- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
MORGAN STANLEY
EMERGING MARKETS
FUND, INC.
- --------------------------------------------------------------------------------
THIRD QUARTER REPORT
SEPTEMBER 30, 1998
MORGAN STANLEY ASSET MANAGEMENT INC.
INVESTMENT ADVISER
MORGAN STANLEY
EMERGING MARKETS FUND, INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DIRECTORS AND OFFICERS
Barton M. Biggs
CHAIRMAN OF THE BOARD
OF DIRECTORS
Michael F. Klein
PRESIDENT AND DIRECTOR
Peter J. Chase
DIRECTOR
John W. Croghan
DIRECTOR
David B. Gill
DIRECTOR
Graham E. Jones
DIRECTOR
John A. Levin
DIRECTOR
William G. Morton, Jr.
DIRECTOR
Stefanie V. Chang
VICE PRESIDENT
Harold J. Schaaff, Jr.
VICE PRESIDENT
Joseph P. Stadler
VICE PRESIDENT
Valerie Y. Lewis
SECRETARY
Joanna M. Haigney
TREASURER
Belinda A. Brady
ASSISTANT TREASURER
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- --------------------------------------------------------------------------------
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
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CUSTODIANS
Morgan Stanley Trust Company
One Pierrepont Plaza
Brooklyn, New York 11201
The Chase Manhattan Bank
3 Chase MetroTech Center
Brooklyn, New York 11245
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICING AGENT
Boston Equiserve
Investor Relations Department
P.O. Box 644
Boston, Massachusetts 02102-0644
(800) 730-6001
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LEGAL COUNSEL
Rogers & Wells LLP
200 Park Avenue
New York, New York 10166
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INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
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- --------------------------------------------------------------------------------
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.
<PAGE>
LETTER TO SHAREHOLDERS
- --------
For the nine months ended September 30, 1998, the Morgan Stanley Emerging
Markets Fund, Inc. (the "Fund") had a total return, based on net asset value per
share, of -30.35% compared with -32.24% for the IFC Global Total Return
Composite Index (the "Index"). For the one year ended September 30, 1998, and
for the period from commencement of operations on November 1, 1991 through
September 30, 1998, the Fund's total return, based on net asset value per share,
was -44.54% and 44.78%, respectively, compared with -45.66% and -3.59%,
respectively, for the Index. On September 30, 1998, the closing price of the
Fund's shares on the New York Stock Exchange was 6 7/8, representing a 23.1%
discount to the Fund's net asset value per share.
The poor returns in emerging markets equities over the last 5 years and
especially the last 12 months have been extremely disappointing to investors.
Is the emerging markets asset class fundamentally flawed and destined to further
underperformance? We firmly believe it is not and that the case for investing
in emerging markets over the next few years has never been stronger.
All asset classes go through investment cycles. After a long period of
out-performance, emerging market equities have gone through a long period of
underperformance. This cycle has been more extreme than most given the nascent
nature of these markets and the furious pace of capital flows. Emerging markets
are riskier than developed markets, but this is a difference of degree and not
of kind. The fundamental investment cycles are the same.
At the moment we believe that we are close to a bottom in this cycle.
Therefore, this is not the time for long term money to be withdrawing from the
asset class. History shows that investing in times of fear is usually well
rewarded.
The third quarter was an extremely disappointing quarter for investors in the
emerging markets. The crisis in the Russian financial system and the imposition
of capital controls in Malaysia set the tone for another quarter of poor
returns. The Fund's net asset value per share fell 24.22% compared with a
decline of 19.48% for the Index. Underperformance relative to the Index was
largely driven by our overweight positions in Hungary (-33.7%), Poland (-26.6%),
and Turkey (-47.4%) coupled with our underweight exposure to Greece (-4.1%).
Notable contributors to performance included our overweight positions in Asia.
Specifically, overweighting India (-4.9%), Pakistan (+18.6%), Korea (+6.5%), and
Thailand (+6.3%) helped performance.
Jitters over upcoming elections and currency vulnerabilities resulted in
negative returns throughout the Latin region (-24.7%). Argentina fell the least
within the region, posting a decline of 15.6%. Colombia was the worst
performing Latin market, plunging 37.9%. Most investors focused on Brazil
(-28.6%) during the third quarter, wondering if its currency would devalue,
particularly after the Russian ruble collapsed in August. Brazil's currency is
particularly vulnerable given its large and growing fiscal deficit. At 7% of
gross domestic product, Brazil's fiscal deficit is the largest within Latin
America. Given our concerns with respect to its currency and fiscal matters, we
trimmed 3% from our Brazilian exposure. With the Presidential election now over
(early-October) and President Cardoso re-elected, it is critical that fiscal
inadequacies are addressed, thereby reducing currency pressures.
Mexico fell 22.6% during the third quarter. Investors worried that government
spending cuts, diminished U.S. growth, price competition from Asian exports, and
curtailed demand in Asia, would stem Mexican corporate earnings growth. The
market recovered in September, gaining 19.1% as the possibility of a bailout
package for Brazil spurred Mexico's market. We added approximately 2% to our
Mexican weighting.
Asia fell 14.3% led by Malaysia (-39.8%), Indonesia (-28.0%), and the
Philippines (-25.5%). The better performing Asian markets included Pakistan
(+18.6%), Korea (+6.5%), Thailand (+6.3%), and India (-4.9%). Over the next
year, we expect to see a continuation of this differentiation between the
winners and losers within the emerging markets and particularly Asia.
Malaysia's Prime Minister Mahatir shocked the investment community by imposing
strict capital controls on September 1st. The government fixed the exchange
rate at 3.8 ringgit/ U.S. dollar and required foreign investors to lock in
capital for at least one year before repatriation. Given the options of either
holding our equity positions or raising some cash, we chose the former. We
believe that a portfolio of the soundest companies in Malaysia will outperform
ringgit time deposits over the next twelve months.
The indication that India and Pakistan would sign the nuclear test-ban treaty
resulting in the easing of U.S. economic sanctions improved market sentiment.
Korea and Thailand's markets rose with confidence as their governments continue
to introduce policy measures to boost their economies. South Korea's government
set up a $2.3 billion fund with an aim to boost corporate investment and
domestic demand. Thailand's government is focusing on combating the problem of
non-performing loans through the approval of tax exemptions for those companies
which restructure delinquent loans.
Within Emerging Europe, the Middle-East, and Africa, the most notable market
event was the financial disaster experienced by Russia. After the $22 billion
IMF stabilization
2
<PAGE>
loan failed to turn investor sentiment around, the Russian government was forced
into action. The deteriorating situation included waning foreign exchange
reserves, soaring yields on short-term ruble debt, plunging commodity prices and
a banking sector besieged with foreign currency debts and maturing forward
contracts. The end result included a devaluation, a forced debt conversion, a
foreign debt moratorium, and increased political instability as Yeltsin sacked
his newest cabinet.
Over the course of the third quarter, we trimmed our Russian holdings by 2%,
Turkish holdings by 2%, and South African holdings by 1%. At quarter-end, we
were market-weight in Russia. We are overweight Turkey as its government is
committed to reform, and underweight South Africa as the macro story has been
lackluster, although corporate restructuring is taking place.
The emerging markets have significantly underperformed other asset classes over
the last few years and particularly recently. Uncertainty in Russia and near
term risks in China, Hong Kong and Brazil coupled with the currently volatile
equity environment in the U.S. and Europe make us cautious for the rest of 1998.
We believe, however, that flows into emerging markets funds will pick up over
the course of 1999 for the following reasons: 1) better macroeconomic and
regulatory management, 2) increased focus on ROI and shareholder value leading
to higher earnings per share, 3) return of high gross domestic product growth,
4) extreme equity under-valuation, and 5) reversal of negative sentiment and
capital flows.
We cannot predict exactly when the emerging markets will bottom out. Currently
we are nervous that Brazil may not be able to deliver the strong fiscal
adjustment that the country needs and the market is demanding. In addition,
developed markets are experiencing very high volatility which no market can
escape in the short run. But the markets have priced in the bad events of the
previous years and most of the potential risks.
The recent crisis in emerging markets should be viewed as growing pains and not
a fundamental shift in the emerging markets concept. Most governments are
becoming more democratic and have accepted the challenge to lay the foundations
for better and sounder growth. Stocks are cheap, company management are
becoming more focused on ROI, and the capital markets will demand greater
transparency, efficiency and higher returns.
Emerging markets make up 84% of the world's population, about 18% of the world's
economy, and roughly 9% of the market capitalization. The opportunity set for
emerging markets has not become smaller. More than 125 companies and five more
countries are currently included in the MSCI Emerging Markets Index than were
included five years ago.
Looking forward, stock market returns will be the product of 1) earnings growth
2) price-earnings multiple changes and 3) currency movements. Increasing focus
on ROI coupled with the return of high gross domestic product growth should lead
to higher earnings. Sounder institutions and policies coupled with a reversal
of negative sentiment should lead to higher multiples. And, most of these
currencies are now undervalued. The result should be higher returns.
On July 30, 1998, the Fund commenced a share repurchase program for purposes of
enhancing shareholder value and reducing the discount at which the Fund's shares
traded from their net asset value. From that date through September 30, 1998,
the Fund repurchased 606,700 shares of its Common Stock at an average price per
share of $7.93 and an average discount of 19.89% from net asset value per share.
The Fund will continue to repurchase its outstanding shares at such time and in
such amounts as it believes will further the accomplishment of the foregoing
objectives, subject to review by the Board of Directors. We will update you on
the progress of the repurchase program in future shareholder reports.
The information contained in this overview regarding specific securities is for
informational purposes only and should not be construed as a recommendation to
purchase or sell the securities mentioned.
Sincerely,
/s/ Michael F. Klein
Michael F. Klein
PRESIDENT AND DIRECTOR
October 1998
- --------------------------------------------------------------------------------
Effective October 1998, Andy Skov has joined Robert Meyer in assuming primary
responsibility for the day-to-day management of the Fund's assets. Andy Skov
joined Morgan Stanley Asset Management ("MSAM") in 1994 as a Portfolio Manager.
Currently, he is a Principal of MSAM and of Morgan Stanley & Co. Prior to
joining MSAM, he worked in the Latin America group at Bankers Trust in corporate
finance, research and sales; two of those years he spent in Argentina. He
graduated from the University of California Berkeley with a B.A. (Phi Beta
Kappa) in Political Science and Economic Development.
3
<PAGE>
Morgan Stanley Emergin Markets Fund, Inc.
Investment Summary as of September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HISTORICAL
INFORMATION TOTAL RETURN (%)
-----------------------------------------------------------------------
MARKET VALUE (1) NET ASSET VALUE (2) INDEX (3)
---------------------- ----------------------- ----------------------
AVERAGE AVERAGE AVERAGE
CUMULATIVE ANNUAL CUMULATIVE ANNUAL CUMULATIVE ANNUAL
----------- -------- ---------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Fiscal Year to Date -36.43% -- -30.35% -- -32.24% --
One Year -51.86 -51.86% -44.54 -44.54% -45.66 -45.66%
Five Year -42.95+ -10.62+ -14.70+ -3.13+ -25.11+ -5.62+
Since Inception* 11.21+ 1.55+ 44.78+ 5.49+ -3.59+ -0.53+
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
- --------------------------------------------------------------------------------
RETURNS AND PER SHARE INFORMATION
[GRAPH]
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS
ENDED
SEPTEMBER 30,
1991* 1992 1993 1994 1995 1996 1997 1998
------ ------ ------ ------ ------ ------ ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value Per Share . . . $14.71 $16.74 $28.20 $20.30 $14.69 $15.69 $15.52 $ 8.95
Market Value Per Share . . . . $14.25 $18.13 $31.63 $21.50 $15.50 $13.88 $13.06 $ 6.88
Premium/(Discount). . . . . . . -3.1% 8.3% 12.2% 5.9% 5.5% -11.5% -15.9% -23.1%
Income Dividends. . . . . . . . $ 0.04 $ 0.01 -- -- -- $ 0.05 $ 0.01 $ 0.11
Capital Gains Distributions . . -- $ 0.01 $ 1.49 $ 6.50 $ 1.29 $ 0.98 $ 0.01 $ 2.18
Fund Total Return (2) . . . . . 4.61% 13.94% 95.22%+ -5.33% -16.30%+ 13.84% -0.97% -30.35%
Index Total Return (3). . . . . 3.25% 0.33% 67.52% -0.51% -12.34% 7.84% -14.42% -32.24%
</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 of developing countries in Latin America, East and South Asia,
Europe, the Middle East and Africa, including dividends.
* The Fund commenced operations on November 1, 1991.
+ This return does not include the effect of the rights issued in connection
with the Rights Offering.
4
<PAGE>
Morgan Stanley Emerging Markets Fund, Inc.
Portfolio Summary as of September 30, 1998 (Unaudited)
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- --------------------------------------------------------------------------------
DIVERSIFICATION OF TOTAL INVESTMENT
[CHART]
<TABLE>
<S> <C>
Debt Instruments (0.2%)
Equity Securities (91.5%)
Short-Term Investments (8.3%)
</TABLE>
- --------------------------------------------------------------------------------
SECTORS
[CHART]
<TABLE>
<S> <C>
Other (29.7%)
Utilities - Electrical & Gas (4.7%)
Telecommunications (22.6%)
Banking (5.3%)
Beverages & Tobacco (8.1%)
Broadcasting & Publishing (3.2%)
Chemicals (3.1%)
Electronic Components & Instruments (9.0%)
Energy Sources (6.7%)
Metals (3.3%)
Multi-Industry (4.3%)
</TABLE>
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COUNTRY WEIGHTINGS
[CHART]
<TABLE>
<S> <C>
Other (28.6%)
Poland (3.9%)
Turkey (4.1%)
Israel (4.7%)
Argentina (4.8%)
South Africa (6.4%)
Mexico (12.7%)
Brazil (10.7%)
India (10.6%)
Taiwan (7.1%)
Korea (6.4%)
</TABLE>
- --------------------------------------------------------------------------------
TEN LARGEST HOLDINGS
<TABLE>
<CAPTION>
PERCENT OF
NET ASSETS
----------
<S> <C>
1. Telmex (Mexico) 5.1%
2. Pohang Iron & Steel Co., Ltd. (Korea) 2.4
3. Bharat Heavy Electricals Ltd. (India) 2.3
4. Telebras (Brazil) 2.2
5. FEMSA (Mexico) 2.2
6. Televisa (Mexico) 2.2
7. Samsung Electronics Co. (Korea) 2.1
8. Pakistan Telecommunications Corp. (Pakistan) 2.1
9. Cemig (Brazil) 1.9
10. Taiwan Semiconductor Co. (Taiwan) 1.8
----
24.3%
----
----
</TABLE>
5
<PAGE>
FINANCIAL STATEMENTS
- --------
STATEMENT OF NET ASSETS
- --------
SEPTEMBER 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- -----------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (93.9%)
(Unless otherwise noted)
- -----------------------------------------------------------------------------
ARGENTINA (4.8%)
AUTOMOBILES
CIADEA 1 U.S.$ --@
------------
ENERGY SOURCES
YPF ADR 123,778 3,218
------------
TELECOMMUNICATIONS
Telecom Argentina ADR 94,489 2,805
Telefonica Argentina ADR 118,069 3,476
------------
6,281
------------
9,499
------------
- -----------------------------------------------------------------------------
BRAZIL (10.7%)
BANKING
Banco Nacional (Preferred) 61,598,720 3
Unibanco (Preferred) GDR 65,612 886
------------
889
------------
BEVERAGES & TOBACCO
Brahma (Preferred) 3,278,209 1,286
Brahma (Preferred) ADR 3,454 27
------------
1,313
------------
ENERGY SOURCES
Petrobras (Preferred) 12,762,999 1,314
(a)Petrobras (Preferred) ADR 22,595 230
------------
1,544
------------
FOOD & HOUSEHOLD PRODUCTS
Pao de Acucar (Preferred) 6,460,000 86
(a)Pao de Acucar (Preferred) ADR 19,305 254
------------
340
------------
MERCHANDISING
Lojas Arapua (Preferred) 30,412,000 8
(a)Lojas Arapua (Preferred) ADR 31,540 12
Lojas Renner (Preferred) 14,237,000 192
------------
212
------------
METALS -- NON-FERROUS
CVRD (Preferred) 16,102 238
CVRD (Preferred) 'A' 29,484 423
CVRD (Preferred) ADR 44,219 645
------------
1,306
------------
TELECOMMUNICATIONS
CRT (Preferred) 'A' 8,932,576 2,690
Embratel (Preferred) 28,703,945 303
Tele Celular Sul (Preferred) 28,703,945 40
Tele Centro Oeste Celular (Preferred) 28,703,945 21
Tele Centro-Sul (Preferred) 28,703,945 303
Tele Leste Celular (Preferred) 28,703,945 11
Tele Nordeste Celular (Preferred) 28,703,945 16
Tele Norte Celular (Preferred) 28,703,945 8
Tele Norte-Leste (Preferred) 28,703,945 334
Tele Sudeste Celular (Preferred) 28,703,945 90
Telebras (Preferred) 28,703,945 10
Telebras (Preferred) ADR 29,946 2,066
Telebras Holders 33,579 2,365
Telecom Brasil (Preferred) ADR 14,504,000 1,011
Telemig Celular (Preferred) 28,703,945 21
Telerj Celular (Preferred) 'B' 3,756,000 82
Telesp (Preferred) 1,698,000 246
Telesp (Preferred) 21,546,945 518
Telesp Celular (Preferred) 28,703,945 194
Telesp Celular (Preferred) 'B' 16,867,313 697
------------
11,026
------------
TEXTILES & APPAREL
Coteminas 2,200,500 258
(a)Coteminas ADR 23,460 137
------------
395
------------
UTILITIES -- ELECTRICAL & GAS
Cemig (Preferred) 119,369,169 2,598
Cemig (Preferred) ADR 44,068 974
(a)Cemig (Preferred) ADR 9,209 201
Eletrobras 7,602,000 158
Eletrobras (Preferred) 'B' 15,477,000 342
------------
4,273
------------
21,298
------------
- -----------------------------------------------------------------------------
CHILE (0.7%)
BEVERAGES & TOBACCO
CCU ADR 28,420 522
------------
MERCHANDISING
Santa Isabel ADR 13,022 74
------------
UTILITIES --- ELECTRICAL & GAS
Endesa ADR 17,235 147
Enersis ADR 30,835 628
------------
775
------------
1,371
------------
- -----------------------------------------------------------------------------
CHINA (1.0%)
ENERGY SOURCES
Yanzhou Coal
Mining Co., Ltd. ADR 74,130 640
Zhenhai Refining & Chemical Co., Ltd. 'H' 4,178,000 798
------------
1,438
------------
UTILITIES -- ELECTRICAL & GAS
Huaneng Power International, Inc. ADR 49,965 512
------------
1,950
------------
- -----------------------------------------------------------------------------
COLOMBIA (0.0%)
BANKING
Bancolombia (Preferred) 6,249 10
------------
- -----------------------------------------------------------------------------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- -----------------------------------------------------------------------------
<S> <C> <C>
EGYPT (2.1%)
BANKING
Commercial International Bank 30,373 U.S.$ 283
------------
BEVERAGES & TOBACCO
Al-Ahram Beverages Co. 3,848 242
Al-Ahram Beverages Co. GDR 12,000 376
Eastern Tobacco 31,090 702
------------
1,320
------------
BUILDING MATERIALS & COMPONENTS
Ameriyah Cement Co. 100 2
Helwan Portland Cement Co. 26,780 400
Suez Cement Co. GDR 16,230 234
------------
636
------------
CHEMICALS
Egyptian Finance & Industrial Co. 29,700 523
Paints & Chemical Industries 2,000 54
Paints & Chemical Industries GDR 55,700 461
------------
1,038
------------
MULTI-INDUSTRY
Industrial & Engineering Enterprises Co. 11,690 192
------------
REAL ESTATE
Madinet Nasr Housing & Development 7,000 305
------------
UTILITIES -- Electrical & Gas
Egypt Gas Co. 5,500 497
------------
4,271
------------
- -----------------------------------------------------------------------------
GREECE (2.9%)
BANKING
National Bank of Greece 2,840 383
------------
BEVERAGES & TOBACCO
Hellenic Bottling Co. 16,010 395
------------
ENERGY SOURCES
Helenic Petroleum 55,470 472
------------
TELECOMMUNICATIONS
Hellenic Telecommunication Organization 131,781 3,160
STET Hellas Telecommunications ADR 44,810 1,389
------------
4,549
------------
5,799
------------
- -----------------------------------------------------------------------------
HONG KONG (0.9%)
BROADCASTING & PUBLISHING
South China Morning Post (Holdings) Ltd. 1,143,000 450
------------
TELECOMMUNICATIONS
China Telecom Ltd. 514,000 809
------------
UTILITIES -- ELECTRICAL & GAS
Zhejiang Expressway Co., Ltd. 'H' 3,203,000 558
------------
1,817
------------
- -----------------------------------------------------------------------------
HUNGARY (3.1%)
BANKING
OTP Bank Rt. 23,250 660
------------
ENERGY SOURCES
MOL Magyar Olaj-es Gazipari Rt. GDR 159,110 3,059
------------
HEALTH & PERSONAL CARE
Richter Gedeon Rt. 3,733 115
Richter Gedeon Rt. GDR 12,850 360
------------
475
------------
TELECOMMUNICATIONS
Matav Rt. 139,810 616
Matav Rt. ADR 66,435 1,441
------------
2,057
------------
6,251
------------
- -----------------------------------------------------------------------------
INDIA (10.4%)
AUTOMOBILES
Apollo Tyres Ltd. 8,450 14
Bajaj Auto Ltd. 110,300 1,677
Hero Honda Ltd. 171,100 2,577
MRF Ltd. 10,000 377
Tata Engineering & Locomotive Ltd. 729 2
------------
4,647
------------
BANKING
State Bank of India Ltd. 116,250 549
------------
BEVERAGES & TOBACCO
ITC Ltd. 140,502 2,289
------------
BUILDING MATERIALS & COMPONENTS
ITW Signode India Ltd. 136,800 248
------------
CHEMICALS
Reliance Industries Ltd. 1,349 4
------------
ELECTRONIC COMPONENTS & INSTRUMENTS
Infosys Technology Ltd. 30,000 1,774
------------
ENERGY EQUIPMENT & SERVICES
Bharat Heavy Electricals Ltd. 692,100 4,587
------------
ENERGY SOURCES
Bharat Petroleum Corp., Ltd. 39,500 245
Bharat Petroleum Corp., Ltd. - New 2,500 15
Hindustan Petroleum Corp., Ltd. 33,000 227
------------
487
------------
FINANCIAL SERVICES
Housing Development Finance Corp., Ltd. 17,932 1,022
------------
HEALTH & PERSONAL CARE
Hindustan Lever Ltd. 29,500 1,169
Hoechst Marion Roussel India Ltd. 50,000 488
------------
1,657
------------
- -----------------------------------------------------------------------------
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- -----------------------------------------------------------------------------
<S> <C> <C>
INDIA (CONTINUED)
MACHINERY & ENGINEERING
Larsen & Toubro Ltd. 27,400 U.S.$ 119
Larsen & Toubro Ltd. GDR 60,000 512
------------
631
------------
MULTI-INDUSTRY
(b)Morgan Stanley Growth Fund 6,881,800 973
------------
TRANSPORTATION -- ROAD & RAIL
Container Corp. of India Ltd. 221,500 1,827
------------
20,695
------------
- -----------------------------------------------------------------------------
INDONESIA (0.8%)
BEVERAGES & TOBACCO
Gudang Garam 937,160 501
------------
ENERGY SOURCES
Gulf Indonesia Resources Ltd. 15,800 131
------------
FOREST PRODUCTS & PAPER
Indah Kait Pulp & Paper 2,902,405 414
------------
TELECOMMUNICATIONS
Telekomunikasi Indonesia 3,103,000 442
Telekomunikasi Indonesia ADR 34,170 101
------------
543
------------
1,589
------------
- -----------------------------------------------------------------------------
ISRAEL (4.7%)
BANKING
Bank Hapoalim Ltd. 468,001 1,142
First International Bank of Israel '5' 139,929 745
------------
1,887
------------
ELECTRICAL & ELECTRONICS
Elbit Systems Ltd. 1 --@
Elron Electronic Industries Ltd. 12,956 190
Nice Systems Ltd. 4,294 81
Nice Systems Ltd. ADR 18,120 267
Tadiran Ltd. 7,994 221
Tadiran Ltd. ADR 7,886 220
Tadiran Telecommunications Ltd. 24,710 337
------------
1,316
------------
ELECTRONIC COMPONENTS, INSTRUMENTS
Orbotech Ltd. 35,874 1,155
------------
ENERGY SOURCES
Dor Energy 1988 Ltd. GDR 42,500 158
------------
HEALTH & PERSONAL CARE
Teva Pharmaceutical Industries Ltd. ADR 17,260 654
------------
MERCHANDISING
Super Sol Ltd. 657,589 1,860
------------
MULTI-INDUSTRY
Koor Industries Ltd. 29,084 2,426
------------
9,456
------------
- -----------------------------------------------------------------------------
KOREA (6.4%)
APPLIANCES & HOUSEHOLD DURABLES
Samsung Electronics Co. 153,950 4,207
Samsung Electronics Co. (Rights) 295 --
Samsung Electronics Co. GDR - New 3,072 36
------------
4,243
------------
BUILDING MATERIALS & COMPONENTS
Hankuk Glass Industry Co., Ltd. 43,000 587
------------
ELECTRONIC COMPONENTS & INSTRUMENTS
S1 Corp. 8,124 941
------------
METALS -- STEEL
Pohang Iron & Steel Co., Ltd. 124,700 4,864
------------
TELECOMMUNICATIONS
SK Telecom Co., Ltd. 2,160 1,000
------------
UTILITIES -- ELECTRICAL & GAS
Korea Electric Power Corp. 77,260 1,072
------------
12,707
------------
- -----------------------------------------------------------------------------
MALAYSIA (1.9%)
BEVERAGES & TOBACCO
Rothmans of Pall Mall Bhd 138,200 540
------------
ENERGY SOURCES
Petronas Gas Bhd 348,000 534
------------
FOOD & HOUSEHOLD PRODUCTS
Nestle Bhd 109,000 353
------------
LEISURE & TOURISM
Genting Bhd 197,400 331
------------
MISCELLANEOUS MATERIALS & COMMODITIES
Kuala Lumpur Kepong Bhd 316,000 320
------------
TELECOMMUNICATIONS
Technology Resources Industries Bhd 86,000 25
Telekom Malaysia Bhd 856,000 1,223
------------
1,248
------------
UTILITIES -- ELECTRICAL & GAS
Tenaga Nasional Bhd 585,000 510
------------
3,836
------------
- -----------------------------------------------------------------------------
MEXICO (12.7%)
BANKING
Banacci 'B' 565,790 499
Banacci 'L' 45,447 44
Bancomer 'B' 207,250 37
(a)Bancomer 'B' ADR 29,660 107
------------
687
------------
BEVERAGES & TOBACCO
FEMSA 1,433,575 2,797
FEMSA ADR 82,796 1,625
------------
4,422
------------
- -----------------------------------------------------------------------------
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- -----------------------------------------------------------------------------
<S> <C> <C>
MEXICO (CONTINUED)
BROADCASTING & PUBLISHING
Televisa CPO GDR 224,437 U.S.$ 4,335
TV Azteca ADR 35,401 232
------------
4,567
------------
BUILDING MATERIALS & COMPONENTS
Cemex 'B' 42,120 104
Cemex 'B' ADR 76,146 378
Cemex CPO 434,665 955
Cemex CPO ADR 171,119 747
------------
2,184
------------
HEALTH & PERSONAL CARE
Kimberly 'A' 760,391 1,827
------------
MERCHANDISING
Cifra 'C' 274,489 315
Cifra 'V' 556,600 628
Cifra 'V' ADR 35,100 427
------------
1,370
------------
MULTI-INDUSTRY
Grupo Carso 'A1' 68,430 194
------------
TELECOMMUNICATIONS
Telmex "L" ADR 228,544 10,113
------------
25,364
------------
- -----------------------------------------------------------------------------
PAKISTAN (3.1%)
CHEMICALS
Fauji Fertilizer Co., Ltd. 1,335,700 1,247
------------
ENERGY SOURCES
Pakistan State Oil Co., Ltd. 166,918 291
------------
TELECOMMUNICATIONS
Pakistan Telecommunications Corp. 7,388,700 3,801
Pakistan Telecommunications Corp. GDR 7,650 348
------------
4,149
------------
UTILITIES -- ELECTRICAL & GAS
Hub Power Co. 743,000 208
Sui Northern Gas Co. 886,995 179
------------
387
------------
6,074
------------
- -----------------------------------------------------------------------------
PHILIPPINES (1.6%)
BEVERAGES & TOBACCO
San Miguel Corp. 'B' 569,910 736
------------
MULTI-INDUSTRY
Ayala Corp. 1,241,620 140
------------
REAL ESTATE
SM Prime Holdings, Inc. 'B' 3,862,580 477
------------
TELECOMMUNICATIONS
Philippine Long Distance Telephone Co. 51,015 1,073
Philippine Long Distance Telephone Co. ADR 6,000 121
------------
1,194
------------
UTILITIES -- ELECTRICAL & GAS
Manila Electric Co. 'B' 329,490 629
------------
3,176
------------
- -----------------------------------------------------------------------------
POLAND (3.9%)
BANKING
Bank Bandlowy W Warszawie GDR 19,890 205
Bank Handlowy W Warszawie 28,935 298
Bank Rozwoju Eksportu 15,005 252
Bank Slaski 8,300 407
BIG Bank Gdanski 192,900 167
BIG Bank Gdanski GDR 60,000 750
------------
2,079
------------
CHEMICALS
Eastbridge 33,600 2,259
Polifarb Cieszyn - Wroclaw 69,292 97
------------
2,356
------------
CONSTRUCTION & HOUSING
Exbud 10,554 81
Exbud GDR 35,110 270
------------
351
------------
DATA PROCESSING & REPRODUCTION
Prokom GDR 42,110 750
------------
FOOD & HOUSEHOLD PRODUCTS
Agros Holdings 'C' 30,360 170
------------
INDUSTRIAL COMPONENTS
Debica 24,000 416
------------
WHOLESALE & INTERNATIONAL TRADE
Elektrim 154,920 1,570
------------
7,692
------------
- -----------------------------------------------------------------------------
RUSSIA (0.7%)
BROADCASTING & PUBLISHING
Storyfirst Communications, Inc. 'C' (Preferred) 270 49
Storyfirst Communications, Inc. 'D' (Preferred) 720 129
Storyfirst Communications, Inc. 'E' (Preferred) 780 140
StoryFirst Communications, Inc. 'F' (Preferred) 139 50
Storyfirst Communications, Inc., First Section,
Tranche I (Convertible) 604 109
Storyfirst Communications, Inc., First Section,
Tranche I (Convertible) 35 6
- -----------------------------------------------------------------------------
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- -----------------------------------------------------------------------------
<S> <C> <C>
RUSSIA (CONTINUED)
Storyfirst Communications, Inc., Second
Section, Tranche II (Convertible) 152 U.S.$ 27
Storyfirst Communications, Inc.,
Tranche IV (Convertible) 207 37
------------
547
------------
ENERGY SOURCES
Surgutneftegaz ADR 50,337 50
------------
FOREST PRODUCTS & PAPER
Alliance Cellulose Ltd. 'B' 156,075 186
------------
MULTI-INDUSTRY
(a)Pliva d.d. GDR 24,150 324
------------
TELECOMMUNICATIONS
Global Tele-Systems Ltd. 9,994 337
Russian Telecom Development Corp. 176,000 18
Vimpel-Communications ADR 2,625 14
------------
369
------------
1,476
------------
- -----------------------------------------------------------------------------
SOUTH AFRICA (6.4%)
BANKING
Coronation Holdings Ltd. 'N' - New 19,700 217
------------
BEVERAGES & TOBACCO
South African Breweries Ltd. 50,640 763
------------
BROADCASTING & PUBLISHING
Primedia Ltd. 98,500 246
------------
BUSINESS & PUBLIC SERVICES
Educor 476,114 567
Persetel Holdings Ltd. 149,100 1,240
------------
1,807
------------
CHEMICALS
SASOL Ltd. 327,730 1,503
SASOL Ltd. 8.50% (Convertible Preferred) 3,200 13
------------
1,516
------------
FINANCIAL SERVICES
B.O.E. Corp. Ltd. 'N' 1,927,985 1,230
BOE Ltd. 646,278 472
------------
1,702
------------
FOOD & HOUSEHOLD PRODUCTS
Illovo Sugar Ltd. 387,500 323
------------
INSURANCE
Forbes Group Ltd. 96,600 136
Liberty Life Association of Africa Ltd. 78,178 1,185
------------
1,321
------------
MERCHANDISING
Ellerine Holdings Ltd. 239,880 535
------------
METALS -- STEEL
Iscor Ltd. 3,061,609 688
------------
MISCELLANEOUS MATERIALS & COMMODITIES
Malbak Ltd. 8,500 3
------------
MULTI-INDUSTRY
Bidvest Group Ltd. 140,776 850
(b)Morgan Stanley Africa Investment Fund, Inc. 74,015 689
New Africa Investments Ltd. (Preferred) 'N' 1,225,000 575
Rembrandt Group Ltd. 124,805 753
Woolworths Holdings Ltd. 781,100 366
------------
3,233
------------
RETAIL -- MAJOR DEPARTMENT STORES
Protea Furnishers Ltd. 673,671 292
------------
12,646
------------
- -----------------------------------------------------------------------------
TAIWAN (7.1%)
BANKING
Chinatrust Commercial Bank 233,432 146
------------
ELECTRONIC COMPONENTS & INSTRUMENTS
Asustek Computer, Inc. 242,500 1,689
Asustek Computer, Inc. (Rights) 478 1
Compal Electronics 878,465 2,601
Compeq Manufacturing Co., Ltd. 112,000 650
Hon Hai Precision Industry 520,800 2,313
Siliconware Precision Industries Co. 1,490,800 2,155
Taiwan Semiconductor Co. 1,904,000 3,648
------------
13,057
------------
MERCHANDISING
President Chain Store Corp. 338,608 988
------------
14,191
------------
- -----------------------------------------------------------------------------
THAILAND (3.1%)
BANKING
Bangkok Bank Public Co., Ltd. (Foreign) 559,400 530
Siam Commercial Bank Co. Ltd. (Foreign)
(Warrants), expiring 12/31/02 280,333 --
------------
530
------------
BROADCASTING & PUBLISHING
BEC World Public Co., Ltd. (Foreign) 134,900 641
------------
BUILDING MATERIALS & COMPONENTS
Siam City Cement Public Co., Ltd. (Foreign) 210,500 330
------------
ELECTRICAL & ELECTRONICS
Shinawatra Computer Co., Ltd. (Foreign) 223,900 691
------------
ELECTRONIC COMPONENTS & INSTRUMENTS
Delta Electronics Public Co., Ltd. (Foreign) 165,800 956
------------
ENERGY SOURCES
PTT Exploration & Production Public Co.,
Ltd. (Foreign) 161,500 1,421
------------
- -----------------------------------------------------------------------------
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- -----------------------------------------------------------------------------
<S> <C> <C>
THAILAND (CONTINUED)
TELECOMMUNICATIONS
Advanced Information Services Co., Ltd.
(Foreign) 279,600 U.S.$ 1,598
------------
6,167
------------
- -----------------------------------------------------------------------------
TURKEY (4.1%)
APPLIANCES & HOUSEHOLD DURABLES
Vestel Elektronik Sanayi Ve Ticaret AS 12,796,519 1,176
------------
BANKING
Akbank TAS 30,240 85
Turkiye Garanti Bankasi 3,075,000 53
Yapi Ve Kredi Bankasi 187,935,442 2,133
------------
2,271
------------
BEVERAGES & TOBACCO
Efes Sinai Yatirim 211,652,609 2,059
Ege Biracilik Ve Malt Sanayii 8,817,000 667
Erciyas Biracilik 1,131,000 90
------------
2,816
------------
ENERGY SOURCES
Petrol Ofisi AS 2,594,000 453
------------
FINANCIAL SERVICES
Sabanci Holdings 16,427,000 252
------------
MERCHANDISING
Migros Turk TAS 322,000 232
------------
METALS -- STEEL
Eregli Demir Ve Celik Fabrikalari TAS 10,050,000 751
------------
MULTI-INDUSTRY
Koc Holding 1,337,000 140
------------
8,091
------------
- -----------------------------------------------------------------------------
UNITED KINGDOM (0.3%)
BEVERAGES & TOBACCO
Coca-Cola Beverages plc 222,550 507
------------
- -----------------------------------------------------------------------------
VENEZUELA (0.1%)
UTILITIES -- Electrical & Gas
Electricidad de Caracas 453,425 127
------------
- -----------------------------------------------------------------------------
ZIMBABWE (0.4%)
MERCHANDISING
Meikles Africa Ltd. 342,000 197
------------
MULTI-INDUSTRY
Delta Corp., Ltd. 1,297,991 337
------------
(a)Trans Zambezi Industries Ltd. ADR 4,000,000 226
------------
563
------------
760
------------
- -----------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost U.S.$269,953) 186,820
------------
- -----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- -----------------------------------------------------------------------------
<S> <C> <C>
DEBT INSTRUMENTS (0.3%)
- -----------------------------------------------------------------------------
INDIA (0.2%)
METALS -- Steel
Shri Ishar Alloy Steels Ltd. 15.00%, 4/21/01 INR 581 U.S.$ 98
------------
MULTI-INDUSTRY
DCM Shriram Industries Ltd. 9.90%, 2/21/02 335 169
DCM Shriram Industries Ltd. (Convertible)
7.50%, 2/21/02 330 126
------------
295
------------
393
------------
- -----------------------------------------------------------------------------
RUSSIA (0.1%)
SOVEREIGN
Russian Federation (Registered)
11.00%, 7/24/18 U.S.$ 426 75
------------
- -----------------------------------------------------------------------------
TOTAL DEBT INSTRUMENTS
(Cost U.S.$1,749) 468
------------
- -----------------------------------------------------------------------------
SHORT-TERM INVESTMENTS (4.4%)
- -----------------------------------------------------------------------------
UNITED STATES (4.4%)
REPURCHASE AGREEMENT
Chase Securities, Inc. 5.25%, dated
9/30/98, due 10/1/98, to be repurchased
at U.S.$8,733, collateralized by
U.S.$7,350, United States Treasury
Notes, 7.875%, due 11/15/04, valued
at U.S.$8,939 (Cost U.S.$8,732) 8,732 8,732
------------
- -----------------------------------------------------------------------------
FOREIGN CURRENCY ON DEPOSIT WITH CUSTODIAN (4.1%)
Brazil Real BRL 1,069 902
Colombian Peso COP 312 --@
Egyptian Pound EGP 662 194
Greek Drachma GRD 46,651 162
Hungarian Forint HUF 5,490 25
Indian Rupee INR 97,146 2,290
Malaysian Ringgit MYR 2,465 587
Mexican Peso MXP 4,423 434
Pakistani Rupee PKR 47,988 886
Philippine Peso PHP 1,233 28
Polish Zloty PLZ 346 97
South Korean Won KRW 238,648 172
Taiwan Dollar TWD 83,477 2,423
Zimbabwe Dollar ZWD 364 11
------------
(Cost U.S.$8,459) 8,211
------------
- -----------------------------------------------------------------------------
TOTAL INVESTMENTS (102.7%)
(Cost U.S.$288,893) 204,231
------------
- -----------------------------------------------------------------------------
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
AMOUNT AMOUNT
(000) (000)
- -----------------------------------------------------------------------------
<S> <C> <C>
OTHER ASSETS AND LIABILITIES (-2.7%)
Other Assets U.S. $ 14,776
Liabilities (20,061) U.S.$ (5,285)
-------------
- -----------------------------------------------------------------------------
NET ASSETS (100%)
Applicable to 22,221,644 issued and
outstanding U.S.$0.01 par value shares
(100,000,000 shares authorized) U.S.$ 198,946
-------------
-------------
- -----------------------------------------------------------------------------
NET ASSET VALUE PER SHARE U.S.$ 8.95
-------------
-------------
- -----------------------------------------------------------------------------
</TABLE>
@ -- Value is less than U.S.$500.
(a) -- 144A Security - certain conditions for public sale may exist.
(b) -- The Fund is advised by an affiliate.
ADR -- American Depositary Receipt
GDR -- Global Depositary Receipt
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.
- ------------------------------------------------------------------------------
12
