<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 19, 1995
SECURITIES ACT FILE NO. 33-60139
INVESTMENT COMPANY ACT FILE NO. 811-7694
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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-2
Registration Statement Under The Securities Act of 1933 /X/
Pre-Effective Amendment No. 2 /X/
Post-Effective Amendment No. / /
and/or
Registration Statement Under The Investment Company Act of 1940 /X/
Amendment No. 5 /X/
(CHECK APPROPRIATE BOX OR BOXES)
------------------
MORGAN STANLEY EMERGING MARKETS DEBT FUND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
1221 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10020
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 296-7100
------------------------
HAROLD J. SCHAAFF, JR.
MORGAN STANLEY EMERGING MARKETS DEBT FUND, INC.
C/O MORGAN STANLEY ASSET MANAGEMENT INC.
1221 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10020
(NAME AND ADDRESS OF AGENT FOR SERVICE)
------------------------
WITH COPIES TO:
LEONARD B. MACKEY, JR., ESQ.
ROGERS & WELLS
200 PARK AVENUE
NEW YORK, NEW YORK 10166
(212) 878-8000
PIERRE DE SAINT PHALLE, ESQ.
DAVIS POLK & WARDWELL
450 LEXINGTON AVENUE
NEW YORK, NEW YORK 10017
(212) 450-4000
------------------
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after
the effective date of this registration statement.
If any securities being registered on this form will be offered on a
delayed or continuous basis in reliance on Rule 415 under the Securities Act of
1933, as amended, other than securities offered in connection with a dividend
reinvestment plan, check the following box. / /
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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PROPOSED
PROPOSED MAXIMUM
MAXIMUM AGGREGATE AMOUNT OF
TITLE OF SECURITIES AMOUNT BEING OFFERING PRICE OFFERING REGISTRATION
BEING REGISTERED REGISTERED PER SHARE(1) PRICE(1) FEE(2)
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<S> <C> <C> <C> <C>
Common Stock, $.01 Par Value.... 5,400,000 Shares $12.50 $67,500,000 $23,276
- --------------------------------------------------------------------------------------------------
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</TABLE>
(1) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(c) under the Securities Act of 1933. Based on the
average of the high and low sales prices reported on the New York Stock
Exchange on June 5, 1995.
(2) Previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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<PAGE> 2
CROSS REFERENCE SHEET
PARTS A AND B OF PROSPECTUS*
<TABLE>
<CAPTION>
ITEMS IN PARTS A AND B OF FORM N-2 LOCATION IN PROSPECTUS
---------------------------------- ----------------------
<S> <C>
1. Outside Front Cover......................... Front Cover Page
2. Inside Front and Outside Back Cover Page.... Front Cover Page; Inside Front Cover Page; Outside
Back Cover Page
3. Fee Table and Synopsis...................... Prospectus Summary; Fee Table
4. Financial Highlights........................ Financial Highlights
5. Plan of Distribution........................ Front Cover Page; Prospectus Summary; The Offer;
Distribution Arrangements
6. Selling Shareholders........................ Not Applicable
7. Use of Proceeds............................. The Offer
8. General Description of the Registrant....... Front Cover Page; Prospectus Summary; The Fund; The
Offer; Investment Restrictions; Investment
Objectives and Policies; Risk Factors and Special
Considerations; Common Stock
9. Management.................................. Management of the Fund; Portfolio Transactions and
Brokerage; Expenses; Custodians; Dividend Paying
Agent, Transfer Agent and Registrar; Common Stock
10. Capital Stock, Long-Term Debt and Other
Securities.................................. Common Stock; Dividends and Distributions; Dividend
Reinvestment and Cash Purchase Plan; The Offer;
Taxation; Prospectus Summary
11. Defaults and Arrears on Senior Securities... Not Applicable
12. Legal Proceedings........................... Not Applicable
13. Table of Contents of the Statement of
Additional Information...................... Not Applicable
14. Cover Page.................................. Not Applicable
15. Table of Contents........................... Not Applicable
16. General Information and History............. The Fund
17. Investment Objectives and Policies.......... Investment Objectives and Policies; Investment
Restrictions
18. Management.................................. Management of the Fund
19. Control Persons and Principal Holders of
Securities.................................. Management of the Fund
20. Investment Advisory and Other Services...... Management of the Fund; Custodians; Dividend Paying
Agent, Transfer Agent and Registrar; Experts;
Expenses
21. Brokerage Allocation and Other Practices.... Portfolio Transactions and Brokerage
22. Tax Status.................................. Taxation
23. Financial Statements........................ Incorporation of Financial Statements by Reference
</TABLE>
- ---------------
* Pursuant to the General Instructions to Form N-2, all information required to
be set forth in Part B: Statement of Additional Information has been included
in Part A: The Prospectus. Information required to be included in Part C is
set forth under the appropriate item, so numbered in Part C of this
Registration Statement.
<PAGE> 3
5,400,000 Shares
Morgan Stanley
Emerging Markets Debt Fund, Inc.
COMMON STOCK
Issuable Upon Exercise of Rights
to Subscribe for Such Shares of Common Stock
------------------------
Morgan Stanley Emerging Markets Debt Fund, Inc. (the "Fund") is issuing to
its shareholders of record as of the close of business on July 18, 1995 (the
"Record Date") transferable rights ("Rights") entitling the holders thereof to
subscribe for up to an aggregate of 5,400,000 shares (the "Shares") of the
common stock, par value $.01 per share ("Common Stock"), of the Fund (the
"Offer") at the rate of one share of Common Stock for each three Rights held. In
addition, Record Date Shareholders (as defined below) will be entitled to
subscribe, subject to certain limitations and subject to allotment, for any
Shares not acquired by exercise of the primary subscription Rights. The number
of Rights to be issued to Record Date Shareholders (as defined below) will be
rounded up to the nearest number of Rights evenly divisible by three. In the
case of shares of Common Stock held of record by Cede & Co., the nominee for The
Depository Trust Company, or any other depository or nominee (in each instance,
a "Nominee Holder"), the number of Rights issued to such Nominee Holder will be
adjusted to permit rounding up (to the nearest number of Rights evenly divisible
by three) of the Rights to be received by beneficial holders for whom it is the
holder of record only if the Nominee Holder provides to the Fund on or before
the close of business on August 1, 1995 written representation of the number of
Rights required for such rounding. Shareholders of record on the Record Date and
beneficial holders with respect to whom Nominee Holders have submitted such
written representation are referred to herein as "Record Date Shareholders."
Fractional Shares will not be issued. The Rights are transferable and the Rights
and the Shares will be listed for trading on the New York Stock Exchange (the
"NYSE"). The Fund's Common Stock is traded on the NYSE under the symbol "MSD".
The Rights will be traded under the symbol "MSD.RT". See "The Offer." THE
SUBSCRIPTION PRICE PER SHARE (THE "SUBSCRIPTION PRICE") WILL BE $9.25.
THE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK TIME, ON AUGUST 8, 1995, unless
extended as described herein. The Fund announced the Offer after the close of
trading on the NYSE on June 9, 1995. The net asset value per share of Common
Stock at the close of business on June 9, 1995 and July 18, 1995 was $12.09 and
$12.69, respectively, and the last reported sale price of a share of Common
Stock on the NYSE on such dates was $12.00 and $12.125, respectively.
The Fund is a non-diversified, closed-end management investment company. The
Fund's primary investment objective is to seek high current income. As a
secondary objective, the Fund seeks capital appreciation. In seeking to achieve
these objectives, the Fund invests primarily in debt securities of government
and government-related issuers located in emerging countries (including
participations in loans between governments and financial institutions), and in
securities of entities organized to restructure outstanding debt of such
issuers. The Fund may also invest up to 35% of its total assets in debt
securities of corporate issuers located in or organized under the laws of
emerging countries. See "Investment Objectives and Policies." There can be no
assurance that the Fund's investment objectives will be achieved. INVESTMENT IN
THE FUND INVOLVES SPECIAL CONSIDERATIONS AND RISKS THAT ARE NOT NORMALLY PRESENT
IN INVESTMENTS IN THE SECURITIES OF U.S. ISSUERS. THE FUND MAY INVEST WITHOUT
LIMITATION IN ILLIQUID SECURITIES AND SUBSTANTIALLY ALL OF THE FUND'S ASSETS AT
ANY ONE TIME MAY BE INVESTED IN DEBT INSTRUMENTS THAT ARE RATED BELOW INVESTMENT
GRADE OR ARE UNRATED AND PREDOMINANTLY SPECULATIVE, OR IN SECURITIES DENOMINATED
IN CURRENCIES OTHER THAN THE U.S. DOLLAR. THE FUND IS AUTHORIZED TO ENGAGE IN
BORROWING TRANSACTIONS FOR INVESTMENT PURPOSES AND FOR PAYMENT OF DIVIDENDS;
THIS LEVERAGING OF THE FUND'S ASSETS, WHICH IS A SPECULATIVE ACTIVITY, WILL
INCREASE THE FUND'S OPPORTUNITY FOR GREATER TOTAL RETURNS, BUT WILL ALSO INVOLVE
SIGNIFICANT RISKS. SEE "RISK FACTORS AND SPECIAL CONSIDERATIONS." Morgan Stanley
Asset Management Inc. serves as the Fund's Investment Manager. The address of
the Fund is 1221 Avenue of the Americas, New York, New York 10020 (telephone
number (212) 296-7100).
This Prospectus sets forth concisely the information about the Fund that a
prospective investor ought to know before investing. Investors are advised to
read this Prospectus and to retain it for future reference.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
------------------------
<TABLE>
<CAPTION>
PROCEEDS TO
SUBSCRIPTION PRICE SALES LOAD(1) THE FUND(2)
------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share......................................... $9.25(3) $0.347 $8.903
Total............................................. $49,950,000 $1,873,125 $48,076,875(4)
</TABLE>
(Footnotes on following page)
------------------------
An immediate dilution, which could be substantial, of the aggregate net
asset value of the Common Stock owned by Record Date Shareholders who do not
fully exercise their Rights is likely to occur as a result of the Offer because
the Subscription Price per Share is less than the Fund's net asset value per
share on the Record Date, and the number of shares outstanding after the Offer
is likely to increase in a greater percentage than the increase in the size of
the Fund's assets. In addition, as a result of the Offer, Record Date
Shareholders who do not fully exercise their Rights should expect that they
will, at the completion of the Offer, own a smaller proportional interest in the
Fund than would otherwise be the case. See "Risk Factors and Special
Considerations."
------------------------
MORGAN STANLEY & CO.
Incorporated
July 19, 1995
<PAGE> 4
(Footnotes from previous page)
(1) In connection with the Offer, the Fund has agreed to pay to Morgan Stanley &
Co. Incorporated (the "Dealer Manager") and other broker-dealers included in
the selling group to be formed and managed by the Dealer Manager ("Selling
Group Members") a fee of 2.50% of the Subscription Price per Share for each
Share either issued upon the exercise of Rights as a result of their
soliciting efforts or purchased from the Dealer Manager for sale to the
public. Certain other broker-dealers that have executed and delivered a
Soliciting Dealer Agreement and have solicited the exercise of Rights will
receive fees for their soliciting efforts of 0.50% of the Subscription Price
per Share, subject generally to a maximum fee based upon the number of
shares of Common Stock held by each such broker-dealer through The
Depository Trust Company on the Record Date. The Fund will pay to the Dealer
Manager a fee for financial advisory and marketing services in connection
with the Offer equal to 1.25% of the aggregate Subscription Price. The Fund
has agreed to indemnify the Dealer Manager against certain liabilities under
the Securities Act of 1933, as amended. See "Distribution Arrangements."
Assumes that the exercise of all Rights was solicited by a Selling Group
Member.
(2) Before deduction of expenses incurred by the Fund, estimated at $500,000,
including up to an aggregate of $125,000 to be paid to the Dealer Manager in
reimbursement of its expenses.
(3) Represents the Subscription Price per Share payable by holders of Rights.
Sales of Shares may be made during the Subscription Period by the Dealer
Manager and other Selling Group Members at prices set by the Dealer Manager
from time to time. See "Distribution Arrangements."
(4) Assumes that all of the Rights are exercised.
------------------
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND, THE INVESTMENT MANAGER OR THE
DEALER MANAGER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY BY ANY PERSON IN ANY JURISDICTION IN WHICH IT IS
UNLAWFUL FOR SUCH PERSON TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCE IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY DATE
SUBSEQUENT TO THE DATE HEREOF.
------------------
TABLE OF CONTENTS
------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FEE TABLE......................................................................................... 3
PROSPECTUS SUMMARY................................................................................ 4
FINANCIAL HIGHLIGHTS.............................................................................. 11
MARKET AND NET ASSET VALUE INFORMATION............................................................ 12
CAPITALIZATION AT JUNE 30, 1995................................................................... 12
THE FUND.......................................................................................... 13
THE OFFER......................................................................................... 13
RISK FACTORS AND SPECIAL CONSIDERATIONS........................................................... 21
INVESTMENT OBJECTIVES AND POLICIES................................................................ 27
INVESTMENT RESTRICTIONS........................................................................... 36
MANAGEMENT OF THE FUND............................................................................ 37
EXPENSES.......................................................................................... 45
PORTFOLIO TRANSACTIONS AND BROKERAGE.............................................................. 45
NET ASSET VALUE................................................................................... 46
DIVIDENDS AND DISTRIBUTIONS; DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN......................... 46
TAXATION.......................................................................................... 48
COMMON STOCK...................................................................................... 53
DISTRIBUTION ARRANGEMENTS......................................................................... 55
DIVIDEND PAYING AGENT, TRANSFER AGENT AND REGISTRAR............................................... 56
CUSTODIANS........................................................................................ 56
EXPERTS........................................................................................... 57
LEGAL MATTERS..................................................................................... 57
ADDITIONAL INFORMATION............................................................................ 57
INCORPORATION OF FINANCIAL STATEMENTS BY REFERENCE................................................ 57
APPENDIX A -- Form of Subscription Certificate................................................ A-1
APPENDIX B -- Form of Notice of Guaranteed Delivery........................................... B-1
APPENDIX C -- Form of Nominee Holder Over-Subscription Exercise Form.......................... C-1
Description of Various Foreign Currency Hedges and Stock Options and Futures
APPENDIX D -- Contracts....................................................................... D-1
Countries Not Included within the World Bank Definition of a Low or Middle
APPENDIX E -- Income Economy.................................................................. E-1
</TABLE>
IN CONNECTION WITH THIS OFFERING, THE DEALER MANAGER MAY EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE RIGHTS AND THE
COMMON STOCK AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE
OVER-THE-COUNTER MARKETS OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
2
<PAGE> 5
FEE TABLE
<TABLE>
<S> <C>
Shareholder Transaction Expenses:
Sales Load (as a percentage of offering price)(1)(2)........................... 3.75%
Annual Expenses (as a percentage of net assets):
Management Fees................................................................ 1.00%
Interest Payments on Borrowed Funds............................................ 0.20%
Other Expenses(2).............................................................. 0.75%
-------
Total Annual Expenses..................................................... 1.95%
======
EXAMPLE:
</TABLE>
<TABLE>
<CAPTION>
CUMULATIVE EXPENSES PAID FOR THE
PERIOD OF:
------------------------------------
3 5 10
1 YEAR YEARS YEARS YEARS
------ ------ ------ ------
<S> <C> <C> <C> <C>
An investor would pay the following expenses on a $1,000
investment, assuming a 5% annual return throughout the
periods(3)............................................... $59 $99 $141 $258
</TABLE>
- ------------------------
(1) The Fund has agreed to pay to the Dealer Manager and each Selling Group
Member fees equal to 2.50% of the Subscription Price per Share for each
Share either issued upon the exercise of Rights as a result of their
soliciting efforts or purchased from the Dealer Manager for sale to the
public. Certain other broker-dealers that have executed and delivered a
Soliciting Dealer Agreement and have solicited the exercise of Rights will
receive fees for their soliciting efforts of up to 0.50% of the Subscription
Price per Share, subject generally to a maximum fee based upon the number of
shares of Common Stock held by each such broker-dealer through The
Depository Trust Company on the Record Date. The Fund will pay to the Dealer
Manager a fee for financial advisory and marketing services in connection
with the Offer equal to 1.25% of the aggregate Subscription Price. These
fees will be borne by the Fund and indirectly by all of the Fund's
shareholders, including those who do not exercise their Rights. Assumes that
the exercise of all Rights was solicited by Selling Group Members. See
"Distribution Arrangements."
(2) Does not include expenses of the Fund incurred in connection with the Offer,
estimated at $500,000.
(3) The example reflects the Sales Load and other expenses of the Fund incurred
in connection with the Offer and assumes that all of the Rights are
exercised.
The foregoing Fee Table is intended to assist investors in understanding
the costs and expenses that an investor in the Fund will bear directly or
indirectly.
The Example set forth above assumes reinvestment of all dividends and
distributions at net asset value and an expense ratio of 1.95%. The table above
and the assumption in the Example of a 5% annual return are required by
regulations of the U.S. Securities and Exchange Commission (the "Commission")
applicable to all investment companies. THE EXAMPLE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES OR ANNUAL RATES OF RETURN. Actual
expenses or annual rates of return may be more or less than those assumed for
purposes of the Example. In addition, while the Example assumes reinvestment of
all dividends and distributions at net asset value, participants in the Fund's
Dividend Reinvestment and Cash Purchase Plan may receive shares purchased or
issued at a price or value different from net asset value. See "Dividends and
Distributions; Dividend Reinvestment and Cash Purchase Plan."
The figures provided under "Other Expenses" are based upon estimated
amounts for the current fiscal year. See "Management of the Fund" for additional
information.
3
<PAGE> 6
PROSPECTUS SUMMARY
The following is qualified in its entirety by the more detailed information
included elsewhere in this Prospectus.
TERMS OF THE OFFER
Morgan Stanley Emerging Markets Debt Fund, Inc. (the "Fund") is issuing to
its shareholders of record ("Record Date Shareholders") as of the close of
business on July 18, 1995 (the "Record Date") transferable rights (the "Rights")
to subscribe for up to an aggregate of 5,400,000 shares (the "Shares") of the
common stock, par value $.01 per share (the "Common Stock"), of the Fund (the
"Offer"). Each Record Date Shareholder is being issued one Right for each full
share of Common Stock owned on the Record Date. The number of Rights to be
issued to Record Date Shareholders will be rounded up to the nearest number of
Rights evenly divisible by three. In the case of Shares held of record by a
Nominee Holder (as defined below), the number of Rights issued to such Nominee
Holder will be adjusted to permit rounding up (to the nearest number of Rights
evenly divisible by three) of the Rights to be received by beneficial holders
for whom it is the holder of record only if the Nominee Holder provides to the
Fund on or before the close of business on August 1, 1995 written representation
of the number of Rights required for such rounding. No fractional Shares will be
issued. The Rights entitle the holders thereof (each, a "Rights Holder") to
acquire at the Subscription Price (as hereinafter defined) one Share for each
three Rights held. The Subscription Period commences on July 19, 1995 and ends
at 5:00 p.m., New York time, on August 8, 1995 unless extended by the Fund and
the Dealer Manager (the "Expiration Date"). The Rights are evidenced by
subscription certificates ("Subscription Certificates") which will be mailed to
Record Date Shareholders except as discussed below under "Foreign Restrictions."
The right of a Rights Holder to acquire during the Subscription Period at
the Subscription Price one Share for each three Rights held is hereinafter
referred to as the "Primary Subscription." All Rights may be exercised
immediately upon receipt and until 5:00 p.m., New York time, on the Expiration
Date. Rights Holders purchasing Shares in the Primary Subscription are
hereinafter referred to as "Exercising Rights Holders."
OVER-SUBSCRIPTION PRIVILEGE
Any Record Date Shareholder who fully exercises all Rights issued to such
Record Date Shareholder by the Fund is entitled to subscribe for Shares which
were not otherwise subscribed for by others in the Primary Subscription (the
"Over-Subscription Privilege"). Purchasers of Rights who are not Record Date
Shareholders are not eligible to participate in the Over-Subscription Privilege.
For purposes of determining the number of Shares that a Record Date Shareholder
may acquire pursuant to the Offer, broker-dealers whose Shares are held of
record by Cede & Co. ("Cede"), nominee for The Depository Trust Company, or by
any other depository or nominee (in each instance, a "Nominee Holder"), will be
deemed to be the holders of the Rights that are held by Cede or such other
depository or nominee on their behalf. Shares acquired pursuant to the
Over-Subscription Privilege are subject to allotment, which is more fully
discussed under "The Offer -- Over-Subscription Privilege."
SUBSCRIPTION PRICE
The Subscription Price per Share is $9.25. The Subscription Price is
approximately a 27.1% discount to the Fund's net asset value per share on July
18, 1995 and approximately a 23.7% discount to the last reported sale price of a
share of Common Stock on the NYSE on July 18, 1995.
The Subscription Price is discussed further under "The Offer -- The
Subscription Price." In addition, information with respect to the high and low
sale prices of the Fund's Common Stock on the New York Stock Exchange Composite
Tape, quarterly trading volume on the NYSE, the high and low net asset value per
share and the premium and discount percentages of the market price of the Fund's
Common Stock to its per share net asset value for each calendar quarter since
July 1993 is summarized under "Market and Net Asset Value Information."
4
<PAGE> 7
EXERCISING RIGHTS
Rights will be evidenced by Subscription Certificates (see Appendix A) and
may be exercised by completing a Subscription Certificate and delivering it,
together with payment, either by means of a Notice of Guaranteed Delivery (see
Appendix B) or a check, to The First National Bank of Boston (the "Subscription
Agent") at the address set forth under "The Offer -- Subscription Agent."
Exercising Rights Holders will have no right to rescind or modify a purchase
after the Subscription Agent has received a completed Subscription Certificate
or Notice of Guaranteed Delivery. See "The Offer -- Exercise of Rights" and "The
Offer -- Payment for Shares." There is no minimum number of Rights that must be
exercised in order for the Offer to close.
SALE OF RIGHTS
The Rights are transferable until the last Business Day (as defined below)
prior to the Expiration Date. The Rights will be listed for trading on the NYSE.
The Fund has used its best efforts to ensure that an adequate trading market for
the Rights will exist by causing the Rights to be listed on the NYSE and by
retaining the Dealer Manager, the Subscription Agent and the Information Agent.
The Fund expects that a market for the Rights will develop and that the value of
the Rights, if any, will be reflected by the market price. Rights may be sold
directly by a Rights Holder, or may be sold through the Subscription Agent if
delivered to the Subscription Agent on or before August 3, 1995. Trading of the
Rights on the NYSE will be conducted on a when-issued basis commencing on July
20, 1995 and on a regular-way basis from July 24, 1995 through the last Business
Day prior to the Expiration Date. If the Subscription Agent receives Rights for
sale in a timely manner, it will use its best efforts to sell the Rights through
or to the Dealer Manager. Any commissions in connection with the sale of Rights
by the Subscription Agent will be paid by the applicable selling Rights Holders.
Neither the Fund, the Subscription Agent nor the Dealer Manager will be
responsible if Rights cannot be sold, and none of them has guaranteed any
minimum sale price for the Rights. For purposes of this Prospectus, a "Business
Day" means any day on which trading is conducted on the NYSE. See "The
Offer -- Sale of Rights."
Rights Holders are urged to obtain a recent trading price for the Rights on
the NYSE from their broker, bank, financial adviser or the financial press.
Exercising Rights Holders' inquiries should be directed to Shareholder
Communications Corporation, Investor Relations Department. See "Information
Agent" below.
DEALER MANAGER AND SOLICITING FEES
In connection with the Offer, the Fund has agreed to pay to Morgan Stanley
& Co. Incorporated, as Dealer Manager, and Selling Group Members fees equal to
2.50% of the Subscription Price per Share for Shares either issued upon the
exercise of Rights as a result of their soliciting efforts or purchased from the
Dealer Manager for sale to the public. Certain other broker-dealers that have
executed and delivered a Soliciting Dealer Agreement and have solicited the
exercise of Rights will receive fees for their soliciting efforts of up to 0.50%
of the Subscription Price per Share, subject generally to a maximum fee based
upon the number of shares of Common Stock held by each such broker-dealer
through The Depository Trust Company on the Record Date. The Fund will pay to
the Dealer Manager a fee equal to 1.25% of the aggregate Subscription Price for
Shares of Common Stock issued upon exercise of the Rights for financial and
advisory services, including advice with respect to the advisability, timing,
size and pricing of the Offer, the formation and management of the Selling Group
Members, the coordination of soliciting efforts among soliciting dealers, the
Subscription Agent and the Information Agent and market-making activities to
assure a liquid and orderly market for the Rights and the Shares. The Fund has
also agreed to reimburse the Dealer Manager for its out-of-pocket expenses in
connection with the Offer up to an aggregate of $125,000. See "Distribution
Arrangements."
5
<PAGE> 8
FOREIGN RESTRICTIONS
Subscription Certificates will not be mailed to Record Date Shareholders
whose record addresses are outside the United States (for these purposes the
United States includes its territories and possessions and the District of
Columbia) ("Foreign Record Date Shareholders"). The Rights to which such
Subscription Certificates relate will be held by the Subscription Agent for such
Foreign Record Date Shareholders' accounts until instructions are received to
exercise, sell or transfer the Rights. If no instructions have been received by
12:00 Noon, New York time, three Business Days prior to the Expiration Date, the
Subscription Agent will use its best efforts to sell the Rights of those Foreign
Record Date Shareholders through or to the Dealer Manager. The net proceeds, if
any, from the sale of those Rights will be remitted to the Foreign Record Date
Shareholders on a pro rata basis. See "The Offer -- Foreign Shareholders."
INFORMATION AGENT
The Information Agent for the Offer is:
Shareholder Communications Corporation
17 State Street
New York, New York 10004
Toll Free: (800) 733-8481, ext. 316
or
Call Collect: (212) 805-7000, ext. 316
IMPORTANT DATES TO REMEMBER
<TABLE>
<CAPTION>
EVENT DATE
- ----------------------------------------------------------- ------------------------------------
<S> <C>
RECORD DATE................................................ JULY 18, 1995
SUBSCRIPTION PERIOD........................................ JULY 19, 1995 TO AUGUST 8, 1995
(UNLESS EXTENDED)
EXPIRATION DATE............................................ AUGUST 8, 1995 (UNLESS EXTENDED)
NOMINEE HOLDER OVER-SUBSCRIPTION EXERCISE FORM DUE......... AUGUST 8, 1995
SUBSCRIPTION CERTIFICATES, ACCOMPANIED BY PAYMENT FOR
SHARES, OR NOTICES OF GUARANTEED DELIVERY DUE............ AUGUST 8, 1995
SUBSCRIPTION CERTIFICATES AND PAYMENT FOR SHARES DUE
PURSUANT TO NOTICE OF GUARANTEED DELIVERY................ AUGUST 11, 1995
</TABLE>
PURPOSE OF THE OFFER AND USE OF PROCEEDS
The Board of Directors of the Fund has determined that it is in the best
interests of the Fund and its shareholders to increase the assets of the Fund
available for investment so that the Fund will be in a better position to take
advantage of further investment opportunities in emerging countries. The Fund
believes that increasing the size of the Fund should also result in lowering the
Fund's expenses as a proportion of average net assets, although no assurance can
be given that this result will be achieved. At June 30, 1995, the Fund had net
assets of approximately $202 million. In addition, the Offer seeks to reward the
Fund's shareholders by giving them the right to purchase additional shares of
Common Stock at a price below market and net asset value without incurring any
commission charge. The distribution to shareholders of transferable Rights which
themselves may have intrinsic value also will afford non-participating
shareholders the potential of receiving a cash payment upon sale of such Rights,
receipt of which may be viewed as compensation for the dilution of their
interest in the Fund.
The net proceeds of the Offer, assuming all Rights are exercised in full
and the maximum solicitation fee is paid to Selling Group Members, are estimated
to be approximately $47.5 million, after deducting offering expenses payable by
the Fund estimated to be approximately $500,000. The net proceeds of the Offer
will be
6
<PAGE> 9
invested in accordance with the Fund's investment objectives and policies. See
"Investment Objectives and Policies." The Fund anticipates that the net proceeds
of the Offer will be invested in accordance with the Fund's investment
objectives and policies within three months of the Expiration Date.
INFORMATION REGARDING THE FUND
The Fund is a non-diversified, closed-end management investment company
registered under the U.S. Investment Company Act of 1940, as amended (the "1940
Act"), designed for U.S. and other investors desiring to invest a portion of
their assets in emerging country debt securities. As used in this Prospectus, an
"emerging country" is any country that the International Bank for Reconstruction
and Development (more commonly known as the World Bank) has determined to have a
low or middle income economy. The Fund invests primarily in debt securities of
government and government-related issuers located in emerging countries, as
defined below under "Investment Objectives and Policies."
The Fund commenced operations on July 23, 1993, following the issuance of
7,093 shares of Common Stock to the Investment Manager on July 12, 1993 for
$100,000 and the initial public offering on July 16, 1993 of 15,974,400 shares
to the public resulting in aggregate net proceeds to the Fund of approximately
$225.1 million. Since commencement of operations through June 30, 1995, the Fund
also has issued 99,621 shares pursuant to its Dividend Reinvestment and Cash
Purchase Plan. At June 30, 1995, the Fund had 16,081,114 shares of Common Stock
outstanding, which are listed and traded on the NYSE under the symbol "MSD". As
of June 30, 1995, the net assets of the Fund were approximately $202 million.
The Fund is responsible for all of its operating expenses. If the Offer is
fully subscribed, it is estimated that the Fund's annual normal operating
expenses, including advisory, administration and custodial fees, will be
approximately $4,900,000 exclusive of organization expenses (which were $75,000
and are being amortized over five years) and the expenses of this Offer,
estimated to be $500,000 which will be charged to capital. See "Expenses."
For the period ended December 31, 1993 and fiscal year ended December 31,
1994, the Fund's expenses (inclusive of amortization of organization expenses)
were $3,123,000 and $5,146,000, respectively. The Fund's expense ratio (after
interest expense) was 2.79% (annualized) and 2.30% (inclusive of amortization of
organization expenses) of the Fund's average net assets for the period ended
December 31, 1993 and fiscal year ended December 31, 1994, respectively.
INFORMATION REGARDING THE INVESTMENT MANAGER
Morgan Stanley Asset Management Inc. (the "Investment Manager"), a wholly
owned subsidiary of Morgan Stanley Group Inc., manages the investments of the
Fund pursuant to an Investment Advisory and Management Agreement with the Fund
(the "Management Agreement"). The Investment Manager emphasizes a global
investment strategy and as of March 31, 1995 had, together with its affiliated
investment management companies, assets under management (including assets under
fiduciary control) totalling approximately $48.5 billion, of which approximately
$5.8 billion was invested in emerging country markets. The Investment Manager is
a registered investment adviser under the U.S. Investment Advisers Act of 1940,
as amended. See "Management of the Fund." The Fund pays to the Investment
Manager a fee, computed weekly and payable monthly, at the annual rate of 1.00%
of the Fund's average weekly net assets. This fee is higher than that paid by
most other U.S. investment companies investing exclusively in the securities of
U.S. issuers, primarily because of the additional time and expense required of
the Investment Manager in pursuing the Fund's objectives of investing in
emerging country debt securities. See "Management of the Fund."
INFORMATION REGARDING THE ADMINISTRATOR
United States Trust Company of New York (the "Administrator"), through its
affiliate Mutual Funds Service Company, provides administrative services to the
Fund pursuant to an Administration Agreement (the "Administration Agreement")
with the Fund. The Fund pays to the Administrator an annual administration fee
of $100,000 plus .06% of the average weekly net assets of the Fund. See
"Management of the Fund -- Administration."
7
<PAGE> 10
INFORMATION REGARDING THE CUSTODIANS
Morgan Stanley Trust Company acts as custodian for the Fund's assets held
outside the United States and employs sub-custodians approved by the Directors
of the Fund in accordance with regulations of the Securities and Exchange
Commission. United States Trust Company of New York acts as custodian for the
Fund's assets held in the United States. See "Custodians."
DIVIDENDS, DISTRIBUTIONS AND REINVESTMENT
The Fund intends to continue to distribute to shareholders, at least
quarterly, substantially all of its net investment income from interest
earnings, and also expects to distribute any net realized gains at least
annually. Each shareholder may elect, in the manner described under "Dividends
and Distributions; Dividend Reinvestment and Cash Purchase Plan," to have all
distributions paid in cash reinvested in shares of Common Stock.
RISK FACTORS AND SPECIAL CONSIDERATIONS
Dilution
An immediate dilution, which could be substantial, of the aggregate net
asset value of the Common Stock owned by Record Date Shareholders who do not
fully exercise their Rights is likely to occur as a result of the Offer because
the Subscription Price per Share is less than the Fund's net asset value per
share on the Record Date, and the number of shares outstanding after the Offer
is likely to increase in a greater percentage than the increase in the size of
the Fund's assets. In addition, as a result of the Offer, Record Date
Shareholders who do not fully exercise their Rights should expect that they
will, upon completion of the Offer, own a smaller proportional interest in the
Fund than would otherwise be the case. Although it is not possible to state
precisely the amount of any such decrease in net asset value, because it is not
known at this time what the net asset value per share will be on the Expiration
Date or what proportion of the Rights will be exercised, such dilution could be
substantial. For example, assuming that all Rights are exercised and that the
Subscription Price of $9.25 is 27.1% below the Fund's net asset value of $12.69
per share as of July 18, 1995, the Fund's net asset value per share (after
payment of the financial advisory and soliciting fees and estimated offering
expenses) would be reduced by approximately $0.98 per share. The distribution to
shareholders of transferable Rights which themselves may have intrinsic value
will afford non-participating shareholders the potential of receiving a cash
payment upon sale of such Rights, receipt of which may be viewed as compensation
for the possible dilution of their interest in the Fund. No assurance can be
given that a market for the Rights will develop or as to the value, if any, that
such Rights will have.
Risks Associated with Investments in Emerging Markets
Investing in emerging country securities involves certain considerations
not typically associated with investing in securities of U.S. issuers, including
(1) currency fluctuations, (2) the cost of converting foreign currency into U.S.
dollars, (3) restrictions on foreign investment and on repatriation of capital
invested in emerging countries, (4) potential price volatility, lesser liquidity
of securities traded on emerging country securities markets and smaller market
capitalization of such securities markets, (5) higher rates of inflation and (6)
political, social and economic risks and uncertainty, including the risk of
nationalization or expropriation of assets and the risk of war. Recent events
have illustrated the impact of these risks, as the Mexican Government devalued
the Mexican New Peso on December 20, 1994 and then permitted the New Peso to
float on December 22, 1994. Such actions had immediate and significant adverse
effects on the Mexican securities markets as well as on the currencies and
securities markets of other emerging countries. See "Risk Factors and Special
Considerations -- Foreign Currency Considerations."
Accounting, auditing, financial and other reporting standards in emerging
countries are not equivalent to U.S. standards and, therefore, disclosure of
certain material information may not be made and less information may be
available to investors investing in emerging countries than in the United
States. There is also generally less governmental regulation of the securities
industry in emerging countries than in the United States. Moreover, it may be
more difficult to obtain a judgment in a court outside the United States.
Interest
8
<PAGE> 11
and dividends paid on securities held by the Fund and gains from the disposition
of such securities may be subject to withholding taxes imposed by emerging
market countries. See "Risk Factors and Special Considerations."
Considerations Relating to Debt Securities
The value of the debt securities held by the Fund, and thus the net asset
value of the Common Stock, generally will fluctuate with (i) changes in the
perceived creditworthiness of the issuers of those securities, (ii) movements in
interest rates, and (iii) changes in the relative values of the currencies in
which the Fund's investments are denominated with respect to the U.S. dollar.
The extent of the fluctuation of the Fund's net asset value will depend on
various other factors, such as the average maturity of the Fund's investments,
the extent to which the Fund engages in borrowing and other leveraging
transactions, the extent to which the Fund holds instruments denominated in
currencies other than the U.S. dollar and the extent to which the Fund hedges
its interest rate and currency exchange rate risks. The Investment Manager will
make independent evaluations as to the creditworthiness of issuers of debt
securities that may differ from those of internationally recognized credit
rating agency organizations. The Fund's success in attaining its investment
objectives will depend largely on the Investment Manager's evaluation of the
creditworthiness of issuers.
The Fund's investments in government and government-related and
restructured debt instruments are subject to special risks, including the
inability or unwillingness to repay principal and interest, requests to
reschedule or restructure outstanding debt and requests to extend additional
loan amounts. The Fund may have limited recourse in the event of default on such
debt instruments. The Fund may invest in loans, assignments of loans and
participations in loans. Such investments are subject to special risks,
including the lack of a liquid secondary market for such securities and, in the
case of loan participations, assumption of the credit risk of both the
underlying borrower and the seller of the participation. The Fund also may
invest in debt instruments of corporate issuers which may have speculative
characteristics, involve significant risk and may not be paying interest or may
be in payment default.
Rated and Unrated Securities
At any one time, a substantial portion of the Fund's assets may be invested
in debt securities that are rated below investment grade or are unrated. At June
30, 1995, approximately 91% of the Fund's total assets was invested in debt
securities rated below investment grade or unrated. The Fund's investments in
emerging country debt securities may generally be considered to have credit
quality below investment grade as determined by internationally recognized
credit rating agency organizations, such as Moody's Investors Service, Inc.
("Moody's") and Standard & Poor's, a division of The McGraw-Hill Companies, Inc.
("S&P"). Debt securities rated below investment grade (commonly referred to as
"junk bonds") are considered to be speculative. Investment in securities rated
below investment grade typically involves risks not associated with higher rated
securities, including, among others, overall greater risk of timely and ultimate
payment of interest and principal, potentially greater sensitivity to general
economic conditions and changes in interest rates, greater market price
volatility and limited secondary market trading. Certain of the Fund's
investments may be considered to have extremely poor prospects of ever attaining
any real investment standing, to have a current identifiable vulnerability to
default, to be unlikely to have the capacity to pay interest and repay principal
when due in the event of adverse business, financial or economic conditions,
and/or to be in default or not current in the payment of interest or principal.
Leverage
The Fund is authorized to borrow up to 33 1/3% of its total assets
(including the amount borrowed) for investment purposes to increase the
opportunity for greater return and for payment of dividends. At June 30, 1995,
the Fund had borrowings outstanding in an amount equal to approximately 0.24% of
the Fund's total assets. Such borrowings would constitute leverage, which is a
speculative characteristic. Leveraging will magnify declines as well as
increases in the net asset value of the Common Stock and in the yield on the
9
<PAGE> 12
Fund's portfolio. See "Risk Factors and Special Considerations -- Risks of
Leverage" and "Investment Objectives and Policies -- Borrowing and Other Forms
of Leverage."
Net Asset Value Discount; Non-Diversification
Since the Fund's initial public offering on July 16, 1993, the Common Stock
has traded in the market at both a discount and premium to net asset value. The
Fund cannot predict whether the Common Stock will in the future trade at a
premium or discount to net asset value and, if so, the level of such premium or
discount. Shares of closed-end investment companies frequently trade at a
discount from net asset value. The risk of the Common Stock trading at a
discount is a risk separate from the risk of a decline in the Fund's net asset
value. See "Market and Net Asset Value Information."
The Fund is classified as a "non-diversified" investment company under the
1940 Act, which means that the Fund is not limited by the 1940 Act in the
proportion of its assets that may be invested in the securities of a single
issuer. As a non-diversified investment company, the Fund may invest a greater
proportion of its assets in the securities of a smaller number of issuers and,
as a result, will be subject to greater risk of loss with respect to its
portfolio securities. However, the Fund intends to continue to comply with the
diversification requirements imposed by the U.S. Internal Revenue Code of 1986,
as amended (the "Code"), for qualification as a regulated investment company. As
of June 30, 1995, approximately 20.4%, 16.8% and 13.4% of the Fund's total
assets were invested in Brazil, Mexico and Russia, respectively. See "Investment
Objectives and Policies," "Investment Restrictions" and "Taxation -- U.S.
Federal Income Taxes."
Additional Considerations
The Fund's investment in private placements, convertible securities and
warrants, as well as in instruments issued by entities organized and operated
solely for the purpose of restructuring the investment characteristics of
particular securities, presents certain risks. In addition, the Fund may use
various other investment practices that involve special considerations,
including purchasing and selling options on securities, financial futures, fixed
income indices and other financial instruments, entering into financial futures
contracts, interest rate transactions, currency transactions, securities
transactions on a when-issued or delayed delivery basis and repurchase
agreements and lending portfolio securities. See "Investment Objectives and
Policies" and Appendix D.
In addition, certain special voting provisions of the Fund's Articles of
Incorporation may have the effect of depriving shareholders of an opportunity to
sell their shares at a premium over prevailing market prices. See "Common
Stock."
10
<PAGE> 13
FINANCIAL HIGHLIGHTS
The table below sets forth certain specified information for a share of
Common Stock outstanding throughout each period presented. The selected per
share data and ratios for the period from July 23, 1993 (the commencement of
operations) to December 31, 1993 and the fiscal year ended December 31, 1994
have been audited by Price Waterhouse LLP, independent accountants, whose report
thereon was unqualified. The information should be read in conjunction with the
financial statements and notes thereto contained in the Fund's Annual Report as
of December 31, 1994, which is available upon request from the Fund's Transfer
Agent, The First National Bank of Boston, and incorporated herein by reference.
<TABLE>
<CAPTION>
PERIOD FROM
JULY 23, 1993*
TO YEAR ENDED
DECEMBER 31, 1993 DECEMBER 31, 1994
----------------- -----------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period....................... $ 14.10 $ 18.96
-------- --------
Offering Costs........................................... (0.04) --
-------- --------
Net Investment Income.................................... 0.50 1.51
Net Realized and Unrealized Gain (Loss) on Investments... 4.56 (6.34)
-------- --------
Total from Investment Operations........................... 5.06 (4.83)
-------- --------
Distributions:
Net Investment Income.................................... (0.16) (1.49)
Net Realized Gain........................................ -- (0.41)
-------- --------
Total Distributions:....................................... (0.16) (1.90)
-------- --------
Net Asset Value, End of Period............................. $ 18.96 $ 12.23
======== ========
Per Share Market Value, End of Period...................... $ 18.13 $ 11.38
======== ========
TOTAL INVESTMENT RETURN
Market Value............................................. 29.97% (27.97)%
Net Asset Value(1)....................................... 35.96% (25.95)%
RATIOS, SUPPLEMENTAL DATA
Net Assets, End of Period (In Thousands)................... $302,951 $196,282
-------- --------
Ratio of Expenses Before Interest Expense to Average Net
Assets................................................... 1.73%** 1.59%
Ratio of Expenses After Interest Expense to Average Net
Assets................................................... 2.79%** 2.30%
Ratio of Net Investment Income to Average Net Assets....... 7.20%** 10.79%
Portfolio Turnover Rate.................................... 72% 256%
</TABLE>
- ---------------
* Commencement of Operations.
** Annualized.
(1) Total investment return based on per share net asset value reflects the
effects of changes in net asset value on the performance of the Fund during
each period, and assumes dividends and distributions, if any, were
reinvested. These percentages are not an indication of the performance of a
shareholder's investment in the Fund based on market value due to
differences between the market price of the stock and the net asset value of
the Fund.
11
<PAGE> 14
MARKET AND NET ASSET VALUE INFORMATION
The Fund's currently outstanding shares of Common Stock are, and the Shares
offered by this Prospectus will be, listed on the NYSE. Shares of the Fund's
Common Stock commenced trading on the NYSE on July 16, 1993.
In the past, the Fund's shares have traded both at a premium and at a
discount in relation to net asset value. Although the Fund's shares recently
have been trading at a premium above net asset value, there can be no assurance
that this premium will continue after the Offer or that the shares will not
again trade at a discount. Shares of other closed-end investment companies
frequently trade at a discount from net asset value. See "Risk Factors and
Special Considerations."
The following table shows for each of the periods indicated the high and
low closing sale prices of the Fund's Common Stock on the New York Stock
Exchange Composite Tape, quarterly trading volume on the NYSE, the high and low
net asset value per share, the premium or discount at which the Fund's shares
were trading and the per share distributions paid by the Fund for each calendar
quarter since the commencement of trading of the Fund's Common Stock.
<TABLE>
<CAPTION>
CLOSING PREMIUM/
MARKET PRICE QUARTERLY NET ASSET VALUE (DISCOUNT) QUARTERLY
--------------- TRADING --------------- TO NET DISTRIBUTIONS
CALENDAR QUARTERS HIGH LOW VOLUME HIGH LOW ASSET VALUE PER SHARE(1)
- ------------------------- ------ ------ --------------------- ------ ------ ---------------- ------------
(THOUSANDS OF SHARES) (END OF QUARTER)
<S> <C> <C> <C> <C> <C> <C> <C>
Period Ended
December 31, 1993
Third Quarter(2)....... $15 5/8 $14 3/4 4,061 $14.78 $14.04 1.95% $ 0.1600
Fourth Quarter......... 18 1/8 14 3/4 4,310 18.97 14.70 (4.45)% 0.7095
Year Ended
December 31, 1994
First Quarter.......... 18 1/8 14 4,937 18.82 14.14 (15.65)% 0.3500
Second Quarter......... 14 7/8 12 7/8 2,156 13.59 11.95 3.41% 0.3000
Third Quarter.......... 14 3/8 12 3/8 1,881 13.66 12.48 (5.75)% 0.1100
Fourth Quarter......... 13 3/8 10 5/8 3,101 13.80 12.21 (6.34)% 0.4268
Year Ended
December 31, 1995
First Quarter.......... 11 7/8 9 3/8 2,665 11.83 9.68 6.25% 0.3700
Second Quarter......... 12 3/8 10 5/8 2,614 12.96 10.58 (5.34)% 0.4500
Third Quarter..........
(through July 18,
1995)............. 12 3/8 11 3/4 1,137 12.77 12.69 (4.45)% --
</TABLE>
- ---------------
(1) Amounts paid or payable to shareholders of record as of the last Business
Day of the quarter.
(2) From July 16, 1993, the commencement of trading, through September 30, 1993.
The last reported sale price, net asset value per share and percentage
premium (discount) to net asset value of the Common Stock on July 18, 1995 were
$12.125, $12.69 and (4.45)%, respectively.
CAPITALIZATION AT JUNE 30, 1995
<TABLE>
<CAPTION>
AMOUNT OUTSTANDING
AMOUNT HELD BY THE EXCLUSIVE OF AMOUNT
AMOUNT FUND OR FOR ITS HELD BY THE FUND OR
TITLE OF CLASS AUTHORIZED ACCOUNT FOR ITS ACCOUNT
- ------------------------------- -------------------- ------------------- ---------------------
<S> <C> <C> <C>
Common Stock, $0.01 par value 100,000,000 Shares -0- 16,081,114 Shares
</TABLE>
12
<PAGE> 15
THE FUND
The Fund, incorporated in Maryland on May 6, 1993, is a non-diversified,
closed-end management investment company registered under the 1940 Act. The
Fund's primary investment objective is to seek high current income. As a
secondary objective, the Fund seeks capital appreciation. In seeking to achieve
these objectives, the Fund invests primarily in debt securities of government
and government-related issuers located in emerging countries, as defined below
under "Investment Objectives and Policies." No assurance can be given that the
Fund's investment objectives will be realized. Due to the risks inherent in
international investments generally and emerging country investments in
particular, the Fund should be considered as a vehicle for investing a portion
of an investor's assets in foreign securities markets and not as a complete
investment program.
The Fund commenced operations on July 23, 1993, following the issuance of
7,093 shares of Common Stock to the Investment Manager on July 12, 1993 for
$100,000 and the initial public offering on July 16, 1993 of 15,974,400 shares
to the public resulting in aggregate net proceeds to the Fund of approximately
$225.1 million. Since commencement of operations through June 30, 1995, the Fund
has also issued 99,621 shares pursuant to its Dividend Reinvestment and Cash
Purchase Plan. At June 30, 1995, the Fund had 16,081,114 shares of Common Stock
outstanding, which are listed and traded on the NYSE under the symbol "MSD". As
of June 30, 1995, the net assets of the Fund were approximately $202 million.
At all times, except during periods when a temporary defensive investment
strategy is appropriate, as determined by the Fund's Investment Manager, the
Fund attempts to maintain at least 65% of its total assets invested in debt
securities of government and government-related issuers located in emerging
countries (including participations in loans between governments and financial
institutions), and in securities of entities organized to restructure
outstanding debt of such issuers. In addition, the Fund may invest up to 35% of
its total assets in debt securities of corporate issuers located in or organized
under the laws of emerging countries. Any of the Fund's assets which are not
invested according to these objectives will be invested in the short-term and
medium-term debt instruments described below under "Investment Objectives and
Policies -- Temporary Investments."
THE OFFER
TERMS OF THE OFFER
The Fund is issuing Rights to subscribe for the Shares to Record Date
Shareholders. Each Record Date Shareholder is being issued one transferable
Right for each full share of Common Stock owned on the Record Date. The number
of Rights to be issued to Record Date Shareholders will be rounded up to the
nearest number of Rights evenly divisible by three. In the case of shares held
of record by a Nominee Holder, the number of Rights issued to such Nominee
Holder will be adjusted to permit rounding up (to the nearest number of Rights
evenly divisible by three) of the Rights to be received by beneficial holders
for whom it is the holder of record only if the Nominee Holder provides to the
Fund on or before the close of business on August 1, 1995 written representation
of the number of Rights required for such rounding. Accordingly, no fractional
Shares will be issued. The Rights entitle the holders thereof to acquire at the
Subscription Price one Share for each three Rights held. The Rights are
evidenced by Subscription Certificates, which will be mailed to the Record Date
Shareholders other than Foreign Record Date Shareholders. See "-- Foreign
Shareholders."
Completed Subscription Certificates may be delivered to the Subscription
Agent at any time during the Subscription Period, which commences on July 19,
1995, and ends at 5:00 p.m., New York time, on August 8, 1995, unless extended
by the Fund and the Dealer Manager. See "-- Expiration of the Offer." Parties
that purchase Rights prior to the Expiration Date may purchase Shares in the
Primary Subscription, but may not participate in the Over-Subscription Privilege
with respect to such Rights. All Rights may be exercised upon receipt and until
5:00 p.m. on the Expiration Date.
Any Record Date Shareholder who fully exercises all Rights issued to such
Record Date Shareholder by the Fund is entitled to subscribe for Shares which
were not otherwise subscribed for by Exercising Rights
13
<PAGE> 16
Holders in the Primary Subscription. Shares acquired pursuant to the
Over-Subscription Privilege may be subject to allotment, which is more fully
discussed below under "-- Over-Subscription Privilege."
Rights will be evidenced by Subscription Certificates (see Appendix A) and
may be exercised by completing a Subscription Certificate and delivering it,
together with payment, either by means of a Notice of Guaranteed Delivery or a
check, to the Subscription Agent. The method by which Rights may be exercised
and Shares paid for is set forth below under "-- Exercise of Rights" and "--
Payment for Shares." An Exercising Rights Holder will have no right to rescind
or modify a purchase after the Subscription Agent has received a completed
Subscription Certificate or Notice of Guaranteed Delivery. See "-- Payment for
Shares" below. Shares issued pursuant to an exercise of Rights will be listed on
the NYSE.
The Rights are transferable until the close of business on the last
Business Day prior to the Expiration Date and will be listed for trading on the
NYSE. Assuming a market exists for the Rights, the Rights may be purchased and
sold through usual brokerage channels, or may be sold through the Subscription
Agent if delivered to the Subscription Agent on or before August 3, 1995.
Although no assurance can be given that a market for the Rights will develop,
trading in the Rights on the NYSE may be conducted until and including the close
of trading on the last Business Day prior to the Expiration Date. The method by
which Rights may be transferred is set forth below under "-- Sale of Rights."
The underlying Shares will also be listed for trading on the NYSE.
PURPOSE OF THE OFFER
The Board of Directors of the Fund has determined that it is in the best
interests of the Fund and its shareholders to increase the assets of the Fund
available for investment so that the Fund will be in a better position to take
advantage of further investment opportunities in emerging countries. The Fund
believes that increasing the size of the Fund should also result in lowering the
Fund's expenses as a proportion of average net assets, although no assurance can
be given that this result will be achieved. At June 30, 1995, the Fund had net
assets of $202 million. In addition, the Offer seeks to reward the Fund's
shareholders by giving existing shareholders the right to purchase additional
shares of Common Stock at a price below market and net asset value without
incurring any commission charge. The distribution to shareholders of
transferable Rights which themselves may have intrinsic value also will afford
nonparticipating shareholders the potential of receiving a cash payment upon
sale of such Rights, receipt of which may be viewed as compensation for the
possible dilution of their interest in the Fund. The Board of Directors
determined to proceed with the offer of transferable rights after having
considered the dilutive effect of the offering on shareholders who are unwilling
or unable to fully exercise their rights, as well as the alternatives of a
secondary offering and the offer of non-transferable rights.
The Investment Manager will benefit from the Offer because the Investment
Manager's fee is based on the weekly average net assets of the Fund. See
"Management of the Fund -- Investment Manager." It is not possible to state
precisely the amount of additional compensation the Investment Manager will
receive as a result of the Offer because it is not known how many Shares will be
subscribed for and because the proceeds of the Offer will be invested in
additional portfolio securities, which will fluctuate in value. However, in the
event that all the Rights are exercised in full and on the basis of the
Subscription Price of $9.25 per Share, the Investment Manager would receive
additional annual advisory fees of approximately $476,000. Three of the Fund's
Directors who voted to authorize the Offer are affiliated with the Investment
Manager. These three Directors could benefit indirectly from the Offer because
of their affiliations. The other Directors, all of whom voted to authorize the
Offer, are not affiliated with the Investment Manager or the Dealer Manager. See
"Management of the Fund."
The Fund may, in the future and at its discretion, choose to make
additional rights offerings from time to time for a number of shares and on
terms which may or may not be similar to the Offer.
USE OF PROCEEDS
If all of the Rights are exercised in full at the Subscription Price of
$9.25 per Share and the maximum solicitation fee is paid to Selling Group
Members, the net proceeds to the Fund would be approximately
14
<PAGE> 17
$47.5 million, after deducting offering expenses payable by the Fund estimated
to be approximately $500,000. However, there can be no assurance that all Rights
will be exercised in full. It is anticipated that the net proceeds of the Offer
will be fully invested in investments conforming to the Fund's investment
objectives and policies within three months of the Expiration Date. Pending such
investment it is anticipated that the proceeds will be invested in certain
short-term and medium-term debt instruments, as described under "Investment
Objectives and Policies -- Temporary Investments."
OVER-SUBSCRIPTION PRIVILEGE
Shares not subscribed for in the Primary Subscription will be offered, by
means of the Over-Subscription Privilege, to Record Date Shareholders who have
exercised all Rights issued to them by the Fund and who wish to acquire more
than the number of Shares for which the Rights held by them are exercisable.
Record Date Shareholders should indicate, on the Subscription Certificate which
they submit with respect to the exercise of the Rights held by them, how many
Shares they are willing to acquire pursuant to the Over-Subscription Privilege.
If sufficient Shares remain, all over-subscriptions will be honored in full.
Purchasers of Rights who are not Record Date Shareholders are not eligible to
participate in the Over-Subscription Privilege.
If subscriptions for Shares pursuant to the Over-Subscription Privilege
exceed the Shares available, the available Shares will be allocated among those
Record Date Shareholders who over-subscribe based on the number of Rights
originally issued to them by the Fund so that the number of shares issued to
Record Date Shareholders who subscribe pursuant to the Over-Subscription
Privilege will generally be in proportion to the number of Shares owned by them
in the Fund on the Record Date. The percentage of remaining Shares each
over-subscribing Record Date Shareholder may acquire may be rounded up or down
to result in delivery of whole Shares. The allocation process may involve a
series of allocations in order to assure that the total number of Shares
available for over-subscriptions is distributed on a pro rata basis.
The Fund will not offer or sell any Shares which are not subscribed for
pursuant to the Primary Subscription or the Over-Subscription Privilege.
THE SUBSCRIPTION PRICE
The Subscription Price per Share is $9.25. The Fund announced the Offer
after the close of trading on the NYSE on June 9, 1995. The net asset value per
share of Common Stock at the close of business on June 9, 1995 and on July 18,
1995 was $12.09 and $12.69, respectively, and the last reported sale price of a
share of the Common Stock on the NYSE on those dates was $12.00 and $12.125,
respectively. The Subscription Price of $9.25 is approximately a 27.1% discount
to the Fund's net asset value per share on July 18, 1995 and approximately a
23.7% discount to the last reported sale price of a share of Common Stock on the
NYSE on July 18, 1995.
EXPIRATION OF THE OFFER
The Offer will expire at 5:00 p.m., New York time, on August 8, 1995,
unless extended by the Fund and the Dealer Manager (the "Expiration Date").
Rights will expire on the Expiration Date and may not be exercised thereafter.
SUBSCRIPTION AGENT
The Subscription Agent is The First National Bank of Boston, which will
receive for its administrative, processing, invoicing and other services as
subscription agent a fee estimated to be approximately $10,000, as well as
reimbursement for all out-of-pocket expenses related to the Offer. The
Subscription Agent is also the Fund's dividend paying agent, transfer agent and
registrar. Questions regarding the Subscription Certificates should be directed
to The First National Bank of Boston, 150 Royall Street, Canton, Massachusetts
02021 (telephone (617) 575-2700); shareholders may also consult their brokers or
nominees. Signed Subscription Certificates (see Appendix A) should be sent by
mail, hand, express mail or overnight courier, together with payment of the
Subscription Price, to The First National Bank of Boston, Attention: Shareholder
Services
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<PAGE> 18
Division, 150 Royall Street, Mail Stop 45-01-19, Canton, Massachusetts 02021.
Subscription Certificates may also be sent by facsimile to (617) 575-2232, with
the original Subscription Certificate to be sent by one of the methods described
above. Facsimiles should be confirmed by telephone to (617) 575-2700.
INFORMATION AGENT
Any questions or requests for assistance may be directed to the Information
Agent at its telephone number and address listed below:
The Information Agent for the Offer is:
Shareholder Communications Corporation
17 State Street
New York, New York 10004
Toll Free: (800) 733-8481, ext. 316
or
Call Collect: (212) 805-7000, ext. 316
The Information Agent will receive a fee estimated to be approximately
$20,000, as well as reimbursement for all out-of-pocket expenses related to the
Offer.
SALE OF RIGHTS
The Rights are transferable until the last Business Day prior to the
Expiration Date. The Rights will be listed on the NYSE under the symbol "MSD.RT"
and may be sold on the NYSE through the usual investment channels. The Fund has
used its best efforts to ensure that an adequate trading market for the Rights
will exist by causing the Rights to be listed on the NYSE and by retaining the
Dealer Manager, the Subscription Agent and the Information Agent. Although there
can be no assurance that such a market for the Rights will develop, trading in
the Rights on the NYSE may be conducted until the close of trading on the last
Business Day prior to the Expiration Date.
Sales through Subscription Agent. Rights Holders who do not wish to
exercise any or all of their Rights may instruct the Subscription Agent to sell
any unexercised Rights. Subscription Certificates representing the Rights to be
sold by the Subscription Agent must be received by the Subscription Agent on or
before August 3, 1995. Upon the timely receipt by the Subscription Agent of
appropriate instructions to sell Rights, the Subscription Agent will use its
best efforts to complete the sale and the Subscription Agent will remit the
proceeds of sale, net of commissions, to the Rights Holders. Rights may be sold
through or to the Dealer Manager on the NYSE or otherwise. If the Rights can be
sold, sales of such Rights will be deemed to have been effected at the
weighted-average price received by the Subscription Agent on the day such Rights
are sold. The selling Rights Holder will pay any brokerage commissions incurred
by the Subscription Agent. The sale price of any Rights sold to the Dealer
Manager will be based upon the then current market price for the Rights less
amounts comparable to the usual and customary brokerage fees. The Subscription
Agent will also attempt to sell all Rights which remain unclaimed as a result of
Subscription Certificates being returned by the postal authorities to the
Subscription Agent as undeliverable as of the fourth Business Day prior to the
Expiration Date. Such sales will be made net of any commissions on behalf of the
nonclaiming Record Date Shareholders. The Subscription Agent will hold the
proceeds from those sales for the benefit of such nonclaiming Record Date
Shareholders until such proceeds either are claimed or escheat. There can be no
assurance that the Subscription Agent will be able to complete the sale of any
such Rights, and neither the Fund, the Subscription Agent nor the Dealer Manager
has guaranteed any minimum sale price for the Rights.
Other Transfers. The Rights are transferable until the close of business
on the last Business Day prior to the Expiration Date. The Rights evidenced by a
single Subscription Certificate may be transferred in whole or in part (in a
number evenly divisible by three) by delivering to the Subscription Agent a
Subscription Certificate properly endorsed for transfer, with instructions to
register such portion of the Rights evidenced
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<PAGE> 19
thereby in the name of the transferee and to issue a new Subscription
Certificate to the transferee evidencing such transferred Rights. In such event,
a new Subscription Certificate evidencing the balance of the Rights will be
issued to the transferring Rights Holder or, if the transferring Rights Holder
so instructs, to an additional transferee.
Rights Holders wishing to transfer all or a portion of their Rights should
allow up to three Business Days prior to the Expiration Date for (i) the
transfer instructions to be received and processed by the Subscription Agent;
(ii) a new Subscription Certificate to be issued and transmitted to the
transferee or transferees with respect to transferred Rights, and to the
transferor with respect to retained Rights, if any; and (iii) the Rights
evidenced by such new Subscription Certificate to be exercised or sold by the
recipients thereof. Neither the Fund, the Subscription Agent nor the Dealer
Manager shall have any liability to a transferee or transferor of Rights if
Subscription Certificates are not received in time for exercise or sale prior to
the Expiration Date.
Except for the fees charged by the Subscription Agent (which will be paid
by the Fund as described above), all commissions, fees and other expenses
(including brokerage commissions and transfer taxes) incurred in connection with
the purchase, sale or exercise of Rights will be for the account of the
transferor of the Rights, and none of such commissions, fees or expenses will be
paid by the Fund, the Subscription Agent or the Dealer Manager.
The Rights will be eligible for transfer through, and the exercise of the
Primary Subscription (but not the Over-Subscription Privilege) may be effected
through, the facilities of The Depository Trust Company ("DTC"); Rights
exercised through DTC are referred to as "DTC Exercised Rights." The holder of a
DTC Exercised Right may exercise the Over-Subscription Privilege in respect of
such DTC Exercised Right by properly executing and delivering to the
Subscription Agent, at or prior to 5:00 p.m., New York time, on the Expiration
Date, a Nominee Holder Over-Subscription Form (See Appendix C), together with
payment of the Subscription Price for the number of Shares for which the
Over-Subscription Privilege is to be exercised. Copies of the Nominee Holder
Over-Subscription Form may be obtained from the Subscription Agent.
EXERCISE OF RIGHTS
Rights may be exercised by completing and signing the reverse side of the
Subscription Certificate which accompanies this Prospectus and mailing it in the
envelope provided, or otherwise delivering the completed and signed Subscription
Certificate to the Subscription Agent, together with payment of the Subscription
Price for the Shares as described below under "Payment for Shares." Completed
Subscription Certificates must be received by the Subscription Agent prior to
5:00 p.m., New York time, on the Expiration Date (unless payment is effected by
means of a Notice of Guaranteed Delivery as described below under "-- Payment
for Shares") at the offices of the Subscription Agent at the address set forth
above. Rights may also be exercised through an Exercising Rights Holder's
broker, who may charge such Exercising Rights Holder a servicing fee.
Nominees who hold shares of Common Stock for the account of others, such as
banks, brokers, trustees or depositories for securities, should notify the
respective beneficial owners of such shares as soon as possible to ascertain
such beneficial owners' intentions and to obtain instructions with respect to
the Rights. If the beneficial owner so instructs, the nominee should complete
the Subscription Certificate and submit it to the Subscription Agent with the
proper payment. In addition, beneficial owners of Common Stock or Rights held
through such a nominee should contact the nominee and request the nominee to
effect transactions in accordance with the beneficial owner's instructions.
EXERCISE OF THE OVER-SUBSCRIPTION PRIVILEGE
Record Date Shareholders who fully exercise all Rights issued to them by
the Fund may participate in the Over-Subscription Privilege by indicating on
their Subscription Certificate the number of Shares they are willing to acquire
pursuant thereto. Persons purchasing Rights who are not Record Date Shareholders
are not eligible to participate in the Over-Subscription Privilege. There is no
limit on the number of Shares that Record Date Shareholders may seek to
subscribe for pursuant to the Over-Subscription Privilege. If sufficient Shares
remain after the Primary Subscription, all over-subscriptions will be honored in
full; otherwise the number of Shares issued to each Record Date Shareholder
participating in the Over-Subscription Privilege will be allocated as described
above under "-- Over-Subscription Privilege."
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<PAGE> 20
Banks, brokers, trustees and other nominee holders of Rights will be
required to certify to the Fund, before any Over-Subscription Privilege may be
exercised as to any particular beneficial owner, as to the aggregate number of
Rights exercised pursuant to the Primary Subscription and the number of Shares
subscribed for pursuant to the Over-Subscription Privilege by such beneficial
owner and that such beneficial owner's Primary Subscription was exercised in
full.
PAYMENT FOR SHARES
Exercising Rights Holders may choose between the following methods of
payment:
(1) An Exercising Rights Holder can send the Subscription Certificate,
together with payment for the Shares acquired on Primary Subscription and
any additional Shares subscribed for pursuant to the Over-Subscription
Privilege (for Record Date Shareholders) to the Subscription Agent based
upon the Subscription Price of $9.25 per Share. A subscription will be
accepted when payment, together with the executed Subscription Certificate,
is received by the Subscription Agent at its Shareholders Services
Division; such payment and Subscription Certificates to be received by the
Subscription Agent no later than 5:00 p.m., New York time, on the
Expiration Date. The Subscription Agent will deposit all checks received by
it for the purchase of Shares into a segregated interest-bearing account of
the Fund (the interest from which will belong to the Fund) pending
proration and distribution of Shares. A PAYMENT PURSUANT TO THIS METHOD
MUST BE IN U.S. DOLLARS BY MONEY ORDER OR CHECK DRAWN ON A BANK LOCATED IN
THE UNITED STATES, MUST BE PAYABLE TO THE ORDER OF MORGAN STANLEY EMERGING
MARKETS DEBT FUND, INC. AND MUST ACCOMPANY A PROPERLY COMPLETED AND
EXECUTED SUBSCRIPTION CERTIFICATE FOR SUCH SUBSCRIPTION CERTIFICATE TO BE
ACCEPTED AND BE RECEIVED BY 5:00 P.M., NEW YORK TIME, ON THE EXPIRATION
DATE.
(2) Alternatively, a subscription will be accepted by the Subscription
Agent if, prior to 5:00 p.m., New York time, on the Expiration Date, the
Subscription Agent has received a Notice of Guaranteed Delivery (See
Appendix B) by facsimile (telecopy) or otherwise from a bank, a trust
company, or a NYSE member guaranteeing delivery of (i) payment of the full
Subscription Price for the Shares subscribed for in the Primary
Subscription and any additional Shares subscribed for pursuant to the Over-
Subscription Privilege (for Record Date Shareholders), and (ii) a properly
completed and executed Subscription Certificate. The Subscription Agent
will not honor a Notice of Guaranteed Delivery unless a properly completed
and executed Subscription Certificate and full payment for the Shares is
received by the Subscription Agent by the close of business on the third
Business Day after the Expiration Date (the "Protect Period").
Within seven Business Days following the Protect Period, the Subscription
Agent will send to each Exercising Rights Holder (or, if the Common Stock is
held by a Nominee Holder, to such Nominee Holder) the share certificates
representing the Shares purchased pursuant to the Primary Subscription and, if
applicable, the Over-Subscription Privilege, along with a letter explaining the
allocation of Shares pursuant to the Over-Subscription Privilege. Any excess
payment to be refunded by the Fund to a Record Date Shareholder who is not
allocated the full amount of Shares subscribed for pursuant to the
Over-Subscription Privilege will be mailed by the Subscription Agent to such
Record Date Shareholder within ten Business Days after the end of the Protect
Period. An Exercising Rights Holder will have no right to rescind or modify a
purchase after the Subscription Agent has received a properly completed and
executed Subscription Certificate or a Notice of Guaranteed Delivery. All
payments by a Rights Holder must be in U.S. dollars by money order or check
drawn on a bank located in the United States and payable to the order of Morgan
Stanley Emerging Markets Debt Fund, Inc.
Whichever of the two methods described above is used, issuance of the
Shares purchased are subject to collection of checks and actual payment. If an
Exercising Rights Holder who acquires Shares pursuant to the Primary
Subscription or Over-Subscription Privilege does not make payment of any amounts
due, the Fund and the Subscription Agent reserve the right to take any or all of
the following actions: (i) find other shareholders or Rights Holders for such
subscribed and unpaid for Shares; (ii) apply any payment actually
18
<PAGE> 21
received by it toward the purchase of the greatest whole number of Shares which
could be acquired by such holder upon exercise of the Primary Subscription
and/or Over-Subscription Privilege; and/or (iii) exercise any and all other
rights or remedies to which it may be entitled, including, without limitation,
the right to set-off against payments actually received by it with respect to
such subscribed Shares.
THE METHOD OF DELIVERY OF SUBSCRIPTION CERTIFICATES AND PAYMENT OF THE
SUBSCRIPTION PRICE TO THE FUND WILL BE AT THE ELECTION AND RISK OF THE
EXERCISING RIGHTS HOLDERS, BUT IF SENT BY MAIL IT IS RECOMMENDED THAT SUCH
CERTIFICATES AND PAYMENTS BE SENT BY REGISTERED MAIL, PROPERLY INSURED, WITH
RETURN RECEIPT REQUESTED, AND THAT A SUFFICIENT NUMBER OF DAYS BE ALLOWED TO
ENSURE DELIVERY TO THE SUBSCRIPTION AGENT AND CLEARANCE OF PAYMENT PRIOR TO 5:00
P.M., NEW YORK TIME, ON THE EXPIRATION DATE. BECAUSE UNCERTIFIED PERSONAL CHECKS
MAY TAKE AT LEAST FIVE BUSINESS DAYS TO CLEAR, YOU ARE STRONGLY URGED TO PAY, OR
ARRANGE FOR PAYMENT, BY MEANS OF CERTIFIED OR CASHIER'S CHECK OR MONEY ORDER.
All questions concerning the timeliness, validity, form and eligibility of
any exercise of Rights will be determined by the Fund, whose determinations will
be final and binding. The Fund, in its sole discretion, may waive any defect or
irregularity, or permit a defect or irregularity to be corrected within such
time as it may determine, or reject the purported exercise of any Right.
Subscriptions will not be deemed to have been received or accepted until all
irregularities have been waived or cured within such time as the Fund determines
in its sole discretion. The Fund will not be under any duty to give notification
of any defect or irregularity in connection with the submission of Subscription
Certificates or incur any liability for failure to give such notification.
Nominees who hold shares of Common Stock for the account of others, such as
banks, brokers, trustees or depositories for securities, should notify the
respective beneficial owners of such shares as soon as possible to ascertain
such beneficial owners' intentions and to obtain instructions with respect to
the Rights. If the beneficial owner so instructs, the nominee should complete
the Subscription Certificate and submit it to the Subscription Agent with the
proper payment. In addition, beneficial owners of Common Stock or Rights held
through such a nominee should contact the nominee and request the nominee to
effect transactions in accordance with the beneficial owner's instructions.
DELIVERY OF SHARE CERTIFICATES
Certificates representing Shares purchased pursuant to the Primary
Subscription will be delivered to Exercising Rights Holders as soon as
practicable after the corresponding Rights have been validly exercised and full
payment for such Shares has been received and cleared. Certificates representing
Shares purchased pursuant to the Over-Subscription Privilege will be delivered
to Exercising Rights Holders as soon as practicable after the Expiration Date
and after all allocations have been effected.
FOREIGN SHAREHOLDERS
Subscription Certificates will not be mailed to Foreign Record Date
Shareholders. The Rights to which such Subscription Certificates relate will be
held by the Subscription Agent for such Foreign Record Date Shareholders'
accounts until instructions are received to exercise, sell or transfer the
Rights. If no instructions have been received by 12:00 Noon, New York time,
three Business Days prior to the Expiration Date, the Subscription Agent will
use its best efforts to sell the Rights of those Foreign Record Date
Shareholders through or to the Dealer Manager. The net proceeds, if any, from
the sale of those Rights will be remitted to the Foreign Record Date
Shareholders.
FEDERAL INCOME TAX CONSEQUENCES
The U.S. federal income tax consequences to holders of Common Stock with
respect to the Offer will be as follows:
1. The distribution of Rights to Record Date Shareholders will not
result in taxable income to such holders nor will such holders realize
taxable income as a result of the exercise of the Rights.
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<PAGE> 22
2. The basis of a Right will be (a) to a holder of Common Stock to
whom it is issued and who exercises or sells the Right (i) if the fair
market value of the Right immediately after issuance is less than 15% of
the fair market value of the Common Stock with regard to which it is
issued, zero (unless the holder elects, by filing a statement with his
timely filed federal income tax return for the year in which the Rights are
received, to allocate the basis of the Common Stock between the Right and
the Common Stock based on their respective fair market values immediately
after the Right is issued), and (ii) if the fair market value of the Right
immediately after issuance is 15% or more of the fair market value of the
Common Stock with regard to which it is issued, a portion of the basis in
the Common Stock based upon their respective fair market values immediately
after the Right is issued; (b) to a holder of Common Stock to whom it is
issued and who allows the Right to expire, zero; and (c) to anyone who
purchases a Right in the market, the purchase price for a Right.
3. The holding period of a Right received by a Record Date Shareholder
includes the holding period of the Common Stock with regard to which the
Right is issued.
4. Any gain or loss on the sale of a Right will be treated as a
capital gain or loss if the Right is a capital asset in the hands of the
seller. Such a capital gain or loss will be long- or short-term, depending
on how long the Right has been held, in accordance with paragraph 3 above.
A Right will be a capital asset in the hands of the person to whom it is
issued if the Common Stock to which the Right relates would be a capital
asset in the hands of that person. If a Right is allowed to expire, there
will be no loss realized unless the Right had been acquired by purchase, in
which case there will be a loss equal to the basis of the Right.
5. If the Right is exercised by the Record Date Shareholder, the basis
of the Common Stock received will include the basis allocated to the Right
and the amount paid upon exercise of the Right.
6. If the Right is exercised, the holding period of the Common Stock
acquired begins on the date the Right is exercised.
7. Gain recognized by a foreign shareholder on the sale of a Right
will be taxed in the same manner as gain recognized on the sale of Fund
shares. See "Taxation -- U.S. Federal Income Taxes -- Foreign
Shareholders."
The Fund is required to withhold and remit to the U.S. Treasury 31% of
reportable payments paid on an account if the holder of the account is a
taxpayer to which the backup withholding rules apply and has provided the Fund
with either an incorrect taxpayer identification number or no number at all or
fails to certify that he is not subject to such withholding.
The foregoing is only a summary of the applicable federal income tax laws
and does not include any state or local tax consequences of the Offer.
Exercising Rights Holders should consult their own tax advisers concerning the
tax consequences of this transaction. See "Taxation."
NOTICE OF NET ASSET VALUE DECLINE
The Fund has, as required by the Securities and Exchange Commission,
undertaken to suspend the Offer until it amends this Prospectus if, subsequent
to July 19, 1995 (the effective date of the Fund's Registration Statement), the
Fund's net asset value declines more than 10% from its net asset value as of
that date.
EMPLOYEE PLAN CONSIDERATIONS
Shareholders that are employee benefit plans subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), (including
corporate savings and 401(k) plans), Keogh or H.R.10 plans of self-employed
individuals and Individual Retirement Accounts ("IRAs") and other plans eligible
for special tax treatment under the Code or subject to Section 4975 of the Code
(collectively, "Plans") should be aware that additional contributions of cash to
the Plan (other than rollover contributions or trustee-to-trustee transfers from
other Plans) in order to exercise Rights would be treated as Plan contributions
and, when taken together with contributions previously made, may subject a Plan
to excise taxes for excess or nondeductible
20
<PAGE> 23
contributions. In the case of Plans qualified under Section 401(a) of the Code
and certain other plans, additional cash contributions could cause the maximum
contribution limitations of Section 415 of the Code or other qualification rules
to be violated. Furthermore, it may be a reportable distribution and there may
be other adverse tax consequences if Rights are sold or transferred by a Plan to
another account. A sale of Rights by a Plan account to an unrelated third party
and retention of cash proceeds by the Plan account, or the direct exercise of
Rights by a Plan account, should not be treated as a taxable Plan distribution.
Plans contemplating making additional cash contributions to exercise Rights
should consult with their counsel prior to making such contributions.
Plans and other tax-exempt entities, including governmental plans, also
should be aware that if they borrow in order to finance their exercise of
Rights, they may become subject to the tax on unrelated business taxable income
("UBTI") under Section 511 of the Code. If any portion of an Individual
Retirement Account ("IRA") is used as security for a loan, the portion so used
is also treated as distributed to the IRA depositor.
ERISA contains fiduciary responsibility requirements, and ERISA and the
Code contain prohibited transaction rules that may impact the exercise or
transfer of Rights. Due to the complexity of these rules and the penalties for
noncompliance, Plans should consult with their counsel regarding the
consequences of their exercise or transfer of Rights under ERISA and the Code.
RISK FACTORS AND SPECIAL CONSIDERATIONS
An investment in the Fund is subject to a number of risks and special
considerations, including the following:
DILUTION
An immediate dilution of the aggregate net asset value of the Common Stock
owned by Record Date Shareholders who do not fully exercise their Rights is
likely to occur as a result of the Offer because the Subscription Price per
Share is less than the Fund's net asset value per share on the Record Date, and
the number of shares outstanding after the Offer is likely to increase in a
greater percentage than the increase in the size of the Fund's assets. In
addition, as a result of the Offer, Record Date Shareholders who do not fully
exercise their Rights should expect that they will, upon completion of the
Offer, own a smaller proportional interest in the Fund than would otherwise be
the case. Although it is not possible to state precisely the amount of such a
decrease in net asset value, because it is not known at this time what the net
asset value per share will be on the Expiration Date or what proportion of the
Rights will be exercised, such dilution could be substantial. For example,
assuming that all Rights are exercised and that the Subscription Price of $9.25
is 27.1% below the Fund's net asset value of $12.69 per share as of July 18,
1995, the Fund's net asset value per share would be reduced by approximately
$0.98 per share.
RATED AND UNRATED SECURITIES
At any one time, substantially all of the Fund's assets may be invested in
instruments that are rated below investment grade or are unrated. At June 30,
1995, approximately 91% of the Fund's total assets was invested in debt
securities rated below investment grade or unrated. Many of the emerging country
debt securities of the type in which the Fund will invest are generally
considered to have a credit quality rated below investment grade by
internationally recognized credit rating organizations such as Moody's and S&P.
Non-investment grade securities (that is, rated Ba1 or lower by Moody's or BB+
or lower by S&P) are commonly referred to as "junk bonds" and are regarded as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligations and involve
major risk exposure to adverse conditions. Some of the emerging country debt
securities held by the Fund, which may not be paying interest currently or may
be in payment default, may be comparable to securities rated as low as C by
Moody's or CCC or lower by S&P. These securities are considered to have
extremely poor prospects of ever attaining any real investment standing, to have
a current identifiable vulnerability to default, to be unlikely to have the
capacity to pay interest and repay principal when due in the event of adverse
business, financial or economic conditions and/or to be in default or not
current in the payment of interest or principal.
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<PAGE> 24
Debt instruments rated below investment grade and unrated debt instruments
generally offer a higher current yield than that available from higher grade
issues, but typically involve greater risk. Securities rated below investment
grade and unrated securities are especially subject to adverse changes in
general economic conditions, to changes in the financial condition of their
issuers and to price fluctuation in response to changes in interest rates.
During periods of economic downturn or rising interest rates, issuers of
instruments rated below investment grade and unrated instruments may experience
financial stress that could adversely affect their ability to make payments of
principal and interest and increase the possibility of default. Adverse
publicity and investor perceptions, whether or not based on fundamental
analysis, may also decrease the values and liquidity of securities rated below
investment grade and unrated securities especially in a market characterized by
a low volume of trading.
CONSIDERATIONS RELATING TO DEBT SECURITIES
The Fund is subject to no restrictions on the maturities of the emerging
country debt securities it holds; those maturities may range from overnight to
30 years. The value of debt securities held by the Fund generally will vary
inversely to changes in prevailing interest rates. The Fund's investments in
fixed-rated debt securities with longer terms to maturity are subject to greater
volatility than the Fund's investments in shorter-term obligations. Debt
obligations acquired at a discount are subject to greater fluctuations of market
value in response to changing interest rates than debt obligations of comparable
maturities which have not been acquired at such discount.
Investments in emerging country government debt securities involve special
risks. Certain emerging countries have historically experienced, and may
continue to experience, high rates of inflation, high interest rates, exchange
rate fluctuations, large amounts of external debt, balance of payments and trade
difficulties and extreme poverty and unemployment. The issuer or governmental
authority that controls the repayment of an emerging country's debt may not be
able or willing to repay the principal and/or interest when due in accordance
with the terms of such debt. A debtor's willingness or ability to repay
principal and interest due in a timely manner may be affected by, among other
factors, its cash flow situation and, in the case of a government debtor, the
extent of its foreign reserves, the availability of sufficient foreign exchange
on the date a payment is due, the relative size of the debt service burden to
the economy as a whole, the government debtor's policy towards the International
Monetary Fund and the political constraints to which a government debtor may be
subject. Government debtors may default on their debt and may also be dependent
on expected disbursements from foreign governments, multilateral agencies and
others abroad to reduce principal and interest arrearages on their debt. The
commitment on the part of these governments, agencies and others to make such
disbursements may be conditioned on a debtor's implementation of economic
reforms and/or economic performance and the timely service of such debtor's
obligations. Failure to implement such reforms, achieve such levels of economic
performance or repay principal or interest when due may result in the
cancellation of such third parties' commitments to lend funds to the government
debtor, which may further impair such debtor's ability or willingness to service
its debts on a timely basis. Holders of government debt, including the Fund, may
be requested to participate in the rescheduling of such debt and to extend
further loans to government debtors.
As a result of the foregoing, a government obligor may default on its
obligations. If such an event occurs, the Fund may have limited legal recourse
against the issuer and/or guarantor. Remedies must, in some cases, be pursued in
the courts of the defaulting party itself, and the ability of the holder of
foreign government debt securities to obtain recourse may be subject to the
political climate in the relevant country. In addition, no assurance can be
given that the holders of commercial bank debt will not contest payments to the
holders of other foreign government debt obligations in the event of default
under their commercial bank loan agreements.
Government obligors in developing and emerging countries are among the
world's largest debtors to commercial banks, other governments, international
financial organizations and other financial institutions. The issuers of the
government debt securities in which the Fund expects to invest have in the past
experienced substantial difficulties in servicing their external debt
obligations, which led to defaults on certain obligations and the restructuring
of certain indebtedness. Restructuring arrangements have included, among other
things,
22
<PAGE> 25
reducing and rescheduling interest and principal payments by negotiating new or
amended credit agreements or converting outstanding principal and unpaid
interest to Brady Bonds (as defined in "Investment Objectives and
Policies -- Brady Bonds"), and obtaining new credit to finance interest
payments. Holders of certain foreign government debt securities may be requested
to participate in the restructuring of such obligations and to extend further
loans to their issuers. There can be no assurance that the Brady Bonds and other
foreign government debt securities in which the Fund may invest will not be
subject to similar restructuring arrangements or to requests for new credit
which may adversely affect the Fund's holdings. Furthermore, certain
participants in the secondary market for such debt may be directly involved in
negotiating the terms of these arrangements and may therefore have access to
information not available to other market participants.
ILLIQUID INVESTMENTS
The Fund may invest without limitation in illiquid securities. Investment
of the Fund's assets in relatively illiquid securities and loans may restrict
the ability of the Fund to dispose of its investments in a timely fashion and
for a fair price, as well as its ability to take advantage of market
opportunities. The risks associated with illiquidity will be particularly acute
in situations in which the Fund's operations require cash, such as when the Fund
pays dividends or distributions or if the Fund repurchases shares, and could
result in the Fund borrowing to meet short-term cash requirements or incurring
capital losses on the sale of illiquid investments.
FOREIGN CURRENCY CONSIDERATIONS
The Fund's assets are invested principally in debt securities of
governments and companies in emerging countries and some of the income received
by the Fund is in foreign currencies. The Fund computes and distributes its
income in U.S. dollars, and the computation of income is made on the date that
the income is earned by the Fund at the foreign exchange rate in effect on that
date. If the value of the foreign currencies in which the Fund receives its
income falls, relative to the U.S. dollar, between the earning of the income and
the time at which the Fund converts the foreign currencies to U.S. dollars, the
Fund may be required to liquidate securities in order to make distributions if
the Fund has insufficient cash in U.S. dollars to meet distribution
requirements. See "Dividends and Distributions; Dividend Reinvestment and Cash
Purchase Plan." The liquidation of investments, if required, may have an adverse
impact on the Fund's performance. In addition, if the liquidated investments
include securities that have been held less than three months, such sales may
jeopardize the Fund's status as a regulated investment company under the Code.
See "Taxation -- U.S. Federal Income Taxes."
Since the Fund invests partially in securities denominated or quoted in
currencies other than the U.S. dollar, changes in foreign currency exchange
rates will affect the value of securities in the Fund's portfolio and the
unrealized appreciation or depreciation of investments. For example, on December
20, 1994, the Mexican Government devalued the Mexican New Peso and then
subsequently permitted it to float freely against other currencies. As a result
of these actions, the Mexican New Peso lost 52.8% of its value against the U.S.
dollar between December 19, 1994 and March 9, 1995. This has had a direct and
significant adverse impact on the Fund's Mexican investments, which made up
approximately 5.4% of the Fund's investment portfolio at the end of November
1994. The crisis in Mexico also has had adverse effects on the currencies and
securities markets of other emerging countries. At June 30, 1995, approximately
7% of the Fund's total assets was invested in securities denominated in
currencies other than the U.S. dollar, with approximately 4% of the Fund's total
assets invested in securities denominated in currencies of emerging market
countries.
In addition to changes in the value of the Fund's portfolio investments
resulting from currency fluctuations, the Fund may incur costs in connection
with conversions between various currencies. Foreign exchange dealers realize a
profit based on the difference between the prices at which they are buying and
selling various currencies. Thus, a dealer normally will offer to sell a foreign
currency to the Fund at one rate,
23
<PAGE> 26
while offering a lesser rate of exchange should the Fund desire immediately to
resell that currency to the dealer. The Fund conducts its foreign currency
exchange transactions either on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market, or through entering into
forward, futures or options contracts to purchase or sell foreign currencies.
The Fund may seek to protect the value of some portion or all of its
portfolio holdings against currency risks by engaging in hedging transactions.
The Fund may enter into forward currency exchange contracts and currency futures
contracts and options on such futures contracts, as well as purchase put or call
options on currencies, in U.S. or foreign markets. In order to hedge against
adverse market shifts, the Fund may purchase put and call options on securities,
write covered call options on securities and enter into fixed income index
futures contracts and related options. For a description of such hedging
strategies, see "Investment Objectives and Policies -- Hedging" and Appendix D
to this Prospectus. There can be no guarantee that instruments suitable for
hedging currency or market shifts will be available at the time when the Fund
wishes to use them. Moreover, investors should be aware that in most emerging
countries the markets for certain of these hedging instruments are not highly
developed and that in many emerging countries no such markets currently exist.
Accordingly, little reliance should be placed on the Fund's ability to hedge its
currency or market risks under current conditions or for the foreseeable future.
INVESTMENT AND REPATRIATION RESTRICTIONS
Foreign investment in certain emerging country debt securities is
restricted or controlled to varying degrees. These restrictions or controls may
at times limit or preclude foreign investment in certain emerging country debt
securities and increase the costs and expenses of the Fund. Certain emerging
countries require governmental approval prior to investments by foreign persons,
limit the amount of investment by foreign persons in a particular issuer, limit
the investment by foreign persons only to a specific class of securities of an
issuer that may have less advantageous rights than the classes available for
purchase by domiciliaries of the countries and/or impose additional taxes on
foreign investors. Certain emerging countries may also restrict investment
opportunities in issuers in industries deemed important to national interests.
Emerging countries may require governmental approval for the repatriation
of investment income, capital or the proceeds of sales of securities by foreign
investors. In addition, if a deterioration occurs in an emerging country's
balance of payments, the country could impose temporary restrictions on foreign
capital remittances. The Fund could be adversely affected by delays in, or a
refusal to grant, any required governmental approval for repatriation of
capital, as well as by the application to the Fund of any restrictions on
investments. Investing in local markets in emerging market countries may require
the Fund to adopt special procedures, seek local government approvals or take
other actions, each of which may involve additional costs to the Fund.
EMERGING COUNTRY SECURITIES MARKETS
No established secondary markets may exist for many of the emerging country
debt securities in which the Fund will invest. Reduced secondary market
liquidity may have an adverse effect on market price and the Fund's ability to
dispose of particular instruments when necessary to meet its liquidity
requirements or in response to specific economic events such as a deterioration
in the creditworthiness of the issuer. Reduced secondary market liquidity for
certain emerging country debt securities may also make it more difficult for the
Fund to obtain accurate market quotations for purposes of valuing its portfolio
and calculating its net asset value. Market quotations generally are available
on many emerging country debt securities only from a limited number of dealers
and may not necessarily represent firm bids of those dealers or prices for
actual sales.
Additionally, investors in emerging country markets may react in a similar
manner to political, social, economic and financial developments in one country,
including those involving the interest rate policy of the United States
government. Such similar reactions by investors in emerging country markets may
reduce market liquidity in any or all emerging countries and consequently result
in increased price volatility of the securities in which the Fund invests or may
invest.
Issuers in emerging countries are not generally subject to uniform
accounting, auditing and financial reporting standards, practices and disclosure
requirements comparable to those applicable to U.S. issuers.
24
<PAGE> 27
Consequently, there may be less publicly available information about an emerging
country issuer than about a U.S. issuer. Furthermore, there is generally less
government supervision and regulation of foreign securities markets, brokers and
securities issuers than in the United States.
INFLATION
Most emerging countries have experienced substantial, and in some periods
extremely high and volatile, rates of inflation. Inflation and rapid
fluctuations in inflation rates have had and may continue to have very negative
effects on the economies and securities markets of certain emerging countries.
In an attempt to control inflation, wage and price controls have been imposed at
times in certain countries.
ECONOMIC AND POLITICAL RISKS
The economies of individual emerging countries may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross domestic
product, rate of inflation, currency depreciation, capital reinvestment,
resource self-sufficiency and balance of payments position. Governments of many
emerging countries have exercised and continue to exercise substantial influence
over many aspects of the private sector. In some cases, the government owns or
controls many companies, including some of the largest in the country.
Accordingly, government actions could have a significant effect on economic
conditions in an emerging country and on market conditions, prices and yields of
securities in the Fund's portfolio. Moreover, the economies of developing
countries generally are heavily dependent upon international trade and,
accordingly, have been and may continue to be adversely affected by trade
barriers, exchange controls, managed adjustments in relative currency values and
other protectionist measures imposed or negotiated by the countries with which
they trade. These economies also have been and may continue to be adversely
affected by economic conditions in the countries with which they trade. With
respect to any emerging country, there is the possibility of nationalization,
expropriation or confiscatory taxation, political changes, government
regulation, economic or social instability or diplomatic developments (including
war) which could affect adversely the economies of such countries or the value
of the Fund's investments in those countries. It also may be difficult to obtain
and enforce a judgment in a court outside of the United States.
In addition, the inter-relatedness of the economies in emerging countries
has deepened over the years, with the effect that economic difficulties in one
country often spread throughout a region or even among all or most emerging
country markets, an effect that may vitiate any attempt by the Fund to reduce
risk through geographic diversification of its portfolio investments. Thus, for
example, the currency devaluation suffered by the Mexican New Peso in late
December 1994 caused other emerging country currencies to be adversely affected,
increased fears of inflation in Latin America and significantly affected
emerging countries' securities markets. Political events often have economic
consequences as well, as exemplified by the resignation of Mexico's Finance
Minister on December 29, 1994 and the perceived weakening of authority of
President Ernesto Zedillo after recently being inaugurated. In January 1995, the
Mexican Government announced a new economic program and a new accord among the
Government, labor and business to address the causes and effects of the rapid
devaluation of the Mexican New Peso relative to the U.S. dollar. The situation
with respect to the Mexican economic crisis continues to be uncertain and it is
expected that significant volatility in the valuations for Mexican securities
and securities in other emerging countries will continue. These events have
adversely affected the value of the Fund's investment portfolio and may continue
to have long-term effects on the economies of emerging countries. No assurance
can be given that the Fund's portfolio will not be further adversely affected by
these and similar events.
RISKS OF LEVERAGE
The Fund is authorized to borrow money from banks and other entities in an
amount equal to up to 33 1/3% of the Fund's total assets (including the amount
obtained from leverage) less all liabilities and indebtedness other than the
borrowing, and may use the proceeds from the leveraging for investment purposes.
For a description of the various leverage techniques the Fund intends to use,
see "Investment Objectives and Policies -- Borrowing and Other Forms of
Leverage." Utilization of leverage is a speculative investment technique and
involves certain risks to the holders of Common Stock. These include the
possibility of higher volatility of the net asset value of the Common Stock and
potentially more volatility in the market value of the
25
<PAGE> 28
Common Stock. So long as the Fund is able to realize a higher net return on its
investment portfolio than the then current interest or dividend rate of any
leverage together with other related expenses, the effect of the leverage will
be to cause holders of Common Stock to realize a higher current net investment
income than if the Fund were not so leveraged. On the other hand, to the extent
that the then current interest or dividend rate on any leverage, together with
other related expenses, approaches the net return on the Fund's investment
portfolio, the benefit of leverage to holders of Common Stock will be reduced,
and if the then current interest or dividend rate on any leverage were to exceed
the net return on the Fund's portfolio, the Fund's leveraged capital structure
would result in a lower rate of return to holders of Common Stock than if the
Fund were not so leveraged. Similarly, because any decline in the net asset
value of the Fund's investments will be borne entirely by holders of the Common
Stock, the effect of leverage in a declining market would be a greater decrease
in net asset value applicable to the Common Stock than if the Fund were not
leveraged. Any such decrease would likely be reflected in a decline in the
market price of the Common Stock. If the Fund's current investment income were
not sufficient to meet interest or dividend requirements on any leverage, or if
any decrease in the net asset value of the Fund's investments would violate the
1940 Act asset coverage requirements, it could be necessary for the Fund to
liquidate certain of its investments sooner than would otherwise have been the
case, thereby reducing the net asset value attributable to the Common Stock.
Such liquidations might also cause the Fund to realize gains on securities held
for less than three months. Because not more than 30% of the Fund's gross income
may be derived from the sale or disposition of securities held for less than
three months to maintain the Fund's status as a regulated investment company
under the Code, such gains would limit the ability of the Fund to sell other
securities held for less than three months that the Fund might wish to sell in
the ordinary course of its portfolio management and thus might adversely affect
the Fund's yield. Additionally, if at any time when leverage is outstanding the
Fund does not meet the asset coverage requirements of the 1940 Act, the Fund
will be required to suspend distributions to holders of Common Stock until the
asset coverage is restored. See "Investment Objectives and Policies -- Borrowing
and Other Forms of Leverage." This may prevent the Fund from distributing at
least 90% of its investment company taxable income, and may therefore jeopardize
the Fund's qualification for taxation as a regulated investment company or cause
the Fund to incur a tax liability or a non-deductible 4% excise tax on the
undistributed taxable income (including gain), or both. See "Taxation -- U.S.
Federal Income Taxes."
The Fund's use of leverage will be subject to the provisions of the 1940
Act, including asset coverage requirements and restrictions on the declaration
of dividends and distributions to holders of Common Stock or purchases of Common
Stock in the event that such asset coverage requirements are not met. The 1940
Act also requires that, in certain circumstances, holders of debt securities
have certain voting rights. At June 30, 1995, the Fund had borrowings
outstanding in an amount equal to approximately 0.24% of the Fund's total
assets.
NET ASSET VALUE DISCOUNT; NON-DIVERSIFICATION
Since the Fund's initial public offering on July 16, 1993, the Common Stock
has traded in the market at both a discount and premium to net asset value. The
Fund cannot predict whether the Common Stock will in the future trade at a
premium or discount to net asset value and, if so, the level of such premium or
discount. Shares of closed-end investment companies frequently trade at a
discount from net asset value. The risk of the Common Stock trading at a
discount is a risk separate from a decline in the Fund's net asset value. See
"Market and Net Asset Value Information."
The Fund is classified as a non-diversified investment company under the
1940 Act, which means that the Fund is not limited by the 1940 Act in the
proportion of its assets that may be invested in the securities of a single
issuer. Thus, the Fund may invest a greater proportion of its assets in the
securities of a smaller number of issuers and, as a result, will be subject to
greater risk of loss with respect to its portfolio securities. The Fund,
however, intends to comply with the diversification requirements imposed by the
Code for qualification as a regulated investment company. See "Taxation -- U.S.
Federal Income Taxes" and "Investment Restrictions."
ADDITIONAL CONSIDERATIONS
The Fund's investment in private placements, convertible securities and
warrants, as well as in instruments issued by entities organized and operated
solely for the purpose of restructuring the investment
26
<PAGE> 29
characteristics of particular securities, presents certain risks. In addition,
the Fund may use various other investment practices that involve special
considerations, including purchasing and selling options on securities,
financial futures, fixed income indices and other financial instruments,
entering into financial futures contracts, interest rate transactions, currency
transactions, securities transactions on a when-issued or delayed delivery basis
and repurchase agreements and lending portfolio securities. See "Investment
Objectives and Policies" and Appendix D.
In addition, certain special voting provisions of the Fund's Articles of
Incorporation may have the effect of depriving shareholders of an opportunity to
sell their shares at a premium over prevailing market prices. See "Common
Stock."
INVESTMENT OBJECTIVES AND POLICIES
The primary investment objective of the Fund is to seek high current
income. As a secondary objective, the Fund seeks capital appreciation. In
seeking to achieve these objectives, the Fund seeks to invest at least 65% of
its total assets in debt securities of government and government-related issuers
located in emerging countries (including participations in loans between
governments and financial institutions), and in securities of entities organized
to restructure outstanding debt of such issuers. In addition, the Fund may
invest up to 35% of its total assets in debt securities of corporate issuers
located in or organized under the laws of emerging countries. The Fund's
investment objectives are fundamental policies which may not be changed without
the approval of a majority of the Fund's outstanding voting securities. As used
herein, a "majority of the Fund's outstanding voting securities" means the
lesser of (i) 67% of the shares represented at a meeting at which more than 50%
of the outstanding shares are represented, and (ii) more than 50% of the
outstanding shares. There is no assurance the Fund will be able to achieve its
investment objectives.
As used in this Prospectus, an emerging country is any country that the
International Bank for Reconstruction and Development (more commonly known as
the World Bank) has determined to have a low or middle income economy. There are
currently over 130 countries which are considered to be emerging countries,
approximately 40 of which currently have established securities markets. These
countries generally include every nation in the world except the United States,
Canada, Japan, Australia, New Zealand and most nations located in Western
Europe. A list of the countries not falling within the World Bank definition of
an emerging country is set forth in Appendix E.
The Investment Manager invests the Fund's assets in emerging country debt
securities that provide a high level of current income, while at the same time
holding the potential for capital appreciation if the perceived creditworthiness
of the issuer improves due to improving economic, financial, political, social
or other conditions in the country in which the issuer is located. Currently,
investing in many emerging country securities is not feasible or may involve
unacceptable political risks. The Fund intends to invest in emerging country
debt securities primarily in some or all of the following emerging countries:
<TABLE>
<S> <C> <C>
Algeria India Poland
Argentina Indonesia Portugal
Botswana Ivory Coast Russia
Brazil Jamaica Slovakia
Bulgaria Jordan South Africa
Chile Malaysia South Korea
China Mexico Sri Lanka
Colombia Morocco Thailand
Costa Rica Nicaragua Trinidad & Tobago
Czech Republic Nigeria Tunisia
Dominican Republic Pakistan Turkey
Ecuador Panama Uruguay
Egypt Paraguay Venezuela
Greece Peru Zaire
Hungary Philippines Zimbabwe
</TABLE>
27
<PAGE> 30
As opportunities to invest in debt securities in other countries develop, the
Fund expects to expand and further diversify the emerging countries in which it
invests. While the Fund generally is not restricted in the portion of its assets
which may be invested in a single country or region, it is intended that, under
normal conditions, the Fund's assets will be invested in issuers in at least
three countries. As of June 30, 1995, approximately 20.4%, 16.8% and 13.4% of
the Fund's total assets were invested in Brazil, Mexico and Russia,
respectively.
The Fund's investments in government and government-related and
restructured debt securities will consist of (i) debt securities or obligations
issued or guaranteed by governments, governmental agencies or instrumentalities
and political subdivisions located in emerging countries (including
participations in loans between governments and financial institutions), (ii)
debt securities or obligations issued by government owned, controlled or
sponsored entities located in emerging countries, and (iii) interests in issuers
organized and operated for the purpose of restructuring the investment
characteristics of instruments issued by any of the entities described above.
Based on current market conditions, it is expected that the Fund will continue
to invest approximately 70% of its total assets in debt securities issued by
government or government-related issuers, although this percentage is expected
to decrease over time.
The Fund's investments in debt securities of corporate issuers in emerging
countries may include debt securities or obligations issued (i) by banks located
in emerging countries or by branches of emerging country banks located outside
the country or (ii) by companies organized under the laws of an emerging
country. Determinations as to eligibility are made by the Investment Manager
based on publicly available information and inquiries made to the issuer. (See
"Risk Factors and Special Considerations" for a discussion of the nature of
information publicly available for non-U.S. issuers.)
Emerging country debt securities held by the Fund take the form of bonds,
notes, bills, debentures, convertible securities, warrants, bank debt
obligations, short-term paper, loan participations, loan assignments and
interests issued by entities organized and operated for the purpose of
restructuring the investment characteristics of instruments issued by emerging
country issuers. U.S. dollar-denominated emerging country debt securities held
by the Fund generally are listed but not traded on a securities exchange, and
non-U.S. dollar-denominated securities held by the Fund may or may not be listed
or traded on a securities exchange. The Fund is not subject to restrictions on
the maturities of the emerging country debt securities it holds; those
maturities may range from overnight to 30 years.
A substantial portion of the Fund's total assets is likely to be invested
from time to time in certain Brady Bonds and other debt obligations acquired at
a discount. Pursuant to the Code, the Fund is required to accrue a portion of
any original issue discount with respect to such securities as income each year
even though the Fund does not receive interest payments in cash during the year
which reflect the discount so accrued. The Fund will also elect similar
treatment for any market discount with respect to such securities. As a result,
the Fund expects to make distributions of net investment income in amounts
greater than the total amount of cash interest actually received. Such
distributions will be made from the cash assets of the Fund, from borrowings or,
if necessary, by liquidation of portfolio securities. See "-- Borrowing and
Other Forms of Leverage," "Risk Factors and Special Considerations -- Illiquid
Investments" and "Taxation -- U.S. Federal Income Taxes."
Although the Fund's portfolio is actively managed to take into account
changes and anticipated changes occurring in emerging countries, the Fund
invests with a long-term perspective, and is not intended to be a trading or
arbitrage vehicle. However, market volatility during certain periods in the
emerging country markets has made it necessary during such periods to engage in
some short-term trading in order to preserve investment gains or limit losses.
The Fund's portfolio turnover rates for the period ended December 31, 1993 and
fiscal year ended December 31, 1994 were 72% and 256%, respectively. The Fund's
portfolio turnover rate for the fiscal year ended December 31, 1994 was high
primarily because of a high degree of market volatility throughout much of the
period, affecting both price and liquidity of investments. The Investment
Manager believes that such volatility is likely to continue, and therefore, the
Fund's portfolio turnover rate likely will continue to exceed 100%. A high
portfolio turnover rate may lead to higher transaction costs incurred by the
Fund and may jeopardize the ability of the Fund to satisfy the U.S. federal
income tax requirement that the Fund derive less than 30% of its gross income
from the sale or disposition of securities held less than three months in order
to maintain its tax status as a regulated investment company under the Code. See
"Taxation
28
<PAGE> 31
- -- U.S. Federal Income Taxes." The Investment Manager will monitor the effect of
the portfolio turnover on the Fund's tax status. Portfolio turnover rate is
calculated by dividing the lesser of sales or purchases of portfolio securities
by the average monthly value of the Fund's portfolio securities. For purposes of
the calculation, portfolio securities exclude all debt securities having a
maturity when purchased of one year or less.
A substantial portion of the Fund's assets may be invested in non-U.S.
dollar-denominated securities. Non-U.S. dollar-denominated emerging country debt
securities may be denominated in the local currency of an emerging country, as
well as in hard currencies such as the British Pound Sterling, the Belgian
Franc, the Canadian Dollar, the Deutsche Mark, the Dutch Guilder, the European
Currency Unit, the French Franc, the Italian Lira, the Japanese Yen and the
Swiss Franc. The Fund is not restricted in the portion of its assets which may
be invested in securities denominated in a particular currency. The portion of
the Fund's assets invested in securities denominated in currencies other than
the U.S. dollar will vary depending on market conditions. At June 30, 1995,
approximately 7% of the Fund's total assets was invested in securities
denominated in currencies other than the U.S. dollar, with approximately 4% of
the Fund's total assets invested in securities denominated in currencies of
emerging market countries. Although the Fund is permitted to engage in a wide
variety of investment practices designed to hedge against currency exchange rate
risks with respect to its holdings of non-U.S. dollar-denominated debt
securities, the Fund may be limited in its ability to hedge against these risks.
See "-- Hedging."
SELECTION OF INVESTMENTS
In selecting particular emerging country debt securities for investment by
the Fund, the Investment Manager applies a market risk analysis contemplating
assessment of factors such as liquidity, volatility, tax implications, interest
rate sensitivity, counterparty risks and technical market considerations.
Emerging country debt securities in which the Fund may invest will be subject to
high risk and will not be required to meet a minimum rating standard and may not
be rated for creditworthiness by any internationally recognized credit rating
organization. The Fund's investments generally are and are expected to continue
to be rated in the lower and lowest rating categories of internationally
recognized credit rating organizations or unrated securities of comparable
quality. These types of debt obligations are predominantly speculative with
respect to the capacity to pay interest and repay principal in accordance with
their terms and generally involve a greater risk of default and of volatility in
price than securities in higher rating categories.
Ratings of a non-U.S. debt instrument, to the extent that those ratings are
undertaken, are related to evaluations of the country in which the issuer of the
instrument is located. Ratings generally take into account the currency in which
a non-U.S. debt instrument is denominated; instruments issued by a foreign
government in other than the local currency, for example, typically have a lower
rating than local currency instruments due to the existence of an additional
risk that the government will be unable to obtain the required foreign currency
to service its foreign currency-denominated debt. In general, the ratings of
debt securities or obligations issued by a non-U.S. public or private entity
will not be higher than the rating of the currency or the foreign currency debt
of the central government of the country in which the issuer is located,
regardless of the intrinsic creditworthiness of the issuer.
BRADY BONDS
The Fund may invest in certain debt obligations customarily referred to as
"Brady Bonds," which are created through the exchange of existing commercial
bank loans to foreign entities for new obligations in connection with debt
restructurings under a plan introduced by former U.S. Secretary of the Treasury
Nicholas F. Brady (the "Brady Plan").
Brady Bonds have been issued only recently, and, accordingly, do not have a
long payment history. They may be collateralized or uncollateralized and issued
in various currencies (although most are U.S. dollar-denominated) and they are
actively traded in the over-the-counter secondary market. The Fund may purchase
Brady Bonds either in the primary or secondary markets. The price and yield of
Brady Bonds purchased in the secondary market will reflect the market conditions
at the time of purchase, regardless of the stated face amount and the stated
interest rate. With respect to Brady Bonds with no or limited collateralization,
the Fund
29
<PAGE> 32
will rely for payment of interest and principal primarily on the willingness and
ability of the issuing government to make payment in accordance with the terms
of the bonds.
U.S. dollar-denominated, collateralized Brady Bonds, which may be fixed
rate par bonds or floating rate discount bonds, are generally collateralized in
full as to principal due at maturity by U.S. Treasury zero coupon obligations
which have the same maturity as the Brady Bonds. Interest payments on these
Brady Bonds generally are collateralized by cash or securities in an amount
that, in the case of fixed rate bonds, is equal to at least one year of rolling
interest payments or, in the case of floating rate bonds, initially is equal to
at least one year's rolling interest payments based on the applicable interest
rate at that time and is adjusted at regular intervals thereafter. Certain Brady
Bonds are entitled to "value recovery payments" in certain circumstances, which
in effect constitute supplemental interest payments but generally are not
collateralized. Brady Bonds are often viewed as having three or four valuation
components: (i) the collateralized repayment of principal at final maturity;
(ii) the collateralized interest payments; (iii) the uncollateralized interest
payments; and (iv) any uncollateralized repayment of principal at maturity
(these uncollateralized amounts constitute the "residual risk"). In the event of
a default with respect to collateralized Brady Bonds as a result of which the
payment obligations of the issuer are accelerated, the U.S. Treasury zero coupon
obligations held as collateral for the payment of principal will not be
distributed to investors, nor will such obligations be sold and the proceeds
distributed. The collateral will be held to the scheduled maturity of the
defaulted Brady Bonds by the collateral agent, at which time the face amount of
the collateral will equal the principal payments which would have then been due
on the Brady Bonds in the normal course. In addition, in light of the residual
risk of the Brady Bonds and, among other factors, the history of defaults with
respect to commercial bank loans by public and private entities of countries
issuing Brady Bonds, investments in Brady Bonds should be viewed as speculative.
LOAN PARTICIPATIONS AND ASSIGNMENTS
The Fund may invest in fixed and floating rate loans ("Loans") arranged
through private negotiations between an issuer of sovereign debt obligations and
one or more financial institutions ("Lenders"). The Fund's investments in Loans
in most instances will be in the form of participations in Loans
("Participations") or assignments of all or a portion of Loans ("Assignments")
from third parties. The Fund's investment in Participations typically will
result in the Fund having a contractual relationship only with the Lender and
not with the borrower. The Fund will have the right to receive payments of
principal, interest and any fees to which it is entitled only from the Lender
selling the Participation and only upon receipt by the Lender of the payments
from the borrower. In connection with purchasing Participations, the Fund
generally will have no right to enforce compliance by the borrower with the
terms of the loan agreement relating to the Loan, nor any rights of set-off
against the borrower, and the Fund may not directly benefit from any collateral
supporting the Loan in which it has purchased the Participation. As a result,
the Fund may be subject to the credit risk of both the borrower and the Lender
that is selling the Participation. In the event of the insolvency of the Lender
selling a Participation, the Fund may be treated as a general creditor of the
Lender and may not benefit from any set-off between the Lender and the borrower.
Certain Participations may be structured in a manner designed to avoid
purchasers of Participations being subject to the credit risk of the Lender with
respect to the Participation, but even under such a structure, in the event of
the Lender's insolvency, the Lender's servicing of the Participation may be
delayed and the assignability of the Participation impaired. The Fund will
acquire Participations only if the Lender interpositioned between the Fund and
the borrower is determined by the Investment Manager to be creditworthy.
When the Fund purchases Assignments from Lenders it will acquire direct
rights against the borrower on the Loan. Because Assignments are arranged
through private negotiations between potential assignees and potential
assignors, however, the rights and obligations acquired by the Fund as the
purchaser of an Assignment may differ from, and be more limited than, those held
by the assigning Lender. The assignability of certain sovereign debt obligations
is restricted by the governing documentation as to the nature of the assignee
such that the only way in which the Fund may acquire an interest in a Loan is
through a Participation and not an Assignment. The Fund may have difficulty
disposing of Assignments and Participations because to do so it will have to
assign such securities to a third party. Because there is no liquid market for
such securities,
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the Fund anticipates that such securities could be sold only to a limited number
of institutional investors. The lack of a liquid secondary market may have an
adverse impact on the value of such securities and the Fund's ability to dispose
of particular Assignments or Participations when necessary to meet the Fund's
liquidity needs or in response to a specific economic event such as a
deterioration in the creditworthiness of the borrower. The lack of a liquid
secondary market for Assignments and Participations also may make it more
difficult for the Fund to assign a value to these securities for purposes of
valuing the Fund's portfolio and calculating its net asset value.
STRUCTURED INVESTMENTS
The Fund may invest a portion of its assets in interests in entities
organized and operated solely for the purpose of restructuring the investment
characteristics of sovereign debt obligations. This type of restructuring
involves the deposit with or purchase by an entity, such as a corporation or
trust, of specified instruments (such as commercial bank loans or Brady Bonds)
and the issuance by that entity of one or more classes of securities
("Structured Securities") backed by, or representing interests in, the
underlying instruments. The cash flow on the underlying instruments may be
apportioned among the newly issued Structured Securities to create securities
with different investment characteristics such as varying maturities, payment
priorities and interest rate provisions, and the extent of the payments made
with respect to Structured Securities is dependent on the extent of the cash
flow on the underlying instruments. Because Structured Securities of the type in
which the Fund anticipates it will invest typically involve no credit
enhancement, their credit risk generally will be equivalent to that of the
underlying instruments.
The Fund is permitted to invest in a class of Structured Securities that is
either subordinated or unsubordinated to the right of payment of another class.
Subordinated Structured Securities typically have higher yields and present
greater risks than unsubordinated Structured Securities.
Certain issuers of Structured Securities may be deemed to be "investment
companies" as defined in the 1940 Act. As a result, the Fund's investment in
these Structured Securities may be limited by the restrictions contained in the
1940 Act described below under "-- Investment Funds." Structured Securities are
typically sold in private placement transactions, and there currently is no
active trading market for Structured Securities.
TEMPORARY INVESTMENTS
During periods in which the Investment Manager believes changes in
economic, financial or political conditions make it advisable, the Fund may, for
temporary defensive purposes, reduce its holdings in emerging country debt
securities and invest in certain other short-term (less than twelve months to
maturity) and medium-term (not greater than five years to maturity) debt
securities or hold cash. The short-term and medium-term debt securities in which
the Fund may invest consist of (a) obligations of the United States government,
its agencies or instrumentalities; (b) bank deposits and bank obligations
(including certificates of deposit, time deposits and bankers' acceptances) of
U.S. or emerging country banks denominated in any currency; (c) floating rate
securities and other instruments denominated in any currency issued by
international development agencies; (d) finance company and corporate commercial
paper and other short-term corporate debt obligations of U.S. corporations
meeting the Fund's credit quality standards; and (e) repurchase agreements with
banks and broker-dealers with respect to such securities. During such periods,
the Fund intends to invest only in short-term and medium-term debt securities
that the Investment Manager believes to be of relatively low risk of loss of
interest or principal (there is currently no rating system for debt securities
in most emerging countries).
Repurchase agreements with respect to the securities described in the
preceding paragraph are contracts under which a buyer of a security
simultaneously commits to resell the security to the seller at an agreed upon
price and date. Under a repurchase agreement, the seller generally is required
to maintain the value of the securities subject to the repurchase agreement at
not less than their repurchase price. The Investment Manager will monitor the
value of such securities daily to determine that the value equals or exceeds the
repurchase price including accrued interest. Repurchase agreements may involve
risks in the event of default
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or insolvency of the seller, including possible delays or restrictions upon the
Fund's ability to dispose of the underlying securities.
OTHER INVESTMENTS
Private Placements. The Fund may invest in emerging country debt
securities that are sold in private placement transactions between their issuers
and their purchasers and that are neither listed on an exchange nor traded
over-the-counter. In many cases, privately placed securities will be subject to
contractual or legal restrictions on transfer. As a result of the absence of a
public trading market, privately placed securities may in turn be less liquid
and more difficult to value than publicly traded securities. Although privately
placed securities may be resold in privately negotiated transactions, the prices
realized from the sales could, due to illiquidity, be less than those originally
paid by the Fund or less than their fair value. In addition, issuers whose
securities are not publicly traded may not be subject to the disclosure and
other investor protection requirements that may be applicable if their
securities were publicly traded. If any privately placed securities held by the
Fund are required to be registered under the securities laws of one or more
jurisdictions before being resold, the Fund may be required to bear the expenses
of registration.
Convertible Securities. A convertible security is a bond, debenture, note,
preferred stock or other security that may be converted into or exchanged for a
prescribed amount of common stock of the same or a different issuer within a
particular period of time at a specified price or formula. A convertible
security entitles the holder to receive interest generally paid or accrued on
debt or the dividend paid on preferred stock until the convertible security
matures or is redeemed, converted or exchanged. Convertible securities have
several unique investment characteristics such as (1) higher yields than common
stocks, but lower yields than comparable nonconvertible securities, (2) a lesser
degree of fluctuation in value than the underlying stock since they have fixed
income characteristics, and (3) the potential for capital appreciation if the
market price of the underlying common stock increases.
The Fund has no current intention of converting any convertible securities
it may own into equity securities or holding them as an equity investment upon
conversion, although it may do so for temporary purposes. A convertible security
might be subject to redemption at the option of the issuer at a price
established in the convertible security's governing instrument. If a convertible
security held by the Fund is called for redemption, the Fund may be required to
permit the issuer to redeem the security, convert it into the underlying common
stock or sell it to a third party.
Warrants. The Fund may invest in warrants, which are securities
permitting, but not obligating, their holder to subscribe for other securities.
The Fund may invest in warrants for equity securities that are acquired as units
with debt instruments and warrants for debt securities. Warrants do not carry
with them the right to dividends or voting rights with respect to the securities
that they entitle their holder to purchase, and they do not represent any rights
in the assets of the issuer. As a result, an investment in warrants may be
considered more speculative than certain other types of investments. In
addition, the value of a warrant does not necessarily change with the value of
the underlying securities and a warrant ceases to have value if it is not
exercised prior to its expiration date. The Fund does not intend to retain in
its portfolio any common stock received upon the exercise of a warrant and will
sell the common stock as promptly as practicable and in a manner that it
believes will reduce its risk of a loss in connection with the sale.
BORROWING AND OTHER FORMS OF LEVERAGE
The Fund is authorized to borrow money from banks and other entities in an
amount equal to up to 33 1/3% of the Fund's total assets (including the amount
borrowed), less all liabilities and indebtedness other than the borrowing, and
may use the proceeds of the borrowing for investment purposes, to pay dividends
or to repurchase its shares. Borrowings create leverage, which is a speculative
characteristic. Although the Fund is authorized to borrow, it will do so only
when the Investment Manager believes that borrowing will benefit the Fund after
taking into account considerations such as the costs of the borrowing and the
likely investment returns on the securities purchased with borrowed monies. The
extent to which the Fund will borrow will depend upon the availability of
credit. No assurance can be given that the Fund will be able to borrow on
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terms acceptable to the Fund and the Investment Manager. See "Risk Factors and
Special Considerations -- Risks of Leverage." At December 31, 1993 and 1994, the
Fund had borrowings outstanding in an amount equal to approximately 15.7% and
1.0% of its total assets, respectively. At June 30, 1995, the Fund had
borrowings outstanding in an amount equal to approximately 0.24% of its total
assets.
The Fund expects that all of its borrowings will be made on a secured
basis. The Fund's custodian will either segregate the assets securing the Fund's
borrowing for the benefit of the Fund's lenders or arrangements will be made
with a suitable sub-custodian, which may include a lender. If the assets used to
secure the borrowing decrease in value, the Fund may be required to pledge
additional collateral to the lender in the form of cash or securities to avoid
liquidation of those assets. The rights of any lenders to the Fund to receive
payments of interest on and repayments of principal of borrowings will be senior
to the rights of the Fund's shareholders, and the terms of the Fund's borrowings
may contain provisions that limit certain activities of the Fund and could
result in precluding the purchase of instruments that the Fund would otherwise
purchase.
The Fund may enter into reverse repurchase agreements with any member bank
of the Federal Reserve System and any broker-dealer or any foreign bank that has
been determined by the Investment Manager to be creditworthy. Under a reverse
repurchase agreement, the Fund would sell securities and agree to repurchase
them at a mutually agreed date and price. At the time the Fund enters into a
reverse repurchase agreement, it will establish and maintain a segregated
account, with its custodian or a designated sub-custodian, containing cash,
securities issued or guaranteed by the U.S. Government or its agencies and
instrumentalities ("U.S. Government Securities") or other liquid, high-grade
debt obligations, having a value not less than the repurchase price (including
accrued interest). Reverse repurchase agreements involve the risk that the
market value of the securities purchased with the proceeds of the sale of
securities received by the Fund may decline below the price of the securities
the Fund is obligated to repurchase. In the event the buyer of securities under
a reverse repurchase agreement files for bankruptcy or becomes insolvent, the
buyer or its trustee or receiver may receive an extension of time to determine
whether to enforce the Fund's obligations to repurchase the securities, and the
Fund's use of proceeds of the reverse repurchase agreement may effectively be
restricted pending the decision. Reverse repurchase agreements will be treated
as borrowings for purposes of calculating the Fund's borrowing limitation.
The Fund may, in addition to engaging in the transactions described above,
borrow money from banks for temporary or emergency purposes (including, for
example, clearance of transactions, share repurchases or payments of dividends
to shareholders) in an amount not exceeding 5% of the value of the Fund's total
assets (including the amount borrowed).
HEDGING
The Fund is authorized to use various hedging and investment strategies
described below to hedge various market risks (such as interest rates, currency
exchange rates and broad or specific market movements), to manage the effective
maturity or duration of debt instruments held by the Fund, or to seek to
increase the Fund's income or gain. Although these strategies regularly are used
by some investment companies and other institutional investors, these strategies
cannot at the present time be used to a significant extent by the Fund and may
not become available for extensive use in the future. At present, for the
currencies of most emerging countries, there is not a viable market in which the
Fund may engage in these transactions. Techniques and instruments may change,
however, over time as new instruments and strategies are developed or regulatory
changes occur. Limitations on the portion of the Fund's assets that may be used
in connection with the investment strategies described below are set out in
Appendix D to this Prospectus.
Subject to the constraints described in Appendix D, the Fund may purchase
and sell financial futures contracts, it may purchase and sell (or write)
certain exchange listed and over-the-counter options on emerging country debt
instruments, financial futures contracts and fixed income indices and other
financial instruments and it may enter into interest rate transactions and
currency transactions (collectively, these transactions are referred to in this
Prospectus as "Hedging"). The Fund's interest rate transactions may take the
form of swaps, caps, floors and collars and the Fund's currency transactions may
take the form of currency forward contracts, currency futures contracts,
currency swaps and options on currency or currency futures contracts.
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Hedging may be used to attempt to protect against possible changes in the
market value of securities held in or to be purchased for the Fund's portfolio
resulting from securities market or currency exchange rate fluctuations, to
protect the Fund's unrealized gains in the value of its portfolio securities, to
facilitate the sale of those securities for investment purposes, to manage the
effective maturity or duration of the Fund's portfolio, or to establish a
position in the derivatives markets as a temporary substitute for purchasing or
selling particular securities. The ability of the Fund to utilize Hedging
successfully will depend on the Investment Manager's ability to predict
pertinent market movements, which cannot be assured. These skills are different
from those needed to select portfolio securities. The Fund is not a "commodity
pool" and Hedging transactions involving financial futures and options on
financial futures will be purchased, sold or entered into only for bona fide
hedging, risk management or other appropriate portfolio management purposes and
not for speculative purposes. The use of Hedging in certain circumstances will
require that the Fund segregate cash, liquid high grade debt obligations or
other assets to the extent the Fund's obligations are not otherwise "covered"
through ownership of the underlying security, financial instrument or currency.
A detailed discussion of Hedging, including applicable requirements of the
Commodity Futures Trading Commission, the requirement to segregate assets with
respect to these transactions and special risks associated with such strategies,
appears as Appendix D to this Prospectus.
The degree of the Fund's use of Hedging may be limited by certain
provisions of the Code. See "Taxation."
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
The Fund may purchase securities on a when-issued or delayed delivery
basis. Securities purchased on a when-issued or delayed delivery basis are
purchased for delivery beyond the normal settlement date at a stated price and
yield. No income accrues to the purchaser of a security on a when-issued or
delayed delivery basis prior to delivery. Such securities are recorded as an
asset and are subject to changes in value based upon changes in the general
level of interest rates. Purchasing a security on a when-issued or delayed
delivery basis can involve a risk that the market price at the time of delivery
may be lower than the agreed-upon purchase price, in which case there could be
an unrealized loss at the time of delivery. The Fund will only make commitments
to purchase securities on a when-issued or delayed delivery basis with the
intention of actually acquiring the securities but may sell them before the
settlement date if it is deemed advisable. The Fund will establish a segregated
account in which it will maintain liquid assets in an amount at least equal in
value to the Fund's commitments to purchase securities on a when-issued or
delayed delivery basis. If the value of these assets declines, the Fund will
place additional liquid assets in the account on a daily basis so that the value
of the assets in the account is equal to the amount of such commitments.
LOANS OF PORTFOLIO SECURITIES
The Fund may attempt to increase its income through lending portfolio
securities to third parties and receiving interest on such loans. In the event
of the bankruptcy of the other party to a securities loan, the Fund could
experience delays in recovering the securities it loaned. To the extent that, in
the meantime, the value of the securities the Fund has loaned decreases, the
Fund could experience a loss.
The Fund may lend securities from its portfolio if liquid assets in an
amount at least equal to the current market value of the securities loaned
(including accrued interest thereon) plus the interest payable to the Fund with
respect to the loan is maintained by the Fund in a segregated account. Any
securities that the Fund may receive as collateral will not become a part of its
portfolio at the time of the loan and, in the event of a default by the
borrower, the Fund will, if permitted by law, dispose of such collateral except
for such part thereof that is a security in which the Fund is permitted to
invest. During the time securities are on loan, the borrower will pay the Fund
any accrued income on those securities, and the Fund may invest the cash
collateral and earn additional income or receive an agreed-upon fee from a
borrower that has delivered cash equivalent collateral. Cash collateral received
by the Fund will be invested in securities in which the Fund is permitted to
invest. The value of securities loaned will be marked to market daily. Portfolio
securities purchased with cash collateral are subject to possible depreciation.
Loans of securities by the Fund will be
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subject to termination at the Fund's or the borrower's option. The Fund may pay
reasonable negotiated fees in connection with loaned securities. The Fund does
not currently intend to make loans of portfolio securities with a value in
excess of 25% of the value of its total assets.
ILLIQUID SECURITIES
The Fund may invest without limitation in illiquid securities, for which
there is a limited trading market and for which a low trading volume of a
particular security may result in abrupt and erratic price movements. The Fund
may be unable to dispose of its holdings in illiquid securities at then current
market prices and may have to dispose of such securities over extended periods
of time. See "Risk Factors and Special Considerations."
INVESTMENT FUNDS
The Fund may invest in investment funds which invest principally in
securities in which the Fund is authorized to invest. Under the 1940 Act, the
Fund may invest a maximum of 10% of its total assets in the securities of other
investment companies. In addition, under the 1940 Act, not more than 5% of the
Fund's total assets may be invested in the securities of any one investment
company and the Fund may not purchase more than 3% of the voting stock of any
such investment company at the time such shares are purchased. To the extent the
Fund invests in other investment funds, the Fund's shareholders will incur
certain duplicative fees and expenses, including investment advisory fees. The
Fund's investment in certain investment funds will result in special U.S.
federal income tax consequences described below under "Taxation -- U.S. Federal
Income Taxes."
SHORT SALES
The Fund may from time to time sell securities short without limitation,
although presently the Fund does not intend to sell securities short. A short
sale is a transaction in which the Fund would sell securities it does not own
(but has borrowed) in anticipation of a decline in the market price of the
securities. When the Fund makes a short sale, the proceeds it receives from the
sale will be held on behalf of a broker until the Fund replaces the borrowed
securities. To deliver the securities to the buyer, the Fund will need to
arrange through a broker to borrow the securities and, in so doing, the Fund
will become obligated to replace the securities borrowed at their market price
at the time of replacement, whatever that price may be. The Fund may have to pay
a premium to borrow the securities and must pay any dividends or interest
payable on the securities until they are replaced.
The Fund's obligation to replace the securities borrowed in connection with
a short sale will be secured by collateral deposited with the broker that
consists of cash, U.S. Government Securities or other liquid, high grade debt
obligations. In addition, the Fund will place in a segregated account with its
custodian, or designated sub-custodian, an amount of cash, U.S. Government
Securities or other liquid high grade debt obligations equal to the difference,
if any, between (1) the market value of the securities sold at the time they
were sold short and (2) any cash, U.S. Government Securities or other liquid
high grade debt obligations deposited as collateral with the broker in
connection with the short sale (not including the proceeds of the short sale).
Until it replaces the borrowed securities, the Fund will maintain the segregated
account daily at a level so that (1) the amount deposited in the account plus
the amount deposited with the broker (not including the proceeds from the short
sale) will equal the current market value of the securities sold short and (2)
the amount deposited in the account plus the amount deposited with the broker
(not including the proceeds from the short sale) will not be less than the
market value of the securities at the time they were sold short.
Short sales by the Fund involve certain risks and special considerations.
Possible losses from short sales differ from losses that could be incurred from
a purchase of a security, because losses from short sales may be unlimited,
whereas losses from purchases can equal only the total amount invested.
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INVESTMENT RESTRICTIONS
The following restrictions are fundamental policies of the Fund that may
not be changed without the approval of the holders of a majority of the Fund's
outstanding voting securities (as defined in "Investment Objectives and
Policies"). If a percentage restriction on investment or use of assets set forth
below is adhered to at the time a transaction is effected, later changes will
not be considered a violation of the restriction. Also, if the Fund receives
from an issuer of securities held by the Fund subscription rights to purchase
securities of that issuer, and if the Fund exercises such subscription rights at
a time when the Fund's portfolio holdings of securities of that issuer would
otherwise exceed the limits set forth below, it will not constitute a violation
if, prior to receipt of securities upon exercise of such rights, and after
announcement of such rights, the Fund has sold at least as many securities of
the same class and value as it would receive on exercise of such rights.
As a matter of fundamental policy:
1. The Fund may not invest 25% or more of the total value of its assets in
a particular industry; provided, however, that the foregoing restriction shall
not be deemed to prohibit the Fund from purchasing the securities of any issuer
pursuant to the exercise of rights distributed to the Fund by the issuer.
2. The Fund may not make any investment for the purpose of exercising
control or management.
3. The Fund may not buy or sell commodities or commodity contracts or real
estate or interests in real estate, except that it may purchase and sell futures
contracts on stock indices and foreign currencies, securities which are secured
by real estate or commodities, and securities of companies which invest or deal
in real estate or commodities.
4. The Fund may not make loans, except that the Fund may (i) buy and hold
debt instruments in accordance with its investment objectives and policies, (ii)
invest in Loans through Participations and Assignments, (iii) enter into
repurchase agreements to the extent permitted under applicable law, and (iv)
make loans of portfolio securities.
5. The Fund may not act as an underwriter except to the extent that, in
connection with the disposition of portfolio securities, it may be deemed to be
an underwriter under applicable securities laws.
6. The Fund may issue senior securities as defined in the 1940 Act and
borrow money in an amount not in excess of 33 1/3% of the Fund's total assets
(including the amount borrowed) and may borrow up to an additional 5% of its
total assets (including the amount borrowed) for temporary or emergency purposes
without regard to the amount of senior securities and borrowings outstanding.
7. The Fund may purchase securities on margin and engage in short sales of
securities.
As a matter of operating policy, which may be changed by the Fund's Board
of Directors without shareholder vote, the Fund will not:
1. Purchase securities on margin, except such short-term credits as may be
necessary for clearance of transactions and the maintenance of margin with
respect to futures contracts.
2. Issue senior securities, borrow money or pledge its assets, except that
(i) the Fund may borrow from lenders and enter into reverse repurchase
agreements in an amount not to exceed 33 1/3% of its total assets (including the
amount borrowed), (ii) such short-term credits as may be necessary for the
clearance or settlement of transactions are not considered borrowings or senior
securities, and (iii) the Fund may borrow up to an additional 5% of its total
assets (including the amount borrowed) for temporary or emergency purposes
without regard to the amount of senior securities and borrowings outstanding.
The Fund may pledge its assets to secure such borrowings.
Unlike fundamental policies, operating policies of the Fund may be changed
by the directors of the Fund, without a vote of the Fund's shareholders, if the
directors determine such action is warranted. The Fund will notify its
shareholders of any change in any of the operating policies set forth above.
Such notice shall also include a discussion of the increased risks of investment
in the Fund, if any, associated with such a change.
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MANAGEMENT OF THE FUND
THE INVESTMENT MANAGER
The Fund employs Morgan Stanley Asset Management Inc. (the "Investment
Manager") pursuant to an Investment Advisory and Management Agreement, dated as
of July 16, 1993 (the "Management Agreement"), to manage the investment and
reinvestment of the assets of the Fund, subject to the supervision of the Fund's
Directors. The Investment Manager's principal address is 1221 Avenue of the
Americas, New York, New York 10020.
The Investment Manager is a wholly owned subsidiary of Morgan Stanley Group
Inc. Morgan Stanley Group Inc. recently announced that it has signed a
definitive agreement to purchase Miller Anderson & Sherrerd, LLP, a U.S.
registered investment adviser located outside of Philadelphia with approximately
$33 billion in assets under management. Closing of the transaction is subject to
certain conditions, and the transaction is expected to close in late 1995.
The Investment Manager provides portfolio management and named fiduciary
services to various closed-end and open-end investment companies, taxable and
nontaxable institutions, international organizations and individuals investing
in United States and international equity and fixed income securities. At March
31, 1995, the Investment Manager, together with its affiliated investment
management companies, had assets under management (including assets under
fiduciary advisory control) totaling approximately $48.5 billion, of which
approximately $5.8 billion was invested in emerging countries. The Investment
Manager is a registered investment adviser under the U.S. Investment Advisers
Act of 1940, as amended. The Investment Manager has been investing in markets of
emerging countries since the 1980's and has a total staff of 294 worldwide
including 24 specialists in emerging markets. The Investment Manager is under no
restriction and remains free, at any time, to sponsor and advise new investment
vehicles with investment objectives, policies and restrictions similar or
identical to those of the Fund.
As an investment adviser, the Investment Manager emphasizes a global
investment strategy and benefits from research coverage of a broad spectrum of
equity investment opportunities worldwide. The Investment Manager draws upon the
capabilities of the asset management specialists located in the various offices
of its affiliated investment management companies throughout the world,
including New York, Chicago, London, Singapore, Hong Kong, Melbourne, Tokyo and
Bombay. It also draws upon the research capabilities of Morgan Stanley Group
Inc. and its other affiliates, as well as the research and investment ideas of
other companies whose brokerage services the Investment Manager utilizes.
In providing advisory services to the Fund, members of the Investment
Manager's senior management, including Messrs. Barton M. Biggs and Madhav Dhar,
establish guidelines regarding the allocation of the Fund's investments among
various emerging market countries and the strategy for those investments.
Barton M. Biggs is a Managing Director of Morgan Stanley & Co.
Incorporated, is Chairman of the Investment Manager and is Director of Worldwide
Research for Morgan Stanley. In his capacity as Director of Worldwide Research,
he focuses upon asset allocation, international events and the relative
attractiveness of the world's markets. He joined Morgan Stanley in 1973 as a
General Partner and Managing Director, after eight years as a managing partner
of a hedge fund, Fairfield Partners. He is a member of Morgan Stanley's
Operating Committee and Executive Committee and is a member of its Board of
Directors. Mr. Biggs formed Morgan Stanley's research department in 1973 and was
Director of Research until 1979, was Director of Global Research from 1991 to
1994, and is currently Director of Global Strategy. In 1975, he founded the
Investment Manager. He has been named to the Institutional Investor All-American
Research Team ten times. He served three years as an officer in the United
States Marine Corps, and graduated from Yale University and the New York
University Graduate School of Business. He is a director of the Rand McNally
Corporation, and serves on the Yale Development Board.
Madhav Dhar is a Managing Director of Morgan Stanley & Co. Incorporated. He
joined the Investment Manager in 1984 to focus on global asset allocation and
investment strategy. He heads the Investment Manager's Emerging Markets Group
with $5.8 billion under management as of March 31, 1995, and serves as the
principal portfolio manager of the global Emerging Markets portfolios. Mr. Dhar
also coordinates the
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Investment Manager's developing country fund effort, has been involved in the
launching of Morgan Stanley's various country funds and is a member of the
Investment Manager's Asset Allocation and Strategy Group. He holds a B.S.
(Honors) in Physics from St. Stephens College, Delhi University (India), and an
M.B.A. from Carnegie-Mellon University.
The Fund's portfolio is managed on a day-to-day basis by Paul Ghaffari. He
joined the Investment Manager in June 1993 as a Vice President and Portfolio
Manager for the Fund and currently is a Principal of the Investment Manager.
Prior to joining the Investment Manager, he was a Vice President in the Fixed
Income Division of the Emerging Markets Sales and Trading Department at Morgan
Stanley & Co. Incorporated. From 1983 to 1992, he worked in the LDC Sales and
Trading Department and the Mortgage-Backed Securities Department at J.P. Morgan
& Co., Inc. and worked in the Treasury Department at the Morgan Guaranty Trust
Co. He holds a B.A. in International Relations from Pomona College and an M.S.
in Foreign Service from Georgetown University.
MANAGEMENT AGREEMENT
Under the terms of the Management Agreement, the Investment Manager makes
investment decisions, prepares and makes available research and statistical
data, and supervises the purchase and sale of securities on behalf of the Fund,
including the selection of brokers and dealers to carry out the transactions,
all in accordance with the Fund's investment objectives and policies, under the
direction and control of the Fund's Board of Directors. The Investment Manager
also is responsible for maintaining records and furnishing or causing to be
furnished all required records or other information of the Fund to the extent
such records, reports and other information are not maintained or furnished by
the Fund's administrators, custodians or other agents. The Investment Manager
pays the salaries and expenses of the Fund's officers and employees, as well as
the fees and expenses of the Fund's Directors, who are directors, officers or
employees of the Investment Manager or any of its affiliates, except that the
Fund bears travel expenses or an appropriate fraction thereof of officers and
Directors of the Fund who are directors, officers or employees of the Investment
Manager or its affiliates to the extent that such expenses relate to attendance
at meetings of the Fund's Board of Directors or any committee thereof.
The Fund pays all of its other expenses, including among others
organization expenses (but not the overhead or employee costs of the Investment
Manager); legal fees and expenses of counsel to the Fund; auditing and
accounting expenses; taxes and governmental fees; listing fees; dues and
expenses incurred in connection with membership in investment company
organizations; fees and expenses of the Fund's custodian, sub-custodians,
transfer agents and registrars; fees and expenses with respect to
administration, except as may be provided otherwise pursuant to administration
agreements; expenses for portfolio pricing services by a pricing agent, if any;
expenses of preparing share certificates and other expenses in connection with
the issuance, offering and underwriting of shares issued by the Fund; expenses
relating to investor and public relations; expenses of registering or qualifying
securities of the Fund for public sale; freight, insurance and other charges in
connection with the shipment of the Fund's portfolio securities; brokerage
commissions and other costs of acquiring or disposing of any portfolio holding
of the Fund; expenses of preparation and distribution of reports, notices and
dividends to shareholders; expenses of the dividend reinvestment and cash
purchase plan (except for brokerage expenses paid by participants in such plan);
costs of stationery; any litigation expenses; and costs of shareholders' and
other meetings.
For services under the Management Agreement, the Investment Manager
receives a fee, computed weekly and payable monthly, at an annual rate of 1.00%
of the Fund's average weekly net assets. The Fund's advisory fees are higher
than advisory fees paid by most other U.S. investment companies, primarily
because of the additional time and expense required of the Investment Manager in
pursuing the Fund's objectives of investing in emerging country debt securities.
Pursuant to the Management Agreement, the Investment Manager received fees for
its investment management services from the Fund in the amounts of $1,110,000
and $2,260,000 for the period ended December 31, 1993 and fiscal year ended
December 31, 1994, respectively.
Under the Management Agreement, the Investment Manager is permitted to
provide investment advisory services to other clients, including clients who may
invest in emerging country debt securities. Conversely,
38
<PAGE> 41
information furnished by others to the Investment Manager in the course of
providing services to clients other than the Fund may be useful to the
Investment Manager in providing services to the Fund.
The Management Agreement became effective on July 16, 1993, is effective
for a period of two years and will continue in effect from year to year
thereafter provided such continuance is specifically approved at least annually
by (i) a vote of a majority of those members of the Board of Directors who are
not "interested persons" of the Investment Manager or the Fund, cast in person
at a meeting called for the purpose of voting on such approval, and (ii) by a
majority vote of either the Fund's Board of Directors or the Fund's outstanding
voting securities. The Management Agreement was last approved by the Board of
Directors of the Fund on July 13, 1993 and by the shareholders of the Fund on
June 23, 1994. The Management Agreement may be terminated at any time without
payment of penalty by the Fund or by the Investment Manager upon 60 days'
written notice. The Management Agreement will automatically terminate in the
event of its assignment, as defined under the 1940 Act.
The Management Agreement provides that the Investment Manager will not be
liable for any act or omission, error of judgment or mistake of law, or for any
loss suffered by the Fund in connection with matters to which the Management
Agreement relates, except for a loss resulting from willful misfeasance, bad
faith or gross negligence on the part of the Investment Manager in the
performance of its duties, or from reckless disregard by it of its obligations
and duties under the Management Agreement.
DIRECTORS AND OFFICERS OF THE FUND
The Directors and officers of the Fund are listed below together with their
respective positions and a brief statement of their principal occupations during
the past five years and, in the case of Directors, their positions with certain
international organizations and publicly held companies.
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH THE FUND AGE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS
- -------------------------- ----------------------- --- -------------------------------------------
<S> <C> <C> <C>
Barton M. Biggs*.......... Director and Chairman 62 Chairman and Director of Morgan Stanley
1221 Avenue of the of the Board Asset Management Inc. and Morgan Stanley
Americas Asset Management Limited; Managing Director
New York, New York 10020 of Morgan Stanley & Co. Incorporated;
Director of Morgan Stanley Group Inc.;
Member of International Advisory Council of
The Thailand Fund; Director and officer of
various investment companies managed by
Morgan Stanley Asset Management Inc.
Frederick B. Director and Vice 64 Advisory Director of Morgan Stanley & Co.
Whittemore*............. Chairman Incorporated; Chairman for the United
1251 Avenue of the States National Committee for Pacific
Americas Economic Cooperation; Director and officer
New York, New York 10020 of various investment companies managed by
Morgan Stanley Asset Management Inc.;
Previously Managing Director of Morgan
Stanley & Co. Incorporated.
Warren J. Olsen*.......... Director and President 38 Principal of Morgan Stanley & Co.
1221 Avenue of the Incorporated and Morgan Stanley Asset
Americas Management Inc.; Director and officer of
New York, New York 10020 various investment companies managed by
Morgan Stanley Asset Management Inc.
</TABLE>
39
<PAGE> 42
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH THE FUND AGE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS
- -------------------------- ----------------------- --- -------------------------------------------
<S> <C> <C> <C>
Peter J. Chase............ Director 62 Chairman of CGL, Inc.; Principal,
821-C San Mateo Statements; Director of twelve investment
Santa Fe, New Mexico 87505 companies managed by Morgan Stanley Asset
Management Inc.; Member of the Investment
Advisory Council of The Thailand Fund;
Consultant, NGV Systems, Inc.; Previously
Chairman of CJS, Inc. and Principal of
Sidney A. Staunton, Inc. and the Yankee
Group.
John W. Croghan........... Director 64 Chairman of Lincoln Capital Management
200 South Wacker Drive Company; Director of St. Paul Bancorp, Inc.
Chicago, Illinois 60606 and Lindsay Manufacturing Co.; Director of
twelve investment companies managed by
Morgan Stanley Asset Management Inc.;
Previously Director of Blockbuster
Entertainment Corporation.
David B. Gill............. Director 69 Director of twelve investment companies
3042 Cambridge Place, N.W. managed by Morgan Stanley Asset Management
Washington, D.C. 20007 Inc.; Director of the Mauritius Fund
Limited; Member of the International
Advisory Committee of Banco Surinvest S.A.;
Member of the International Advisory
Council of The Thailand Fund; International
Adviser to Crown Agents for Overseas
Governments and Administrations; Member of
the Capital Markets Committee of the
Inter-American Investment Corporation;
Member of the Advisory Council of Korea
Development Investment Corporation;
Chairman and Director of Norinvest Bank;
Previously Director of Capital Markets
Department of the International Finance
Corporation; Trustee, Batterymarch Finance
Management; Chairman and Director of Equity
Fund of Latin America S.A. and Commonwealth
Equity Fund Limited; Director of Global
Securities, Inc.; and Member of The
International Advisory Council of
Investment Management Company Chile S.A.
</TABLE>
40
<PAGE> 43
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH THE FUND AGE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS
- -------------------------- ----------------------- --- -------------------------------------------
<S> <C> <C> <C>
Graham E. Jones........... Director 62 Senior Vice President of BGK Properties;
23 Chestnut Street Trustee of nine funds managed by Weiss,
Boston, Massachusetts Peck & Greer; Trustee of eight funds
02108 managed by Morgan Grenfell Capital
Management Incorporated; Director of twelve
investment companies managed by Morgan
Stanley Asset Management Inc.; Member of
the International Advisory Council of The
Thailand Fund; Previously Chief Financial
Officer of Practice Management Systems,
Inc.
John A. Levin............. Director 56 President of John A. Levin & Co., Inc.;
One Rockefeller Plaza Director of thirteen investment companies
New York, New York 10020 managed by Morgan Stanley Asset Management
Inc.
William G. Morton Jr...... Director 58 Chairman and Chief Executive Officer of
1 Boston Place Boston Stock Exchange; Director of Tandy
Boston, Massachusetts Corporation; Director of twelve investment
02108 companies managed by Morgan Stanley Asset
Management Inc.
James W. Grisham*......... Vice President 53 Principal of Morgan Stanley & Co.
1221 Avenue of the Incorporated and Morgan Stanley Asset
Americas Management Inc.; Officer of various
New York, New York 10020 investment companies managed by Morgan
Stanley Asset Management Inc.
Harold J. Schaaff, Jr.*... Vice President 34 Principal of Morgan Stanley & Co.
1221 Avenue of the Incorporated; General Counsel and Secretary
Americas of Morgan Stanley Asset Management Inc.;
New York, New York 10020 Officer of various investment companies
managed by Morgan Stanley Asset Management
Inc.
Joseph P. Stadler*........ Vice President 40 Vice President of Morgan Stanley Asset
1221 Avenue of the Management Inc.; Officer of various
Americas investment companies managed by Morgan
New York, New York 10020 Stanley Asset Management Inc.; Previously
with Price Waterhouse LLP.
Valerie Y. Lewis*......... Secretary 39 Vice President of Morgan Stanley Asset
1221 Avenue of the Management Inc.; Officer of various
Americas investment companies managed by Morgan
New York, New York 10020 Stanley Asset Management Inc.; Previously
with Citicorp.
</TABLE>
41
<PAGE> 44
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH THE FUND AGE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS
- -------------------------- ----------------------- --- -------------------------------------------
<S> <C> <C> <C>
James R. Rooney*.......... Treasurer 36 Assistant Vice President and Manager of
73 Tremont Street Fund Administration, Mutual Funds Service
Boston, Massachusetts Company; Officer of various investment
02108 companies managed by Morgan Stanley Asset
Management Inc.; Previously Assistant Vice
President and Manager of Fund Compliance
and Control, Scudder Stevens & Clark Inc.
and Audit Manager, Ernst & Young LLP.
Joanna M. Haigney*........ Assistant Treasurer 28 Supervisor, Fund Administration, Mutual
73 Tremont Street Funds Service Company; Officer of various
Boston, Massachusetts investment companies managed by Morgan
02108 Stanley Asset Management Inc.; Previously
Audit Supervisor, Coopers & Lybrand.
</TABLE>
- ---------------
* Interested person of the Fund (as defined in the 1940 Act).
Mr. Biggs is a director and officer and Messrs. Olsen, Grisham, Schaaff and
Stadler and Ms. Lewis are officers of the Investment Manager. Mr. Whittemore is
an Advisory Director of Morgan Stanley & Co. Incorporated, an affiliate of the
Investment Manager and a registered broker-dealer, and he is the owner of a
beneficial interest in the Investment Manager. Mr. Rooney and Ms. Haigney are
employees of Mutual Funds Service Company, an affiliate of United States Trust
Company of New York, the Fund's Administrator.
The officers of the Fund, together with the Investment Manager, conduct and
supervise the Fund's daily business operations. The Directors review and
supervise the actions of the officers and the Investment Manager and decide
general policy.
The Fund currently pays to each of its Directors who is not an officer or
employee of the Investment Manager or its affiliates, in addition to certain
out-of-pocket expenses, an annual fee of $4,000. Each of the members of the
Fund's Audit Committee receives an additional annual fee of $750 for serving on
such committee. Aggregate fees and expenses paid or payable to the Board of
Directors for the fiscal year ended December 31, 1994 were $38,000.
Each of the Directors who is not an "affiliated person" of the Investment
Manager within the meaning of the 1940 Act may enter into a deferred fee
arrangement (the "Fee Arrangement") with the Fund, pursuant to which such
Director defers to a later date the receipt of his Director's fees. The deferred
fees owed by the Fund are credited to a bookkeeping account maintained by the
Fund on behalf of such Director and accrue income from and after the date of
credit in an amount equal to the amount that would have been earned had such
fees (and all income earned thereon) been invested and reinvested either (i) in
shares of the Fund or (ii) at a rate equal to the prevailing rate applicable to
90-day United States Treasury Bills at the beginning of each calendar quarter
for which this rate is in effect, whichever method is elected by a Director.
Under the Fee Arrangement, deferred Directors' fees (including the return
accrued thereon) will become payable in cash upon such Director's resignation
from the Board of Directors in generally equal annual installments over a period
of five years (unless the Fund has agreed to a longer or shorter payment period)
beginning on the first day of the year following the year in which such
Director's resignation occurred. In the event of a Director's death, remaining
amounts payable to him under the Fee Arrangement will thereafter be payable to
his designated beneficiary; in all other events, a Director's right to receive
payments is non-transferable. Under the Fee Arrangement, the Board of Directors
of the Fund, in its sole discretion, has reserved the right, at the request of a
Director or otherwise, to accelerate or extend the payment of amounts in the
deferred fee account at any time after the termination of a Director's service
as a director. In addition, in the event of the liquidation, dissolution or
winding up of the Fund or the distribution of all or substantially all of the
Fund's assets and property to its shareholders (other than in connection with a
reorganization or merger into another Fund advised by the Investment Manager),
all unpaid amounts in the deferred fee account maintained by the Fund will be
paid in a lump sum to Directors participating in the Fee Arrangements on the
effective date thereof.
42
<PAGE> 45
Currently, Mr. Levin is the only Director who has elected to enter into the
Fee Arrangement with the Fund.
Set forth below is a chart showing the aggregate compensation paid or
payable by the Fund to each of its Directors, as well as the total compensation
paid to each Director of the Fund by the Fund and by other U.S. registered
investment companies ("investment companies") advised by the Investment Manager
or its affiliates (collectively, the "Fund Complex"), for their services as
Directors of such investment companies for the fiscal year ended December 31,
1994.
<TABLE>
<CAPTION>
PENSION OR
RETIREMENT TOTAL NUMBER OF
BENEFITS COMPENSATION FUNDS IN
AGGREGATE ACCRUED FROM THE FUND AND FUND COMPLEX
COMPENSATION AS PART OF THE FUND COMPLEX PAID FOR WHICH
NAME OF DIRECTOR FROM THE FUND FUND'S EXPENSES TO DIRECTORS DIRECTOR SERVES
- --------------------------- ------------- --------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Barton M. Biggs(1)(2)...... $ 0 None $ 0 6
Warren J. Olsen(1)(2)...... 0 None 0 15
John A. Levin(2)........... 8,700 None 24,156 3
William G. Morton,
Jr.(2)................... 7,500 None 16,587 4
Fergus Reid(2)(3).......... 6,500 None 30,601 5
Richard E. Salomon(4)...... 7,500 None 14,979 2
John H.T. Wilson(1)(5)..... 0 None 0 1
</TABLE>
- ---------------
(1) Mr. Biggs is a director and officer of the Investment Manager, and Messrs.
Olsen and Wilson are officers of the Investment Manager, and therefore are
"interested persons" of the Fund within the meaning of the 1940 Act. As
directors and/or officers of the Investment Manager, Messrs. Biggs, Olsen
and Wilson do not receive any compensation from the Fund or any other
investment companies in the Fund Complex for their services as a director of
such investment companies.
(2) As of the date hereof, Messrs. Biggs, Olsen, Levin, Morton and Reid,
respectively, serve on 16, 16, 13, 12 and 4 boards of directors of
investment companies in the Fund Complex.
(3) Mr. Reid did not seek re-election to the Board at the Annual Meeting of
Stockholders held during 1995, and thus, he is no longer a Director of the
Fund.
(4) During 1995, Mr. Salomon resigned from the Fund and the other investment
companies in the Fund Complex on which he served as a director, and as of
the date hereof, he is not a director of any investment companies in the
Fund Complex.
(5) During 1995, Mr. Wilson resigned from the Fund, and as of the date hereof,
he is not a director of any investment companies in the Fund Complex.
The Fund's Board of Directors has an audit committee that is responsible
for reviewing financial and accounting matters. The current members of the audit
committee are Messrs. Croghan, Levin and Morton.
The officers and Directors of the Fund, in the aggregate, own less than 1%
of the outstanding shares of Common Stock of the Fund.
To the knowledge of the Fund's management, based on a search of forms
required to be filed with the Fund and the Commission by holders of more than
five percent of the Fund's outstanding securities, the following person owned
beneficially more than 5% of the Fund's outstanding shares as of June 30, 1995:
<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL
OWNER AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP PERCENT OF CLASS
- ----------------------------------- ------------------------------------------------ ----------------
<S> <C> <C>
Morgan Stanley Group Inc.*......... 2,510,921 shares, with shared voting power and 19.06%
1251 Avenue of the Americas shared dispositive power; 549,929 shares, with
New York, New York 10020 shared dispositive power and no voting power(1)
</TABLE>
- ---------------
* Includes 2,145,871 shares held by Morgan Stanley & Co. Incorporated, which
comprise 13.37% of shares outstanding.
(1) Based on a Schedule 13G filed with the Commission on February 14, 1995.
43
<PAGE> 46
The Board of Directors is divided into three classes, each class having a
term of three years. Each year the term of one class expires. The Fund's By-laws
provide that each Director holds office until (i) the expiration of his term and
until his successor has been elected and qualified, (ii) his death, (iii) his
resignation, (iv) December 31 of the year in which he reaches seventy-three
years of age or (v) his removal as provided by statute or the Articles of
Incorporation. See "Common Stock."
The Articles of Incorporation of the Fund contain a provision permitted
under the Maryland General Corporation Law (the "MGCL") which by its terms
eliminates the personal liability of the Fund's directors to the Fund or its
shareholders for monetary damages for breach of fiduciary duty as a director,
subject to the requirements of the 1940 Act and certain qualifications described
below. The Articles of Incorporation and the By-laws of the Fund provide that
the Fund will indemnify directors, officers, employees or agents of the Fund to
the full extent permitted by the MGCL, subject to the requirements of the 1940
Act. Under Maryland law, a corporation may indemnify any director or officer
made a party to any proceeding by reason of service in that capacity unless it
is established that (1) the act or omission of the director or officer was
material to the matter giving rise to the proceeding and (A) was committed in
bad faith or (B) was the result of active and deliberate dishonesty; (2) the
director or officer actually received an improper personal benefit in money,
property or services; or (3) in the case of any criminal proceeding, the
director or officer had reasonable cause to believe that the act or omission was
unlawful. The Articles of Incorporation further provide that to the fullest
extent permitted by the MGCL, and subject to the requirements of the 1940 Act,
no director or officer will be liable to the Fund or its shareholders for money
damages. Under Maryland law, a corporation may restrict or limit the liability
of directors or officers to the corporation or its shareholders for money
damages, except to the extent that (1) it is proved that the person actually
received an improper benefit or profit in money, property, or services, or (2) a
judgment or other final adjudication adverse to the person is entered in a
proceeding based on a finding in the proceeding that the person's action, or
failure to act, was the result of active and deliberate dishonesty and was
material to the cause of action adjudicated in the proceeding. Nothing in the
Articles of Incorporation or the By-laws of the Fund protects or indemnifies a
director, officer, employee or agent against any liability to which he would
otherwise be subject by reason of acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, or protects or
indemnifies a director or officer of the Fund against any liability to the Fund
or its shareholders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.
ADMINISTRATION
Under an Administration Agreement (the "Administration Agreement") between
the Fund and United States Trust Company of New York (the "Administrator"), the
Administrator, through its wholly owned subsidiary Mutual Funds Service Company,
provides administrative services to the Fund. Such administrative services
include maintenance of the Fund's books and records, calculations of net asset
value, preparation and filing of reports with respect to certain of the Fund's
U.S. reporting requirements, monitoring of custody arrangements with the Fund's
custodians and other accounting and general administrative services. The
Directors of the Fund supervise and monitor the administrative services provided
by the Administrator.
The Administrator is a New York state chartered bank and trust company
which provides corporate management and administrative services to investment
companies. The Administrator's business address is 770 Broadway, New York, New
York 10003. Mutual Funds Service Company's business address is 73 Tremont
Street, Boston, Massachusetts 02108.
Under the Administration Agreement, the Fund pays to the Administrator an
annual administration fee of $100,000 plus .06% of the average weekly net assets
of the Fund, computed weekly and payable monthly. Pursuant to the Administration
Agreement, the Administrator received payments for its administrative services
from the Fund in the amounts of $115,000 and $245,000, for the period ended
December 31, 1993 and fiscal year ended December 31, 1994, respectively.
The Fund has been informed that U.S. Trust Corporation, the parent company
of the Administrator, and The Chase Manhattan Corporation, the parent company of
The Chase Manhattan Bank, N.A. ("Chase Bank"), have entered into a merger
agreement. As a result of the merger, Chase Bank will succeed to the
44
<PAGE> 47
duties of the Administrator under the Administration Agreement. The Fund has
also been informed that Chase Bank will continue to provide administrative
services to the Fund under the Administration Agreement through Mutual Funds
Service Company, which will become a wholly owned subsidary of Chase Bank after
the merger (although its name may change). It is anticipated that the merger
will be completed during the summer of 1995 and that the merger will not affect
the nature or the quality of the administrative services to the Fund.
EXPENSES
The Fund's annual operating expenses are higher than normal annual
operating expenses of most closed-end investment companies of comparable size
investing in the United States and reflect the specialized nature of the Fund,
the extent of the advisory effort involved, and the costs of communication and
other costs associated with investing in emerging countries rather than in the
United States. For the period ended December 31, 1993 and fiscal year ended
December 31, 1994, the Fund's expenses (inclusive of amortization of
organization expenses) were $3,123,000 and $5,146,000, respectively. The $75,000
in organization expenses incurred by the Fund in connection with its initial
public offering is being amortized over five years. Expenses of the Offer,
estimated at $500,000, will be charged to capital. The Fund's expense ratio
(after interest expense) was 2.79% (annualized) and 2.30% of the Fund's net
assets (inclusive of amortization of organization expenses) for the period ended
December 31, 1993 and fiscal year ended December 31, 1994, respectively.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Investment Manager places orders for securities to be purchased by the
Fund. Transactions in debt securities are generally made through securities
dealers acting as principals, although the Fund may purchase or sell debt
securities in brokerage transactions. The primary objective of the Investment
Manager in choosing brokers or dealers for the purchase and sale of securities
for the Fund's portfolio is to obtain the most favorable net results taking into
account such factors as price, commission, size of order, difficulty of
execution, and the degree of skill required of the broker-dealer. The capability
and financial condition of the broker or dealer may also be criteria for the
choice of that broker or dealer. The placing and execution of orders for the
Fund are also subject to restrictions under U.S. securities laws, including
certain prohibitions against trading among the Fund and its affiliates
(including the Investment Manager and its affiliates). The Fund may utilize
affiliates of the Investment Manager in connection with the purchase or sale of
securities in accordance with rules adopted or exemptive orders issued by the
Commission when the Investment Manager believes that the charge for the
transaction does not exceed usual and customary levels. In addition, the Fund
may purchase securities in a placement for which affiliates of the Investment
Manager have acted as agent to or for the issuers, consistent with applicable
rules adopted by the Commission or regulatory authorization, if necessary. The
Fund may not purchase securities from or sell securities to any affiliate of the
Investment Manager acting as principal.
The Investment Manager on behalf of the Fund may place brokerage
transactions through brokers, including Morgan Stanley & Co. Incorporated and
its affiliates, who provide it with investment research services, including
market and statistical information and quotations for the Fund's portfolio
evaluation purposes. The terms "investment research" and "market and statistical
information and quotations" include advice as to the value of securities, the
advisability of investing in, purchasing or selling securities, and the
availability of securities and potential buyers or sellers of securities, as
well as the furnishing of analyses and reports concerning issuers, industries,
securities, economic factors and trends, and portfolio strategy, each and all as
consistent with those services mentioned in Section 28(e) of the U.S. Securities
Exchange Act of 1934, as amended (the "1934 Act").
Research provided to the Investment Manager in advising the Fund is in
addition to and not in lieu of the services required to be performed by the
Investment Manager itself, and the Investment Manager's fees will not be reduced
as a result of the receipt of such supplemental information. It is the opinion
of the management of the Fund that such information is only supplementary to the
Investment Manager's own research efforts, since the information must still be
analyzed, weighed and reviewed by the Investment Manager's staff. Such
45
<PAGE> 48
information may be useful to the Investment Manager in providing services to
clients other than the Fund, and not all such information is necessarily used by
the Investment Manager in connection with the Fund. Conversely, information
provided to the Investment Manager by brokers and dealers through whom other
clients of the Investment Manager effect securities transactions may prove
useful to the Investment Manager in providing services to the Fund.
The Fund's Board of Directors reviews at least annually the commissions
allocated by the Investment Manager on behalf of the Fund to determine if such
allocations were reasonable in relation to the benefits inuring to the Fund.
No brokerage commissions were paid by the Fund for the period ended
December 31, 1993 and fiscal year ended December 31, 1994.
NET ASSET VALUE
The Fund's net asset value is determined no less frequently than weekly, on
the last business day of each week and at such other times as the Board of
Directors may determine, by dividing the value of the net assets of the Fund
(the value of its assets less its liabilities, exclusive of capital stock and
surplus) by the total number of shares of Common Stock outstanding. In valuing
the Fund's assets, all securities for which market quotations are readily
available are valued (i) at the last sale price prior to the time of
determination if there was a sale on the date of determination, (ii) at the mean
between the last current bid and asked prices if there was no sales price on
such date and bid and asked quotations are available, and (iii) at the bid price
if there was no sales price on such date and only bid quotations are available.
Publicly traded government debt securities are typically traded internationally
on the over-the-counter market, and are valued at the mean between the last
current bid and asked price as of the close of business on that market. In
instances where a price determined above is deemed not to represent fair market
value, the value is determined in such manner as the Board of Directors may
prescribe. Securities may be valued by independent pricing services which use
prices provided by market-makers or estimates of market values obtained from
yield data relating to instruments or securities with similar characteristics.
Short-term investments having a maturity of 60 days or less are valued at
amortized cost, unless the Board of Directors determines that such valuation
does not constitute fair value. Securities for which reliable quotations or
pricing services are not readily available and all other securities and assets
are valued at fair value as determined in good faith by, or under procedures
established by, the Board of Directors.
DIVIDENDS AND DISTRIBUTIONS;
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
The Fund intends to continue to distribute to shareholders, at least
quarterly, substantially all of its net investment income from interest
earnings, and also expects to distribute any net realized gains at least
annually. Pursuant to the Dividend Reinvestment and Cash Purchase Plan (the
"Plan"), each shareholder may elect by written notice to The First National Bank
of Boston (the "Plan Agent") to have all distributions automatically reinvested
by the Plan Agent in Fund shares pursuant to the Plan. Shareholders who do not
participate in the Plan will receive all distributions in cash paid by check in
U.S. dollars mailed directly to the shareholder by The First National Bank of
Boston, as paying agent. Shareholders who wish to have distributions
automatically reinvested should notify the Fund, c/o the Plan Agent for the
Morgan Stanley Emerging Markets Debt Fund, Inc.
The Plan Agent serves as agent for the shareholders in administering the
Plan. If the Directors of the Fund declare an income dividend or a capital gains
distribution payable either in Common Stock or in cash, as shareholders may have
elected, non-participants in the Plan will receive cash and participants in the
Plan will receive Common Stock, to be issued by the Fund or to be purchased by
the Plan Agent in the open market. If the market price per share on the
valuation date equals or exceeds net asset value per share on that date, the
Fund will issue new shares to participants at net asset value or, if the net
asset value is less than 95% of the market price on the valuation date, then at
95% of the market price. The valuation date will be the dividend or distribution
payment date or, if that date is not a trading day on the exchange on which the
Common Stock is
46
<PAGE> 49
then listed, the next preceding trading day. If net asset value exceeds the
market price of the Common Stock at such time, or if the Fund should declare a
dividend or capital gains distribution payable only in cash, the Plan Agent
will, as agent for the participants, buy the Common Stock in the open market, or
elsewhere, with the cash in respect of such dividend or distribution, for the
participants' account on, or shortly after, the payment date.
Participants in the Plan have the option of making additional payments to
the Plan Agent, quarterly, in any amount from $100 to $3,000, for investment in
the Common Stock. The Plan Agent will use all funds received from participants
(as well as any dividends and distributions received in cash) to purchase Fund
shares in the open market on or about the payment date for each quarterly
dividend or distribution (which are expected to be approximately January 15,
April 15, July 15 and October 15 of each year). No participant will have any
authority to direct the time or price at which the Plan Agent may purchase the
Common Stock on its behalf. Any voluntary cash payments received more than
thirty days prior to any such date will be returned by the Plan Agent, and
interest will not be paid on any uninvested cash payments. To avoid unnecessary
cash accumulations, and also to allow ample time for receipt and processing by
the Plan Agent, it is suggested that participants send in voluntary cash
payments to be received by the Plan Agent approximately ten days before January
15, April 15, July 15 and October 15. A participant may withdraw a voluntary
cash payment by written notice, if the notice is received by the Plan Agent not
less than forty-eight hours before such payment is to be invested.
The Plan Agent maintains all shareholder accounts in the Plan and furnishes
written confirmations of all transactions in the account, including information
needed by shareholders for personal and tax records. Shares in the account of
each Plan participant will be held by the Plan Agent in non-certificated form in
the name of the participant, and each shareholder's proxy will include those
shares purchased pursuant to the Plan. In the case of shareholders such as
banks, brokers or nominees which hold shares for others who are the beneficial
owners, the Plan Agent will administer the Plan on the basis of the number of
shares certified from time to time by the shareholder as representing the total
amount registered in the shareholder's name and held for the account of
beneficial owners who are participating in the Plan. In the case of shareholders
whose shares are held in the name of a brokerage firm, bank or nominee the
shareholders should request such brokerage firm, bank or nominee to participate
in the Plan or, if such brokerage firm, bank or nominee cannot participate,
instruct such person to register the shares in the name of the respective
shareholder, to enable such shareholder to directly participate in the Plan. If
a shareholder is participating in the Plan through a brokerage firm, bank or
nominee, and such shareholder transfers those shares to another brokerage firm,
bank or nominee, the shareholder may not be able to participate in the Plan.
There is no charge to participants for reinvesting dividends or capital
gains distributions. The Plan Agent's fees for the handling of the reinvestment
of dividends and distributions will be paid by the Fund. However, each
participant's account will be charged a pro rata share of brokerage commissions
incurred with respect to the Plan Agent's open market purchases in connection
with the reinvestment of dividends or capital gains distributions. A participant
will also pay brokerage commissions incurred in purchases from voluntary cash
payments made by the participant. Brokerage charges for purchasing small amounts
of stock for individual accounts through the Plan are expected to be less than
the usual brokerage charges for such transactions, because the Plan Agent will
be purchasing stock for all participants in blocks and prorating the lower
commission thus attainable.
The automatic reinvestment of dividends and distributions will not relieve
participants of any income tax which may be payable on such dividends and
distributions.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Fund reserves the right to amend or terminate the Plan as
applied to any voluntary cash payment made and any dividend or distribution paid
subsequent to notice of the change sent to all shareholders at least 90 days
before the record date for such dividend or distribution. The Plan also may be
amended or terminated by the Plan Agent by at least 90 days' written notice to
all shareholders. All correspondence concerning the Plan, including requests for
additional information, should be directed to the Plan Agent for the Morgan
Stanley Emerging Markets Debt Fund, Inc. at 150 Royall Street, Canton,
Massachusetts 02021.
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TAXATION
U.S. FEDERAL INCOME TAXES
The Fund has to date qualified and intends to continue to qualify and be
treated as a regulated investment company under the Code. To so qualify, the
Fund must, among other things: (a) derive at least 90% of its gross income from
dividends, interest, payments with respect to securities loans, gains from the
sale or other disposition of stock or securities and gains from the sale or
other disposition of foreign currencies, or other income (including gains from
options, futures contracts and forward contracts) derived with respect to the
Fund's business of investing in stocks, securities or currencies; (b) derive
less than 30% of its gross income from the sale or other disposition of the
following assets held for less than three months -- (i) stock and securities,
(ii) options, futures and forward contracts (other than options, futures and
forward contracts on foreign currencies), and (iii) foreign currencies (and
options, futures and forward contracts on foreign currencies) which are not
directly related to the Fund's principal business of investing in stocks and
securities (or options and futures with respect to stock or securities); and (c)
diversify its holdings so that, at the end of each quarter, (i) at least 50% of
the value of the Fund's total assets is represented by cash and cash items, U.S.
Government securities, securities of other regulated investment companies, and
other securities, with such other securities limited in respect of any one
issuer to an amount not greater in value than 5% of the Fund's total assets and
to not more than 10% of the outstanding voting securities of such issuer, and
(ii) not more than 25% of the value of the Fund's total assets is invested in
the securities (other than U.S. Government securities or securities of other
regulated investment companies) of any one issuer or of any two or more issuers
that the Fund controls and that are determined to be engaged in the same
business or similar or related businesses. The Fund expects that all of its
foreign currency gains will be directly related to its principal business of
investing in stock and securities.
As a regulated investment company, the Fund will not be subject to U.S.
federal income tax on its investment company taxable income that it distributes
to its shareholders, provided that at least 90% of its investment company
taxable income for the taxable year is distributed to its shareholders; however,
the Fund will be subject to tax on its income and gains, to the extent that it
does not distribute to its shareholders an amount equal to such income and
gains. See "Passive Foreign Investment Companies" below. Investment company
taxable income includes dividends, interest and net short-term capital gains in
excess of net long-term capital losses, but does not include net long-term
capital gains in excess of net short-term capital losses. The Fund intends to
continue to distribute annually to its shareholders substantially all of its
investment company taxable income. If necessary, the Fund intends to borrow
money or liquidate assets to make such distributions. Dividend distributions of
investment company taxable income are taxable to a U.S. shareholder as ordinary
income to the extent of the Fund's current and accumulated earnings and profits,
whether paid in cash or in shares. Since the Fund will not invest in the stock
of domestic corporations, distributions to corporate shareholders of the Fund
will not be entitled to the deduction for dividends received by corporations. If
the Fund fails to satisfy the 90% distribution requirement or fails to qualify
as a regulated investment company in any taxable year, it will be subject to tax
in such year on all of its taxable income, whether or not the Fund makes any
distributions to its shareholders.
As a regulated investment company, the Fund also will not be subject to
U.S. federal income tax on its net long-term capital gains in excess of net
short-term capital losses and capital loss carryovers from the prior eight
years, if any, that it distributes to its shareholders. If the Fund retains for
reinvestment or otherwise an amount of such net long-term capital gains, it will
be subject to a tax of up to 35% of the amount retained. The Board of Directors
of the Fund will determine at least once a year whether to distribute any net
long-term capital gains in excess of net short-term capital losses and capital
loss carryovers from prior years. The Fund expects to designate amounts retained
as undistributed capital gains in a notice to its shareholders who are
shareholders of record at the close of a taxable year of the Fund who, if
subject to U.S. federal income taxation, (a) will be required to include in
income for U.S. federal income tax purposes, as long-term capital gains, their
proportionate shares of the undistributed amount, and (b) will be entitled to
credit against their U.S. federal income tax liabilities their proportionate
shares of the tax paid by the Fund on the undistributed amount and to claim
refunds to the extent that their credits exceed their liabilities. For U.S.
federal income tax purposes, the basis of shares owned by a shareholder of the
Fund will be increased by an amount equal to 65% of the amount of undistributed
capital gains included in the shareholder's income. Distributions of net
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long-term capital gains, if any, by the Fund are taxable to its shareholders as
long-term capital gains whether paid in cash or in shares and regardless of how
long the shareholder has held the Fund's shares. Such distributions of net
long-term capital gains are not eligible for the dividends received deduction.
Under the Code, net long-term capital gains will be taxed at a rate no greater
than 28% for individuals and 35% for corporations. Shareholders will be notified
annually as to the U.S. federal income tax status of their dividends and
distributions.
Shareholders receiving dividends or distributions in the form of additional
shares pursuant to the Plan should be treated for U.S. federal income tax
purposes as receiving a distribution in an amount equal to the amount of money
that the shareholders receiving cash dividends or distributions will receive,
and should have a cost basis in the shares equal to such amount.
If the net asset value of shares is reduced below a shareholder's cost as a
result of a distribution by the Fund, the distribution will be taxable even
though it, in effect, represents a return of invested capital. Investors
considering buying shares just prior to a dividend or capital gain distribution
payment date should be aware that, although the price of shares purchased at
that time may reflect the amount of the forthcoming distribution, those who
purchase just prior to the record date for a distribution will receive a
distribution which will be taxable to them. The amount of capital gains realized
and distributed (which from an investment standpoint may represent a partial
return of capital rather than income) in any given year will be the result of
action taken for the best investment of the principal of the Fund, and may
therefore vary from year to year.
Under the Code, the Fund may be subject to a 4% excise tax on a portion of
its undistributed income. To avoid the tax, the Fund must distribute annually at
least 98% of its ordinary income (not taking into account any capital gains or
losses) for the calendar year and at least 98% of its capital gain net income
for the 12-month period ending, as a general rule, on October 31 of the calendar
year. For this purpose, any income or gain retained by the Fund that is subject
to corporate income tax will be treated as having been distributed at year-end.
In addition, the minimum amounts that must be distributed in any year to avoid
the excise tax will be increased or decreased to reflect any under distribution
or over distribution, as the case may be, in the previous year. For a
distribution to qualify under the foregoing test, the distribution generally
must be declared and paid during the year. Any dividend declared by the Fund in
October, November or December of any year and payable to shareholders of record
on a specified date in such a month shall be deemed to have been received by
each shareholder on December 31 of such year and to have been paid by the Fund
not later than December 31 of such year, provided that such dividend is actually
paid by the Fund during January of the following year.
If at any time when leverage is outstanding, the Fund does not meet the
asset coverage requirements of the 1940 Act or of any rating agency that has
rated such leverage, the Fund will be required to suspend distributions to
holders of Common Stock until the asset coverage is restored. See "Investment
Objectives and Policies -- Borrowing and Other Forms of Leverage." This may
prevent the Fund from distributing at least 90% of its investment company
taxable income, and may therefore jeopardize the Fund's qualification for
taxation as a regulated investment company or cause the Fund to incur a tax
liability or a non-deductible 4% excise tax on the undistributed taxable income
(including gain), or both. Upon any failure to meet the asset coverage
requirements of the 1940 Act, or imposed by a rating agency, the Fund may, in
its sole discretion, purchase or redeem any short-term debt securities in order
to maintain or restore the requisite asset coverage and avoid the adverse
consequences to the Fund and its shareholders of failing to qualify as a
regulated investment company or of incurring a tax liability or a non-deductible
4% excise tax. There can be no assurance, however, that any such redemption
would achieve such objectives.
The Fund may make investments that produce income that is not matched by a
corresponding cash distribution to the Fund, such as investments in certain
Brady Bonds or other obligations having original issue discount (i.e., an amount
equal to the excess of the stated redemption price of the security at maturity
over its issue price) or market discount (i.e., an amount equal to the excess of
the stated redemption price of the security over the basis of such bond
immediately after it was acquired) if the Fund elects to accrue market discount
on a current basis. The Fund intends to elect to accrue market discount on a
current basis. In addition, income may continue to accrue for federal income tax
purposes with respect to a non-performing
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investment. Any such income would be treated as income earned by the Fund and
therefore would be subject to the distribution requirements of the Code. Because
such income may not be matched by a corresponding cash distribution to the Fund,
the Fund may be required to borrow money or dispose of other securities to be
able to make distributions to its investors. The extent to which the Fund may
liquidate securities at a gain may be limited by the 30% limitation discussed
above. In addition, if an election is not made to accrue market discount
currently with respect to a market discount bond, all or a portion of any
deduction for any interest expense incurred to purchase or hold such bond may be
deferred until such bond is sold or otherwise disposed.
The Fund maintains accounts and calculates income by reference to the U.S.
dollar for U.S. federal income tax purposes. Investments generally are
maintained and income therefrom calculated by reference to the emerging
countries' currencies, and such calculations do not necessarily correspond to
the Fund's distributable income and capital gains for U.S. federal income tax
purposes as a result of fluctuations in currency exchange rates. Furthermore,
exchange control regulations may restrict the ability of the Fund to repatriate
investment income or the proceeds of sales of securities. These restrictions and
limitations may limit the Fund's ability to make sufficient distributions to
satisfy the 90% distribution requirement and avoid the 4% excise tax.
The Fund's transactions in foreign currencies, forward contracts, options
and futures contracts (including options and futures contracts on foreign
currencies) will be subject to special provisions of the Code that, among other
things, may affect the character of gains and losses realized by the Fund (i.e.,
may affect whether gains or losses are ordinary or capital), accelerate
recognition of income to the Fund, defer Fund losses, and affect the
determination of whether capital gains and losses are characterized as long-term
or short-term capital gains or losses. These rules could therefore affect the
character, amount and timing of distributions to shareholders. These provisions
also may require the Fund to mark-to-market certain types of the positions in
its portfolio (i.e., treat them as if they were closed out) which may cause the
Fund to recognize income without receiving cash with which to make distributions
in amounts necessary to satisfy the 90% and 98% distribution requirements for
avoiding income and excise taxes. The Fund will monitor its transactions, will
make the appropriate tax elections, and will make the appropriate entries in its
books and records when it acquires any foreign currency, option, futures
contract, forward contract, or hedged investment in order to mitigate the effect
of these rules and prevent disqualification of the Fund as a regulated
investment company and minimize the imposition of income and excise taxes.
For backup withholding purposes, the Fund may be required to withhold 31%
of reportable payments (which may include dividends, capital gain distributions,
and redemptions) to certain non-corporate shareholders. A shareholder, however,
may avoid becoming subject to this requirement by filing an appropriate form
certifying under penalty of perjury that such shareholder's taxpayer
identification number is correct and that such shareholder is not subject to
backup withholding, or is exempt from backup withholding. Backup withholding is
not an additional tax. Any amounts withheld under the backup withholding rules
from payments made to a shareholder may be credited against such shareholder's
federal income tax liability.
Upon the sale or exchange of its shares, a shareholder will realize a
taxable gain or loss depending upon the amount realized and the shareholder's
basis in the shares. Such gain or loss will be treated as capital gain or loss
if the shares are capital assets in the shareholder's hands, and will be
long-term if the shareholder's holding period for the shares is more than 12
months and otherwise will be short-term. Any loss realized on a sale or exchange
will be disallowed to the extent that the shares disposed of are replaced
(including replacement through the reinvesting of dividends and capital gains
distributions in the Fund) within a period of 61 days beginning 30 days before
and ending 30 days after the disposition of the shares. In such a case, the
basis of the shares acquired will be adjusted to reflect the disallowed loss.
Any loss realized by a shareholder on the sale of Fund shares held by the
shareholder for six months or less will be treated for federal income tax
purposes as a long-term capital loss to the extent of any distributions of
long-term capital gains received by the shareholder with respect to such shares.
A repurchase by the Fund of shares generally will be treated as a sale of
the shares by a shareholder, provided that after the repurchase the shareholder
does not own, either directly or by attribution under Section 318 of the Code,
any shares. If, after a repurchase a shareholder continues to own, directly or
by attribution, any shares, and has not experienced a meaningful reduction in
its proportionate interest in the
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Fund, it is possible that any amounts received in the repurchase by such
shareholder will be taxable as a dividend to such shareholder. If, in addition,
the Fund has made such repurchases as part of a series of redemptions, there is
a risk that shareholders who do not have any of their shares repurchased would
be treated as having received a dividend distribution as a result of their
proportionate increase in the ownership of the Fund.
Passive Foreign Investment Companies
If the Fund purchases shares in certain foreign passive investment entities
described in the Code as passive foreign investment companies ("PFIC"), the Fund
will be subject to U.S. federal income tax on a portion of any "excess
distribution" (the Fund's ratable share of distributions in any year that
exceeds 125% of the average annual distribution received by the Fund in the
three preceding years or the Fund's holding period, if shorter, and any gain
from the disposition of such shares) even if such income is distributed as a
taxable dividend by the Fund to its shareholders. Additional charges in the
nature of interest may be imposed on the Fund in respect of deferred taxes
arising from such "excess distributions." If the Fund were to invest in a PFIC
and elect to treat the PFIC as a "qualified electing fund" under the Code (and
if the PFIC were to comply with certain reporting requirements), in lieu of the
foregoing requirements the Fund would be required to include in income each year
its pro rata share of the PFIC's ordinary earnings and net realized capital
gains, whether or not such amounts were actually distributed to the Fund.
Foreign Tax Credits
Income received by the Fund from sources outside the United States may be
subject to withholding and other taxes imposed by foreign countries. If the Fund
qualifies as a regulated investment company, if certain distribution
requirements are satisfied and if more than 50% of the value of the Fund's total
assets at the close of any taxable year consists of stocks or securities of
foreign corporations, which is expected to be the case, the Fund may elect, for
U.S. federal income tax purposes, to treat any foreign country's income or
withholding taxes paid by the Fund that can be treated as income taxes under
United States income tax principles, as paid by its shareholders. The Fund has
qualified and made this election in the past and expects to make this election
again in any year in which it qualifies to do so. As a consequence, each
shareholder will be required to include in its income an amount equal to its
allocable share of such income taxes paid by the Fund to a foreign country's
government and the shareholders will be entitled, subject to certain
limitations, to credit their portions of these amounts against their U.S.
federal income tax due, if any, or to deduct their portions from their U.S.
taxable income, if any. Shareholders that are exempt from tax under Section
501(a) of the Code, such as pension plans, generally will derive no benefit from
the Fund's election. However, these shareholders should not be disadvantaged
because the amount of additional income they are deemed to receive equal to
their allocable share of such emerging countries' income taxes paid by the Fund
generally will not be subject to U.S. federal income tax.
The amount of foreign taxes that may be credited against a shareholder's
U.S. federal income tax liability will generally be limited, however, to an
amount equal to the shareholder's United States federal income tax rate
multiplied by its foreign source taxable income. For this purpose, the Fund
expects that the capital gains it distributes, whether as dividends or capital
gains distributions, will not be treated as foreign source taxable income. In
addition, this limitation must be applied separately to certain categories of
foreign source income, one of which is foreign source "passive income." For this
purpose, foreign source "passive income" includes dividends, interest, capital
gains and certain foreign currency gains. As a consequence, certain shareholders
may not be able to claim a foreign tax credit for the full amount of their
proportionate share of foreign taxes paid by the Fund. Each shareholder will be
notified within 60 days after the close of the Fund's taxable year whether,
pursuant to the election described above, the foreign taxes paid by the Fund
will be treated as paid by its shareholders for that year and, if so, the
notification will designate (i) the shareholder's portion of the foreign taxes
paid to such country and (ii) the portion of the Fund's dividends and
distributions that represents income derived from sources within the country.
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Foreign Shareholders
Taxation of a shareholder who, as to the United States, is a foreign
investor depends, in part, on whether the shareholder's income from the Fund is
"effectively connected" with a United States trade or business carried on by the
shareholder.
If the foreign investor is not a resident alien and the income from the
Fund is not effectively connected with a United States trade or business carried
on by the foreign investor, distributions of net investment income and net
realized short-term capital gains will be subject to a 30% (or lower treaty
rate) United States withholding tax. Furthermore, foreign investors may be
subject to an increased United States tax on their income resulting from the
Fund's election (described above) to "pass-through" amounts of foreign taxes
paid by the Fund, but may not be able to claim a credit or deduction with
respect to the foreign taxes treated as having been paid by them. Distributions
of net realized long-term capital gains, amounts retained by the Fund which are
designated as undistributed capital gains, and gains realized upon the sale of
shares of the Fund will not be subject to United States tax unless a foreign
investor who is a nonresident alien individual is physically present in the
United States for more than 182 days during the taxable year and, in the case of
gain realized upon the sale of Fund shares, unless (i) such gain is attributable
to an office or fixed place of business in the United States or (ii) such
nonresident alien individual has a tax home in the United States and such gain
is not attributable to an office or fixed place of business located outside the
United States. However, a determination by the Fund not to distribute long-term
capital gains may reduce a foreign investor's overall return from an investment
in the Fund, since the Fund will incur a United States federal tax liability
with respect to retained long-term capital gains, thereby reducing the amount of
cash held by the Fund that is available for distribution, and the foreign
investor may not be able to claim a credit or deduction with respect to such
taxes. In the case of a foreign investor who is a nonresident alien individual,
the Fund may be required to withhold U.S. federal income tax at a rate of 31%,
unless the foreign investor files an appropriate form certifying under penalty
of perjury as to his nonresident alien status.
If a foreign investor is a resident alien or if dividends or distributions
from the Fund are effectively connected with a United States trade or business
carried on by the foreign investor, dividends of net investment income,
distributions of net short-term and long-term capital gains, amounts retained by
the Fund that are designated as undistributed capital gains and any gains
realized upon the sale of shares of the Fund will be subject to United States
income tax at the rates applicable to United States citizens or domestic
corporations. If the income from the Fund is effectively connected with a United
States trade or business carried on by a foreign investor that is a corporation,
then such foreign investor also may be subject to the 30% branch profits tax.
The tax consequences to a foreign shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described in
this section. Shareholders may be required to provide appropriate documentation
to establish their entitlement to the benefits of such a treaty. Foreign
investors are advised to consult their own tax advisers with respect to (a)
whether their income from the Fund is or is not effectively connected with a
United States trade or business carried on by them, (b) whether they may claim
the benefits of an applicable tax treaty and (c) any other tax consequences to
them of an investment in the Fund.
Notices
Shareholders will be notified annually by the Fund as to the United States
federal income tax status of the dividends, distributions and deemed
distributions made by the Fund to its shareholders. Furthermore, shareholders
will be sent, if appropriate, various written notices after the close of the
Fund's taxable year as to the United States federal income tax status of certain
dividends, distributions and deemed distributions that were paid (or that were
treated as having been paid) by the Fund to its shareholders during the
preceding taxable year.
OTHER TAXATION
Distributions also may be subject to state, local and foreign taxes
depending on each shareholder's particular position.
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THE U.S. FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS A SUMMARY
INCLUDED FOR GENERAL INFORMATION PURPOSES ONLY. IN VIEW OF THE INDIVIDUAL NATURE
OF TAX CONSEQUENCES, EACH SHAREHOLDER IS ADVISED TO CONSULT HIS OWN TAX ADVISER
WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES TO HIM OF PARTICIPATION IN THE
FUND, INCLUDING THE EFFECT AND APPLICABILITY OF STATE, LOCAL, FOREIGN, AND OTHER
TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.
COMMON STOCK
The authorized capital stock of the Fund is 100,000,000 shares of Common
Stock ($0.01 par value), of which 16,081,114 were outstanding as of June 30,
1995. Shares of the Fund, when issued, will be fully paid and non-assessable and
will have no conversion, preemptive or other subscription rights. Holders of
Common Stock are entitled to one vote per share on all matters to be voted upon
by shareholders and are not able to cumulate their votes in the election of
Directors. Thus, holders of more than 50% of the shares voting for the election
of Directors have the power to elect 100% of the Directors. All shares are equal
as to assets, earnings and the receipt of dividends, if any, as may be declared
by the Board of Directors out of funds available therefor. In the event of
liquidation, dissolution or winding up of the Fund, each share of Common Stock
is entitled to receive its proportion of the Fund's assets remaining after
payment of all debts and expenses.
The Fund commenced operations on July 23, 1993, following the issuance of
7,093 shares of Common Stock to the Investment Manager on July 12, 1993 for
$100,000 and the initial public offering on July 16, 1993 of 15,974,400 shares
to the public resulting in aggregate net proceeds to the Fund of approximately
$225.1 million. Since commencement of operations through June 30, 1995, the Fund
has also issued 99,621 shares pursuant to its Dividend Reinvestment and Cash
Purchase Plan. At June 30, 1995, the Fund had 16,081,114 shares of Common Stock
outstanding, which are listed and traded on the NYSE under the symbol "MSD". As
of June 30, 1995, the net assets of the Fund were approximately $202 million.
The Fund does not presently intend to offer additional shares of Common
Stock other than pursuant to the Offer, except that additional shares may be
issued under the Plan. Other offerings of the Fund's shares will require
approval of the Fund's Board of Directors and may require shareholder approval.
Any such additional offerings would also be subject to the requirements of the
1940 Act, including the requirement that shares may not be sold at a price below
the then current net asset value (exclusive of underwriting discounts and
commissions) except in connection with an offering to existing shareholders or
with the consent of a majority of the Fund's shares.
The Fund is a closed-end investment company, and as such its shareholders
do not have the right to cause the Fund to redeem their shares of Common Stock.
The Fund, however, may repurchase shares of Common Stock from time to time in
the open market or in private transactions when it can do so at prices at or
below the current net asset value per share on terms that represent a favorable
investment opportunity. Subject to its investment limitations, the Fund may
borrow to finance the repurchase of shares. However, the payment of interest on
such borrowings will increase the Fund's expenses and consequently reduce net
income. In addition, the Fund is required under the 1940 Act to maintain "asset
coverage" of not less than 300% of its "senior securities representing
indebtedness" as such terms are defined in the 1940 Act.
The Fund's shares of Common Stock trade in the open market at a price which
is a function of several factors, including their net asset value and yield. The
shares of closed-end investment companies frequently sell at discount from, but
sometimes at a premium over, their net asset values. See "Risk Factors and
Special Considerations." There can be no assurance that it will be possible for
investors to resell shares of the Fund at or above the price at which shares may
be purchased pursuant to the Offer, or that the market price of the Fund's
shares will equal or exceed net asset value. Since the Fund may repurchase its
shares at prices below their net asset value or make a tender offer for its
shares, the net asset value of those shares that remain outstanding will be
increased, but the effect of such repurchases on the market price of the
remaining shares cannot be predicted.
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Any offer by the Fund to repurchase shares will be made at a price based
upon the net asset value of the shares at the close of business on or within 14
days after the last date of the offer. Each offer will be made and shareholders
notified in accordance with the requirements of the 1934 Act and the 1940 Act,
either by publication or mailing or both. Each offering document will contain
such information as is prescribed by such laws and the rules and regulations
promulgated thereunder. When a repurchase offer is authorized by the Fund's
Board of Directors, a shareholder wishing to accept the offer may be required to
offer to sell all (but not less than all) of the shares owned by such
shareholder (or attributed to him for U.S. federal income tax purposes under
Section 318 of the Code). The Fund will purchase all shares tendered in
accordance with the terms of the offer unless it determines to accept none of
them (based upon one of the conditions set forth below). Persons tendering
shares may be required to pay a service charge to help defray certain costs of
the transfer agent. Any such service charges will not be deducted from the
consideration paid for the tendered shares. During the period of a repurchase
offer, the Fund's shareholders will be able to determine the Fund's current net
asset value (which will be calculated weekly) by use of a toll-free telephone
number.
In the event that the Fund would have to liquidate certain investments to
finance such repurchases of shares, and the portfolio securities to be
liquidated have been held less than three months, such sales may jeopardize the
Fund's status as a regulated investment company under the Code because of the
limitation imposed thereunder that not more than 30% of the Fund's gross income
may be derived from the sale of securities held for less than three months.
The Fund's Articles of Incorporation and By-laws include provisions that
could limit the ability of others to acquire control of the Fund, to modify the
structure of the Fund or to cause it to engage in certain transactions. These
provisions, described below, also could have the effect of depriving
shareholders of an opportunity to sell their shares at a premium over prevailing
market prices by discouraging third parties from seeking to obtain control of
the Fund in a tender offer or similar transaction. In the opinion of the Fund,
however, these provisions offer several possible advantages. They potentially
require persons seeking control of the Fund to negotiate with its management
regarding the price to be paid for the shares required to obtain such control,
they promote continuity and stability and they enhance the Fund's ability to
pursue long-term strategies that are consistent with its investment objectives.
The Directors are divided into three classes, each having a term of three
years, with the term of one class expiring each year. In addition, a Director
may be removed from office only with cause and only by a majority of the Fund's
shareholders, and the affirmative vote of 75% or more of the Fund's outstanding
shares is required to amend, alter or repeal the provisions in the Fund's
Articles of Incorporation relating to removal of Directors. See "Management of
the Fund -- Directors and Officers of the Fund." These provisions could delay
the replacement of a majority of the Directors and have the effect of making
changes in the Board of Directors more difficult than if such provisions were
not in place. Furthermore, the Fund's By-laws provide that each Director holds
office until (i) the expiration of his term and until his successor has been
elected and qualified, (ii) his death, (iii) his resignation, (iv) December 31
of the year in which he reaches seventy-three years of age or (v) his removal as
provided by statute or the Articles of Incorporation.
The affirmative vote of the holders of 75% or more of the outstanding
shares is required to (1) convert the Fund from a closed-end to an open-end
investment company, (2) merge or consolidate with any other entity, (3) dissolve
or liquidate the Fund, (4) sell all or substantially all of its assets, (5)
cease to be an investment company registered under the 1940 Act, (6) issue to
any person securities in exchange for property worth $1,000,000 or more,
exclusive of sales of securities in connection with a public offering, issuance
of securities pursuant to a dividend reinvestment plan or other stock dividend
or issuance of securities upon the exercise of any stock subscription rights, or
(7) amend, alter or repeal the above provisions in the Fund's Articles of
Incorporation. However, if such action has been approved or authorized by the
affirmative vote of at least 70% of the entire Board of Directors, the
affirmative vote of only a majority of the outstanding shares would be required
for approval, except in the case of the issuance of securities, in which case no
shareholder vote would be required unless otherwise required by applicable law.
The principal purpose of the above provisions is to increase the Fund's ability
to resist takeover attempts and attempts to change the fundamental nature of the
business of the Fund that are not supported by either the Board of Directors or
a large majority of the shareholders. These provisions make it more difficult to
liquidate, take over or open-end the Fund, and thereby
54
<PAGE> 57
are intended to discourage investors from purchasing its shares with the hope of
making a quick profit by forcing the Fund to change its structure. These
provisions, however, would apply to all actions proposed by anyone, including
management, and would make changes in the Fund's structure accomplished through
a transaction covered by the provisions more difficult to achieve. The foregoing
provisions also could impede or prevent transactions in which holders of shares
of Common Stock might obtain prices for their shares in excess of the current
market prices at which the Fund's shares were then trading. Although these
provisions could have the effect of depriving shareholders of an opportunity to
sell their shares at a premium over prevailing market prices by discouraging a
third party from seeking to obtain control of the Fund, the Fund believes the
conversion of the Fund from a closed-end to an open-end investment company to
eliminate the discount may not be desired by shareholders, who purchased their
Common Stock in preference to stock of the many mutual funds available.
The Fund intends to hold annual meetings as required by the rules of the
NYSE. Under Maryland law and the Fund's By-laws, the Fund will call a special
meeting of its shareholders upon the written request of shareholders entitled to
cast at least 25% of all the votes at such meeting. Such request for such a
special meeting must state the purpose of the meeting and the matters proposed
to be acted on at it. The secretary of the Fund shall (i) inform the
shareholders who make the request of the reasonably estimated cost of preparing
and mailing a notice of the meeting, and (ii) on payment of these costs to the
Fund notify each shareholder entitled to notice of the meeting. Notwithstanding
the above, under Maryland law and the Fund's By-laws, unless requested by
shareholders entitled to cast a majority of all the votes entitled to be cast at
the meeting, a special meeting need not be called to consider any matter which
is substantially the same as a matter voted on at any special meeting of the
shareholders held during the preceding 12 months.
DISTRIBUTION ARRANGEMENTS
Morgan Stanley & Co. Incorporated will act as Dealer Manager for the Offer.
The Dealer Manager's principal address is 1251 Avenue of the Americas, New York,
New York 10020. Under the terms and subject to the conditions contained in a
Dealer Manager Agreement dated the date of this Prospectus, the Dealer Manager
will provide financial advisory services and marketing assistance in connection
with the Offer. In addition, the Dealer Manager has agreed with the Fund to form
and manage a group of securities dealers ("Selling Group Members") to (a)
solicit the exercise of Rights and (b) sell to the public Shares purchased by
the Dealer Manager from the Fund as a result of the purchase and exercise of
Rights by the Dealer Manager.
The Fund has agreed to pay the Dealer Manager a fee for financial advisory
and marketing services equal to 1.25% of the Subscription Price per Share issued
upon exercise of the Rights. The Fund has also agreed to reimburse the Dealer
Manager for its out-of-pocket expenses in connection with the Offer up to an
aggregate of $125,000. In addition, the Fund will indemnify the Dealer Manager
with respect to certain liabilities, including liabilities under the U.S.
Securities Act of 1933, as amended.
Pursuant to the Dealer Manager Agreement, the Fund has agreed to pay fees
equal to 2.50% of the Subscription Price per Share to the Dealer Manager and
each Selling Group Member for each Share either issued upon the exercise of
Rights as a result of the Dealer Manager's or Selling Group Member's soliciting
efforts or purchased from the Dealer Manager for sale to the public, and to the
Dealer Manager for each Share issued upon the exercise of Rights but for which
no dealer designation was made on the related Subscription Certificate or for
which no other securities dealer is receiving soliciting fees due to the maximum
fee which is payable to a securities dealer who is not a Selling Group Member.
The Fund has also agreed that, with respect to Rights exercised not as a
result of the selling or soliciting efforts of the Selling Group Members, the
Fund will pay a Soliciting Dealer Fee equal to 0.50% of the Subscription Price
per Share to each securities dealer who is not a Selling Group Member but who is
a member of the National Association of Securities Dealers, Inc. and who has
executed and delivered a Soliciting Dealer Agreement and solicited the exercise
of such Rights, subject generally to a maximum fee based upon the number of
shares of Common Stock held by such dealer through The Depository Trust Company
on the Record Date.
From the date of this Prospectus, the Dealer Manager and Selling Group
Members may offer and sell shares at prices set by the Dealer Manager from time
to time, which prices may be higher or lower than the
55
<PAGE> 58
Subscription Price. Prior to the Expiration Date, each of those prices when set
will not exceed the higher of the last sale price or current asked price of the
Common Stock on the NYSE, plus, in each case, an amount equal to an exchange
commission, and any offering price set on any calendar day will not be increased
more than once during that day. Any offering by the Dealer Manager or any
Selling Group Member will likely include Shares acquired through the exercise of
Rights. As a result of those offerings, the Dealer Manager and Selling Group
Members may realize profits or losses independent of the Dealer Manager's
financial advisory fee and any Selling Group Member fee received by them.
Under applicable law, during the Subscription Period the Dealer Manager may
bid for and purchase Rights for certain purposes. Those purchases will be
subject to certain price and volume limitations when the Common Stock is being
stabilized by the Dealer Manager or when the Dealer Manager owns Rights without
an offsetting short position in the Common Stock. Those limitations provide,
among other things, that subject to certain exceptions, not more than one bid to
purchase Rights may be maintained in any one market at the same price at the
same time and that the initial bid for or purchase of Rights may not be made at
a price higher than the highest current independent bid price on the NYSE. Any
bid price may not be increased, subject to certain exceptions, unless the Dealer
Manager has not purchased any rights for a full Business Day or the independent
bid price for those Rights on the NYSE has exceeded the bid price for a full
Business Day.
DIVIDEND PAYING AGENT, TRANSFER AGENT AND REGISTRAR
The First National Bank of Boston (the "Transfer Agent") is the Fund's
dividend paying agent, transfer agent and the registrar for the Fund's Common
Stock. The principal address of the Transfer Agent is 150 Royall Street, Canton,
Massachusetts 02021.
CUSTODIANS
Morgan Stanley Trust Company, an affiliate of the Investment Manager and
Morgan Stanley & Co. Incorporated, is the custodian for the Fund's assets held
outside the United States (the "International Custodian"). The principal
business address of the International Custodian is One Pierrepont Plaza,
Brooklyn, New York 11201.
Under the Custody Agreement between the International Custodian and the
Fund, the International Custodian has agreed to hold all property of the Fund
delivered to it in safekeeping in a segregated account, receive and collect all
income and transaction proceeds with respect to such property, accept and
deliver securities on the purchase, sale, redemption, exchange or conversion
thereof, pay from the Fund's account the purchase price of any securities
acquired by the Fund, as well as any taxes and other expenses payable in
connection with securities transactions, maintain all necessary books and
records with respect to the property of the Fund held by it, provide the Fund
with periodic reports regarding the Fund's account and, in general, attend to
all non-discretionary details in connection with the sale, purchase, transfer
and other dealings with the securities and other property of the Fund held by
it.
For its services, the International Custodian receives a fee calculated as
a percentage of Fund assets in its custody, plus an amount for each transaction
effected in the Fund's account. In addition, the International Custodian is
reimbursed by the Fund for any out-of-pocket expenses incurred by it in
connection with the performance of its duties under the Custody Agreement.
The International Custodian may employ one or more sub-custodians outside
the United States that are approved by the Board of Directors in accordance with
regulations under the 1940 Act. The fees and expenses of any such sub-custodians
are paid by the International Custodian.
United States Trust Company of New York (the "U.S. Custodian") is the
custodian for the Fund's assets held in the United States. The principal
business address of the U.S. Custodian is 770 Broadway, New York, New York
10003. The Fund has been informed that U.S. Trust Corporation, the parent
company of the U.S. Custodian, and The Chase Manhattan Corporation, the parent
company of Chase Bank, have entered into a merger agreement. As a result of the
merger, Chase Bank will succeed to the duties of the U.S. Custodian under the
custody agreement dated July 16, 1993 between the Fund and the U.S. Custodian.
It is anticipated that the merger will be completed during the summer of 1995
and that the merger will not affect the nature or the quality of the custody
services to the Fund.
56
<PAGE> 59
EXPERTS
The financial statements of the Fund for the fiscal year ended December 31,
1994 are incorporated by reference into this Prospectus in reliance upon the
report of Price Waterhouse LLP, the Fund's independent accountants, given on the
authority of said firm as experts in auditing and accounting. The address of
Price Waterhouse LLP is 1177 Avenue of the Americas, New York, New York 10036.
LEGAL MATTERS
The validity of the Shares offered hereby will be passed on for the Fund by
Rogers & Wells, New York, New York, and by its special Maryland counsel, Piper &
Marbury L.L.P., Baltimore, Maryland. Certain legal matters will be passed on for
the Dealer Manager by Davis Polk & Wardwell, New York, New York.
It is likely that foreign persons, such as sub-custodians of the Fund, will
not have assets in the United States that could be attached in connection with
any U.S. action, suit or proceeding.
The books and records of the Fund required under U.S. law are maintained at
the Fund's principal office in the United States and are subject to inspection
by the Securities and Exchange Commission.
ADDITIONAL INFORMATION
The Fund has filed with the Securities and Exchange Commission, Washington,
D.C. 20549, a Registration Statement under the Securities Act of 1933, as
amended, with respect to the Shares offered hereby. Further information
concerning the Shares and the Fund may be found in the Registration Statement,
of which this Prospectus constitutes a part. The Registration Statement may be
inspected without charge at the Commission's office in Washington, D.C., and
copies of all or any part thereof may be obtained from such office after payment
of the fees prescribed by the Commission.
The Fund is subject to the informational requirements of the 1934 Act and
the 1940 Act, and in accordance therewith files reports and other information
with the Commission. Such reports and other information can be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, and the Commission's regional office
at Seven World Trade Center, New York, New York 10048. Copies of such material
can be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. Such reports and
other information concerning the Fund may also be inspected at the offices of
the Commission.
INCORPORATION OF FINANCIAL STATEMENTS BY REFERENCE
The Fund's Annual Report, which includes financial statements, for the
fiscal year ended December 31, 1994, which either accompanies this Prospectus or
has previously been provided to the person to whom this Prospectus is being
sent, is incorporated herein by reference with respect to all information other
than the information set forth in the Letter to Shareholders included therein.
Any statement contained in the Fund's Annual Report that was incorporated herein
shall be deemed modified or superseded for purposes of this Prospectus to the
extent a statement contained in this Prospectus varies from such statement. Any
such statement so modified or superseded shall not, except as so modified or
superseded, be deemed to constitute a part of this Prospectus. The Fund will
furnish, without charge, a copy of its Annual Report, upon request to The First
National Bank of Boston, Attention: Shareholder Services, 150 Royall Street,
Canton, Massachusetts 02021, telephone (617) 575-2700.
57
<PAGE> 60
SAMPLE ONLY
APPENDIX A
[FORM OF SUBSCRIPTION CERTIFICATE]
SUBSCRIPTION CERTIFICATE NUMBER:
---------------------
NUMBER OF RIGHTS:
---------------------
CUSIP NO:
---------------------
MORGAN STANLEY EMERGING MARKETS DEBT FUND, INC.
SUBSCRIPTION RIGHT FOR SHARES OF COMMON STOCK
This Subscription Certificate represents the number of Rights set forth in
the upper right hand corner of this Form. The registered holder hereof (the
"Holder") is entitled to acquire one (1) share of the Common Stock of Morgan
Stanley Emerging Markets Debt Fund, Inc. (the "Fund") for each three (3) Rights
held.
To subscribe for shares of Common Stock, the Holder must present to The
First National Bank of Boston, 150 Royall Street, Mail Stop 45-01-19, Canton,
Massachusetts 02021 (the "Subscription Agent"), prior to 5:00 p.m., New York
time, on the Expiration Date, either:
(1) a properly completed and executed Subscription Certificate and a
money order or check drawn on a bank located in the United States and
payable to the order of Morgan Stanley Emerging Markets Debt Fund, Inc. for
an amount equal to the number of Shares subscribed for in the Primary
Subscription (and, if such Holder is a Record Date Shareholder electing to
exercise the Over-Subscription Privilege, under the Over-Subscription
Privilege) multiplied by the Subscription Price; or
(2) a Notice of Guaranteed Delivery guaranteeing delivery of (i) a
properly completed and executed Subscription Certificate and (ii) a money
order or check drawn on a bank located in the United States and payable to
the order of Morgan Stanley Emerging Markets Debt Fund, Inc. for an amount
equal to the number of Shares subscribed for in the Primary Subscription
(and, if such Holder is a Record Date Shareholder electing to exercise the
Over-Subscription Privilege, pursuant to the Over-Subscription Privilege)
multiplied by the Subscription Price (which certificate and money order or
check must then be delivered by the close of business on the third Business
Day after the Expiration Date (the "Protect Period")).
If the Holder of this certificate is entitled to subscribe for additional
shares pursuant to the Over-Subscription Privilege, Part B of this Subscription
Certificate must be completed to indicate the maximum number of Shares for which
such privilege is being exercised.
No later than seven Business Days following the Protect Period, the
Subscription Agent will send to each Exercising Rights Holder (or, if the Fund's
Shares are held by Cede & Co., the nominee for The Depository Trust Company, or
any other depository or nominee (in each instance, a "Nominee Holder"), to such
Nominee Holder), the share certificates representing the Shares purchased
pursuant to the Primary Subscription and, if applicable, the Over-Subscription
Privilege, along with a letter explaining the allocation of Shares pursuant to
the Over-Subscription Privilege. Any excess payment to be refunded by the Fund
to a Record Date Shareholder who is not allocated the full amount of Shares
subscribed for pursuant to the Over-Subscription Privilege will be mailed by the
Subscription Agent. An Exercising Rights Holder will have no right to rescind a
purchase after the Subscription Agent has received a properly completed and
executed Subscription Certificate or a Notice of Guaranteed Delivery. Any excess
payment to be refunded by the Fund to a Rights Holder will be mailed by the
Subscription Agent to him as promptly as practicable.
If the Holder does not make payment of any amounts due in respect of Shares
subscribed for, the Fund and the Subscription Agent reserve the right to (i)
find other shareholders or Rights Holders for the subscribed and unpaid for
Shares; (ii) apply any payment actually received by it toward the purchase of
the greatest whole number of Shares which could be acquired by such holder upon
exercise of the Primary Subscription and/or Over-Subscription Privilege, and/or
(iii) exercise any and all other rights and/or remedies to which it may be
entitled, including, without limitation, the right to set-off against payments
actually received by it with respect to such subscribed Shares.
This Subscription Certificate may be transferred, in the same manner and
with the same effect as in the case of a negotiable instrument payable to
specific persons, by duly completing and signing the assignment on the reverse
side hereof. Capitalized terms used but not defined in this Subscription
Certificate shall have the meanings assigned to them in the Prospectus, dated
July 19, 1995, relating to the Rights.
MORGAN STANLEY EMERGING MARKETS DEBT
FUND, INC.
THE FIRST NATIONAL BANK OF BOSTON,
as Subscription Agent
By:
----------------------------------
THIS SUBSCRIPTION RIGHT IS TRANSFERABLE AND MAY BE COMBINED OR DIVIDED
(BUT ONLY INTO SUBSCRIPTION CERTIFICATES EVIDENCING A WHOLE NUMBER OF RIGHTS)
AT THE OFFICE OF THE SUBSCRIPTION AGENT
ANY QUESTIONS REGARDING THIS SUBSCRIPTION CERTIFICATE AND THE OFFER MAY
BE DIRECTED TO THE INFORMATION AGENT, SHAREHOLDER COMMUNICATIONS CORPORATION,
17 STATE STREET, NEW YORK, NEW YORK 10004
TOLL-FREE AT (800) 733-8481, EXT. 316, OR COLLECT AT (212) 805-7000, EXT. 316
A-1
<PAGE> 61
EXPIRATION DATE: AUGUST 8, 1995
PLEASE COMPLETE ALL APPLICABLE INFORMATION
<TABLE>
<S> <C> <C>
BY MAIL: BY OVERNIGHT COURIER: BY HAND:
The First National Bank of Boston The First National Bank of Boston BancBoston Trust Co. of New York
P.O. Box 1889 150 Royall Street 55 Broadway -- 3rd Floor
MS 45-01-19 Mail Stop 45-01-19 New York, NY 10006
Boston, MA 02105-1889 Canton, Massachusetts 02021
</TABLE>
SECTION I:
TO SUBSCRIBE: I hereby irrevocably subscribe for the dollar amount of
Common Stock indicated as the total of A and B below upon the terms and
conditions specified in the Prospectus related hereto, receipt of which
is acknowledged.
TO SELL: If I have checked either the box on line C or the box on line
D, I authorize the sale of Rights by the Subscription Agent according
to the procedures described in the Prospectus. The check for the
proceeds of sale will be mailed to the address of record.
Please check (X) below:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
/ / A. Primary
Subscription divided by 3 = .000 X $ 9.25 = $
------------------- ------------------- --------------------- --------------------
(Rights Exercised) (Full Shares of (Subscription Price) (Amount Required)
Common Stock
Requested)
/ / B. Over-Subscription
Privilege .000 X $ 9.25 = $ (*)
------------------- --------------------- --------------------
(Full Shares of (Subscription Price) (Amount Required)
Common Stock
Requested)
Amount of Check or Money Order Enclosed (total of A + B) = $
--------------------
Make check payable to the order of "Morgan Stanley Emerging Markets Debt Fund, Inc."
</TABLE>
(*) The Over-Subscription Privilege can be exercised by Record Date
Shareholders only, as described in the Prospectus.
/ / C. Sell any remaining unexercised Rights
/ / D. Sell all of my Rights
E. The following Broker-Dealer is hereby designated as having been
instrumental in the exercise of the Rights:
/ / Morgan Stanley & Co. Incorporated
Account #
------------------------
/ / Other Firm: Account #
----------------- ------------------------
<TABLE>
<S> <C> <C> <C>
Please provide your Day ( )
- --------------------------------------------------- -------------------------------
Signature of Subscriber(s)/Seller(s) telephone number Evening ( )
-------------------------------
</TABLE>
The signature(s) must correspond with the name(s) as written upon the face of
this Subscription Certificate, in every particular, without alteration.
SECTION II: TO TRANSFER RIGHTS: (except pursuant to C and D above)
For value received, of the Rights represented by this Subscription
---------
Certificate are assigned to
<TABLE>
<S> <C>
- -
------------- ---------------- ------------------- --------------------------------------
Social Security Number or Tax ID of Assignee (Print Full Name of Assignee)
- ------------------------------------------------------------ ------------------------------------------------------------
- ------------------------------------------------------------ ------------------------------------------------------------
Signature(s) of Assignee(s) (Print Full Address including postal Zip Code)
</TABLE>
IMPORTANT: For Transfer, a Signature Guarantee must be provided by an eligible
financial institution as defined in Rule 17Ad-15 of the Securities Exchange Act
of 1934, as amended, subject to the standards and procedures adopted by the
issuer.
SIGNATURE GUARANTEED BY:
- --------------------------------------------------------------------------------
PROCEEDS FROM THE SALE OF RIGHTS MAY BE SUBJECT TO WITHHOLDING OF U.S. TAXES
UNLESS THE SELLER'S CERTIFIED U.S. TAXPAYER IDENTIFICATION NUMBER (OR
CERTIFICATION REGARDING FOREIGN STATUS) IS ON FILE WITH THE SUBSCRIPTION AGENT
AND THE SELLER IS NOT OTHERWISE SUBJECT TO U.S. BACKUP WITHHOLDING.
/ / CHECK HERE IF RIGHTS ARE BEING EXERCISED PURSUANT TO A NOTICE OF GUARANTEED
DELIVERY DELIVERED TO THE SUBSCRIPTION AGENT PRIOR TO THE DATE HEREOF AND
COMPLETE THE FOLLOWING:
NAME(S) OF REGISTERED OWNER(S):
WINDOW TICKET NUMBER (IF ANY):
DATE OF EXECUTION OF NOTICE OF GUARANTEED DELIVERY:
NAME OF INSTITUTION WHICH GUARANTEED DELIVERY:
A-2
<PAGE> 62
SAMPLE ONLY
APPENDIX B
[FORM OF NOTICE OF GUARANTEED DELIVERY]
NOTICE OF GUARANTEED DELIVERY OF SUBSCRIPTION RIGHTS AND THE
SUBSCRIPTION PRICE FOR SHARES OF COMMON STOCK OF
MORGAN STANLEY EMERGING MARKETS DEBT FUND, INC. SUBSCRIBED FOR IN THE
PRIMARY SUBSCRIPTION AND PURSUANT TO THE OVER-SUBSCRIPTION PRIVILEGE
As set forth in the Prospectus under "The Offer -- Payment for Shares,"
this form or one substantially equivalent hereto may be used as a means of
effecting subscription and payment for all Shares of Morgan Stanley Emerging
Markets Debt Fund, Inc. Common Stock subscribed for in the Primary Subscription
and pursuant to the Over-Subscription Privilege. Such form may be delivered by
hand or sent by facsimile transmission, overnight courier or mail to the
Subscription Agent.
The Subscription Agent is:
The First National Bank of Boston
<TABLE>
<S> <C>
By Mail: By Facsimile:
The First National Bank of Boston (617) 575-2232
Shareholder Services Division (617) 575-2233
P.O. Box 1889 Confirm by Telephone
Mail Stop 45-01-19 (617) 575-2700
Boston, Massachusetts 02105
By Hand: By Overnight Courier:
BancBoston Trust Company The First National Bank of Boston
of New York Shareholder Services Division
55 Broadway, Third Floor Mail Stop 45-01-19
New York, New York 10006 150 Royall Street
Canton, Massachusetts 02021
</TABLE>
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS, OR TRANSMISSION OF
INSTRUCTIONS VIA A TELECOPY OR FACSIMILE NUMBER, OTHER THAN AS SET
FORTH ABOVE, DOES NOT CONSTITUTE A VALID DELIVERY
The New York Stock Exchange member firm or bank or trust company which
completes this form must communicate the guarantee and the number of Shares
subscribed for (under both the Primary Subscription and the Over-Subscription
Privilege) to the Subscription Agent and must deliver this Notice of Guaranteed
Delivery guaranteeing delivery of (i) payment in full for all subscribed Shares
and (ii) a properly completed and executed Subscription Certificate (which
certificate and full payment must then be delivered by the close of business on
the third business day after the Expiration Date, as defined in the Prospectus)
to the Subscription Agent prior to 5:00 p.m., New York time, on the Expiration
Date (August 8, 1995, unless extended). Failure to do so will result in a
forfeiture of the Rights.
B-1
<PAGE> 63
GUARANTEE
The undersigned, a member firm of the New York Stock Exchange or a bank or
trust company, guarantees delivery to the Subscription Agent by the close of
business (5:00 p.m., New York time) on the third Business Day after the
Expiration Date (August 8, 1995, unless extended) of (A) a properly completed
and executed Subscription Certificate and (B) payment of the full Subscription
Price for Shares subscribed for in the Primary Subscription and pursuant to the
Over-Subscription Privilege, if applicable, as subscription for such Shares is
indicated herein or in the Subscription Certificate.
<TABLE>
<S> <C>
Number of Shares subscribed for in the
Primary Subscription for which you are
guaranteeing delivery of Rights and
payment: --------------------------------------------
Number of Shares subscribed for pursuant to
the Over-Subscription Privilege for which
you are guaranteeing delivery of Rights
and payment: --------------------------------------------
Number of Rights to be delivered: --------------------------------------------
Total Subscription Price payment to be
delivered: --------------------------------------------
Method of Delivery [circle one]: A. Through DTC
B. Direct to Subscription Agent
- -------------------------------------------- --------------------------------------------
Name of Firm Authorized Signature
- -------------------------------------------- --------------------------------------------
Address Title
- -------------------------------------------- --------------------------------------------
City, State, Zip Code Name (Please Type or Print)
- --------------------------------------------
Name of Registered Holder (If Applicable)
- -------------------------------------------- --------------------------------------------
Telephone Number Date
</TABLE>
* IF THE RIGHTS ARE TO BE DELIVERED THROUGH DTC, A REPRESENTATIVE OF THE FUND
WILL PHONE YOU WITH A PROTECT IDENTIFICATION NUMBER, WHICH NEEDS TO BE
COMMUNICATED BY YOU TO DTC.
PLEASE NOTE THAT IF YOU ARE GUARANTEEING FOR OVER-SUBSCRIPTION SHARES AND ARE A
DTC PARTICIPANT, YOU MUST ALSO EXECUTE AND FORWARD TO THE SUBSCRIPTION AGENT A
NOMINEE HOLDER OVER-SUBSCRIPTION EXERCISE FORM.
B-2
<PAGE> 64
SAMPLE ONLY
APPENDIX C
[FORM OF NOMINEE HOLDER OVER-SUBSCRIPTION EXERCISE FORM]
MORGAN STANLEY EMERGING MARKETS DEBT FUND, INC.
RIGHTS OFFERING
NOMINEE HOLDER OVER-SUBSCRIPTION EXERCISE FORM
PLEASE COMPLETE ALL APPLICABLE INFORMATION
<TABLE>
<S> <C> <C>
By Mail: By Hand: By Overnight Courier:
To: The First National Bank of Boston To: BancBoston Trust Company of New York To: The First National Bank of Boston
Shareholder Services Division 55 Broadway, Third Floor Shareholder Services Division
P.O. Box 1889 New York, New York 10006 Mail Stop 45-01-19
Mail Stop 45-01-19 150 Royall Street
Boston, Massachusetts 02105 Canton, Massachusetts 02021
</TABLE>
THIS FORM IS TO BE USED ONLY BY NOMINEE HOLDERS TO EXERCISE THE
OVER-SUBSCRIPTION PRIVILEGE IN RESPECT OF RIGHTS WITH RESPECT TO WHICH THE
PRIMARY SUBSCRIPTION PRIVILEGE WAS EXERCISED AND DELIVERED THROUGH THE
FACILITIES OF A COMMON DEPOSITORY. ALL OTHER EXERCISES OF OVER-SUBSCRIPTION
PRIVILEGES MUST BE EFFECTED BY THE DELIVERY OF THE SUBSCRIPTION CERTIFICATES.
------------------------
THE TERMS AND CONDITIONS OF THE RIGHTS OFFERING ARE SET FORTH IN THE FUND'S
PROSPECTUS DATED JULY 19, 1995 (THE "PROSPECTUS") AND ARE INCORPORATED HEREIN BY
REFERENCE. COPIES OF THE PROSPECTUS ARE AVAILABLE UPON REQUEST FROM THE FUND.
------------------------
VOID UNLESS RECEIVED BY THE SUBSCRIPTION AGENT WITH PAYMENT IN FULL BY 5:00
P.M., NEW YORK TIME, ON AUGUST 8, 1995, UNLESS EXTENDED BY THE FUND AND THE
DEALER MANAGER (THE "EXPIRATION DATE").
1. The undersigned hereby certifies to the Subscription Agent that it is a
participant in [Name of Depository] (the "Depository") and that it has
either (i) exercised the Primary Subscription Right in respect of Rights and
delivered such exercised Rights to the Subscription Agent by means of transfer
to the Depository Account of the Fund or (ii) delivered to the Subscription
Agent a Notice of Guaranteed Delivery in respect of the exercise of the Primary
Subscription Right and will deliver the Rights called for in such Notice of
Guaranteed Delivery to the Subscription Agent by means of transfer to such
Depository Account of the Fund.
2. The undersigned hereby exercises the Over-Subscription Privilege to purchase,
to the extent available, shares of Common Stock and certifies to the
Subscription Agent that such Over-Subscription Privilege is being exercised for
the account or accounts of persons (which may include the undersigned) on whose
behalf all Primary Subscription Rights have been exercised.(*)
3. The undersigned understands that payment of the Subscription Price of $9.25
per Share of each share of Common Stock subscribed for pursuant to the
Over-Subscription Privilege must be received by the Subscription Agent at or
before 5:00 p.m., New York time, on the Expiration Date and represents that such
payment, in the aggregate amount of $ either (check appropriate box):
/ / has been or is being delivered to the Subscription Agent pursuant to
the Notice of Guaranteed Delivery referred to above or
/ / is being delivered to the Subscription Agent herewith or
/ / has been delivered separately to the Subscription Agent:
and, in the case of funds not delivered pursuant to a Notice of Guaranteed
Delivery, is or was delivered in the manner set forth below (check appropriate
box and complete information relating thereto):
/ / uncertified check
/ / certified check
/ / bank draft
/ / money order
- ------------------------------------------------------------
Depository Primary Subscription Confirmation Number
- ------------------------------------------------------------
Depository Participant Number
Contact Name ----------------------------------------------
Phone Number: ----------------------------------------------
- ------------------------------------------------------------
Name of Nominee Holder
- ------------------------------------------------------------
Address
- ------------------------------------------------------------
City State Zip Code
By: --------------------------------------------------------
Name: -----------------------------------------------------
Title: -----------------------------------------------------
Dated: , 1995
* PLEASE COMPLETE THE BENEFICIAL OWNER CERTIFICATION ON THE BACK HEREOF
CONTAINING THE RECORD DATE SHARE POSITION, THE NUMBER OF PRIMARY SHARES
SUBSCRIBED FOR AND THE NUMBER OF OVER-SUBSCRIPTION SHARES, IF APPLICABLE,
REQUESTED BY EACH SUCH OWNER.
C-1
<PAGE> 65
MORGAN STANLEY EMERGING MARKETS DEBT FUND, INC.
BENEFICIAL OWNER CERTIFICATION
The undersigned, a bank, broker or other nominee holder of Rights
("Rights") to purchase shares of Common Stock, $0.01 par value ("Common Stock"),
of Morgan Stanley Emerging Markets Debt Fund, Inc. (the "Fund") pursuant to the
Rights offering (the "Offer") described and provided for in the Fund's
Prospectus dated July 19, 1995 (the "Prospectus") hereby certifies to the Fund
and to The First National Bank of Boston as Subscription Agent for such Offer,
that for each numbered line filled in below the undersigned has exercised, on
behalf of the beneficial owner thereof (which may be the undersigned), the
number of Rights specified on such line in the Primary Subscription (as defined
in the Prospectus) and such beneficial owner wishes to subscribe for the
purchase of additional shares of Common Stock pursuant to the Over-Subscription
Privilege (as defined in the Prospectus), in the amount set forth in the third
column of such line:
<TABLE>
<CAPTION>
NUMBER OF RIGHTS EXERCISED NUMBER OF SHARES REQUESTED
IN THE PRIMARY PURSUANT TO THE
RECORD DATE SHARES SUBSCRIPTION OVER-SUBSCRIPTION PRIVILEGES
---------------------------- ---------------------------- ----------------------------
<S> <C> <C> <C>
1) ---------------------------- ---------------------------- ----------------------------
2) ---------------------------- ---------------------------- ----------------------------
3) ---------------------------- ---------------------------- ----------------------------
4) ---------------------------- ---------------------------- ----------------------------
5) ---------------------------- ---------------------------- ----------------------------
6) ---------------------------- ---------------------------- ----------------------------
7) ---------------------------- ---------------------------- ----------------------------
8) ---------------------------- ---------------------------- ----------------------------
9) ---------------------------- ---------------------------- ----------------------------
10) ---------------------------- ---------------------------- ----------------------------
- -------------------------------------------- --------------------------------------------
Name of Nominee Holder Depository Participant Number
By:
----------------------------------------- --------------------------------------------
Name: Depository Primary Subscription
Title: Confirmation Number(s)
</TABLE>
Dated: , 1995
---------------------
C-2
<PAGE> 66
APPENDIX D
DESCRIPTION OF VARIOUS FOREIGN CURRENCY HEDGES
AND STOCK OPTIONS AND FUTURES CONTRACTS
FOREIGN CURRENCY HEDGING TRANSACTIONS
Forward Foreign Currency Exchange Contract. A forward foreign currency
exchange contract involves an obligation to purchase or sell a specified amount
of a foreign currency at a future date, which may be any fixed number of days
from the date of the contract agreed upon by the parties, at a price set at the
time of the contract. These contracts are traded in the interbank market
conducted directly between currency traders (usually large commercial banks).
Foreign Currency Futures Contracts. A foreign currency futures contract is
a standardized contract for the future delivery of a specified amount of a
foreign currency at a future date at a price set at the time of the contract.
Foreign currency futures contracts traded in the United States are traded on
regulated exchanges. Parties to a futures contract must make initial "margin"
deposits to secure performance of the contract, which generally range from 2% to
5% of the contract price. There also are requirements to make "variation" margin
deposits as the value of the futures contract fluctuates. The Fund may not enter
into foreign currency futures contracts if the aggregate amount of initial
margin deposits on the Fund's futures positions, including indexed financial
futures contracts (which are discussed below), would exceed 5% of the value of
the Fund's total assets. The Fund also will be required to segregate assets to
cover its futures contracts obligations.
At the maturity of a forward or futures contract, the Fund may either
accept or make delivery of the currency specified in the contract or, prior to
maturity, enter into a closing purchase transaction involving the purchase or
sale of an offsetting contract. Closing purchase transactions with respect to
forward contracts are usually effected with the currency trader who is a party
to the original forward contract. Closing purchase transactions with respect to
futures contracts are effected on an exchange. The Fund will only enter into
such a forward or futures contract if it is expected that there will be a liquid
market in which to close out such contract. There can, however, be no assurance
that such a liquid market will exist in which to close a forward or futures
contract, in which case the Fund may suffer a loss.
Currency Hedging Strategies. The Fund may enter into forward foreign
currency exchange contracts and foreign currency futures contracts in several
circumstances. For example, when the Fund enters into a contract for the
purchase or sale of a security denominated in a foreign currency, or when the
Fund anticipates the receipt in a foreign currency of dividends or interest
payments on such a security which it holds, the Fund may desire to "lock in" the
dollar price of the security or the dollar equivalent of such dividend or
interest payment, as the case may be. In addition, when the Investment Manager
believes that the currency of a particular foreign country may suffer a
substantial decline against the dollar, it may enter into a forward or futures
contract to sell, for a fixed amount of dollars, the amount of foreign currency
approximating the value of some or all of the Fund's portfolio securities
denominated in such foreign currency.
The Fund does not intend to enter into such forward or futures contracts to
protect the value of its portfolio securities on a regular basis, and will not
do so if, as a result, the Fund will have more than 20% of the value of its
total assets committed to the consummation of such contracts. The Fund also will
not enter into such forward or futures contracts or maintain a net exposure to
such contracts where the consummation of the contracts would obligate the Fund
to deliver an amount of foreign currency in excess of the value of the Fund's
portfolio securities or other assets denominated in that currency. Further, the
Fund generally will not enter into a forward or futures contract with a term of
greater than one year.
The Fund may attempt to accomplish objectives similar to those described
above with respect to forward and futures contracts for currency by means of
purchasing put or call options on foreign currencies on exchanges. A put option
gives the Fund the right to sell a currency at the exercise price until the
expiration of the option. A call option gives the Fund the right to purchase a
currency at the exercise price until the expiration of the option.
D-1
<PAGE> 67
While the Fund may enter into forward, futures and options contracts to
reduce currency exchange rate risks, changes in currency prices may result in a
poorer overall performance for the Fund than if it had not engaged in any such
transaction. Moreover, there may be an imperfect correlation between the Fund's
portfolio holdings of securities denominated in a particular currency and
forward, futures or options contracts entered into by the Fund. Such imperfect
correlation may prevent the Fund from achieving the intended hedge or expose the
Fund to risk of foreign exchange loss.
Certain provisions of the Code may limit the extent to which the Fund may
enter into forward or futures contracts or engage in options transactions. These
transactions may also affect the character and timing of income and the amount
of gain or loss recognized by the Fund and its shareholders for U.S. federal
income tax purposes. See "Taxation -- U.S. Federal Income Taxes."
Under the regulations of the U.S. Commodity Futures Trading Commission
("CFTC"), the Fund will not be considered a "commodity pool", as defined under
such regulations, as a result of entering into the transactions in futures
contracts and related options described above, provided, among other things,
that: (1) such transactions are entered into solely for bona fide hedging
purposes, as defined under CFTC regulations; or (2) the aggregate initial margin
and premiums for any other such transactions entered into does not exceed 5% of
the Fund's total assets (after taking into account any unrealized profits and
losses).
OPTIONS AND INDEX FUTURES CONTRACTS
Options on Securities. The Fund may write (i.e., sell) covered call
options which give the purchaser the right to buy the underlying security
covered by the option from the Fund at the stated exercise price. A "covered"
call option means that so long as the Fund is obligated as the writer of the
option, it will own (i) the underlying securities subject to the option, or (ii)
securities convertible or exchangeable without the payment of any consideration
into the securities subject to the option. As a matter of operating policy, the
value of the underlying securities on which options will be written at any one
time will not exceed 5% of the total assets of the Fund. In addition, as a
matter of operating policy, the Fund will not write put options on securities
(except in connection with closing purchase transactions).
The Fund will receive a premium from writing call options, which increases
the Fund's return on the underlying security in the event the option expires
unexercised or is closed out at a profit. By writing a call, the Fund will limit
its opportunity to profit from an increase in the market value of the underlying
security above the exercise price of the option for as long as the Fund's
obligation as writer of the option continues. Thus, in some periods the Fund
will receive less total return and in other periods greater total return from
writing covered call options than it would have received from its underlying
securities had it not written call options.
The Fund may purchase options on emerging country debt instruments that are
listed on securities exchanges or traded over the counter. In purchasing a put
option, the Fund will seek to benefit from a decline in the market price of the
underlying instrument, while in purchasing a call option, the Fund will seek to
benefit from an increase in the market price of the underlying instrument. If an
option purchased is not sold or exercised when it has remaining value, or if the
market price of the underlying instrument remains equal to or greater than the
exercise price, in the case of a put, or remains equal to or below the exercise
price, in the case of a call, during the life of the option, the Fund will lose
its investment in the option. For the purchase of an option to be profitable,
the market price of the underlying instrument must decline sufficiently below
the exercise price, in the case of a put, and must increase significantly above
the exercise price, in the case of a call, to cover the premium and transaction
costs. Because premiums paid by the Fund on options are small in relation to the
market value of the investments underlying the options, buying options can
result in large amounts of leverage. The leverage offered by trading in options
could cause the Fund's net asset value to be subject to more frequent and wider
fluctuation than would be the case if the Fund did not invest in options.
Index Futures. The Fund may purchase and sell indexed financial futures
contracts. An index futures contract is an agreement to take or make delivery of
an amount of cash equal to the difference between the value of the index at the
beginning and at the end of the contract period. Successful use of index futures
will be subject to the Investment Manager's ability to predict correctly
movements in the direction of the relevant
D-2
<PAGE> 68
debt market. No assurance can be given that the Investment Manager's judgment in
this respect will be correct.
The Fund may sell indexed financial futures contracts in anticipation of or
during a market decline to attempt to offset the decrease in market value of
securities in its portfolio that might otherwise result. When the Fund is not
fully invested in emerging country debt securities and anticipates a significant
market advance, it may purchase index futures in order to gain rapid market
exposure that may in part or entirely offset increases in the cost of securities
that it intends to purchase. In a substantial majority of these transactions,
the Fund will purchase such securities upon termination of the futures position
but, under unusual market conditions, a futures position may be terminated
without the corresponding purchase of debt securities.
D-3
<PAGE> 69
APPENDIX E
COUNTRIES NOT INCLUDED WITHIN THE WORLD BANK DEFINITION OF A LOW OR MIDDLE
INCOME ECONOMY.
<TABLE>
<S> <C>
Australia Israel
Austria Italy
Andorra Japan
Belgium Kuwait
Bermuda Luxembourg
Brunei New Zealand
Canada Norway
Cayman Islands Qatar
Channel Islands San Marino
Cyprus Singapore
Denmark Spain
Faeroe Islands Sweden
Finland Switzerland
France Taiwan
French Polynesia The Bahamas
Germany The Netherlands
Greenland The United Kingdom
Hong Kong United States
Iceland Virgin Islands (U.S.)
Ireland United Arab Emirates
</TABLE>
E-1
<PAGE> 70
MORGAN STANLEY
EMERGING MARKETS
DEBT FUND, INC.
<PAGE> 71
PART C OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(1) Financial Statements
<TABLE>
<S> <C> <C>
(i) -- Statement of Net Assets as of December 31, 1994+
(ii) -- Statement of Operations for the fiscal year ended December 31, 1994+
(iii) -- Statement of Changes in Net Assets for the period ended December 31, 1993 and
fiscal year ended December 31, 1994+
(iv) -- Financial Highlights for the period ended December 31, 1993 and for the fiscal
year ended December 31, 1994+
(v) -- Notes to Financial Statements+
(vi) -- Report of Independent Accountants+
</TABLE>
Statements, schedules and historical information other than these listed above
have been omitted since they are either not applicable, or not required or the
required information is shown in the financial statements or notes thereto.
- ------------------------
+ Incorporated by reference.
(2) Exhibits
<TABLE>
<S> <C>
(a) -- Articles of Incorporation*
(b) -- Amended and Restated By-laws***
(c) -- Not applicable
(d) (1) -- Specimen certificate for Common Stock, par value $.01 per share**
(2) -- Form of Subscription Certificate (included on pages A-1 to A-2 of the
Prospectus forming part of this Registration Statement)
(3) -- Form of Notice of Guaranteed Delivery (included on pages B-1 to B-2 of the
Prospectus forming part of this Registration Statement)
(4) -- Form of Nominee Holder Over-Subscription Exercise Form (included on page C-1
of the Prospectus forming part of this Registration Statement)
(5) -- Form of Subscription Agent Agreement+
(6) -- Form of Information Agent Agreement+
(e) -- Dividend Reinvestment and Cash Purchase Plan***
(f) -- Not applicable
(g) -- Investment Advisory and Management Agreement***
(h) (1) -- Form of Dealer Manager Agreement+
(2) -- Form of Soliciting Dealer Agreement+
(3) -- Form of Selling Group Agreement+
(i) -- Not applicable
(j) (1) -- Custody Agreement***
(2) -- Domestic Custodian Agreement***
(k) (1) -- Agreement for Stock Transfer Services***
(2) -- Administration Agreement***
(l) (1) -- Opinion and Consent of Rogers & Wells+
(2) -- Opinion and Consent of Piper & Marbury L.L.P.+
(m) -- Report and Consent of Price Waterhouse LLP+
(n) -- Not applicable
(o) -- Not applicable
(p) -- Form of Investment Letter**
(q) -- Not applicable
</TABLE>
- ------------------------
+ Filed herewith.
* Incorporated by reference to the Fund's Registration Statement on Form N-2
(File Nos. 33-62256; 811-7694) filed on May 7, 1993.
** Incorporated by reference to Pre-Effective Amendment No. 2 to the Fund's
Registration Statement on Form N-2 (File Nos. 33-62256; 811-7694) filed on
July 16, 1993.
*** Incorporated by reference to Pre-Effective Amendment No. 1 to the Fund's
Registration Statement on Form N-2 (File Nos. 33-60139; 811-7694) filed on
July 5, 1995.
(i)
<PAGE> 72
ITEM 25. MARKETING ARRANGEMENTS
See exhibits (h)(1), (h)(2) and (h)(3) to this Registration Statement.
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses to be incurred in
connection with the offering described in this Registration Statement.
<TABLE>
<S> <C>
Registration fees................................................. $ 23,276
New York Stock Exchange listing fee............................... 21,000
Printing (other than stock certificates).......................... 95,000
Fees and expenses of qualification under state securities laws
(including fees of counsel)..................................... 15,000
Accounting fees and expenses...................................... 12,500
Legal fees and expenses........................................... 120,000
Dealer Manager expense reimbursement.............................. 125,000
Information Agent's fees and expenses............................. 55,000
Subscription Agent's fees and expenses............................ 25,000
NASD fee.......................................................... 7,250
Miscellaneous..................................................... 974
--------
Total................................................... $500,000
========
</TABLE>
ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Not applicable
ITEM 28. NUMBER OF HOLDERS OF SECURITIES
At June 30, 1995:
<TABLE>
<CAPTION>
NUMBER OF
RECORD
TITLE OF CLASS HOLDERS
------------------------------------------------------------------ ---------
<S> <C>
Common Stock, $.01 par value...................................... 621
</TABLE>
ITEM 29. INDEMNIFICATION
Section 2-418 of the General Corporation Law of the State of Maryland,
Article SEVENTH of the Fund's Articles of Incorporation, Article VII of the
Fund's By-laws, the Investment Advisory and Management Agreement and the Dealer
Manager Agreement filed as Exhibit(h)(1) to this Registration Statement provide
for indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act"), may be permitted to directors, officers and
controlling persons of the Fund, pursuant to the foregoing provisions or
otherwise, the Fund has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the Fund of
expenses incurred or paid by a director, officer or controlling person of the
Fund in the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the Fund will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(ii)
<PAGE> 73
ITEM 30. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
The description of the business of Morgan Stanley Asset Management Inc. is
set forth under the caption "Management of the Fund" in the Prospectus forming
part of this Registration Statement.
The information as to the directors and officers of Morgan Stanley Asset
Management Inc. set forth in Morgan Stanley Asset Management Inc.'s Form ADV
filed with the Securities and Exchange Commission on December 15, 1981 (File No.
801-15757) and as amended through the date hereof is incorporated herein by
reference.
ITEM 31. LOCATION OF ACCOUNTS AND RECORDS
Morgan Stanley Emerging Markets Debt Fund, Inc.
c/o Morgan Stanley Asset Management Inc.
1221 Avenue of the Americas
New York, New York 10020
(Fund's Articles of Incorporation and By-laws)
Morgan Stanley Asset Management Inc.
1221 Avenue of the Americas
New York, New York 10020
(with respect to its services as Investment Manager)
United States Trust Company of New York
73 Tremont Street
Boston, Massachusetts 02108
(with respect to its services as Administrator)
Morgan Stanley Trust Company
One Pierrepont Plaza
Brooklyn, New York 11201
(with respect to its services as Custodian for the Fund's foreign assets)
United States Trust Company of New York
770 Broadway
New York, New York 10003
(with respect to its services as Custodian for the Fund's U.S. assets)
The First National Bank of Boston
150 Royall Street
Canton, Massachusetts 02021
(with respect to its services as Registrar, Transfer Agent, Dividend Paying
Agent and Subscription Agent)
ITEM 32. MANAGEMENT SERVICES
Not applicable
ITEM 33. UNDERTAKINGS
(a) The Registrant undertakes to suspend the offering until it amends its
Prospectus contained herein if (1) subsequent to the effective date of its
Registration Statement, the net asset value per share declines more
(iii)
<PAGE> 74
than 10 percent from its net asset value per share as of the effective date of
this Registration Statement or (2) the net asset value increases to an amount
greater than its net proceeds as stated in the Prospectus contained herein.
(b) The Registrant hereby undertakes:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant under Rule 497(h) under the Act shall
be deemed to be part of this registration statement as of the time it was
declared effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(c) To comply with the restrictions on indemnification set forth in
Investment Company Act Release No. IC-11330, September 2, 1980.
(iv)
<PAGE> 75
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and
the Investment Company Act of 1940, as amended, the Registrant has duly caused
this Amendment to its Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on the 18th day of July, 1995.
MORGAN STANLEY EMERGING MARKETS
DEBT FUND, INC.
By /s/ WARREN J. OLSEN
-----------------------------
Warren J. Olsen
President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment to the Registration Statement has been signed by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ----------------------------------- --------------
<S> <C> <C>
* Director and Chairman of the Board July 18, 1995
- ------------------------------------------
BARTON M. BIGGS
* Director and Vice Chairman July 18, 1995
- ------------------------------------------
FREDERICK B. WHITTEMORE
/s/ WARREN J. OLSEN Director and President July 18, 1995
- ------------------------------------------
WARREN J. OLSEN
* Director July 18, 1995
- ------------------------------------------
PETER J. CHASE
* Director July 18, 1995
- ------------------------------------------
JOHN W. CROGHAN
* Director July 18, 1995
- ------------------------------------------
DAVID B. GILL
* Director July 18, 1995
- ------------------------------------------
GRAHAM E. JONES
* Director July 18, 1995
- ------------------------------------------
JOHN A. LEVIN
* Director July 18, 1995
- ------------------------------------------
WILLIAM G. MORTON, JR.
* Treasurer July 18, 1995
- ------------------------------------------
JAMES R. ROONEY (Principal Financial and Accounting
Officer)
*By /s/ WARREN J. OLSEN
- ------------------------------------------
WARREN J. OLSEN
ATTORNEY-IN-FACT
</TABLE>
(v)
<PAGE> 76
EXHIBIT INDEX
(2) Exhibits
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C> <C>
(a) -- Articles of Incorporation*
(b) -- Amended and Restated By-laws***
(c) -- Not applicable
(d) (1) -- Specimen certificate for Common Stock, par value $.01 per share**
(2) -- Form of Subscription Certificate (included on pages A-1 to A-2 of
the Prospectus forming part of this Registration Statement)
(3) -- Form of Notice of Guaranteed Delivery (included on pages B-1 to B-2
of the Prospectus forming part of this Registration Statement)
(4) -- Form of Nominee Holder Over-Subscription Exercise Form (included on
page C-1 of the Prospectus forming part of this Registration
Statement)
(5) -- Form of Subscription Agent Agreement+
(6) -- Form of Information Agent Agreement+
(e) -- Dividend Reinvestment and Cash Purchase Plan***
(f) -- Not applicable
(g) -- Investment Advisory and Management Agreement***
(h) (1) -- Form of Dealer Manager Agreement+
(2) -- Form of Soliciting Dealer Agreement+
(3) -- Form of Selling Group Agreement+
(i) -- Not applicable
(j) (1) -- Custody Agreement***
(2) -- Domestic Custodian Agreement***
(k) (1) -- Agreement for Stock Transfer Services***
(2) -- Administration Agreement***
(l) (1) -- Opinion and Consent of Rogers & Wells+
(2) -- Opinion and Consent of Piper & Marbury L.L.P.+
(m) -- Report and Consent of Price Waterhouse LLP+
(n) -- Not applicable
(o) -- Not applicable
(p) -- Form of Investment Letter**
(q) -- Not applicable
</TABLE>
- ------------------------
+ Filed herewith.
* Incorporated by reference to the Fund's Registration Statement on Form N-2
(File Nos. 33-62256; 811-7694) filed on May 7, 1993.
** Incorporated by reference to Pre-Effective Amendment No. 2 to the Fund's
Registration Statement on Form N-2 (File Nos. 33-62256; 811-7694) filed on
July 16, 1993.
*** Incorporated by reference to Pre-Effective Amendment No. 1 to the Fund's
Registration Statement on Form N-2 (File Nos. 33-60139; 811-7694) filed on
July 5, 1995.
<PAGE> 1
Exhibit (d)(5)
SUBSCRIPTION AGENT AGREEMENT
This Subscription Agent Agreement (the "Agreement") is made as of July
19, 1995 between Morgan Stanley Emerging Markets Debt Fund, Inc., a Maryland
corporation (the "Fund"), and The First National Bank of Boston, as subscription
agent (the "Agent"). All terms not defined herein shall have the meaning given
in the prospectus (the "Prospectus") included in the Registration Statement on
Form N-2 (File No. 33-60139) filed by the Fund with the Securities and Exchange
Commission on July 19, 1995, as amended by any amendment filed with respect
thereto (the "Registration Statement").
WHEREAS, the Fund proposes to make a subscription offer by issuing
certificates or other evidence of subscription rights, in the form designated
by the Fund (the "Subscription Certificates"), to shareholders of record (the
"Record Date Shareholders") of its common stock, par value $0.01 per share
("Common Stock"), as of a record date specified by the Fund (the "Record
Date"), pursuant to which each Record Date Shareholder will have certain rights
(the "Rights") to subscribe for shares of Common Stock, as described in and
upon such terms as are set forth in the Prospectus, a final copy of which has
been or, upon availability will promptly be, delivered to the Agent; and
WHEREAS, the Fund wishes the Agent to perform certain acts on behalf of
the Fund, and the Agent is willing to so act, in connection with the
distribution of the Subscription Certificates and the issuance and exercise of
the Rights to subscribe therein set forth, all upon the terms and conditions
set forth herein.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
agreements set forth herein, the parties agree as follows:
1. APPOINTMENT. The Fund hereby appoints the Agent to act as subscription
agent in connection with the distribution of Subscription Certificates and the
issuance and exercise of the Rights in accordance with the terms set forth in
this Agreement, and the Agent hereby accepts such appointment.
2. FORM AND EXECUTION OF SUBSCRIPTION CERTIFICATES.
(a) Each Subscription Certificate shall be irrevocable and fully
transferable. The Agent shall, in its capacity as Transfer Agent of the Fund,
maintain a register of Subscription Certificates and the holders of record
thereof (each of whom shall be deemed a "Shareholder" hereunder for purposes of
determining the rights of holders of Subscription Certificates). Each
Subscription
<PAGE> 2
Certificate shall, subject to the provisions thereof, entitle the Shareholder
in whose name it is recorded to the following:
(1) The right to acquire during the Subscription Period, as
defined in the Prospectus, at the Subscription Price, as defined in the
Prospectus, one share of Common Stock for every three Rights held (the
"Primary Subscription Right"); and
(2) With respect to Record Date Shareholders only, the right to
subscribe for additional shares of Common Stock, subject to the
availability of such shares and to the allotment of such shares as may
be available among Record Date Shareholders who exercise Rights under
the Over-Subscription Privilege ("Over-Subscription Rights") on the
basis specified in the Prospectus; provided that such Record Date
Shareholder has exercised all Primary Subscription Rights issued to
him or her.
3. RIGHTS AND ISSUANCE OF SUBSCRIPTION CERTIFICATES.
(a) Each Subscription Certificate shall evidence the Rights of the
Shareholder therein named to purchase Common Stock upon the terms and conditions
therein and herein set forth.
(b) Upon the written advice of the Fund, signed by any of its duly
authorized officers, as to the Record Date, the Agent shall, from a list of the
Fund Shareholders as of the Record Date to be prepared by the Agent in its
capacity as Transfer Agent of the Fund, prepare and record Subscription
Certificates in the names of the Shareholders, setting forth the number of
Rights to subscribe for the Fund's Common Stock calculated on the basis of one
Right for each share of Common Stock recorded on the books in the name of each
such Shareholder as of the Record Date. The number of Rights that are issued to
Record Date Shareholders will be rounded up, by the Agent, to the nearest whole
number of Rights evenly divisible by three. In the case of Shares of Common
Stock held of record by a Nominee Holder (as defined in the Prospectus), the
number of Rights issued to such Nominee Holder will be adjusted, by the Agent,
to permit rounding up (to the nearest whole number of Rights evenly divisible
by three) of the Rights to be received by beneficial holders for whom the
Nominee Holder is the holder of record only if the Nominee Holder provides to
the Agent on or before the close of business on the fifth Business Day prior to
the Expiration Date, written representation of the number of Rights required
for such rounding. Each Subscription Certificate shall be dated as of the
Record Date and shall be executed manually or by facsimile signature of a duly
authorized officer of the Fund. No Subscription Certificate shall be valid for
any purpose unless so executed. Should any officer of the Fund whose signature
has been placed upon any Subscription Certificate cease to hold such office at
any time thereafter, such event shall have no effect on the validity of such
Subscription Certificate.
2
<PAGE> 3
(c) Upon the written advice of the Fund, signed by any of its duly
authorized officers, as to the effective date of the Registration Statement,
the Agent shall promptly countersign and deliver the Subscription Certificates,
together with a copy of the Prospectus and any other document as the Fund deems
necessary or appropriate, to all Shareholders with record addresses in the
United States (including its territories and possessions and the District of
Columbia). Delivery shall be by first class mail (without registration or
insurance). The Agent will mail a copy of the Prospectus, a special notice and
other documents as the Fund deems necessary or appropriate, if any, but not
Subscription Certificates to Record Date Shareholders whose record addresses
are outside the United States (including its territories and possessions and
the District of Columbia) ("Foreign Record Date Shareholders"). Delivery to
Foreign Record Date Shareholders shall be by air mail (without registration or
insurance) or for those Foreign Record Date Shareholders having APO or FPO
addresses, by first class mail (without registration or insurance).
(d) The Agent shall hold the Rights issued by the Fund to Foreign
Record Date Shareholders for such Foreign Record Date Shareholders' accounts
until instructions are received to exercise, sell or transfer the Rights. If no
instructions are received to exercise, sell or transfer the Rights. If no
instructions have been received by 12:00 Noon, New York time, three Business
Days prior to the Expiration Date, the Agent will use its best efforts to sell
the Rights of those registered Foreign Record Date Shareholders through or to
the Dealer Manager in accordance with Section 5(b) hereof. The proceeds net of
commissions, if any, to the Dealer Manager from the sale of those Rights will
be remitted to the Foreign Record Date Shareholders.
4. EXERCISE.
(a) Exercising Rights Holders, as defined in the Prospectus, may
acquire Shares on Primary Subscription and Record Date Shareholders may acquire
Shares pursuant to the Over-Subscription Privilege by delivery to the Agent as
specified in the Prospectus of (i) the Subscription Certificate with respect
thereto, duly executed by such Shareholder in accordance with and as provided
by the terms and conditions of the Subscription Certificate, together with
(ii) the purchase price of $[ ] for each share of Common Stock
subscribed for by exercise of such Rights, in U.S. dollars by money order or
check drawn on a bank in the United States, in each case payable to the order
of the Fund.
(b) Rights may be exercised at any time after the date of issuance of
the Subscription Certificates with respect thereto but no later than 5:00 p.m.,
New York time, on the Expiration Date or such later date as the Fund may
designate to the Agent in writing. For the purpose of determining the time of
the exercise of any Rights, delivery of any material to the Agent shall be
deemed to occur when such materials are received at the Shareholder Services
Division of the Agent specified in the Prospectus.
3
<PAGE> 4
(c) Notwithstanding the provisions of Section 4(a) and 4(b) regarding
delivery of an executed Subscription Certificate to the Agent prior to 5:00
p.m., New York time, on the Expiration Date, if prior to such time the Agent
receives a Notice of Guaranteed Delivery by facsimile (telecopy) or otherwise
from a bank, a trust company or a New York Stock Exchange member guaranteeing
delivery of (i) payment of the full Subscription Price for the shares of Common
Stock subscribed for on Primary Subscription and any additional shares of
Common Stock subscribed for pursuant to the Over-Subscription Privilege (for
Record Date Shareholders), and (ii) a properly completed and executed
Subscription Certificate, then such exercise of Primary Subscription Rights and
Over-Subscription Rights shall be regarded as timely, subject, however, to
receipt of the duly executed Subscription Certificate and full payment for the
Common Stock by the Agent within three Business Days after the Expiration Date
(the "Protect Period").
(d) Within seven Business Days following the end of the Protect Period,
the Agent shall send to each Exercising Rights Holder (or, if shares of Common
Stock on the Record Date are held by Cede & Co. or any other depository or
nominee, to Cede & Co. or such other depository or nominee) the share
certificates representing the shares of Common Stock acquired pursuant to the
Primary Subscription, and, if applicable, the Over-Subscription Privilege. Any
excess payment ("Excess Payment") to be refunded by the Fund to a Record Date
Shareholder who is not allocated the full amount of shares of Common Stock
subscribed for pursuant to the Over-Subscription Privilege, shall be mailed by
the Agent to such Shareholder as described in Section 9(b).
5. TRANSFER OF RIGHTS.
(a) Rights Holders who do not wish to exercise any or all of their
Rights may instruct the Agent to sell any unexercised Rights by delivering to
the Agent at least three Business Days prior to the Expiration Date
Subscription Certificates representing the Rights to be sold with the
appropriate instructions to sell the Rights. Upon timely receipt by the Agent
of appropriate instructions to sell the Rights, the Agent shall use its best
efforts to complete the sale. The Agent shall remit the proceeds of sale, net
of any commissions, to the appropriate Rights Holder. The Agent shall also use
its best efforts to sell all Rights which remain unclaimed as a result of
Subscription Certificates being returned by the postal authorities to the Agent
as undeliverable as of the fourth Business Day prior to the Expiration Date and
Rights of non-U.S. shareholders who do not respond to the Agent by 12:00 Noon,
New York time, three Business Days prior to the Expiration Date. Such sales
will be made, net of any commissions, on behalf of such Shareholders. The Agent
will hold the proceeds from those sales for the benefit of such Shareholders
until such proceeds are either claimed or escheat.
(b) The Agent may retain Morgan Stanley & Co. Incorporated ("MS & Co.")
to act as its broker in carrying out the sale on a
4
<PAGE> 5
best efforts basis of any Rights to be sold pursuant to Sections 3(c) and 5(a)
provided the brokerage fees charged by MS & Co. in connection with any such
sales are not in excess of the usual and customary brokerage fees for such
transactions. The Agent also may sell the Rights to MS & Co. as principal
provided that such sales are made at the then current market price for the
Rights less an amount not in excess of the usual and customary brokerage fee
that would have been payable had such sales been conducted through a broker.
(c) Rights Holders may transfer a portion of the Rights evidenced by a
single Subscription Certificate (but in a whole number evenly divisible by
three) by delivering to the Agent within at least one Business Day prior to the
Expiration Date a Subscription Certificate properly endorsed for transfer, with
instructions to register such portion of the Rights evidenced thereby in the
name of the transferee and to issue a new Subscription Certificate to the
transferee evidencing such transferred Rights. In such event, the Agent shall
issue a new Subscription Certificate evidencing the balance of the Rights to the
transferring Rights Holder or, if the transferring Rights Holder so instructs,
to an additional transferee.
6. VALIDITY OF SUBSCRIPTIONS. Irregular subscriptions not otherwise
covered by specific instructions herein shall be submitted to an appropriate
officer of the Fund and handled in accordance with his or her instructions.
Such instructions will be documented by the Agent indicating the instructing
officer and the date thereof.
7. OVER-SUBSCRIPTION. If, after allocation of shares of Common Stock to
persons exercising Primary Subscription Rights, there remain unexercised
Rights, then the Agent shall allot the shares issuable upon exercise of such
unexercised Rights (the "Remaining Shares") to persons exercising the
Over-Subscription Privilege in the amounts of such over-subscriptions. If the
number of shares for which the Over-Subscription Privilege has been exercised
is greater than the Remaining Shares, the Agent shall allocate the Remaining
Shares to the persons exercising the Over-Subscription Privilege based on the
number of Rights originally issued to them by the Fund so that the number of
shares issued to Record Date Shareholders who subscribe pursuant to the
Over-Subscription Privilege will generally be in proportion to the number of
shares of Common Stock owned by them on the Record Date. The percentage of
Remaining Shares each over-subscribing Record Date Shareholder may acquire will
be rounded up or down to result in delivery of whole shares of Common Stock.
The Agent shall advise the Fund immediately upon the completion of the
allocation set forth above as to the total number of shares subscribed and
distributable.
8. DELIVERY OF SHARE CERTIFICATES. The Agent will deliver (i) certificates
representing those shares of Common Stock purchased pursuant to exercise of
Primary Subscription Rights as soon as practicable after the corresponding
Rights have been validly exercised and full payment for such shares has been
5
<PAGE> 6
received and cleared and (ii) certificates representing those shares purchased
pursuant to the exercise of the Over-Subscription Privilege as soon as
practicable after the Expiration Date and after all allocations have been
effected.
9. HOLDING PROCEEDS OF RIGHTS OFFERING IN ESCROW.
(a) All proceeds received by the Agent from Shareholders in respect of
the exercise of Rights shall be held by the Agent, on behalf of the Fund, in a
segregated, interest-bearing escrow account (the "Escrow Account"). Pending
disbursement in the manner described in Section 4(d) above, funds held in the
Escrow Account shall be invested by the Agent at the direction of the Fund.
(b) The Agent shall deliver all proceeds received in respect of the
exercise of Rights (including interest earned thereon) to the Fund as promptly
as practicable, but in no event later than seven Business Days after the end of
the Protect Period. Proceeds held in respect of any Excess Payment shall be
refunded to Record Date Shareholders entitled to such a refund within 10
Business Days after the end of the Protect Period.
10. REPORTS.
(a) Daily, during the period commencing on the Record Date, until
termination of the Subscription Period, the Agent will report by telephone or
telecopier (by 12:00 Noon, New York time), confirmed by letter, to a designated
officer of the Fund, daily data regarding Rights exercised, the selling price
of Rights, the total number of shares of new Common Stock subscribed for,
payments received therefor, the number of Rights sold and the net proceeds
thereof, bringing forward the figures from the previous day's report in each
case so as to also show the cumulative totals and any such other information as
may be mutually determined by the Fund and the Agent.
(b) The Agent will inform the Dealer Manager orally, on each Business
Day during the Subscription Period (to be followed by written confirmation), as
to the number of Rights that have been exercised since its previous daily
report to the Dealer Manager and, not later than 12:00 Noon, New York time, on
the Expiration Date, will provide the Dealer Manager with a written statement
as to the total number of Rights exercised (separately setting forth the
number of Rights exercised by Record Date Shareholders).
11. LOSS OR MUTILATION. If any Subscription Certificate is lost, stolen,
mutilated or destroyed, the Agent may, on such terms which will indemnify and
protect the Fund and the Agent as the Agent may in its discretion impose (which
shall, in the case of a mutilated Subscription Certificate include the
surrender and cancellation thereof), issue a new Subscription Certificate of
like denomination in substitution for the Subscription Certificate so lost,
stolen, mutilated or destroyed.
6
<PAGE> 7
12. COMPENSATION FOR SERVICES. The Fund agrees to pay to the Agent
compensation for its services as such in accordance with its Fee Schedule to act
as Agent, dated June 15, 1995, and set forth hereto as Exhibit A. The Agent
agrees that such compensation shall include all services as Transfer Agent and
Registrar provided in connection with the offering of Rights. The Fund further
agrees that it will reimburse that Agent for its reasonable out-of-pocket
expenses incurred in the performance of its duties as such.
13. INSTRUCTIONS AND INDEMNIFICATION. The Agent undertakes the duties and
obligations imposed by this Agreement upon the following terms and conditions:
(a) The Agent shall be entitled to rely upon any instructions or
directions furnished to it by an appropriate officer of the Fund, whether in
conformity with the provisions of this Agreement or constituting a modification
hereof or a supplement hereto. Without limiting the generality of the foregoing
or any other provision of this Agreement, the Agent, in connection with its
duties hereunder, shall not be under any duty or obligation to inquire into the
validity or invalidity or authority or lack thereof of any instruction or
direction from an officer of the Fund which conforms to the applicable
requirements of this Agreement and which the Agent reasonably believes to be
genuine and shall not be liable for any delays, errors or loss of data occurring
by reason of circumstances beyond the Agent's control, including, without
limitation, acts of civil or military authority, national emergencies, labor
difficulties, fire, flood, catastrophe, acts of God, insurrection, war, riots or
failure of the mails, transportation, communication or power supply.
(b) The Fund will indemnify the Agent and its nominees against, and
hold it harmless from, all liability and expense which may arise out of or in
connection with the services described in this Agreement or the instructions or
directions furnished to the Agent relating to this Agreement by an appropriate
officer of the Fund, except for any liability or expense which shall arise out
of the negligence, bad faith or willful misconduct of the Agent or such
nominees.
14. CHANGES IN SUBSCRIPTION CERTIFICATE. The Agent may, without the
consent or concurrence of the Shareholders in whose names Subscription
Certificates are registered, by supplemental agreement or otherwise, concur
with the Fund in making any changes or corrections in a Subscription
Certificate that it shall have been advised by counsel (who may be counsel for
the Fund) is appropriate to cure any ambiguity or to correct any defective or
inconsistent provision or clerical omission or mistake or manifest error
therein or herein contained, and which shall not be inconsistent with the
provision of the Subscription Certificate except insofar as any such change
may confer additional rights upon the Shareholders.
15. ASSIGNMENT; DELEGATION.
7
<PAGE> 8
(a) Neither this Agreement nor any rights or obligations hereunder
may be assigned or delegated by either party without the written consent of the
other party.
(b) This Agreement shall inure to the benefit of and be binding upon
the parties and their respective permitted successors and assigns. Nothing in
this Agreement is intended or shall be construed to confer upon any other
person any right, remedy or claim or to impose upon any other person any duty,
liability or obligation.
16. GOVERNING LAW. The validity, interpretation and performance of this
Agreement shall be governed by the laws of the State of New York.
17. SEVERABILITY. The parties hereto agree that if any of the provisions
contained in this Agreement shall be determined invalid, unlawful or
unenforceable to any extent, such provisions shall be deemed modified to the
extent necessary to render such provisions enforceable. The parties hereto
further agree that this Agreement shall be deemed severable, and the
invalidity, unlawfulness or unenforceability of any term or provision thereof
shall not affect the validity, legality or enforceability of this Agreement or
of any other term or provision hereof.
18. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which
together shall be considered one and the same agreement.
19. CAPTIONS. The captions and descriptive headings herein are for the
convenience of the parties only. They do not in any way modify, amplify, alter
or give full notice of the provisions hereof.
20. FACSIMILE SIGNATURES. Any facsimile signature of any party hereto
shall constitute a legal, valid and binding execution hereof by such party.
21. FURTHER ACTIONS. Each party agrees to perform such further acts and
execute such further documents as are necessary to effect the purposes of this
Agreement.
8
<PAGE> 9
22. ADDITIONAL PROVISIONS. Except as specifically modified by
this Agreement, the Agent's rights and responsibilities set forth in the
Agreement for Stock Transfer Services between the Fund and the Agent are
hereby ratified and confirmed and continue in effect.
MORGAN STANLEY EMERGING MARKETS
DEBT FUND, INC.
By:
-----------------------------
Name: Warren J. Olsen
Title: President
THE FIRST NATIONAL BANK OF BOSTON
By:
------------------------------
Name:
Title:
9
<PAGE> 10
Securities Department
EXHIBIT A
===============================================================================
[BANK OF BOSTON LOGO]
BANK OF BOSTON
Put our strength to work for you.
AGREEMENT
FOR SUBSCRIPTION/ESCROW AGENT SERVICES
between
MORGAN STANLEY
EMERGING MARKETS DEBT
FUND, INC.
and
THE FIRST NATIONAL BANK OF BOSTON
==============================================================================
[BANK OF BOSTON LOGO]
<PAGE> 11
AGREEMENT
FOR SUBSCRIPTION/ESCROW AGENT SERVICES
between
MORGAN STANLEY EMERGING MARKETS
DEBT FUND, INC.
and
THE FIRST NATIONAL BANK OF BOSTON
This Agreement sets forth the terms and conditions under which The
First National Bank of Boston ("Bank of Boston") will serve as
Subscription/Escrow Agent, pursuant to the terms and conditions set forth in the
Prospectus of Morgan Stanley Emerging Markets Debt Fund, Inc. (hereinafter
referred to as Morgan Stanley Debt) with respect to the Rights Offering, as the
same may be amended or supplemented.
A. TERM
The term of this Agreement shall be for a period of one (1) year,
commencing from the effective date of this Agreement, June 15, 1995.
B. FEE FOR STANDARD SERVICES
For the standard services set forth below provided by Bank of Boston
under this Agreement, Morgan Stanley Debt will be charged as follows:
================================================================
$10,000.00 Administrative Fee
$ .60 Per Subscription Certificate Issued and mailed
(if Machine Enclosed)
$ 9.00 Per Subscription Certificate Received and Processed
$ 12.00 Per Defective Subscription Certificate Received
and Processed (Telephone Calls if Necessary)
$ 15.00 Per Notice of Guaranteed Delivery Received
$ 1.00 Per Account, for Proration
$ 1.25 Per Refund Check Issued
$ 1.00 Per Broker Split Certificate Issued
$ 10.00 Per Withdrawal of Subscription Certificate,
If Applicable
$ 3.00 Per Reminder Call to Registered Holders
$ 1,000.00 New York Window Fee Upon Expiration
$ 3,000.00 Per Offer Extension
$ 5.00 Per Each Dealer Solicitation Form Received
$ 4,000.00 Escrow Agent Fee to Handle Daily Investment of
Funds Received
================================================================
<PAGE> 12
MORGAN STANLEY EMERGING MARKETS
DEBT FUND, INC.
Page 2
C. STANDARD SERVICES
Bank of Boston agrees to provide the following services to Morgan Stanley
Debt in accordance with the standard fees set forth in Section B
hereinabove.
1. Designation of an operational Task Force
2. Design of Subscription Certificate
3. Calculating Rights to be distributed to each shareholder according to
the formula approved by Morgan Stanley Debt
4. Issuance and mailing of Subscription Certificates to registered
shareholders
5. Preparation of a daily exercise journal
6. Tally of Rights received and exercised
7. Receipt summation and investment of checks received
8. Affixing restrictive legends to appropriate stock certificates, where
applicable
9. Issuance and mailing of stock certificates
10. Handling of shareholder inquiries related to the rights offering as
referred by the Information Agent
11. Reminder calls to shareholders who have not exercised their
Subscription Certificates as determined by Bank of Boston and Morgan
Stanley Debt
12. Calculation, issuance and mailing of proration and/or over-subscription
checks if applicable
13. Replacement of lost Subscription Certificates upon receipt of
appropriate documentation
14. Calculation and Issuance of Dealer Solicitation Fees
D. * LIMITATIONS
Fees effective for a period of one (1) year following the effective date of
the Agreement.
E. ITEMS NOT COVERED
Items not included in the fees set forth in this Agreement for "Standard
Services" or in Section B hereinabove are to be billed separately, on an
appraisal basis.
Services required by legislation or regulatory fiat which become effective
after the date of this Agreement shall not be a part of the Standard
Services and shall be billed by appraisal.
All out-of-pocket expenses such as postage, insurance, stationery, facsimile
charges, cost of disposal of excess material, etc. will be billed as
incurred.
<PAGE> 13
MORGAN STANLEY EMERGING MARKETS
DEBT FUND, INC.
Page 3
E. ITEMS NOT COVERED, continued
Funds to cover postage expenses in excess of $5,000 for shareholder
mailings must be received by Bank of Boston one business day prior to
the scheduled mailing date. Postage expenses less than $5,000 will be
billed as incurred.
Overtime charges will be assessed in the event of late delivery of
material for mailings to shareholders unless the mail date is
rescheduled. Such material includes, but is not limited to: Subscription
Certificate, Notice of Guaranteed Delivery, Return Envelope, Shareholder
Letter, W-9 Guideline Form, and Prospectus. Receipt of material for
mailing to shareholders by Bank of Boston's Mail Unit must be in
accordance with Shareholder Services' Schedule of Required Material
Delivery Time Frames published in November, 1990.
F. MINIMUM FEE
$10,000.00 (should the Offer be cancelled for any reason after a period
of active involvement).
G. PAYMENT FOR SERVICES
It is agreed that the Administrative Fee of $10,000.00 will be paid in
advance and the remaining fees for services rendered will be paid on a
monthly basis.
H. NON-ASSIGNABILITY
This Agreement, and the duties, obligations and services to be provided
herein, may not be assigned or otherwise transferred without the prior
written consent of Morgan Stanley Debt.
I. CONFIDENTIALITY
The information contained in this Agreement is confidential and
proprietary in nature. By receiving this Agreement, Morgan Stanley Debt
agrees that none of its directors, officers, employees, or agents
without the prior written consent of Bank of Boston, will divulge,
furnish or make accessible to any third party, except as permitted by
the next sentence, any part of this Agreement or information in
connection therewith which has been or may be made available to it. In
this connection, Morgan Stanley Debt agrees that it will limit access to
the Agreement and such information to only those officers or employees
with responsibilities for analyzing the Agreement and to such
independent consultants hired expressly for the purpose of assisting in
such analysis. In addition, Morgan Stanley Debt agrees that any persons
to whom such information is properly disclosed shall be informed of the
confidential nature of the Agreement and the information relating
thereto, and shall be directed to treat the same appropriately.
<PAGE> 14
MORGAN STANLEY EMERGING MARKETS
DEBT FUND, INC.
Page 4
J. CONTRACT ACCEPTANCE
In witness whereof, the parties hereto have caused this Agreement to
be executed by their respective officers, hereunto duly agreed and
authorized, as of the effective date of this Agreement.
THE FIRST NATIONAL BANK OF BOSTON MORGAN STANLEY EMERGING
MARKETS DEBT FUND, INC.
By: By:
------------------------------- ------------------------------
Title: Title:
---------------------------- ---------------------------
Date: Date:
----------------------------- ----------------------------
<PAGE> 1
EXHIBIT (d)(6)
AGREEMENT
This document will constitute the agreement between MORGAN STANLEY
EMERGING MARKETS DEBT FUND, INC. (the "FUND"), with its principal executive
offices at 1221 Avenue of the Americas, New York, NY 10020 and SHAREHOLDER
COMMUNICATIONS CORPORATION ("SCC"), with its principal executive offices at 17
State Street, New York, NY 10005, relating to a Rights Offering (the "OFFER") of
the Fund.
The services to be provided by SCC will be as follows:
(1) INDIVIDUAL HOLDERS OF RECORD AND BENEFICIAL OWNERS
Target Group. SCC estimates that it may call between 2,500 to 5,000
of the approximately 12,000 outstanding beneficial and record
shareholders. The estimate number is subject to adjustment and SCC
may actually call more or less shareholders depending on the response
to the OFFER or at the FUND's direction.
Telephone Number Lookups. SCC will obtain the needed telephone
numbers from various types of telephone directories.
Initial Telephone Calls to Provide Information. SCC will begin
telephone calls to the target group as soon as practicable. Most
calls will be made during 10:00 A.M. to 9:00 P.M. on business days
and only during 10:00 A.M. to 5:00 P.M. on Saturdays. No calls will
be received by any shareholder after 9:00 P.M. on any day, in any
time zone, unless specifically requested by the shareholder. SCC will
maintain "800" lines for shareholders to call with questions about
the OFFER. The "800" lines will be staffed Monday through Friday
between 9:00 a.m. and 9:00 p.m.
Remails. SCC will coordinate remails of offering materials to the
shareholders who advise us that they have discarded or misplaced the
originally mailed materials.
Reminder/Extension Mailing. SCC will help to coordinate any targeted
or broad-based reminder mailing at the request of the FUND. SCC will
mail only materials supplied by the FUND or approved by the Fund in
advance in writing.
Subscription Reports. SCC will rely upon the transfer agent for
accurate and timely information as to participation in the OFFER.
<PAGE> 2
(2) BANK/BROKER SERVICING
SCC will contact all banks, brokers and other nominee shareholders
("intermediaries") holding stock as shown on appropriate portions of
the shareholder lists to ascertain quantities of offering materials
needed for forwarding to beneficial owners.
SCC will deliver offering materials by messenger to New York City
based intermediaries and by Federal Express or other means to non-New
York City based intermediaries. SCC will also follow-up by telephone
with each intermediary to insure receipt of the offering materials
and to confirm timely remailing of materials to the beneficial
owners.
SCC will maintain frequent contact with intermediaries to monitor
shareholder response and to insure that all liaison procedures are
proceeding satisfactorily. In addition, SCC will contact beneficial
holders directly, if possible, and do whatever may be appropriate or
necessary to provide information regarding the OFFER to this group.
SCC will, as frequently as practicable, report to the Fund with
response from intermediaries.
(3) PROJECT FEE
In consideration for acting as Information Agent SCC will receive a
project fee of $20,000.
(4) ESTIMATED EXPENSES
SCC will be reimbursed by the FUND for its reasonable out-of-pocket
expenses incurred provided that SCC submits to the FUND an expense
report, itemizing such expenses and providing copies of all
supporting bills in respect of such expenses. If the actual expenses
incurred are less than the portion of the estimated high range
expenses paid in advance by the FUND, the FUND will receive from SCC
a check payable in the amount of the difference at the time that SCC
sends its final invoice for the second half of the project fee.
SCC's expenses are estimated as set forth below and the estimates are
based largely on data provided to SCC by the FUND. In the course of
the OFFER the expenses and expense categories may change due to
changes in the OFFER schedule or due to events beyond SCC's control,
such as delays in receiving offering material and related items. In
the event of significant change or new expenses not originally
contemplated, SCC will notify the FUND by phone and/or by letter for
approval of such expenses.
<PAGE> 3
<TABLE>
<CAPTION>
Estimated Expenses Low Range High Range
------------------ --------- ----------
<S> <C> <C>
Distribution Expenses....................................... $ 2,500 $ 5,000
Telephone # look up
6,000 @ $.60................................................ 3,600 3,600
Outgoing telephone 2,500 to 4,000
initial outgoing telephone calls @ $4.00.................... 10,000 16,000
Incoming "800" calls
840 to 1,440 @ $3.75........................................ 3,150 5,400
Miscellaneous, data processing, postage, deliveries
Federal Express and mailgrams............................... 2,500 5,000
------- -------
Total Estimated Expenses................................ $21,750 $35,000
======= =======
</TABLE>
(5) PERFORMANCE
SCC will use its best efforts to achieve the goals of the FUND but
SCC is not guaranteeing a minimum success rate. SCC's Project Fee as
outlined in Section 3 or Expenses as outlined in Section 4 are not
contingent on success or failure of the OFFER.
SCC's strategies revolve around a telephone information campaign. The
purpose of the telephone information campaign is to raise the overall
awareness among shareholders of the OFFER and help shareholders
better understand the transaction. This in turn may result in higher
overall response.
(6) COMPLIANCE
The FUND will be responsible for compliance with any regulations
required by the Securities and Exchange Commission, National
Association of Securities Dealers or any applicable federal or state
agencies.
In rendering the services contemplated by this Agreement, SCC agrees
not to make any representations, oral or written, to any shareholders
or prospective shareholders of the FUND that are not contained in the
FUND's Prospectus, unless previously authorized to do so in writing
by the FUND.
(7) PAYMENT
Payment for one half the project fee ($10,000) and one half the
estimated high range expenses ($17,500) for a total of $27,500 will
be made at the signing of this contract. The balance, if any, will be
paid by the FUND due thirty days after SCC sends its final invoice.
<PAGE> 4
(8) MISCELLANEOUS
SCC will hold in confidence and will not use nor disclose to third
parties information we receive from the FUND, or information
developed by SCC based upon such information we receive, except for
information which was public at the time of disclosure or becomes
part of the public domain without disclosure by SCC or information
which we learn from a third party which does not have an obligation
of confidentiality to the FUND.
In the event the project is canceled for an indefinite period of time
after the signing of this contract and before the expiration of the
OFFER, SCC will be reimbursed by the FUND for any expenses incurred
and not less than 100% of the project fee.
The FUND agrees to indemnify, hold harmless, reimburse and defend
SCC, and its officers, agents and employees, against all claims or
threatened claims, costs, expenses, liabilities, obligations, losses
or damages (including reasonable legal fees and expenses) of any
nature, incurred by or imposed upon SCC, or any of its officers,
agents or employees, which results, arises out of or is based upon
services rendered to the FUND in accordance with the provisions of
this AGREEMENT, provided that such services are rendered to the FUND
without any negligence, willful misconduct, bad faith or reckless
disregard on the part of SCC, or its officers, agents and employees.
This agreement will be governed by and construed in accordance with the
laws of the State of New York. This AGREEMENT sets forth the entire AGREEMENT
between SCC and the FUND with respect to the agreement herein and cannot be
modified except in writing by both parties.
IN WITNESS WHEREOF, the parties have signed this AGREEMENT this _____
day of June 1995.
MORGAN STANLEY EMERGING SHAREHOLDER COMMUNICATIONS
MARKETS DEBT FUND, INC. CORPORATION
By By
--------------------- ------------------------
<PAGE> 1
Exhibit (h)(1)
5,400,000 Shares of Common Stock
Issuable Upon Exercise of Transferable Rights
MORGAN STANLEY EMERGING MARKETS DEBT FUND, INC.
COMMON STOCK
PAR VALUE $.01 PER SHARE
DEALER MANAGER AGREEMENT
July 19, 1995
<PAGE> 2
July , 1995
Morgan Stanley & Co. Incorporated
1251 Avenue of the Americas
New York, New York 10020
Dear Sirs:
MORGAN STANLEY EMERGING MARKETS DEBT FUND, INC., a corporation
formed under the laws of the State of Maryland (the "Fund"), is a
non-diversified, closed-end management investment company registered under the
Investment Company Act of 1940, as amended (together with the rules and
regulations thereunder, the "Investment Company Act"). The Fund proposes to
issue to its shareholders of record ("Record Date Shareholders") as of July ,
1995 (the "Record Date") rights ("Rights") entitling their holders to subscribe
for an aggregate of 5,400,000 shares ("Shares") of the Fund's Common Stock, par
value $.01 per share ("Common Stock").
The Fund appoints Morgan Stanley & Co. Incorporated ("Morgan
Stanley") as the exclusive dealer manager in connection with the offer of Shares
contemplated by the proposed issuance of Rights (the "Offer") and Morgan Stanley
accepts that appointment. The Fund also authorizes Morgan Stanley to form and
manage a group of securities dealers (each, a "Selling Group Member," and,
collectively, the "Selling Group") to solicit the exercise of Rights and sell
Shares purchased by Morgan Stanley from the Fund through the exercise of Rights.
Morgan Stanley represents and warrants that it is a broker-dealer registered
under the Securities Exchange Act of 1934, as amended (together with the rules
and regulations thereunder, the "Exchange Act"). Morgan Stanley Asset Management
Inc. (the "Investment Manager") manages the investments of the Fund pursuant to
the Investment Advisory and Management Agreement, dated as of July 16, 1993,
with the Fund (the "Management Agreement").
<PAGE> 3
In connection with the Offer, each Record Date Shareholder will
be issued one Right for each full share of Common Stock owned on July , 1995.
The number of Rights to be issued to Record Date Shareholders will be rounded up
to the nearest number of Rights evenly divisible by three. No fractional Rights
will be issued. The Rights entitle their holders to acquire one Share for each
three Rights held at a price of $[ ] per Share (the "Subscription Price"). The
period of subscription (the "Subscription Period") commences on July , 1995 and
ends at 5:00 p.m., New York time, on August , 1995 unless extended by the Fund
and Morgan Stanley (the "Expiration Date"). Any Record Date Shareholder who
fully exercises all Rights issued to such Record Date Shareholder by the Fund is
entitled to subscribe for Shares that were not otherwise subscribed for by
others during the Subscription Period. Additional terms and conditions of the
Offer are set out in the Registration Statement on Form N-2 (File No. 33- ),
as amended (the "Registration Statement"), filed by the Fund with the Securities
and Exchange Commission (the "Commission") under the Investment Company Act and
the Securities Act of 1933, as amended (together with the rules and regulations
thereunder, the "Securities Act" and, together with the Investment Company Act,
the "Acts"). The final prospectus for the Shares contained in the Registration
Statement is hereinafter referred to as the "Prospectus"; any letters to
beneficial owners of shares of Common Stock, any forms used to exercise Rights,
any letters from the Fund to securities dealers, banks and other nominees, and
any newspaper announcements, press releases and other offering materials and
information that the Fund may use, approve, prepare or authorize in writing for
use in connection with the Offer are hereinafter collectively referred to as the
"Offering Materials".
I.
The Fund and the Investment Manager, jointly and severally,
represent and warrant to Morgan Stanley that:
(a) The Registration Statement has become effective, no stop
order suspending the effectiveness of the Registration Statement is in
effect, and no proceedings for such purpose are pending before or, to
the knowledge of the Fund, threatened by the Commission.
(b) The Fund has been duly incorporated, is validly existing as
a corporation in good standing under the laws of the State of Maryland,
has the
2
<PAGE> 4
corporate power and authority to conduct its business as described in
the Prospectus and is duly qualified to transact business and is in
good standing in each jurisdiction in which the conduct of its business
requires such qualification, except to the extent that the failure to
be so qualified or be in good standing would not have a material
adverse effect on the Fund. The Fund has no subsidiaries.
(c) The Fund is registered with the Commission as a
non-diversified, closed-end management investment company under the
Investment Company Act and no order of suspension or revocation of such
registration has been issued or proceedings initiated for that purpose
or, to the knowledge of the Fund, threatened by the Commission. No
person is serving or acting as an officer or director of, or investment
adviser to, the Fund except in accordance with the provisions of the
Investment Company Act and the Investment Advisers Act of 1940, as
amended, and the rules and regulations of the Commission thereunder
(such act and rules being collectively referred to as the "Advisers
Act").
(d) Each of this Agreement and the Subscription Agent Agreement
dated as of July , 1995 (the "Subscription Agent Agreement") between
the Fund and The First National Bank of Boston (the "Subscription
Agent"), has been duly authorized, executed and delivered by the Fund.
The Subscription Agent Agreement, assuming due authorization, execution
and delivery by the Subscription Agent, constitutes the legal, valid
and binding obligation of the Fund, enforceable against the Fund in
accordance with its terms except as such enforceability may be limited
by applicable bankruptcy, insolvency (including, without limitation,
all laws relating to fraudulent transfers), reorganization, moratorium
or similar laws affecting creditors' rights generally and by general
principles of equity, regardless of whether considered in a proceeding
in equity or at law.
(e) None of (i) the execution and delivery by the Fund of, and
the performance by the Fund of its obligations under, this Agreement
and the Subscription Agent Agreement, or (ii) the distribution of the
Rights and the allotment, issue and sale of the Shares, contravenes or
will contravene any provision of applicable U.S. law, the Blue Sky laws
of the various foreign jurisdictions or the articles of incorporation
or by-laws of the Fund or any agreement or other instrument binding
upon the Fund that is material to
3
<PAGE> 5
the Fund, or any judgment, order or decree of any governmental body,
agency or court having jurisdiction over the Fund, whether foreign or
domestic. No consent, approval, authorization, order or permit of, or
qualification with, any governmental body or agency, self-regulatory
organization or court or other tribunal, whether foreign or domestic,
is required for the performance by the Fund of its obligations under
this Agreement and the Subscription Agent Agreement, except such as
have been obtained and as may be required by the Acts, the Exchange
Act, or the securities or Blue Sky laws of the various states and
political subdivisions of the United States and foreign jurisdictions
in connection with the distribution of the Rights and the issue and
sale of the Shares.
(f) The authorized capital stock and the articles of
incorporation and by-laws of the Fund conform in all material respects
to the description thereof contained in the Prospectus, and the Rights
and Shares will conform in all material respects to the descriptions
thereof contained in the Prospectus.
(g) The articles of incorporation and by-laws of the Fund, this
Agreement, the Subscription Agent Agreement, the Management Agreement,
the Administration Agreement between United States Trust Company of New
York and the Fund (the "Administration Agreement"), the Custody
Agreement between Morgan Stanley Trust Company and the Fund (the
"International Custody Agreement") and the Domestic Custody Agreement
between U.S. Trust Company of New York and the Fund (the "Domestic
Custody Agreement") (the Management Agreement, the Administration
Agreement, the International Custody Agreement and the Domestic Custody
Agreement are referred to herein, collectively, as the "Fundamental
Agreements"), each as referred to in the Registration Statement, comply
with all applicable provisions of the Acts, and all approvals of such
documents required under the Investment Company Act by the Fund's
shareholders and Board of Directors have been obtained and are in full
force and effect.
(h) The Fundamental Agreements are in full force and effect and
neither the Fund nor, to the Fund's knowledge, any other party to any
such agreement is in default thereunder and, to the knowledge of the
Fund, no event has occurred that with the passage of time or the giving
of notice or both would constitute a default thereunder. The Fund is
not currently in breach of, or in default under, any other written
agreement or
4
<PAGE> 6
instrument to which it or its property is bound or affected.
(i) The shares of Common Stock outstanding prior to the
issuance of the Shares have been duly authorized and are validly
issued, fully paid and non-assessable and the form of certificates used
to evidence such shares is in due and proper form and complies with all
provisions of applicable law.
(j) The Offer, the Rights and the Shares have been duly
authorized and, when issued, paid for and delivered as described in the
Registration Statement, the Shares will be validly issued, fully paid
and non-assessable and the issuance of the Shares will not be subject
to any pre-emptive or similar rights. No person has rights to the
registration of any securities because of the filing of the
Registration Statement.
(k) The Rights and the Shares have been approved for listing on
the New York Stock Exchange, Inc. (the "New York Stock Exchange"),
subject to official notice of issuance.
(l) The Fund is a regulated investment company under Subchapter
M of the Internal Revenue Code of 1986, as amended (the "Code").
(m) There has not been any material adverse change, or any
development involving a prospective material adverse change, in the
condition, financial or otherwise, of the Fund, or in the investment
objective, investment policies, liabilities, business, prospects or
operations of the Fund from that set forth in the Prospectus and there
have been no transactions entered into by the Fund that are material to
the Fund other than those in the ordinary course of its business or as
described in the Prospectus.
(n) There are no legal or governmental proceedings pending or,
to the knowledge of the Fund, threatened against or affecting the Fund
that are required to be described in the Registration Statement or the
Prospectus and are not so described or any statutes, regulations,
contracts or other documents that are required to be described in the
Registration Statement or the Prospectus or to be filed as an exhibit
to the Registration Statement that are not described, filed or
incorporated by reference therein as required.
5
<PAGE> 7
(o) The Fund has all necessary consents, authorizations,
approvals, orders (including exemptive orders), certificates and
permits of and from, and has made all declarations and filings with,
all governmental authorities, self-regulatory organizations and courts
and other tribunals, whether foreign or domestic, to own and use its
assets and to conduct its business in the manner described in the
Prospectus, except to the extent that the failure to obtain or file the
foregoing would not have a material adverse effect on the Fund.
(p) Each preliminary prospectus filed as part of the
Registration Statement as originally filed or as part of any amendment
thereto, or filed pursuant to Rule 497 under the Securities Act,
complied when so filed in all material respects with the Acts.
(q) (i) Each part of the Registration Statement, when such part
became effective, did not contain and each such part, as amended or
supplemented, if applicable, will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading,
(ii) the Registration Statement, the Prospectus and the Offering
Materials comply and, as amended or supplemented, if applicable, will
comply in all material respects with the Acts and (iii) the Prospectus
and the Offering Materials do not contain and, as amended or
supplemented, if applicable, will not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they
were made, not misleading, except that the representations and
warranties set forth in this paragraph (q) do not apply to statements
or omissions in the Registration Statement, the Prospectus or the
Offering Materials based upon information concerning Morgan Stanley
furnished to the Fund in writing by Morgan Stanley expressly for use
therein.
(r) The financial statements of the Fund, together with related
notes and schedules and the summary financial data included in the
Registration Statement and the Prospectus (or incorporated by reference
therein as permitted by the Acts) present fairly the financial position
and results of operations of the Fund as at the dates and for the
periods indicated and have been prepared in conformity with generally
accepted accounting principles. Price
6
<PAGE> 8
Waterhouse LLP, whose report has been incorporated by reference into
the Prospectus, are independent public accountants with respect to the
Fund as required by the Acts.
(s) There are no material restrictions, limitations or
regulations with respect to the ability of the Fund to invest its
assets as described in the Prospectus, other than as described therein.
II.
The Investment Manager represents and warrants to Morgan
Stanley that:
(a) The Investment Manager has been duly incorporated, is
validly existing as a corporation in good standing under the laws of
the State of Delaware, has the corporate power and authority to conduct
its business as described in the Prospectus and is duly qualified to
transact business and is in good standing in each jurisdiction in which
the conduct of its business requires such qualification, except to the
extent that failure to be so qualified or be in good standing would not
have a material adverse effect on the Investment Manager.
(b) The Investment Manager is duly registered as an investment
adviser under the Advisers Act, and is not prohibited by the Advisers
Act or the Investment Company Act from acting under the Management
Agreement as an investment adviser to the Fund as contemplated by the
Prospectus, and no order of suspension or revocation of such
registration has been issued or proceedings therefor initiated or, to
the knowledge of the Investment Manager, threatened by the Commission.
(c) Each of this Agreement and the Management Agreement has
been duly authorized, executed and delivered by the Investment Manager
and complies with all applicable provisions of the Acts. The Management
Agreement, assuming due authorization, execution and delivery by the
Fund, constitutes the legal, valid and binding obligation of the
Investment Manager, enforceable against the Investment Manager in
accordance with its terms, except as such enforceability may be limited
by applicable bankruptcy, insolvency (including, without limitation,
all laws relating to fraudulent transfers), reorganization, moratorium
or similar laws affecting creditors' rights
7
<PAGE> 9
generally and by general principles of equity, regardless of whether
considered in a proceeding in equity or at law.
(d) The execution and delivery by the Investment Manager of,
and the performance by the Investment Manager of its obligations under,
this Agreement do not and will not contravene any provision of
applicable law or the certificate of incorporation or by-laws of the
Investment Manager or any agreement or other instrument binding upon
the Investment Manager that is material to the Investment Manager, or
any judgment, order or decree of any governmental body, agency or court
having jurisdiction over the Investment Manager. No consent, approval,
authorization, order or permit of, or qualification with, any
governmental body or agency, self-regulatory agency or court or other
tribunal, whether foreign or domestic, is required for the performance
by the Investment Manager of its obligations under this Agreement or
the Management Agreement except such as have been obtained and as may
be required by the Acts, the Exchange Act or the securities or Blue Sky
laws of the various states and foreign jurisdictions in connection with
the distribution of the Rights and the issue and sale of the Shares.
(e) There are no legal or governmental proceedings pending or,
to the knowledge of the Investment Manager, threatened against or
affecting the Investment Manager that are required to be described in
the Registration Statement or the Prospectus and are not so described.
(f) The Investment Manager has all necessary consents,
authorizations, approvals, orders (including exemptive orders),
certificates and permits of and from, and has made all declarations and
filings with, all governmental authorities, self-regulatory
organizations and courts and other tribunals, whether foreign or
domestic, to own and use its assets and to conduct its business in the
manner described in the Prospectus, except to the extent that the
failure to obtain or file the foregoing would not have a material
adverse effect on the Investment Manager.
(g) The Investment Manager has the financial resources
available to it necessary for the performance of its services and
obligations as contemplated in the Prospectus.
8
<PAGE> 10
(h) The Management Agreement is in full force and effect and
neither the Investment Manager nor, to the Investment Manager's
knowledge, the Fund is in default thereunder and, to the knowledge of
the Investment Manager, no event has occurred which with the passage of
time or the giving of notice or both would constitute a default under
the Management Agreement.
(i) All information furnished by the Investment Manager for use
in the Registration Statement and Prospectus, including, without
limitation, the description of the Investment Manager, does not, and on
the Expiration Date will not, contain any untrue statement of a
material fact or omit to state any material fact necessary to make such
information not misleading.
(j) There has not been any material adverse change, or any
development involving a prospective material adverse change, in the
condition, financial or otherwise, or in the business or operations of
the Investment Manager from that set forth in the Prospectus.
III.
On the basis of the representations and warranties, and subject
to the terms and conditions, set forth in this Agreement:
(a) Morgan Stanley agrees to (1) solicit, in accordance with
the Acts, the Exchange Act and Morgan Stanley's customary practice, the
exercise of Rights, subject to the terms of this Agreement, the
Subscription Agent Agreement and the procedures described in the
Registration Statement, and (2) form and manage the Selling Group to
(i) solicit, in accordance with the Acts, the Exchange Act and Morgan
Stanley's customary practice, the exercise of Rights, subject to the
terms of this Agreement, the Subscription Agent Agreement and the
procedures described in the Registration Statement, and (ii) sell
Shares purchased by Morgan Stanley from the Fund as provided herein. No
securities dealer shall be considered a Selling Group Member until it
shall have entered into a Selling Group Agreement with Morgan Stanley
in substantially the form of Exhibit A hereto.
(b) Morgan Stanley is authorized to buy and exercise Rights and
to sell Shares to the public or to
9
<PAGE> 11
Selling Group Members at the offering price set by Morgan Stanley from
time to time. Sales of Shares by Morgan Stanley or Selling Group
Members shall be at not more than the offering price set by Morgan
Stanley from time to time. Such offering price shall not be increased
more than once during any calendar day and at the time any such price
is set shall not be less than the Subscription Price specified in the
Prospectus nor more than the greater of the last sale or the current
offering price on the New York Stock Exchange, plus an exchange
commission.
(c) The Fund agrees to furnish, or cause to be furnished, to
Morgan Stanley lists, or copies of those lists, showing the names and
addresses of, and the number of Shares held by, Record Date
Shareholders as of the Record Date, and to use its best efforts to
advise Morgan Stanley, or cause it to be advised, on each day on which
trading is conducted on the New York Stock Exchange (a "Business Day")
during the Subscription Period with respect to any transfers of Rights,
and Morgan Stanley agrees to use such information only in connection
with the Offer, and not to furnish the information to any other person
except for Selling Group Members or other securities brokers and
dealers that Morgan Stanley has requested to solicit exercises of
Rights.
(d) The Fund will arrange for the Subscription Agent to inform
Morgan Stanley orally, on each Business Day during the Subscription
Period (to be followed by written confirmation), as to the number of
Rights that have been exercised since its previous daily report to
Morgan Stanley under the provision of this paragraph (d) and, not later
than 12:00 noon (New York City time) on August , 1995 to provide Morgan
Stanley with a written statement as to the total number of Rights
exercised (separately setting forth the number of Rights exercised by
Record Date Shareholders).
(e) Morgan Stanley agrees to notify the Fund on or prior to
August , 1995 of the Shares purchased by Morgan Stanley through the
exercise of Rights and sold to the public or to each Selling Group
Member and the total amount of the commissions payable by the Fund
pursuant to Article IV of this Agreement in connection with such sales.
(f) Morgan Stanley agrees to provide to the Fund, in addition
to the services described in paragraph (a) of this Article III,
financial advisory and marketing
10
<PAGE> 12
services in connection with the Offer and general financial advisory
services to the Fund. No advisory fee, other than the fees provided for
in Article IV of this Agreement and reimbursement of Morgan Stanley's
out-of-pocket expenses as described in paragraph (h) of Article VI of
this Agreement, will be payable by the Fund to Morgan Stanley in
connection with the general financial advisory services provided by
Morgan Stanley in accordance with this paragraph unless the Fund
requests Morgan Stanley to provide additional services with respect to
a particular transaction involving the Fund, in which event the fees
payable to Morgan Stanley will be mutually agreed upon by the Fund and
Morgan Stanley.
(g) The Fund and Morgan Stanley agree that Morgan Stanley and
each Selling Group Member is an independent contractor with respect to
its solicitation of the exercise of Rights, the purchase of Rights or
the sale of Shares as contemplated by this Agreement and with respect
to Morgan Stanley's performance of financial advisory services to the
Fund contemplated by this Agreement, and Morgan Stanley represents and
warrants that it is not a partner or agent of any other securities
broker, dealer or other person soliciting the exercise of Rights, the
purchase of Rights or the sale of Shares as contemplated by this
Agreement, or of the Fund or any of its affiliates.
(h) In rendering the services contemplated by this Agreement,
neither Morgan Stanley nor any Selling Group Member will be subject to
any liability to the Fund, the Investment Manager or any of their
affiliates, for any act or omission on the part of any securities
broker or dealer (other than itself) or any other person, and neither
Morgan Stanley nor any Selling Group Member will have any liability
(whether direct or indirect, in contract or tort or otherwise) for or
in connection with the performance of its obligations under this
Agreement except for any such liability for losses, claims, damages or
liabilities incurred that are finally judicially determined to have
resulted from its bad faith or gross negligence.
11
<PAGE> 13
IV.
The Fund agrees to pay in New York Clearing House (next day)
funds on August , 1995 (or, if the Expiration Date is extended by the Fund and
Morgan Stanley, on such later date not more than 15 days after the Expiration
Date as the Fund and Morgan Stanley may agree to):
(i) to Morgan Stanley, as compensation for its services to the
Fund as financial and marketing advisor in connection with the Offer, a
fee equal to an amount computed by multiplying (A) [ ], by (B) the
aggregate number of Shares purchased from the Fund in the Offer, by (C)
the Subscription Price;
(ii) to Morgan Stanley for its own account a fee equal to an
amount computed by multiplying (A) [ ], by (B) the sum of the number
of Shares purchased pursuant to each subscription form relating to the
Rights upon which Morgan Stanley is designated (other than Shares
purchased by Morgan Stanley through the exercise of Rights and sold to
the public or to Selling Group Members) plus the number of Shares sold
by Morgan Stanley to the public as indicated in the notice provided by
Morgan Stanley to the Fund pursuant to paragraph (e) of Article III of
this Agreement, by (C) the Subscription Price;
(iii) to Morgan Stanley for the account of each Selling Group
Member a fee equal to an amount computed by multiplying (A) [ ], by
(B) the sum of the number of Shares purchased pursuant to each
subscription form relating to the Rights upon which the Selling Group
Member is designated plus the number of Shares sold by Morgan Stanley
to such Selling Group Member as indicated in the notice provided by
Morgan Stanley to the Fund pursuant to paragraph (e) of Article III
of this Agreement, by (C) the Subscription Price;
(iv) to each securities broker or dealer who has executed the
Fund's Soliciting Dealer Agreement (other than Morgan Stanley or any
Selling Group Member) designated on any subscription form related to
the Rights ("Listed Broker") a fee equal to an amount computed by
multiplying (A) [ ], by (B) the number of Shares purchased pursuant to
each subscription form upon which the Listed Broker is designated, by
(C) the Subscription Price, provided that the aggregate fees paid to
any Listed Broker (other than a Listed Broker who is registered as a
specialist in the Rights with The New York Stock Exchange and who has
been approved
12
<PAGE> 14
by The New York Stock Exchange to act as such during the Subscription
Period) may not exceed the product of (i) [__]% of the Subscription
Price per Share, times (ii) the aggregate number of shares of Common
Stock held in such Listed Broker's participant accounts with The
Depository Trust Company on the Record Date divided by three (subject
to appropriate rounding up for the benefit of beneficial holders as
described in the Prospectus); and
(v) to Morgan Stanley a fee equal to an amount computed by
multiplying (A) [ ] by (B) the number of Shares purchased pursuant to
each subscription form upon which neither Morgan Stanley nor any
Selling Group Member or Listed Broker is designated plus the number of
Shares purchased pursuant to subscription forms upon which a Listed
Broker is designated but which are in excess of the limit set forth in
clause (ii) of the proviso in paragraph (iv) of this Article IV, by (C)
the Subscription Price.
V.
The respective obligations of the Fund, the Investment Manager
and Morgan Stanley are subject to the condition that the Registration Statement
has become effective not later than the date hereof.
The obligations of Morgan Stanley hereunder will at all times
be subject to the following further conditions:
(a) All representations, warranties and other statements of the
Fund and the Investment Manager contained herein or in certificates of
any officer of the Fund or the Investment Manager delivered pursuant to
this Agreement are now, and at all times during the Subscription Period
will be, true and correct in all material respects as though expressly
made at such time.
(b) There has not occurred any change, or any development
involving a prospective change, in the condition, financial or
otherwise, of the Fund or the Investment Manager, or in the investment
objectives, investment policies, liabilities, business, prospects or
operations of the Fund from those set forth in the Registration
Statement, that, in Morgan Stanley's reasonable judgment, is material
and adverse and that makes it, in Morgan Stanley's reasonable judgment,
impracticable to distribute the Rights and market the
13
<PAGE> 15
Shares on the terms and in the manner contemplated in the Prospectus.
(c) Morgan Stanley has received separate certificates, dated
the date hereof and signed by an executive officer of each of the Fund
and the Investment Manager in the officer's capacity as such, to the
effect that the respective representations and warranties of the Fund
and the Investment Manager contained in this Agreement are true and
correct as of the date hereof. Each officer signing and delivering such
a certificate may rely upon the best of his knowledge as to proceedings
threatened.
(d) The Investment Manager and the Fund at all times during the
Subscription Period have each performed all of their respective
obligations required to be performed hereunder.
(e) Morgan Stanley has received on the date hereof an opinion
of Rogers & Wells, counsel for the Fund, dated the date hereof, to the
effect that:
(i) the Registration Statement is effective under the
Acts and, to the best of such counsel's knowledge, no stop
order suspending the effectiveness of the Registration
Statement is in effect and no proceedings for such purpose are
pending or threatened by the Commission;
(ii) the Fund has been duly incorporated, is validly
existing as a corporation in good standing under the laws of
the State of Maryland, has the corporate power and authority to
conduct its business as described in the Prospectus and is duly
qualified to transact business and is in good standing in each
jurisdiction in which the conduct of its business requires such
qualification, except to the extent that the failure to be so
qualified or to be in good standing would not have a material
adverse effect on the Fund;
(iii) the Fund is registered with the Commission as a
non-diversified, closed-end management investment company under
the Investment Company Act and, to the best of such counsel's
knowledge, no order of suspension or revocation of such
registration has been issued or proceedings initiated for that
purpose or threatened by the Commission;
14
<PAGE> 16
(iv) each of this Agreement and the Subscription Agent
Agreement has been duly authorized, executed and delivered by
the Fund. The Subscription Agent Agreement constitutes the
legal, valid and binding obligation of the Fund, enforceable
against the Fund in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy,
insolvency (including, without limitation, all laws relating to
fraudulent transfers), reorganization, moratorium or similar
laws affecting creditors' rights generally and by general
principles of equity, regardless of whether considered in a
proceeding in equity or at law;
(v) none of (A) the execution and delivery by the Fund
of, and the performance by the Fund of its obligations under,
each of this Agreement and the Subscription Agent Agreement, or
(B) the distribution of the Rights and the issue and sale of
the Shares contravenes or will contravene any provision of
applicable U.S., State of New York or State of Maryland law or
the articles or incorporation or by-laws of the Fund or any
material agreement or instrument binding upon the Fund that is
known to such counsel, or any judgment, order or decree of any
U.S., State of New York or State of Maryland governmental body,
agency or court having jurisdiction over the Fund that is known
to such counsel. No consent, approval, authorization, permit or
order of, or qualification with, any U.S. or State of New York
governmental body or agency, self-regulatory organization or
court or other tribunal, is required for the performance by the
Fund of its obligations under this Agreement and the
Subscription Agent Agreement, except as may be required by the
Acts, the Exchange Act or the securities or Blue Sky laws of
the various states and in connection with the distribution of
the Rights and the issue and sale of the Shares;
(vi) the authorized capital stock and the articles of
incorporation and by-laws of the Fund conform in all material
respects to the description of them contained in the
Prospectus; and the Rights and Shares conform in all material
respects as to legal matters to the descriptions of them
contained in the Prospectus;
15
<PAGE> 17
(vii) the articles of incorporation and by-laws of the
Fund, this Agreement and each of the Fundamental Agreements
comply with all applicable provisions of the Acts, and all
approvals of such documents required under the Investment
Company Act by the Fund's shareholders and Board of Directors
have been obtained and are in full force and effect;
(viii) to the knowledge of such counsel, the
Fundamental Agreements are in full force and effect and, to
such counsel's knowledge, neither the Fund nor any other party
to any such agreement is in default thereunder and, to the
knowledge of such counsel, no event has occurred which with the
passage of time or the giving of notice or both would
constitute a default thereunder. To the knowledge of such
counsel, the Fund is not currently in breach of, or in default
under, any other written agreement or instrument to which it or
its property is bound or affected;
(ix) the shares of Common Stock outstanding prior to
issuance of the Shares have been duly authorized and are
validly issued, fully paid and non-assessable, and the form of
certificate used to evidence the shares is in due and proper
form and complies with all provisions of applicable law;
(x) the Offer, the Rights and the Shares have been
duly authorized and, when issued, paid for and delivered as
described in the Registration statement, the Shares will be
validly issued, fully paid and non-assessable and the issuance
of the Shares will not be subject to any pre-emptive or similar
rights;
(xi) the Rights and the Shares have been approved for
listing on the New York Stock Exchange, subject to official
notice of issuance;
(xii) the statements in the Prospectus under "The
Offer - Federal Income Tax Consequences," "Taxation - U.S.
Federal Income Taxes" and "Common Stock," insofar as such
statements constitute a summary of the law or legal
conclusions, documents or proceedings referred to therein, are
accurate in all material respects and fairly represent the
information called for with respect to such legal matters,
legal conclusions, documents and
16
<PAGE> 18
proceedings and fairly summarize the matters referred to
therein;
(xiii) the descriptions, if any, in the Prospectus of
the U.S. or State of New York statutes, regulations and legal
or governmental proceedings are accurate in all material
respects and fairly summarize the matters referred to therein;
(xiv) there are no U.S. or State of New York statutes
or regulations, or, to the best of such counsel's knowledge,
contracts or other documents that are required to be described
in the Registration Statement or the Prospectus or to be filed
as exhibits to the Registration Statement that are not
described or filed as required; and, to the best of such
counsel's knowledge, there are no legal or governmental
proceedings pending or threatened that are required to be
described in the Registration Statement or the Prospectus and
are not so described;
(xv) the Registration Statement and the Prospectus and
any supplements or amendments thereto (except for financial
statements and schedules included therein as to which such
counsel need not express any opinion) comply as to form in all
material respects with the Acts; and
(xvi) all advertisements authorized in writing by the
Fund for use in connection with the Offer comply with the
requirements of the Acts.
In addition to the foregoing opinion, such counsel will advise
Morgan Stanley that, in the light of such counsel's understanding of the
applicable law and the experience it has gained through its practice thereunder,
nothing has come to its attention that would lead it to believe that (except for
financial statements, schedules and other financial, economic or statistical
information contained in the Registration Statement or the Prospectus or
incorporated by reference therein, as to which counsel need express no belief)
the Registration Statement, on the date it became effective, contained any
untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading or that the Prospectus, as of the time it was first provided to
Morgan Stanley, contained any untrue statement of a material fact or omitted to
state any material fact necessary to make the statements therein, in
17
<PAGE> 19
the light of the circumstances under which they were made, not misleading.
Counsel will also be permitted to state that because of the limitations inherent
in the independent verification of factual matters and the character of
determinations involved in the registration process, that counsel does not
assume any responsibility for the accuracy, completeness or fairness of the
statements contained in the Registration statement or Prospectus.
(f) Morgan Stanley has received on the date hereof an opinion
of Harold J. Schaaff, Jr., general counsel for the Investment Manager,
dated the date hereof, to the effect that:
(i) the Investment Manager has been duly incorporated,
is validly existing as a corporation in good standing under the
laws of the State of Delaware, has the corporate power and
authority to conduct its business as described in the
Prospectus and is duly qualified to transact business and is in
good standing in each jurisdiction in which the conduct of its
business requires such qualification, except to the extent that
failure to be so qualified or be in good standing would not
have a material adverse effect on the Investment Manager;
(ii) the Investment Manager is duly registered as an
investment adviser under the Advisers Act and is not prohibited
by the Advisers Act or the Investment Company Act from acting
under the Management Agreement as an investment manager to the
Fund as contemplated by the Prospectus, and no order of
suspension or revocation of such registration has been issued
or proceedings initiated for that purpose or, to the best of
such counsel's knowledge, threatened by the Commission;
(iii) this Agreement has been duly authorized, executed and
delivered by the Investment Manager;
(iv) the execution and delivery by the Investment Manager
of, and the performance by the Investment Manager of its
obligations under, this Agreement will not contravene any
provision of applicable U.S. or State of New York law or the
certificate of incorporation or by-laws of the Investment
Manager or, to the best of such counsel's knowledge, any
agreement or other instrument binding upon the Investment
Manager that is material to the Investment Manager or, to
18
<PAGE> 20
the best of such counsel's knowledge, any judgment, order or
decree of any U.S. or State of New York governmental body,
agency or court having jurisdiction over the Investment
Manager, and no consent, approval or authorization, or order
of, or qualification with, any U.S. or State of New York
governmental body or agency is required for the performance by
the Investment Manager of its obligations under this Agreement,
except such as may be required by the Acts, the Exchange Act or
the securities or Blue Sky laws of the various states in
connection with the distribution of the Rights and the issue
and sale of the Shares;
(v) to the best knowledge of such counsel, there are
no actions, investigations or other proceedings of any nature,
whether foreign or domestic, pending, commenced or threatened,
that in any case or in the aggregate, might result in any
material adverse change in the business of the Investment
Manager or that question the validity of this Agreement or the
Management Agreement or the performance by the Investment
Manager of such Agreements; and
(vi) the description of the Investment Manager in the
Prospectus does not contain any untrue statement of a material
fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light
of the circumstances under which they were made, not
misleading.
(g) Morgan Stanley has received on the date hereof an opinion
of Davis Polk & Wardwell, counsel to Morgan Stanley, dated the date
hereof, covering the matters referred to in subparagraphs (iv) (but
only as to this Agreement), (vi), (x) and (xii) (but only as to the
statements in the Prospectus under "Common Stock" and "Distribution
Arrangements," and only with respect to matters of U.S. law or legal
conclusions) of paragraph (e) above and the last paragraph of (e)
above.
With respect to the last paragraph of (e) and (g) above, Rogers
& Wells and Davis Polk & Wardwell may state that their opinion and belief are
based upon their participation in the preparation of the Registration Statement
and Prospectus and any amendments or supplements thereto and review and
discussion of the contents thereof, but are without independent check or
verification except as
19
<PAGE> 21
specified. With respect to paragraphs (e) and (g) above, Rogers & Wells and
Davis Polk & Wardwell may rely as to matters governed by the laws of the State
of Maryland upon an opinion of Maryland counsel for the Fund and to the extent
any such counsel deems appropriate, upon the representations of the Fund
contained herein; provided that (A) such Maryland counsel for the Fund
is reasonably satisfactory to Morgan Stanley and (B) a copy of the opinion so
relied upon is delivered to Morgan Stanley and is in form and substance
satisfactory to Morgan Stanley.
(h) Morgan Stanley has received on the date hereof a letter
dated the date hereof, in form and substance satisfactory to Morgan Stanley,
from Price Waterhouse LLP, independent public accountants, containing statements
and information of the type ordinarily included in accountants' "comfort
letters" to underwriters with respect to the financial statements and certain
financial information regarding the Fund contained in the Registration Statement
and the Prospectus.
(i) Morgan Stanley has received during the Subscription Period
such further information, certificates and documents as Morgan Stanley may
reasonably request.
(j) All proceedings taken by the Fund and the Investment
Manager in connection with the distribution of Rights and the issue and sale of
the Shares and registration of the Shares under the Acts and the laws of any
foreign jurisdiction will be satisfactory in form and substance to Morgan
Stanley and its counsel.
(k) No proceedings have been instituted or threatened by the
Commission that would adversely affect the Fund's standing as a registered
investment company under the Investment Company Act or the standing of the
Investment Manager as a registered investment adviser under the Advisers Act.
(l) The Rights and the Shares have been duly authorized for
listing on the New York Stock Exchange, subject only to official notice of
issuance.
In the event that any of the foregoing conditions is at any
time not fulfilled, Morgan Stanley will be entitled to withdraw as dealer
manager for the Offer without any liability or penalty to Morgan Stanley or any
"controlling person" (as defined in Article VII hereof) and without loss of any
right to the payment of any fees pursuant to Section IV earned prior to the date
of such withdrawal and expenses payable hereunder.
20
<PAGE> 22
VI.
In further consideration of the agreements of Morgan Stanley
contained in this Agreement, the Fund covenants and agrees with Morgan Stanley
as follows:
(a) To notify Morgan Stanley immediately, and confirm such
notice in writing (i) of the institution of any proceedings pursuant to
Section 8(e) of the Investment Company Act and (ii) of the happening of
any event during the period described in paragraph (d) below that in
the judgment of the Fund makes the Registration Statement or the
Prospectus untrue in any material respect or that requires the making
of any change in or addition to the Registration Statement or the
Prospectus in order to make the statements therein not misleading in
any material respect. If at any time the Commission issues any order
suspending the effectiveness of the Registration Statement or an order
pursuant to Section 8(e) of the Investment Company Act, the Fund will
make every reasonable effort to obtain the withdrawal of such order at
the earliest possible moment.
(b) To furnish Morgan Stanley, without charge, five signed
copies of the Registration Statement including exhibits and, during the
period described in paragraph (d) below, as many copies of the
Prospectus and any supplements and amendments thereto as Morgan Stanley
may reasonably request.
(c) Before amending or supplementing the Registration Statement
or the Prospectus, to furnish Morgan Stanley with a copy of each
proposed amendment or supplement, and to file no proposed amendment or
supplement to which Morgan Stanley reasonably objects.
(d) If, during such period as in the opinion of counsel to
Morgan Stanley the Prospectus is required by law to be delivered, any
event occurs as a result of which it is necessary to amend or
supplement the Prospectus in order to make the statements therein, in
the light of the circumstances when the Prospectus was delivered to a
purchaser, not misleading, or if it is necessary to amend or supplement
the Prospectus to comply with law, forthwith to prepare and furnish, at
its own expense, to Morgan Stanley and to the Selling Group Members and
other dealers (whose names and addresses Morgan Stanley will furnish to
the Fund) to which Rights and/or Shares may have been sold by you and
to any other dealers upon request, either
21
<PAGE> 23
amendments or supplements to the Prospectus so that the statements in
the Prospectus as so amended or supplemented will not, in the light of
the circumstances when the Prospectus is delivered to a purchaser, be
misleading or so that the Prospectus will comply with law.
(e) To use its best efforts to maintain its qualification as a
regulated investment company under Subchapter M of the Code.
(f) To endeavor to qualify the Rights and the Shares for offer
and sale under the securities or Blue Sky laws of such jurisdictions as
Morgan Stanley reasonably requests and to pay all expenses (including
reasonable fees and disbursements of counsel) in connection therewith
as well as all fees payable in connection with the review (if any) of
the distribution of the Rights and the issue and sale of the Shares by
the National Association of Securities Dealers, Inc.; provided,
however, that the Fund shall not be obligated to file any consent to
service of process or to qualify as a foreign corporation in any
jurisdiction in which it is not so qualified.
(g) To make generally available to the Fund's security holders
as soon as practicable an earning statement covering the twelve-month
period ending August , 1996 that satisfies the provisions of Section
11(a) of the Securities Act.
(h) To pay (A) all costs, expenses, fees and taxes incident to
(i) the preparation, printing and filing of the Registration Statement
and of each amendment thereto, each preliminary prospectus and the
Prospectus and any amendments or supplements thereto, and any Offering
Materials, (ii) the printing of this Agreement and such other
agreements as Morgan Stanley may reasonably request, (iii) the
preparation, issuance and delivery of the certificates for the Rights
and the Shares, including stock transfer taxes, if any, payable upon
the sale, issuance and delivery by the Fund of the Shares, (iv) the
fees and disbursements of the Fund's counsel and accountants, (v)
furnishing such copies of the Registration Statement, the Prospectus
and any related preliminary prospectus, and all amendments and
supplements thereto, as may be reasonably requested for use in
connection with the distribution of the Rights and the issue and sale
of the Shares, (vi) the printing and delivery to Morgan Stanley of
copies of the Blue Sky Survey and (vii) the fees and expenses incurred
22
<PAGE> 24
with respect to the listing of the Rights and the Shares on the New
York Stock Exchange including the listing fees of such Exchange and the
preparation, printing and the filing fees with respect to the
distribution of documents relating thereto, and (B) to Morgan Stanley
up to $[ ] as reimbursement of certain costs and expenses of Morgan
Stanley incurred in connection with the distribution of the Rights and
the issue and sale of the Shares.
VII.
The Fund agrees to indemnify and hold harmless Morgan Stanley
and each person, if any, who controls Morgan Stanley within the meaning of
either Section 15 of the Securities Act or Section 20 of the Exchange Act (a
"controlling person") from and against any and all losses, claims, damages and
liabilities (including, without limitation, any legal or other expenses
reasonably incurred by Morgan Stanley or any such controlling person in
connection with defending or investigating any such action or claim) (a) caused
by any untrue statement or alleged untrue statement of a material fact contained
in the Registration Statement or any amendment thereof, any preliminary
prospectus or the Prospectus (as amended or supplemented if the Fund has
furnished any amendments or supplements thereto), or any Offering Materials, or
caused by any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, except insofar as such losses, claims, damages or liabilities are
caused by any such untrue statement or omission based upon information relating
to Morgan Stanley furnished to the Fund in writing by Morgan Stanley expressly
for use therein; provided that the foregoing indemnity agreement with respect to
any preliminary prospectus will not inure to the benefit of Morgan Stanley or of
any person controlling Morgan Stanley, if a copy of the Prospectus (as then
amended or supplemented if the Fund has furnished any amendments or supplements
thereto) was not sent or given by or on behalf of Morgan Stanley to such person,
if required by law to have been delivered, at or prior to the written
confirmation of the sale of the Shares to such person, and if the Prospectus (as
so amended or supplemented) would have cured the defect giving rise to such
losses, claims, damages or liabilities, or (b) arising out of or based upon (i)
any failure of the Fund to consummate the Offer, including any failure of the
Fund to issue the Rights or issue and sell the Shares, (ii) any action taken or
omitted to be taken by Morgan Stanley with the consent of the Fund, (iii) any
action taken or
23
<PAGE> 25
omitted to be taken by the Fund, (iv) any breach by the Fund of any
representation or warranty, or any failure by the Fund to comply with any
agreement or covenant contained in this Agreement or (v) any of the other
transactions contemplated by the Offer or by Morgan Stanley's performance of its
obligations under this Agreement.
Morgan Stanley agrees to indemnify and hold harmless the Fund,
its directors, and each officer of the Fund who signs the Registration Statement
and each person, if any, who controls the Fund within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange Act from and
against any and all losses, claims, damages and liabilities caused by any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement or the Prospectus (as amended or supplemented if the Fund
has furnished any amendment or supplements thereto) or any preliminary
prospectus or any Offering Materials, or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, but only with reference
to information relating to Morgan Stanley furnished to the Fund in writing by
Morgan Stanley expressly for use in the Registration statement, the Prospectus,
any amendment or supplement thereto, any preliminary prospectus or any Offering
Materials.
In case any proceeding (including any governmental
investigation) is instituted involving any person in respect of which indemnity
may be sought pursuant to either of the two preceding paragraphs, such person
(the "indemnified party") will promptly notify the person against whom such
indemnity may be sought (the "indemnifying party") in writing and the
indemnifying party, upon request of the indemnified party, will retain counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party and any others the indemnifying party may designate in such proceeding and
will pay the fees and expenses of such counsel related to such proceeding. In
any such proceeding, any indemnified party will have the right to retain its own
counsel, but the fees and expenses of such counsel will be at the expense of
such indemnified party unless (i) the indemnifying party and the indemnified
party have mutually agreed to the retention of such counsel or (ii) the named
parties to any such proceeding (including any impleaded parties) include both
the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that the indemnifying party
will not, in
24
<PAGE> 26
connection with any proceeding or related proceedings in the same jurisdiction,
be liable for (a) the fees and expenses of more than one separate firm (in
addition to any local counsel) for Morgan Stanley and all persons, if any, who
control Morgan Stanley within the meaning of either Section 15 of the Securities
Act or Section 20 of the Exchange Act and (b) the fees and expenses of more than
one separate firm (in addition to any local counsel) for the Fund, its
directors, its officers who sign the Registration Statement and each person, if
any, who controls the Fund within the meaning of either such Section. The
indemnifying party will pay fees and expenses as they are incurred. The
indemnifying party will not be liable for any settlement of any proceeding
effected without its written consent, but if settled with such consent or if
there be a final judgment for the plaintiff, the indemnifying party agrees to
indemnify the indemnified party from and against any loss or liability by reason
of such settlement or judgment. Notwithstanding the foregoing sentence, if at
any time an indemnified party will have requested an indemnifying party to
reimburse the indemnified party for fees and expenses of counsel as contemplated
by the second and third sentences of this paragraph, the indemnifying party
agrees that it will be liable for any settlement of any proceeding effected
without its written consent if (i) such settlement is entered into more than 30
days after receipt by such indemnifying party of the aforesaid request and (ii)
such indemnifying party has not reimbursed the indemnified party in accordance
with such request prior to the date of such settlement. No indemnifying party
may, without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party, unless such settlement includes an
unconditional release of such indemnified party from all liability on claims
that are the subject matter of such proceeding.
If the indemnification provided for in the first or second
paragraph of this Article VII is unavailable to an indemnified party or
insufficient in respect of any losses, claims, damages or liabilities referred
to therein, then each indemnifying party under such paragraph, in lieu of
indemnifying such indemnified party thereunder, will contribute to the amount
paid or payable by such indemnified party as a result of such losses, claims,
damages or liabilities (i) in such proportion as is appropriate to reflect the
relative benefits received by the Fund on the one hand and Morgan Stanley on the
other hand from the distribution of the Rights and the issue and sale of the
25
<PAGE> 27
Shares or (ii) if the allocation provided by clause (i) above is not permitted
by applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Fund on the one hand and of Morgan Stanley on the other hand in connection
with the statements or omission that resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations. The
relative benefits received by the Fund on the one hand and by Morgan Stanley on
the other hand will be deemed to be in the same respective proportions as the
net proceeds from the subscription for the Shares (before deducting expenses)
received by the Fund on the one hand bear to the amounts received by Morgan
Stanley pursuant to Article IV hereof on the other hand. The relative fault of
the parties will be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Fund on
the one hand or by Morgan Stanley on the other hand and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
The Fund and Morgan Stanley agree that it would not be just or
equitable if contribution pursuant to this Article VII were determined by pro
rata allocation or by any other method of allocation that does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages and liabilities referred to in the immediately preceding
paragraph will be deemed to include, subject to the limitations set forth above,
any legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Article VII, Morgan Stanley will not be
required to contribute any amount in excess of the amount by which the total
fees received by Morgan Stanley pursuant to Article IV hereof exceeds the amount
of any damages that Morgan Stanley has otherwise been required to pay by reason
of such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) will be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The remedies provided
for in this Article VII are not exclusive and will not limit any rights or
remedies that may otherwise be available to any indemnified party at law or in
equity.
26
<PAGE> 28
The indemnity and contribution provisions contained in this
Article VII and the representations and warranties of the Fund and the
Investment Manager contained in this Agreement shall remain operative and in
full force and effect regardless of (i) any termination of this Agreement or
(ii) any investigation made by or on behalf of any indemnified party.
VIII.
This Agreement will be subject to termination by notice given
by Morgan Stanley to the Fund, if (a) after the execution and delivery of this
Agreement (i) trading generally has been suspended or materially limited on the
New York Stock Exchange, the American Stock Exchange, the National Association
of Securities Dealers, Inc., the Chicago Board of Options Exchange, the Chicago
Mercantile Exchange or the Chicago Board of Trade, (ii) a general moratorium on
commercial banking activities has been declared by either federal or New York
State authorities or (iii) there has occurred any outbreak or escalation of
hostilities or any change in financial markets or any calamity or crisis that,
in Morgan Stanley's judgment, is material and adverse and (b) in the case of any
of the events specified in clauses (a)(i) through (iii), such event singly or
together with any other such events makes it impracticable in Morgan Stanley's
judgment to proceed with the solicitation of the exercise of the Rights or to
market the Shares on the terms and in the manner contemplated in the Prospectus.
Termination of this Agreement by Morgan Stanley shall not preclude the Fund from
consummating the Offer at its discretion.
IX.
If the issuance of the Rights and the sale of Shares is not
consummated because of any failure, refusal or inability on the part of the Fund
or the Investment Manager to perform any agreement on its part to be performed,
or because any other condition of the obligations of Morgan Stanley under this
Agreement is not fulfilled, the Fund will reimburse Morgan Stanley for up to $[
] for actual out-of-pocket costs and expenses as have been incurred by Morgan
Stanley in connection with this Agreement and the proposed Offer, and upon
demand, the Fund will pay the full amount of those costs and expenses to Morgan
Stanley.
X.
Any notice by the Fund or the Investment Manager to Morgan
Stanley will be sufficient if given in writing, by
27
<PAGE> 29
telegraph or by facsimile addressed to Morgan Stanley at 1251 Avenue of the
Americas, New York, New York 10020 Attention: Corporate Financing Department,
and any notice by Morgan Stanley to the Fund or the Investment Manager will be
sufficient if given in writing, by telegraph or by facsimile addressed to the
Fund at 1221 Avenue of the Americas, New York, New York 10020 Attention: Warren
J. Olsen.
This Agreement may be signed in two or more counterparts, each
of which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument.
28
<PAGE> 30
This Agreement shall be governed by and construed in accordance
with the internal laws of the State of New York.
Very truly yours,
MORGAN STANLEY EMERGING
MARKETS DEBT FUND, INC.
By___________________________________
MORGAN STANLEY ASSET MANAGEMENT
INC.
By___________________________________
Accepted, July , 1995
MORGAN STANLEY & CO.
INCORPORATED
By_____________________________________
29
<PAGE> 1
Exhibit (h)(2)
MORGAN STANLEY EMERGING MARKETS DEBT FUND, INC.
RIGHTS OFFERING FOR SHARES OF COMMON STOCK
SOLICITING DEALER AGREEMENT
THE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON AUGUST,
1995, UNLESS EXTENDED.
To Securities Brokers and Dealers:
Morgan Stanley Emerging Markets Debt Fund, Inc. (the "Fund") is
issuing to its shareholders of record ("Record Date Shareholders") as of the
close of business on July , 1995 (the "Record Date") rights ("Rights") to
subscribe for an aggregate of 5,400,000 shares (the "Shares") of common stock,
par value $.01 per share ("Common Stock"), of the Fund upon the terms and
subject to the conditions set forth in the Fund's Prospectus dated July , 1995
(the "Offer"). Each Record Date Shareholder is being issued one Right for each
full share of Common Stock owned on the Record Date. The number of Rights to be
issued to Record Date Shareholders will be rounded up to the nearest number of
Rights evenly divisible by three. No fractional Rights will be issued. The
Rights are listed for trading on the New York Stock Exchange. The Rights entitle
the Record Date Shareholders and holders of Rights acquired during the
Subscription Period (as hereinafter defined) to acquire at the Subscription
Price (as hereinafter defined) one Share for each three Rights held in the
primary subscription. The Subscription Price is $[ ] per Share. The Subscription
Period commences on July , 1995 and ends at 5:00 p.m., New York time, on
August, 1995 or such later time and date to which the Offer may be extended
by the Fund and the Dealer Manager (as hereinafter defined) (the "Expiration
Date"). Any Record Date Shareholder who fully exercises all Rights issued to
him is entitled to subscribe for Shares which were not otherwise subscribed for
by others in the primary subscription (the "Over-Subscription Privilege").
Shares acquired pursuant to the Over-Subscription Privilege are subject to
allotment, as more fully discussed in the Prospectus.
For the duration of the Offer, the Fund will pay, to the extent
described below, Soliciting Fees (as hereinafter defined) to any qualified
broker or dealer who solicits the exercise of Rights in connection with the
Offer and who complies with the procedures described below (a "Soliciting
Dealer"). Upon timely delivery to The First National Bank of Boston, the Fund's
subscription agent for the Offer (the "Subscription Agent"), of payment for
Shares purchased pursuant to the exercise of Rights and of properly completed
and executed documentation as set forth in this Soliciting Dealer Agreement, a
Soliciting Dealer will be entitled to receive fees equal to [ ]% of the
Subscription Price per Share purchased pursuant to exercise of the Rights (the
<PAGE> 2
"Soliciting Fees"); provided that the aggregate fees paid to any Soliciting
Dealer hereunder (other than a Soliciting Dealer who is registered as a
specialist in the Rights with The New York Stock Exchange and who has been
approved by The New York Stock Exchange to act as such during the Subscription
Period) may not exceed the product of (i) [__]% of the Subscription Price Per
Share, times (ii) the aggregate number of shares of Common Stock held in such
Soliciting Dealer's participant accounts with The Depository Trust Company on
the Record Date divided by three (subject to appropriate rounding up for the
benefit of beneficial holders as described in the Prospectus). A qualified
broker or dealer is a broker or dealer that is a member of a registered national
securities exchange in the United States or the National Association of
Securities Dealers, Inc. ("NASD") or otherwise eligible to participate under the
NASD Rules.
The Fund hereby agrees to pay the Soliciting Fees payable to
the Soliciting Dealers. Solicitation and other activities by Soliciting Dealers
may be undertaken only in accordance with the applicable rules and regulations
of the Securities and Exchange Commission and only in those states and other
jurisdictions where those solicitations and other activities may lawfully be
undertaken and in accordance with the laws in those states and other
jurisdictions. Compensation will not be paid for solicitations in any state or
other jurisdiction in which, in the opinion of counsel to the Fund or counsel to
Morgan Stanley & Co. Incorporated, the dealer manager in connection with the
Offer (the "Dealer Manager"), compensation may not lawfully be paid. No
Soliciting Dealer will be paid Soliciting Fees with respect to Shares purchased
pursuant to an exercise of Rights for its own account or for the account of any
affiliate of the Soliciting Dealer. No Soliciting Dealer or any other person is
authorized by the Fund or the Dealer Manager to give any information or make any
representations in connection with the Offer other than those contained in the
Prospectus and other authorized solicitation material furnished by the Fund
through the Dealer Manager. No Soliciting Dealer is authorized to act as agent
of the Fund or the Dealer Manager in any connection or transaction. In addition,
nothing contained in this Soliciting Dealer Agreement will constitute the
Soliciting Dealers partners with the Dealer Manager or with one another or
create any association between those parties, or will render the Dealer Manager
or the Fund liable for the obligations of any Soliciting Dealer. The Dealer
Manager will be under no liability to make any payment to any Soliciting Dealer,
and will be subject to no other liabilities to any Soliciting Dealer, and no
obligations of any sort will be implied.
In order for a Soliciting Dealer to receive Soliciting Fees,
the Subscription Agent must have received from that Soliciting Dealer no later
than 5:00 p.m., New York time, on the Expiration Date, a properly completed and
duly executed Soliciting Dealer Agreement (or a facsimile thereof), accompanied
2
<PAGE> 3
by either (i) a properly completed and duly executed Subscription Certificate
with respect to Shares purchased pursuant to the exercise of Rights and full
payment for those Shares; or (ii) a Notice of Guaranteed Delivery guaranteeing
delivery to the Subscription Agent by the close of business on the third
Business Day (as hereinafter defined) after the Expiration Date of a properly
completed and duly executed Subscription Certificate with respect to Shares
purchased pursuant to the exercise of Rights and full payment for such Shares.
Soliciting Fees will only be paid to a Soliciting Dealer who is designated on
the Subscription Certificate; if no Soliciting Dealer is designated, the
Soliciting Fees will be paid to the Dealer Manager. A "Business Day" means any
day on which trading is conducted on the New York Stock Exchange. In the case of
a Notice of Guaranteed Delivery, Soliciting Fees will only be paid after payment
and delivery in accordance with that Notice of Guaranteed Delivery has been
effected.
All questions as to the form, validity and eligibility
(including time of receipt) of the Soliciting Dealer Agreement will be
determined by the Fund, in its sole discretion, which determination will be
final and binding. Unless waived, any irregularities in connection with a
Soliciting Dealer Agreement or delivery of a Soliciting Dealer Agreement must be
cured within such time as the Fund may determine. None of the Fund, the Dealer
Manager, Shareholder Communications Corporation, the Fund's Information Agent
for the Offer, or the Subscription Agent, or any other person will be under any
duty to give notification of any defects or irregularities in any Soliciting
Dealer Agreement or incur any liability for failure to give that notification.
Execution and delivery of this Soliciting Dealer Agreement and
the acceptance of Soliciting Fees from the Fund by a Soliciting Dealer
constitute a representation and warranty by that Soliciting Dealer to the Fund
that: (i) it has received and reviewed the Prospectus; (ii) in soliciting
purchases of Shares pursuant to the exercise of the Rights, it has complied with
the applicable requirements of the Securities Exchange Act of 1934 (the
"Exchange Act"), the applicable rules and regulations thereunder, any applicable
securities laws of any state or jurisdiction where such solicitations may
lawfully be made, and the applicable rules and regulations of any
self-regulatory organization or registered national securities exchange; (iii)
in soliciting purchases of Shares pursuant to the exercise of the Rights, it has
not published, circulated or used any soliciting materials other than the
Prospectus and any other authorized solicitation material furnished by the Fund
through the Dealer Manager; (iv) it has not purported to act as agent of the
Fund or the Dealer Manager in any connection or transaction relating to the
Offer; (v) the information contained in this Soliciting Dealer Agreement is, to
its best knowledge, true and complete; (vi) it is not affiliated with the Fund;
(vii) the Soliciting
3
<PAGE> 4
Fees being paid to it are not being paid with respect to Shares purchased by it
pursuant to an exercise of Rights for its own account; (viii) it will not remit,
directly or indirectly, any part of Soliciting Fees paid by the Fund pursuant to
the terms of this Soliciting Dealer Agreement to any beneficial owner of Shares
purchased pursuant to the Offer; and (ix) it has agreed to the amount of the
Soliciting Fees and the terms and conditions set forth in this Soliciting Dealer
Agreement with respect to receiving those Soliciting Fees. By returning a
Soliciting Dealer Agreement and accepting Soliciting Fees, a Soliciting Dealer
agrees to indemnify the Fund against losses, claims, damages and liabilities to
which the Fund may become subject as a result of the breach of that Soliciting
Dealer's representations made in this Soliciting Dealer Agreement and described
above. In making the foregoing representations and warranties, Soliciting
Dealers are reminded of the possible applicability of Rule 10b-6 under the
Exchange Act if they have bought, sold, dealt in or traded in any Shares for
their own account since the commencement of the Offer.
Soliciting Fees due to eligible Soliciting Dealers will be paid
promptly after consummation of the Offer. Upon expiration of the Offer, no
Soliciting Fees will be payable to Soliciting Dealers with respect to Shares
purchased thereafter.
This Soliciting Dealer Agreement may be signed in two or more
counterparts, each of which will be an original, with the same effect as if the
signatures were upon the same instrument.
This Soliciting Dealer Agreement will be governed by the
internal laws of the State of New York.
Please list on the Appendix attached to this Agreement and
forming part of this Soliciting Dealer Agreement the number of Shares purchased
pursuant to the exercise of the Rights by each beneficial owner whose purchases
you, as a Soliciting Dealer, have solicited. All amounts beneficially owned by a
beneficial owner, whether in one account or several, and in however many
capacities, must be aggregated for purposes of completing the table in the
Appendix to this Agreement. Any questions as to what constitutes beneficial
ownership should be directed to the Fund. The number of shares not listed in the
Appendix for reasons of inadequate space should be listed on a separate schedule
attached to, and forming part of, this Soliciting Dealer Agreement.
4
<PAGE> 5
Please execute this Soliciting Dealer Agreement below,
accepting the terms and conditions set forth in this Soliciting Dealer Agreement
and confirming that you are a member firm of a registered national securities
exchange or of the NASD or a foreign broker or dealer not eligible for
membership who has conformed to the Rules of Fair Practice of the NASD in making
solicitations of the type being undertaken pursuant to the Offer in the United
States to the same extent as if you were a member of the NASD, and certifying
that you have solicited the purchase of the Shares pursuant to exercise of the
Rights, all as described above, in accordance with the terms and conditions set
forth in this Soliciting Dealer Agreement.
Very truly yours,
________________________________
Warren J. Olsen
President
Morgan Stanley Emerging Markets
Fund, Inc.
ACCEPTED AND CONFIRMED
______________________________ ______________________________
Printed Firm Name Address
______________________________ ______________________________
Authorized Signature Area Code and Telephone Number
______________________________
Name and Title
Dated:________________________
ALL SOLICITING DEALER AGREEMENTS SHOULD BE RETURNED TO
THE FIRST NATIONAL BANK OF BOSTON BY FACSIMILE (TELECOPIER)
AT (617) 575-2233. FACSIMILE TRANSMISSIONS MAY BE
CONFIRMED BY CALLING (617) 575-2700.
ALL QUESTIONS CONCERNING SOLICITING DEALER AGREEMENTS SHOULD BE
DIRECTED TO SHAREHOLDER COMMUNICATIONS CORPORATION,
TOLL FREE AT (800) 221-5724, OR
CALL COLLECT (212) 809-3600.
5
<PAGE> 6
APPENDIX TO SOLICITING DEALER AGREEMENT
TO BE COMPLETED BY THE SOLICITING DEALER
BENEFICIAL OWNERS NUMBER OF SHARES PURCHASED
- ----------------------------------------------------------------
Beneficial Owner No. 1
- --------------------------------------------------------------------------------
Beneficial Owner No. 2
- --------------------------------------------------------------------------------
Beneficial Owner No. 3
- --------------------------------------------------------------------------------
Beneficial Owner No. 4
- --------------------------------------------------------------------------------
Beneficial Owner No. 5
- --------------------------------------------------------------------------------
Beneficial Owner No. 6
- --------------------------------------------------------------------------------
Beneficial Owner No. 7
- --------------------------------------------------------------------------------
Beneficial Owner No. 8
- --------------------------------------------------------------------------------
Beneficial Owner No. 9
- --------------------------------------------------------------------------------
Beneficial Owner No. 10
- --------------------------------------------------------------------------------
Beneficial Owner No. 11
- --------------------------------------------------------------------------------
Beneficial Owner No. 12
- --------------------------------------------------------------------------------
Beneficial Owner No. 13
- --------------------------------------------------------------------------------
Beneficial Owner No. 14
- --------------------------------------------------------------------------------
Beneficial Owner No. 15
- --------------------------------------------------------------------------------
Beneficial Owner No. 16
- --------------------------------------------------------------------------------
Beneficial Owner No. 17
- --------------------------------------------------------------------------------
Beneficial Owner No. 18
- --------------------------------------------------------------------------------
Beneficial Owner No. 19
- --------------------------------------------------------------------------------
Beneficial Owner No. 20
- --------------------------------------------------------------------------------
TOTAL(1):
- --------------------------------------------------------------------------------
_______________________
(1)Aggregate solicitation fees will be subject to a maximum amount
in accordance with the second paragraph of the Soliciting Dealer
Agreement.
6
<PAGE> 1
SELLING GROUP AGREEMENT Exhibit (h) (3)
July [__], 1995
Morgan Stanley & Co.
Incorporated
1251 Avenue of the Americas
New York, New York 10020
Dear Sirs:
We understand that Morgan Stanley Emerging Markets Debt Fund,
Inc., a Maryland corporation (the "Fund"), proposes to issue to its shareholders
of record as of July 18, 1995 rights ("Rights") entitling their holders to
subscribe for an aggregate of 5,400,000 shares ("Shares") of the Fund's Common
Stock, par value $.01 per share ("Common Stock"). We further understand that the
Fund has appointed you as the exclusive Dealer Manager in connection with the
offer of Shares contemplated by the proposed issuance of Rights (the "Offer").
We hereby express our interest in participating in the Offer as
a Selling Group Member.
We hereby agree with you as follows:
I.
<PAGE> 2
We have received and reviewed the Prospectus dated July [__],
1995 (the "Prospectus") relating to the Offer and we understand that additional
copies of the Prospectus (or of the Prospectus as it may be subsequently
supplemented or amended, if applicable) and any other solicitation materials
authorized by the Fund relating to the Offer ("Offering Materials") will be
supplied to us in reasonable quantities upon our request therefor to you. We
agree that we will not use any solicitation material other than the Prospectus
(as supplemented or amended, if applicable) and such Offering Materials.
II.
From time to time during the period (the "Subscription Period")
commencing on July [__], 1995 and ending at 5:00 p.m., New York time, on August
[__], 1995, unless extended by the Fund and you (the "Expiration Date"), we may
solicit the exercise of Rights in connection with the Offer. We will be entitled
to receive fees in the amounts and at the times described in Article IV of this
Agreement with respect to Shares purchased pursuant to the exercise of Rights
and with respect to which The First National Bank of Boston (the "Subscription
Agent") has received, no later than 5:00 p.m., New York time, on the Expiration
Date, either (i) a properly completed and executed Subscription Certificate (in
the form attached to the Prospectus),
2
<PAGE> 3
identifying us as the broker-dealer having been instrumental in the exercise of
such Rights, and full payment for such Shares or (ii) a Notice of Guaranteed
Delivery (in the form attached to the Prospectus) guaranteeing to the
Subscription Agent by the close of business of the third business day after the
Expiration Date of a properly completed and duly executed Subscription
Certificate, similarly identifying us, and full payment for such Shares. We
understand that we will not be paid these fees with respect to Shares purchased
pursuant to an exercise of Rights for our own account or for the account of any
of our affiliates except that we may receive such fees with respect to Shares
purchased pursuant to an exercise of Rights for our own account provided that
such Shares are offered and sold by us to our clients. We also understand and
agree that we are not entitled to receive any fees in connection with the
solicitation of the exercise of Rights other than pursuant to the terms of this
Agreement and, in particular, that we will not be entitled to receive any fees
under the Fund's Soliciting Dealer Agreement.
We agree to solicit the exercise of Rights in accordance with
the Securities Act of 1933, as amended (the "Securities Act"), the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the Investment
Company Act of 1940, as amended, and the rules and regulations under each such
Act, any applicable securities laws of any state
3
<PAGE> 4
or jurisdiction where such solicitations may be lawfully made, the applicable
rules and regulations of any self-regulatory organization or registered national
securities exchange and your customary practice and subject to the terms of the
Subscription Agent Agreement between the Fund and the Subscription Agent and the
procedures described in the Fund's registration statement on Form N-2 (File No.
33-60139, as amended (the "Registration Statement").
III.
From time to time during the Subscription Period, we may
indicate interest in purchasing Shares from you as Dealer Manager. We understand
that from time to time you intend to offer Shares obtained by you through the
exercise of Rights to Selling Group Members who have so indicated interest at
prices which shall be determined by you (the "Offering Price"). We agree that
with respect to any such Shares purchased by us from you the sale of such Shares
to us shall be irrevocable and we will offer them to the public at the Offering
Price at which we purchased them from you. Shares not sold by us at such
Offering Price may be offered by us after the next succeeding Offering Price is
set at prices not in excess of the latest Offering Price set by you. You agree
that you will set a new Offering Price prior to 4:00 p.m., New York time, on
each business day.
4
<PAGE> 5
We agree to advise you from time to time upon request, prior to
the termination of this Agreement, of the number of Shares remaining unsold
which were purchased by us from you and, on your request, we will resell to you
any of such Shares remaining unsold at the purchase price thereof if in your
opinion such Shares are needed to make delivery against sales made to other
Selling Group Members.
Any shares purchased hereunder from you shall be subject to
regular way settlement through the facilities of the Depository Trust Company.
IV.
We understand that you will remit to us, on or shortly after
August [__], 1995 (or, if the Expiration Date is extended, on such later date
not more than 15 days after the Expiration Date as you may determine), following
receipt by you from the Fund, a fee equal to an amount computed by multiplying
(i) [__], by (ii) the sum of (a) the number of Shares purchased pursuant to each
Subscription Certificate upon which we are designated, as certified to you by
the Subscription Agent, as a result of our solicitation efforts in accordance
with Article II of this Agreement, plus (b) the number of Shares sold by you to
us in accordance with Article III of this Agreement (less any Shares resold to
you pursuant to the second paragraph thereof), by (iii) the subscription price
of $[_ _]. Your only obligation with
5
<PAGE> 6
respect to payment of the foregoing fee to us is to remit to us amounts owing to
us and actually received by you from the Fund. Except as aforesaid, you shall be
under no liability to make any payments to us pursuant to this Agreement.
V.
We agree that you, as Dealer Manager, have full authority to
take such action as may seem advisable to you in respect of all matters
pertaining to the Offer. You are authorized to approve on our behalf any
amendments or supplements to the Registration Statement or the Prospectus.
VI.
We represent that we are a member in good standing of the NASD
and, in making sales of Shares, agree to comply with all applicable rules of the
NASD including, without limitation, the NASD's Interpretation with Respect to
Free-Riding and Withholding and Section 24 of Article III of the NASD's Rule of
Fair Practice.
We understand that no action has been taken by you or the Fund
to permit the solicitation of the exercise of Rights or the sale of Shares in
any jurisdiction (other than the United States) where action would be required
for such purpose.
We represent that we have at all times complied with the
provisions of Rule 10b-6 under the Securities Act
6
<PAGE> 7
applicable to the Offer and we agree that we will not, without your approval in
advance, buy, sell, deal or trade in, on a when-issued basis or otherwise, the
Rights or the Shares or any other option to acquire or sell Shares for our own
account or for the accounts of customers, except as provided in Articles II and
III hereof and except that we may buy or sell Rights or Shares in brokerage
transactions on consolidated orders which have not resulted from activities on
our part in connection with the solicitation of the exercise of Rights and which
are executed by us in the ordinary course of our brokerage business.
We will keep an accurate record of the names and addresses of
all persons to whom we give copies of the Registration Statement, the
Prospectus, any preliminary prospectus (or any amendment or supplement thereto)
or any Offering Materials and, when furnished with any subsequent amendment to
the Registration Statement and any subsequent prospectus, we will, upon your
request, promptly forward copies thereof to such persons.
VII.
Nothing contained in this Agreement will constitute the Selling
Group Members partners with the Dealer Manager or with one another or create any
association between those parties, or will render the Dealer Manager or the Fund
liable for the obligations of any Selling Group
7
<PAGE> 8
Member. The Dealer Manager will be under no liability to make any payment to any
Selling Group Member other than as provided in Article IV of this Agreement, and
will be subject to no other liabilities to any Selling Group Member, and no
obligations of any sort will be implied.
We agree to indemnify and hold harmless you and each other
Selling Group Member and each person, if any, who controls you and any such
Selling Group Member within the meaning of either Section 15 of the Securities
Act or Section 20 of the Exchange Act, against loss or liability caused by any
breach by us of the terms of this Agreement.
VIII.
We agree to pay any transfer taxes which may be assessed and
paid on account of any sales or transfers for our account and a percentage,
based upon the ratio of the fees payable to us pursuant to Article IV of this
Agreement to the aggregate fees payable by the Fund to you and all Selling Group
Members pursuant to Article IV of each Selling Group Agreement, of (i) all
expenses incurred by you in investigating or defending against any claim or
proceeding which is asserted or instituted by any party (including any
governmental or regulatory body) other than a Selling Group Member relating to
the Registration Statement, any preliminary prospectus, the Prospectus (or any
amendment or supplement thereto) or any Offering Materials and (ii) any
8
<PAGE> 9
liability, including attorneys' fees, incurred by you in respect of any such
claim or proceeding, whether such liability shall be the result of a judgment or
as a result of any settlement agreed to by you, other than any such expense or
liability as to which you receive indemnity pursuant to Article VII of this
Agreement or indemnity or contribution from the Fund. Our agreements contained
in this Article VIII shall remain operative and in full force and effect
regardless of (i) any investigation made by or on behalf of any Selling Group
Member or any person controlling any Selling Group Member or by or on behalf of
the Fund, its directors or officers or any person controlling the Fund and (ii)
acceptance of and payment for the Shares.
IX.
All communications to you relating to the Offer will be
addressed to the Syndicate Department, Morgan Stanley & Co. Incorporated, 1251
Avenue of the Americas, New York, New York 10020, Attention: Christopher
Zellner.
9
<PAGE> 10
X.
This Agreement will be governed by the internal laws of the
State of New York.
Very truly yours,
_____________________________
[Firm Name]
By___________________________
Name:
Title:
Confirmed and Accepted
this ___ day of _________, 1995
MORGAN STANLEY & CO.
INCORPORATED
By__________________________
10
<PAGE> 1
Exhibit (l)(1)
[Letterhead of Rogers & Wells]
July 19, 1995
Morgan Stanley Emerging Markets Debt Fund, Inc.
1221 Avenue of the Americas
New York, New York 10020
Dear Sirs:
We have acted as counsel for Morgan Stanley Emerging Markets Debt
Fund, Inc., a Maryland corporation (the "Fund"), in connection with the
preparation and filing with the Securities and Exchange Commission under the
Securities Act of 1933, as amended, of a Registration Statement on Form N-2
(Registration Nos. 33-60139 and 811-7694) (the "Registration Statement")
relating to the issuance by the Fund of transferable rights (the "Rights") to
subscribe for up to 5,400,000 shares of Common Stock of the Fund, par value $.01
(the "Shares").
In so acting, we have examined and relied upon originals or copies,
certified or otherwise identified to our satisfaction, of such corporate
records, documents, certificates and other instruments as in our judgment are
necessary or appropriate to enable us to render the opinions expressed below.
Based upon the foregoing, and such examination of law as we have deemed
necessary, we are of the opinion that:
1. The Fund has been duly incorporated and is a validly existing
corporation in good standing under the laws of the State of Maryland.
2. The issuance of the Rights and the sale of the Shares have been
duly authorized; when issued as contemplated in the Registration Statement, the
Rights will be validly issued; and when issued and paid for upon exercise of
the Rights as contemplated in the Registration Statement, the Shares will be
validly issued, fully paid and nonassessable.
<PAGE> 2
Page 2
July 19, 1995
Morgan Stanley Emerging Markets Debt Fund, Inc.
We consent to the filing of this opinion with the Securities and
Exchange Commission as an Exhibit to the Registration Statement and to the
reference to this firm under the heading "Legal Matters" in such Prospectus. In
giving this consent, we do not admit that we are within the category of persons
whose consent is required under Section 7 of the Securities Act of 1933, as
amended, or the Rules and Regulations of the Securities and Exchange Commission
thereunder.
As to certain matters governed by the laws of the State of Maryland,
we have relied on the opinion of Piper & Marbury, a copy of which is attached
hereto.
Very truly yours,
/s/ Rogers & Wells
<PAGE> 1
Exhibit (l)(2)
[Letterhead of Piper & Marbury L.L.P.]
July 19, 1995
Rogers & Wells
200 Park Avenue
New York, New York 10166
Re: Morgan Stanley Emerging Markets Debt Fund, Inc.
Dear Sirs:
We have acted as Maryland counsel to Morgan Stanley Emerging Markets
Debt Fund, Inc., a Maryland corporation (the "Company"), in connection with the
Company's registration statement on Form N-2, including all amendments or
supplements thereto, filed with the Securities and Exchange Commission under the
Securities Act of 1933, as amended (the "Act"), and the Investment Company Act
of 1940, as amended (File Nos. 33-60139 and 811-7694)(the "Registration
Statement"), and the issuance of the rights (the "Rights") to subscribe for
shares of the Company's Common Stock, par value of $.01 per share (the
"Shares") in accordance with the terms of the Registration Statement.
In this capacity, we have examined the Company's charter and by-laws,
the proceedings of the Board of Directors of the Company relating to the
issuance of the Rights and the Shares and such other statutes, certificates,
instruments, documents and matters of law relating to the Company as we have
deemed necessary to the issuance of this opinion. In such examination we have
assumed the genuineness of all signatures, the conformity of final documents in
all material respects to the versions thereof submitted to us in draft form, the
authenticity of all documents submitted to us as originals, and the conformity
with originals of all documents submitted to us as copies.
Based upon the foregoing and limited in all respects to applicable
Maryland law, we are of the opinion and advise you that:
1. The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Maryland.
2. The issuance of the Rights and the sale of the Shares have been
duly authorized; when issued as contemplated in the Registration Statement, the
Rights will be validly issued; and when issued and paid for upon exercise of
the Rights as contemplated in the Registration Statement, the Shares will be
validly issued, fully paid and nonassessable.
You may rely upon this opinion in rendering your opinion to the
Company which is to be filed as an exhibit to the
<PAGE> 2
Rogers & Wells
July 19, 1995
Page 2
Registration Statement. We hereby consent to the filing of this opinion as an
exhibit to the Registration Statement. In giving our consent, we do not
thereby admit that we are in the category of persons whose consent is required
under Section 7 of the Act or the Rules and Regulations of the Commission
thereunder.
Very truly yours,
/s/ Piper & Marbury L.L.P.
<PAGE> 1
Exhibit (m)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Pre-Effective Amendment No. 2 to the registration
statement on Form N-2 (the "Registration Statement") of our report dated
February 17, 1995, relating to the financial statements and financial
highlights appearing in the December 31, 1994 Annual Report to Shareholders of
Morgan Stanley Emerging Markets Debt Fund, Inc., which are also incorporated
by reference into the Registration Statement. We also consent to the references
to us under the headings "Financial Highlights" and "Experts" in the
Prospectus, which constitutes part of this Registration Statement.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
July 18, 1995
