<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 Frederick B. Whittemore
Warren J. Olsen DIRECTOR
PRESIDENT AND DIRECTOR James W. Grisham
Peter J. Chase VICE PRESIDENT
DIRECTOR Harold J. Schaaff, Jr.
John W. Croghan VICE PRESIDENT
DIRECTOR Joseph P. Stadler
David B. Gill VICE PRESIDENT
DIRECTOR Valerie Y. Lewis
Graham E. Jones SECRETARY
DIRECTOR James R. Rooney
John A. Levin TREASURER
DIRECTOR Joanna M. Haigney
ASSISTANT TREASURER
</TABLE>
- ---------------------------------------------
INVESTMENT ADVISER
Morgan Stanley Asset Management Inc.
1221 Avenue of the Americas
New York, New York 10020
- --------------------------------------------------------
ADMINISTRATOR
The Chase Manhattan Bank, N.A.
73 Tremont Street
Boston, Massachusetts 02108
- --------------------------------------------------------
CUSTODIANS
Morgan Stanley Trust Company (International)
One Pierrepont Plaza
Brooklyn, New York 11201
The Chase Manhattan Bank, N.A. (Domestic)
770 Broadway
New York, New York 10003
- --------------------------------------------------------
SHAREHOLDER SERVICING AGENT
The First National Bank of Boston
Investor Relations Department
P.O. Box 644, Mail Stop 46-02-09
Boston, Massachusetts 02102-0644
(617) 575-2900
- --------------------------------------------------------
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.
---------------
ANNUAL REPORT
DECEMBER 31, 1995
MORGAN STANLEY ASSET MANAGEMENT INC.
INVESTMENT ADVISER
<PAGE>
LETTER TO SHAREHOLDERS
- --------
For the year ended December 31, 1995, the total return of the Fund, based on net
asset value per share, was -16.30% compared with -12.34% for the IFC Global
Total Return Composite Index (the "Index"). For the period from inception in
November 1991 through December 31, 1995, the Fund's total return based on net
asset value per share is 84.38% compared with 51.30% for the Index for the same
period. For the fourth quarter of 1995, the Fund's total return was -7.84%
compared with -3.03% for the Index.
In 1995, the IFC Index decline was especially frustrating considering the
spectacular year for U.S. equities and emerging markets debt. Yet, the Emerging
Markets have had only two other down years since they began to be measured as a
separate asset class in 1985--in 1990 and 1994 the IFC Global Emerging Market
Index fell 29.9% and 0.5%, respectively.
Only 8 emerging markets included in the Index showed positive returns in
dollar terms in 1995: Peru (11%), Israel (22%), South Africa (18%), Greece
(10%), Argentina (13%), Indonesia (12%), Jordan (12%) and Malaysia (4%).
The Fund underperformed relative to the Index due in part to an overweight
position in Latin America during the first quarter and to a large underweight
position in South Africa, a new country in the Index. In April, South Africa was
added to the IFC Global Index at a large 15% weighting, turning our 3%
overweight position to an underweight. Also dampening relative performance was
the Fund's 0% exposure to Malaysia--14% of the Index--which had an above average
return in 1995. Other negatives were Brazil, India and Turkey--all overweight
positions which produced disappointing performance. In dollar terms Brazil was
off 20%, India off 34%, and Turkey fell 11%. On a positive note, however, the
Hong Kong exposure added significantly to performance with a rise of 18%.
Russia, Israel and Greece were also positive contributors.
Negative sentiment was fueled by worries about the Mexican peso devaluation,
interest rates, politics and an anticipated major slowdown of international
capital inflows. While the devaluation took center stage in Latin America, the
Asian markets were influenced by U.S. interest rates. Although interest rates
fell marginally in 1995, many anticipated that the U.S. Federal Reserve would
increase rates, as the economy was at or near the bottom of the economic cycle.
This tended to keep money at home in the U.S. In addition, there was some
speculation that the reversal of the strong yen/ weak dollar would disadvantage
countries such as Korea whose exports have taken market share from the Japanese.
However, Korean labor costs are still only 1/4th of Japan's and we believe that
this will not have a marked impact on Korean profitability. Also, in Thailand
and Malaysia monetary conditions had to be tightened to cool these fast growing
economies with problematic trade deficits. Looking through into 1996 however,
some policy reversal may be possible in both countries assuming U.S. interest
rate rises are as moderate as we anticipate.
Politics across the emerging markets gave rise to investor concern. In
Korea, avarice charges were leveled against former president Roh Tae Woo.
Meanwhile, China applied pressure to Taiwan by testing missiles offshore in
response to the U.S. visit of President Lee and Taiwan's continued move toward
independence. Turkey's coalition government of Tansu Ciller collapsed and the
country remains in political no-man's land after the failure of any party to win
an absolute majority in the December elections. This is not as bad as it
seems--the equity market has since recovered, recognizing the value in stocks
and the improved economic stability from 2 years ago. The Russian election in
December produced no surprises but underlined the need for Boris Yeltsin
(assuming he stands again in the Presidential elections in June) to canvas the
communist vote by de-emphasizing reform in the next few months. On the bright
side, Russia has undergone an economic transformation towards positive economic
growth in 1996 coupled with continued progress on inflation, a positive current
account balance and more progress on the budget deficit.
India experienced economic growth in fiscal year 1996 of 6.0%, yet the stock
market suffered from a combination of local selling and international avoidance.
Policies influenced overseas investors away from the market in anticipation of a
change in government in the April 1996 elections. The slow pace of reform of
India's laborious settlement system and the cancellation (recently reinstated)
of the Enron power contract exacerbated the situation. In the meantime, the 30%
plus earnings growth makes India one of the cheapest emerging markets in the
world. We remain overweight.
2
<PAGE>
Politics in Brazil have been the most settled for many years. Despite the
major success of the Real Plan in bringing inflation down from above 2,000% per
annum to around 22% by the end of 1995 and less than 20% predicted for 1996, the
stock market suffered from the spill over from the Mexican crisis and a degree
of impatience at the pace of the restructuring of local and state government
spending. However, with a strong currency, tight monetary policy, and low fiscal
and current account deficits, Brazil is setting itself up as a potential
economic success story for the remainder of the decade.
Despite doom and gloom forecasts, direct capital investment has continued in
the emerging markets. Direct investment by multinationals is the positive, long
term investment in infrastructure, factories etc. which will generate future
economic growth. Not surprisingly, in view of the strong U.S. market and the
aftermath of the Mexico crisis, portfolio flows were much lower in 1995.
Portfolio flows to the emerging markets showed signs of recovery in late 1995
and continue in 1996 to date. Compelling valuations will attract capital and the
outlook is excellent. The emerging markets endured a tough 1995, both
economically and politically. Yet, virtually all emerging nations moved forward
with needed reforms, seeking to promote economic growth and efficiency. The
basic market-oriented economic model (with variations) not only endures in the
emerging markets, it continues to be reinforced as today's economic success
story becomes a model for others. It is important not to forget that despite
politics and economic uncertainties, at the end of the day we are investing in
companies with strong earnings prospects. The markets should eventually catch up
to economic reality. It is undoubtedly a roller coaster ride but the returns
will repay persistent investors who have a long enough term horizon to stay the
course.
Sincerely,
[SIGNATURE]
Madhav Dhar
PORTFOLIO MANAGER
[SIGNATURE]
Marianne L. Hay
PORTFOLIO MANAGER
February 2, 1996
3
<PAGE>
Morgan Stanley Emerging Markets Fund, Inc.
Investment Summary as of December 31, 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HISTORICAL
INFORMATION
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>
ONE YEAR -16.61%+++ -16.61%+++ -16.30%+++ -16.30%+++ -12.34% -12.34%
SINCE INCEPTION* 94.54+++ 17.32+++ 84.38+++ 15.81+++ 51.30 10.45
</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>
YEARS ENDED DECEMBER 31:
1991* 1992 1993 1994 1995
<S> <C> <C> <C> <C> <C>
Net Asset Value Per Share $ 14.71 $ 16.74 $ 28.20 $ 20.30 $ 14.69
Market Value Per Share $14.25 $18.13 $31.63 $21.50 $15.50
Premium/(Discount) -3.1% 8.3% 12.2% 5.9% 5.5%
Income Dividends $0.04 $0.01 - - -
Capital Gains Distributions - $0.01 $1.49 $6.50 $1.29
Fund Total Return (2) 4.61% 13.94% 95.22%+++ (5.33%) (16.30%)+++
Index Total Return (1)(3)** 3.25% 0.33% 67.52% (0.51%) (12.34%)
</TABLE>
(1) Assumes dividends and distributions, if any, were reinvested.
(2) 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. 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) IFC Global Total Return Composite Index.
* 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 December 31, 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO INVESTMENTS DIVERSIFICATION
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Equity Securities 93.1%
Debt Securities 3.2%
Short-Term Investments 3.7%
</TABLE>
- --------------------------------------------------------------------------------
SECTORS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Banking 15.6%
Telecommunications 11.3%
Multi-Industry 10.4%
Beverages & Tobacco 9.3%
Real Estate 6.4%
Utilities Electrical & Gas 5.2%
Chemicals 3.9%
Energy Sources 3.8%
Electronic Components & Instruments 3.7%
Building Materials & Components 3.4%
Other 27.0%
</TABLE>
- --------------------------------------------------------------------------------
COUNTRY WEIGHTINGS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Brazil 15.9%
Hong Kong 11.2%
India 10.5%
Mexico 8.3%
Russia 6.8%
Philippines 5.4%
Turkey 5.4%
Indonesia 5.2%
Thailand 4.8%
Taiwan 4.6%
Israel 3.7%
Greece 3.3%
China 2.4%
Pakistan 2.4%
Korea 2.2%
South Africa 2.2%
Poland 1.5%
Colombia 1.4%
Argentina 1.1%
Zimbabwe 0.8%
Morocco 0.5%
United Kingdom 0.3%
Peru 0.2%
Portugal 0.2%
Other -0.3%
</TABLE>
- --------------------------------------------------------------------------------
5
<PAGE>
Morgan Stanley Emerging Markets Fund, Inc.
Portfolio Summary as of December 31, 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TEN LARGEST HOLDINGS*
<TABLE>
<CAPTION>
PERCENT OF
NET ASSETS
---------------
<C> <S> <C>
1. Telebras (Preferred) 3.5%
2. Bharat Heavy Electricals 2.3
3. Eletrobras 'B' (Preferred) 2.2
4. New World Development Co. Ltd. 2.0
5. Brahma (Preferred) 2.0
<CAPTION>
PERCENT OF
NET ASSETS
---------------
<C> <S> <C>
6. State Bank of India 1.9%
7. Banco Bradesco (Preferred) 1.7
8. Bank for Foreign Economic
Affairs Unrestructured Loans 1.6
9. Finance One Co. Ltd. (Foreign) 1.6
10. Samsung Electronics Co.
(Foreign) 1.5
---
20.3%
---
---
</TABLE>
- --------------------------------------------------------------------------------
* Excludes short-term securities.
6
<PAGE>
FINANCIAL STATEMENTS
- ---------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
PERIOD FROM
NOVEMBER 1,
1991* TO YEAR ENDED DECEMBER 31,
SELECTED PER SHARE DATA AND DECEMBER 31, -------------------------------------------------------------------------
RATIOS: 1991 1992 1993 1994 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD....................... U.S.$14.10 U.S.$14.71 U.S.$16.74 U.S.$28.20 U.S.$20.30
- ----------------------------------------------------------------------------------------------------------------------------
Offering Costs................ (0.07) -- (0.03) (0.02) (0.03)
- ----------------------------------------------------------------------------------------------------------------------------
Net Investment Income
(Loss)....................... 0.05 0.02 -- (0.12) 0.06
Net Realized and Unrealized
Gain (Loss) on Investments... 0.67 2.03 13.96 (1.30) (3.14)
- ----------------------------------------------------------------------------------------------------------------------------
Total from Investment
Operations............. 0.72 2.05 13.96 (1.42) (3.08)
- ----------------------------------------------------------------------------------------------------------------------------
Distributions:
Net Investment Income..... (0.04) (0.01) -- -- --
Net Realized Gain......... -- (0.01) (1.04) (6.50) (1.29)
In Excess of Net Realized
Gain..................... -- -- (0.45) -- --
- ----------------------------------------------------------------------------------------------------------------------------
Total Distributions..... (0.04) (0.02) (1.49) (6.50) (1.29)
- ----------------------------------------------------------------------------------------------------------------------------
Increase (Decrease) in Net
Asset Value from Capital
Share Transactions........... -- -- (0.98)+ 0.04++ (1.21)+++
- ----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF
PERIOD....................... U.S.$14.71 U.S.$16.74 U.S.$28.20 U.S.$20.30 U.S.$14.69
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
PER SHARE MARKET VALUE, END OF
PERIOD....................... U.S.$14.25 U.S.$18.13 U.S.$31.63 U.S.$21.50 U.S.$15.50
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:
Market Value.............. (4.84)% 27.38% 100.96%++++ (10.61)% (16.61)%++++
Net Asset Value (1)....... 4.61% 13.94% 95.22%++++ (5.33)% (16.30)%++++
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
RATIOS, SUPPLEMENTAL DATA:
- ----------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD
(THOUSANDS).................. U.S.$155,321 U.S.$176,904 U.S.$411,975 U.S.$321,729 U.S.$332,879
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average
Net Assets................... 2.25%** 2.02% 1.85% 1.75% 1.86%
Ratio of Net Investment Income
(Loss) to Average Net
Assets....................... 2.32%** 0.14% (0.03)% (0.48)% 0.30%
Portfolio Turnover Rate....... 2% 60% 68% 52% 61%
- ----------------------------------------------------------------------------------------------------------------------------
</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.
++ Consists of $.02 per share increase from reinvestment of distributions and
$.02 increase per share due to Common Stock Offering during the year.
+++ Decrease per share due to Common Stock issued through Rights Offering
during the year.
++++ Adjusted for Rights Offering.
(1) Total investment return based on per share net asset value reflects the
effects of changes in net asset value on the performance of the Fund during
each period, and assumes dividends and distributions, if any, were
reinvested. This return does not include the effect of dilution in
connection with the Rights Offering. These percentages are not an
indication of the performance of a shareholder's investment in the Fund
based on market value due to differences between the market price of the
stock and the net asset value of the Fund.
Note: Current period permanent book-tax differences, if any, are not
included in the calculation of net investment income (loss) per share.
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
SUMMARY OF TOTAL INVESTMENTS BY INDUSTRY
CLASSIFICATION -- DECEMBER 31, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
PERCENT
VALUE OF NET
INDUSTRY (000) ASSETS
- --------------------------------------------------------------------------
<S> <C> <C>
- ------------
Aerospace & Military Technology U.S.$ 1,461 0.4%
Appliances & Household Durables 5,661 1.7
Automobiles 3,456 1.0
Banking 52,043 15.6
Beverages & Tobacco 30,909 9.3
Brady Bonds 18 0.0
Broadcasting & Publishing 2,485 0.8
Building Materials & Components 11,423 3.4
Business & Public Services 1,128 0.3
Chemicals 12,936 3.9
Construction & Housing 4,762 1.4
Consumer Goods 380 0.1
Electrical & Electronics 5,173 1.6
Electronic Components & Instruments 12,414 3.7
Energy Equipment & Services 9,529 2.9
Energy Sources 12,604 3.8
Financial Services 8,979 2.7
Food & Household Products 9,673 2.9
Forest Products & Paper 649 0.2
Health & Personal Care 5,717 1.7
Industrial Components 1,392 0.4
Insurance 469 0.1
Leisure & Tourism 364 0.1
Loan Agreements 6,026 1.8
Machinery & Engineering 1,823 0.6
Merchandising 1,777 0.5
Metals -- Non-Ferrous 3,178 1.0
Metals -- Steel 3,493 1.1
Miscellaneous Materials & Commodities 2,094 0.6
Multi-Industry 34,519 10.4
Pharmaceuticals 1,491 0.5
Real Estate 21,245 6.4
Recreation, Other Consumer Goods 53 0.0
Telecommunications 37,514 11.3
Textiles & Apparel 2,019 0.6
Transportation -- Shipping 2,412 0.7
Utilities -- Electrical & Gas 17,301 5.2
Other 12,443 3.7
------------ --------
U.S.$341,013 102.4%
------------ --------
------------ --------
- --------------------------------------------------------------------------
- ------------
</TABLE>
SUMMARY OF TOTAL INVESTMENTS BY COUNTRY -- DECEMBER 31, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
PERCENT
VALUE OF NET
COUNTRY (000) ASSETS
- --------------------------------------------------------------------------
<S> <C> <C>
- ------------
Argentina U.S.$ 3,526 1.1%
Brazil 53,081 15.9
China 7,947 2.4
Colombia 4,722 1.4
Greece 10,992 3.3
Hong Kong 37,388 11.2
India 34,994 10.5
Indonesia 17,391 5.2
Israel 12,449 3.7
Korea 7,301 2.2
Mexico 27,671 8.3
Morocco 1,681 0.5
Pakistan 8,104 2.4
Peru 520 0.2
Philippines 17,984 5.4
Poland 4,895 1.5
Portugal 624 0.2
Russia 22,557 6.8
South Africa 7,239 2.2
Taiwan 15,281 4.6
Thailand 16,071 4.8
Turkey 18,123 5.4
United Kingdom 864 0.3
United States (short term investment) 6,998 2.1
Zimbabwe 2,610 0.8
------------ --------
U.S.$341,013 102.4%
------------ --------
------------ --------
- --------------------------------------------------------------------------
- ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
STATEMENT OF OPERATIONS (000)
- ---------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
Dividends..................................... U.S.$ 6,362
Interest...................................... 1,816
Less Foreign Taxes Withheld................... (1,052)
- ---------------------------------------------------------------------
Total Income................................ 7,126
- ---------------------------------------------------------------------
EXPENSES
Investment Advisory Fees...................... 4,103
Custodian Fee................................. 861
Administrative Fees........................... 411
Shareholder Reporting Expenses................ 183
Professional Fees............................. 167
Directors' Fees and Expenses.................. 117
Transfer Agent Fees........................... 23
Other Expenses................................ 262
- ---------------------------------------------------------------------
Total Expenses.............................. 6,127
- ---------------------------------------------------------------------
Net Investment Income..................... 999
- ---------------------------------------------------------------------
NET REALIZED GAIN (LOSS)
Investment Securities Sold (net of Indian tax
of U.S.$2,117 on net realized gains)......... 15,567
Foreign Currency Transactions................. (964)
- ---------------------------------------------------------------------
Net Realized Gain........................... 14,603
- ---------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION)
Investments................................... (72,394)
Foreign Currency Translations................. (167)
- ---------------------------------------------------------------------
Change in Unrealized Appreciation
(Depreciation).............................. (72,561)
- ---------------------------------------------------------------------
Total Net Realized Gain and Change in Unrealized
Appreciation (Depreciation)...................... (57,958)
- ---------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................... U.S.$(56,959)
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1994 1995
STATEMENT OF CHANGES IN NET ASSETS (000) (000)
- -----------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net Investment Income (Loss).................. U.S.$ (1,949) U.S.$ 999
Net Realized Gain............................. 80,470 14,603
Change in Unrealized Appreciation
(Depreciation)............................... (102,096) (72,561)
- -----------------------------------------------------------------------------------
Net Decrease in Net Assets Resulting from
Operations................................... (23,575) (56,959)
- -----------------------------------------------------------------------------------
Distributions:
Net Realized Gain............................. (99,751) (29,054)
- -----------------------------------------------------------------------------------
Capital Share Transactions:
Common Stock Offering (900,000 shares)........ 23,940 --
Common Stock Issued Through Rights Offering
(5,800,000 shares)........................... -- 78,850
Offering Costs................................ (258) (525)
Reinvestment of Distributions (338,181 and
1,013,362 shares, respectively).............. 9,398 18,838
- -----------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from
Capital Share Transactions................... 33,080 97,163
- -----------------------------------------------------------------------------------
Total Increase (Decrease)..................... (90,246) 11,150
Net Assets:
Beginning of Year............................. 411,975 321,729
- -----------------------------------------------------------------------------------
End of Year (Including accumulated net
investment loss of U.S.$919 and U.S.$1,623
respectively)................................ U.S.$321,729 U.S.$332,879
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
STATEMENT OF NET ASSETS
- ---------
DECEMBER 31, 1995
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- --------------------------------------------------------
- ------------
COMMON STOCKS (95.4%)
(Unless otherwise noted)
- --------------------------------------------------------
- -------------
ARGENTINA (1.1%)
AUTOMOBILES
+CIADEA 1 --
-----------
BEVERAGES & TOBACCO
Quilmes Industrial 170,700 U.S.$ 2,663
-----------
ENERGY SOURCES
Capex 'A' 3,500 25
#Capex ADR 57,000 834
-----------
859
-----------
3,522
-----------
- --------------------------------------------------------
- -------------
BRAZIL (15.8%)
BANKING
\\Banco Bradesco
(Preferred) 659,801,245 5,770
***+Banco Bradesco
(Preferred Rights) 16,172,660 27
\\+Banco do Brasil
(Preferred) 211,481,000 2,394
\\Banco Itau (Preferred) 12,489,500 3,483
\\**Banco Nacional
(Preferred) 61,598,720 127
-----------
11,801
-----------
BEVERAGES & TOBACCO
\\Brahma (Preferred) 16,252,209 6,689
-----------
CHEMICALS
#Rhodia-Ster ADS 86,575 779
-----------
ENERGY SOURCES
\\Petrobras (Preferred) 16,929,999 1,446
-----------
MERCHANDISING
#Cia Brasileira ADR 55,540 555
\\Lojas Americanas
(Preferred) 65,534 9
-----------
564
-----------
METALS -- NON-FERROUS
\\CVRD (Preferred) 6,867,000 1,130
-----------
METALS -- STEEL
\\Acesita (Preferred) 99,500,000 471
-----------
TELECOMMUNICATIONS
Telebras 33,820,000 1,309
\\Telebras (Preferred) 242,262,183 11,666
Telebras ADR 15,535 736
\\Telesp (Preferred) 14,980,535 2,204
-----------
15,915
-----------
UTILITIES -- ELECTRICAL & GAS
\\Cemig (Preferred) 48,763,860 1,079
#Cemig GDR 7,525 166
#+CESP 32,325,540 732
CPFL 524,000 26
\\CPFL (Preferred) 22,100,000 591
Eletrobras 11,278,078 3,052
\\Eletrobras 'B'
(Preferred) 27,346,138 7,400
Light 2,438,000 780
-----------
13,826
-----------
52,621
-----------
- --------------------------------------------------------
- -------------
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- --------------------------------------------------------
- ------------
CHINA (2.4%)
APPLIANCES & HOUSEHOLD DURABLES
+Shanghai Refrigerator
Compressor 'B' 1,999,300 U.S.$ 712
-----------
AUTOMOBILES
Shanghai Diesel Engine Co.
Ltd. 'B' 998,000 369
+Shenzen North Jianshe
Motorcycle 'B' 1,547,000 640
-----------
1,009
-----------
BUILDING MATERIALS & COMPONENTS
Shanghai Yaohua Pilkington
'B' 186,000 164
-----------
BUSINESS & PUBLIC SERVICES
Jinqiao Export Processing
Zone Development Co. 'B' 2,301,000 860
Shanghai Outer Gaoqiao
Zone Development Co. 'B' 731,250 268
-----------
1,128
-----------
CHEMICALS
+Jilin Chemical Industrial
Co. ADR 29,000 624
Shenzhen Yizheng Chemical 4,342,000 977
-----------
1,601
-----------
ENERGY SOURCES
+Shandong Huaneng Power
Co. Ltd. ADR 71,000 479
-----------
HEALTH & PERSONAL CARE
Shenzhen Lizhu
Pharmaceutical Group Inc.
'B' 535,000 176
-----------
INDUSTRIAL COMPONENTS
Shanghai Tyre & Rubber Co.
'B' 654,000 135
-----------
LEISURE & TOURISM
Shanghai JinJang Tower Co.
'B' 564,850 159
-----------
MACHINERY & ENGINEERING
Beiren Printing Machine
'H' 900,000 163
Harbin Power Equipment Co.
Ltd. "H' 1,458,000 215
+Shanghai Erfangji Co.
Ltd. 'B' 590,480 84
-----------
462
-----------
METALS -- STEEL
Maanshan Iron & Steel Co.
Ltd. 'H' 4,000,000 559
-----------
REAL ESTATE
Chiwan Wharf Holdings 'B' 1,499,700 564
-----------
RECREATION, OTHER CONSUMER GOODS
Shanghai Phoenix Bicycle
Ltd. 'B' 320,000 53
-----------
TRANSPORTATION -- SHIPPING
China Merchants Shekou
Port Service 'B' 2,060,520 746
-----------
7,947
-----------
- --------------------------------------------------------
- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------
- ------------
<S> <C> <C>
COLOMBIA (0.8%)
BANKING
Banco de Bogota 6,542 U.S.$ 32
Banco de Colombia 6,880,000 2,493
-----------
2,525
-----------
- --------------------------------------------------------
- -------------
GREECE (3.3%)
BANKING
Alpha Credit Bank 28,000 1,619
Ergo Bank S.A. 61,330 2,444
-----------
4,063
-----------
BEVERAGES & TOBACCO
Delta Dairy S.A. 157,950 2,966
Hellenic Bottling Co. S.A. 54,000 1,766
-----------
4,732
-----------
CONSTRUCTION & HOUSING
Aegek GDR 228,800 1,969
Aegek (Preferred) 41,600 228
-----------
2,197
-----------
10,992
-----------
- --------------------------------------------------------
- -------------
HONG KONG (11.2%)
BANKING
Hang Seng Bank Ltd. 298,000 2,669
-----------
CONSTRUCTION & HOUSING
Wai Kee Holdings Ltd. 1,988,000 249
+Wai Kee Holdings Ltd.
(Warrants), expiring
12/31/96 397,600 3
-----------
252
-----------
ELECTRICAL & ELECTRONICS
Great Wall Electronics
International ADR 58,630 216
-----------
ELECTRONIC COMPONENTS & INSTRUMENTS
Varitronix International
Ltd. 1,100,000 2,041
-----------
ENERGY SOURCES
Zhenhai Refining &
Chemical Co. Ltd. 'H' 1,117,000 210
-----------
FOOD & HOUSEHOLD PRODUCTS
Charoen Pokphand Co. Ltd. 4,518,000 1,811
-----------
MULTI-INDUSTRY
Citic Pacific Ltd. 1,106,000 3,783
Guangdong Investments Ltd. 4,328,000 2,603
Hutchison Whampoa Ltd. 774,000 4,715
Swire Pacific Ltd. 'A' 233,000 1,808
-----------
12,909
-----------
REAL ESTATE
Cheung Kong (Holdings)
Ltd. 603,000 3,673
Hopewell Holdings 3,966,000 2,283
New World Development Co.
Ltd. 1,541,000 6,716
Sun Hung Kai Properties
Ltd. 206,100 1,686
-----------
14,358
-----------
TELECOMMUNICATIONS
Hong Kong Telecom Ltd. 1,014,800 1,811
-----------
TRANSPORTATION -- SHIPPING
Florens Group Ltd. 1,700,000 1,110
-----------
37,387
-----------
- --------------------------------------------------------
- -------------
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- --------------------------------------------------------
- ------------
INDIA (8.5%)
AUTOMOBILES
Hero Honda 107,712 U.S.$ 701
Tata Engineering &
Locomotive 32,040 346
-----------
1,047
-----------
BANKING
+Bank of Rajasthan (New) 283,700 2,008
State Bank of India 1,136,200 6,407
-----------
8,415
-----------
BEVERAGES & TOBACCO
+ITC Ltd. 79,000 562
-----------
BUILDING MATERIALS & COMPONENTS
Associated Cement Co. Ltd. 4,080 333
Gujarat Ambuja Cements
Ltd. 96,000 741
-----------
1,074
-----------
CHEMICALS
+Indian Petro Chemical
Corp. 141,700 498
Reliance Industries Ltd.
GDS 3,300 19
-----------
517
-----------
CONSUMER GOODS
Essel Packaging Ltd. 71,950 380
-----------
ELECTRICAL & ELECTRONICS
Asian Electronics Ltd. 50,000 683
Crompton Greaves 25,000 142
-----------
825
-----------
ENERGY EQUIPMENT & SERVICES
Bharat Heavy Electricals 3,125,000 7,820
-----------
FINANCIAL SERVICES
Housing Development
Finance Corp. 45,880 3,529
-----------
HEALTH & PERSONAL CARE
Ranbaxy Labs Ltd. 1,372 25
-----------
MACHINERY & ENGINEERING
+Bharat Forge Co. Ltd. 33 --
+Bharat Forge Co. Ltd.
(Warrants) 14,285 56
+Modern Malleables (New) 200 --
-----------
56
-----------
MISCELLANEOUS MATERIALS & COMMODITIES
Shrenujur Co. Diamond 17,500 23
-----------
MULTI-INDUSTRY
@+Morgan Stanley-Growth
Fund 5,096,800 870
Raymond Ltd. 12,500 95
-----------
965
-----------
PHARMACEUTICALS
Nicholas Piramal India
Ltd. 225,000 1,491
-----------
TELECOMMUNICATIONS
+Videsh Sanchar Nigam Ltd. 47,600 1,124
-----------
TEXTILES & APPAREL
Mahavir Spinning Mills
Ltd. 5,500 18
-----------
- --------------------------------------------------------
- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------
- ------------
<S> <C> <C>
INDIA (CONTINUED)
TRANSPORTATION -- SHIPPING
Great Eastern Shipping Ltd. 'A' 405,000 U.S.$ 556
-----------
UTILITIES -- ELECTRICAL & GAS
+Tata Power Co. Ltd. 1,250 4
-----------
28,431
-----------
- --------------------------------------------------------
- -------------
INDONESIA (5.2%)
BANKING
**Bank Bali (Foreign) 583,350 1,148
+Bank Bali (Warrants),
expiring 8/29/00 24,200 11
**Bank International
Indonesia (Foreign) 69,500 230
-----------
1,389
-----------
BEVERAGES & TOBACCO
**HM Sampoerna (Foreign) 154,500 1,608
-----------
BUILDING MATERIALS & COMPONENTS
**Indocement Tunggal
Prakarsa (Foreign) 243,000 815
**Keramika Indonesia
(Foreign) 261,500 126
**Semen Gresik (Foreign) 380,000 1,064
-----------
2,005
-----------
CHEMICALS
**Polysindo Eka Perkasa
(Foreign) 4,126,500 2,346
**Sorini Corp. (Foreign) 80,000 388
-----------
2,734
-----------
ELECTRICAL & ELECTRONICS
**Jembo Cable Co.
(Foreign) 41,600 27
**Voksel Electronics
(Foreign) 329,000 280
-----------
307
-----------
FOREST PRODUCTS & PAPER
**Barito Pacific Timber
(Foreign) 886,000 649
-----------
HEALTH & PERSONAL CARE
**Kalbe Farma (Foreign) 592,520 2,009
-----------
INDUSTRIAL COMPONENTS
**Lippo Industries
(Foreign) 20,000 44
-----------
LEISURE & TOURISM
**Sona Topas Tourism
(Foreign) 720,000 205
-----------
MACHINERY & ENGINEERING
**United Tractors
(Foreign) 684,000 1,286
-----------
MERCHANDISING
**Tempo Scan Pacific
(Foreign) 200,000 542
-----------
MISCELLANEOUS MATERIALS & COMMODITIES
**Charoen Pokphand
Indonesia (Foreign) 757,194 1,540
-----------
REAL ESTATE
**Duta Pertiwi Property
(Foreign) 25,000 26
-----------
TELECOMMUNICATIONS
**Indosat (Foreign) 620,000 2,251
**+Telekomunikasi
(Foreign) 607,000 796
-----------
3,047
-----------
17,391
-----------
- --------------------------------------------------------
- -------------
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- --------------------------------------------------------
- ------------
ISRAEL (3.7%)
AEROSPACE & MILITARY TECHNOLOGY
Elbit Ltd. 27,400 U.S.$ 1,461
-----------
BANKING
First International Bank
of Israel 10,321 1,245
-----------
ELECTRICAL & ELECTRONICS
Scitex Ltd. 55,467 756
-----------
FOOD & HOUSEHOLD PRODUCTS
Osem Investment Ltd. 154,176 922
Super Sol Ltd. 60,013 1,262
-----------
2,184
-----------
HEALTH & PERSONAL CARE
Teva Pharmaceutical
Industries Ltd. ADR 51,000 2,365
-----------
MULTI-INDUSTRY
Koor Industries Ltd. 19,850 1,970
+Pec Israel Economic Corp. 83,384 2,012
-----------
3,982
-----------
REAL ESTATE
Israel Land Development 157,600 456
-----------
12,449
-----------
- --------------------------------------------------------
- -------------
KOREA (2.2%)
APPLIANCES & HOUSEHOLD PRODUCTS
+Samsung Electronics Co.
(Foreign) 26,900 4,889
+Samsung Electronics Co.
(2nd Issue)(Foreign) 328 60
-----------
4,949
-----------
BANKING
**Shinhan Bank Co. Ltd.
(Foreign) 10,640 233
**Shinhan Bank Co. Ltd.
RFD (Foreign) 29,659 651
-----------
884
-----------
ENERGY EQUIPMENT & SERVICES
Yukong Ltd. (Foreign) 27,600 954
-----------
METALS -- STEEL
**Pohang Iron & Steel
(Foreign) 7,870 514
-----------
7,301
-----------
- --------------------------------------------------------
- -------------
MEXICO (8.3%)
BANKING
G. Banacci 'B' 1,505,190 2,527
G. Banacci 'L' 736,191 1,096
+G. Bancomer 'B' 1,231,340 344
G. Bancomer 'L' 79,393 21
#+G. Bancomer ADR 639,253 3,716
-----------
7,704
-----------
BEVERAGES & TOBACCO
Coca-Cola Femsa S.A. ADR 34,670 640
FEMSA 'B' 1,720,725 3,878
Panamerican Beverages,
Inc. 'A' 57,422 1,838
-----------
6,356
-----------
BROADCASTING & PUBLISHING
G. Televisa ADR 68,720 1,546
-----------
- --------------------------------------------------------
- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------
- ------------
<S> <C> <C>
MEXICO (CONTINUED)
BUILDING MATERIALS & COMPONENTS
Apasco 270,288 U.S.$ 1,110
+Cemex 'A' 908,745 3,000
#Cemex ADR 223,062 1,470
-----------
5,580
-----------
CONSTRUCTION & HOUSING
Empresas ICA Sociedad
Controladora S.A. ADS 99,514 1,020
-----------
MERCHANDISING
+Cifra S.A. de C.V. 'C' 661,750 671
-----------
METALS -- STEEL
#+G. Hylsamex ADR 28,985 623
-----------
MULTI-INDUSTRY
Alfa S.A. 58,560 753
+G. Carso ADR 57,825 617
+G. Sidek 'A' 1,000 1
-----------
1,371
-----------
TELECOMMUNICATIONS
Telmex 'L' ADR 87,030 2,774
-----------
27,645
-----------
- --------------------------------------------------------
- -------------
MOROCCO (0.5%)
BANKING
Wafabank 20,000 862
-----------
MULTI-INDUSTRY
Groupe Ona 21,400 819
-----------
1,681
-----------
- --------------------------------------------------------
- -------------
PAKISTAN (2.4%)
BEVERAGES & TOBACCO
Industrial Fruit Products 602,000 44
-----------
BUILDING MATERIALS & COMPONENTS
Cherat Cement Ltd. 21,056 27
D.G. Khan Cement Ltd. 731,500 641
***+D.G. Khan Cement Ltd.
(Rights) 219,450 77
-----------
745
-----------
CHEMICALS
Fauji Fertilizer Co. Ltd. 1,250,000 1,872
-----------
ENERGY SOURCES
Pakistan State Oil Co.
Ltd. 148,200 1,148
-----------
TELECOMMUNICATIONS
+Pakistan
Telecommunications 22,000 1,977
+Pakistan
Telecommunications GDR 4,500 392
-----------
2,369
-----------
TEXTILES & APPAREL
Crescent Textile Mills
Ltd. 2,639 2
+Dewan Salman Fibre 300,000 723
***+Dewan Salman Fibre
(Rights) 3,750 --
Nishat Mills Ltd. 421,354 360
Nishat Mills Ltd. (New) 50,572 43
-----------
1,128
-----------
- --------------------------------------------------------
- -------------
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- --------------------------------------------------------
- ------------
UTILITIES -- ELECTRICAL & GAS
Karachi Electric Supply
Corp. 504,000 U.S.$ 391
Sui Northern Gas Co. 468,000 407
-----------
798
-----------
8,104
-----------
- --------------------------------------------------------
- -------------
PHILIPPINES (5.4%)
BEVERAGES & TOBACCO
San Miguel Corp. 'B' 738,000 2,518
-----------
CONSTRUCTION & HOUSING
+DMCI Holdings, Inc. 2,257,000 809
-----------
ENERGY SOURCES
Petron Corp. 4,953,625 2,550
-----------
MULTI-INDUSTRY
JG Summit Holdings 'B' 6,134,000 1,684
-----------
REAL ESTATE
Ayala Land, Inc. 'B' 1,553,081 1,894
+C&P Homes, Inc. 2,926,000 2,147
+SM Prime Holdings, Inc. 6,294,100 1,800
-----------
5,841
-----------
TELECOMMUNICATIONS
Philippine Long Distance
Telephone 'B' 37,960 2,062
-----------
UTILITIES -- ELECTRICAL & GAS
Manila Electric Co. 'B' 308,865 2,520
-----------
17,984
-----------
- --------------------------------------------------------
- -------------
POLAND (1.5%)
BEVERAGES & TOBACCO
Wedel 5,090 168
Zwyiec 8,515 587
-----------
755
-----------
CHEMICALS
*Eastbridge 33,600 2,259
-----------
CONSTRUCTION & HOUSING
+Mostostal Exports 246,000 484
-----------
FINANCIAL SERVICES
Bank Rozwoju Eksportu 4,550 69
-----------
MISCELLANEOUS MATERIALS & COMMODITIES
Debica 9,700 146
-----------
MULTI-INDUSTRY
Elektrim 116,500 395
+International UNP
Holdings Ltd. 2,280,000 769
***+International UNP
Holdings Ltd. (Warrants) 1,140,000 --
-----------
1,164
-----------
4,877
-----------
- --------------------------------------------------------
- -------------
PORTUGAL (0.2%)
BROADCASTING & PUBLISHING
Filmes Lusomundo 35,000 374
-----------
MULTI-INDUSTRY
@+Portuguese Investment
Fund Ltd. 4,000 250
-----------
624
-----------
- --------------------------------------------------------
- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------
- ------------
<S> <C> <C>
RUSSIA (5.0%)
BROADCASTING & PUBLISHING
*Storyfirst Communications
'C' (Preferred) 270 U.S.$ 180
*Storyfirst
Communications 'D'
(Preferred) 720 540
*Storyfirst Communications
'E' (Preferred) 780 780
-----------
1,500
-----------
ENERGY EQUIPMENT & SERVICES
Mosenergo 2,850,000 755
-----------
ENERGY SOURCES
+Edinaya Energetics 62,500 2
+Irkutskenergo 169,000 837
+LUKoil Holdings 101,000 462
+LUKoil Holdings
(Convertible Warrants) 4,820 3,856
+United Energy System 24,822,500 755
-----------
5,912
-----------
MULTI-INDUSTRY
*Alliance Cellulose 156,075 3,139
-----------
TELECOMMUNICATIONS
*Global Telesystems Group 214,285 2,143
+Rostelecom 283,000 1,322
*+Russian Telecom
Development Corp. 176,000 1,760
-----------
5,225
-----------
16,531
-----------
- --------------------------------------------------------
- -------------
SOUTH AFRICA (2.2%)
CHEMICALS
SASOL Ltd. 249,127 2,040
-----------
FOOD & HOUSEHOLD PRODUCTS
Bidvest Group Ltd. 365,200 2,454
-----------
INSURANCE
Liberty Life Strategic
Investments Ltd. 120,000 469
-----------
MULTI-INDUSTRY
Anglo American Industrial
Corp. 10,000 455
@Morgan Stanley Africa
Investment Fund 141,445 1,821
-----------
2,276
-----------
7,239
-----------
- --------------------------------------------------------
- -------------
TAIWAN (4.4%)
CHEMICALS
+Shinkong Synthetic Fiber 705,599 610
-----------
ELECTRICAL & ELECTRONICS
+Mosel Vitelic, Inc. 478,470 1,420
-----------
ELECTRONIC COMPONENTS & INSTRUMENTS
+Acer, Inc. 820,000 1,894
+Advanced Semiconductor
Engineering, Inc. 321,000 776
+Taiwan Semiconductor Co. 1,495,000 4,684
United Micro Electronics
Corp. Ltd. 1,202,629 3,019
-----------
10,373
-----------
- --------------------------------------------------------
- -------------
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- --------------------------------------------------------
- ------------
INDUSTRIAL COMPONENTS
+Walsin Lihwa Electric
Wire & Cable Corp. GDR 121,000 U.S.$ 1,213
-----------
METALS -- STEEL
China Steel Corp. 1,310,000 1,047
-----------
14,663
-----------
- --------------------------------------------------------
- -------------
THAILAND (4.8%)
BANKING
Bangkok Bank Ltd.
(Foreign) 300,900 3,656
Thai Farmers Bank Ltd.
(Foreign) 364,760 3,678
-----------
7,334
-----------
ELECTRICAL & ELECTRONIC
Shinawatra Computer Co.
Ltd. (Foreign) 67,000 1,649
-----------
FINANCIAL SERVICES
Finance One Co. Ltd.
(Foreign) 774,600 5,381
-----------
TELECOMMUNICATIONS
Advanced Information
Services Co. Ltd.
(Foreign) 92,700 1,641
-----------
16,005
-----------
- --------------------------------------------------------
- -------------
TURKEY (5.4%)
AUTOMOBILES
Tofas Turk Otomobil
Fabrikasi 11,013,000 1,067
Tofas Turk Otomobil
Fabrikasi GDR 665,200 333
-----------
1,400
-----------
BANKING
+Demirbank TAS 1,600,000 97
Turkiye Garanti Bankasi AS 4,452,000 373
Yapi Kredi Bankasi AS 16,937,000 695
-----------
1,165
-----------
BEVERAGES & TOBACCO
Ege Biracilik Ve Malt
Sanayii 11,857,880 4,089
Erciyas Biracilik Ve Malt
Sanayii 1,582,000 740
Guney Biracilik Ve Malt
Sanayii 1,046,000 153
-----------
4,982
-----------
BROADCASTING & PUBLISHING
Sabah Yayincilik AS 30,998,000 611
-----------
BUILDING MATERIALS & COMPONENTS
Borusan Birmesik 4,521,000 909
Trakya Cam Sanayii AS 9,291,000 946
-----------
1,855
-----------
CHEMICALS
Bagfas Bandirma Gubre
Fabrikalari AS 926,000 285
-----------
FOOD & HOUSEHOLD PRODUCTS
Migros Turk TAS 1,296,000 990
Tat Konserve Sanayii AS 3,535,000 2,234
-----------
3,224
-----------
HEALTH & PERSONAL CARE
*Efes Sinai Yatirim 30,236,087 1,142
-----------
- --------------------------------------------------------
- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------
- ------------
<S> <C> <C>
TURKEY (CONTINUED)
METALS -- NON-FERROUS
Sarkuysan Elektrolitik
Bakir 6,090,000 U.S.$ 900
Eregli Demir Ve Celik
Fabrikalari TAS 13,985,000 1,148
-----------
2,048
-----------
MISCELLANEOUS MATERIALS & COMMODITIES
Ege Seramik Sanayi ve
Ticaret AS 1,615,000 385
-----------
TEXTILES & APPAREL
Aksa Akrilik Kimya Sanayii
AS 1,945,727 599
+Bossa Ticaret Sanayi
Isletme 3,842,000 274
-----------
873
-----------
UTILITIES -- ELECTRICAL & GAS
Turcas Petroculuk AS 863,750 153
-----------
18,123
-----------
- --------------------------------------------------------
- -------------
UNITED KINGDOM (0.3%)
MULTI-INDUSTRY
Lonrho plc 316,304 864
-----------
- --------------------------------------------------------
- -------------
ZIMBABWE (0.8%)
MULTI-INDUSTRY
+Trans Zambezi Industries
Ltd. 1,800,000 2,610
-----------
- --------------------------------------------------------
- -------------
TOTAL COMMON STOCKS
(Cost U.S. $324,729) 317,516
-----------
</TABLE>
- -----------------------------------------------------------------
- -------------
<TABLE>
<CAPTION>
FACE
AMOUNT
(000)
<S> <C> <C>
- --------------------------------------------------------
- ------------
DEBT INSTRUMENTS (3.3%)
- --------------------------------------------------------
- ------------
COLOMBIA (0.6%)
BANKING
#Banco de Colombia
(Convertible) 5.20%,
2/1/99 U.S.$ 2,615 1,987
-----------
- --------------------------------------------------------
- -------------
INDIA (0.9%)
CHEMICALS
**Supreme Petrochem
15.00%, 4/22/02 INR 600 239
-----------
MACHINERY & ENGINEERING
**Bharat Forge Co. Ltd.
14.50%, 4/18/02 14 19
-----------
METALS-STEEL
**Shri Ishar Alloy Steels
15.00%, 4/21/02 581 279
-----------
MULTI-INDUSTRY
**DCM Shriram Industries
16.50%, 3/2/02 335 590
**DCM Shriram Industries
(Convertible) 15.00%,
3/2/02 330 440
**Raymond Ltd. 16.00%,
1/5/02 124 351
**Somani Pilkington
15.00%, 1/4/02 207 1,105
-----------
2,486
-----------
3,023
-----------
</TABLE>
- -----------------------------------------------------------------
- -------------
<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.$ 18
- --------------------------------------------------------
- -------------
RUSSIA (1.8%)
LOAN AGREEMENTS
++Bank for Foreign
Economic Affairs
Unrestructured Loans CHF 1,935 566
++Bank for Foreign
Economic Affairs
Unrestructured Loans U.S.$ 16,000 5,460
-----------
6,026
-----------
- --------------------------------------------------------
- -------------
TOTAL DEBT INSTRUMENTS
(Cost U.S. $11,409) 11,054
-----------
- --------------------------------------------------------
- -------------
SHORT TERM INVESTMENT (2.1%)
- --------------------------------------------------------
- ------------
REPURCHASE AGREEMENT (2.1%)
Chase Manhattan Bank,
N.A., 5.35%, dated
12/29/95, due 1/2/96, to
be repurchased at
U.S.$7,002,
collateralized by
U.S.$6,230 United States
Treasury Bonds 7.25%, due
5/15/16, valued at
U.S.$7,141 (Cost
U.S.$6,998) 6,998 6,998
-----------
</TABLE>
<TABLE>
<S> <C> <C>
- ---------------------------------------------
- ---------
FOREIGN CURRENCY ON DEPOSIT
WITH CUSTODIAN (1.6%)
Argentine Peso ARP 4 4
Brazilian Real BRC 447 460
Colombian Peso COP 208,309 210
Hong Kong Dollar HKD 11 1
Indian Rupee INR 124,485 3,540
Mexican Peso MXP 199 26
Peruvian New Sol PSS 1,202 520
Taiwan Dollar TWD 16,868 618
Thai Baht THB 1,652 66
---------
(Cost U.S. $5,704) 5,445
---------
</TABLE>
<TABLE>
<S> <C> <C>
- ---------------------------------------------
- ---------
TOTAL INVESTMENTS (102.4%)
(Cost U.S. $348,840) 341,013
---------
- -----------------------------------------------
- -------------
OTHER ASSETS (3.0%)
Receivable for
Investments Sold U.S.$ 8,980
Dividends Receivable 691
Interest Receivable 263
Deferred Organization
Costs 22
Foreign Withholding
Tax Reclaim
Receivable 19
Other Assets 51 10,026
----------- ---------
- -----------------------------------------------
- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
<TABLE>
<CAPTION>
AMOUNT AMOUNT
(000) (000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
LIABILITIES (-5.4%)
Deferred Indian Taxes U.S.$ (394)
Payable for:
Dividends Declared U.S.$ (11,989)
Investments Purchased (5,006)
Investment Advisory Fees (348)
Custodian Fees (109)
Professional Fees (83)
Bank Overdraft (68)
Shareholder Reporting
Expenses (65)
Administrative Fees (36)
Directors' Fees and
Expenses (16)
Unrealized Loss on Forward
Foreign Currency
Contracts (6)
Other Liabilities (40) (17,766)
------------- ------------
- -----------------------------------------------------------
- -------------
NET ASSETS (100%)
Applicable to 22,659,798 issued and
outstanding
U.S. $0.01 par value shares (100,000,000
shares
authorized) U.S.$332,879
------------
- -----------------------------------------------------------
- -------------
NET ASSET VALUE PER SHARE U.S.$ 14.69
----------
- ---------------------------------------------------------
- ------------
AT DECEMBER 31, 1995, NET ASSETS CONSISTED OF:
- ---------------------------------------------------------
Common Stock U.S.$ 227
Capital Surplus 338,693
Accumulated Net Investment Loss (1,623)
Accumulated Net Realized Gain 3,873
Unrealized Appreciation (Depreciation) on
Investments and Foreign Currency
Translations (net of accrual of India tax
of $394 on unrealized appreciation) (8,291)
- -----------------------------------------------------------
TOTAL NET ASSETS U.S.$332,879
----------
</TABLE>
<TABLE>
<C> <C> <S>
---------------------------------------------------------
------------
ADR -- American Depositary Receipt.
ADS -- American Depositary Shares.
GDR -- Global Depositary Receipt.
GDS -- Global Depositary Shares.
RFD -- Ranked for Dividend.
CHF -- Swiss Franc.
+ -- Non-income producing.
++ -- Non-income producing -- in default.
\\ -- Non-voting stock.
* -- Security valued at cost -- see note A-1 to
financial statements.
** -- Securities (totaling U.S.$26,877 or 8.1% of net
assets at December 31, 1995) 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.
Note: Prior governmental approval for foreign investments may be
required under certain circumstances in some emerging markets,
and foreign ownership limitations may also be imposed by the
charters of individual companies in emerging 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.
</TABLE>
- ---------------------------------------------------------
- ------------
DECEMBER 31, 1995 EXCHANGE RATES:
- ---------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
ARP Argentine Peso 1.000 = U.S.$1.00
BRC Brazilian Real 0.972 = U.S.$1.00
GBP British Pound 0.644 = U.S.$1.00
CAD Canadian Dollar 1.365 = U.S.$1.00
CHF Swiss Franc 1.154 = U.S.$1.00
COP Colombian Peso 990.750 = U.S.$1.00
GRD Greek Drachma 236.990 = U.S.$1.00
HKD Hong Kong Dollar 7.733 = U.S.$1.00
INR Indian Rupee 35.165 = U.S.$1.00
IDR Indonesian Rupiah 2,286.500 = U.S.$1.00
ISS Israeli Shekel 3.139 = U.S.$1.00
KRW Korean Won 775.750 = U.S.$1.00
MXP Mexican Peso 7.695 = U.S.$1.00
MAD Morroccan Dirham 8.469 = U.S.$1.00
PKR Pakistani Rupee 34.216 = U.S.$1.00
PSS Peruvian New Sol 2.310 = U.S.$1.00
PHP Philippines Peso 26.230 = U.S.$1.00
PLZ Polish Zloty 2.466 = U.S.$1.00
PTE Portuguese Escudo 149.675 = U.S.$1.00
ZAR South African Rand 3.646 = U.S.$1.00
TWD Taiwan Dollar 27.287 = U.S.$1.00
THB Thai Baht 25.190 = U.S.$1.00
TRL Turkish Lira 60,900.000 = U.S.$1.00
- -----------------------------------------------------------------
- -------------
</TABLE>
FORWARD FOREIGN CURRENCY CONTRACT INFORMATION:
Under the terms of forward foreign currency contracts open at December 31, 1995,
the Fund is obligated to deliver or is to receive foreign currency in exchange
for U.S. dollars as indicated below:
<TABLE>
<CAPTION>
NET
CURRENCY IN EXCHANGE UNREALIZED
TO DELIVER VALUE SETTLEMENT FOR VALUE LOSS
(000) (000) DATE (000) (000) (000)
- ---------- --------- ------------- ------------ --------- -----------
<S> <C> <C> <C> <C> <C>
PSS 1,200 U.S.$ 519 1/2/96 U.S.$ 513 U.S.$ 513 U.S.$ (6)
U.S.$ 222 222 1/2/96 HKD 1,713 222 --
--------- --------- -----------
U.S.$ 741 U.S.$ 735 U.S.$ (6)
--------- --------- -----------
--------- --------- -----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
- ----------
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.
All non-equity securities as to which market quotations are readily
available are valued at their market values. 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.
Capital surplus, accumulated net investment loss and accumulated net
realized gain have been adjusted for current and prior period permanent
book-tax differences. Current period adjustments arose principally from
differing book-tax treatments for foreign currency transactions and for
gains on certain securities of corporations designated as "passive foreign
investment companies".
3. REPURCHASE AGREEMENTS: In connection with
transactions in repurchase agreements, a bank as custodian for the Fund takes
possession of the underlying securities, the value of which equals or
exceeds the principal amount of the repurchase transaction, including
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. To the
extent that proceeds from the sale of the underlying securities are less
than the repurchase price under the agreement, the Fund may incur a loss. In
the event of default or bankruptcy by the other party 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 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
17
<PAGE>
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 CONTRACTS: The Fund
may enter into forward foreign currency contracts to protect securities and
related receivables and payables against changes in future foreign exchange
rates. A forward foreign currency contract is an agreement between 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. Distributions to shareholders are recorded on the ex-date. Income
distributions and capital gain distributions are determined in accordance
with U.S. Federal income tax regulations which may differ from generally
accepted accounting principles. These differences are principally due to the
timing of the recognition of gains or losses on investments and permanent
differences described in note A-2.
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. Effective September 1, 1995, The Chase Manhattan Bank, N.A., through its
affiliate Chase Global Funds Services Company (the "Administrator"), (formerly
Mutual Funds Service Company, a wholly owned subsidiary of the United States
Trust Company of New York), 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. Effective September 1, 1995, The Chase Manhattan Bank, N.A. acts
as custodian for the Fund's assets held in the United States. Prior to September
1, 1995, Mutual Funds Service Company and United States Trust Company of New
York provided administrative and custodian services, respectively, to the Fund
under the same terms, conditions and fees as stated above.
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 year
ended December 31, 1995, the Fund incurred fees of $853,000 with the
International Custodian, of which $107,000 was payable to the International
Custodian at December 31, 1995. In addition, for the year ended December 31,
1995, the Fund has earned interest income of $35,000 and incurred interest
expense of $190,000, on balances with the International Custodian. At December
31, 1995, the Fund owned shares of an affiliated fund, for which the Fund earned
dividend income of $138,000.
E. For the year ended December 31, 1995, the Fund made purchases and sales
totaling $216,067,000 and $191,771,000, 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 $28,000 as brokerage commissions to Morgan Stanley & Co.
Incorporated, an affiliate of the Adviser. At December 31, 1995, the U.S.
Federal income tax cost basis of securities was $346,469,000 and accordingly,
net unrealized depreciation for U.S. Federal income tax purposes was
$10,901,000, of which $42,454,000 related to appreciated securities and
$53,355,000 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.
18
<PAGE>
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.
H. On January 31, 1994, the Fund filed a registration statement with the
Securities and Exchange Commission regarding the proposed offering of an
additional 1,500,000 shares of its Common Stock. On March 17, 1994, 900,000
shares of Common Stock were issued for $23,940,000. The Fund has been advised
that Morgan Stanley & Co. Incorporated received commissions of $810,000 and
reimbursement of its expenses of $80,000 in connection with its participation in
the additional offering. Offering costs of $258,000 related to the additional
offering were charged directly against the proceeds of the offering.
I. At December 31, 1995, a portion of the Fund's net assets consist of
securities 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
securities may be subject to substantial governmental involvement in the economy
and greater social, economic and political uncertainty.
J. 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 December 31, 1995 totaled
$16,000 and are included in Payable for Directors' Fees and Expenses on the
Statement of Net Assets.
K. During December 1995, the Board declared a distribution of $0.53 per share,
derived from net realized gains, payable on January 9, 1996, to shareholders of
record on December 29, 1995.
- --------------------------------------------------------------------------------
SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
U.S. AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, 1995 DECEMBER 31, 1995
1995 1995
----------------------- ----------------------- ----------------------- -----------------------
TOTAL PER SHARE TOTAL PER SHARE TOTAL PER SHARE TOTAL PER SHARE
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Income........ $ 1,135 $ 0.05 $ 2,772 $ 0.16 $ 2,104 $ 0.09 $ 1,115 $ 0.05
Net Investment Income
(Loss).................. $ (209) $ (0.01) $ 1,354 $ 0.08 $ 298 $ 0.01 $ (444) $ (0.02)
Net Realized Gain (Loss)
and Change in Unrealized
Appreciation
(Depreciation).......... $ (65,943) $ (4.03) $ 31,987 $ 1.90 $ 3,850 $ 0.19 $ (27,852) $ (1.20)
Net Increase (Decrease)
in Net Assets Resulting
from Operations......... $ (66,152) $ (4.04) $ 33,341 $ 1.98 $ 4,148 $ 0.20 $ (28,296) $ (1.22)
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARCH 31, JUNE 30, SEPTEMBER 30, 1994 DECEMBER 31, 1994
1994 1994
----------------------- ----------------------- ----------------------- -----------------------
TOTAL PER SHARE TOTAL PER SHARE TOTAL PER SHARE TOTAL PER SHARE
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Income........ $ 831 $ 0.05 $ 2,091 $ 0.13 $ 773 $ 0.05 $ 1,431 $ 0.09
Net Investment Income
(Loss).................. $ (852) $ (0.05) $ 422 $ 0.03 $ (1,082) $ (0.07) $ (437) $ (0.03)
Net Realized Gain (Loss)
and Change in Unrealized
Appreciation
(Depreciation).......... $ (14,320) $ (0.84) $ (20,740) $ (1.31) $ 78,199 $ 4.94 $ (64,765) $ (4.09)
Net Increase (Decrease)
in Net Assets Resulting
from Operations......... $ (15,172) $ (0.89) $ (20,318) $ (1.28) $ 77,117 $ 4.87 $ (65,202) $ (4.12)
</TABLE>
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX INFORMATION (UNAUDITED):
For the year ended December 31, 1995, the Fund designates $25,707,000 as
long-term capital gain dividend and expects to pass through to shareholders
foreign tax credits of approximately $3,355,000.
19
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- ---------
To the Shareholders and Board of Directors of
Morgan Stanley Emerging Markets Fund, Inc.
In our opinion, the accompanying statement of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
Morgan Stanley Emerging Markets Fund, Inc. (the "Fund") at December 31, 1995,
the results of its operations for the year then ended, the changes in its net
assets for each of the two years in the period then ended and the financial
highlights for each of the four years in the period then ended and for the
period November 1, 1991 (commencement of operations) through December 31, 1991,
in conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1995 by
correspondence with the custodians, brokers and counterparties and the
application of alternative auditing procedures where confirmations from brokers
and counterparties were not received, provide a reasonable basis for the opinion
expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
February 9, 1996
20
<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 The First National Bank
of Boston (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.
The First National Bank of Boston
Dividend Reinvestment and Cash Purchase Plan
P.O. Box 1681
Boston, MA 02105
1-800-442-2001
21
