<PAGE>
MORGAN STANLEY
EMERGING MARKETS FUND, INC.
- ---------------------------------------------
OFFICERS AND DIRECTORS
<TABLE>
<S> <C>
Barton M. Biggs William G. Morton, Jr.
CHAIRMAN OF THE BOARD DIRECTOR
OF DIRECTORS James W. Grisham
Frederick B. Whittemore VICE PRESIDENT
VICE-CHAIRMAN OF THE BOARD Michael F. Klein
OF DIRECTORS VICE PRESIDENT
Warren J. Olsen Harold J. Schaaff, Jr.
PRESIDENT AND DIRECTOR VICE PRESIDENT
Peter J. Chase Joseph P. Stadler
DIRECTOR VICE PRESIDENT
John W. Croghan Valerie Y. Lewis
DIRECTOR SECRETARY
David B. Gill James R. Rooney
DIRECTOR TREASURER
Graham E. Jones Belinda A. Brady
DIRECTOR ASSISTANT TREASURER
John A. Levin
DIRECTOR
</TABLE>
- ---------------------------------------------
INVESTMENT ADVISER
Morgan Stanley Asset Management Inc.
1221 Avenue of the Americas
New York, New York 10020
- --------------------------------------------------------
ADMINISTRATOR
The Chase Manhattan Bank
73 Tremont Street
Boston, Massachusetts 02108
- --------------------------------------------------------
CUSTODIANS
Morgan Stanley Trust Company (International)
One Pierrepont Plaza
Brooklyn, New York 11201
The Chase Manhattan Bank (Domestic)
770 Broadway
New York, New York 10003
- --------------------------------------------------------
SHAREHOLDER SERVICING AGENT
Boston Equiserve
Investor Relations Department
P.O. Box 644
Boston, Massachusetts 02102-0644
(617) 575-3120
- --------------------------------------------------------
LEGAL COUNSEL
Rogers & Wells
200 Park Avenue
New York, New York 10166
- --------------------------------------------------------
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
- --------------------------------------------------------
For additional Fund information, including the Fund's net asset value per share
and information regarding the investments comprising the Fund's portfolio,
please call 1-800-221-6726.
- ----------------------------------------------------------
MORGAN STANLEY
EMERGING MARKETS
FUND, INC.
---------------
SEMI-ANNUAL REPORT
JUNE 30, 1996
MORGAN STANLEY ASSET MANAGEMENT INC.
INVESTMENT ADVISER
<PAGE>
LETTER TO SHAREHOLDERS
- --------
For the six months ended June 30, 1996, the Morgan Stanley Emerging Markets
Fund, Inc. had a total return, based on net asset value per share, of 20.59%
compared with 13.45% for the IFC Global Total Return Composite Index. For the
period from commencement of operations on November 1, 1991 through June 30,
1996, the Fund's total return, based on net asset value per share, is 122.34%
compared with 71.65% for the Index. On June 28, 1996, the closing price of the
Fund's shares on the New York Stock Exchange was 16 7/8 ($16.88) representing a
3.3% discount to the Fund's net asset value per share.
Politics have been the dominant theme of the second quarter of 1996. Within the
emerging market universe, major elections have been held in Russia, the Czech
Republic, India, Israel and South Korea. In addition, Taiwan held presidential
elections in late March which also had a marked impact on quarterly performance.
Overweight positions in India, Taiwan, Russia, Mexico and Brazil and underweight
positions in Thailand, Malaysia and South Africa all contributed positively.
Arguably, the most important election for the Fund was held in Russia. The
voters had a stark choice in their first democratic election since the fall of
communism. On one side there was Boris Yeltsin and a continuation of the reform
process. On the other side there was Zyuganov and a return to old style
communism with the potential reversal of the reform process coupled with a mass
exodus by foreign investors from the embryonic stock market. The Russian people
voted decisively for Yeltsin, reform and democracy. The stock market rose over
140% during the quarter and dollar denominated Russian debt also appreciated
strongly.
Nobody who visits Russia can miss the raw potential of the country or the
problems which have to be tackled. The economy is close to the bottom, asset
values are attractive and the stock market will be underwritten by the
increasing foreign access to Russian securities over the coming months. Progress
has been made on inflation, which is now 60% per annum compared to 110% in 1995.
Concern remains, however, over Yeltsin's health although he is assembling a
strong team around him. The return of the reform-minded Chubais as
chief-of-staff is particularly positive. The well known and highly respected
Prime Minister Chernomyrdin would temporarily succeed as President in the event
of Yeltsin's demise.
Although the IMF profess satisfaction that Russia has not exceeded the ceiling
on the budget deficit, tax collection has fallen dramatically and the complex
tax system cries out for simplification. In sum, we believe these and other
problems will be addressed and we remain enthusiastic about the potential of
Russia.
The election in India was less in danger of producing a complete change of
policy but nonetheless there was uncertainty due to the widely expected defeat
of the ruling Congress party. The new government formed by Mr. Deve Gowda's
National Front-Left Front coalition is foreign investor-friendly and has no
ambition to produce changes in economic policy.
The real economy in India continues to perform well. GDP growth is 7% per annum
with corporate earnings rising in excess of 25%. The July 22nd budget will be
critical in determining the direction of the stock market in the short run. We
anticipate that the domestic investor will return to the market as interest
rates continue to fall. India is currently trading at the cheap end of its
valuation range and we remain overweight.
Unlike Russia and India which had run-ups prior to their elections, Taiwan has
been one of the strongest performers in the last 3 months following the election
of President Lee and the easing of tensions with mainland China. The market is
2
<PAGE>
supported by strong domestic liquidity and will receive a boost on its inclusion
in the MSCI indices in September.
The election in Israel was a breathtakingly close race between the previous
Prime Minister Shimon Peres and the Likud candidate Benjamin Netanyahu. The
election of Prime Minister Netanyahu has heralded a 20% decline in the local
Mishtanim Index due to domestic not foreign selling. Netanyahu is focusing on
economic reform and interest rates are moving higher to deal with above-target
inflation of 14%. Time will reveal whether concerns are justified that the
Middle East peace process will stall under the new leadership.
With the exception of Taiwan, Asia had a disappointing quarter. Contagion from
potential interest rate rises in the U.S. have negatively impacted Hong Kong and
Malaysia while Thailand has fallen on fears of earnings disappointment from the
financial stocks which dominate the stock market. In Indonesia rioting in the
streets in support of President Suharto's opposition ignited fears of social
unrest in the months before the 1997 Presidential election. Korean investors
were concerned over trade and current account deficits and a slowdown in the
textile, semiconductor and auto sectors.
Latin America had an upbeat quarter, free from any election angst. Interest
rates are falling in Brazil, privatization is progressing, albeit slowly, and
the monopoly telecommunications supplier Telebras had outstanding results.
Brazil continues to be the largest holding in the Fund. Mexico is facing growing
political and business scandals on one hand and seeing economic recovery, lower
interest rates and inflation and a stable currency on the other. We are
marginally overweight in Mexico to take advantage of the strong earnings
recovery now in evidence.
We have initiated a position in Egypt where the market sells on 8x 1996
estimated earnings and, unusually for an emerging market, has a 9% plus yield.
Economic growth is 4% in real terms and inflation is around 9%.
The second half of 1996 could prove a testing period for global financial
markets as interest rates move upwards in the U.S. on stronger than expected
economic growth. We are entering the third quarter with a focus on markets not
highly correlated with the U.S. such as Russia, India and Taiwan, cheap markets
with strong potential earnings growth such as Brazil, Mexico and Pakistan and
the smaller stock markets such as Peru, Chile, Egypt, Hungary and Poland.
Whatever the path of U.S. interest rates, the emerging markets should continue
to have upward momentum from here based on their relatively attractive
valuations and growth prospects.
Sincerely,
[SIGNATURE]
Warren J. Olsen
PRESIDENT AND DIRECTOR
[SIGNATURE]
Madhav Dhar
PORTFOLIO MANAGER
[SIGNATURE]
Marianne L. Hay
PORTFOLIO MANAGER
July 26, 1996
3
<PAGE>
Morgan Stanley Emerging Markets Fund, Inc.
Investment Summary as of June 30, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HISTORICAL
INFORMATION (UNAUDITED)
TOTAL RETURN (%)
-------------------------------------------------------------------------------------
MARKET VALUE (1) NET ASSET VALUE (2) INDEX (1)(3)
--------------------------- --------------------------- -----------------
AVERAGE AVERAGE AVERAGE
CUMULATIVE ANNUAL CUMULATIVE ANNUAL CUMULATIVE ANNUAL
--------------------------- --------------------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
FISCAL YEAR TO
DATE 10.52% -- 20.59% -- 13.45% --
ONE YEAR 12.06+ 12.06%+ 12.60+ 12.60%+ 8.43 8.43%
SINCE INCEPTION* 115.01+ 17.83+ 122.34+ 18.68+ 71.65 12.28
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
- --------------------------------------------------------------------------------
RETURNS AND PER SHARE INFORMATION
A BAR CHART REFLECTING THE DATA BELOW IS REFLECTED HERE.
<TABLE>
<CAPTION>
6 MONTHS ENDED
YEARS ENDED DECEMBER 31: JUNE 30,1996
1991* 1992 1993 1994 1995 (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value Per Share $ 14.71 $ 16.74 $ 28.20 $ 20.30 $ 14.69 $ 17.45
Market Value Per Share $14.25 $18.13 $31.63 $21.50 $15.50 $16.88
Premium/(Discount) -3.1% 8.3% 12.2% 5.9% 5.5% -3.3%
Income Dividends $0.04 $0.01 - - - -
Capital Gains Distributions - $0.01 $1.49 $6.50 $1.29 $0.25
Fund Total Return (2) 4.61% 13.94% 95.22%+ -5.33% -16.30%+ 20.59%
Index Total Return (1)(3)** 3.25% 0.33% 67.52% -0.51% -12.34% 13.45%
</TABLE>
(1) Assumes dividends and distributions, if any, were reinvested.
(2) Total investment return based on net asset value per share 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. This return does not include the effect of dilution in
connection with the Rights Offering. 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 per share of the Fund.
(3) The IFC Global Total Return Composite Index is an unmanaged index of common
stocks and includes developing countries in Latin America, East and South
Asia, Europe, the Middle East and Africa.
* The Fund commenced operations on November 1, 1991.
** Unaudited.
+ Adjusted for Rights Offering.
4
<PAGE>
Morgan Stanley Emerging Markets Fund, Inc.
Portfolio Summary as of June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO INVESTMENTS DIVERSIFICATION
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Equity Securities 96.2%
Debt Securities 1.3%
Short-Term Investments 2.5%
</TABLE>
- --------------------------------------------------------------------------------
SECTORS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Banking 15.7%
Beverages 7.1%
Building Materials & Components 3.2%
Chemicals 3.7%
Energy Equipment & Services 4.2%
Energy Sources 5.8%
Multi-Industry 8.9%
Real Estate 3.2%
Telecommunications 16.9%
Utilities-Electrical & Gas 3.3%
Other 28.0%
</TABLE>
- --------------------------------------------------------------------------------
5
<PAGE>
Morgan Stanley Emerging Markets Fund, Inc.
Portfolio Summary as of June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
COUNTRY WEIGHTINGS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Brazil 14.6%
India 13.0%
Mexico 10.2%
Russia 7.3%
Taiwan 6.4%
Indonesia 5.9%
Turkey 5.2%
Hong Kong 5.1%
Thailand 4.4%
South Africa 4.3%
Philippines 3.7%
Korea 3.2%
Pakistan 2.8%
Israel 2.6%
Argentina 1.7%
Greece 1.6%
Poland 1.4%
China 1.0%
Colombia 0.9%
Mauritius 0.7%
Zimbabwe 0.7%
Morocco 0.5%
Egypt 0.4%
Singapore 0.3%
United Kingdom 0.2%
Switzerland 0.2%
Chile 0.1%
Hungary 0.1%
Other 1.5%
</TABLE>
- --------------------------------------------------------------------------------
TEN LARGEST HOLDINGS
<TABLE>
<CAPTION>
PERCENT
OF
NET
ASSETS
------
<C> <S> <C>
1. Telebras 6.4%
2. Bharat Heavy Electricals 4.0
3. LUKoil 2.1
4. Brahma 2.1
5. Telmex 'L' ADR 1.7
<CAPTION>
PERCENT
OF
NET
ASSETS
------
<C> <S> <C>
6. State Bank of India 1.7%
7. Banco Bradesco (Preferred) 1.7
8. Telekomunikasi (Foreign) 1.5
9. G. Bancomer 1.5
10. Eletrobras 1.5
------
24.2%
------
------
</TABLE>
- --------------------------------------------------------------------------------
6
<PAGE>
FINANCIAL STATEMENTS
- ---------
STATEMENT OF NET ASSETS (UNAUDITED)
- ---------
JUNE 30, 1996
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
COMMON STOCKS (95.8%)
(Unless otherwise noted)
- --------------------------------------------------
- ----------
ARGENTINA (1.7%)
AUTOMOBILES
+CIADEA 1 U.S.$ --
--------------
BEVERAGES
Quilmes Industrial S.A. 80,695 827
Quilmes Industrial S.A. (Preferred)
ADR 16,646 171
--------------
998
--------------
TELECOMMUNICATIONS
Telecom Argentina S.A. ADR 50,761 2,379
Telefonica de Argentina S.A. ADR 118,610 3,499
--------------
5,878
--------------
6,876
--------------
- ---------------------------------------------------------
- ------------
BRAZIL (14.6%)
BANKING
++Banco Bradesco (Preferred) 826,411,365 6,750
+Banco do Brasil (Rights) 47,773,790 --
++Banco Itau (Preferred) 9,845,500 4,001
++**Banco Nacional (Preferred) 61,598,720 3
--------------
10,754
--------------
BEVERAGES
++Brahma (Preferred) 14,085,209 8,404
+***Brahma (Rights) 966,600 --
--------------
8,404
--------------
ENERGY SOURCES
++Petrobras (Preferred) 26,161,999 3,218
--------------
MERCHANDISING
Pao de Acucar 6,460,000 107
Pao de Acucar GDR 2,720 45
#Pao de Acucar GDR 69,550 1,152
++**Lojas Americanas (Preferred) 65,534 9
--------------
1,313
--------------
MULTI-INDUSTRY
++Itausa Investimentos Itau
(Preferred) 413,000 317
--------------
TELECOMMUNICATIONS
Telebras 41,155,000 2,419
++Telebras (Preferred) 236,333,183 16,502
Telebras (Preferred) ADR 91,525 6,372
+Telesp 2,749,117 485
++Telesp (Preferred) 2,266,535 485
--------------
26,263
--------------
- ---------------------------------------------------------
- ------------
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
UTILITIES -- ELECTRICAL & GAS
+#Cemig ADR 7,525 U.S.$ 201
++Cemig (Preferred) 53,349,867 1,419
Eletrobras 14,822,078 3,986
++Eletrobras 'B' (Preferred) 6,380,138 1,824
+**Light (Preferred) 3,498,000 244
--------------
7,674
--------------
57,943
--------------
- ---------------------------------------------------------
- ------------
CHILE (0.1%)
FOOD & HOUSEHOLD PRODUCTS
Santa Isabel S.A. ADR 14,515 397
--------------
- ---------------------------------------------------------
- ------------
CHINA (1.0%)
CHEMICALS
Jilin Chemical Industrial Co. ADR 19,400 357
Shenzhen Yizheng Chemical Fibre Co.
Ltd. 4,342,000 959
--------------
1,316
--------------
ELECTRICAL & ELECTRONICS
Harbin Power Equipment Co. Ltd. 'H' 448,000 67
--------------
ENERGY SOURCES
Zhenhai Refining & Chemical Co. Ltd.
'H' 2,129,000 605
--------------
PACKAGING & CONTAINERS
China International Marine Containers
Ltd. 'B' 1,690,000 1,463
--------------
TRANSPORTATION -- ROAD & RAIL
+Guangshen Railway ADR 20,000 383
--------------
3,834
--------------
- ---------------------------------------------------------
- ------------
COLOMBIA (0.3%)
BANKING
Banco de Colombia 3,032,000 1,151
--------------
- ---------------------------------------------------------
- ------------
EGYPT (0.4%)
BANKING
+Commercial International Bank 4,934 609
--------------
BUILDING MATERIALS & COMPONENTS
Ameriyah Cement Co. 5,900 80
Helwan Portland Cement 14,500 136
+Madinet Nasr Housing & Development 3,500 92
Torah Portland Cement Co. 7,150 94
--------------
402
--------------
- ---------------------------------------------------------
- ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ---------------------------------------------------------
- ------------
<S> <C> <C>
EGYPT (CONTINUED)
FINANCIAL SERVICES
+Egyptian Finance & Industrial 14,850 U.S.$ 157
--------------
FOOD & HOUSEHOLD PRODUCTS
North Cairo Flour Mills 7,910 186
--------------
TOBACCO
Eastern Tobacco 27,600 300
--------------
1,654
--------------
- ---------------------------------------------------------
- ------------
GREECE (1.6%)
BANKING
Alpha Credit Bank 4,000 211
Ergo Bank S.A. 40,000 2,204
--------------
2,415
--------------
BEVERAGES
Delta Dairy S.A. 112,200 1,372
Hellenic Bottling Co. S.A. 54,000 1,794
--------------
3,166
--------------
CONSTRUCTION & HOUSING
Aegek 111,150 740
--------------
6,321
--------------
- ---------------------------------------------------------
- ------------
HONG KONG (5.1%)
ELECTRICAL & ELECTRONICS
+Great Wall Electronics International 1,109,500 80
--------------
ELECTRONIC COMPONENTS & INSTRUMENTS
Varitronix International Ltd. 450,000 939
--------------
FOOD & HOUSEHOLD PRODUCTS
Tingyi (Cayman Island) Holding Co. 3,572,000 981
--------------
MULTI-INDUSTRY
Citic Pacific Ltd. 705,000 2,851
Guangdong Investments Ltd. 1,448,000 917
Hutchison Whampoa Ltd. 585,000 3,680
Swire Pacific Ltd. 'A' 238,000 2,037
--------------
9,485
--------------
REAL ESTATE
Cheung Kong (Holdings) Ltd. 533,000 3,839
New World Development Co. Ltd. 410,000 1,902
Sun Hung Kai Properties Ltd. 196,100 1,982
--------------
7,723
--------------
TELECOMMUNICATIONS
Hong Kong Telecom Ltd. 523,600 940
--------------
20,148
--------------
- ---------------------------------------------------------
- ------------
HUNGARY (0.1%)
FINANCIAL SERVICES
+Cofinec S.A. GDR 4,900 234
--------------
- ---------------------------------------------------------
- ------------
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
INDIA (11.9%)
AUTOMOBILES
Apollo Tyres Ltd. 90,000 U.S.$ 463
Hero Honda Ltd. 190,082 1,517
MRF Ltd. 3,500 350
Tata Engineering & Locomotive Ltd. 81,550 1,204
--------------
3,534
--------------
BANKING
Bank of Rajasthan Ltd. -- New 241,950 1,301
State Bank of India Ltd. 800,400 6,822
--------------
8,123
--------------
BUILDING MATERIALS & COMPONENTS
Associated Cement Co. Ltd. 15,912 1,091
Gujarat Ambuja Cements Ltd. 96,000 1,019
--------------
2,110
--------------
CHEMICALS
Indian Petro Chemical Corp. Ltd. 351,300 1,553
Reliance Industries Ltd. 1,332 8
--------------
1,561
--------------
ELECTRICAL & ELECTRONICS
Asian Electronics Ltd. 48,650 753
--------------
ELECTRONIC COMPONENTS & INSTRUMENTS
Modi Xerox Ltd. 99,550 410
--------------
ENERGY EQUIPMENT & SERVICES
Bharat Heavy Electricals Ltd. 3,125,000 15,922
Crompton Greaves Ltd. 350 2
--------------
15,924
--------------
FINANCIAL SERVICES
Housing Development Finance Corp. Ltd. 49,220 4,105
--------------
HEALTH & PERSONAL CARE
E. Merck (India) Ltd. 144,800 921
Nicholas Piramal India Ltd. 225,000 1,383
Ranbaxy Labs Ltd. 71 1
--------------
2,305
--------------
MACHINERY & ENGINEERING
Bharat Forge Co. Ltd. 48,433 245
+Bharat Forge Co. Ltd. -- New 14,285 72
--------------
317
--------------
MISCELLANEOUS MATERIALS & COMMODITIES
Essel Packaging Ltd. 71,950 351
--------------
MULTI-INDUSTRY
+@Morgan Stanley Growth Fund 6,881,800 1,348
--------------
RECREATION & OTHER CONSUMER GOODS
Tube Investments of India Ltd. 204,150 703
--------------
- ---------------------------------------------------------
- ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ---------------------------------------------------------
- ------------
<S> <C> <C>
INDIA (CONTINUED)
TELECOMMUNICATIONS
Videsh Sanchar Nigam Ltd. 62,600 U.S.$ 2,399
--------------
TOBACCO
ITC Ltd. 209,800 1,857
--------------
TEXTILES & APPAREL
Mahavir Spinning Mills Ltd. 5,500 14
Raymond Ltd. 81,150 780
--------------
794
--------------
TRANSPORTATION -- SHIPPING
Great Eastern Shipping Ltd. 'A' 579,446 831
--------------
UTILITIES -- ELECTRICAL & GAS
Tata Power Co. Ltd. 150 1
--------------
47,426
--------------
- ---------------------------------------------------------
- ------------
INDONESIA (5.8%)
BANKING
**Bank International Indonesia
(Foreign) 363,500 1,796
--------------
BUILDING MATERIALS & COMPONENTS
**Indocement Tunggal Prakasa (Foreign) 272,000 935
**Semen Gresik (Foreign) 158,500 461
--------------
1,396
--------------
CHEMICALS
**Sorini Corp. (Foreign) 173,000 951
--------------
FOREST PRODUCTS & PAPER
**Barito Pacific Timber (Foreign) 957,000 627
**Indah Kiat Pulp & Paper (Foreign) 1,903,000 1,860
--------------
2,487
--------------
HEALTH & PERSONAL CARE
**Kalbe Farma (Foreign) 397,020 887
--------------
MACHINERY & ENGINEERING
**United Tractors (Foreign) 110,000 174
--------------
MISCELLANEOUS MATERIALS & COMMODITIES
**Charoen Pokphand Indonesia (Foreign) 87,694 170
--------------
MULTI-INDUSTRY
**Bimantara Citra (Foreign) 1,150,000 1,445
--------------
TELECOMMUNICATIONS
**Indosat (Foreign) 334,000 1,123
**Telekomunikasi (Foreign) 4,038,500 6,116
--------------
7,239
--------------
TOBACCO
+**Gudang Garam (Foreign) 875,000 3,750
**HM Sampoerna (Foreign) 233,000 2,653
--------------
6,403
--------------
22,948
--------------
- ---------------------------------------------------------
- ------------
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
ISRAEL (2.6%)
AEROSPACE & MILITARY TECHNOLOGY
Elbit Ltd. 37,909 U.S.$ 2,259
--------------
BANKING
First International Bank of Israel 10,321 1,151
--------------
ELECTRICAL & ELECTRONICS
Scitex Ltd. 55,467 957
--------------
FOOD & HOUSEHOLD PRODUCTS
Osem Investment Ltd. 154,176 908
Super Sol Ltd. 66,693 1,419
--------------
2,327
--------------
HEALTH & PERSONAL CARE
Teva Pharmaceutical Industries Ltd.
ADR 20,000 758
--------------
MULTI-INDUSTRY
Koor Industries Ltd. 19,850 1,682
+Pec Israel Economic Corp. 43,870 795
--------------
2,477
--------------
REAL ESTATE
+Israel Land Development 157,600 387
--------------
10,316
--------------
- ---------------------------------------------------------
- ------------
KOREA (3.2%)
APPLIANCES & HOUSEHOLD DURABLES
Samsung Electronics Co. (Foreign) 26,816 2,251
#Samsung Electronics Co. GDR (Foreign) 990 51
+Samsung Electronics Co. -- New 2,000 102
Samsung Electronics Co. RFD (Foreign) 855 72
+Samsung Electronics Co. RFD (Foreign)
(Bonus Issue) 8,080 678
--------------
3,154
--------------
BANKING
+Korea Housing Bank 97,380 2,677
**Shinhan Bank Co. Ltd. (Foreign) 69,354 1,620
--------------
4,297
--------------
BEVERAGES
**Chosun Brewery Co. Ltd. (Foreign) 8,410 287
--------------
ENERGY EQUIPMENT & SERVICES
Yukong Ltd. (Foreign) 27,600 810
--------------
METALS -- STEEL
**Pohang Iron & Steel (Foreign) 7,870 642
--------------
TELECOMMUNICATIONS
Korea Mobile Telecom ADR 59,000 1,010
**Korea Mobile Telecom (Foreign) 660 781
--------------
1,791
--------------
- ---------------------------------------------------------
- ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ---------------------------------------------------------
- ------------
<S> <C> <C>
KOREA (CONTINUED)
UTILITIES -- ELECTRICAL & GAS
**Korea Electric Power (Foreign) 48,000 U.S.$ 1,938
--------------
12,919
--------------
- ---------------------------------------------------------
- ------------
MAURITIUS (0.7%)
BANKING
State Bank of Mauritius 6,500,000 2,761
--------------
- ---------------------------------------------------------
- ------------
MEXICO (10.2%)
BANKING
+G. Banacci 'B' 1,329,845 2,764
+G. Banacci 'L' 805,847 1,530
+G. Bancomer 'B' 1,336,725 582
+#G. Bancomer 'B' ADR 633,508 5,464
--------------
10,340
--------------
BEVERAGES
FEMSA 'B' 2,007,775 5,693
Panamerican Beverages, Inc. 'A' 51,842 2,307
--------------
8,000
--------------
BROADCASTING & PUBLISHING
+G. Televisa GDR 82,645 2,541
--------------
BUILDING MATERIALS & COMPONENTS
Apasco 222,558 1,228
Cemex CPO 'A' 996,105 3,534
#Cemex CPO ADR 240,612 1,664
--------------
6,426
--------------
CONSTRUCTION & HOUSING
+Empresas ICA Sociedad Controladora
S.A. ADS 79,889 1,108
--------------
MERCHANDISING
+Cifra S.A. de C.V. 'B' 381,300 550
+Cifra S.A. de C.V. 'C' 1,225,000 1,748
--------------
2,298
--------------
MULTI-INDUSTRY
Alfa S.A. de C.V. 'A' 375,113 1,684
+#G. Carso ADR 93,690 1,328
+G. Sidek 'A' 1,000 --
--------------
3,012
--------------
TELECOMMUNICATIONS
+Telmex 'L' ADR 206,410 6,915
--------------
40,640
--------------
- ---------------------------------------------------------
- ------------
MOROCCO (0.5%)
BANKING
+Wafabank 20,000 931
--------------
MULTI-INDUSTRY
Groupe Ona 21,400 981
--------------
1,912
--------------
- ---------------------------------------------------------
- ------------
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
PAKISTAN (2.8%)
BEVERAGES
+Industrial Fruit Products 100 U.S.$ --
--------------
BUILDING MATERIALS & COMPONENTS
+Cherat Cement Ltd. 21,056 15
D.G. Khan Cement Ltd. 731,500 291
--------------
306
--------------
CHEMICALS
Fauji Fertilizer Co. Ltd. 1,315,700 3,383
--------------
ENERGY SOURCES
Pakistan State Oil Co. Ltd. 148,200 1,749
--------------
INSURANCE
Adamjee Insurance Co. Ltd. 14,855 59
--------------
TELECOMMUNICATIONS
+Pakistan Telecommunications 34,700 3,965
+Pakistan Telecommunications GDR 4,500 531
--------------
4,496
--------------
TEXTILES & APPAREL
+Crescent Textile Mills Ltd. 2,770 1
Dewan Salman Fibre 60,000 72
+Nishat Mills Ltd. 471,926 189
--------------
262
--------------
UTILITIES -- ELECTRICAL & GAS
+Karachi Electric Supply Corp. 554,400 582
+Sui Northern Gas Co. 337,000 385
--------------
967
--------------
11,222
--------------
- ---------------------------------------------------------
- ------------
PHILIPPINES (3.7%)
CONSTRUCTION & HOUSING
+DMCI Holdings, Inc. 1,918,400 1,373
--------------
ENERGY SOURCES
Petron Corp. 2,793,425 1,279
--------------
MULTI-INDUSTRY
JG Summit Holdings 'B' 6,477,600 2,423
--------------
REAL ESTATE
Ayala Land, Inc. 'B' 656,381 1,178
C&P Homes, Inc. 2,274,900 1,975
SM Prime Holdings, Inc. 6,564,480 1,704
--------------
4,857
--------------
TELECOMMUNICATIONS
Philippine Long Distance Telephone 'B' 44,510 2,650
--------------
UTILITIES -- ELECTRICAL & GAS
Manila Electric Co. 'B' 221,665 2,327
--------------
14,909
--------------
- ---------------------------------------------------------
- ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ---------------------------------------------------------
<S> <C> <C>
- ------------
POLAND (1.3%)
AUTOMOBILES
+Debica 9,700 U.S.$ 236
--------------
CHEMICALS
+*Eastbridge 33,600 2,259
--------------
CONSTRUCTION & HOUSING
Mostostal Exports S.A. 246,000 842
+Mostostal Exports S.A. (Rights) 246,000 15
+Polifarb Wroclaw S.A. 24,000 121
--------------
978
--------------
FINANCIAL SERVICES
Bank Rozwoju Eksportu 4,550 119
--------------
MULTI-INDUSTRY
Elektrim 116,500 956
+International UNP Holdings Ltd. 2,280,000 835
--------------
1,791
--------------
5,383
--------------
- ---------------------------------------------------------
- ------------
PORTUGAL (0.0%)
BROADCASTING & PUBLISHING
+Filmes Lusomundo 35,000 217
--------------
- ---------------------------------------------------------
- ------------
RUSSIA (7.3%)
BROADCASTING & PUBLISHING
+*Storyfirst Communications
(Preferred) 139 348
+*Storyfirst Communications 'C'
(Preferred) 270 180
+*Storyfirst Communications 'D'
(Preferred) 720 540
+*Storyfirst Communications 'E'
(Preferred) 780 780
--------------
1,848
--------------
ENERGY SOURCES
+Irkutskenergo 15,210,000 1,764
+LUKoil Holdings 180,900 1,990
#LUKoil Holdings ADR 151,565 6,479
+Moscow Energy 4,075,000 3,627
+United Energy System 25,885,000 2,433
--------------
16,293
--------------
FOREST PRODUCTS & PAPER
**Alliance Cellulose 'B' 156,075 3,296
--------------
TELECOMMUNICATIONS
*Global Telesystems Group 214,285 2,893
+Rostelecom 1,153,500 2,768
+*Russian Telecom Development Corp. 176,000 1,760
--------------
7,421
--------------
28,858
--------------
- ---------------------------------------------------------
- ------------
SINGAPORE (0.3%)
FOOD & HOUSEHOLD PRODUCTS
+Want Want Holdings 492,000 1,323
--------------
- ---------------------------------------------------------
- ------------
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
SOUTH AFRICA (4.3%)
CHEMICALS
SASOL Ltd. 450,950 U.S.$ 4,891
--------------
FINANCIAL SERVICES
Amalgamated Banks of South Africa 342,900 1,899
--------------
FOOD & HOUSEHOLD PRODUCTS
Bidvest Group Ltd. 367,537 2,197
--------------
MERCHANDISING
Metro Cash and Carry Ltd. 470,000 1,817
--------------
MULTI-INDUSTRY
Anglo American Industrial Corp. 38,850 1,560
Barlow Ltd. 283,500 2,961
@Morgan Stanley Africa Investment Fund 141,445 1,768
--------------
6,289
--------------
17,093
--------------
- ---------------------------------------------------------
- ------------
TAIWAN (5.8%)
BANKING
Hua Nan Commercial Bank 713,000 3,757
--------------
ELECTRICAL & ELECTRONICS
Mosel Vitelic, Inc. 813,399 1,144
--------------
ELECTRONIC COMPONENTS & INSTRUMENTS
+Acer, Inc. 1,148,000 1,710
Taiwan Semiconductor Co. 1,639,800 3,426
United Micro Electronics Corp. Ltd. 1,313,074 1,947
--------------
7,083
--------------
INSURANCE
Cathay Life Insurance Co. Ltd. 686,000 4,836
--------------
METALS -- STEEL
China Steel Corp. 3,344,000 3,500
--------------
TRANSPORTATION -- SHIPPING
Yang Ming Marine Transport 1,835,000 2,707
--------------
23,027
--------------
- ---------------------------------------------------------
- ------------
THAILAND (4.4%)
BANKING
Bangkok Bank Ltd. (Foreign) 290,300 3,934
Siam Commercial Bank Co. Ltd.
(Foreign) 200,900 2,912
Thai Farmers Bank Ltd. (Foreign) 289,760 3,173
--------------
10,019
--------------
ELECTRICAL & ELECTRONICS
Shinawatra Computer Co. Ltd. (Foreign) 67,000 1,452
--------------
- ---------------------------------------------------------
- ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ---------------------------------------------------------
- ------------
<S> <C> <C>
THAILAND (CONTINUED)
FINANCIAL SERVICES
Finance One Co. Ltd. (Foreign) 595,400 U.S.$ 3,847
National Finance & Securities Co. Ltd.
(Foreign) 157,100 699
--------------
4,546
--------------
TELECOMMUNICATIONS
Advanced Information Services Co. Ltd.
(Foreign) 92,700 1,373
--------------
17,390
--------------
- ---------------------------------------------------------
- ------------
TURKEY (5.2%)
AUTOMOBILES
Tofas Turk Otomobil Fabrikasi 14,507,500 698
Tofas Turk Otomobil Fabrikasi GDR 1,164,100 396
--------------
1,094
--------------
BANKING
Demirbank TAS 4,400,000 150
Turkiye Garanti Bankasi AS 4,452,000 304
+Turkiye Garanti Bankasi AS RFD 5,565,000 352
Yapi Ve Kredi Bankasi AS 12,960,000 367
+Yapi Ve Kredi Bankasi AS RFD 27,216,000 704
--------------
1,877
--------------
BEVERAGES
+*Efes Sinai Yatirim 30,236,087 847
Ege Biracilik Ve Malt Sanayii 11,857,880 5,416
Erciyas Biracilik Ve Malt Sanayii 1,582,000 896
Guney Biracilik Ve Malt Sanayii 1,046,000 242
--------------
7,401
--------------
BROADCASTING & PUBLISHING
Sabah Yayincilik AS 30,998,000 859
--------------
BUILDING MATERIALS & COMPONENTS
Borusan Birmesik 6,550,000 543
Ege Seramik Sanayi ve Ticaret AS 9,690,000 389
Trakya Cam Sanayii AS 24,723,444 1,355
--------------
2,287
--------------
CHEMICALS
Bagfas Bandirma Gubre Fabrikalari AS 926,000 251
--------------
FOOD & HOUSEHOLD PRODUCTS
Migros Turk TAS 1,944,000 1,705
Tat Konserve Sanayii AS 4,713,216 1,105
+Tat Konserve Sanayii AS (Rights),
expiring 7/24/96 3,535,000 524
--------------
3,334
--------------
- ---------------------------------------------------------
- ------------
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
METALS -- STEEL
Eregli Demir Ve Celik Fabrikalari TAS 18,150,000 U.S.$ 2,012
--------------
TEXTILES & APPAREL
+Aksa Akrilik Kimya Sanayii AS 3,696,880 777
Bossa Ticaret Sanyai Isletme 4,315,000 436
--------------
1,213
--------------
UTILITIES -- ELECTRICAL & GAS
Turcas Petroculuk AS 863,750 252
--------------
20,580
--------------
- ---------------------------------------------------------
- ------------
UNITED KINGDOM (0.2%)
MULTI-INDUSTRY
Lonrho plc 318,961 914
--------------
- ---------------------------------------------------------
- ------------
ZIMBABWE (0.7%)
MULTI-INDUSTRY
#Trans Zambezi Industries Ltd. 1,800,000 2,700
--------------
- ---------------------------------------------------------
- ------------
TOTAL COMMON STOCKS
(Cost U.S. $330,914) 381,096
--------------
- ---------------------------------------------------------
- ------------
<CAPTION>
FACE
AMOUNT
(000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
DEBT INSTRUMENTS (1.3%)
- ---------------------------------------------------------
- ------------
COLOMBIA (0.6%)
BANKING
#Banco de Colombia (Convertible)
5.20%, 2/1/99 U.S.$ 2,615 2,337
--------------
- ---------------------------------------------------------
- ------------
INDIA (0.7%)
CHEMICALS
**Supreme Petrochem Ltd. 15.00%,
4/22/02 INR 600 213
--------------
MACHINERY & ENGINEERING
**Bharat Forge Co. Ltd. 14.50%,
4/18/02 14 16
--------------
METALS -- STEEL
**Shri Ishar Alloy Steels Ltd. 15.00%,
4/21/02 581 247
--------------
MULTI-INDUSTRY
**DCM Shriram Industries Ltd. 16.50%,
3/2/02 335 523
**DCM Shriram Industries (Convertible)
Ltd. 15.00%, 3/2/02 330 390
**Raymond Ltd. 16.00%, 1/5/02 124 312
**Somani Pilkington Ltd. 15.00%,
1/4/02 207 980
--------------
2,205
--------------
2,681
--------------
- ---------------------------------------------------------
- ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- ---------------------------------------------------------
<S> <C> <C>
- ------------
POLAND (0.0%)
BRADY BOND
#Polish People's Republic Past Due
Interest Bond 3.75%, 10/27/14 U.S.$ 28 U.S.$ 21
--------------
- ---------------------------------------------------------
- ------------
TOTAL DEBT INSTRUMENTS
(Cost U.S. $6,080) 5,039
--------------
- ---------------------------------------------------------
- ------------
SHORT-TERM INVESTMENT (1.1%)
REPURCHASE AGREEMENT
Chase Securities, Inc. 5.15%, dated
6/28/96, due 7/1/96, to be
repurchased at U.S.$4,584,
collateralized by U.S.$4,505 United
States Treasury Notes 7.125%, due
9/30/99, valued at U.S.$4,606 (Cost
U.S.$4,582) 4,582 4,582
--------------
- ---------------------------------------------------------
- ------------
FOREIGN CURRENCY ON DEPOSIT WITH CUSTODIAN (1.4%)
Argentine Peso ARP 6 6
Brazilian Real BRC 238 237
Colombian Peso COP 13,236 12
Egyptian Pound EGP 33 10
Hong Kong Dollar HKD 386 50
Indian Rupee INR 52,414 1,488
Indonesian Rupiah IDR 911,753 392
Korean Won KRW 78,633 97
Mexican Peso MXP 2 --
Pakistani Rupee PKR 18 1
Peruvian New Sol PSS 1 1
Polish Zloty PLZ 4 1
Swiss Franc CHF 854 683
Taiwan Dollar TWD 66,442 2,414
Turkish Lira TRL 10,877,530 132
--------------
(Cost U.S.$5,576) 5,524
--------------
- ---------------------------------------------------------
- ------------
TOTAL INVESTMENTS (99.6%)
(Cost U.S. $347,152) 396,241
--------------
- ---------------------------------------------------------
- ------------
OTHER ASSETS (1.9%)
Cash U.S.$ 170
Receivable for Investments Sold 5,322
Dividends Receivable 1,925
Interest Receivable 221
Foreign Withholding Tax Reclaim
Receivable 22
Deferred Organization Costs 11
Other Assets 43 7,714
--------------- --------------
- ---------------------------------------------------------
- ------------
<CAPTION>
AMOUNT AMOUNT
(000) (000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
LIABILITIES (-1.5%)
Deferred Indian Taxes U.S.$ (1,920)
Payable for:
Investments Purchased U.S.$ (3,319)
Investment Advisory Fees (400)
Custodian Fees (269)
Shareholder Reporting Expenses (110)
Professional Fees (74)
Directors' Fees and Expenses (45)
Administrative Fees (43)
Other Liabilities (90) (4,350)
--------------- --------------
- ---------------------------------------------------------
- ------------
NET ASSETS (100%)
Applicable to 22,794,370 issued and outstanding U.S.
$0.01 par value shares (100,000,000 shares authorized) U.S.$ 397,685
--------------
--------------
- ---------------------------------------------------------
- ------------
NET ASSET VALUE PER SHARE U.S.$ 17.45
--------------
--------------
- ---------------------------------------------------------
- ------------
AT JUNE 30, 1996, NET ASSETS CONSISTED OF:
- ---------------------------------------------------------
Common Stock U.S.$ 821
Capital Surplus 340,360
Undistributed Net Investment Income 968
Accumulated Net Realized Gain 8,435
Unrealized Appreciation on Investments and Foreign
Currency Translations (net of accrued Indian Tax of
U.S.$1,920 on unrealized appreciation). 47,101
- ---------------------------------------------------------
- ------------
TOTAL NET ASSETS U.S.$ 397,685
--------------
--------------
</TABLE>
- ---------------------------------------------------------
- ------------
+ -- Non-income producing.
++ -- Non-voting stock.
* -- Security valued at cost -- see note A-1 to financial statements.
** -- Securities (totaling U.S.$34,449 or 8.7% of Net Assets at June 30,
1996) valued at fair value -- see note A-1 to financial statements.
*** -- Security valued at fair value as determined based on the market value
of the underlying security less subscription costs.
# -- 144A Security -- certain conditions for public sale may exist.
@ -- The Fund is advised by an affiliate.
ADR -- American Depositary Receipt.
ADS -- American Depositary Shares.
GDR -- Global Depositary Receipt.
RFD -- Ranked for Dividend.
NOTE: Prior governmental approval for foreign investments may be required under
certain circumstances in some markets, and foreign ownership limitations
may also be imposed by the charters of individual companies in such
markets. As a result, an additional class of shares designated as
"foreign" may be created and offered for investment. The "local" and
"foreign" shares' market values may vary.
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
<TABLE>
<S> <C> <C>
- ---------------------------------------------------------
- ------------
JUNE 30, 1996 EXCHANGE RATES:
- ---------------------------------------------------------
ARP Argentine Peso 1.000 = U.S.$1.00
BRL Brazilian Real 1.004 = U.S.$1.00
GBP British Pound 0.644 = U.S.$1.00
COP Colombian Peso 1,067.000 = U.S.$1.00
EGP Egyptian Pound 3.402 = U.S.$1.00
GRD Greek Drachma 240.470 = U.S.$1.00
HKD Hong Kong Dollar 7.741 = U.S.$1.00
INR Indian Rupee 35.230 = U.S.$1.00
IDR Indonesian Rupiah 2,327.500 = U.S.$1.00
ISS Israeli Shekel 3.200 = U.S.$1.00
KRW Korean Won 811.200 = U.S.$1.00
MUR Mauritius Rupee 20.015 = U.S.$1.00
MXP Mexican Peso 7.583 = U.S.$1.00
MAD Moroccan Dirham 8.723 = U.S.$1.00
PKR Pakistani Rupee 35.005 = U.S.$1.00
PHP Philippine Peso 26.200 = U.S.$1.00
PLZ Polish Zloty 2.717 = U.S.$1.00
PTE Portuguese Escudo 156.300 = U.S.$1.00
CHF Swiss Franc 1.250 = U.S.$1.00
TWD Taiwan Dollar 27.520 = U.S.$1.00
THB Thai Baht 25.385 = U.S.$1.00
TRL Turkish Lira 82,100.000 = U.S.$1.00
ZAR South African Rand 4.333 = U.S.$1.00
</TABLE>
- ---------------------------------------------
- ---------
SUMMARY OF TOTAL INVESTMENTS BY INDUSTRY
CLASSIFICATION -- JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
PERCENT
VALUE OF NET
INDUSTRY (000) ASSETS
<S> <C> <C>
- ----------------------------------------------------------------
- ------------
Aerospace & Military Technology U.S.$ 2,259 0.6%
Appliances & Household Durables 3,154 0.8
Automobiles 4,864 1.2
Banking 62,318 15.7
Beverages 28,256 7.1
Broadcasting & Publishing 5,465 1.4
Building Materials & Components 12,927 3.2
Chemicals 14,825 3.7
Construction & Housing 4,199 1.1
Electrical & Electronics 4,453 1.1
Electronic Components & Instruments 8,432 2.1
Energy Equipment & Services 16,734 4.2
Energy Sources 23,144 5.8
Financial Services 11,060 2.8
Food & Household Products 10,745 2.7
Forest Products & Paper 5,783 1.5
Health & Personal Care 3,950 1.0
Insurance 4,895 1.2
Machinery & Engineering 507 0.1
Merchandising 5,428 1.4
Metals -- Steel 6,401 1.6
Miscellaneous Materials & Commodities 521 0.1
Multi-Industry 35,387 8.9
Packaging & Containers 1,463 0.4
Real Estate 12,967 3.2
Recreation & Other Consumer Goods 703 0.2
Telecommunications 67,365 16.9
Textiles & Apparel 2,269 0.6
Tobacco 8,560 2.2
Transportation -- Road & Rail 383 0.1
Transportation -- Shipping 3,538 0.9
Utilities --Electrical & Gas 13,159 3.3
Other 10,127 2.5
------------ --------
U.S.$396,241 99.6%
------------ --------
------------ --------
</TABLE>
- ---------------------------------------------------------
- ------------
SUMMARY OF TOTAL INVESTMENTS BY COUNTRY -- JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
PERCENT
VALUE OF NET
COUNTRY (000) ASSETS
<S> <C> <C>
- ----------------------------------------------------------------
- ------------
Argentina U.S.$ 6,882 1.7%
Brazil 58,180 14.6
Chile 397 0.1
China 3,834 1.0
Colombia 3,500 0.9
Egypt 1,664 0.4
Greece 6,321 1.6
Hong Kong 20,198 5.1
Hungary 234 0.1
India 51,595 13.0
Indonesia 23,340 5.9
Israel 10,316 2.6
Korea 13,016 3.2
Mauritius 2,761 0.7
Mexico 40,640 10.2
Morocco 1,912 0.5
Pakistan 11,223 2.8
Peru 1 0.0
Philippines 14,909 3.7
Poland 5,405 1.4
Portugal 217 0.0
Russia 28,858 7.3
Singapore 1,323 0.3
South Africa 17,093 4.3
Switzerland 683 0.2
Taiwan 25,441 6.4
Thailand 17,390 4.4
Turkey 20,712 5.2
United Kingdom 914 0.2
United States (short-term investment) 4,582 1.1
Zimbabwe 2,700 0.7
------------ --------
U.S.$396,241 99.6%
------------ --------
------------ --------
</TABLE>
- ---------------------------------------------------------
- ------------
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, 1996
(UNAUDITED)
STATEMENT OF OPERATIONS (000)
<S> <C>
- -----------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends............................................................................... U.S.$ 6,216
Interest................................................................................ 307
Less: Foreign Taxes Withheld............................................................ (450)
- -----------------------------------------------------------------------------------------------------------
Total Income.......................................................................... 6,073
- -----------------------------------------------------------------------------------------------------------
EXPENSES
Investment Advisory Fees................................................................ 2,351
Custodian Fees.......................................................................... 547
Administrative Fees..................................................................... 221
Professional Fees....................................................................... 101
Shareholder Reporting Expenses.......................................................... 80
Directors' Fees and Expenses............................................................ 65
Transfer Agent Fees..................................................................... 8
Other Expenses.......................................................................... 109
- -----------------------------------------------------------------------------------------------------------
Total Expenses........................................................................ 3,482
- -----------------------------------------------------------------------------------------------------------
Net Investment Income............................................................. 2,591
- -----------------------------------------------------------------------------------------------------------
NET REALIZED GAIN (LOSS)
Investment Securities Sold (net of Indian tax of U.S.$150 on net realized gains)........ 10,657
Foreign Currency Transactions........................................................... (367)
- -----------------------------------------------------------------------------------------------------------
Net Realized Gain................................................................. 10,290
- -----------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION..............................................
Appreciation on Investments............................................................. 55,184
Depreciation on Foreign Currency Translations........................................... 208
- -----------------------------------------------------------------------------------------------------------
Change in Unrealized Appreciation/Depreciation 55,392
- -----------------------------------------------------------------------------------------------------------
Total Net Realized Gain and Change in Unrealized Appreciation/Depreciation.................. 65,682
- -----------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................................... U.S.$68,273
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 1996 DECEMBER 31,
(UNAUDITED) 1995
STATEMENT OF CHANGES IN NET ASSETS (000) (000)
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net Investment Income............................................... U.S.$ 2,591 U.S.$ 999
Net Realized Gain................................................... 10,290 14,603
Change in Unrealized Appreciation/Depreciation...................... 55,392 (72,561)
- ---------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets Resulting from Operations..... 68,273 (56,959)
- ---------------------------------------------------------------------------------------------------------
Distributions:
Net Realized Gain................................................... (5,728) (29,054)
- ---------------------------------------------------------------------------------------------------------
Capital Share Transactions:
Common Stock Issued Through Rights Offering (5,800,000 shares)...... -- 78,850
Offering Costs...................................................... -- (525)
Reinvestment of Distributions (134,572 and 1,013,362 shares,
respectively)...................................................... 2,261 18,838
- ---------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Capital Share
Transactions....................................................... 2,261 97,163
- ---------------------------------------------------------------------------------------------------------
Total Increase...................................................... 64,806 11,150
Net Assets:
Beginning of Period................................................. 332,879 321,729
- ---------------------------------------------------------------------------------------------------------
End of Period (Including accumulated undistributed net investment
income (loss) of U.S.$968 and U.S.$(1,623), respectively).......... U.S.$397,685 U.S.$332,879
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
SIX MONTHS PERIOD FROM
ENDED YEAR ENDED DECEMBER 31, NOVEMBER 1, 1991*
SELECTED PER SHARE JUNE 30, 1996 ------------------------------------------------------------------- TO DECEMBER 31,
DATA AND RATIOS: (UNAUDITED) 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF
PERIOD............. U.S.$14.69 U.S.$20.30 U.S.$28.20 U.S.$16.74 U.S.$14.71 U.S.$14.10
- ----------------------------------------------------------------------------------------------------------------------------------
Offering Costs...... -- (0.03) (0.02) (0.03) -- (0.07)
- ----------------------------------------------------------------------------------------------------------------------------------
Net Investment
Income (Loss)...... 0.12 0.06 (0.12) -- 0.02 0.05
Net Realized and
Unrealized Gain
(Loss) on
Investments........ 2.88 (3.14) (1.30) 13.96 2.03 0.67
- ----------------------------------------------------------------------------------------------------------------------------------
Total from
Investment
Operations..... 3.00 (3.08) (1.42) 13.96 2.05 0.72
- ----------------------------------------------------------------------------------------------------------------------------------
Distributions:
Net Investment
Income......... -- -- -- -- (0.01) (0.04)
Net Realized
Gain........... (0.25) (1.29) (6.50) (1.04) (0.01) --
In Excess of Net
Realized Gain.. -- -- -- (0.45) -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Total
Distributions... (0.25) (1.29) (6.50) (1.49) (0.02) (0.04)
- ----------------------------------------------------------------------------------------------------------------------------------
Increase (Decrease)
in Net Asset Value
from Capital Share
Transactions....... 0.01*** (1.21)+++ 0.04++ (0.98)+ -- --
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END
OF PERIOD.......... U.S.$17.45 U.S.$14.69 U.S.$20.30 U.S.$28.20 U.S.$16.74 U.S.$14.71
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
PER SHARE MARKET
VALUE, END OF
PERIOD............. U.S.$16.88 U.S.$15.50 U.S.$21.50 U.S.$31.63 U.S.$18.13 U.S.$14.25
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT
RETURN:
Market Value.... 10.52% (16.61)%++++ (10.61)% 100.96%++++ 27.38% (4.84)%
Net Asset Value
(1)............ 20.59% (16.30)%++++ (5.33)% 95.22%++++ 13.94% 4.61%
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
RATIOS, SUPPLEMENTAL
DATA:
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF
PERIOD
(THOUSANDS)........ U.S.$397,685 U.S.$332,879 U.S.$321,729 U.S.$411,975 U.S.$176,904 U.S.$155,321
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to
Average Net
Assets............. 1.86%** %1.86 1.75% %1.85 2.02% 2.25%**
Ratio of Net
Investment Income
(Loss) to Average
Net Assets......... 1.38%** %0.30 (0.48)% (0.03)% 0.14% 2.32%**
Portfolio Turnover
Rate............... 31% % 61 52% % 68 60% 2%
Average Commission
Rate (2)........... U.S.$0.0010 N/A N/A N/A N/A N/A
- ----------------------------------------------------------------------------------------------------------------------------------
*Commencement of operations
**Annualized
***Increase per share due to reinvestment of distributions.
+Consists of U.S.$0.03 per share increase from reinvestment of distributions and U.S.$1.01 decrease per share due to Common
Stock issued through Rights Offering during the year.
++Consists of U.S.$0.02 per share increase from reinvestment of distributions and U.S.$0.02 per share increase due to Common
Stock Offering during the year.
+++Decrease per share due to Common Stock issued through Rights Offering during the year.
++++Adjusted for Rights Offering.
(1)Total investment return based on net asset value per share 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. This return does
not include the effect of dilution in connection with the Rights Offering. 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.
(2)Beginning with fiscal year 1996, the Fund is required to disclose the average commission rate per share it paid for portfolio
trades on which commissions were charged during the period.
</TABLE>
The accompanying notes are an integral part of the financial statements.
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996 (UNAUDITED)
- ----------
The Morgan Stanley Emerging Markets Fund, Inc. (the "Fund") was incorporated
in Maryland on August 27, 1991 and is registered as a non-diversified,
closed-end management investment company under the Investment Company Act of
1940, as amended. The Fund's investment objective is long-term capital
appreciation through investments primarily in equity securities.
A. The following significant accounting policies, which are in conformity with
generally accepted accounting principles for investment companies, are
consistently followed by the Fund in the preparation of its financial
statements. Generally accepted accounting principles may require management to
make estimates and assumptions that affect the amounts and disclosures in the
financial statements. Actual reported results may differ from those estimates.
1. SECURITY VALUATION: In valuing the Fund's assets, all listed securities for
which market quotations are readily available are valued at the last sales
price on the valuation date, or if there was no sale on such date, at the
mean between the current bid and asked prices. Securities which are traded
over-the-counter are valued at the average of the mean of current bid and
asked prices obtained from reputable brokers. Short-term securities which
mature in 60 days or less are valued at amortized cost. All other securities
and assets for which market values are not readily available (including
investments which are subject to limitations as to their sale) are valued at
fair value as determined in good faith by the Board of Directors (the
"Board"), although the actual calculations may be done by others.
2. TAXES: It is the Fund's intention to continue to qualify as a regulated
investment company and distribute all of its taxable income. Accordingly, no
provision for U.S. Federal income taxes is required in the financial
statements.
The Fund may be subject to taxes imposed by countries in which it invests.
Such taxes are generally based on income and/or capital gains earned or
repatriated. Taxes are accrued and applied to net investment income, net
realized gains and net unrealized appreciation as such income and/or gains
are earned.
3. REPURCHASE AGREEMENTS: In connection with transactions in repurchase
agreements, a bank as custodian for the Fund takes possession of the
underlying securities, with a market value at least equal to the amount of
the repurchase transaction, including principal and accrued interest. To the
extent that any repurchase transaction exceeds one business day, the value
of the collateral is marked-to-market on a daily basis to determine the
adequacy of the collateral. In the event of default on the obligation to
repurchase, the Fund has the right to liquidate the collateral and apply the
proceeds in satisfaction of the obligation. In the event of default or
bankruptcy by the counterparty to the agreement, realization and/or
retention of the collateral or proceeds may be subject to legal proceedings.
4. FOREIGN CURRENCY TRANSLATION: The books and records of the Fund are
maintained in U.S. dollars. Foreign currency amounts are translated into
U.S. dollars at the mean of the bid and asked prices of such currencies
against U.S. dollars last quoted by a major bank as follows:
- investments, other assets and liabilities at the prevailing rates of
exchange on the valuation date;
- investment transactions and investment income at the prevailing rates of
exchange on the dates of such transactions.
Although the net assets of the Fund are presented at the foreign exchange rates
and market values at the close of the period, the Fund does not isolate that
portion of the results of operations arising as a result of changes in the
foreign exchange rates from the fluctuations arising from changes in the market
prices of the securities held at period end. Similarly, the Fund does not
isolate the effect of changes in foreign exchange rates from the fluctuations
arising from changes in the market prices of securities sold during the period.
Accordingly, realized and unrealized foreign currency gains (losses) are
included in the reported net realized and unrealized gains (losses) on
investment transactions and balances.
Net realized gains (losses) on foreign currency transactions represent net
foreign exchange gains (losses) from sales and maturities of forward foreign
currency exchange contracts, disposition of foreign currencies, currency gains
or losses realized between the trade and settlement dates on securities
transactions, and the difference between the amount of investment income and
foreign withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent amounts actually received or paid. Net unrealized currency gains
(losses) from valuing foreign currency denominated assets and liabilities at
period end exchange rates are reflected as a component of unrealized
appreciation (depreciation) in the Statement of Net Assets. The change in net
unrealized currency gains (losses) for the period is reflected in the Statement
of Operations.
5. FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS: The Fund may enter into
forward foreign currency exchange contracts to attempt to protect securities
and related receivables and payables against changes in future foreign
exchange rates. A forward foreign currency exchange contract is an agreement
between
17
<PAGE>
two parties to buy or sell currency at a set price on a future date. The
market value of the contract will fluctuate with changes in currency
exchange rates. The contract is marked-to-market daily and the change in
market value is recorded by the Fund as unrealized gain or loss. The Fund
records realized gains or losses when the contract is closed equal to the
difference between the value of the contract at the time it was opened and
the value at the time it was closed. Risk may arise upon entering into these
contracts from the potential inability of counterparties to meet the terms
of their contracts and is generally limited to the amount of unrealized gain
on the contracts, if any, at the date of default. Risks may also arise from
unanticipated movements in the value of a foreign currency relative to the
U.S. dollar.
6. OTHER: Security transactions are accounted for on the date the securities
are purchased or sold. Realized gains and losses on the sale of investment
securities are determined on the specific identified cost basis. Interest
income is recognized on the accrual basis. Dividend income is recorded on
the ex-date (except certain dividends which may be recorded as soon as the
Fund is informed of such dividends) net of applicable withholding taxes
where recovery of such taxes is not reasonably assured.
The amount and character of income and capital gain distributions to be paid
are determined in accordance with Federal income tax regulations which may
differ from generally accepted accounting principles. These differences are
primarily due to differing book and tax treatments for foreign currency
transactions, gains on certain securities of corporations designated as
"passive foreign investment companies" and the timing of the recognition of
gains or losses on securities.
Permanent book and tax basis differences relating to shareholder
distributions may result in reclassifications to undistributed net
investment income (loss), accumulated net realized gain (loss) and capital
surplus.
Adjustments for permanent book-tax differences, if any, are not reflected in
ending undistributed net investment income (loss) for the purpose of
calculating net investment income (loss) per share in the financial
highlights.
B. Morgan Stanley Asset Management Inc. (the "Adviser") provides investment
advisory services to the Fund under the terms of an Investment Advisory
Agreement (the "Agreement"). Under the Agreement, the Adviser is paid a fee
computed weekly and payable monthly at an annual rate of 1.25% of the Fund's
average weekly net assets.
C. The Chase Manhattan Bank, through its affiliate Chase Global Funds Services
Company (the "Administrator"), provides administrative services to the Fund
under an Administration Agreement. Under the Administration Agreement, the
Administrator is paid a fee computed weekly and payable monthly at an annual
rate of .08% of the Fund's average weekly net assets, plus $65,000 per annum. In
addition, the Fund is charged certain out-of-pocket expenses by the
Administrator. The Chase Manhattan Bank acts as custodian for the Fund's assets
held in the United States.
D. Morgan Stanley Trust Company (the "International Custodian"), an affiliate
of the Adviser, acts as custodian for the Fund's assets held outside the United
States in accordance with a Custody Agreement. Custodian fees are payable
monthly based on assets under custody, investment purchase and sale activity, an
account maintenance fee, plus reimbursement for certain out-of-pocket expenses.
Investment transaction fees vary by country and security type. For the six
months ended June 30, 1996, the Fund incurred fees of $544,000 with the
International Custodian, of which $268,000 was payable to the International
Custodian at June 30, 1996. In addition, for the six months ended June 30, 1996,
the Fund has earned interest income of $13,000 and incurred interest expense of
$8,000, on balances with the International Custodian. At June 30, 1996, the Fund
owned shares of an affiliated fund, for which the Fund earned dividend income of
$38,000.
E. For the six months ended June 30, 1996, the Fund made purchases and sales
totaling $111,690,000 and $121,690,000, respectively, of investment securities
other than long-term U.S. Government securities and short-term investments.
These were no purchases or sales of long-term U.S. Government securities. The
Fund incurred $44,000 as brokerage commissions to Morgan Stanley & Co.
Incorporated, an affiliate of the Adviser. At June 30, 1996, the U.S. Federal
income tax cost basis of securities was $341,576,000 and accordingly, net
unrealized appreciation for U.S. Federal income tax purposes was $49,141,000, of
which $75,734,000 related to appreciated securities and $26,593,000 related to
depreciated securities. For the year ended December 31, 1995, the Fund expects
to defer to January 1, 1996 for U.S. Federal income tax purposes, post-October
currency losses of $269,000.
F. In connection with its organization the Fund incurred $115,000 of
organization costs. The organization costs are being amortized on a
straight-line basis over a five year period beginning November 1, 1991, the date
the Fund commenced operations.
G. The Fund issued to its shareholders of record as of the close of business on
May 30, 1995 transferable rights to subscribe for up to an aggregate of
5,800,000 shares of Common Stock of the Fund at a rate of one share of Common
Stock for three Rights held at the subscription price of $14.00 per share.
During June 1995, the Fund issued a total of 5,800,000 shares of Common Stock on
exercise of such Rights. Rights offering costs of $525,000 were charged directly
against the proceeds of the offering. The Fund was advised that Morgan Stanley &
Co. Incorporated received commissions of $2,350,000 and reimbursement of its
expenses of $125,000 in connection with its participation in the Rights
Offering.
18
<PAGE>
H. A significant portion of the Fund's net assets consist of securities of
issues located in emerging markets, which are denominated in foreign currencies.
Changes in currency exchange rates will affect the value of and investment
income from such securities. Emerging market securities are often subject to
greater price volatility, limited capitalization and liquidity, and higher rates
of inflation than U.S. securities. In addition, emerging market issues may be
subject to substantial governmental involvement in the economy and greater
social, economic and political uncertainty.
I. Each Director of the Fund who is not an officer of the Fund or an affiliated
person as defined under the Investment Company Act of 1940, as amended, may
elect to participate in the Directors' Deferred Compensation Plan (the "Plan").
Under the Plan, such Directors may elect to defer payment of a percentage of
their total fees earned as a Director of the Fund. These deferred portions are
treated, based on an election by the Director, as if they were either invested
in the Fund's shares or invested in U.S. Treasury Bills, as defined under the
Plan. The deferred fees payable, under the Plan, at June 30, 1996 totaled
$30,000 and are included in Payable for Directors' Fees and Expenses on the
Statement of Net Assets.
J. SUPPLEMENTAL PROXY INFORMATION
The Annual Meeting of the Stockholders of the Morgan Stanley Emerging
Markets Fund, Inc. was held on June 5, 1996. The following is a summary of each
proposal presented and the total number of shares voted:
<TABLE>
<CAPTION>
VOTES IN VOTES VOTES
PROPOSAL: FAVOR OF AGAINST ABSTAINED
- ---------------------------------------------------------------------------------------- ---------- --------- -----------
<S> <C> <C> <C>
1. To elect the following Directors: Peter J. Chase..................................... 13,412,162 442,643 --
David B. Gill............................................ 13,412,162 442,643 --
Warren J. Olsen.......................................... 13,412,162 442,643 --
2. To ratify the selection of Price Waterhouse LLP as independent public accountants of
the Fund............................................................................. 13,436,573 36,553 381,679
3. To request and recommend that the Board of Directors take the necessary steps to
ensure that there will be no further rights offerings by the Fund at any time in the
future............................................................................... 1,878,811 6,244,552 751,027
</TABLE>
- --------------------------------------------------------------------------------
SUMMARY OF QUARTERLY RESULTS OF OPERATIONS* (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NET REALIZED GAIN
NET INCREASE
(LOSS) AND CHANGE
NET INVESTMENT IN UNREALIZED (DECREASE) IN NET
INVESTMENT APPRECIATION/ ASSETS RESULTING
INCOME INCOME (LOSS) DEPRECIATION FROM OPERATIONS
---------------- ----------------- ----------------- -----------------
PER PER PER PER
QUARTER ENDED AMOUNT SHARE AMOUNT SHARE AMOUNT SHARE AMOUNT SHARE
- ------------------------------ ------- ------ -------- ------ -------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
June 30, 1996................. $3,084 $0.14 $ 1,298 $0.06 $34,336 $1.50 $35,634 $1.56
March 31, 1996................ 2,989 0.13 1,293 0.06 31,346 1.38 32,639 1.44
------- ------ -------- ------ -------- ------ -------- ------
Total..................... $6,073 $0.27 $ 2,591 $0.12 $65,682 $2.88 $68,273 $3.00
------- ------ -------- ------ -------- ------ -------- ------
------- ------ -------- ------ -------- ------ -------- ------
December 31, 1995............. $1,115 $0.05 $ (444) $(0.02) $(27,852) $(1.20) $(28,296) $(1.22)
September 30, 1995............ 2,104 0.09 298 0.01 3,580 0.19 4,148 0.20
June 30, 1995................. 2,772 0.16 1,354 0.08 31,987 1.90 33,341 1.98
March 31, 1995................ 1,135 0.05 (209) (0.01) (65,943) (4.03) (66,152) (4.04)
------- ------ -------- ------ -------- ------ -------- ------
Total..................... $7,126 $0.35 $ 999 $0.06 $(58,228) $(3.14) $(56,959) $(3.08)
------- ------ -------- ------ -------- ------ -------- ------
------- ------ -------- ------ -------- ------ -------- ------
December 31, 1994............. $1,431 $0.09 $ (437) $(0.03) $(64,765) $(4.09) $(65,202) $(4.12)
September 30, 1994............ 773 0.05 (1,082) (0.07) 78,199 4.94 77,117 4.87
June 30, 1994................. 2,091 0.13 422 0.03 (20,740) (1.31) (20,318) (1.28)
March 31, 1994................ 831 0.05 (852) (0.05) (14,320) (0.84) (15,172) (0.89)
------- ------ -------- ------ -------- ------ -------- ------
Total..................... $5,126 $0.32 $(1,949) $(0.12) $(21,626) $(1.30) $(23,575) $(1.42)
------- ------ -------- ------ -------- ------ -------- ------
------- ------ -------- ------ -------- ------ -------- ------
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
</TABLE>
*Expressed in thousands of U.S. dollars except per share amounts.
The Fund may purchase shares of its Common Stock in the open market at such
prices and in such amounts as the Board of Directors may deem advisable.
19
<PAGE>
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
Pursuant to the Dividend Reinvestment and Cash Purchase Plan (the "Plan"),
each shareholder will be deemed to have elected, unless Boston Equiserve (the
"Plan Agent") is otherwise instructed by the shareholder in writing, to have all
distributions automatically reinvested in Fund shares. Participants in the Plan
have the option of making additional voluntary cash payments to the Plan Agent,
annually, in any amount from $100 to $3,000, for investment in Fund shares.
Dividend and capital gain distributions will be reinvested on the
reinvestment date in full and fractional shares. If the market price per share
equals or exceeds net asset value per share on the reinvestment date, the Fund
will issue shares to participants at net asset value. If net asset value is less
than 95% of the market price on the reinvestment date, shares will be issued at
95% of the market price. If net asset value exceeds the market price on the
reinvestment date, participants will receive shares valued at market price. The
Fund may purchase shares of its Common Stock in the open market in connection
with dividend reinvestment requirements at the discretion of the Board of
Directors. Should the Fund declare a dividend or capital gain distribution
payable only in cash, the Plan Agent will purchase Fund shares for participants
in the open market as agent for the participants.
The Plan Agent's fees for 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 on any open market purchases
effected on such participant's behalf. A participant will also pay brokerage
commissions incurred on purchases made by voluntary cash payments. Although
shareholders in the Plan may receive no cash distributions, participation in the
Plan will not relieve participants of any income tax which may be payable on
such dividends or distributions.
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.
Shareholders who do not wish to have distributions automatically reinvested
should notify the Plan Agent in writing. There is no penalty for
non-participation or withdrawal from the Plan, and shareholders who have
previously withdrawn from the Plan may rejoin at any time. Requests for
additional information or any correspondence concerning the Plan should be
directed to the Plan Agent at:
Morgan Stanley Emerging Markets Fund, Inc.
Boston Equiserve
Dividend Reinvestment and Cash Purchase Plan
P.O. Box 1681
Boston, MA 02105-1681
1-800-442-2001
20
