<PAGE> 1
As filed with the Securities and Exchange Commission on May 15, 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. 1 /X/
Post-Effective Amendment No. / /
and/or
Registration Statement Under The Investment Company Act of 1940 /X/
Amendment No. 10 /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>
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------------------------
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 15, 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 , 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 , 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 $ . It is
currently estimated that the Subscription Price will represent a discount of
between 15% and 25% to the last reported sale price on the Business Day (as
defined herein) prior to the Record Date.
THE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK TIME, ON , 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 , 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>
- ------------
(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 and reimburse the Dealer Manager for its
out-of-pocket expenses up to an aggregate of $ . 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.
------------------------
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
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 APRIL 1, 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.................................................. 36
NET ASSET VALUE....................................................................... 37
DIVIDENDS AND DISTRIBUTIONS; DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN............. 37
TAXATION.............................................................................. 39
COMMON STOCK.......................................................................... 43
DISTRIBUTION ARRANGEMENTS............................................................. 46
DIVIDEND PAYING AGENT, TRANSFER AGENT AND REGISTRAR................................... 47
CUSTODIANS............................................................................ 47
EXPERTS............................................................................... 48
LEGAL MATTERS......................................................................... 48
ADDITIONAL INFORMATION................................................................ 48
INCORPORATION OF FINANCIAL STATEMENTS BY REFERENCE.................................... 48
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 , 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 , 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 ,
1995 and ends at 5:00 p.m., New York time, on , 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
, 1995 and approximately a % discount to the last reported sale
price of a share of Common Stock on the NYSE on , 1995.
It is currently estimated that the Subscription Price will represent a
discount of between 15% and 25% to the last reported sale price on the Business
Day (as defined below under "-- Sale of Rights") prior to the Record Date. 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 , 1995. Trading of
the Rights on the NYSE will be conducted on a when issued basis commencing on
, 1995 and on a regular-way basis from , 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 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 , 1995
SUBSCRIPTION PERIOD , 1995 TO , 1995
(UNLESS EXTENDED)
EXPIRATION DATE , 1995 (UNLESS EXTENDED)
NOMINEE HOLDER OVER-SUBSCRIPTION EXERCISE FORM DUE , 1995
SUBSCRIPTION CERTIFICATES, ACCOMPANIED BY PAYMENT FOR
SHARES, OR NOTICES OF GUARANTEED DELIVERY DUE , 1995
SUBSCRIPTION CERTIFICATES AND PAYMENT FOR SHARES DUE
PURSUANT TO NOTICE OF GUARANTEED DELIVERY , 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. The Fund
currently has 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 , 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.
SELECTED PER SHARE DATA AND RATIOS
(FOR A COMMON SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<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................ 19 1/4 17 3/4 1,174.2 18.08 16.19 7.38%
(through May 12, 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 12, 1995 were
$19.25, $18.08 and 6.47%, respectively.
CAPITALIZATION AT APRIL 1, 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. The Fund
currently has 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 , 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
, 1995, and ends at 5:00 p.m., New York time, on , 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 , 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 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 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.
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
13
<PAGE> 16
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
, 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 , 1995 and
approximately a % discount to the last reported sale price of a share of
Common Stock on the NYSE on , 1995.
EXPIRATION OF THE OFFER
The Offer will expire at 5:00 p.m., New York time, on , 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 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.
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<PAGE> 17
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
$ , 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 , 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 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
15
<PAGE> 18
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 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.
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<PAGE> 19
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 fifth
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 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
17
<PAGE> 20
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 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.
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
18
<PAGE> 21
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 , 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.
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
19
<PAGE> 22
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
, 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 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
20
<PAGE> 23
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 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
21
<PAGE> 24
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 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
22
<PAGE> 25
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 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."
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<PAGE> 26
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 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.)
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<PAGE> 27
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 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.
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<PAGE> 28
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.
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
26
<PAGE> 29
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.
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
27
<PAGE> 30
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 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.
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<PAGE> 31
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, 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
29
<PAGE> 32
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.
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>
30
<PAGE> 33
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AND ADDRESS POSITION WITH FUND AGE DURING PAST FIVE YEARS
- ----------------------------------- ---------------------- --- ------------------------------
<S> <C> <C> <C>
</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
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
Mangement Company Chile S.A.;
Previously: Director of
Capital Markets Department of
the International Finance
Corporation; Trustee,
Batterymarch Finance
Management; Chairman and
Director, Equity Fund of Latin
America S.A., Commonwealth
Equity Fund Limited, and
Director, Global Securities,
Inc.
</TABLE>
31
<PAGE> 34
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AND ADDRESS POSITION WITH FUND AGE DURING PAST FIVE YEARS
- ----------------------------------- ---------------------- --- ------------------------------
<S> <C> <C> <C>
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.
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.
</TABLE>
32
<PAGE> 35
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AND ADDRESS POSITION WITH FUND AGE DURING PAST FIVE YEARS
- ----------------------------------- ---------------------- --- ------------------------------
<S> <C> <C> <C>
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.
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.
Timothy F. Osborne*................ Assistant Treasurer 28 Supervisor of Fund
73 Tremont Street Administration and Compliance
Boston, Massachusetts 02108 Department, Mutual Funds
Service Company; Officer of
various investment companies
managed by Morgan Stanley
Asset Management Inc.;
Previously with Coopers &
Lybrand 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. Messrs. Rooney and Osborne are
employees 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 "interested person" 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.
33
<PAGE> 36
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.
Set forth below is a chart showing the aggregate compensation paid 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.
<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 7
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 8
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.
34
<PAGE> 37
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 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.
35
<PAGE> 38
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.
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,
36
<PAGE> 39
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 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
to affiliates. The percentage of the Fund's aggregate brokerage commissions paid
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. 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
37
<PAGE> 40
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.
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.
38
<PAGE> 41
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 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
39
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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.
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,
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<PAGE> 43
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.
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
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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.
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
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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 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 May 1, 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
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<PAGE> 46
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. The Fund
currently has 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.
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
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<PAGE> 47
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.
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
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<PAGE> 48
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 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
46
<PAGE> 49
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, 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 ("Bank of Boston") is the Fund's dividend
paying agent, transfer agent and the registrar for the Fund's Common Stock. The
principal address of Bank of Boston 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.
47
<PAGE> 50
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.
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.
48
<PAGE> 51
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 fifth 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
, 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> 52
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> <C> <C> <C> <C> <C> <C> <C>
/ / A. Primary _________________ / 3 = _____________.000 X $__________________ =$_________________
Subscription (Rights Exercised) (Full Shares of (Subscription Price) (Amount Required)
Common Stock
Requested)
/ / B. Over-Subscription Privilege _____________.000 X $__________________ =$______________(*)
(Full Shares of (Subscription Price) (Amount Required)
Common Stock
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 ( _____)_____________________
Signature of Subscriber(s)/Seller(s) telephone number 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> 53
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 fifth 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> 54
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 fifth 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> 55
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 , 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> 56
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 April , 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> 57
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> 58
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> 59
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> 60
MORGAN STANLEY
EMERGING MARKETS FUND, INC.
<PAGE> 61
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) -- Report and 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.
++ To be filed by amendment.
(i)
<PAGE> 62
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).........................................................
Accounting fees and expenses...............................................
Legal fees and expenses....................................................
Dealer Manager expense reimbursement.......................................
Information Agent's fees and expenses......................................
Subscription Agent's fees and expenses.....................................
NASD fee...................................................................
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> 63
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> 64
(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> 65
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 11th 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 11, 1995
- -------------------------------------------
Barton M. Biggs
/s/ WARREN J. Director and President (Principal May 11, 1995
OLSEN Executive Officer)
- -------------------------------------------
Warren J. Olsen
* Director May 11, 1995
- -------------------------------------------
Madhav Dhar
* Director May 11, 1995
- -------------------------------------------
John W. Croghan
* Director May 11, 1995
- -------------------------------------------
David B. Gill
* Director May 11, 1995
- -------------------------------------------
Gerard E. Jones
* Director May 11, 1995
- -------------------------------------------
Oscar S. Schafer
* Treasurer (Principal Financial and May 11, 1995
- ------------------------------------------- Accounting Officer)
James R. Rooney
* By: /s/ WARREN J.
OLSEN
- -------------------------------------------
Warren J. Olsen
Attorney-in-fact
</TABLE>
(v)
<PAGE> 66
EXHIBIT INDEX
<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) -- Report and 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.
++ To be filed by amendment.
<PAGE> 1
EXHIBIT (j)(2)
DOMESTIC CUSTODY AGREEMENT
MORGAN STANLEY EMERGING MARKETS FUND, INC.
UNITED STATES TRUST COMPANY OF NEW YORK
MAY 11, 1994
<PAGE> 2
DOMESTIC CUSTODY AGREEMENT
MORGAN STANLEY EMERGING MARKETS FUND, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION/PARAGRAPH PAGE
- ----------------- ----
<S> <C>
1. Appointment 1
2. Delivery of Documents 1
3. Definitions 2
4. Delivery and Registration of the Property 3
5. Voting Rights 4
6. Receipt and Disbursement of Money 4
7. Receipt of Securities 5
8. Use of Securities Depository or the Book-Entry System 5
9. Instructions Consistent With The Articles, etc. 6
10. Transactions Not Requiring Instructions 7
11. Transactions Requiring Instructions 10
12. Purchase of Securities 11
13. Sales of Securities 12
14. Records 12
15. Cooperation with Accountants 12
16. Confidentiality 13
17. Equipment Failures 13
18. Right to Receive Advice 13
</TABLE>
-i-
<PAGE> 3
DOMESTIC CUSTODY AGREEMENT
MORGAN STANLEY EMERGING MARKETS FUND, INC.
TABLE OF CONTENTS (CONTINUED)
<TABLE>
<CAPTION>
SECTION/PARAGRAPH PAGE
- ----------------- ----
<S> <C>
19. Compliance with Governmental Rules and Regulations 14
20. Compensation 14
21. Indemnification 14
22. Responsibility of U.S. Trust 15
23. Collection 16
24. Duration and Termination 17
25. Notices 17
26. Further Actions 18
27. Amendments 18
28. Miscellaneous 18
Signatures 19
Attachment A -- Fees and Expenses
Attachment B -- Authorized Persons
</TABLE>
-ii-
<PAGE> 4
DOMESTIC CUSTODY AGREEMENT
THIS AGREEMENT is made as of May 11, 1994, by and between MORGAN STANLEY
EMERGING MARKETS FUND, INC., a Maryland corporation (the "Fund"), and UNITED
STATES TRUST COMPANY OF NEW YORK, a New York State chartered bank and trust
company ("U.S. Trust").
W I T N E S S E T H:
WHEREAS, the Fund is registered as a closed-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and
WHEREAS, the Fund desires to retain U.S. Trust to serve as the Fund's
custodian for its assets held within the United States and U.S. Trust is willing
to furnish such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. APPOINTMENT. The Fund hereby appoints U.S. Trust to act as custodian of
its portfolio securities, cash and other property held within the United States
on the terms set forth in this Agreement. U.S. Trust accepts such appointment
and agrees to furnish the services herein set forth in return for the
compensation as provided in Paragraph 20 of this Agreement.
2. DELIVERY OF DOCUMENTS. The Fund will promptly furnish to U.S. Trust
such copies, properly certified or authenticated, of contracts, documents and
other related information as U.S. Trust may request or require to properly
discharge its duties, including but not limited to the following:
(a) Resolutions of the Fund's Directors authorizing the appointment of U.S.
Trust as Custodian of the portfolio securities, cash and other property of the
Fund and approving this Agreement;
(b) Incumbency and signature certificates identifying and containing the
signatures of the Fund's officers and/or the persons authorized to sign Written
Instructions, as hereinafter defined, on behalf of the Fund;
<PAGE> 5
(c) The Fund's Articles of Incorporation filed with the State
Department of Assessments and Taxation of the State of Maryland and all
amendments thereto (such Articles of Incorporation, as currently in effect and
as they shall from time to time be amended, are herein called the "Articles");
(d) The Fund's By-Laws and all amendments thereto (such By-Laws, as
currently in effect and as they shall from time to time be amended, are herein
called the "By-Laws");
(e) Resolutions of the Fund's Directors and/or the Fund's stockholders
approving the Investment Advisory and Management Agreement between the Fund and
Morgan Stanley Asset Management Inc., the Fund's investment adviser (the
"Advisory Agreement");
(f) The Advisory Agreement; and
(g) The Fund's Registration Statement on Form N-2 under the 1940 Act
and the Securities Act of 1933, as amended ("the 1933 Act"), as filed with, and
declared effective by, the Securities and Exchange Commission (the "SEC") and
all exhibits, amendments and supplements thereto, including any opinion of
counsel for the Fund with respect to the validity of the shares of common stock
(the "Shares") of the Fund and the status of such Shares under the 1933 Act as
registered with the SEC and under any other applicable federal law or
regulation.
3. Definitions.
(a) "Authorized Person". As used in this Agreement, the term
"Authorized Person" means the Fund's President, Vice-President, Treasurer and
any other person, whether or not any such person is an officer or employee of
the Fund, duly authorized by the Directors of the Fund to give Written
Instructions on behalf of the Fund and listed on Attachment B hereto, which may
be amended from time to time.
(b) "Book-Entry System". As used in this Agreement, the term
"Book-Entry System" means the Federal Reserve/Treasury book-entry system for
United States and federal agency securities, its successor or successors and
its nominee or nominees.
-2-
<PAGE> 6
(c) "Property". The term "Property", as used in this Agreement, means:
(i) any and all securities, cash, and other property of the Fund which
the Fund may from time to time deposit, or cause to be deposited, with U.S.
Trust or which U.S. Trust may from time to time hold for the Fund;
(ii) all income in respect of any such securities or other property;
(iii) all proceeds of the sales of any such securities or other
property; and
(iv) all proceeds of the sale of securities issued by the Fund, which
are received by U.S. Trust from time to time from or on behalf of the Fund.
(d) "Securities Depository". As used in this Agreement the term
"Securities Depository" shall mean The Depository Trust Company, a clearing
agency registered with the SEC, or its successor or successors and its nominee
or nominees; and shall also mean any other registered clearing agency, its
successor or successors, specifically identified in a certified copy of a
resolution of the Fund's Directors approving deposits by U.S. Trust therein.
(e) "Written Instructions". Means instructions
(i) delivered by mail, tested telegram, cable, telex or facsimile
sending device, and received by U.S. Trust, signed by two Authorized Persons or
by persons reasonably believed by U.S. Trust to be Authorized Persons; or
(ii) transmitted electronically through the U.S. Trust Asset Management
System or any similar electronic instruction system acceptable to U.S. Trust.
4. Delivery and Registration of the Property. The Fund will deliver or
cause to be delivered to U.S. Trust all Property owned by it which is held
within the United States, including cash received for the issuance of its
Shares, at all times during the period of this Agreement, except for securities
and monies to be delivered to any subcustodian appointed pursuant to Paragraph 7
hereof. U.S. Trust will not be responsible for such securities and such monies
until actually received by U.S. Trust or by any subcustodian. All securities
delivered to U.S. Trust or to any such subcustodian (other than in bearer form)
shall be registered in the name of the Fund or in the name of a nominee of the
Fund or in the name
-3-
<PAGE> 7
of U.S. Trust or any nominee of U.S. Trust (with or without indication of
fiduciary status) or in the name of any subcustodian or any nominee of such
subcustodian appointed pursuant to Paragraph 7 hereof or shall be properly
endorsed and in form for transfer satisfactory to U.S. Trust.
5. Voting Rights. With respect to all securities owned by the Fund,
however registered, it is understood that the voting and other rights and
powers of such securities shall be exercised by the Fund. U.S. Trust's only
duty shall be to mail to the Fund any documents received, including proxy
statements and offering circulars, with any proxies for securities registered
in a nominee name executed by such nominee. Where warrants, options, tenders or
other securities have fixed expiration dates, the Fund understands that in
order for U.S. Trust to act, U.S. Trust must receive the Fund's instructions at
its offices in New York City, addressed as U.S. Trust may from time to time
request, by no later than noon (New York City time) at least one business day
prior to the last scheduled date to act with respect thereto (or such earlier
date or time as permits the Fund a reasonable period of time in which to
respond after U.S. Trust notifies the Fund of such date or time). Absent U.S.
Trust's timely receipt of such instructions, such instruments will expire
without liability to U.S. Trust.
6. Receipt and Disbursement of Money.
(a) U.S. Trust shall open and maintain a custody account for
the Fund (the "Account") subject only to draft or order by U.S. Trust acting
pursuant to the terms of this Agreement, and shall hold in such Account,
subject to the provisions hereof, all cash received by it from or for the Fund.
U.S. Trust shall make payments of cash to, or for the account of, the Fund from
such cash only (i) for the purchase of securities for the Fund as provided in
paragraph 12 hereof; (ii) upon receipt of Written Instructions, for the payment
of dividends or other distributions of shares, or for the payment of interest,
taxes, administration, distribution or advisory fees or expenses which are to
be borne by the Fund under the terms of this Agreement, any Advisory Agreement,
or any administration agreement of the Fund; (iii) upon receipt of Written
Instructions for payments in connection with the conversion, exchange or
surrender of securities owned or subscribed to by the Fund and held by or to be
delivered to U.S. Trust; (iv) to a subcustodian pursuant to Paragraph 7 hereof;
or (v) upon receipt of Written Instructions for other corporate purposes.
-4-
<PAGE> 8
(b) U.S. Trust is hereby authorized to endorse and collect all
checks, drafts or other orders for the payment of money received as custodian
for the Fund.
7. Receipt of Securities.
(a) Except as provided by Paragraph 8 hereof, U.S. Trust shall
hold all securities and non-cash Property received by it for the Fund. All such
securities and non-cash Property are to be held or disposed of by U.S. Trust
for the Fund pursuant to the terms of this Agreement. In the absence of Written
Instructions accompanied by a certified resolution authorizing the specific
transaction by the Fund's Directors, U.S. Trust shall have no power or
authority to withdraw, deliver, assign, hypothecate, pledge or otherwise
dispose of any such securities and non-cash Property, except in accordance with
the express terms provided for in this Agreement. In connection with its duties
under this Paragraph 7, U.S. Trust may, at its own expense, enter into
subcustodian agreements with other U.S. banks or trust companies for the
receipt of certain securities and cash to be held by U.S. Trust for the
account of the Fund pursuant to this Agreement; provided that each such bank or
trust company has an aggregate capital, surplus and undivided profits, as
shown by its last published report, of not less than twenty million dollars
($20,000,000) and that such bank or trust company agrees with U.S. Trust to
comply with all relevant provisions of the 1940 Act and applicable rules and
regulations thereunder.
(b) Promptly after the close of business on each day, U.S. Trust
shall furnish the Fund with confirmations and a summary of all transfers to or
from the account of the Fund during said day. Where securities are transferred
to the account of the Fund established at a Securities Depository or the
Book-Entry System pursuant to Paragraph 8 hereof, U.S. Trust shall also by
book-entry or otherwise identify as belonging to the Fund the quantity of
securities that belong to the Fund that are part of a fungible bulk of
securities registered in the name of U.S. Trust (or its nominee) or shown in
U.S. Trust's account on the books of a Securities Depository or the Book-Entry
System. From time to time, and at least once monthly, U.S. Trust shall furnish
the Fund with a detailed statement of the Property held for the Fund under this
Agreement.
8. Use of Securities Depository or the Book-Entry System. The Fund
authorizes U.S. Trust, on a continuous and ongoing basis until instructed to
the contrary by Written Instructions actually received by U.S. Trust (i) to
deposit in a Securities Depository or the
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<PAGE> 9
Book-Entry System all securities of the Fund eligible for deposit therein and
(ii) to utilize a Securities Depository or the Book-Entry System to the extent
possible in connection with the performance of its duties hereunder, including
without limitation, settlements of purchases and sales of securities by the
Fund, and deliveries and returns of securities collateral in connection with
borrowings. Without limiting the generality of such use, it is agreed that the
following provisions shall apply thereto:
(a) Securities and any cash of the Fund deposited in a
Securities Depository or the Book-Entry System will at all times be segregated
from any assets and cash controlled by U.S. Trust in other than a fiduciary or
custodian capacity but may be commingled with other assets held in such
capacities. U.S. Trust will effect payment for securities and receive and
deliver securities in accordance with accepted industry practices in the place
where the transaction is settled, unless the Fund has given U.S. Trust Written
Instructions to the contrary.
(b) All Books and records maintained by U.S. Trust which
relate to the Fund's participation in a Securities Depository or the
Book-Entry System will at all times during U.S. Trust's regular business hours
be open to the inspection of the Fund's duly authorized employees or agents,
and the Fund will be furnished with all information in respect of the services
rendered to it as it may require.
9. Instruction Consistent with the Articles, etc. U.S. Trust may
assume that any Written Instructions received hereunder are not in any way
inconsistent with any provision of the Articles or By-Laws of the Fund or any
vote or resolution of the Fund's Directors, or any committee thereof. U.S.
Trust shall be entitled to rely upon any Written Instructions actually
received by U.S. Trust pursuant to this Agreement. The Fund agrees that U.S.
Trust shall incur no liability in acting in good faith upon Written
Instructions given to U.S. Trust. In accord with instructions from the Fund, as
required by accepted industry practice or as U.S. Trust may elect in effecting
the execution of Fund instructions, any advance of cash or other Property made
by U.S. Trust, arising from the purchase, sale, redemption, transfer or other
disposition of Property of the Fund, or in connection with the disbursement of
funds to any party, or in payment of fees, expenses, claims or liabilities owed
to U.S. Trust by the Fund or to any other party which has secured judgment in a
court of law against the Fund, which creates an overdraft in the accounts or
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<PAGE> 10
over-delivery of Property shall be deemed a loan by U.S. Trust to the Fund,
payable on demand, bearing interest at such rate as is customarily charged by
U.S. Trust for similar loans. The Fund agrees that test arrangements,
authentication methods or other security devices to be used with respect to
instructions which the Fund may give by telephone, telex, TWX, facsimile
transmission, bank wire or through an electronic instruction system, shall be
processed in accordance with terms and conditions for the use of such
arrangements, methods or devices as U.S. Trust may put into effect and modify
from time to time. The Fund shall safeguard any test keys, identification codes
or other security devices which U.S. Trust makes available to the Fund and
agrees that the Fund shall be responsible for any loss, liability or damage
incurred by U.S. Trust or by the Fund as a result of U.S. Trust's acting in
accordance with instructions from any unauthorized person using the proper
security device, unless such loss, liability or damage was incurred as a result
of U.S. Trust's negligence or willful misconduct. U.S. Trust may electronically
record, but shall not be obligated to so record, any instructions given by
telephone and any other telephone discussions with respect to the Account. In
the event that the Fund uses U.S. Trust's Asset Management System ("AMS"), the
Fund agrees that U.S. Trust will not be responsible for the consequences of the
failure of the AMS to perform for any reason beyond the reasonable control of
U.S. Trust, or the failure of any communications carrier, utility or
communications network. In the event the AMS is inoperable, the Fund agrees
that it will accept the communication of transaction instructions by telephone,
facsimile transmission on equipment compatible to U.S. Trust's facsimile
receiving equipment or by letter, at no additional charge to the Fund.
10. Transactions Not Requiring Written Instructions. U.S. Trust is
authorized and (unless expressly indicated to the contrary) instructed to take
the following actions without Written Instructions:
(a) Collection of Income and Other Payments. U.S. Trust shall:
(i) collect and receive for the account of the Fund, all income
and other payments and distributions, including (without limitation) stock
dividends, rights, warrants and similar items included or to be included in the
Property of the Fund, and promptly advise the Fund of such receipt and shall
credit such income, as collected, to the Fund. From time to time, U.S. Trust
may elect, but shall not be
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<PAGE> 11
so obligated, to credit the Account with interest, dividends or principal
payments on payable or contractual settlement dates, in anticipation of
receiving same from a payor, central depository, broker or other agent
employed by the Fund or U.S. Trust. Any such crediting and posting shall be at
the Fund's sole risk, and U.S. Trust shall be authorized to reverse any such
advance posting in the event U.S. Trust does not receive good funds from any
such payor, central depository, broker or agent of the Fund.
(ii) with respect to securities of foreign issuers held in
custody by U.S. Trust hereunder, if any, effect collection of dividends,
interest and other income, and notify the Fund of any call for redemption,
offer of exchange, right of subscription, reorganization, or other proceedings
affecting such securities, or any default in payments due thereon. It is
understood, however, that U.S. Trust shall be under no responsibility for any
failure or delay in effecting such collections or giving such notice with
respect to securities of foreign issuers, regardless of whether or not the
relevant information is published in any financial service available to U.S.
Trust, unless such failure or delay is due to its negligence or willful
misconduct; provided that this sub-paragraph (ii) shall not be construed as
creating any such responsibility with respect to securities of non-foreign
issuers. Collections of income in foreign currency are, to the extent
possible, to be converted into United States Dollars, unless the Fund instructs
U.S. Trust otherwise in writing, and in effecting such conversion U.S. Trust
may use such methods or agencies as it may see fit, including the facilities of
its own foreign division, at customary rates. All risk and expense incident to
such collection and conversion is for the account of the Fund and U.S. Trust
shall have no responsibility for fluctuations in exchange rates affecting any
such conversion.
(iii) endorse and deposit for collection in the name of the
Fund, checks, drafts, or other orders for the payment of money on the same day
as received.
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(iv) receive and hold for the account of the Fund all
securities received by the Fund as a result of a stock dividend, share
split-up or reorganization, recapitalization, readjustment or other
rearrangement or distribution of rights or similar securities issued
with respect to any portfolio securities of the Fund held by U.S. Trust
hereunder.
(v) present for payment and collect the amount payable upon all
securities which may mature or be called, redeemed or retired, or
otherwise become payable on the date such securities become payable.
(vi) take any action which may be necessary and proper in
connection with the collection and receipt of Fund income and other
payments and the endorsement for collection of checks, drafts and other
negotiable instruments.
(vii) with respect to domestic securities, exchange securities
in temporary form for securities in definitive form, effect an exchange
of the shares where the par value of stock is changed, and surrender
securities at maturity or when advised of earlier call for redemption
against payment therefor in accordance with accepted industry practice.
The Fund understands that U.S. Trust subscribes to one or more
nationally recognized services that provide information with respect to
calls for redemption of bonds or other corporate actions. U.S. Trust
shall not be liable for failure to redeem any called bond or to take
other action if notice of such call or action was not provided by any
service to which it subscribes, provided that U.S. Trust shall have
acted in good faith without negligence and in accordance with "street
practice" (as is customary in industry). U.S. Trust shall have no duty
to notify the Fund of any rights, duties, limitations, conditions or
other information set forth in any security (including mandatory or
optional put, call and similar provisions), but U.S. Trust shall
forward to the Fund any notices or other documents subsequently
received with regard to any such security. When fractional shares of
stock of a declaring corporation are received as a stock distribution,
unless specifically instructed to the contrary in writing, U.S. Trust
is authorized to sell the fraction received and credit the Fund's
account. Unless specifically instructed to the contrary in writing,
U.S. Trust is
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<PAGE> 13
authorized to exchange securities in bearer form for securities in
registered form. If any Property registered in the name of a nominee of
U.S. Trust is called for partial redemption by the issuer of such
Property, U.S. Trust is authorized to allot the called portion to the
respective beneficial holders of the Property in such manner as is
deemed by U.S. Trust to be fair and equitable in its sole discretion.
(b) Miscellaneous Transactions. U.S. Trust is authorized to deliver or
cause to be delivered Property against payment or other consideration or
written receipt therefor in the following cases:
(i) for examination by a broker selling for the account of the
Fund in accordance with street delivery custom;
(ii) for the exchange of interim receipts or temporary securities
for definitive securities; and
(iii) for transfer of securities into the name of the Fund
or U.S. Trust or a nominee of either, or for exchange of securities
for a different number of bonds, certificates, or other evidence,
representing the same aggregate face amount or number of units bearing
the same interest rate, maturity date and call provisions, if any;
provided that, in any such case, the new securities are to be delivered
to U.S. Trust.
11. Transactions Requiring Instructions. Upon receipt of Written
Instructions and not otherwise, U.S. Trust, directly or through the use of a
Securities Depository or the Book-Entry System, shall:
(a) Execute and deliver to such persons as may be designated in such
Written Instructions, proxies, consents, authorizations, and any other
instruments whereby the authority of the Fund as owner of any securities may be
exercised;
(b) Deliver any securities held for the Fund against receipt of other
securities or cash issued or paid in connection with the liquidation,
reorganization, refinancing, merger, consolidation or recapitalization of any
corporation, or the exercise of any conversion privilege;
(c) Deliver any securities held for the Fund to any protective
committee, reorganization committee or other person in connection with the
reorganization,
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<PAGE> 14
refinancing, merger, consolidation, recapitalization or sale of assets of any
corporation, against receipt of such certificates of deposit, interim receipts
or other instruments or documents as may be issued to it to evidence such
delivery;
(d) Make such transfers or exchanges of the assets of the Fund and take
such other steps as shall be stated in said instructions to be for the purpose
of effectuating any duly authorized plan of liquidation, reorganization,
merger, consolidation or recapitalization of the Fund;
(e) Release securities belonging to the Fund to any bank or trust
company for the purpose of pledge or hypothecation to secure any loan incurred
by the Fund; provided, however, that securities shall be released only upon
payment to U.S. Trust of the monies borrowed, except that in cases where
additional collateral is required to secure a borrowing already made, subject to
proper prior authorization, further securities may be released for that
purpose; and pay such loan upon redelivery to it of the securities pledged or
hypothecated therefor and upon surrender of the note or notes evidencing the
loan;
(f) Deliver any securities held for the Fund upon the exercise of a
covered call option written by the Fund on such securities; and
(g) Deliver securities held for the Fund pursuant to separate security
lending agreements concerning the lending of the Fund's securities into which
the Fund may enter, from time to time.
12. Purchase of Securities. Promptly after each purchase of Securities
by the Investment Adviser (or any sub-adviser), the Fund shall deliver to U.S.
Trust (as Custodian) Written Instructions specifying with respect to each such
purchase: (a) the name of the issuer and the title of the securities, (b) the
number of shares or the principal amount purchased and accrued interest, if
any, (c) the dates of purchase and settlement, (d) the purchase price per unit,
(e) the total amount payable upon such purchase and (f) the name of the person
from whom or the broker through whom the purchase was made. U.S. Trust shall
upon receipt of securities purchased by or for the
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<PAGE> 15
Fund pay out of the monies held for the account of the Fund the total amount
payable to the person from whom or the broker through whom the purchase was
made, provided that the same conforms to the total amount payable as set forth
in such Written Instructions.
13. Sales of Securities. Promptly after each sale of securities by the
Investment Adviser, the Fund shall deliver to U.S. Trust (as Custodian) Written
Instructions, specifying with respect to each such sale: (a) the name of the
issuer and the title of the security, (b) the number of shares or principal
amount sold, and accrued interest, if any, (c) the date of sale, (d) the sale
price per unit, (e) the total amount payable to the Fund upon such sale and
(f) the name of the broker through whom or the person to whom the sale was made.
U.S. Trust shall deliver the securities upon receipt of the total amount
payable to the Fund upon such sale, provided that the same conforms to the
total amount payable as set forth in such Written Instructions. Subject to the
foregoing, U.S. Trust may accept payment in such form as shall be satisfactory
to it, and may deliver securities and arrange for payment in accordance with
the customs prevailing among dealers in securities.
14. Records. The books and records pertaining to the Fund which are in
the possession of U.S. Trust shall be the property of the Fund. The Fund, or
the Fund's authorized representatives, shall have access to such books and
records at all times during U.S. Trust's normal business hours, and such books
and records shall be surrendered to the Fund promptly upon request. Upon
reasonable request of the Fund, copies of any such books and records shall be
provided by U.S. Trust to the Fund or the Fund's authorized representative at
the Fund's expense.
15. Cooperation with Accountants. U.S. Trust shall cooperate with the
Fund's independent certified public accountants and shall take all reasonable
action in the performance of its obligations under this Agreement to assure
that the necessary information is made available to such accountants for the
expression of their unqualified opinion, including but not limited to the
opinion included in the Fund's semiannual report on Form N-SAR.
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<PAGE> 16
16. Confidentiality. U.S. Trust agrees on behalf of itself and its
employees to treat confidentially and as the proprietary information of the
Fund all records and other information relative to the Fund and its prior,
present or potential shareholders and relative to the Investment Adviser and
its prior, present or potential customers, and not to use such records and
information for any purpose other than performance of its responsibilities and
duties hereunder, except after prior notification to and approval in writing by
the Fund, which approval shall not be unreasonably withheld and may not be
withheld where U.S. Trust may be exposed to civil or criminal contempt
proceedings for failure to comply, when requested to divulge such information
by duly constituted authorities, or when so requested by the Fund. Nothing
contained herein, however, shall prohibit U.S. Trust from advertising or
soliciting the public generally with respect to other products or services,
regardless of whether such advertisement or solicitation may include prior,
present or potential shareholders of the Fund.
17. Equipment Failures. In the event of equipment failures beyond U.S.
Trust's control, U.S. Trust shall, at no additional expense to the Fund, take
reasonable steps to minimize service interruptions but shall not have liability
with respect thereto. U.S. Trust shall enter into and shall maintain in effect
with appropriate parties one or more agreements making reasonable provision for
back up emergency use of electronic data processing equipment to the extent
appropriate equipment is available.
18. Right to Receive Advice.
(a) Advice of Fund. If U.S. Trust shall be in doubt as to any action to
be taken or omitted by it, it may request, and shall receive, from the Fund
clarification or advice.
(b) Advice of Counsel. If U.S. Trust shall be in doubt as to any
question of law involved in any action to be taken or omitted by U.S. Trust, it
may request advice at its own cost from counsel of its own choosing (who may be
counsel for the Fund or U.S. Trust, at the option of U.S. Trust).
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<PAGE> 17
(c) Conflicting Advice. In case of conflict between directions or
advice received by U.S. Trust pursuant to subparagraph (a) of this paragraph
and advice received by U.S. Trust pursuant to subparagraph (b) of this
paragraph, U.S. Trust shall be entitled to rely on and follow the advice
received pursuant to the latter provision alone.
(d) Protection of U.S. Trust. U.S. Trust shall be protected in any
action or inaction which it takes or omits to take in reliance on any
directions or advice received pursuant to subparagraph (a) of this section
which U.S. Trust, after receipt of any such directions or advice, in good faith
believes to be consistent with such directions or advice. However, nothing in
this paragraph shall be construed as imposing upon U.S. Trust any obligation
(i) to seek such directions or advice, or (ii) to act in accordance with such
directions or advice when received, unless, under the terms of another
provision of this Agreement, the same is a condition to U.S. Trust's properly
taking or omitting to take such action. Nothing in this subparagraph shall
excuse U.S. Trust when an action or omission on the part of U.S. Trust
constitutes willful misfeasance, bad faith, gross negligence or reckless
disregard by U.S. Trust of its duties under this Agreement.
19. Compliance with Governmental Rules and Regulations. The Fund
assumes full responsibility for insuring that the contents of its registration
statement on Form N-2, as filed with, and declared effective by, the SEC, and
all amendments thereto, comply with all applicable requirements of the 1933
Act, the 1940 Act, and any laws, rules and regulations of governmental
authorities having jurisdiction.
20. Compensation. As compensation for the services described within
this Agreement and rendered by U.S. Trust during the term of this Agreement,
the Fund will pay to U.S. Trust, in addition to reimbursement of its
out-of-pocket expenses, monthly fees as outlined in Attachment A.
21. Indemnification. The Fund, as sole owner of the Property, agrees
to indemnify and hold harmless U.S. Trust and its nominees from all taxes,
charges, expenses, assessments, claims, and liabilities (including, without
limitation, liabilities arising under the 1933 Act, the Securities Exchange Act
of 1934, the 1940 Act, and any state and foreign securities and blue sky laws,
all as amended from time to time) and expenses, including (without limitation)
attorney's fees and disbursements, arising
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<PAGE> 18
directly or indirectly (a) from the fact that securities included in the
Property are registered in the name of any such nominee or (b) without limiting
the generality of the foregoing clause (a) from any action or thing which U.S.
Trust takes or does or omits to take or do (i) at the request or on the
direction of or in reliance on the advice of the Fund given in accordance with
the terms of this Agreement, or (ii) upon Written Instructions; provided, that
neither U.S. Trust nor any of its nominees or subcustodians shall be indemnified
against any liability to the Fund or to its Shareholders (or any expenses
incident to such liability) arising out of (x) U.S. Trust's or such nominee's or
subcustodian's own willful misfeasance, bad faith, gross negligence or reckless
disregard of its duties under this Agreement or any agreement between U.S. Trust
and any nominee or subcustodian or (y) U.S. Trust's own or its subcustodian's
negligent failure to perform its duties under this Agreement. In the event of
any advance of cash for any purpose made by U.S. Trust resulting from orders or
Written Instructions of the Fund, or in the event that U.S. Trust or its nominee
or subcustodian shall incur or be assessed any taxes, charges, expenses,
assessments, claims or liabilities in connection with the performance of this
Agreement, except such as may arise from its or its nominee's or subcustodian's
own negligent action, negligent failure to act, willful misconduct, or reckless
disregard of its duties under this Agreement or any agreement between U.S. Trust
and any nominee or subcustodian, the Fund shall promptly reimburse U.S. Trust
for such advance of cash or such taxes, charges, expenses, assessments, claims
or liabilities.
22. Responsibility of U.S. Trust. U.S. Trust shall be under no duty
to take any action on behalf of the Fund except as specifically set forth
herein or as may be specifically agreed to by U.S. Trust in writing. In the
performance of its duties hereunder, U.S. Trust shall be obligated to exercise
care and diligence and to act in good faith and to use its best efforts within
reasonable limits to insure the accuracy of all services performed under this
Agreement. U.S. Trust shall be responsible for its own negligent failure or
that of any subcustodian it shall appoint to perform its duties under this
Agreement but to the extent that duties, obligations and responsibilities are
not expressly set forth in this Agreement, U.S. Trust shall not be liable for
any act or omission which does not constitute willful misfeasance, bad faith,
or gross negligence on
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<PAGE> 19
the part of U.S. Trust or reckless disregard of such duties, obligations and
responsibilities. Without limiting the generality of the foregoing or of any
other provision of this Agreement, U.S. Trust in connection with its duties
under this Agreement shall not be under any duty or obligation to inquire into
and shall not be liable for or in respect of (a) the validity or invalidity or
authority or lack thereof of any advice, direction, notice or other instrument
which conforms to the applicable requirements of this Agreement, if any, and
which U.S. Trust believes to be genuine, (b) the validity of the issue of any
securities purchased or sold by the Fund, the legality of the purchase or sale
thereof or the propriety of the amount paid or received therefor, (c) the
legality of the issue or sale of any Shares, or the sufficency of the amount to
be received therefor, (d) the legality of the redemption of any Shares, or the
propriety of the amount to be paid therefor, (e) the legality of the
declaration or payment of any dividend or distribution on Shares, or (f)
delays or errors or loss of data occurring by reason of circumstances beyond
U.S. Trust's control, including acts of civil or military authority, national
emergencies, labor difficulties, fire, mechanical breakdown (except as provided
in Paragraph 17), flood or catastrophe, acts of God, insurrection, war, riots,
or failure of the mail, transportation systems, communication systems or power
supply.
23. Collection. All collections of monies or other property in
respect, or which are to become part, of the Property (but not the safekeeping
thereof upon receipt by U.S. Trust) shall be at the sole risk of the Fund. In
any case in which U.S. Trust does not receive any payment due the Fund within a
reasonable time after U.S. Trust has made proper demands for the same, it shall
so notify the Fund in writing, including copies of all demand letters, any
written responses thereto, and memoranda of all oral responses thereto, and to
telephonic demands, and await instructions from the Fund. U.S. Trust shall
not be obliged to take legal action for collection unless and until reasonably
indemnified to its satisfaction. U.S. Trust shall also notify the Fund as soon
as reasonably practicable whenever income due on securities is not collected in
due course.
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<PAGE> 20
24. Duration and Termination. This Agreement shall be effective as of
the date hereof and shall continue until termination by the Fund or by U.S.
Trust on 90 days' written notice. Upon any termination of this Agreement,
pending appointment of a successor to U.S. Trust or a vote of the Shareholders
of the Fund to dissolve or to function without a custodian of its cash,
securities or other property, U.S. Trust shall not deliver cash, securities or
other property of the Fund to the Fund, but may deliver them to a bank or trust
company of its own selection, having aggregate capital, surplus and undivided
profits, as shown by its last published report of not less than twenty million
dollars ($20,000,000) as a successor custodian for the Fund to be held under
terms similar to those of this Agreement; provided, however, that U.S. Trust
shall not be required to make any such delivery or payment until full payment
shall have been made by the Fund of all liabilities constituting a charge on or
against the properties then held by U.S. Trust or on or against U.S. Trust and
until full payment shall have been made to U.S. Trust of all of its fees,
compensation, costs and expenses, subject to the provisions of Paragraph 20 of
this Agreement.
25. Notices. All notices and other communications (collectively
referred to as "Notice" or "Notices" in this paragraph) hereunder shall be in
writing or by confirm in telegram, cable, telex, or facsimile sending device.
Notices shall be addressed (a) if to U.S. Trust, at U.S. Trust's address, 114
W. 47th Street, New York, New York, 10036; (b) if to the Fund, at the address
of the Fund, 1221 Avenue of the Americas, New York, New York, 10020, or (c) if
to neither of the foregoing, at such other address as shall have been notified
to the sender of any such Notice or other communications. If the location of
the sender of a Notice and the address of the addressee thereof are, at the
time of sending, more than 100 miles apart, the Notice may be sent by
first-class mail, in which case it shall be deemed to have been given three
days after it is sent, or if sent by confirming telegram, cable, telex or
facsimile sending device, it shall be deemed to have been given immediately,
and, if the location of the sender of a Notice and the address of the addressee
thereof are, at the time of sending, not more than 100 miles apart, the Notice
may be sent by first-class mail, in which case it shall be deemed to have been
given two days after it is sent, or if sent by messenger, it shall be deemed to
have been given on the day its is delivered, or if sent by confirming telegram,
cable, telex or
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<PAGE> 21
facsimile sending device, it shall be deemed to have been given immediately.
All postage, cable, telegram, telex and facsimile sending device charges
arising from the sending of a Notice hereunder shall be paid by the sender.
26. Further Actions. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof.
27. Amendments. This Agreement or any part hereof may be changed or
waived only by an instrument in writing signed by the party against which
enforcement of such change or waiver is sought.
28. Miscellaneous. This Agreement embodies the entire Agreement and
understanding between the parties hereto, and supersedes all prior agreements
and understandings relating to the parties hereto. The captions in this
Agreement are included for convenience of reference only and in no way define
or delimit any of the provisions hereof or otherwise affect their construction
or effect. This Agreement shall be deemed to be a contract made in New York and
governed by New York law. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the remainder of
this Agreement shall not be affected thereby. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors.
<PAGE> 22
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the day and year first above
written.
MORGAN STANLEY EMERGING MARKETS FUND, INC.
Attest: By: /s/ Warren J. Olsen
------------------------- ----------------------------
Name: Warren J. Olsen
----------------------------
Title: President
----------------------------
UNITED STATES TRUST COMPANY OF NEW YORK
Attest: By: /s/ Peter C. Arrighetti
------------------------ ---------------------------
Name: Peter C. Arrighetti
---------------------------
Title: Senior Vice President
---------------------------
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<PAGE> 23
ADMINISTRATION AGREEMENT DATED FEBRUARY 17, 1992
DOMESTIC CUSTODY AGREEMENT DATED MAY 11, 1994
MORGAN STANLEY EMERGING MARKETS FUND, INC.
ATTACHMENT A
FEES AND EXPENSES
The Fund will be billed monthly for fees and out-of-pocket expenses
under its Domestic Custody Agreement and Administration Agreement with U.S.
Trust. Billings for fees and expenses will be due to U.S. Trust upon receipt
and are based on the following schedules:
ADMINISTRATION FEES
For the services provided pursuant to the U.S. Trust Administration
Agreement, the Fund shall pay to U.S. Trust an annual fee of $65,000 plus .08%
per annum of the average weekly net assets of the Fund, computed weekly and
payable monthly.
DOMESTIC CUSTODY SAFEKEEPING FEES
For the services rendered pursuant to the Domestic Custody Agreement,
the Fund shall pay to U.S. Trust 0.01% of the average daily net assets of the
Fund, computed and payable monthly.
DOMESTIC CUSTODY TRANSACTION FEES
$11.00 per DTC, PTC, or Federal Reserve Book-Entry transaction
$ 5.50 per GNMA transaction
$40.00 per physical transaction
$40.00 per future or option wire
$35.00 per Euroclear transaction
$ 8.00 per outgoing wire transfer
BALANCE CREDITS ON DOMESTIC CUSTODY
Credit on overnight cash balances, less required reserves, will be paid
to the funds at a rate equal to 75% of the 90 day Treasury bill rate.
OUT-OF-POCKET EXPENSES
Out-of-pocket expenses including but not limited to the cost of forms,
statements and confirms, telecommunications facilities, microfiche, proxy
processing, security pricing services (including backup pricing services) the
preparation of Fund Board materials, and mailings will be billed to the Fund on
a monthly basis.
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DOMESTIC CUSTODY AGREEMENT
MORGAN STANLEY EMERGING MARKETS FUND, INC.
MAY 11, 1994
ATTACHMENT B
AUTHORIZED PERSONS
B-1
