIONS VIA A TELECOPY OR FACSIMILE NUMBER, OTHER THAN
AS SET FORTH ABOVE, DOES NOT CONSTITUTE A VALID DELIVERY
The New York Stock Exchange member firm or bank or trust company which
completes this form must communicate the guarantee and the number of Shares
subscribed for (under both the Primary Subscription and the Over-Subscription
Privilege) to the Subscription Agent and must deliver this Notice of Guaranteed
Delivery of Payment guaranteeing delivery of (i) payment in full for all
subscribed Shares and (ii) a properly completed and executed Subscription
Certificate (which certificate and full payment must then be delivered by the
close of business on the third business day after the Expiration Date, as
defined in the Prospectus) to the Subscription Agent prior to 5:00 p.m., New
York time, on the Expiration Date ( , 1995, unless extended). Failure
to do so will result in a forfeiture of the Rights.
B-1
<PAGE> 55
GUARANTEE
The undersigned, a member firm of the New York Stock Exchange or a bank or
trust company, guarantees delivery to the Subscription Agent by the close of
business (5:00 p.m., New York time) on the third Business Day after the
Expiration Date ( , 1995, unless extended) of (A) a properly completed
and executed Subscription Certificate and (B) payment of the full Subscription
Price for Shares subscribed for in the Primary Subscription and pursuant to the
Over-Subscription Privilege, if applicable, as subscription for such Shares is
indicated herein or in the Subscription Certificate.
<TABLE>
<S> <C>
Number of Shares subscribed for in the
Primary Subscription for which you are
guaranteeing delivery of Rights and payment: --------------------------------------------
Number of Shares subscribed for pursuant to
the Over-Subscription Privilege for which
you are guaranteeing delivery of Rights and
payment: --------------------------------------------
Number of Rights to be delivered: --------------------------------------------
Total Subscription Price payment to be
delivered: --------------------------------------------
A. Through DTC
B. Direct to Subscription Agent
Method of Delivery [circle one]:
-------------------------------------------- --------------------------------------------
Name of Firm Authorized Signature
-------------------------------------------- --------------------------------------------
Address Title
-------------------------------------------- --------------------------------------------
City, State, Zip Code Name (Please Type or Print)
--------------------------------------------
Name of Registered Holder (If Applicable)
-------------------------------------------- --------------------------------------------
Telephone Number Date
</TABLE>
* IF THE RIGHTS ARE TO BE DELIVERED THROUGH DTC, A REPRESENTATIVE OF THE FUND
WILL PHONE YOU WITH A PROTECT IDENTIFICATION NUMBER, WHICH NEEDS TO BE
COMMUNICATED BY YOU TO DTC.
PLEASE NOTE THAT IF YOU ARE GUARANTEEING FOR OVER-SUBSCRIPTION SHARES AND ARE A
DTC PARTICIPANT, YOU MUST ALSO EXECUTE AND FORWARD TO THE SUBSCRIPTION AGENT A
NOMINEE HOLDER OVER-SUBSCRIPTION EXERCISE FORM.
B-2
<PAGE> 56
SAMPLE ONLY
APPENDIX C
[FORM OF NOMINEE HOLDER OVER-SUBSCRIPTION EXERCISE FORM]
MORGAN STANLEY EMERGING MARKETS FUND, INC.
RIGHTS OFFERING
NOMINEE HOLDER OVER-SUBSCRIPTION EXERCISE FORM
PLEASE COMPLETE ALL APPLICABLE INFORMATION
<TABLE>
<CAPTION>
By Mail: By Hand: By Overnight Courier:
<S> <C> <C>
To: The First National Bank of Boston To: BancBoston Trust Company of New York To: The First National Bank of Boston
Shareholder Services Division 55 Broadway, Third Floor Shareholder Services Division
P.O. Box 1889 New York, New York 10006 Mail Stop 45-01-19
Mail Stop 45-01-19 150 Royall Street
Boston, Massachusetts 02105 Canton, Massachusetts 02021
</TABLE>
THIS FORM IS TO BE USED ONLY BY NOMINEE HOLDERS TO EXERCISE THE
OVER-SUBSCRIPTION PRIVILEGE IN RESPECT OF RIGHTS WITH RESPECT TO WHICH THE
PRIMARY SUBSCRIPTION PRIVILEGE WAS EXERCISED AND DELIVERED THROUGH THE
FACILITIES OF A COMMON DEPOSITORY. ALL OTHER EXERCISES OF OVER-SUBSCRIPTION
PRIVILEGES MUST BE EFFECTED BY THE DELIVERY OF THE SUBSCRIPTION CERTIFICATES.
---------------------
THE TERMS AND CONDITIONS OF THE RIGHTS OFFERING ARE SET FORTH IN THE FUND'S
PROSPECTUS DATED May , 1995 (THE "PROSPECTUS") AND ARE INCORPORATED
HEREIN BY REFERENCE. COPIES OF THE PROSPECTUS ARE AVAILABLE UPON REQUEST FROM
THE FUND.
---------------------
VOID UNLESS RECEIVED BY THE SUBSCRIPTION AGENT WITH PAYMENT IN FULL BY 5:00 PM,
NEW YORK TIME, ON , 1995, UNLESS EXTENDED BY THE FUND AND THE
DEALER MANAGER (THE "EXPIRATION DATE").
1. The undersigned hereby certifies to the Subscription Agent that it is a
participant in [Name of Depository] (the "Depository") and that
it has either (i) exercised the Primary Subscription Right in respect of Rights
and delivered such exercised Rights to the Subscription Agent by means of
transfer to the Depository Account of the Fund or (ii) delivered to the
Subscription Agent a Notice of Guaranteed Delivery in respect of the exercise of
the Primary Subscription Right and will deliver the Rights called in for such
Notice of Guaranteed Delivery to the Subscription Agent by means of transfer to
such Depository Account of the Fund.
2. The undersigned hereby exercises the Over-Subscription Privilege to purchase,
to the extent available, shares of Common Stock and certifies to the
Subscription Agent that such Over-Subscription Privilege is being exercised for
the account or accounts of persons (which may include the undersigned) on whose
behalf all Primary Subscription Rights have been exercised.(*)
3. The undersigned understands that payment of the Subscription Price of $ per
Share of each share of Common Stock subscribed for pursuant to the
Over-Subscription Privilege must be received by the Subscription Agent at or
before 5:00 p.m., New York time, on the Expiration Date and represents that such
payment, in the aggregate amount of $ either (check appropriate box):
/ / has been or is being delivered to the Subscription Agent pursuant to the
Notice of Guaranteed Delivery referred to above or
/ / is being delivered to the Subscription Agent herewith or
/ / has been delivered separately to the Subscription Agent:
and, in the case of funds not delivered pursuant to a Notice of Guaranteed
Delivery, is or was delivered in the manner set forth below (check appropriate
box and complete information relating thereto):
/ / uncertified check
/ / certified check
/ / bank draft
/ / money order
------------------------------------------------------------
Depository Primary Subscription Confirmation Number
------------------------------------------------------------
Depository Participant Number
Contact Name ----------------------------------------------
Phone Number: ----------------------------------------------
------------------------------------------------------------
Name of Nominee Holder
------------------------------------------------------------
Address
------------------------------------------------------------
City State Zip Code
By: --------------------------------------------------------
Name: -----------------------------------------------------
Title: ------------------------------------------------------
Dated: , 1995
* PLEASE COMPLETE THE BENEFICIAL OWNER CERTIFICATION ON THE BACK HEREOF
CONTAINING THE RECORD DATE SHARE POSITION, THE NUMBER OF PRIMARY SHARES
SUBSCRIBED FOR AND THE NUMBER OF OVER-SUBSCRIPTION SHARES, IF APPLICABLE,
REQUESTED BY EACH SUCH OWNER.
C-1
<PAGE> 57
MORGAN STANLEY EMERGING MARKETS FUND, INC.
BENEFICIAL OWNER CERTIFICATION
The undersigned, a bank, broker or other nominee holder of Rights
("Rights") to purchase shares of Common Stock, $0.01 par value ("Common Stock"),
of Morgan Stanley Emerging Markets Fund, Inc. (the "Fund") pursuant to the
Rights offering (the "Offer") described and provided for in the Fund's
Prospectus dated May 30, 1995 (the "Prospectus") hereby certifies to the Fund
and to The First National Bank of Boston as Subscription Agent for such Offer,
that for each numbered line filled in below the undersigned has exercised, on
behalf of the beneficial owner thereof (which may be the undersigned), the
number of Rights specified on such line in the Primary Subscription (as defined
in the Prospectus) and such beneficial owner wishes to subscribe for the
purchase of additional shares of Common Stock pursuant to the Over-Subscription
Privilege (as defined in the Prospectus), in the amount set forth in the third
column of such line:
<TABLE>
<CAPTION>
NUMBER OF RIGHTS EXERCISED NUMBER OF SHARES REQUESTED
IN THE PRIMARY PURSUANT TO THE
RECORD DATE SHARES SUBSCRIPTION OVER-SUBSCRIPTION PRIVILEGES
---------------------------- ---------------------------- ----------------------------
<C> <S> <C> <C>
1) ---------------------------- ---------------------------- ----------------------------
2) ---------------------------- ---------------------------- ----------------------------
3) ---------------------------- ---------------------------- ----------------------------
4) ---------------------------- ---------------------------- ----------------------------
5) ---------------------------- ---------------------------- ----------------------------
6) ---------------------------- ---------------------------- ----------------------------
7) ---------------------------- ---------------------------- ----------------------------
8) ---------------------------- ---------------------------- ----------------------------
9) ---------------------------- ---------------------------- ----------------------------
10) ---------------------------- ---------------------------- ----------------------------
-------------------------------------------- --------------------------------------------
Name of Nominee Holder Depository Participant Number
By:
Name: Depository Primary Subscription
Title: Confirmation Number(s)
</TABLE>
Dated: , 1995
C-2
<PAGE> 58
APPENDIX D
DESCRIPTION OF VARIOUS FOREIGN CURRENCY HEDGES
AND STOCK OPTIONS AND FUTURES CONTRACTS
FOREIGN CURRENCY HEDGING TRANSACTIONS
Forward Foreign Currency Exchange Contract. A forward foreign currency
exchange contract involves an obligation to purchase or sell a specified amount
of a foreign currency at a future date, which may be any fixed number of days
from the date of the contract agreed upon by the parties, at a price set at the
time of the contract. These contracts are traded in the interbank market
conducted directly between currency traders (usually large commercial banks).
Foreign Currency Futures Contracts. A foreign currency futures contract is
a standardized contract for the future delivery of a specified amount of a
foreign currency at a future date at a price set at the time of the contract.
Foreign currency futures contracts traded in the United States are traded on
regulated exchanges. Parties to a futures contract must make initial "margin"
deposits to secure performance of the contract, which generally range from 2% to
15% of the contract price. There also are requirements to make "variation"
margin deposits as the value of the futures contract fluctuates. The Fund may
not enter into foreign currency futures contracts if the aggregate amount of
initial margin deposits on the Fund's futures positions, including stock index
futures contracts (which are discussed below), would exceed 5% of the value of
the Fund's total assets. The Fund also will be required to segregate assets to
cover its futures contracts obligations.
At the maturity of a forward or futures contract, the Fund may either
accept or make delivery of the currency specified in the contract or, prior to
maturity, enter into a closing purchase transaction involving the purchase or
sale of an offsetting contract. Closing purchase transactions with respect to
forward contracts are usually effected with the currency trader who is a party
to the original forward contract. Closing purchase transactions with respect to
futures contracts are effected on an exchange. The Fund will only enter into
such a forward or futures contract if it is expected that there will be a liquid
market in which to close out such contract. There can, however, be no assurance
that such a liquid market will exist in which to close a forward or futures
contract, in which case the Fund may suffer a loss.
Currency Hedging Strategies. The Fund may enter into forward foreign
currency exchange contracts and foreign currency futures contracts in several
circumstances. For example, when the Fund enters into a contract for the
purchase or sale of a security denominated in a foreign currency, or when the
Fund anticipates the receipt in a foreign currency of dividends or interest
payments on such a security which it holds, the Fund may desire to "lock in" the
dollar price of the security or the dollar equivalent of such dividend or
interest payment, as the case may be. In addition, when the Investment Manager
believes that the currency of a particular foreign country may suffer a
substantial decline against the dollar, it may enter into a forward or futures
contract to sell, for a fixed amount of dollars, the amount of foreign currency
approximating the value of some or all of the Fund's portfolio securities
denominated in such foreign currency.
The Fund does not intend to enter into such forward or futures contracts to
protect the value of its portfolio securities on a regular basis, and will not
do so if, as a result, the Fund will have more than 20% of the value of its
total assets committed to the consummation of such contracts. The Fund also will
not enter into such forward or futures contracts or maintain a net exposure to
such contracts where the consummation of the contracts would obligate the Fund
to deliver an amount of foreign currency in excess of the value of the Fund's
portfolio securities or other assets denominated in that currency. Further, the
Fund generally will not enter into a forward or futures contract with a term of
greater than one year.
The Fund may attempt to accomplish objectives similar to those described
above with respect to forward and futures contracts for currency by means of
purchasing put or call options on foreign currencies on exchanges. A put option
gives the Fund the right to sell a currency at the exercise price until the
expiration of the option. A call option gives the Fund the right to purchase a
currency at the exercise price until the expiration of the option.
D-1
<PAGE> 59
While the Fund may enter into forward, futures and options contracts to
reduce currency exchange rate risks, changes in currency prices may result in a
poorer overall performance for the Fund than if it had not engaged in any such
transaction. Moreover, there may be an imperfect correlation between the Fund's
portfolio holdings of securities denominated in a particular currency and
forward, futures or options contracts entered into by the Fund. Such imperfect
correlation may prevent the Fund from achieving the intended hedge or expose the
Fund to risk of foreign exchange loss.
Certain provisions of the Code may limit the extent to which the Fund may
enter into forward or futures contracts or engage in options transactions. These
transactions may also affect the character and timing of income and the amount
of gain or loss recognized by the Fund and its shareholders for U.S. federal
income tax purposes. See "Taxation -- U.S. Federal Income Taxes."
Under the regulations of the U.S. Commodity Futures Trading Commission
("CFTC"), the Fund will not be considered a "commodity pool", as defined under
such regulations, as a result of entering into the transactions in futures
contracts and related options described above, provided, among other things,
that: (1) such transactions are entered into solely for bona fide hedging
purposes, as defined under CFTC regulations; or (2) the aggregate initial margin
and premiums for any other such transactions entered into does not exceed 5% of
the Fund's total assets (after taking into account any unrealized profits and
losses).
STOCK OPTIONS AND STOCK INDEX FUTURES CONTRACTS
Options on Securities. The Fund may write (i.e., sell) covered call
options which give the purchaser the right to buy the underlying security
covered by the option from the Fund at the stated exercise price. A "covered"
call option means that so long as the Fund is obligated as the writer of the
option, it will own (i) the underlying securities subject to the option, or (ii)
securities convertible or exchangeable without the payment of any consideration
into the securities subject to the option. As a matter of operating policy, the
value of the underlying securities on which options will be written at any one
time will not exceed 5% of the total assets of the Fund. In addition, as a
matter of operating policy, the Fund will neither purchase or write put options
on securities nor purchase call options on securities (except in connection with
closing purchase transactions).
The Fund will receive a premium from writing call options, which increases
the Fund's return on the underlying security in the event the option expires
unexercised or is closed out at a profit. By writing a call, the Fund will limit
its opportunity to profit from an increase in the market value of the underlying
security above the exercise price of the option for as long as the Fund's
obligation as writer of the option continues. Thus, in some periods the Fund
will receive less total return and in other periods greater total return from
writing covered call options than it would have received from its underlying
securities had it not written call options.
Stock Index Futures. The Fund may purchase and sell stock index futures
contracts. An index futures contract is an agreement to take or make delivery of
an amount of cash equal to the difference between the value of the index at the
beginning and at the end of the contract period. Successful use of stock index
futures will be subject to the Investment Manager's ability to predict correctly
movements in the direction of the relevant stock market. No assurance can be
given that the Investment Manager's judgment in this respect will be correct.
The Fund may sell stock index futures contracts in anticipation of or
during a market decline to attempt to offset the decrease in market value of
equity securities in its portfolio that might otherwise result. When the Fund is
not fully invested in common stocks and anticipates a significant market
advance, it may purchase stock index futures in order to gain rapid market
exposure that may in part or entirely offset increases in the cost of common
stocks that it intends to purchase. In a substantial majority of these
transactions, the Fund will purchase such securities upon termination of the
futures position but, under unusual market conditions, a futures position may be
terminated without the corresponding purchase of common stocks.
D-2
<PAGE> 60
APPENDIX E
COUNTRIES NOT INCLUDED WITHIN THE WORLD BANK DEFINITION OF A LOW OR MIDDLE
INCOME ECONOMY.
Australia
Austria
Andorra
Belgium
Bermuda
Brunei
Canada
Cayman Islands
Channel Islands
Cyprus
Denmark
Faeroe Islands
Finland
France
French Polynesia
Germany
Greenland
Hong Kong
Iceland
Ireland
Israel
Italy
Japan
Kuwait
Luxembourg
New Zealand
Norway
Qatar
San Marino
Singapore
Spain
Sweden
Switzerland
Taiwan
The Bahamas
The Netherlands
The United Kingdom
United States
Virgin Islands (U.S.)
United Arab Emirates
E-1
<PAGE> 61
MORGAN STANLEY
EMERGING MARKETS FUND, INC.
<PAGE> 62
PART C -- OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(1) Financial Statements
<TABLE>
<C> <C> <S>
(i) -- Statement of Net Assets as of December 31, 1994*
(ii) -- Statement of Operations for the fiscal year ended December 31, 1994*
(iii) -- Statement of Changes in Net Assets for the years ended December 31, 1993 and
1994*
(iv) -- Financial Highlights for the period ended December 31, 1991 and for the
fiscal years ended December 31, 1992, 1993 and 1994*
(v) -- Notes to Financial Statements*
(vi) -- Report of Independent Accountants*
</TABLE>
Statements, schedules and historical information other than these listed above
have been omitted since they are either not applicable, or not required or the
required information is shown in the financial statements or notes thereto.
---------------
* Incorporated by reference.
(2) Exhibits
<TABLE>
<C> <C> <S>
(a)(1) -- Articles of Incorporation**
(2) -- Articles of Amendment***
(b) -- Amended and Restated By-Laws+
(c) -- Not applicable
(d)(1) -- Specimen certificate for Common Stock, par value $.01 per share***
(2) -- Form of Subscription Certificate (included on pages A-1 to A-2 of the
Prospectus forming part of this Registration Statement)
(3) -- Form of Notice of Guaranteed Delivery (included on pages B-1 to B-2 of the
Prospectus forming part of this Registration Statement)
(4) -- Form of Nominee Holder Over-subscription Exercise Form (included on page C-1
of the Prospectus forming part of this Registration Statement)
(5) -- Form of Subscription Agent Agreement*
(6) -- Form of Information Agent Agreement*
(e) -- Dividend Reinvestment and Cash Purchase Plan***
(f) -- Not applicable
(g) -- Investment Advisory and Management Agreement+
(h)(1) -- Form of Dealer Manager Agreement*
(2) -- Form of Soliciting Dealer Agreement*
(3) -- Form of Selling Group Agreement*
(i) -- Not applicable
(j)(1) -- Custody Agreement+
(2) -- Domestic Custodian Agreement++
(3) -- Form of Subcustodian Agreement***
(k)(1) -- Agreement for Stock Transfer Services+
(2) -- Administration Agreement+
(3) -- Dividend Reinvestment and Cash Purchase Plan**
(l)(1) -- Opinion and consent of Rogers & Wells+++
(2) -- Opinion and consent of Piper & Marbury L.L.P.+++
(m) -- Not applicable
(n) -- Consent of Price Waterhouse LLP+++
(o) -- Not applicable
(p) -- Form of Investment Letter***
(q) -- Not applicable
</TABLE>
---------------
* Filed herewith.
** Incorporated by reference to the Fund's Registration Statement on Form N-2
(File Nos. 33-42459; 811-6403) filed on September 6, 1991.
*** Incorporated by reference to Pre-Effective Amendment No. 2 to the Fund's
Registration Statement on Form N-2 (File Nos. 33-42459; 811-6403) filed on
October 25, 1991.
+ Incorporated by reference to the Fund's Registration Statement on Form N-2
(File Nos. 33-91482; 811-6403) filed on April 21, 1995.
++ Incorporated by reference to Pre-Effective Amendment No. 1 to the Fund's
Registration Statement on Form N-2 (File Nos. 33-91482; 811-6403) filed on
May 15, 1995.
+++ To be filed by amendment.
(i)
<PAGE> 63
ITEM 25. MARKETING ARRANGEMENTS
See exhibits (h)(1) and (h)(2) to this Registration Statement.
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses to be incurred in
connection with the offering described in this Registration Statement.
<TABLE>
<S> <C>
Registration fees.......................................................... $36,501
New York Stock Exchange listing fee........................................
Printing (other than stock certificates)...................................
Fees and expenses of qualification under state securities laws (including
fees of counsel)......................................................... $15,000
Accounting fees and expenses...............................................
Legal fees and expenses....................................................
Dealer Manager expense reimbursement.......................................
Information Agent's fees and expenses...................................... $55,000
Subscription Agent's fees and expenses.....................................
NASD fee................................................................... $11,085
Miscellaneous..............................................................
-------
Total............................................................ $
=======
</TABLE>
ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Not applicable
ITEM 28. NUMBER OF HOLDERS OF SECURITIES
At April 30, 1995:
<TABLE>
<CAPTION>
NUMBER OF
TITLE OF CLASS RECORD HOLDERS
----------------------------------------------------------------------- --------------
<S> <C>
Common Stock, $.01 par value........................................... 859
</TABLE>
ITEM 29. INDEMNIFICATION
Section 2-418 of the General Corporation Law of the State of Maryland,
Article SEVENTH of the Fund's Articles of Incorporation, Article VII of the
Fund's By-Laws, the Investment Advisory and Management Agreement and the Dealer
Manager Agreement filed as Exhibit (h)(1) to this Registration Statement provide
for indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act"), may be permitted to directors, officers and
controlling persons of the Fund, pursuant to the foregoing provisions or
otherwise, the Fund has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the Fund of
expenses incurred or paid by a director, officer or controlling person of the
Fund in the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the Fund will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(ii)
<PAGE> 64
ITEM 30. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
The description of the business of Morgan Stanley Asset Management Inc. is
set forth under the caption "Management of the Fund" in the Prospectus forming
part of this Registration Statement.
The information as to the directors and officers of Morgan Stanley Asset
Management Inc. set forth in Morgan Stanley Asset Management Inc.'s Form ADV
filed with the Securities and Exchange Commission on December 15, 1981 (File No.
801-15757) and as amended through the date hereof is incorporated herein by
reference.
ITEM 31. LOCATION OF ACCOUNTS AND RECORDS
Morgan Stanley Emerging Markets Fund, Inc.
c/o Morgan Stanley Asset Management Inc.
1221 Avenue of the Americas
New York, New York 10020
(Fund's Articles of Incorporation and By-Laws)
Morgan Stanley Asset Management Inc.
1221 Avenue of the Americas
New York, New York 10020
(with respect to its services as Investment Manager)
United States Trust Company of New York
73 Tremont Street
Boston, Massachusetts 02108
(with respect to its services as Administrator)
Morgan Stanley Trust Company
One Pierrepont Plaza
Brooklyn, New York 11201
(with respect to its services as Custodian for the Fund's foreign assets)
United States Trust Company of New York
770 Broadway
New York, New York 10003
(with respect to its services as Custodian for the Fund's U.S. assets)
The First National Bank of Boston
150 Royall Street
Canton, Massachusetts 02021
(with respect to its services as Registrar, Transfer Agent, Dividend Paying
Agent and Subscription Agent)
ITEM 32. MANAGEMENT SERVICES
Not applicable
ITEM 33. UNDERTAKINGS
(a) The Registrant undertakes to suspend the offering until it amends its
Prospectus contained herein if (1) subsequent to the effective date of its
Registration Statement, the net asset value per share declines more than 10
percent from its net asset value per share as of the effective date of this
Registration Statement or (2) the net asset value increases to an amount greater
than its net proceeds as stated in the Prospectus contained herein.
(iii)
<PAGE> 65
(b) The Registrant hereby undertakes:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by The Registrant under Rule 497(h) under the Act shall
be deemed to be part of this registration statement as of the time it was
declared effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(c) To comply with the restrictions on indemnification set forth in
Investment Company Act Release No. IC-11330, September 2, 1980.
(iv)
<PAGE> 66
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and
the Investment Company Act of 1940, as amended, the Registrant has duly caused
this Amendment to its Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on the 24th day of May, 1995.
MORGAN STANLEY
EMERGING MARKETS FUND, INC.
By /s/ WARREN J. OLSEN
----------------------------------------
Warren J. Olsen
President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment to the Registration Statement has been signed by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
------------------------------------------- ----------------------------------- -------------
<C> <S> <C>
* Director and Chairman of the Board May 24, 1995
-------------------------------------------
Barton M. Biggs
/s/ WARREN J. OLSEN Director and President (Principal May 24, 1995
------------------------------------------- Executive Officer)
Warren J. Olsen
* Director May 24, 1995
-------------------------------------------
Madhav Dhar
* Director May 24, 1995
-------------------------------------------
John W. Croghan
* Director May 24, 1995
-------------------------------------------
David B. Gill
* Director May 24, 1995
-------------------------------------------
Gerard E. Jones
* Director May 24, 1995
-------------------------------------------
Oscar S. Schafer
* Treasurer (Principal Financial and May 24, 1995
------------------------------------------- Accounting Officer)
James R. Rooney
* By: /s/ WARREN J. OLSEN
-------------------------------------------
Warren J. Olsen
Attorney-in-fact
</TABLE>
(v)
<PAGE> 67
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NO.
----------- --------
<C> <S> <C>
(d)(5) Form of Subscription Agent Agreement
(d)(6) Form of Information Agent Agreement
(h)(1) Form of Dealer Manager Agreement
(h)(2) Form of Soliciting Dealer Agreement
(h)(3) Form of Selling Group Agreement
</TABLE>
(vi)
<PAGE> 1
SUBSCRIPTION AGENT AGREEMENT
This Subscription Agent Agreement (the "Agreement") is made as of May
30, 1995 between Morgan Stanley Emerging Markets Fund, Inc., a Maryland
corporation (the "Fund") and The First National Bank of Boston, as subscription
agent (the "Agent"). All terms not defined herein shall have the meaning given
in the prospectus (the "Prospectus") included in the Registration Statement on
Form N-2 (File No. 33-91482) filed by the Fund with the Securities and Exchange
Commission on May 30, 1995, as amended by any amendment filed with respect
thereto (the "Registration Statement").
WHEREAS, the Fund proposes to make a subscription offer by issuing
certificates or other evidences of subscription rights, in the form designated
by the Fund (the "Subscription Certificates") to shareholders of record (the
"Record Date Shareholders") of its common stock, par value $0.01 per share
("Common Stock"), as of a record date specified by the Fund (the "Record Date"),
pursuant to which each Shareholder will have certain rights (the "Rights") to
subscribe for shares of Common Stock, as described in and upon such terms as are
set forth in the Prospectus, a final copy of which has been or, upon
availability will promptly be, delivered to the Agent; and
WHEREAS, the Fund wishes the Agent to perform certain acts on behalf
of the Fund, and the Agent is willing to so act, in connection with the
distribution of the Subscription Certificates and the issuance and exercise of
the Rights to subscribe therein set forth, all upon the terms and conditions set
forth herein.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
agreements set forth herein, the parties agree as follows:
1. APPOINTMENT. The Fund hereby appoints the Agent to act as subscription
agent in connection with the distribution of Subscription Certificates and the
issuance and exercise of the Rights in accordance with the terms set forth in
this Agreement and the Agent hereby accepts such appointment.
2. FORM AND EXECUTION OF SUBSCRIPTION CERTIFICATES.
(a) Each Subscription Certificate shall be irrevocable and fully
transferable. The Agent shall, in its capacity as Transfer Agent of the Fund,
maintain a register of Subscription Certificates and the holders of record
thereof (each of whom shall be deemed a "Shareholder" hereunder for purposes of
determining the rights of holders of Subscription Certificates). Each
Subscription
<PAGE> 2
Certificate shall, subject to the provisions thereof, entitle the Shareholder in
whose name it is recorded to the following:
(1) The right to acquire during the Subscription Period, as defined
in the Prospectus, at the Subscription Price, as defined in the Prospectus,
a number of shares of Common Stock equal to one share of Common Stock for
every three Rights (the "Primary Subscription Right"); and
(2) With respect to Record Date Shareholders only, the right to
subscribe for additional shares of Common Stock, subject to the
availability of such shares and to the allotment of such shares as may be
available among Record Date Shareholders who exercise Over-Subscription
Rights on the basis specified in the Prospectus; provided, however, that
such Record Date Shareholder has exercised all Primary Subscription Rights
issued to him or her (the "Over-Subscription Privilege").
3. RIGHTS AND ISSUANCE OF SUBSCRIPTION CERTIFICATES.
(a) Each Subscription Certificate shall evidence the Rights of the
Shareholder therein named to purchase Common Stock upon the terms and conditions
therein and herein set forth.
(b) Upon the written advice of the Fund, signed by any of its duly
authorized officers, as to the Record Date, the Agent shall, from a list of the
Fund Shareholders as of the Record Date to be prepared by the Agent in its
capacity as Transfer Agent of the Fund, prepare and record Subscription
Certificates in the names of the Shareholders, setting forth the number of
Rights to subscribe for the Fund's Common Stock calculated on the basis of one
Right for each share of Common Stock recorded on the books in the name of each
such Shareholder as of the Record Date. The number of Rights that are issued to
Record Date Shareholders will be rounded up, by the Agent, to the nearest whole
number of Rights evenly divisible by three. In the case of Shares of Common
Stock held of record by a Nominee Holder (as defined in the Prospectus), the
number of Rights issued to such Nominee Holder will be adjusted, by the Agent,
to permit rounding up (to the nearest whole number of Rights evenly divisible by
three) of the Rights to be received by beneficial holders for whom the Nominee
Holder is the holder of record only if the Nominee Holder provides to the Agent
on or before the close of business on the fifth business day prior to the
Expiration Date, June ___, 1995, written representation of the number of Rights
required for such rounding. Each Subscription Certificate shall be dated as of
the Record Date and shall be executed manually or by facsimile signature of a
duly authorized officer of the Fund. Upon the written advice, signed as
aforesaid, as to the effective date of the Registration Statement, the Agent
shall promptly countersign and deliver the Subscription Certificates, together
with a copy of the Prospectus, instruction letter and any other document as the
Fund deems necessary or appropriate, to all Shareholders with record addresses
in the
2
<PAGE> 3
United States (including its territories and possessions and the District of
Columbia). Delivery shall be by first class mail (without registration or
insurance), except for those Shareholders having a registered address outside
the United States (who will only receive copies of the Prospectus, instruction
letter and other documents as the Fund deems necessary or appropriate, if any),
delivery shall be by air mail (without registration or insurance) and by first
class mail (without registration or insurance) to those Shareholders having APO
or FPO addresses. No Subscription Certificate shall be valid for any purpose
unless so executed. Should any officer of the Fund whose signature has been
placed upon any Subscription Certificate cease to hold such office at any time
thereafter, such event shall have no effect on the validity of such Subscription
Certificate.
(c) The Agent will mail a copy of the Prospectus, instruction letter, a
special notice and other documents as the Fund deems necessary or appropriate,
if any, but not Subscription Certificates to Record Date Shareholders whose
record addresses are outside the United States (including its territories and
possessions and the District of Columbia) ("Foreign Record Date Shareholders").
The Rights to which such Subscription Certificates relate will be held by the
Agent for such Foreign Record Date Shareholders' accounts until instructions are
received to exercise, sell or transfer the Rights. If no instructions have been
received by 5:00 p.m. New York City time, four Business Days prior to the
Expiration Date, the Agent, through the Dealer Manager in accordance with
Section 5(b) hereof, will use its best efforts to sell the Rights of those
registered Foreign Record Date Shareholders on the New York Stock Exchange. The
proceeds net of commissions, if any, to the Dealer Manager from the sale of
those Rights by the Dealer Manager will be remitted to the Foreign Record Date
Shareholders.
4. EXERCISE.
(a) Exercising Rights Holders, as defined in the Prospectus, may acquire
Shares on Primary Subscription and Record Date Shareholders may acquire Shares
pursuant to the Over-Subscription Privilege by delivery to the Agent as
specified in the Prospectus of (i) the Subscription Certificate with respect
thereto, duly executed by such Shareholder in accordance with and as provided by
the terms and conditions of the Subscription Certificate, together with (ii) the
purchase price of $_______ for each share of Common Stock subscribed for by
exercise of such Rights, in U.S. dollars by money order or check drawn on a bank
in the United States, in each case payable to the order of the Fund.
(b) Rights may be exercised at any time after the date of issuance of the
Subscription Certificates with respect thereto but no later than 5:00 P.M. New
York time on such date as the Fund shall designate to the Agent in writing (the
"Expiration Date"). For the purpose of determining the time of the exercise of
any Rights, delivery of any material to the Agent shall be deemed to
3
<PAGE> 4
occur when such materials are received at the Shareholder Services Division of
the Agent specified in the Prospectus.
(c) Notwithstanding the provisions of Section 4(a) and 4(b) regarding
delivery of an executed Subscription Certificate to the Agent prior to 5:00 p.m.
New York time on the Expiration Date, if prior to such time the Agent receives a
Notice of Guaranteed Delivery by facsimile (telecopy) or otherwise from a bank,
a trust company or a New York Stock Exchange member guaranteeing delivery of (i)
payment of the full Subscription Price for the shares of Common Stock subscribed
for on Primary Subscription and any additional shares of Common Stock subscribed
for pursuant to the Over-Subscription Privilege (for Record Date Shareholders),
and (ii) a properly completed and executed Subscription Certificate, then such
exercise of Primary Subscription Rights and Over-Subscription Rights shall be
regarded as timely, subject, however, to receipt of the duly executed
Subscription Certificate and full payment for the Common Stock by the Agent
within three business days after the Expiration Date (the "Protect Period").
(d) Within seven business days following the end of the Protect Period,
the Agent shall send to each Exercising Rights Holder (or, if shares of Common
Stock on the Record Date are held by Cede & Co. or any other depository or
nominee, to Cede & Co. or such other depository or nominee) the share
certificates representing the shares of Common Stock acquired pursuant to the
Primary Subscription, and, if applicable, the Over-Subscription Privilege. Any
excess payment to be refunded by the Fund to a Record Date Shareholder who is
not allocated the full amount of shares of Common Stock subscribed for pursuant
to the Over-Subscription Privilege, shall be mailed by the Agent to him or her
within five business days following the Protect Period.
5. TRANSFER OF RIGHTS.
(a) Rights Holders who do not wish to exercise any or all of their Rights
may instruct the Agent to sell any unexercised Rights by delivering to the Agent
Subscription Certificates representing the Rights to be sold with the
appropriate instructions to sell the Rights four days prior to the Expiration
Date. Upon timely receipt by the Agent of appropriate instructions to sell the
Rights, the Agent shall use its best efforts, through the Dealer Manager, to
complete the sale. The Agent shall remit the proceeds of sale, net of
commissions, to the appropriate Rights Holders. The Agent shall also use its
best efforts, through the Dealer Manager, to sell all Rights which remain
unclaimed as a result of Subscription Certificates being returned by the postal
authorities to the Agent as undeliverable as of the fourth business day prior to
the Expiration Date and Rights of non-U.S. shareholders who do not respond to
the Agent at least four days prior to the Expiration Date. Such sales will be
made, net of commissions, on behalf of the nonclaiming shareholders. The Agent
will hold the proceeds from those sales for the benefit of such nonclaiming
shareholders until such proceeds are either claimed or escheat.
4
<PAGE> 5
(b) The Agent shall retain Morgan Stanley & Co., Incorporated to act as
its broker in carrying out the sale on a best efforts basis of any Rights
pursuant to Sections 3(c) and 5(a) so long as the Agent concludes that the fees
charged by Morgan Stanley & Co., Incorporated for carrying out such sales are
competitive with those fees which would be charged by other brokers for carrying
out the same or similar transactions.
(c) Rights Holders may transfer a portion of the Rights evidenced by a
single Subscription Certificate (but in a whole number evenly divisible by
three) by delivering to the Agent within at least one business day prior to the
Expiration Date a Subscription Certificate properly endorsed for transfer, with
instructions to register such portion of the Rights evidenced thereby in the
name of the transferee and to issue a new Subscription Certificate to the
transferee evidencing such transferred Rights. In such event, the Agent shall
issue a new Subscription Certificate evidencing the balance of the Rights to the
transferring Rights Holder or, if the transferring Rights Holder so instructs,
to an additional transferee.
6. VALIDITY OF SUBSCRIPTIONS. Irregular subscriptions not otherwise covered
by specific instructions herein shall be submitted to an appropriate officer of
the Fund and handled in accordance with his or her instructions. Such
instructions will be documented by the Agent indicating the instructing officer
and the date thereof.
7. OVER-SUBSCRIPTION. If, after allocation of shares of Common Stock to
persons exercising Primary Subscription Rights, there remain unexercised Rights,
then the Agent shall allot the shares issuable upon exercise of such unexercised
Rights (the "Remaining Shares") to persons exercising the Over-Subscription
Privilege in the amounts of such over-subscriptions. If the number of shares
for which the Over-Subscription Privilege has been exercised is greater than the
Remaining Shares, the Agent shall allocate the Remaining Shares to the persons
exercising the Over-Subscription Privilege based on the number of Rights
originally issued to them by the Fund so that the number of shares issued to
Record Date Shareholders who subscribe pursuant to the Over-Subscription
Privilege will generally be in proportion to the number of shares of Common
Stock owned by them on the Record Date. The percentage of Remaining Shares each
over-subscribing Record Date Shareholder may acquire will be rounded up or down
to result in delivery of whole shares of Common Stock. The Agent shall advise
the Fund immediately upon the completion of the allocation set forth above as to
the total number of shares subscribed and distributable.
8. DELIVERY OF SHARE CERTIFICATES. The Agent will deliver (i) certificates
representing those shares of Common Stock purchased pursuant to exercise of
Primary Subscription Rights as soon as practicable after the corresponding
Rights have been validly exercised and full payment for such shares has been
5
<PAGE> 6
received and cleared and (ii) certificates representing those shares purchased
pursuant to the exercise of the Over-Subscription Privilege as soon as
practicable after the Expiration Date and after all allocations have been
effected.
9. HOLDING PROCEEDS OF RIGHTS OFFERING IN ESCROW.
(a) All proceeds received by the Agent from Shareholders in respect of
the exercise of Rights shall be held by the Agent, on behalf of the Fund, in a
segregated, interest-bearing escrow account (the "Escrow Account"). Pending
disbursement in the manner described in Section 4(d) above, funds held in the
Escrow Account shall be invested by the Agent at the direction of the Fund.
(b) The Agent shall deliver all proceeds received in respect of the
exercise of Rights (including interest earned thereon) to the Fund as promptly
as practicable, but in no event later than seven business days after the end of
the Protect Period. Proceeds held in respect of Excess Payments (including
interest earned thereon) shall be refunded to Shareholders entitled to such a
refund within 10 business days after the end of the Protect Period.
10. REPORTS.
(a) Daily, during the period commencing on the Record Date, until
termination of the Subscription Period, the Agent will report by telephone or
telecopier (by 12:00 Noon, New York time), confirmed by letter, to a designated
officer of the Fund, daily data regarding Rights exercised, the selling price of
Rights, the total number of shares of new Common Stock subscribed for, payments
received therefor, the number of Rights sold and the net proceeds thereof,
bringing forward the figures from the previous day's report in each case so as
to also show the cumulative totals and any such other information as may be
mutually determined by the Fund and the Agent.
(b) The Agent will inform the Dealer Manager orally, on each business day
during the Subscription Period (to be followed by written confirmation), as to
the number of Rights that have been exercised since its previous daily report to
the Dealer Manager and, not later than 1:00 p.m. (New York City time) on the
Expiration Date, will provide the Dealer Manager with a written statement as to
the total number of Rights exercised (separately setting forth the number of
Rights exercised by Record Date Shareholders).
11. LOSS OR MUTILATION. If any Subscription Certificate is lost, stolen,
mutilated or destroyed, the Agent may, on such terms which will indemnify and
protect the Fund and the Agent as the Agent may in its discretion impose (which
shall, in the case of a mutilated Subscription Certificate include the surrender
and cancellation thereof), issue a new Subscription Certificate of like
denomination in substitution for the Subscription Certificate so lost, stolen,
mutilated or destroyed.
6
<PAGE> 7
12. COMPENSATION FOR SERVICES. The Fund agrees to pay to the Agent
compensation for its services as such in accordance with its Fee Schedule to act
as Agent, dated May 30, 1995 and set forth hereto as Exhibit A. The Agent
agrees that such compensation shall include all services as Transfer Agent and
Registrar provided in connection with the offering of Rights. The Fund further
agrees that it will reimburse the Agent for its reasonable out-of-pocket
expenses incurred in the performance of its duties as such.
13. INSTRUCTIONS AND INDEMNIFICATION. The Agent undertakes the duties and
obligations imposed by this Agreement upon the following terms and conditions:
(a) The Agent shall be entitled to rely upon any instructions or
directions furnished to it by an appropriate officer of the Fund, whether in
conformity with the provisions of this Agreement or constituting a modification
hereof or a supplement hereto. Without limiting the generality of the foregoing
or any other provision of this Agreement, the Agent, in connection with its
duties hereunder, shall not be under any duty or obligation to inquire into the
validity or invalidity or authority or lack thereof of any instruction or
direction from an officer of the Fund which conforms to the applicable
requirements of this Agreement and which the Agent reasonably believes to be
genuine and shall not be liable for any delays, errors or loss of data occurring
by reason of circumstances beyond the Agent's control, including, without
limitation, acts of civil or military authority, national emergencies, labor
difficulties, fire, flood, catastrophe, acts of God, insurrection, war, riots or
failure of the mails, transportation, communication or power supply.
(b) The Fund will indemnify the Agent and its nominees against, and hold
it harmless from, all liability and expense which may arise out of or in
connection with the services described in this Agreement or the instructions or
directions furnished to the Agent relating to this Agreement by an appropriate
officer of the Fund, except for any liability or expense which shall arise out
of the negligence, bad faith or willful misconduct of the Agent or such
nominees.
14. CHANGES IN SUBSCRIPTION CERTIFICATE. The Agent may, without the consent or
concurrence of the Shareholders in whose names Subscription Certificates are
registered, by supplemental agreement or otherwise, concur with the Fund in
making any changes or corrections in a Subscription Certificate that it shall
have been advised by counsel (who may be counsel for the Fund) is appropriate to
cure any ambiguity or to correct any defective or inconsistent provision or
clerical omission or mistake or manifest error therein or herein contained, and
which shall not be inconsistent with the provision of the Subscription
Certificate except insofar as any such change may confer additional rights upon
the Shareholders.
15. ASSIGNMENT; DELEGATION.
7
<PAGE> 8
(a) Neither this Agreement nor any rights or obligations hereunder may be
assigned or delegated by either party without the written consent of the other
party.
(b) This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns. Nothing in this
Agreement is intended or shall be construed to confer upon any other person any
right, remedy or claim or to impose upon any other person any duty, liability or
obligation.
16. GOVERNING LAW. The validity, interpretation and performance of this
Agreement shall be governed by the laws of the State of New York.
17. SEVERABILITY. The parties hereto agree that if any of the provisions
contained in this Agreement shall be determined invalid, unlawful or
unenforceable to any extent, such provisions shall be deemed modified to the
extent necessary to render such provisions enforceable. The parties hereto
further agree that this Agreement shall be deemed severable, and the invalidity,
unlawfulness or unenforceability of any term or provision thereof shall not
affect the validity, legality or enforceability of this Agreement or of any term
or provision hereof.
18. COUNTERPARTS. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original and all of which together shall be
considered one and the same agreement.
19. CAPTIONS. The captions and descriptive headings herein are for the
convenience of the parties only. They do not in any way modify, amplify, alter
or give full notice of the provisions hereof.
20. FACSIMILE SIGNATURES. Any facsimile signature of any party hereto shall
constitute a legal, valid and binding execution hereof by such party.
21. FURTHER ACTIONS. Each party agrees to perform such further acts and
execute such further documents as are necessary to effect the purposes of this
Agreement.
8
<PAGE> 9
22. ADDITIONAL PROVISIONS. Except as specifically modified by this Agreement,
the Agent's rights and responsibilities set forth in the Agreement for Stock
Transfer Services between the Fund and the Agent are hereby ratified and
confirmed and continue in effect.
MORGAN STANLEY EMERGING MARKETS
FUND, INC.
By:
------------------------------
Name: Warren J. Olsen
Title: President
THE FIRST NATIONAL BANK OF BOSTON
By:
------------------------------
Name:
Title:
9
<PAGE> 10
SECURITIES DEPARTMENT
================================================================================
[BANK OF BOSTON LOGO]
PUT OUR STRENGTH TO WORK FOR YOU.
AGREEMENT
FOR SUBSCRIPTION/ESCROW AGENT SERVICES
BETWEEN
MORGAN STANLEY
EMERGING MARKETS FUND, INC.
AND
THE FIRST NATIONAL BANK OF BOSTON
================================================================================
[Bank of Boston Logo]
<PAGE> 11
AGREEMENT
FOR SUBSCRIPTION/ESCROW AGENT SERVICES
BETWEEN
MORGAN STANLEY EMERGING MARKETS
FUND, INC.
AND
THE FIRST NATIONAL BANK OF BOSTON
This Agreement sets forth the terms and conditions under which The
First National Bank of Boston ("Bank of Boston") will serve as
Subscription/Escrow Agent, pursuant to the terms and conditions set forth in
the Prospectus of Morgan Stanley Emerging Markets Fund, Inc. (hereinafter
referred to as Morgan Stanley) with respect to the Rights Offering, as the same
may be amended or supplemented.
A. TERM
The term of this Agreement shall be for a period of ONE (1) YEAR,
commencing from the effective date of this Agreement, MAY 1, 1995.
B. FEE FOR STANDARD SERVICES
For the standard services set forth below provided by Bank of Boston
under this Agreement, Morgan Stanley will be charged as follows:
=======================================================================
$10,000.00 ADMINISTRATIVE FEE
$ .60 PER SUBSCRIPTION CERTIFICATE ISSUED AND MAILED
(IF MACHINE ENCLOSED)
$ 9.00 PER SUBSCRIPTION CERTIFICATE RECEIVED AND PROCESSED
$ 12.00 PER DEFECTIVE SUBSCRIPTION CERTIFICATE RECEIVED AND
PROCESSED (TELEPHONE CALLS IF NECESSARY)
$ 15.00 PER NOTICE OF GUARANTEED DELIVERY RECEIVED
$ 1.00 PER ACCOUNT, FOR PRORATION
$ 1.25 PER REFUND CHECK ISSUED
$ 1.00 PER BROKER SPLIT CERTIFICATE ISSUED
$ 10.00 PER WITHDRAWAL OF SUBSCRIPTION CERTIFICATE,
IF APPLICABLE
$ 3.00 PER REMINDER CALL TO REGISTERED HOLDERS
$ 1,000.00 NEW YORK WINDOW FEE UPON EXPIRATION
$ 3,000.00 PER OFFER EXTENSION
$ 5.00 PER EACH DEALER SOLICITATION FORM RECEIVED
$ 4,000.00 ESCROW AGENT FEE TO HANDLE DAILY INVESTMENT OF
FUNDS RECEIVED
=======================================================================
<PAGE> 12
MORGAN STANLEY EMERGING MARKETS
FUND, INC.
Page 2
C. STANDARD SERVICES
Bank of Boston agrees to provide the following services to Morgan
Stanley in accordance with the standard fees set forth in Section B
hereinabove.
1. Designation of an operational Task Force
2. Design of Subscription Certificate
3. Calculating Rights to be distributed to each shareholder according
to the formula approved by Morgan Stanley
4. Issuance and mailing of Subscription Certificates to registered
shareholders
5. Preparation of a daily exercise journal
6. Tally of Rights received and exercised
7. Receipt summation and investment of checks received
8. Affixing restrictive legends to appropriate stock certificates,
where applicable
9. Issuance and mailing of stock certificates
10. Handling of shareholder inquiries related to the rights offering
as referred by the Information Agent
11. Reminder calls to shareholders who have not exercised their
Subscription Certificates as determined by Bank of Boston and
Morgan Stanley
12. Calculation, issuance and mailing of proration and/or
over-subscription checks if applicable
13. Replacement of lost Subscription Certificates upon receipt of
appropriate documentation
14. Calculation and Issuance of Dealer Solicitation Fees
D. * LIMITATIONS
Fees effective for a period of one (1) year following the effective
date of the Agreement.
E. ITEMS NOT COVERED
Items not included in the fees set forth in this Agreement for
"Standard Services" or in Section B hereinabove are to be billed
separately, on an appraisal basis.
Services required by legislation or regulatory fiat which become
effective after the date of this Agreement shall not be a part of the
Standard Services and shall be billed by appraisal.
All out-of-pocket expenses such as postage, insurance, stationery,
facsimile charges, cost of disposal of excess material, etc. will be
billed as incurred.
<PAGE> 13
MORGAN STANLEY EMERGING MARKETS
FUND INC.
Page 3
E. ITEMS NOT COVERED, continued
Funds to cover postage expenses in excess of $5,000 for shareholder
mailings must be received by Bank of Boston one business day prior to
the scheduled mailing date. Postage expenses less than $5,000 will be
billed as incurred.
Overtime charges will be assessed in the event of late delivery of
material for mailings to shareholders unless the mail date is
rescheduled. Such material includes, but is not limited to:
Subscription Certificate, Notice of Guaranteed Delivery, Return
Envelope, Shareholder Letter, W-9 Guideline Form, and Prospectus.
Receipt of material for mailing to shareholders by Bank of Boston's
Mail Unit must be in accordance with Shareholder Services' SCHEDULE
OF REQUIRED MATERIAL DELIVERY TIME FRAMES published in November, 1990.
F. MINIMUM FEE
$10,000.00 (should the Offer be cancelled for any reason after a period
of active involvement)
G. PAYMENT FOR SERVICES
It is agreed that the Administrative Fee of $10,000.00 will be paid in
advance and the remaining fees for services rendered will be paid on a
monthly basis.
H. NON-ASSIGNABILITY
This Agreement, and the duties, obligations and services to be provided
herein, may not be assigned or otherwise transferred without the prior
written consent of Morgan Stanley.
I. CONFIDENTIALITY
The information contained in this Agreement is confidential and
proprietary in nature. By receiving this Agreement, Morgan Stanley
agrees that none of its directors, officers, employees, or agents
without the prior written consent of Bank of Boston, will divulge,
furnish or make accessible to any third party, except as permitted by
the next sentence, any part of this Agreement or information in
connection therewith which has been or may be made available to it.
In this connection, Morgan Stanley agrees that it will limit
access to the Agreement and such information to only those officers or
employees with responsibilities for analyzing the Agreement and to such
independent consultants hired expressly for the purpose of assisting
in such analysis. In addition, Morgan Stanley agrees that any persons
to whom such information is properly disclosed shall be informed of
the confidential nature of the Agreement and the information relating
thereto, and shall be directed to treat the same appropriately.
<PAGE> 14
MORGAN STANLEY EMERGING MARKETS
FUND, INC.
Page 4
J. CONTRACT ACCEPTANCE
In witness whereof, the parties hereto have caused this Agreement to be
executed by their respective officers, hereunto duly agreed and
authorized, as of the effective date of this Agreement.
THE FIRST NATIONAL BANK OF BOSTON MORGAN STANLEY EMERGING MARKETS
FUND, INC.
By: Gordon C. Stevenson By:
---------------------------------- -------------------------------------
Gordon C. Stevenson
Title: Administration Manager Title:
------------------------------- ----------------------------------
Date: April 27, 1995 Date:
-------------------------------- -----------------------------------
<PAGE> 1
[SHAREHOLDER COMMUNICATIONS CORPORATION LOGO]
AGREEMENT
This document will constitute the agreement between MORGAN STANLEY
EMERGING MARKETS FUND, INC. (the "FUND"), with its principal executive
offices at 1221 Avenue of the Americas, New York, NY 10020 and SHAREHOLDER
COMMUNICATIONS CORPORATION ("SCC"), with its principal executive offices at
17 State Street, New York, NY 10005, relating to a Rights Offering (the "OFFER")
of the Fund.
The Services to be provided by SCC will be as follows:
(1) INDIVIDUAL HOLDERS OF RECORD AND BENEFICIAL OWNERS
Target Group. SCC estimates that it may call between 2,500 to
5,000 of the approximately 12,000 outstanding beneficial and
record shareholders. The estimate number is subject to adjustment
and SCC may actually call more or less shareholders depending
on the response to the OFFER or at the FUND's direction.
Telephone Number Lookups. SCC will obtain the needed telephone
numbers from various types of telephone directories.
Initial Telephone Calls to Provide Information. SCC will begin
telephone calls to the target group as soon as practicable. Most
calls will be made during 10:00 A.M. to 9:00 P.M. on business days
and only during 10:00 A.M. to 5:00 P.M. on Saturdays. No calls
will be received by any shareholder after 9:00 P.M. on any day, in
any time zone, unless specifically requested by the shareholder.
SCC will maintain "800" lines for shareholders to call with
questions about the OFFER. The "800" lines will be staffed Monday
through Friday between 9:00 a.m. and 9:00 p.m.
Remails. SCC will coordinate remails of offering materials to the
shareholders who advise us that they have discarded or misplaced
the originally mailed materials.
Reminder/Extension Mailing. SCC will help to coordinate any
targeted or broad-based reminder mailing at the request of the
FUND. SCC will mail only materials supplied by the FUND or
approved by the Fund in advance in writing.
Subscription Reports. SCC will rely upon the transfer agent for
accurate and timely information as to participation in the
OFFER.
<PAGE> 2
[SHAREHOLDER COMMUNICATIONS CORPORATION LOGO]
(2) BANK/BROKER SERVICING
SCC will contact all banks, brokers and other nominee shareholders
("intermediaries") holding stock as shown on appropriate portions
of the shareholder lists ascertain quantities of offering materials
needed for forwarding to beneficial owners.
SCC will deliver offering materials by messenger to New York City
based intermediaries and by Federal Express or other means to
non-New York City based intermediaries. SCC will also follow-up by
telephone with each intermediary to insure receipt of the offering
materials and to confirm timely remailing of materials to the
beneficial owners.
SCC will maintain frequent contact with intermediaries to monitor
shareholder response and to insure that all liaison procedures are
proceeding satisfactorily. In addition, SCC will contact beneficial
holders directly, if possible, and do whatever may be appropriate
or necessary to provide information regarding the OFFER to this
group.
SCC will, as frequently as practicable, report to the Fund with
response from intermediaries.
(3) PROJECT FEE
In consideration for acting as Information Agent SCC will receive a
project fee of $20,000.
(4) ESTIMATED EXPENSES
SCC will be reimbursed by the FUND for its reasonable out-of-pocket
expenses incurred provided that SCC submits to the FUND an expense
report, itemizing such expenses and providing copies of all
supporting bills in respect of such expenses. If the actual
expenses incurred are less than the portion of the estimated high
range expenses paid in advance by the FUND, the FUND will receive
from SCC a check payable in the amount of the difference at the
time that SCC sends its final invoice for the second half of the
project fee.
SCC's expenses are estimated as set forth below and the estimates
are based largely on data provided to SCC by the FUND. In the
course of the OFFER the expenses and expense categories may change
due to changes in the OFFER schedule or due to events beyond SCC's
control, such as delays in receiving offering material and related
items. In the event of significant change or new expenses not
originally contemplated, SCC will notify the FUND by phone and/or
by letter for approval of such expenses.
<PAGE> 3
[SHAREHOLDER COMMUNICATIONS CORPORATION LETTERHEAD]
<TABLE>
<CAPTION>
Estimated Expenses Low Range High Range
------------------ --------- ----------
<S> <C> <C>
Distribution Expenses................................. $ 2,500 $ 5,000
Telephone # look up
6,000 @ $.60.......................................... 3,600 3,600
Outgoing telephone, 2,500 to 4,000
initial outgoing telephone calls @ $4.00.............. 10,000 16,000
Incoming "800" calls
840 to 1,440 @ $3.75.................................. 3,150 5,400
Miscellaneous, data processing, postage, deliveries
Federal Express and mailgrams......................... 2,500 5,000
------- -------
Total Estimated Expenses............................ $21,750 $35,000
======= =======
</TABLE>
(5) PERFORMANCE
SCC will use its best efforts to achieve the goals of the FUND but
SCC is not guaranteeing a minimum success rate. SCC's Project Fee
as outlined in Section 3 or Expenses as outlined in Section 4 are
not contingent on success or failure of the OFFER.
SCC's strategies revolve around a telephone information campaign.
The purpose of the telephone information campaign is to raise the
overall awareness among shareholders of the OFFER and help
shareholders better understand the transaction. This in turn may
result in higher overall response.
(6) COMPLIANCE
The FUND will be responsible for compliance with any regulations
required by the Securities and Exchange Commission, National
Association of Securities Dealers or any applicable federal or
state agencies.
In rendering the services contemplated by this Agreement, SCC
agrees not to make any representations, oral or written, to any
shareholders or prospective shareholders of the FUND that are not
contained in the FUND's Prospectus, unless previously authorized to
do so in writing by the FUND.
(7) PAYMENT
Payment for one half the project fee ($10,000) and one half the
estimated high range expenses ($17,500) for a total of $27,500 will
be made at the signing of this contract. The balance, if any, will
be paid by the FUND due thirty days after SCC sends its final
invoice.
<PAGE> 4
[SHAREHOLDER COMMUNICATIONS CORPORATION LOGO]
(8) MISCELLANEOUS
SCC will hold in confidence and will not use nor disclose to third
parties information we receive from the FUND, or information
developed by SCC based upon such information we receive, except for
information which was public at the time of disclosure or becomes
part of the public domain without disclosure by SCC or information
which we learn from a third party which does not have an obligation
of confidentiality to the FUND.
In the event the project is canceled for an indefinite period of
time after the signing of this contract and before the expiration
of the OFFER, SCC will be reimbursed by the FUND for any expenses
incurred and not less than 100% of the project fee.
The FUND agrees to indemnify, hold harmless, reimburse and defend
SCC, and its officers, agents and employees, against all claims or
threatened claims, costs, expenses, liabilities, obligations,
losses or damages (including reasonable legal fees and expenses) of
any nature, incurred by or imposed upon SCC, or any of its
officers, agents or employees, which results, arises out of or is
based upon services rendered to the FUND in accordance with the
provisions of to this AGREEMENT, provided that such services are
rendered to the FUND without any negligence, willful misconduct,
bad faith or reckless disregard on the part of SCC, or its
officers, agents and employees.
This agreement will be governed by and construed in accordance with the
laws of the State of New York. This AGREEMENT sets forth the entire AGREEMENT
between SCC and the FUND with respect to the agreement herein and cannot be
modified except in writing by both parties.
IN WITNESS WHEREOF, the parties have signed this AGREEMENT this
day of May 1995.
--------------
THE MORGAN STANLEY SHAREHOLDER COMMUNICATIONS
EMERGING MARKETS FUND CORPORATION
By By /s/ PAUL J. TORRE
------------------------- -------------------------
Paul J. Torre
Senior Vice President
<PAGE> 1
5,800,000 Shares of Common Stock
Issuable Upon Exercise of Transferable Rights
MORGAN STANLEY EMERGING MARKETS FUND, INC.
COMMON STOCK
PAR VALUE $.01 PER SHARE
DEALER MANAGER AGREEMENT
May [ ], 1995
<PAGE> 2
May [__], 1995
Morgan Stanley & Co. Incorporated
1251 Avenue of the Americas
New York, New York 10020
Dear Sirs:
MORGAN STANLEY EMERGING MARKETS FUND, INC., a corporation formed under
the laws of the State of Maryland (the "Fund"), is a non-diversified, closed-end
management investment company registered under the Investment Company Act of
1940, as amended (together with the rules and regulations thereunder, the
"Investment Company Act"). The Fund proposes to issue to its shareholders of
record as of May [ ], 1995 ("Record Date Shareholders") rights ("Rights")
entitling their holders to subscribe for an aggregate of 5,800,000 shares
("Shares") of the Fund's Common Stock, par value $.01 per share ("Common
Stock").
The Fund appoints Morgan Stanley & Co. Incorporated ("Morgan Stanley")
as the exclusive dealer manager in connection with the offer of Shares
contemplated by the proposed issuance of Rights (the "Offer") and Morgan Stanley
accepts that appointment. The Fund also authorizes Morgan Stanley to form and
manage a group of securities dealers (each, a "Selling Group Member," and,
collectively, the "Selling Group") to solicit the exercise of Rights and sell
Shares purchased by Morgan Stanley from the Fund through the exercise of Rights.
Morgan Stanley represents and warrants that it is a broker-dealer registered
under the Securities Exchange Act of 1934, as amended (together with the rules
and regulations thereunder, the "Exchange Act"). Morgan Stanley Asset
Management Inc. (the "Investment Manager") manages the investments of the Fund
pursuant to the Investment Advisory and Management Agreement, dated October 25,
1991, with the Fund (the "Management Agreement").
<PAGE> 3
In connection with the Offer, each Record Date Shareholder will be
issued one Right for each full share of Common Stock owned on May [__], 1995.
The number of Rights to be issued to Record Date Shareholders will be rounded up
to the nearest number of Rights evenly divisible by three. No fractional Rights
will be issued. The Rights entitle their holders to acquire one Share for each
three Rights held at a price of $[_____] per Share (the "Subscription Price").
The period of subscription (the "Subscription Period") commences on May [__],
1995 and ends at 5:00 p.m., New York time, on [___________], 1995 unless
extended by the Fund and Morgan Stanley (the "Expiration Date"). Any Record
Date Shareholder who fully exercises all Rights issued to such Record Date
Shareholder by the Fund is entitled to subscribe for Shares that were not
otherwise subscribed for by others during the Subscription Period. Additional
terms and conditions of the Offer are set out in the Registration Statement on
Form N-2 (File No. 33-[_____]), as amended (the "Registration Statement"), filed
by the Fund with the Securities and Exchange Commission (the "Commission") under
the Investment Company Act and the Securities Act of 1933, as amended (together
with the rules and regulations thereunder, the "Securities Act" and, together
with the Investment Company Act, the "Acts"). The final prospectus for the
Shares contained in the Registration Statement is hereinafter referred to as the
"Prospectus"; any letters to beneficial owners of shares of Common Stock, any
forms used to exercise Rights, any letters from the Fund to securities dealers,
banks and other nominees, and any newspaper announcements, press releases and
other offering materials and information that the Fund may use, approve, prepare
or authorize in writing for use in connection with the Offer are hereinafter
collectively referred to as the "Offering Materials".
I.
The Fund and the Investment Manager, jointly and severally, represent
and warrant to Morgan Stanley that:
(a) The Registration Statement has become effective, no stop order
suspending the effectiveness of the Registration Statement is in effect,
and no proceedings for such purpose are pending before or, to the knowledge
of the Fund, threatened by the Commission.
(b) The Fund has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the State of Maryland, has
the
2
<PAGE> 4
corporate power and authority to conduct its business as described in the
Prospectus and is duly qualified to transact business and is in good
standing in each jurisdiction in which the conduct of its business requires
such qualification, except to the extent that the failure to be so
qualified or be in good standing would not have a material adverse effect
on the Fund. The Fund has no subsidiaries.
(c) The Fund is registered with the Commission as a non-diversified,
closed-end management investment company under the Investment Company Act
and no order of suspension or revocation of such registration has been
issued or proceedings initiated for that purpose or, to the knowledge of
the Fund, threatened by the Commission. No person is serving or acting as
an officer or director of, or investment adviser to, the Fund except in
accordance with the provisions of the Investment Company Act and the
Investment Advisers Act of 1940, as amended, and the rules and regulations
of the Commission thereunder (such act and rules being collectively
referred to as the "Advisers Act").
(d) Each of this Agreement and the Subscription Agent Agreement dated
as of May [__], 1995 (the "Subscription Agent Agreement") between the Fund
and The First National Bank of Boston (the "Subscription Agent"), has been
duly authorized, executed and delivered by the Fund. The Subscription
Agent Agreement, assuming due authorization, execution and delivery by the
Subscription Agent, constitutes the legal, valid and binding obligation of
the Fund, enforceable against the Fund in accordance with its terms except
as such enforceability may be limited by applicable bankruptcy, insolvency
(including, without limitation, all laws relating to fraudulent transfers),
reorganization, moratorium or similar laws affecting creditors' rights
generally and by general principles of equity, regardless of whether
considered in a proceeding in equity or at law.
(e) None of (i) the execution and delivery by the Fund of, and the
performance by the Fund of its obligations under, this Agreement and the
Subscription Agent Agreement, or (ii) the distribution of the Rights and
the allotment, issue and sale of the Shares, contravenes or will contravene
any provision of applicable U.S. law, the Blue Sky laws of the various
foreign jurisdictions or the articles of incorporation or by-laws of the
Fund or any agreement or other instrument binding upon the Fund that is
material to
3
<PAGE> 5
the Fund, or any judgment, order or decree of any governmental body, agency
or court having jurisdiction over the Fund, whether foreign or domestic. No
consent, approval, authorization, order or permit of, or qualification
with, any governmental body or agency, self-regulatory organization or
court or other tribunal, whether foreign or domestic, is required for the
performance by the Fund of its obligations under this Agreement and the
Subscription Agent Agreement, except such as have been obtained and as may
be required by the Acts, the Exchange Act, or the securities or Blue Sky
laws of the various states and political subdivisions of the United States
and foreign jurisdictions in connection with the distribution of the Rights
and the issue and sale of the Shares.
(f) The authorized capital stock and the articles of incorporation
and by-laws of the Fund conform in all material respects to the description
thereof contained in the Prospectus, and the Rights and Shares will conform
in all material respects to the descriptions thereof contained in the
Prospectus.
(g) The articles of incorporation and by-laws of the Fund, this
Agreement, the Subscription Agent Agreement, the Management Agreement, the
Administration Agreement between United States Trust Company of New York
and the Fund (the "Administration Agreement"), the International Custody
Agreement between Morgan Stanley Trust Company and the Fund (the
"International Custody Agreement") and the Domestic Custody Agreement
between U.S. Trust Company of New York and the Fund (the "Domestic Custody
Agreement") (the Management Agreement, the Administration Agreement, the
International Custody Agreement and the [Domestic Custody Agreement] are
referred to herein, collectively, as the "Fundamental Agreements"), each as
referred to in the Registration Statement, comply with all applicable
provisions of the Acts, and all approvals of such documents required under
the Investment Company Act by the Fund's shareholders and Board of
Directors have been obtained and are in full force and effect.
(h) The Fundamental Agreements are in full force and effect and
neither the Fund nor, to the Fund's knowledge, any other party to any such
agreement is in default thereunder and, to the knowledge of the Fund, no
event has occurred that with the passage of time or the giving of notice or
both would constitute a default thereunder. The Fund is not currently in
breach of, or
4
<PAGE> 6
in default under, any other written agreement or instrument to which it or
its property is bound or affected.
(i) The shares of Common Stock outstanding prior to the issuance of
the Shares have been duly authorized and are validly issued, fully paid and
non-assessable and the form of certificates used to evidence such shares is
in due and proper form and complies with all provisions of applicable law.
(j) The Offer, the Rights and the Shares have been duly authorized
and, when issued, paid for and delivered as described in the Registration
Statement, the Shares will be validly issued, fully paid and non-assessable
and the issuance of the Shares will not be subject to any pre-emptive or
similar rights. No person has rights to the registration of any securities
because of the filing of the Registration Statement.
(k) The Rights and the Shares have been approved for listing on the
New York Stock Exchange, Inc. (the "New York Stock Exchange"), subject to
official notice of issuance.
(l) The Fund is a regulated investment company under Subchapter M of
the Internal Revenue Code of 1986, as amended (the "Code").
(m) There has not been any material adverse change, or any
development involving a prospective material adverse change, in the
condition, financial or otherwise, of the Fund, or in the investment
objective, investment policies, liabilities, business, prospects or
operations of the Fund from that set forth in the Prospectus and there have
been no transactions entered into by the Fund that are material to the Fund
other than those in the ordinary course of its business or as described in
the Prospectus.
(n) There are no legal or governmental proceedings pending or, to the
knowledge of the Fund, threatened against or affecting the Fund that are
required to be described in the Registration Statement or the Prospectus
and are not so described or any statutes, regulations, contracts or other
documents that are required to be described in the Registration Statement
or the Prospectus or to be filed as an exhibit to the Registration
Statement that are not described, filed or incorporated by reference
therein as required.
5
<PAGE> 7
(o) The Fund has all necessary consents, authorizations, approvals,
orders (including exemptive orders), certificates and permits of and from,
and has made all declarations and filings with, all governmental
authorities, self-regulatory organizations and courts and other tribunals,
whether foreign or domestic, to own and use its assets and to conduct its
business in the manner described in the Prospectus, except to the extent
that the failure to obtain or file the foregoing would not have a material
adverse effect on the Fund.
(p) Each preliminary prospectus filed as part of the Registration
Statement as originally filed or as part of any amendment thereto, or filed
pursuant to Rule 497 under the Securities Act, complied when so filed in
all material respects with the Acts.
(q) (i) Each part of the Registration Statement, when such part
became effective, did not contain and each such part, as amended or
supplemented, if applicable, will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, (ii)
the Registration Statement, the Prospectus and the Offering Materials
comply and, as amended or supplemented, if applicable, will comply in all
material respects with the Acts and (iii) the Prospectus and the Offering
Materials do not contain and, as amended or supplemented, if applicable,
will not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, except that the
representations and warranties set forth in this paragraph (q) do not apply
to statements or omissions in the Registration Statement, the Prospectus or
the Offering Materials based upon information concerning Morgan Stanley
furnished to the Fund in writing by Morgan Stanley expressly for use
therein.
(r) The financial statements of the Fund, together with related notes
and schedules and the summary financial data included in the Registration
Statement and the Prospectus (or incorporated by reference therein as
permitted by the Acts) present fairly the financial position and results of
operations of the Fund as at the dates and for the periods indicated and
have been prepared in conformity with generally accepted accounting
principles. Price
6
<PAGE> 8
Waterhouse LLP, whose report has been incorporated by reference into the
Prospectus, are independent public accountants with respect to the Fund as
required by the Acts.
(s) There are no material restrictions, limitations or regulations
with respect to the ability of the Fund to invest its assets as described
in the Prospectus, other than as described therein.
II.
The Investment Manager represents and warrants to Morgan Stanley that:
(a) The Investment Manager has been duly incorporated, is validly
existing as a corporation in good standing under the laws of the State of
Delaware, has the corporate power and authority to conduct its business as
described in the Prospectus and is duly qualified to transact business and
is in good standing in each jurisdiction in which the conduct of its
business requires such qualification, except to the extent that failure to
be so qualified or be in good standing would not have a material adverse
effect on the Investment Manager.
(b) The Investment Manager is duly registered as an investment
adviser under the Advisers Act, and is not prohibited by the Advisers Act
or the Investment Company Act from acting under the Management Agreement as
an investment adviser to the Fund as contemplated by the Prospectus, and no
order of suspension or revocation of such registration has been issued or
proceedings therefor initiated or, to the knowledge of the Investment
Manager, threatened by the Commission.
(c) Each of this Agreement and the Management Agreement has been duly
authorized, executed and delivered by the Investment Manager and complies
with all applicable provisions of the Acts. The Management Agreement,
assuming due authorization, execution and delivery by the Fund, constitutes
the legal, valid and binding obligation of the Investment Manager,
enforceable against the Investment Manager in accordance with its terms,
except as such enforceability may be limited by applicable bankruptcy,
insolvency (including, without limitation, all laws relating to fraudulent
transfers), reorganization, moratorium or similar laws affecting creditors'
rights
7
<PAGE> 9
generally and by general principles of equity, regardless of whether
considered in a proceeding in equity or at law.
(d) The execution and delivery by the Investment Manager of, and the
performance by the Investment Manager of its obligations under, this
Agreement do not and will not contravene any provision of applicable law or
the certificate of incorporation or by-laws of the Investment Manager or
any agreement or other instrument binding upon the Investment Manager that
is material to the Investment Manager, or any judgment, order or decree of
any governmental body, agency or court having jurisdiction over the
Investment Manager. No consent, approval, authorization, order or permit
of, or qualification with, any governmental body or agency, self-regulatory
agency or court or other tribunal, whether foreign or domestic, is required
for the performance by the Investment Manager of its obligations under this
Agreement or the Management Agreement except such as have been obtained and
as may be required by the Acts, the Exchange Act or the securities or Blue
Sky laws of the various states and foreign jurisdictions in connection with
the distribution of the Rights and the issue and sale of the Shares.
(e) There are no legal or governmental proceedings pending or, to the
knowledge of the Investment Manager, threatened against or affecting the
Investment Manager that are required to be described in the Registration
Statement or the Prospectus and are not so described.
(f) The Investment Manager has all necessary consents,
authorizations, approvals, orders (including exemptive orders),
certificates and permits of and from, and has made all declarations and
filings with, all governmental authorities, self-regulatory organizations
and courts and other tribunals, whether foreign or domestic, to own and use
its assets and to conduct its business in the manner described in the
Prospectus, except to the extent that the failure to obtain or file the
foregoing would not have a material adverse effect on the Investment
Manager.
(g) The Investment Manager has the financial resources available to
it necessary for the performance of its services and obligations as
contemplated in the Prospectus.
8
<PAGE> 10
(h) The Management Agreement is in full force and effect and neither
the Investment Manager nor, to the Investment Manager's knowledge, the Fund
is in default thereunder and, to the knowledge of the Investment Manager,
no event has occurred which with the passage of time or the giving of
notice or both would constitute a default under the Management Agreement.
(i) All information furnished by the Investment Manager for use in
the Registration Statement and Prospectus, including, without limitation,
the description of the Investment Manager, does not, and on the Expiration
Date will not, contain any untrue statement of a material fact or omit to
state any material fact necessary to make such information not misleading.
(j) There has not been any material adverse change, or any
development involving a prospective material adverse change, in the
condition, financial or otherwise, or in the business or operations of the
Investment Manager from that set forth in the Prospectus.
III.
On the basis of the representations and warranties, and subject to the
terms and conditions, set forth in this Agreement:
(a) Morgan Stanley agrees to (1) solicit, in accordance with the
Acts, the Exchange Act and Morgan Stanley's customary practice, the
exercise of Rights, subject to the terms of this Agreement, the
Subscription Agent Agreement and the procedures described in the
Registration Statement, and (2) form and manage the Selling Group to (i)
solicit, in accordance with the Acts, the Exchange Act and Morgan Stanley's
customary practice, the exercise of Rights, subject to the terms of this
Agreement, the Subscription Agent Agreement and the procedures described in
the Registration Statement, and (ii) sell Shares purchased by Morgan
Stanley from the Fund as provided herein. No securities dealer shall be
considered a Selling Group Member until it shall have entered into a
Selling Group Agreement with Morgan Stanley in substantially the form of
Exhibit A hereto.
(b) Morgan Stanley is authorized to buy and exercise Rights and to
sell Shares to the public or to
9
<PAGE> 11
Selling Group Members at the offering price set by Morgan Stanley from time
to time. Sales of Shares by Morgan Stanley or Selling Group Members shall
be at not more than the offering price set by Morgan Stanley from time to
time. Such offering price shall not be increased more than once during any
calendar day and at the time any such price is set shall not be less than
the Subscription Price specified in the Prospectus nor more than the
greater of the last sale or the current offering price on the New York
Stock Exchange, plus an exchange commission.
(c) The Fund agrees to furnish, or cause to be furnished, to Morgan
Stanley lists, or copies of those lists, showing the names and addresses
of, and the number of Shares held by, Record Date Shareholders as of the
Record Date, and to use its best efforts to advise Morgan Stanley, or cause
it to be advised, on each day on which trading is conducted on the New York
Stock Exchange (a "Business Day") during the Subscription Period with
respect to any transfers of Rights, and Morgan Stanley agrees to use such
information only in connection with the Offer, and not to furnish the
information to any other person except for Selling Group Members or other
securities brokers and dealers that Morgan Stanley has requested to solicit
exercises of Rights.
(d) The Fund will arrange for the Subscription Agent to inform Morgan
Stanley orally, on each Business Day during the Subscription Period (to be
followed by written confirmation), as to the number of Rights that have
been exercised since its previous daily report to Morgan Stanley under the
provision of this paragraph (d) and, not later than 12:00 noon (New York
City time) on [ ], 1995 to provide Morgan Stanley
with a written statement as to the total number of Rights exercised
(separately setting forth the OPnumber of Rights exercised by Record Date
Shareholders).
(e) Morgan Stanley agrees to notify the Fund on or prior to [2 WEEKS
AFTER EXPIRATION DATE] of the Shares purchased by Morgan Stanley through
the exercise of Rights and sold to the public or to each Selling Group
Member and the total amount of the commissions payable by the Fund pursuant
to Article IV of this Agreement in connection with such sales.
(f) Morgan Stanley agrees to provide to the Fund, in addition to the
services described in paragraph (a) of this Article III, financial advisory
and marketing
10
<PAGE> 12
services in connection with the Offer and general financial advisory
services to the Fund. No advisory fee, other than the fees provided for in
Article IV of this Agreement and reimbursement of Morgan Stanley's
out-of-pocket expenses as described in paragraph (h) of Article VI of this
Agreement, will be payable by the Fund to Morgan Stanley in connection with
the general financial advisory services provided by Morgan Stanley in
accordance with this paragraph unless the Fund requests Morgan Stanley to
provide additional services with respect to a particular transaction
involving the Fund, in which event the fees payable to Morgan Stanley will
be mutually agreed upon by the Fund and Morgan Stanley.
(g) The Fund and Morgan Stanley agree that Morgan Stanley and each
Selling Group Member is an independent contractor with respect to its
solicitation of the exercise of Rights, the purchase of Rights or the sale
of Shares as contemplated by this Agreement and with respect to Morgan
Stanley's performance of financial advisory services to the Fund
contemplated by this Agreement, and Morgan Stanley represents and warrants
that it is not a partner or agent of any other securities broker, dealer or
other person soliciting the exercise of Rights, the purchase of Rights or
the sale of Shares as contemplated by this Agreement, or of the Fund or any
of its affiliates.
(h) In rendering the services contemplated by this Agreement, neither
Morgan Stanley nor any Selling Group Member will be subject to any
liability to the Fund, the Investment Manager or any of their affiliates,
for any act or omission on the part of any securities broker or dealer
(other than itself) or any other person, and neither Morgan Stanley nor any
Selling Group Member will have any liability (whether direct or indirect,
in contract or tort or otherwise) for or in connection with the performance
of its obligations under this Agreement except for any such liability for
losses, claims, damages or liabilities incurred that are finally judicially
determined to have resulted from its bad faith or gross negligence.
11
<PAGE> 13
IV.
The Fund agrees to pay in New York Clearing House (next day) funds on
[________], 1995 (or, if the Expiration Date is extended by the Fund and Morgan
Stanley, on such later date not more than 15 days after the Expiration Date as
the Fund and Morgan Stanley may agree to):
(i) to Morgan Stanley, as compensation for its services to the Fund
as financial and marketing advisor in connection with the Offer, a fee
equal to an amount computed by multiplying (A) .0125, by (B) the aggregate
number of Shares purchased from the Fund in the Offer, by (C) the
Subscription Price;
(ii) to Morgan Stanley for its own account a fee equal to an amount
computed by multiplying (A) .025, by (B) the sum of the number of Shares
purchased pursuant to each subscription form relating to the Rights upon
which Morgan Stanley is designated (other than Shares purchased by Morgan
Stanley through the exercise of Rights and sold to the public or to Selling
Group Members) plus the number of Shares sold by Morgan Stanley to the
public as indicated in the notice provided by Morgan Stanley to the Fund
pursuant to paragraph (e) of Article III of this Agreement, by (C) the
Subscription Price;
(iii) to Morgan Stanley for the account of each Selling Group Member a
fee equal to an amount computed by multiplying (A) .025, by (B) the sum of
the number of Shares purchased pursuant to each subscription form relating
to the Rights upon which the Selling Group Member is designated plus the
number of Shares sold by Morgan Stanley to such Selling Group Member as
indicated in the notice provided by Morgan Stanley to the Fund pursuant to
paragraph (e) of Article III of this Agreement, by (C) the Subscription
Price; and
(iv) (x) to each securities broker or dealer who has executed the
Fund's Soliciting Dealer Agreement (other than Morgan Stanley or any
Selling Group Member) designated on any subscription form related to the
Rights ("Listed Broker") a fee equal to an amount computed by multiplying
(A) .000, by (B) the number of Shares purchased pursuant to each
subscription form upon which the Listed Broker is designated, by (C) the
Subscription Price, and (y) to Morgan Stanley a fee equal to an amount
computed by multiplying (A) .000 by (B) the number of Shares purchased
pursuant to each subscription form upon which neither Morgan Stanley nor
12
<PAGE> 14
any Selling Group Member or Listed Broker is designated, by (C) the
Subscription Price.
V.
The respective obligations of the Fund, the Investment Manager and
Morgan Stanley are subject to the condition that the Registration Statement has
become effective not later than the date hereof.
The obligations of Morgan Stanley hereunder will at all times be
subject to the following further conditions:
(a) All representations, warranties and other statements of the Fund
and the Investment Manager contained herein or in certificates of any
officer of the Fund or the Investment Manager delivered pursuant to this
Agreement are now, and at all times during the Subscription Period will be,
true and correct in all material respects as though expressly made at such
time.
(b) There has not occurred any change, or any development involving a
prospective change, in the condition, financial or otherwise, of the Fund
or the Investment Manager, or in the investment objectives, investment
policies, liabilities, business, prospects or operations of the Fund from
those set forth in the Registration Statement, that, in Morgan Stanley's
reasonable judgment, is material and adverse and that makes it, in Morgan
Stanley's reasonable judgment, impracticable to distribute the Rights and
market the Shares on the terms and in the manner contemplated in the
Prospectus.
(c) Morgan Stanley has received separate certificates, dated the date
hereof and signed by an executive officer of each of the Fund and the
Investment Manager in the officer's capacity as such, to the effect that
the respective representations and warranties of the Fund and the
Investment Manager contained in this Agreement are true and correct as of
the date hereof. Each officer signing and delivering such a certificate
may rely upon the best of his knowledge as to proceedings threatened.
(d) The Investment Manager and the Fund at all times during the
Subscription Period have each performed all of their respective obligations
required to be performed hereunder.
13
<PAGE> 15
(e) Morgan Stanley has received on the date hereof an opinion of
Rogers & Wells, counsel for the Fund, dated the date hereof, to the effect
that:
(i) the Registration Statement is effective under the Acts and,
to the best of such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement is in effect and no
proceedings for such purpose are pending or threatened by the
Commission;
(ii) the Fund has been duly incorporated, is validly existing as
a corporation in good standing under the laws of the State of
Maryland, has the corporate power and authority to conduct its
business as described in the Prospectus and is duly qualified to
transact business and is in good standing in each jurisdiction in
which the conduct of its business requires such qualification, except
to the extent that the failure to be so qualified or to be in good
standing would not have a material adverse effect on the Fund;
(iii) the Fund is registered with the Commission as a
non-diversified, closed-end management investment company under the
Investment Company Act and, to the best of such counsel's knowledge,
no order of suspension or revocation of such registration has been
issued or proceedings initiated for that purpose or threatened by the
Commission;
(iv) each of this Agreement and the Subscription Agent Agreement
has been duly authorized, executed and delivered by the Fund. The
Subscription Agent Agreement constitutes the legal, valid and binding
obligation of the Fund, enforceable against the Fund in accordance
with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency (including, without limitation, all
laws relating to fraudulent transfers), reorganization, moratorium or
similar laws affecting creditors' rights generally and by general
principles of equity, regardless of whether considered in a proceeding
in equity or at law;
(v) none of (A) the execution and delivery by the Fund of, and
the performance by the Fund of its obligations under, each of this
Agreement and the Subscription Agent Agreement, or (B) the
14
<PAGE> 16
distribution of the Rights and the issue and sale of the Shares
contravenes or will contravene any provision of applicable U.S., State
of New York or State of Maryland law or the articles or incorporation
or by-laws of the Fund or any material agreement or instrument binding
upon the Fund that is known to such counsel, or any judgment, order or
decree of any U.S., State of New York or State of Maryland
governmental body, agency or court having jurisdiction over the Fund
that is known to such counsel. No consent, approval, authorization,
permit or order of, or qualification with, any U.S. or State of New
York governmental body or agency, self-regulatory organization or
court or other tribunal, is required for the performance by the Fund
of its obligations under this Agreement and the Subscription Agent
Agreement, except as may be required by the Acts, the Exchange Act or
the securities or Blue Sky laws of the various states and in
connection with the distribution of the Rights and the issue and sale
of the Shares;
(vi) the authorized capital stock and the articles of
incorporation and by-laws of the Fund conform in all material respects
to the description of them contained in the Prospectus; and the Rights
and Shares conform in all material respects as to legal matters to the
descriptions of them contained in the Prospectus;
(vii) the articles of incorporation and by-laws of the Fund,
this Agreement and each of the Fundamental Agreements comply with all
applicable provisions of the Acts, and all approvals of such documents
required under the Investment Company Act by the Fund's shareholders
and Board of Directors have been obtained and are in full force and
effect;
(viii) to the knowledge of such counsel, the Fundamental
Agreements are in full force and effect and, to such counsel's
knowledge, neither the Fund nor any other party to any such agreement
is in default thereunder and, to the knowledge of such counsel, no
event has occurred which with the passage of time or the giving of
notice or both would constitute a default thereunder. To the
knowledge of such counsel, the Fund is not currently in breach of, or
in default under, any
15
<PAGE> 17
other written agreement or instrument to which it or its property is
bound or affected;
(ix) the shares of Common Stock outstanding prior to issuance of
the Shares have been duly authorized and are validly issued, fully
paid and non-assessable, and the form of certificate used to evidence
the shares is in due and proper form and complies with all provisions
of applicable law;
(x) the Offer, the Rights and the Shares have been duly
authorized and, when issued, paid for and delivered as described in
the Registration statement, the Shares will be validly issued, fully
paid and non-assessable and the issuance of the Shares will not be
subject to any pre-emptive or similar rights;
(xi) the Rights and the Shares have been approved for listing on
the New York Stock Exchange, subject to official notice of issuance;
(xii) the statements in the Prospectus under "Taxation - U.S.
Federal Income Taxes" and "Common Stock," insofar as such statements
constitute a summary of the law or legal conclusions, documents or
proceedings referred to therein, are accurate in all material respects
and fairly represent the information called for with respect to such
legal matters, legal conclusions, documents and proceedings and fairly
summarize the matters referred to therein;
(xiii) the descriptions, if any, in the Prospectus of the U.S.
or State of New York statutes, regulations and legal or governmental
proceedings are accurate in all material respects and fairly summarize
the matters referred to therein;
(xiv) there are no U.S. or State of New York statutes or
regulations, or, to the best of such counsel's knowledge, contracts or
other documents that are required to be described in the Registration
Statement or the Prospectus or to be filed as exhibits to the
Registration Statement that are not described or filed as required;
and, to the best of such counsel's knowledge, there are no legal or
governmental proceedings pending or threatened that are required to be
described in
16
<PAGE> 18
the Registration Statement or the Prospectus and are not so described;
(xv) the Registration Statement and the Prospectus and any
supplements or amendments thereto (except for financial statements and
schedules included therein as to which such counsel need not express
any opinion) comply as to form in all material respects with the Acts;
and
(xvi) all advertisements authorized in writing by the Fund for
use in connection with the Offer comply with the requirements of the
Acts.
In addition to the foregoing opinion, such counsel will advise Morgan
Stanley that, in the light of such counsel's understanding of the applicable law
and the experience it has gained through its practice thereunder, nothing has
come to its attention that would lead it to believe that (except for financial
statements, schedules and other financial, economic or statistical information
contained in the Registration Statement or the Prospectus or incorporated by
reference therein, as to which counsel need express no belief) the Registration
Statement, on the date it became effective, contained any untrue statement of a
material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein not misleading or that the
Prospectus, as of the time it was first provided to Morgan Stanley, contained
any untrue statement of a material fact or omitted to state any material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading. Counsel will also be permitted to
state that because of the limitations inherent in the independent verification
of factual matters and the character of determinations involved in the
registration process, that counsel does not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the
Registration statement or Prospectus.
(f) Morgan Stanley has received on the date hereof an opinion of
Harold J. Schaaff, Jr., general counsel for the Investment Manager, dated
the date hereof, to the effect that:
(i) the Investment Manager has been duly incorporated, is
validly existing as a corporation in good standing under the laws of
the State of Delaware, has the corporate power and authority to
conduct its business as described in the Prospectus and is duly
qualified to transact
17
<PAGE> 19
business and is in good standing in each jurisdiction in which the
conduct of its business requires such qualification, except to the
extent that failure to be so qualified or be in good standing would
not have a material adverse effect on the Investment Manager;
(ii) the Investment Manager is duly registered as an investment
adviser under the Advisers Act and is not prohibited by the Advisers
Act or the Investment Company Act from acting under the Management
Agreement as an investment manager to the Fund as contemplated by the
Prospectus, and no order of suspension or revocation of such
registration has been issued or proceedings initiated for that purpose
or, to the best of such counsel's knowledge, threatened by the
Commission;
(iii) this Agreement has been duly authorized, executed and
delivered by the Investment Manager;
(iv) the execution and delivery by the Investment Manager of,
and the performance by the Investment Manager of its obligations
under, this Agreement will not contravene any provision of applicable
U.S. or State of New York law or the certificate of incorporation or
by-laws of the Investment Manager or, to the best of such counsel's
knowledge, any agreement or other instrument binding upon the
Investment Manager that is material to the Investment Manager or, to
the best of such counsel's knowledge, any judgment, order or decree of
any U.S. or State of New York governmental body, agency or court
having jurisdiction over the Investment Manager, and no consent,
approval or authorization, or order of, or qualification with, any
U.S. or State of New York governmental body or agency is required for
the performance by the Investment Manager of its obligations under
this Agreement, except such as may be required by the Acts, the
Exchange Act or the securities or Blue Sky laws of the various states
in connection with the distribution of the Rights and the issue and
sale of the Shares;
(v) to the best knowledge of such counsel, there are no
actions, investigations or other proceedings of any nature, whether
foreign or domestic, pending, commenced or threatened, that in any
case or in the aggregate, might result in any material adverse change
in the business of the
18
<PAGE> 20
Investment Manager or that question the validity of this Agreement or
the Management Agreement or the performance by the Investment Manager
of such Agreements; and
(vi) the description of the Investment Manager in the Prospectus
does not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which
they were made, not misleading.
(g) Morgan Stanley has received on the date hereof an opinion of
Davis Polk & Wardwell, counsel to Morgan Stanley, dated the date hereof,
covering the matters referred to in subparagraphs (iv) (but only as to this
Agreement), (vi), (x) and (xii) (but only as to the statements in the
Prospectus under "Common Stock" and "Distribution Arrangements," and only
with respect to matters of U.S. law or legal conclusions) of paragraph (e)
above and the last paragraph of (e) above.
With respect to the last paragraph of (e) and (g) above, Rogers &
Wells and Davis Polk & Wardwell may state that their opinion and belief are
based upon their participation in the preparation of the Registration Statement
and Prospectus and any amendments or supplements thereto and review and
discussion of the contents thereof, but are without independent check or
verification except as specified. With respect to paragraphs (e) and (g)
above, Rogers & Wells and Davis Polk & Wardwell may rely as to matters governed
by the laws of the State of Maryland upon an opinion of Maryland counsel for
the Fund and to the extent any such counsel deems appropriate, upon the
representations of the Fund contained herein; provided that (A) such Maryland
counsel for the Fund is reasonably satisfactory to Morgan Stanley and (B) a
copy of the opinion so relied upon is delivered to Morgan Stanley and is in
form and substance satisfactory to Morgan Stanley.
(h) Morgan Stanley has received on the date hereof a letter dated the
date hereof, in form and substance satisfactory to Morgan Stanley, from Price
Waterhouse LLP, independent public accountants, containing statements and
information of the type ordinarily included in accountants' "comfort letters" to
underwriters with respect to the financial statements and certain financial
information regarding the Fund contained in the Registration Statement and the
Prospectus.
19
<PAGE> 21
(i) Morgan Stanley has received during the Subscription Period such
further information, certificates and documents as Morgan Stanley may reasonably
request.
(j) All proceedings taken by the Fund and the Investment Manager in
connection with the distribution of Rights and the issue and sale of the Shares
and registration of the Shares under the Acts and the laws of any foreign
jurisdiction will be satisfactory in form and substance to Morgan Stanley and
its counsel.
(k) No proceedings have been instituted or threatened by the
Commission that would adversely affect the Fund's standing as a registered
investment company under the Investment Company Act or the standing of the
Investment Manager as a registered investment adviser under the Advisers Act.
(l) The Rights and the Shares have been duly authorized for listing
on the New York Stock Exchange, subject only to official notice of issuance.
In the event that any of the foregoing conditions is at any time not
fulfilled, Morgan Stanley will be entitled to withdraw as dealer manager for the
Offer without any liability or penalty to Morgan Stanley or any "controlling
person" (as defined in Article VII hereof) and without loss of any right to the
payment of any fees pursuant to Section IV earned prior to the date of such
withdrawal and expenses payable hereunder.
VI.
In further consideration of the agreements of Morgan Stanley contained
in this Agreement, the Fund covenants and agrees with Morgan Stanley as follows:
(a) To notify Morgan Stanley immediately, and confirm such notice in
writing (i) of the institution of any proceedings pursuant to Section 8(e)
of the Investment Company Act and (ii) of the happening of any event during
the period described in paragraph (d) below that in the judgment of the
Fund makes the Registration Statement or the Prospectus untrue in any
material respect or that requires the making of any change in or addition
to the Registration Statement or the Prospectus in order to make the
statements therein not misleading in any material respect. If at any time
the Commission issues any order suspending the effectiveness of the
Registration Statement or an order pursuant to Section 8(e) of the
Investment Company Act,
20
<PAGE> 22
the Fund will make every reasonable effort to obtain the withdrawal of such
order at the earliest possible moment.
(b) To furnish Morgan Stanley, without charge, five signed copies of
the Registration Statement including exhibits and, during the period
described in paragraph (d) below, as many copies of the Prospectus and any
supplements and amendments thereto as Morgan Stanley may reasonably
request.
(c) Before amending or supplementing the Registration Statement or
the Prospectus, to furnish Morgan Stanley with a copy of each proposed
amendment or supplement, and to file no proposed amendment or supplement to
which Morgan Stanley reasonably objects.
(d) If, during such period as in the opinion of counsel to Morgan
Stanley the Prospectus is required by law to be delivered, any event occurs
as a result of which it is necessary to amend or supplement the Prospectus
in order to make the statements therein, in the light of the circumstances
when the Prospectus was delivered to a purchaser, not misleading, or if it
is necessary to amend or supplement the Prospectus to comply with law,
forthwith to prepare and furnish, at its own expense, to Morgan Stanley and
to the Selling Group Members and other dealers (whose names and addresses
Morgan Stanley will furnish to the Fund) to which Rights and/or Shares may
have been sold by you and to any other dealers upon request, either
amendments or supplements to the Prospectus so that the statements in the
Prospectus as so amended or supplemented will not, in the light of the
circumstances when the Prospectus is delivered to a purchaser, be
misleading or so that the Prospectus will comply with law.
(e) To use its best efforts to maintain its qualification as a
regulated investment company under Subchapter M of the Code.
(f) To endeavor to qualify the Rights and the Shares for offer and
sale under the securities or Blue Sky laws of such jurisdictions as Morgan
Stanley reasonably requests and to pay all expenses (including reasonable
fees and disbursements of counsel) in connection therewith as well as all
fees payable in connection with the review (if any) of the distribution of
the Rights and the issue and sale of the Shares by the National Association
of Securities Dealers, Inc.;
21
<PAGE> 23
provided, however, that the Fund shall not be obligated to file any consent
to service of process or to qualify as a foreign corporation in any
jurisdiction in which it is not so qualified.
(g) To make generally available to the Fund's security holders as
soon as practicable an earning statement covering the twelve-month period
ending June 30, 1996 that satisfies the provisions of Section 11(a) of the
Securities Act.
(h) To pay (A) all costs, expenses, fees and taxes incident to (i)
the preparation, printing and filing of the Registration Statement and of
each amendment thereto, each preliminary prospectus and the Prospectus and
any amendments or supplements thereto, and any Offering Materials, (ii) the
printing of this Agreement and such other agreements as Morgan Stanley may
reasonably request, (iii) the preparation, issuance and delivery of the
certificates for the Rights and the Shares, including stock transfer taxes,
if any, payable upon the sale, issuance and delivery by the Fund of the
Shares, (iv) the fees and disbursements of the Fund's counsel and
accountants, (v) furnishing such copies of the Registration Statement, the
Prospectus and any related preliminary prospectus, and all amendments and
supplements thereto, as may be reasonably requested for use in connection
with the distribution of the Rights and the issue and sale of the Shares,
(vi) the printing and delivery to Morgan Stanley of copies of the Blue Sky
Survey and (vii) the fees and expenses incurred with respect to the listing
of the Rights and the Shares on the New York Stock Exchange including the
listing fees of such Exchange and the preparation, printing and the filing
fees with respect to the distribution of documents relating thereto, and
(B) to Morgan Stanley up to $[_______] as reimbursement of certain costs
and expenses of Morgan Stanley incurred in connection with the distribution
of the Rights and the issue and sale of the Shares.
VII.
The Fund agrees to indemnify and hold harmless Morgan Stanley and each
person, if any, who controls Morgan Stanley within the meaning of either Section
15 of the Securities Act or Section 20 of the Exchange Act (a "controlling
person") from and against any and all losses, claims, damages and liabilities
(including, without limitation, any legal or other expenses reasonably incurred
22
<PAGE> 24
by Morgan Stanley or any such controlling person in connection with defending or
investigating any such action or claim) (a) caused by any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement or any amendment thereof, any preliminary prospectus or the Prospectus
(as amended or supplemented if the Fund has furnished any amendments or
supplements thereto), or any Offering Materials, or caused by any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, except insofar as
such losses, claims, damages or liabilities are caused by any such untrue
statement or omission based upon information relating to Morgan Stanley
furnished to the Fund in writing by Morgan Stanley expressly for use therein;
provided that the foregoing indemnity agreement with respect to any preliminary
prospectus will not inure to the benefit of Morgan Stanley or of any person
controlling Morgan Stanley, if a copy of the Prospectus (as then amended or
supplemented if the Fund has furnished any amendments or supplements thereto)
was not sent or given by or on behalf of Morgan Stanley to such person, if
required by law to have been delivered, at or prior to the written confirmation
of the sale of the Shares to such person, and if the Prospectus (as so amended
or supplemented) would have cured the defect giving rise to such losses, claims,
damages or liabilities, or (b) arising out of or based upon (i) any failure of
the Fund to consummate the Offer, including any failure of the Fund to issue the
Rights or issue and sell the Shares, (ii) any action taken or omitted to be
taken by Morgan Stanley with the consent of the Fund, (iii) any action taken or
omitted to be taken by the Fund, (iv) any breach by the Fund of any
representation or warranty, or any failure by the Fund to comply with any
agreement or covenant contained in this Agreement or (v) any of the other
transactions contemplated by the Offer or by Morgan Stanley's performance of its
obligations under this Agreement.
Morgan Stanley agrees to indemnify and hold harmless the Fund, its
directors, and each officer of the Fund who signs the Registration Statement and
each person, if any, who controls the Fund within the meaning of either Section
15 of the Securities Act or Section 20 of the Exchange Act from and against any
and all losses, claims, damages and liabilities caused by any untrue statement
or alleged untrue statement of a material fact contained in the Registration
Statement or the Prospectus (as amended or supplemented if the Fund has
furnished any amendment or supplements thereto) or any preliminary prospectus or
any Offering Materials, or caused by any omission or alleged omission to state
therein a material fact required to be
23
<PAGE> 25
stated therein or necessary to make the statements therein not misleading, but
only with reference to information relating to Morgan Stanley furnished to the
Fund in writing by Morgan Stanley expressly for use in the Registration
statement, the Prospectus, any amendment or supplement thereto, any preliminary
prospectus or any Offering Materials.
In case any proceeding (including any governmental investigation) is
instituted involving any person in respect of which indemnity may be sought
pursuant to either of the two preceding paragraphs, such person (the
"indemnified party") will promptly notify the person against whom such indemnity
may be sought (the "indemnifying party") in writing and the indemnifying party,
upon request of the indemnified party, will retain counsel reasonably
satisfactory to the indemnified party to represent the indemnified party and any
others the indemnifying party may designate in such proceeding and will pay the
fees and expenses of such counsel related to such proceeding. In any such
proceeding, any indemnified party will have the right to retain its own counsel,
but the fees and expenses of such counsel will be at the expense of such
indemnified party unless (i) the indemnifying party and the indemnified party
have mutually agreed to the retention of such counsel or (ii) the named parties
to any such proceeding (including any impleaded parties) include both
indemnifying party and the indemnified party and representation of both parties
by the same counsel would be inappropriate due to actual or potential differing
interests between them. It is understood that the indemnifying party will not,
in connection with any proceeding or related proceedings in the same
jurisdiction, be liable for (a) the fees and expenses of more than one separate
firm (in addition to any local counsel) for Morgan Stanley and all persons, if
any, who control Morgan Stanley within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act and (b) the fees and expenses
of more than one separate firm (in addition to any local counsel) for the Fund,
its directors, its officers who sign the Registration Statement and each person,
if any, who controls the Fund within the meaning of either such Section. The
indemnifying party will pay fees and expenses as they are incurred. The
indemnifying party will not be liable for any settlement of any proceeding
effected without its written consent, but if settled with such consent or if
there be a final judgment for the plaintiff, the indemnifying party agrees to
indemnify the indemnified party from and against any loss or liability by reason
of such settlement or judgment. Notwithstanding the foregoing sentence, if at
any time an indemnified party will have requested an indemnifying party
24
<PAGE> 26
to reimburse the indemnified party for fees and expenses of counsel as
contemplated by the second and third sentences of this paragraph, the
indemnifying party agrees that it will be liable for any settlement of any
proceeding effected without its written consent if (i) such settlement is
entered into more than 30 days after receipt by such indemnifying party of the
aforesaid request and (ii) such indemnifying party has not reimbursed the
indemnified party in accordance with such request prior to the date of such
settlement. No indemnifying party may, without the prior written consent of the
indemnified party, effect any settlement of any pending or threatened proceeding
in respect of which any indemnified party is or could have been a party and
indemnity could have been sought hereunder by such indemnified party, unless
such settlement includes an unconditional release of such indemnified party from
all liability on claims that are the subject matter of such proceeding.
If the indemnification provided for in the first or second paragraph
of this Article VII is unavailable to an indemnified party or insufficient in
respect of any losses, claims, damages or liabilities referred to therein, then
each indemnifying party under such paragraph, in lieu of indemnifying such
indemnified party thereunder, will contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the Fund on the one hand and Morgan Stanley on the other
hand from the distribution of the Rights and the issue and sale of the Shares or
(ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Fund on the one hand and of Morgan Stanley on the other hand in connection
with the statements or omission that resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations. The
relative benefits received by the Fund on the one hand and by Morgan Stanley on
the other hand will be deemed to be in the same respective proportions as the
net proceeds from the subscription for the Shares (before deducting expenses)
received by the Fund on the one hand bear to the amounts received by Morgan
Stanley pursuant to Article IV hereof on the other hand. The relative fault of
the parties will be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Fund on
the one hand or by Morgan Stanley on the other hand and the
25
<PAGE> 27
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
The Fund and Morgan Stanley agree that it would not be just or
equitable if contribution pursuant to this Article VII were determined by pro
rata allocation or by any other method of allocation that does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an indemnified party as a result of
the losses, claims, damages and liabilities referred to in the immediately
preceding paragraph will be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Article VII, Morgan Stanley will not be
required to contribute any amount in excess of the amount by which the total
fees received by Morgan Stanley pursuant to Article IV hereof exceeds the amount
of any damages that Morgan Stanley has otherwise been required to pay by reason
of such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) will be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The remedies provided
for in this Article VII are not exclusive and will not limit any rights or
remedies that may otherwise be available to any indemnified party at law or in
equity.
The indemnity and contribution provisions contained in this Article
VII and the representations and warranties of the Fund and the Investment
Manager contained in this Agreement shall remain operative and in full force and
effect regardless of (i) any termination of this Agreement or (ii) any
investigation made by or on behalf of any indemnified party.
VIII.
This Agreement will be subject to termination by notice given by
Morgan Stanley to the Fund, if (a) after the execution and delivery of this
Agreement (i) trading generally has been suspended or materially limited on the
New York Stock Exchange, the American Stock Exchange, the National Association
of Securities Dealers, Inc., the Chicago Board of Options Exchange, the Chicago
Mercantile Exchange or the Chicago Board of Trade, (ii) a general moratorium on
commercial banking activities has been declared by either federal or New York
State authorities or
26
<PAGE> 28
(iii) there has occurred any outbreak or escalation of hostilities or any change
in financial markets or any calamity or crisis that, in Morgan Stanley's
judgment, is material and adverse and (b) in the case of any of the events
specified in clauses (a)(i) through (iii), such event singly or together with
any other such events makes it impracticable in Morgan Stanley's judgment to
proceed with the solicitation of the exercise of the Rights or to market the
Shares on the terms and in the manner contemplated in the Prospectus.
Termination of this Agreement by Morgan Stanley shall not preclude the Fund from
consummating the Offer at its discretion.
IX.
If the issuance of the Rights and the sale of Shares is not
consummated because of any failure, refusal or inability on the part of the Fund
or the Investment Manager to perform any agreement on its part to be performed,
or because any other condition of the obligations of Morgan Stanley under this
Agreement is not fulfilled, the Fund will reimburse Morgan Stanley for up to
$[_______] for actual out-of-pocket costs and expenses as have been incurred by
Morgan Stanley in connection with this Agreement and the proposed Offer, and
upon demand, the Fund will pay the full amount of those costs and expenses to
Morgan Stanley.
X.
Any notice by the Fund or the Investment Manager to Morgan Stanley
will be sufficient if given in writing, by telegraph or by facsimile addressed
to Morgan Stanley at 1251 Avenue of the Americas, New York, New York 10020
Attention: Corporate Financing Department, and any notice by Morgan Stanley to
the Fund or the Investment Manager will be sufficient if given in writing, by
telegraph or by facsimile addressed to the Fund at 1221 Avenue of the Americas,
New York, New York 10020 Attention: Warren J. Olsen.
This Agreement may be signed in two or more counterparts, each of
which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument.
27
<PAGE> 29
This Agreement shall be governed by and construed in accordance with
the internal laws of the State of New York.
Very truly yours,
MORGAN STANLEY EMERGING
MARKETS FUND, INC.
By_____________________________________
MORGAN STANLEY ASSET MANAGEMENT
INC.
By_____________________________________
Accepted, [_________], 1995
MORGAN STANLEY & CO.
INCORPORATED
By______________________________
28
<PAGE> 1
MORGAN STANLEY EMERGING MARKETS FUND, INC.
RIGHTS OFFERING FOR SHARES OF COMMON STOCK
SOLICITING DEALER AGREEMENT
THE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
_______________, 1995, UNLESS EXTENDED.
To Securities Brokers and Dealers:
Morgan Stanley Emerging Markets Fund, Inc. (the "Fund") is issuing to its
shareholders of record ("Record Date Shareholders") as of the close of business
on May [__], 1995 (the "Record Date") rights ("Rights") to subscribe for an
aggregate of 5,800,000 shares (the "Shares") of common stock, par value $.01 per
share ("Common Stock"), of the Fund upon the terms and subject to the conditions
set forth in the Fund's Prospectus dated [____________], 1995 (the "Offer").
Each Record Date Shareholder is being issued one Right for each full share of
Common Stock owned on the Record Date. The number of Rights to be issued to
Record Date Shareholders will be rounded up to the nearest number of Rights
evenly divisible by three. No fractional Rights will be issued. The Rights are
listed for trading on the New York Stock Exchange. The Rights entitle the
Record Date Shareholders and holders of Rights acquired during the Subscription
Period (as hereinafter defined) to acquire at the Subscription Price (as
hereinafter defined) one Share for each three Rights held in the primary
subscription. The Subscription Price is $[__] per Share. The Subscription
Period commences on May [__], 1995 and ends at 5:00 p.m., New York time, on
[________], 1995 or such later time and date to which the Offer may be extended
by the Fund and the Dealer Manager (as hereinafter defined) (the "Expiration
Date"). Any Record Date Shareholder who fully exercises all Rights issued to him
is entitled to subscribe for Shares which were not otherwise subscribed for by
others in the primary subscription (the "Over-Subscription Privilege"). Shares
acquired pursuant to the Over-Subscription Privilege are subject to allotment,
as more fully discussed in the Prospectus.
For the duration of the Offer, the Fund will pay Soliciting Fees (as
hereinafter defined) to any qualified broker or dealer who solicits the exercise
of Rights in connection with the Offer and who complies with the procedures
described below (a "Soliciting Dealer"). Upon timely delivery to The First
National Bank of Boston, the Fund's subscription agent for the Offer (the
"Subscription Agent"), of payment for Shares purchased pursuant to the exercise
of Rights and of properly completed and executed documentation as set forth in
this Soliciting Dealer Agreement, a Soliciting Dealer will be entitled to
receive fees equal to [ ]% of the Subscription Price per Share purchased
pursuant to exercise of the Rights (the "Soliciting Fees"). A qualified broker
or dealer is a broker or dealer that is a member of a
<PAGE> 2
registered national securities exchange in the United States or the National
Association of Securities Dealers, Inc. ("NASD") or otherwise eligible to
participate under the NASD Rules.
The Fund hereby agrees to pay the Soliciting Fees payable to the
Soliciting Dealers. Solicitation and other activities by Soliciting Dealers may
be undertaken only in accordance with the applicable rules and regulations of
the Securities and Exchange Commission and only in those states and other
jurisdictions where those solicitations and other activities may lawfully be
undertaken and in accordance with the laws in those states and other
jurisdictions. Compensation will not be paid for solicitations in any state or
other jurisdiction in which, in the opinion of counsel to the Fund or counsel to
Morgan Stanley & Co. Incorporated, the dealer manager in connection with the
Offer (the "Dealer Manager"), compensation may not lawfully be paid. No
Soliciting Dealer will be paid Soliciting Fees with respect to Shares purchased
pursuant to an exercise of Rights for its own account or for the account of any
affiliate of the Soliciting Dealer, except that the Dealer Manager will receive
Soliciting Fees with respect to Shares purchased pursuant to an exercise of
Rights for its own account, provided that those Shares are offered and sold by
the Dealer Manager to its clients. No Soliciting Dealer or any other person is
authorized by the Fund or the Dealer Manager to give any information or make any
representations in connection with the Offer other than those contained in the
Prospectus and other authorized solicitation material furnished by the Fund
through the Dealer Manager. No Soliciting Dealer is authorized to act as agent
of the Fund or the Dealer Manager in any connection or transaction. In
addition, nothing contained in this Soliciting Dealer Agreement will constitute
the Soliciting Dealers partners with the Dealer Manager or with one another or
create any association between those parties, or will render the Dealer Manager
or the Fund liable for the obligations of any Soliciting Dealer. The Dealer
Manager will be under no liability to make any payment to any Soliciting Dealer,
and will be subject to no other liabilities to any Soliciting Dealer, and no
obligations of any sort will be implied.
In order for a Soliciting Dealer to receive Soliciting Fees, the
Subscription Agent must have received from that Soliciting Dealer no later than
5:00 p.m., New York time, on the Expiration Date, a properly completed and duly
executed Soliciting Dealer Agreement (or a facsimile thereof), accompanied by
either (i) a properly completed and duly executed Subscription Certificate with
respect to Shares purchased pursuant to the exercise of Rights and full payment
for those Shares; or (ii) a Notice of Guaranteed Delivery guaranteeing delivery
to the Subscription Agent by the close of business of the [fifth] Business Day
(as hereinafter defined) after the Expiration Date of a properly completed and
duly executed Subscription Certificate with respect to Shares purchased pursuant
to the
2
<PAGE> 3
exercise of Rights and full payment for such Shares. Soliciting Fees will only
be paid to a Soliciting Dealer who is designated on the Subscription
Certificate; if no Soliciting Dealer is designated, the Soliciting Fees will be
paid to the Dealer Manager. A "Business Day" means any day on which trading is
conducted on the New York Stock Exchange. In the case of a Notice of Guaranteed
Delivery, Soliciting Fees will only be paid after payment and delivery in
accordance with that Notice of Guaranteed Delivery has been effected.
All questions as to the form, validity and eligibility (including time of
receipt) of the Soliciting Dealer Agreement will be determined by the Fund, in
its sole discretion, which determination will be final and binding. Unless
waived, any irregularities in connection with a Soliciting Dealer Agreement or
delivery of a Soliciting Dealer Agreement must be cured within such time as the
Fund may determine. None of the Fund, the Dealer Manager, Shareholder
Communications Corporation, the Fund's Information Agent for the Offer, or the
Subscription Agent, or any other person will be under any duty to give
notification of any defects or irregularities in any Soliciting Dealer Agreement
or incur any liability for failure to give that notification.
Execution and delivery of this Soliciting Dealer Agreement and the
acceptance of Soliciting Fees from the Fund by a Soliciting Dealer constitute a
representation and warranty by that Soliciting Dealer to the Fund that: (i) it
has received and reviewed the Prospectus; (ii) in soliciting purchases of Shares
pursuant to the exercise of the Rights, it has complied with the applicable
requirements of the Securities Exchange Act of 1934 (the "Exchange Act"), the
applicable rules and regulations thereunder, any applicable securities laws of
any state or jurisdiction where such solicitations may lawfully be made, and the
applicable rules and regulations of any self-regulatory organization or
registered national securities exchange; (iii) in soliciting purchases of Shares
pursuant to the exercise of the Rights, it has not published, circulated or used
any soliciting materials other than the Prospectus and any other authorized
solicitation material furnished by the Fund through the Dealer Manager; (iv) it
has not purported to act as agent of the Fund or the Dealer Manager in any
connection or transaction relating to the Offer; (v) the information contained
in this Soliciting Dealer Agreement is, to its best knowledge, true and
complete; (vi) it is not affiliated with the Fund; (vii) the Soliciting Fees
being paid to it are not being paid with respect to Shares purchased by it
pursuant to an exercise of Rights for its own account; (viii) it will not remit,
directly or indirectly, any part of Soliciting Fees paid by the Fund pursuant to
the terms of this Soliciting Dealer Agreement to any beneficial owner of Shares
purchased pursuant to the Offer; and (ix) it has agreed to the amount of the
Soliciting Fees and the terms and conditions set forth in this Soliciting Dealer
Agreement with respect to
3
<PAGE> 4
receiving those Soliciting Fees. By returning a Soliciting Dealer Agreement and
accepting Soliciting Fees, a Soliciting Dealer agrees to indemnify the Fund
against losses, claims, damages and liabilities to which the Fund may become
subject as a result of the breach of that Soliciting Dealer's representations
made in this Soliciting Dealer Agreement and described above. In making the
foregoing representations and warranties, Soliciting Dealers are reminded of the
possible applicability of Rule 10b-6 under the Exchange Act if they have bought,
sold, dealt in or traded in any Shares for their own account since the
commencement of the Offer.
Soliciting Fees due to eligible Soliciting Dealers will be paid promptly
after consummation of the Offer. Upon expiration of the Offer, no Soliciting
Fees will be payable to Soliciting Dealers with respect to Shares purchased
thereafter.
This Soliciting Dealer Agreement may be signed in two or more
counterparts, each of which will be an original, with the same effect as if the
signatures were upon the same instrument.
This Soliciting Dealer Agreement will be governed by the internal laws of
the State of New York.
Please list on the Appendix attached to this Agreement and forming part
of this Soliciting Dealer Agreement the number of Shares purchased pursuant to
the exercise of the Rights by each beneficial owner whose purchases you, as a
Soliciting Dealer, have solicited. All amounts beneficially owned by a
beneficial owner, whether in one account or several, and in however many
capacities, must be aggregated for purposes of completing the table in the
Appendix to this Agreement. Any questions as to what constitutes beneficial
ownership should be directed to the Fund. The number of shares not listed in
the Appendix for reasons of inadequate space should be listed on a separate
schedule attached to, and forming part of, this Soliciting Dealer Agreement.
4
<PAGE> 5
Please execute this Soliciting Dealer Agreement below, accepting the
terms and conditions set forth in this Soliciting Dealer Agreement and
confirming that you are a member firm of a registered national securities
exchange or of the NASD or a foreign broker or dealer not eligible for
membership who has conformed to the Rules of Fair Practice of the NASD in making
solicitations of the type being undertaken pursuant to the Offer in the United
States to the same extent as if you were a member of the NASD, and certifying
that you have solicited the purchase of the Shares pursuant to exercise of the
Rights, all as described above, in accordance with the terms and conditions set
forth in this Soliciting Dealer Agreement.
Very truly yours,
/s/ Warren J. Olsen
-------------------------------
Warren J. Olsen
President
Morgan Stanley Emerging Markets
Fund, Inc.
ACCEPTED AND CONFIRMED
----------------------------- --------------------------------
Printed Firm Name Address
----------------------------- --------------------------------
Authorized Signature Area Code and Telephone Number
-----------------------------
Name and Title
Dated:
------------------------
ALL SOLICITING DEALER AGREEMENTS SHOULD BE RETURNED TO
THE FIRST NATIONAL BANK OF BOSTON BY FACSIMILE (TELECOPIER)
AT (617) 575-2233. FACSIMILE TRANSMISSIONS MAY BE
CONFIRMED BY CALLING (617) 575-2700.
ALL QUESTIONS CONCERNING SOLICITING DEALER AGREEMENTS SHOULD BE
DIRECTED TO SHAREHOLDER COMMUNICATIONS CORPORATION,
TOLL FREE AT (800) 221-5724, OR
CALL COLLECT (212) 809-3600.
5
<PAGE> 6
APPENDIX TO SOLICITING DEALER AGREEMENT
TO BE COMPLETED BY THE SOLICITING DEALER
BENEFICIAL OWNERS NUMBER OF SHARES PURCHASED
-------------------------------------------------------------------------------
Beneficial Owner No. 1
-------------------------------------------------------------------------------
Beneficial Owner No. 2
-------------------------------------------------------------------------------
Beneficial Owner No. 3
-------------------------------------------------------------------------------
Beneficial Owner No. 4
-------------------------------------------------------------------------------
Beneficial Owner No. 5
-------------------------------------------------------------------------------
Beneficial Owner No. 6
-------------------------------------------------------------------------------
Beneficial Owner No. 7
-------------------------------------------------------------------------------
Beneficial Owner No. 8
-------------------------------------------------------------------------------
Beneficial Owner No. 9
-------------------------------------------------------------------------------
Beneficial Owner No. 10
-------------------------------------------------------------------------------
Beneficial Owner No. 11
-------------------------------------------------------------------------------
Beneficial Owner No. 12
-------------------------------------------------------------------------------
Beneficial Owner No. 13
-------------------------------------------------------------------------------
Beneficial Owner No. 14
-------------------------------------------------------------------------------
Beneficial Owner No. 15
-------------------------------------------------------------------------------
Beneficial Owner No. 16
-------------------------------------------------------------------------------
Beneficial Owner No. 17
-------------------------------------------------------------------------------
Beneficial Owner No. 18
-------------------------------------------------------------------------------
Beneficial Owner No. 19
-------------------------------------------------------------------------------
Beneficial Owner No. 20
-------------------------------------------------------------------------------
Beneficial Owner No. 21
-------------------------------------------------------------------------------
Beneficial Owner No. 22
-------------------------------------------------------------------------------
Beneficial Owner No. 23
-------------------------------------------------------------------------------
Beneficial Owner No. 24
-------------------------------------------------------------------------------
Beneficial Owner No. 25
-------------------------------------------------------------------------------
TOTAL:
-------------------------------------------------------------------------------
6
<PAGE> 1
SELLING GROUP AGREEMENT
[Date]
Morgan Stanley & Co.
Incorporated
1251 Avenue of the Americas
New York, New York 10020
Dear Sirs:
We understand that Morgan Stanley Emerging Markets Fund, Inc., a
Maryland corporation (the "Fund"), proposes to issue to its shareholders of
record as of May [__], 1995 rights ("Rights") entitling their holders to
subscribe for an aggregate of 5,800,000 shares ("Shares") of the Fund's Common
Stock, par value $.01 per share ("Common Stock"). We further understand that
the Fund has appointed you as the exclusive Dealer Manager in connection with
the offer of Shares contemplated by the proposed issuance of Rights (the
"Offer").
We hereby express our interest in participating in the Offer as a
Selling Group Member.
We hereby agree with you as follows:
I.
We have received and reviewed the Prospectus dated
<PAGE> 2
[____________], 1995 (the "Prospectus") relating to the Offer and we understand
that additional copies of the Prospectus (or of the Prospectus as it may be
subsequently amended, if applicable) and any other authorized solicitation
materials relating to the Offer ("Offering Materials") will be supplied to us in
reasonable quantities upon our request therefor to you or to the Fund. We agree
that we will not use any solicitation material other than the Prospectus (as
amended, if applicable) and such Offering Materials.
II.
From time to time during the subscription period (the "Subscription
Period") commencing on May [__], 1995 and ending at 5:00 p.m., New York time, on
[_______], 1995, unless extended by the Fund and you (the "Expiration Date"), we
may solicit the exercise of Rights in connection with the Offer. We will be
entitled to receive fees in the amounts and at the times described in Article IV
of this Agreement with respect to Shares purchased pursuant to the exercise of
Rights and with respect to which The First National Bank of Boston (the
"Subscription Agent") has received, no later than 5:00 p.m., New York time, on
the Expiration Date, either (i) a properly completed and executed Subscription
Certificate (in the form attached to the Prospectus), identifying us as the
broker-dealer having been instrumental in the exercise of such Rights, and full
payment for such
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<PAGE> 3
Shares or (ii) a Notice of Guaranteed Delivery (in the form attached to the
Prospectus) guaranteeing to the Subscription Agent by the close of business of
the fifth business day after the Expiration Date of a properly completed and
duly executed Subscription Certificate, similarly identifying us, and full
payment for such Shares. We understand that we will not be paid these fees with
respect to Shares purchased pursuant to an exercise of Rights for our own
account or for the account of any of our affiliates except that we may receive
such fees with respect to Shares purchased pursuant to an exercise of Rights for
our own account provided that such Shares are offered and sold by us to our
clients. We also understand and agree that we are not entitled to receive any
fees in connection with the solicitation of the exercise of Rights other than
pursuant to the terms of this Agreement and, in particular, that we will not be
entitled to receive any fees under the Fund's Soliciting Dealer Agreement.
We agree to solicit the exercise of Rights in accordance with the
Securities Act of 1933, as amended (the "Securities Act"), the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the Investment
Company Act of 1940, as amended, and the rules and regulations under each such
Act, any applicable securities laws of any state or jurisdiction where such
solicitations may be lawfully made, the applicable rules and regulations of any
self-regulatory organization or registered national securities
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<PAGE> 4
exchange and your customary practice and subject to the terms of the
Subscription Agent Agreement between the Fund and the Subscription Agent and the
procedures described in the Fund's registration statement on Form N-2 (File No.
33-91482, as amended (the "Registration Statement").
III.
From time to time during the Subscription Period, we may indicate
interest in purchasing Shares from you as Dealer Manager. We understand that
from time to time you intend to offer Shares obtained by you through the
exercise of Rights to Selling Group Members who have so indicated interest at
prices which shall be determined by you (the "Offering Price"). We agree that
with respect to any such Shares purchased by us from you the sale of such Shares
to us shall be irrevocable and we will offer them to the public at the Offering
Price at which we purchased them from you. Shares not sold by us at such
Offering Price may be offered by us after the next succeeding Offering Price is
set at prices not in excess of the latest Offering Price set by you. You agree
that you will set a new Offering Price prior to [4:00 p.m.], New York time, on
each business day.
We agree to advise you from time to time upon request, prior to the
termination of this Agreement, of the number of Shares remaining unsold which
were purchased by us from you and, on your request, we will resell to you any of
such Shares remaining unsold at the purchase price thereof
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<PAGE> 5
if in your opinion such Shares are needed to make delivery against sales made to
other Selling Group Members.
Any shares purchased hereunder from you shall be subject to regular
way settlement through the facilities of the Depository Trust Company.
IV.
We understand that you will remit to us, on or shortly after
[_______], 1995 (or, if the Expiration Date is extended, on such later date not
more than 15 days after the Expiration Date as you may determine), following
receipt by you from the Fund, a fee, payable by the Fund, equal to an amount
computed by multiplying (i) .025, by (ii) the sum of (a) the number of Shares
purchased pursuant to each Subscription Certificate upon which we are designated
,as certified to you by the Subscription Agent, as a result of our solicitation
efforts in accordance with Article II of this Agreement, plus (b) the number of
Shares sold by you to us in accordance with Article III of this Agreement (less
any Shares resold to you pursuant to the second parargraph thereof), by (iii)
the subscription price of $[____].
V.
We agree that you, as Dealer Manager, have full authority to take such
action as may seem advisable to you in respect of all matters pertaining to the
Offer. You are
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<PAGE> 6
authorized to approve on our behalf any amendments or supplements to the
Registration Statement or the Prospectus.
VI.
We represent that we are a member in good standing of the NASD and, in
making sales of Shares, agree to comply with all applicable rules of the NASD
including, without limitation, the NASD's Interpretation with Respect to
Free-Riding and Withholding and Section 24 of Article III of the NASD's Rule of
Fair Practice.
We understand that no action has been taken by you or the Fund to
permit the solicitation of the exercise of Rights or the sale of Shares in any
jurisdiction other than the United States where action would be required for
such purpose.
We represent that we have at all times complied with the provisions of
Rule 10b-6 under the Securities Act applicable to the Offer and we agree that we
will not, without your approval in advance, buy, sell, deal or trade in, on a
when- issued basis or otherwise, the Rights or the Shares or any other option to
acquire or sell Shares for our own account or for the accounts of customers,
except as provided in Articles II and III hereof and except that we may buy or
sell Rights or Shares in brokerage transactions on consolidated orders which
have not resulted from activities on our part in connection with the
solicitation
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<PAGE> 7
of the exercise of Rights and which are executed by us in the ordinary course of
our brokerage business.
We will keep an accurate record of the names and addresses of all
persons to whom we give copies of the Registration Statement, the Prospectus,
any preliminary prospectus (or any amendment or supplement thereto) or any
Offering Materials and, when furnished with any subsequent amendment to the
Registration Statement and any subsequent prospectus, we will, upon your
request, promptly forward copies thereof to such persons.
VII.
Nothing contained in this Agreement will constitute the Selling Group
Members partners with the Dealer Manager or with one another or create any
association between those parties, or will render the Dealer Manager or the Fund
liable for the obligations of any Selling Group Member. The Dealer Manager will
be under no liability to make any payment to any Selling Group Member other than
as provided in Article IV of this Agreement, and will be subject to no other
liabilities to any Selling Group Member, and no obligations of any sort will be
implied.
We agree to indemnify and hold harmless you and each other Selling
Group Member and each person, if any, who controls you and any such Selling
Group Member within the meaning of either Section 15 of the Securities Act or
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<PAGE> 8
Section 20 of the Exchange Act, against loss or liability caused by any breach
by us of the terms of this Agreement.
VIII.
We agree to pay any transfer taxes which may be assessed and paid on
account of any sales or transfers for our account and a percentage, based upon
the ratio of the fees payable to us pursuant to Article IV of this Agreement to
the aggregate fees payable by the Fund to you and all Selling Group Members
pursuant to Article IV of each Selling Group Agreement, of (i) all expenses
incurred by you in investigating or defending against any claim or proceeding
which is asserted or instituted by any party (including any governmental or
regulatory body) other than a Selling Group Member relating to the Registration
Statement, any preliminary prospectus, the Prospectus (or any amendment or
supplement thereto) or any Offering Materials and (ii) any liability, including
attorneys' fees, incurred by you in respect of any such claim or proceeding,
whether such liability shall be the result of a judgment or as a result of any
settlement agreed to by you, other than any such expense or liability as to
which you receive indemnity pursuant to Article VII of this Agreement or
indemnity or contribution from the Fund. Our agreements contained in this
Article VIII shall remain operative and in full force and effect regardless of
(i) any investigation made by or on behalf of any Selling Group Member or any
person controlling
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<PAGE> 9
any Selling Group Member or by or on behalf of the Fund, its directors or
officers or any person controlling the Fund and (ii) acceptance of and payment
for the Shares.
IX.
All communications to you relating to the Offer will be addressed to
the Syndicate Department, Morgan Stanley & Co. Incorporated, 1251 Avenue of the
Americas, New York, New York 10020, Attention: [_______________].
X.
This Agreement will be governed by the internal laws of the State of
New York.
Very truly yours,
-----------------------------
[Firm Name]
By
---------------------------
Name:
Title:
Confirmed and Accepted
this day of , 1995
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MORGAN STANLEY & CO.
INCORPORATED
By
----------------------------
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