<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
One Pierrepont Plaza
Brooklyn, New York 11201
The Chase Manhattan Bank
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.
---------------
ANNUAL REPORT
DECEMBER 31, 1996
MORGAN STANLEY ASSET MANAGEMENT INC.
INVESTMENT ADVISER
<PAGE>
LETTER TO SHAREHOLDERS
- --------
For the year ended December 31, 1996, the Morgan Stanley Emerging Markets Fund,
Inc. (the "Fund") had a total return, based on net asset value per share, of
13.84% compared with 7.84% for the IFC Global Total Return Composite Index. For
the period from commencement of operations on November 1, 1991 through December
31, 1996 the Fund's total return, based on net asset value per share, was
109.90% compared with 63.16% for the Index. On December 31, 1996, the closing
price of the Fund's shares on the New York Stock Exchange was $13 7/8,
representing a 11.5% discount to the Fund's net asset value per share.
The Fund's strong out-performance during the year was attributable in large part
to country selection. Security selection was also positive.
Following two weak years, hopes ran high in early 1996 that the emerging markets
would recover. After a relatively strong first half, however, the emerging
markets lost ground in the second half of the year. The first six months of 1996
were dominated by politics as several of the larger emerging markets, notably
Russia, South Korea, India and Taiwan, held successful elections. Fears of
contagion from a decline in the lofty U.S. equity market and concerns of a rise
in U.S. interest rates sapped support from emerging market equities and led to a
weak second half. As always in the emerging market universe, there were major
disparities in performance among the markets (see Chart on the following page).
Overall, the 7.9% return from the IFC Global Index was somewhat muted. By
region, Latin America out-performed Europe/Middle East and Asia (see Table 1 on
the following page). Three emerging markets achieved results in excess of 100%
for the year--Russia, Venezuela and Hungary posted returns of 151.1%, 127.9% and
104.2%, respectively. The emerging Asian markets offered some of the best and
worst to investors. Taiwan ended the year up 38.9%, and Hong Kong finished the
year up 28.9%. Thailand and Korea, beset with export and liquidity problems,
were the worst performing emerging markets of 1996, off 38.0% and 38.4%,
respectively. India had a very strong first quarter, rallying 11.5%, but lost
virtually all the gain to end the year down 3.8%.
The largest contributors to the Fund's out-performance, relative to the
benchmark, came from Brazil, Turkey, Russia and Hong Kong--all overweight
positions. Underweights in Thailand, South Africa and Chile also added to
performance. Being underweight Malaysia however and overweight India and Israel
all had negative impacts. Stock selection was extremely positive in Brazil and
Mexico.
There are several reasons to be optimistic about the outlook for the emerging
markets in 1997. First, as a group, the emerging economies are in much better
financial shape than three years ago when the Federal Reserve began to raise
interest rates. Major inroads have been made on inflation, leaving scope for
interest rates to continue to decline in the majority of emerging markets,
despite the path of U.S. rates. Inflation in the OECD economies is expected to
increase during 1997, but in Latin America and emerging Europe it is forecasted
to steadily decline. Only in Asia is there expected to be an increase in
inflation, but even here it is from a very low base. One clear signal of
successful economic strengthening has been the performance of emerging markets
debt. Reacting to the numerous credit upgrades and improved economic management,
emerging market debt was the best performing asset class during 1996. Emerging
market stocks, on the other hand, have lagged both developed markets and debt,
and emerging market equity performance has yet to reflect the fundamental
improvements.
Second, foreign direct investment (FDI) in the emerging markets is running in
excess of $100 billion per annum underpinning future growth prospects for these
economies. Foreign reserves of the emerging economies--currently around $700
billion--have doubled since 1993 and are now almost equal to the aggregate
reserves of the industrialized countries. In addition, portfolio flows which, by
nature, have shorter time horizons than FDI have also picked up from the hiatus
following the Mexican peso crisis suggesting confidence is returning. We expect
portfolio flows to total approximately $30 billion in 1997. At their peak in
1993, almost $1 billion per week was being invested in the emerging markets.
Third, on a valuation basis, the emerging markets (see Table on the following
page) sell at a 16.2 times trailing price to earnings ratio, which is lower than
1991 levels of valuation and compare very favorably with the U.S. and
international EAFE markets. During the last two years, global financial markets
have focused on the bull market in the U.S., but the emerging markets have made
tremendous fundamental progress and are laggards in performance terms.
While the economic picture for the emerging markets overall continues to
improve, there are still hurdles to be overcome in individual countries. Some of
the emerging markets have to make progress on reducing their government deficits
(India, Pakistan, Brazil, and
2
<PAGE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
IFC Emerging Markets Indices
Performance (U.S.$)
12 Months to December 31, 1996
Venezuela 139%
Hungary 98%
China 91%
Poland 74%
Zimbabwe 67%
Nigeria 63%
Turkey 49%
Taiwan 37%
Brazil 34%
Portugal 29%
Pakistan 25%
Argentina 22%
Malaysia 20%
Phillippines 20%
Mexico 18%
Colombia 8%
Greece 5%
Peru 3%
Jordan -1%
Indonesia -2%
Sri Lanka -11%
Chile -14%
South Africa -17%
Thailand -37%
Korea -38%
% change
</TABLE>
<TABLE>
<CAPTION>
VALUATION
12 MONTH
PERFORMANCE TRAILING
TABLE 1 1996 PRICE/EARNINGS
- ------------------------------------------------------------------------------------ --------------- ---------------
<S> <C> <C>
MSCI U.S............................................................................ 21.4% 19.3x
MSCI EAFE........................................................................... 4.4 25.8x
MSCI EMF............................................................................ 3.9 16.2x
EMF Asia............................................................................ 1.6 19.1x
EMF Europe/Middle East.............................................................. 11.3 13.0x
EMF Latin America................................................................... 18.9 14.1x
SOURCE: MSCI
</TABLE>
Russia) and on their current account deficits (Thailand and Turkey). In
aggregate, however, the outlook is for continued progress to be made by all
these countries on their deficits. We anticipate that the emerging markets will
do well, relative to other asset classes in 1997, based on their good value,
continued premium earnings growth prospects and their persistence in improving
their economic standing in the world.
Sincerely,
[SIGNATURE]
Warren J. Olsen
PRESIDENT AND DIRECTOR
[SIGNATURE]
Madhav Dhar
PORTFOLIO MANAGER
[SIGNATURE]
Marianne L. Hay
PORTFOLIO MANAGER
January 1997
- --------------------------------------------------------------------------------
MORGAN STANLEY GROUP INC., THE DIRECT PARENT COMPANY OF THE FUND'S INVESTMENT
ADVISER, MORGAN STANLEY ASSET MANAGEMENT INC., RECENTLY ANNOUNCED ITS INTENTION
TO MERGE WITH DEAN WITTER, DISCOVER & CO. TO FORM MORGAN STANLEY, DEAN WITTER,
DISCOVER & CO. IT CURRENTLY IS ANTICIPATED THAT THE TRANSACTION WILL CLOSE IN
MID-1997. THEREAFTER, MORGAN STANLEY ASSET MANAGEMENT INC. WILL BE A SUBSIDIARY
OF MORGAN STANLEY, DEAN WITTER, DISCOVER & CO.
3
<PAGE>
Morgan Stanley Emerging Markets Fund, Inc.
Investment Summary as of December 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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 -4.59% -4.59% 13.84% 13.84% 7.84% 7.84%
FIVE YEARS 80.01+ 12.48+ 100.65+ 14.94+ 56.81 9.42
SINCE INCEPTION* 85.62+ 12.71+ 109.90+ 15.42+ 63.16 9.93
</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 1996
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value Per Share $14.71 $16.74 $28.20 $20.30 $14.69 $15.69
Market Value Per Share $14.25 $18.13 $31.63 $21.50 $15.50 $13.88
Premium/(Discount) -3.1% 8.3% 12.2% 5.9% 5.5% -11.5%
Income Dividends $0.04 $0.01 - - - $0.05
Capital Gains Distributions - $0.01 $1.49 $6.50 $1.29 $0.98
Fund Total Return (2) 4.61% 13.94% 95.22%+ -5.33% -16.30%+ 13.84%
Index Total Return (1)(3) 3.25% 0.33% 67.52% -0.51% -12.34% 7.84%
</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. 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.
+ This return does not include the effect of dilution in connection with the
Rights Offering.
4
<PAGE>
Morgan Stanley Emerging Markets Fund, Inc.
Portfolio Summary as of December 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO INVESTMENTS DIVERSIFICATION
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Equity Securities 95.9%
Short-Term Investments 2.4%
Debt Securities 1.7%
</TABLE>
- --------------------------------------------------------------------------------
SECTORS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Banking 13.1%
Beverages & Tobacco 7.9%
Chemicals 6.0%
Energy Equipment & Services 5.3%
Energy Sources 3.4%
Food & Household Products 3.1%
Multi-Industry 11.2%
Real Estate 4.7%
Telecommunications 16.8%
Utilities-Electrical & Gas 8.9%
Other 19.6%
</TABLE>
- --------------------------------------------------------------------------------
COUNTRY WEIGHTINGS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Brazil 14.8%
India 10.8%
Mexico 10.3%
Hong Kong 9.5%
Indonesia 7.3%
Korea 7.3%
Russia 7.0%
Thailand 5.0%
South Africa 4.4%
Turkey 3.9%
Other 19.7%
</TABLE>
- --------------------------------------------------------------------------------
TEN LARGEST HOLDINGS*
<TABLE>
<CAPTION>
PERCENT
OF
NET
ASSETS
------
<C> <S> <C>
1. Bharat Heavy Electricals Ltd. 5.3%
2. Telebras 4.5
3. Eletrobras 4.0
4. SASOL Ltd. 2.6
5. Telekomunikasi (Foreign) 2.3
<CAPTION>
PERCENT
OF
NET
ASSETS
------
<C> <S> <C>
6. Brahma 1.5%
7. Cemex 1.5
8. State Bank of India Ltd. 1.5
9. HM Sampoerna (Foreign) 1.3
10. Hutchison Whampoa Ltd. 1.3
------
25.8%
------
------
</TABLE>
- --------------------------------------------------------------------------------
*Excludes short-term securities.
5
<PAGE>
FINANCIAL STATEMENTS
- ---------
STATEMENT OF NET ASSETS
- ---------
DECEMBER 31, 1996
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- -------------------------------------------------------------
- -------------
COMMON STOCKS (100.3%)
(Unless otherwise noted)
- --------------------------------------------------
- ----------
ARGENTINA (2.8%)
AUTOMOBILES
+CIADEA 1 U.S.$ --
-----------
BEVERAGES & TOBACCO
Quilmes ADR 97,340 779
-----------
ENERGY SOURCES
YPF ADR 82,865 2,092
-----------
TELECOMMUNICATIONS
Telecom Argentina ADR 70,671 2,854
Telefonica Argentina ADR 169,320 4,381
-----------
7,235
-----------
10,106
-----------
- -------------------------------------------------------------
- -------------
BRAZIL (14.8%)
BANKING
< < Banco Bradesco (Preferred) 533,377,363 3,865
**< < +Banco Nacional (Preferred) 61,598,720 3
< < +Itaubanco (Preferred) 6,844,500 2,964
-----------
6,832
-----------
BEVERAGES & TOBACCO
< < Brahma (Preferred) 9,627,209 5,262
-----------
BROADCASTING & PUBLISHING
+Multicanal Participaccoes ADR 49,995 641
-----------
ENERGY SOURCES
< < Petrobras (Preferred) 18,605,999 2,963
-----------
MERCHANDISING
+Bompreco GDR 7,975 142
Pao de Acucar GDR (Registered) 2,720 47
Pao de Acucar GDR 60,670 1,058
< < Pao de Acucar (Preferred) 6,460,000 115
-----------
1,362
-----------
MULTI-INDUSTRY
< < Itausa (Preferred) 413,000 310
-----------
TELECOMMUNICATIONS
Telebras (Ordinary) 80,938,000 5,803
< < Telebras (Preferred) 103,628,183 7,978
< < Telebras (Preferred) ADR 29,645 2,268
+Telesp 1,985,117 429
< < Telesp (Preferred) 2,266,535 491
-----------
16,969
-----------
TEXTILES & APPAREL
< < Coteminas (Preferred) 2,188,000 698
-----------
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- -------------------------------------------------------------
- -------------
UTILITIES -- ELECTRICAL & GAS
+#Celesc GDR 5,680 U.S.$ 514
< < Cemig (Preferred) 43,174,867 1,471
Cemig ADR 7,525 252
< < Cemig GDS (Preferred) 4,550 155
Eletrobras ADR (Common) 98,290 1,759
< < Eletrobras ADR (Preferred) 10,500 195
Eletrobras (Common) 21,016,078 7,524
< < Eletrobras 'B' (Preferred) 13,097,138 4,865
Light 860,000 305
**+Lightpar 3,498,000 848
-----------
17,888
-----------
52,925
-----------
- -------------------------------------------------------------
- -------------
CHILE (0.5%)
BEVERAGES & TOBACCO
CCU ADR 41,390 667
-----------
MERCHANDISING
+Santa Isabel ADR 48,962 1,108
-----------
1,775
-----------
- -------------------------------------------------------------
- -------------
CHINA (1.3%)
CHEMICALS
Shenzhen Yizheng Chemical Fibre
Co. Ltd. 'H' 4,342,000 1,055
-----------
ENERGY SOURCES
Zhenhai Refining & Chemical Co.
Ltd. 'H' 2,129,000 785
-----------
PACKAGING & CONTAINERS
China International Marine
Container Ltd. 1,625,000 1,891
-----------
TRANSPORTATION -- ROAD & RAIL
+Guangshen Railway Co. Ltd. 1,134,000 491
+Guangshen Railway Co. Ltd. ADR 20,000 413
-----------
904
-----------
4,635
-----------
- -------------------------------------------------------------
- -------------
COLOMBIA (0.3%)
BANKING
Banco de Colombia 3,032,000 1,250
-----------
- -------------------------------------------------------------
- -------------
EGYPT (1.4%)
BANKING
Commercial International Bank 5,389 813
+Egypt American Bank 3,789 169
-----------
982
-----------
BEVERAGES & TOBACCO
Eastern Tobacco 47,790 740
-----------
BUILDING MATERIALS & COMPONENTS
Ameriyah Cement Co. 35,900 677
Helwan Portland Cement 34,500 610
Torah Portland Cement Co. 37,150 750
-----------
2,037
-----------
CHEMICALS
+Egyptian Finance & Industrial 14,850 470
-----------
FOOD & HOUSEHOLD PRODUCTS
North Cairo Flour Mills 7,910 312
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- -------------------------------------------------------------
- -------------
<S> <C> <C>
EGYPT (CONTINUED)
REAL ESTATE
+Madinet Nasr Housing &
Development 3,500 U.S.$ 395
-----------
4,936
-----------
- -------------------------------------------------------------
- -------------
GREECE (0.0%)
CONSTRUCTION & HOUSING
Aegek 13,550 50
-----------
- -------------------------------------------------------------
- -------------
HONG KONG (9.5%)
BANKING
+Hang Seng Bank Ltd. 58,000 705
-----------
FOOD & HOUSEHOLD PRODUCTS
+Tingyi (Cayman Island) Holding
Co. 3,836,000 1,004
-----------
MULTI-INDUSTRY
China Resources Enterprise Ltd. 1,599,000 3,597
Citic Pacific Ltd. 737,000 4,278
Hutchison Whampoa Ltd. 588,000 4,618
+Shanghai Industrial Holdings Ltd. 94,000 343
Swire Pacific Ltd. 'A' 209,000 1,993
-----------
14,829
-----------
REAL ESTATE
Cheung Kong (Holdings) Ltd. 455,000 4,044
+Cheung Kong Infrastructure
Holdings 388,000 1,028
+China Resources Beijing Land 1,142,000 724
Henderson Land Development Co.
Ltd. 191,000 1,926
New World Development Co. Ltd. 591,000 3,992
Sun Hung Kai Properties Ltd. 231,100 2,831
-----------
14,545
-----------
TELECOMMUNICATIONS
+Asia Satellite Telecom Holdings
Ltd. 189,000 439
Hong Kong Telecom Ltd. 595,200 958
-----------
1,397
-----------
TRANSPORTATION -- SHIPPING
Cosco Pacific Ltd. 1,087,000 1,265
Hong Kong Ferry Holdings Ltd. 169,000 330
-----------
1,595
-----------
34,075
-----------
- -------------------------------------------------------------
- -------------
HUNGARY (0.3%)
CHEMICALS
Pannonplast Rt. 5,835 215
+Tiszai Vegyi Kombinat Rt. 34,500 395
-----------
610
-----------
ENERGY SOURCES
MOL Magyar Olaj-es Gazipari Rt. 36,100 457
-----------
FINANCIAL SERVICES
+Cofinec GDR 4,900 148
-----------
1,215
-----------
- -------------------------------------------------------------
- -------------
INDIA (10.1%)
AUTOMOBILES
Apollo Tyres Ltd. 123,750 404
Hero Honda Ltd. 188,829 1,275
MRF Ltd. 8,000 631
Tata Engineering & Locomotive Ltd. 14,000 133
-----------
2,443
-----------
BANKING
State Bank of India Ltd. 798,700 5,219
-----------
BEVERAGES & TOBACCO
ITC Ltd. 14,100 130
-----------
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- -------------------------------------------------------------
- -------------
BUILDING MATERIALS & COMPONENTS
Associated Cement Co. Ltd. 5,967 U.S.$ 204
Gujarat Ambuja Cements Ltd. 69,800 459
-----------
663
-----------
CHEMICALS
Indian Petro Chemical Corp. Ltd. 10,500 34
Reliance Industries Ltd. 1,152 7
-----------
41
-----------
ELECTRICAL & ELECTRONICS
Asian Electronics Ltd. 97,300 291
-----------
ELECTRONIC COMPONENTS & INSTRUMENTS
Modi Xerox Ltd. 99,550 378
-----------
ENERGY EQUIPMENT & SERVICES
Bharat Heavy Electricals Ltd. 3,125,000 18,916
Crompton Greaves Ltd. 270 1
-----------
18,917
-----------
FINANCIAL SERVICES
Housing Development Finance Corp.
Ltd. 49,220 3,037
-----------
HEALTH & PERSONAL CARE
E. Merck (India) Ltd. 182,000 788
Nicholas Piramal India Ltd. 225,000 1,004
-----------
1,792
-----------
MACHINERY & ENGINEERING
Bharat Forge Co., Ltd. 57,668 149
-----------
MISCELLANEOUS MATERIALS & COMMODITIES
Essel Packaging Ltd. 71,950 199
-----------
MULTI-INDUSTRY
+@Morgan Stanley Growth Fund 6,881,800 1,161
-----------
RECREATION & OTHER CONSUMER GOODS
Tube Investments of India Ltd. 204,150 359
-----------
TELECOMMUNICATIONS
Videsh Sanchar Nigam Ltd. 30,200 800
-----------
TEXTILES & APPAREL
Mahavir Spinning Mills Ltd. 5,500 10
Raymond Ltd. 81,150 258
**Raymond Ltd -- New 40,575 123
-----------
391
-----------
TRANSPORTATION -- SHIPPING
Great Eastern Shipping Ltd. 'A' 1,146 1
-----------
UTILITIES -- ELECTRICAL & GAS
Tata Power Co. Ltd. 100 --
-----------
35,971
-----------
- -------------------------------------------------------------
- -------------
INDONESIA (7.3%)
AUTOMOBILES
Astra International (Foreign) 897,500 2,470
-----------
BANKING
+**Bank International Indonesia
(Foreign) 2,223,000 2,188
-----------
BEVERAGES & TOBACCO
**Gudang Garam (Foreign) 774,500 3,345
**HM Sampoerna (Foreign) 839,000 4,476
-----------
7,821
-----------
CHEMICALS
**Sorini Corp. (Foreign) 778,500 363
-----------
FOREST PRODUCTS & PAPER
**Indah Kiat Pulp & Paper
(Foreign) 1,338,421 978
-----------
MULTI-INDUSTRY
**Bimantara Citra (Foreign) 1,214,000 1,619
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- -------------------------------------------------------------
- -------------
<S> <C> <C>
INDONESIA (CONTINUED)
TELECOMMUNICATIONS
**Telekomunikasi (Foreign) 4,855,500 U.S.$8,377
-----------
WHOLESALE & INTERNATIONAL TRADE
+**Daya Guna Samudera (Foreign) 1,842,500 2,145
-----------
25,961
-----------
- -------------------------------------------------------------
- -------------
ISRAEL (2.9%)
AEROSPACE & MILITARY TECHNOLOGY
+Elbit Ltd. 37,909 272
+Elbit Systems Ltd 126,364 967
-----------
1,239
-----------
BANKING
First International Bank of Israel 10,321 1,191
-----------
ELECTRICAL & ELECTRONICS
Scitex Ltd. 55,467 527
-----------
FOOD & HOUSEHOLD PRODUCTS
+Blue Square-Israel Ltd. ADR 87,700 1,250
Osem Investment Ltd. 94,176 529
Super Sol Ltd. 88,993 2,179
-----------
3,958
-----------
MANUFACTURING
+Elbit Medical Imaging Ltd. 126,364 526
-----------
MULTI-INDUSTRY
Koor Industries Ltd. 19,850 1,730
+Pec Israel Economic Corp. 43,870 735
-----------
2,465
-----------
REAL ESTATE
+Israel Land Development 157,600 578
-----------
10,484
-----------
- -------------------------------------------------------------
- -------------
KOREA (7.3%)
APPLIANCES & HOUSEHOLD DURABLES
**Samsung Electronics Co.
(Foreign) 43,816 2,595
**+Samsung Electronics Co. 11,125 659
+#Samsung Electronics -- New GDR 28,170 1,166
-----------
4,420
-----------
BANKING
+Cho Hung Bank Co., Ltd. GDR
(Foreign) 107,100 803
+**Cho Hung Bank Co., Ltd.
(Foreign) 43,900 360
+**Housing & Commercial Bank,
Korea 97,380 1,482
+Kookmin Bank GDR 81,300 1,478
Korea Exchange Bank 53,700 486
**Shinhan Bank Co. Ltd. (Foreign) 88,600 1,423
-----------
6,032
-----------
BEVERAGES & TOBACCO
+**Chosun Brewery Co. Ltd.
(Foreign) 8,410 218
-----------
CHEMICALS
Hanwha Chemical Corp. 382,220 2,963
-----------
CONSTRUCTION & HOUSING
Hyundai Engineering (Foreign) 75,700 1,756
-----------
ENERGY SOURCES
Ssangyong Oil Refining Co. Ltd. 49,040 1,074
-----------
METALS -- STEEL
**Pohang Iron & Steel (Foreign) 7,870 452
Pohang Iron & Steel Ltd ADR 29,430 596
-----------
1,048
-----------
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- -------------------------------------------------------------
- -------------
TELECOMMUNICATIONS
**Korea Mobile Telecom (Foreign) 1,595 U.S.$1,592
Korea Mobile Telecom ADR 187,718 2,417
LG Information & Communication
Ltd. 4,900 347
+LG Information & Communication
Ltd. -- New 38,600 2,467
-----------
6,823
-----------
UTILITIES -- ELECTRICAL & GAS
Korea Electric Power Corp.
(Foreign) 59,170 1,723
-----------
26,057
-----------
- -------------------------------------------------------------
- -------------
MAURITIUS (0.6%)
BANKING
State Bank of Mauritius 4,300,000 2,233
-----------
- -------------------------------------------------------------
- -------------
MEXICO (10.3%)
BANKING
Banacci 'B' 931,865 1,964
Banacci 'L' 805,847 1,529
+Bancomer 'B' 1,013,690 405
+#Bancomer 'B' ADR 501,668 4,076
-----------
7,974
-----------
BEVERAGES & TOBACCO
FEMSA 'B' 2,056,375 7,041
Panamco 18,992 890
-----------
7,931
-----------
BROADCASTING & PUBLISHING
+Televisa CPO ADR 241,742 6,195
-----------
BUILDING MATERIALS & COMPONENTS
Apasco 168,638 1,155
Cemex 37,960 148
Cemex CPO 998,185 3,570
Cemex CPO ADR 212,232 1,523
-----------
6,396
-----------
CONSTRUCTION & HOUSING
+ICA ADR 38,254 559
-----------
FOOD & HOUSEHOLD PRODUCTS
+Gruma 'B' 145,834 888
Gruma ADR 34,620 840
Maseca 'B2' 562,675 711
-----------
2,439
-----------
MERCHANDISING
+Cifra 'B' 381,300 466
+Cifra 'C' 695,914 847
-----------
1,313
-----------
MULTI-INDUSTRY
+Desc ADR 60,490 1,331
Carso ADR 100,870 1,059
Carso 'A1' 321,930 1,694
+Sidek 'A' 1,000 --
-----------
4,084
-----------
36,891
-----------
- -------------------------------------------------------------
- -------------
MOROCCO (0.0%)
MULTI-INDUSTRY
Groupe Ona 3,282 195
-----------
- -------------------------------------------------------------
- -------------
PAKISTAN (2.5%)
BUILDING MATERIALS & COMPONENTS
Cherat Cement Ltd. 21,056 10
-----------
CHEMICALS
Fauji Fertilizer Co. Ltd. 1,628,700 2,743
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- -------------------------------------------------------------
- -------------
<S> <C> <C>
PAKISTAN (CONTINUED)
ENERGY SOURCES
Pakistan State Oil Co. Ltd. 206,700 U.S.$1,336
-----------
INSURANCE
Adamjee Insurance Co. Ltd. 14,855 32
-----------
TELECOMMUNICATIONS
+Pakistan Telecommunications 5,407,000 3,386
+Pakistan Telecommunications GDR 7,650 474
-----------
3,860
-----------
TEXTILES & APPAREL
+Crescent Textile Mills Ltd. 2,770 1
+Nishat Mills Ltd. 471,926 188
-----------
189
-----------
UTILITIES -- ELECTRICAL & GAS
+Karachi Electric Supply Corp. 554,400 259
+Sui Northern Gas Co. 598,000 455
-----------
714
-----------
8,884
-----------
- -------------------------------------------------------------
- -------------
PERU (0.3%)
TELECOMMUNICATIONS
Telefonica del Peru ADR 56,480 1,066
-----------
- -------------------------------------------------------------
- -------------
PHILIPPINES (2.2%)
CONSTRUCTION & HOUSING
+DMCI Holdings, Inc. 1,918,400 1,258
-----------
MULTI-INDUSTRY
JG Summit Holdings 'B' 6,477,600 1,823
-----------
REAL ESTATE
Ayala Land, Inc. 'B' 984,571 1,123
-----------
TELECOMMUNICATIONS
Philippine Long Distance Telephone
'B' 22,900 1,258
-----------
UTILITIES -- ELECTRICAL & GAS
Manila Electric Co. 'B' 288,164 2,356
-----------
7,818
-----------
- -------------------------------------------------------------
- -------------
POLAND (1.4%)
BANKING
Bank Rozwoju Eksportu 4,550 136
-----------
BEVERAGES & TOBACCO
Zyweic 4,500 209
-----------
CHEMICALS
*+Eastbridge 33,600 2,259
Polifarb Wroclaw 24,000 136
-----------
2,395
-----------
CONSTRUCTION & HOUSING
Mostostal Exports 246,000 583
***+Mostostal Exports (Rights) 246,000 10
-----------
593
-----------
INDUSTRIAL COMPONENTS
+Debica 9,700 217
-----------
MULTI-INDUSTRY
+International UNP Holdings Ltd. 2,280,000 466
-----------
WHOLESALE & INTERNATIONAL TRADE
Elektrim 116,500 1,056
-----------
5,072
-----------
<CAPTION>
VALUE
SHARES (000)
<S> <C> <C>
- -------------------------------------------------------------
- -------------
RUSSIA (7.0%)
BROADCASTING & PUBLISHING
+*Storyfirst Communications
'C'(Preferred) 270 U.S.$ 180
+*Storyfirst Communications
'D'(Preferred) 720 540
+*Storyfirst Communications
'E'(Preferred) 780 780
+*Storyfirst Communications
'F'(Preferred) 139 348
+**Storyfirst Communications
(Convertible) 210 263
-----------
2,111
-----------
ENERGY SOURCES
Lukoil Holdings 180,900 2,044
Lukoil Holdings ADR 27,065 1,238
-----------
3,282
-----------
FOREST PRODUCTS & PAPER
**Alliance Cellulose 'B' 156,075 1,049
-----------
MERCHANDISING
+TSUM 2,880,000 1,125
-----------
TELECOMMUNICATIONS
**Global Tele-Systems Ltd. 214,285 4,286
+Rostelecom 953,500 2,307
*+Russian Telecom Development
Corp. 176,000 1,760
-----------
8,353
-----------
UTILITIES -- ELECTRICAL & GAS
+Irkutskenergo 11,460,000 1,518
Moscow Energy 4,225,000 4,309
Unified Energy System 35,885,000 3,266
-----------
9,093
-----------
25,013
-----------
- -------------------------------------------------------------
- -------------
SINGAPORE (0.4%)
FOOD & HOUSEHOLD PRODUCTS
+Want Want Holdings 492,000 1,294
-----------
- -------------------------------------------------------------
- -------------
SOUTH AFRICA (4.4%)
CHEMICALS
SASOL Ltd. 800,000 9,471
-----------
MULTI-INDUSTRY
Anglo American Industrial Corp. 18,850 683
Barlow Ltd. 183,500 1,628
Bidvest Group Ltd. 179,800 932
Gencor Ltd. 273,550 994
@Morgan Stanley Africa Investment
Fund 141,445 1,927
-----------
6,164
-----------
15,635
-----------
- -------------------------------------------------------------
- -------------
TAIWAN (2.1%)
CHEMICALS
Formosa Plastics Corp. 401,000 1,006
-----------
CONSTRUCTION & HOUSING
+Pacific Construction 448,000 383
-----------
ELECTRONIC COMPONENTS & INSTRUMENTS
+Siliconware Precision Industries
Co. 620,000 1,308
-----------
INSURANCE
Cathay Life Insurance Co. Ltd. 456,900 2,908
-----------
METALS -- STEEL
China Steel Corp. 1,031,000 967
-----------
TRANSPORTATION -- SHIPPING
Yang Ming Marine Transport 795,920 1,054
-----------
7,626
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- -------------------------------------------------------------
- -------------
<S> <C> <C>
THAILAND (5.0%)
BANKING
Bangkok Bank Ltd. (Foreign) 417,800 U.S.$4,040
Siam Commercial Bank Co. Ltd.
(Foreign) 459,900 3,335
Thai Farmers Bank Ltd. (Foreign) 393,160 2,453
+***Thai Farmers Bank Ltd.
(Warrants), expiring 9/15/02 36,220 --
-----------
9,828
-----------
ELECTRICAL & ELECTRONICS
Shinawatra Computer Co. Ltd. 30,900 374
**Shinawatra Computer Co. Ltd.
(Foreign) 262,300 3,171
-----------
3,545
-----------
FINANCIAL SERVICES
Finance One Co. Ltd. (Foreign) 626,000 1,269
-----------
TELECOMMUNICATIONS
Advanced Information Services Co.,
Ltd. (Foreign) 342,200 3,203
-----------
17,845
-----------
- -------------------------------------------------------------
- -------------
TURKEY (3.9%)
BANKING
Turkiye Garanti Bankasi 10,975,000 496
Yapi Ve Kredi Bankasi 66,310,000 1,651
-----------
2,147
-----------
BEVERAGES & TOBACCO
+**Efes Sinai Yatirim 30,236,087 1,115
Ege Biracilik Ve Malt Sanayii 12,231,000 2,622
Erciyas Biracilik Ve Malt Sanayii 6,328,000 686
Guney Biracilik Ve Malt Sanayii 1,830,500 116
-----------
4,539
-----------
BROADCASTING & PUBLISHING
Sabah Yayincilik AS 30,998,000 400
-----------
BUILDING MATERIALS & COMPONENTS
Trakya Cam Sanayii AS 6,630,000 336
-----------
FOOD & HOUSEHOLD PRODUCTS
Migros Turk TAS 1,400,000 1,710
Tat Konserve Sanayii AS 3,534,999 530
-----------
2,240
-----------
METALS -- STEEL
Eregli Demir Ve Celik Fabrikalari
TAS 30,215,000 3,622
-----------
TEXTILES & APPAREL
Aksa Akrilik Kimya Sanayii AS --
New 2,293,153 312
Bossa Ticaret Sanayii Isletme 4,315,000 362
-----------
674
-----------
13,958
-----------
- -------------------------------------------------------------
- -------------
UNITED KINGDOM (0.2%)
MULTI-INDUSTRY
Lonrho plc 320,907 687
-----------
- -------------------------------------------------------------
- -------------
VENEZUELA (0.3%)
TELECOMMUNICATIONS
+CANTV ADR 32,655 918
-----------
- -------------------------------------------------------------
- -------------
ZIMBABWE (1.2%)
MULTI-INDUSTRY
+Trans Zambezi Industries Ltd. 1,800,000 4,320
-----------
- -------------------------------------------------------------
- -------------
TOTAL COMMON STOCKS
(Cost U.S. $336,508) 358,895
-----------
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
DEBT INSTRUMENTS (1.9%)
- -------------------------------------------------------------
- -------------
BULGARIA (1.2%)
FOREIGN GOV'T BOND
Republic of Bulgaria Discount Bond
'A' (Euro) 6.6875%, 7/28/24 U.S.$3,750 U.S.$2,130
++Republic of Bulgaria Front
Loaded Interest Reduction Bond
'A' 2.25%, 7/28/12 5,250 2,018
-----------
4,148
-----------
- -------------------------------------------------------------
- -------------
INDIA (0.7%)
CHEMICALS
**Supreme Petrochem Ltd. 2.25%,
4/22/02 INR 60,000 188
-----------
MACHINERY & ENGINEERING
**Bharat Forge Co. Ltd. 7.25%,
3/4/00 1,429 16
-----------
METALS-STEEL
**Shri Ishar Alloy Steels Ltd.
2.85%, 4/21/01 58,100 203
-----------
MULTI-INDUSTRY
**DCM Shriram Industries Ltd.
9.90%, 2/21/01 33,500 445
**DCM Shriram Industries
(Convertible) Ltd. 7.50%,
2/21/02 33,000 348
**Raymond Ltd. 16.00%, 12/31/99 12,359 305
**Somani Pilkington Ltd. 30.00%,
1/4/02 20,725 867
-----------
1,965
-----------
2,372
-----------
- -------------------------------------------------------------
- -------------
POLAND (0.0%)
BRADY BOND
Polish People's Republic Past Due
Interest Bond 3.75%, 10/27/14 U.S.$ 28 24
-----------
- -------------------------------------------------------------
- -------------
TOTAL DEBT INSTRUMENTS
(Cost U.S. $7,299) 6,544
-----------
- -------------------------------------------------------------
- -------------
SHORT-TERM INVESTMENT (2.0%)
REPURCHASE AGREEMENT
Chase Securities, Inc. 5.95%,
dated 12/31/96, due 1/2/97, to
be repurchased at U.S.$7,131,
collateralized by U.S.$6,815
United States Treasury Bond
7.25%, due 5/15/16, valued at
U.S.$7,129 (Cost U.S.$7,129) 7,129 7,129
-----------
- -------------------------------------------------------------
- -------------
FOREIGN CURRENCY ON DEPOSIT WITH CUSTODIAN (0.5%)
Argentine Peso ARP 6 6
Brazilian Real BRL 801 771
Colombian Peso COP 2,284 2
Egyptian Pound EGP 33 10
Hong Kong Dollar HKD 382 49
Indian Rupee INR 31,935 891
Indonesian Rupiah IDR 17,233 7
South Korean Won KRW 40,968 48
Mexican Peso MXP 6 1
Pakistani Rupee PKR 26 1
Peruvian New Sol PSS 4 1
Philippine Peso PHP 682 26
Polish Zloty PLZ 45 16
Taiwan Dollar TWD 1,449 53
-----------
(Cost U.S. $1,886) U.S.$1,882
-----------
- -------------------------------------------------------------
- -------------
TOTAL INVESTMENTS (104.7%)
(Cost U.S. $352,822) 374,450
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
<TABLE>
<CAPTION>
AMOUNT VALUE
(000) (000)
- ---------------------------------------------------------
- ------------
<S> <C> <C>
OTHER ASSETS (1.9%)
Cash U.S.$1,086
Receivable for Investments Sold 4,229
Dividends Receivable 1,076
Interest Receivable 365
Foreign Withholding Tax Reclaim
Receivable 13
Other Assets 77 U.S.$6,846
---------- -----------
- -------------------------------------------------------------
- -------------
LIABILITIES (-6.6%)
Deferred Country Taxes (784 )
Payable for:
Dividends Declared (17,724)
Investments Purchased (4,092)
Investment Advisory Fees (375)
Custodian Fees (275)
Shareholder Reporting Expenses (100)
Professional Fees (87)
Administrative Fees (52)
Directors' Fees and Expenses (51)
Other Liabilities (5) (22,761 )
---------- -----------
- -------------------------------------------------------------
- -------------
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.$357,751
-------------
- -------------------------------------------------------------
- -------------
NET ASSET VALUE PER SHARE U.S.$15.69
-------------
- -------------------------------------------------------------
- -------------
AT DECEMBER 31, 1996, NET ASSETS CONSISTED OF:
- -------------------------------------------------------------
Common Stock U.S.$ 228
Capital Surplus 340,956
Distributions in Excess of Net
Investment Income (1,137 )
Distributions in Excess of Net
Realized Gain (3,081 )
Unrealized Appreciation on
Investments and Foreign Currency
Translations (net of accrued
Indian Tax of U.S.$783 on
unrealized appreciation) 20,785
- -------------------------------------------------------------
- -------------
TOTAL NET ASSETS U.S.$357,751
-------------
</TABLE>
- -----------------------------------------------------------------
- -------------
<TABLE>
<C> <S> <C>
+ -- Non-income producing.
++ -- Step-Bond -- coupon rate increases in increments to
maturity. Rate disclosed is as of December 31, 1996.
Maturity date disclosed is the ultimate maturity.
* -- Security fair valued at cost -- see note A-1 to financial
statements.
** -- Securities (totaling U.S.$45,502 or 12.7% of Net Assets at
December 31, 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
cost.
@ -- The Fund is advised by an affiliate.
# -- 144A Security -- certain conditions for public sale may
exist.
ADR -- American Depositary Receipt.
ADS -- American Depositary Shares.
GDR -- Global Depositary Receipt.
GDS -- Global Depositary Shares.
< < -- Non-voting stock.
</TABLE>
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. In the absence of trading of the
foreign shares in such markets at December 31, 1996, the Fund values the
foreign shares at the closing exchange price of the local shares. Such
securities are reflected as fair valued in the Statement of Net Assets.
<TABLE>
<S> <C> <C>
- ----------------------------------------------------
- -------------
DECEMBER 31, 1996 EXCHANGE RATES:
- ----------------------------------------------------
ARP Argentine Peso 1.000 = U.S. $1.00
BRL Brazilian Real 1.039 = U.S. $1.00
CAD Canadian Dollar 1.370 = U.S. $1.00
COP Colombian Peso 1,006.200 = U.S. $1.00
EGP Egyptian Pound 3.393 = U.S. $1.00
GBP British Pound 0.584 = U.S. $1.00
GRD Greek Drachma 246.710 = U.S. $1.00
HKD Hong Kong Dollar 7.735 = U.S. $1.00
HUF Hungarian Forint 161.700 = U.S. $1.00
IDR Indonesian Rupiah 2,362.000 = U.S. $1.00
INR Indian Rupee 35.850 = U.S. $1.00
ISS Israeli Shekel 3.244 = U.S. $1.00
KRW South Korean Won 845.000 = U.S. $1.00
MAD Moroccan Dirham 8.755 = U.S. $1.00
MUR Mauritius Rupee 19.830 = U.S. $1.00
MXP Mexican Peso 7.885 = U.S. $1.00
PHP Philippines Peso 26.300 = U.S. $1.00
PKR Pakistani Rupee 40.080 = U.S. $1.00
PLZ Polish Zloty 2.867 = U.S. $1.00
PSS Peruvian New Sol 2.612 = U.S. $1.00
THB Thai Baht 25.646 = U.S. $1.00
TRL Turkish Lira 108,450.000 = U.S. $1.00
TWD Taiwan Dollar 27.500 = U.S. $1.00
South African
ZAR Rand 4.679 = U.S. $1.00
- ----------------------------------------------------
- -------------
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACT
INFORMATION:
Under the terms of a forward foreign currency
exchange contract open at December 31, 1996, the
Fund is obligated to deliver foreign currency in
exchange for U.S. dollars as indicated below:
</TABLE>
<TABLE>
<CAPTION>
CURRENCY IN NET
TO EXCHANGE UNREALIZED
DELIVER VALUE SETTLEMENT FOR GAIN
(000) (000) DATE (000) (000)
- ------------ ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
BRL 555 U.S.$534 1/2/97 U.S.$534 U.S.$ --
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
SUMMARY OF TOTAL INVESTMENTS BY INDUSTRY CLASSIFICATIONS -- DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PERCENT
VALUE OF NET
INDUSTRY (000) ASSETS
<S> <C> <C>
- ---------------------------------------------------------------
- ------------
Aerospace & Military Technology U.S.$ 1,239 0.3%
Appliances & Household Durables 4,420 1.2
Automobiles 4,913 1.4
Banking 46,717 13.1
Beverages & Tobacco 28,296 7.9
Broadcasting & Publishing 9,347 2.6
Building Materials & Components 9,442 2.6
Chemicals 21,305 6.0
Construction & Housing 4,599 1.3
Electrical & Electronics 4,363 1.2
Electronic Components & Instruments 1,686 0.5
Energy Equipment & Services 18,917 5.3
Energy Sources 11,989 3.4
Financial Services 4,454 1.2
Food & Household Products 11,247 3.1
Foreign Government Bonds 4,148 1.2
Forest Products & Paper 2,027 0.6
Health & Personal Care 1,792 0.5
Industrial Components 217 0.1
Insurance 2,940 0.8
Machinery & Engineering 165 0.0
Manufacturing 526 0.1
Merchandising 4,908 1.4
Metals -- Steel 5,840 1.6
Miscellaneous Materials & Commodities 199 0.1
Multi-Industry 40,088 11.2
Packaging & Containers 1,891 0.5
Real Estate 16,641 4.7
Recreation & Other Consumer Goods 359 0.1
Telecommunications 60,259 16.8
Textiles & Apparel 1,952 0.6
Transportation -- Road & Rail 904 0.3
Transportation -- Shipping 2,650 0.7
Utilities -- Electrical & Gas 31,774 8.9
Wholesale & International Trade 3,201 0.9
Other 9,035 2.5
------------ -------
U.S.$374,450 104.7%
------------ -------
------------ -------
</TABLE>
- ---------------------------------------------------------
- ------------
SUMMARY OF TOTAL INVESTMENTS BY COUNTRY -- DECEMBER 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
PERCENT
VALUE OF NET
COUNTRY (000) ASSETS
<S> <C> <C>
- ---------------------------------------------------------------
- ------------
Argentina U.S.$ 10,106 2.8%
Brazil 52,925 14.8
Bulgaria 4,148 1.2
Chile 1,775 0.5
China 4,635 1.3
Colombia 1,250 0.3
Egypt 4,936 1.4
Greece 50 0.0
Hong Kong 34,075 9.5
Hungary 1,215 0.3
India 38,343 10.8
Indonesia 25,961 7.3
Israel 10,484 2.9
Korea 26,057 7.3
Mauritius 2,233 0.6
Mexico 36,891 10.3
Morocco 195 0.0
Pakistan 8,884 2.5
Peru 1,066 0.3
Philippines 7,818 2.2
Poland 5,096 1.4
Russia 25,013 7.0
Singapore 1,294 0.4
South Africa 15,635 4.4
Taiwan 7,626 2.1
Thailand 17,845 5.0
Turkey 13,958 3.9
United Kingdom 687 0.2
Venezuela 918 0.3
Zimbabwe 4,320 1.2
United States (short term
investments) 7,129 2.0
Foreign Currency 1,882 0.5
------------ -------
U.S.$374,450 104.7%
------------ -------
------------ -------
</TABLE>
- ---------------------------------------------------------
- ------------
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
STATEMENT OF OPERATIONS (000)
<S> <C>
- ---------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends................................................. U.S.$ 9,370
Interest.................................................. 832
Less: Foreign Taxes Withheld.............................. (961)
- ---------------------------------------------------------------------------------
Total Income............................................ 9,241
- ---------------------------------------------------------------------------------
EXPENSES
Investment Advisory Fees.................................. 4,713
Custodian Fees............................................ 1,119
Administrative Fees....................................... 448
Professional Fees......................................... 218
Shareholder Reporting Expenses............................ 148
Directors' Fees and Expenses.............................. 85
Country Tax Expense....................................... 72
Transfer Agent Fees....................................... 16
Other Expenses............................................ 243
- ---------------------------------------------------------------------------------
Total Expenses.......................................... 7,062
- ---------------------------------------------------------------------------------
Net Investment Income............................... 2,179
- ---------------------------------------------------------------------------------
NET REALIZED GAIN (LOSS)
Investment Securities Sold (net of Indian tax of U.S.$197
on net realized gains)................................... 15,255
Foreign Currency Transactions............................. (447)
- ---------------------------------------------------------------------------------
Net Realized Gain................................... 14,808
- ---------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION
Appreciation on Investments............................... 29,597
Depreciation on Foreign Currency Translations............. (521)
- ---------------------------------------------------------------------------------
Change in Unrealized Appreciation/Depreciation...... 29,076
- ---------------------------------------------------------------------------------
Total Net Realized Gain and Change in Unrealized
Appreciation/Depreciation.................................... 43,884
- ---------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS...... U.S.$46,063
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
STATEMENT OF CHANGES IN NET ASSETS (000) (000)
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net Investment Income............................................... U.S.$2,179 U.S.$999
Net Realized Gain................................................... 14,808 14,603
Change in Unrealized Appreciation/Depreciation...................... 29,076 (72,561)
- ---------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets Resulting from Operations..... 46,063 (56,959)
- ---------------------------------------------------------------------------------------------------------------
Distributions:
Net Investment Income............................................... (23) --
In Excess of Net Investment Income.................................. (1,137) --
Net Realized Gain................................................... (19,211) (29,054)
In Excess of Net Realized Gain...................................... (3,081) --
- ---------------------------------------------------------------------------------------------------------------
Total Distributions................................................. (23,452) (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...................................................... 24,872 11,150
Net Assets:
Beginning of Year................................................... 332,879 321,729
- ---------------------------------------------------------------------------------------------------------------
End of Year (Including distributions in excess of net investment
income and accumulated net investment loss of U.S.$1,137 and
U.S.$1,623, respectively).......................................... U.S.$357,751 U.S.$332,879
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
SELECTED PER SHARE DATA AND --------------------------------------------------------------------------------------------------
RATIOS: 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING
OF YEAR.................... U.S.$ 14.69 U.S.$ 20.30 U.S.$ 28.20 U.S.$ 16.74 U.S.$ 14.71
- --------------------------------------------------------------------------------------------------------------------------------
Offering Costs.............. -- (0.03) (0.02) (0.03) --
- --------------------------------------------------------------------------------------------------------------------------------
Net Investment Income
(Loss)..................... 0.10 0.06 (0.12) -- 0.02
Net Realized and Unrealized
Gain (Loss) on
Investments................ 1.92 (3.14) (1.30) 13.96 2.03
- --------------------------------------------------------------------------------------------------------------------------------
Total from Investment
Operations............ 2.02 (3.08) (1.42) 13.96 2.05
- --------------------------------------------------------------------------------------------------------------------------------
Distributions:
Net Investment Income... -- -- -- -- (0.01)
In Excess of Net
Investment Income..... (0.05) -- -- -- --
Net Realized Gain....... (0.84) (1.29) (6.50) (1.04) (0.01)
In Excess of Net
Realized Gain......... (0.14) -- -- (0.45) --
- --------------------------------------------------------------------------------------------------------------------------------
Total Distributions..... (1.03) (1.29) (6.50) (1.49) (0.02)
- --------------------------------------------------------------------------------------------------------------------------------
Increase (Decrease) in Net
Asset Value from Capital
Share Transactions......... 0.01*** (1.21)+++ 0.04++ (0.98)+ --
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF
YEAR....................... U.S.$ 15.69 U.S.$ 14.69 U.S.$ 20.30 U.S.$ 28.20 U.S.$ 16.74
- --------------------------------------------------------------------------------------------------------------------------------
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PER SHARE MARKET VALUE, END
OF YEAR.................... U.S.$ 13.88 U.S.$ 15.50 U.S.$ 21.50 U.S.$ 31.63 U.S.$ 18.13
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TOTAL INVESTMENT RETURN:
Market Value............ (4.59)% (16.61)%++++ (10.61)% 100.96%++++ 27.38%
Net Asset Value (1)..... 13.84% (16.30)%++++ (5.33)% 95.22%++++ 13.94%
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RATIOS, SUPPLEMENTAL DATA:
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR
(THOUSANDS)................ U.S.$357,751 U.S.$332,879 U.S.$321,729 U.S.$411,975 U.S.$176,904
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average
Net Assets................. 1.87% 1.86% 1.75% 1.85% 2.02%
Ratio of Net Investment
Income (Loss) to Average
Net Assets................. 0.58% 0.30% (0.48)% (0.03)% 0.14%
Portfolio Turnover Rate..... 67% 61% 52% 68% 60%
Average Commission Rate
(2)........................ $0.0006 N/A N/A N/A N/A
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***Increase per share due to reinvestment of distributions.
+Consists of $0.03 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 $0.02 per share increase from reinvestment of distributions and $0.02 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.
++++This return does not include the effect of dilution in connection with the 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. 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)For fiscal years beginning on or after September 1, 1995, a fund is required to disclose the average commission rate per
share it paid for trades on which commissions were charged. For the year ended December 31, 1996, the average commission rate
paid on trades on which commissions were charged was 0.42% of the trade amount.
</TABLE>
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
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The Morgan Stanley Emerging Markets Fund, Inc. (the "Fund") was incorporated
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
15
<PAGE>
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 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 year
ended December 31, 1996, the Fund incurred custody fees of $1,011,000 with the
International Custodian, of which $239,000 was payable to the International
Custodian at December 31, 1996. In addition, for the year ended December 31,
1996, the Fund has earned interest income of $32,000 and incurred interest
expense of $47,000, on balances with the International Custodian. At December
31, 1996, the Fund owned shares of an affiliated fund, for which the Fund earned
dividend income of $194,000.
E. For the year ended December 31, 1996, the Fund made purchases and sales
totaling approximately $243,924,000 and $251,256,000, 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 $124,000 as brokerage commissions to
Morgan Stanley & Co. Incorporated, an affiliate of the Adviser. At December 31,
1996, the U.S. Federal income tax cost basis of securities was $355,664,000 and
accordingly, net unrealized appreciation for U.S. Federal income tax purposes
was $16,904,000, of which $65,928,000 related to appreciated securities and
$49,024,000 related to depreciated securities. For the year ended December 31,
1996, the Fund expects to defer to January 1, 1997 for U.S. Federal income tax
purposes, post-October currency losses of $71,000.
16
<PAGE>
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.
H. A significant portion of the Fund's net assets consist of securities of
issuers 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
issuers may be subject to substantial governmental involvement in the economy
and greater social, economic and political uncertainty. Accordingly, the price
which the Fund may realize upon sale of securities in such markets may not be
equal to its value as presented in the financial statements.
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 December 31, 1996 totaled
$37,000 and are included in Payable for Directors' Fees and Expenses on the
Statement of Net Assets.
J. During December 1996, the Board declared a distribution of $0.05 per share,
derived from net investment income and $0.73 per share, derived from net
realized gains, payable on January 9, 1997, to shareholders of record on
December 31, 1996.
- --------------------------------------------------
FEDERAL INCOME TAX INFORMATION (UNAUDITED):
For the year ended December 31, 1996, the Fund designates $16,212,000 as
long-term capital gain and expects to pass through to shareholders foreign tax
credits of approximately $1,225,000. In addition, for the year ended December
31, 1996, gross income derived from sources within foreign countries amounted to
$9,539,000.
17
<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, 1996,
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 five years in the period then ended, 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, 1996 by
correspondence with the custodians and brokers and the application of
alternative auditing procedures where confirmations from brokers 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 10, 1997
18
<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
19
