<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 5, 1995
SECURITIES ACT FILE NO. 33-60139
INVESTMENT COMPANY ACT FILE NO. 811-7694
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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. 1 /X/
Post-Effective Amendment No. / /
and/or
Registration Statement Under The Investment Company Act of 1940 /X/
Amendment No. 4 /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>
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- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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)
- --------------------------------------------------------------------------------------------------
Common Stock, $.01 Par Value.... 5,400,000 Shares $12.50 $67,500,000 $23,276
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
</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
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
PROSPECTUS (Subject to Completion)
Dated July 5, 1995
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 , 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 $ . It
is currently estimated that the Subscription Price will represent a discount of
between 15% and 25% to the last reported sale price on the Business Day (as
defined herein) prior to the Record Date.
THE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK TIME, ON AUGUST ,
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 , 1995 was
$12.09 and $ , respectively, and the last reported sale price of a share of
Common Stock on the NYSE on such dates was $12.00 and $ , 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......................................... $ (3) $ $
Total............................................. $ $ $ (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
, 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 % 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 % of the Subscription Price
per Share, subject 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 % 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 $ ,
including up to an aggregate of $ 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> <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................................................................ 26
INVESTMENT RESTRICTIONS........................................................................... 35
MANAGEMENT OF THE FUND............................................................................ 36
EXPENSES.......................................................................................... 43
PORTFOLIO TRANSACTIONS AND BROKERAGE.............................................................. 43
NET ASSET VALUE................................................................................... 44
DIVIDENDS AND DISTRIBUTIONS; DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN......................... 44
TAXATION.......................................................................................... 46
COMMON STOCK...................................................................................... 51
DISTRIBUTION ARRANGEMENTS......................................................................... 53
DIVIDEND PAYING AGENT, TRANSFER AGENT AND REGISTRAR............................................... 54
CUSTODIANS........................................................................................ 54
EXPERTS........................................................................................... 54
LEGAL MATTERS..................................................................................... 54
ADDITIONAL INFORMATION............................................................................ 55
INCORPORATION OF FINANCIAL STATEMENTS BY REFERENCE................................................ 55
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)........................... %
Annual Expenses (as a percentage of net assets):
Management Fees................................................................ 1.00%
Other Expenses(2).............................................................. 1.30%
----
Total Annual Expenses..................................................... 2.30%
====
</TABLE>
EXAMPLE:
<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)............................................... $23 $72 $123 $264
</TABLE>
- ------------------------
(1) The Fund has agreed to pay to the Dealer Manager and each Selling Group
Member fees equal to % 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 % of the Subscription
Price per Share, subject 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 % 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 $ .
(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 2.30%. 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 , 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 , 1995
and ends at 5:00 p.m., New York time, on August , 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
It is currently estimated that the Subscription Price will represent a
discount of between 15% and 25% to the last reported sale price on the Business
Day (as defined below under "-- Sale of Rights") prior to the Record Date. The
Subscription Price per Share is $ . The Subscription Price is
approximately a % discount to the Fund's net asset value per share on July
, 1995 and approximately a % discount to the last reported sale price of a
share of Common Stock on the NYSE on July , 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
4
<PAGE> 7
net asset value for each calendar quarter since July 1993 is summarized under
"Market and Net Asset Value Information."
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 , 1995. Trading of the
Rights on the NYSE will be conducted on a when-issued basis commencing on July
, 1995 and on a regular-way basis from July , 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 % 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 %
of the Subscription Price per Share, subject 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 % 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 $ . 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 , 1995 TO AUGUST , 1995
(UNLESS EXTENDED)
EXPIRATION DATE............................................ AUGUST , 1995 (UNLESS EXTENDED)
NOMINEE HOLDER OVER-SUBSCRIPTION EXERCISE FORM DUE......... AUGUST , 1995
SUBSCRIPTION CERTIFICATES, ACCOMPANIED BY PAYMENT FOR
SHARES, OR NOTICES OF GUARANTEED DELIVERY DUE............ AUGUST , 1995
SUBSCRIPTION CERTIFICATES AND PAYMENT FOR SHARES DUE
PURSUANT TO NOTICE OF GUARANTEED DELIVERY................ AUGUST , 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 $ , after deducting offering expenses payable by
the Fund estimated to be approximately $ . 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, 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 $ exclusive of organization expenses (which were $75,000
and are being amortized over five years) and the expenses of this Offer,
estimated to be $ 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 $ is % below the Fund's net asset value
of $ per share as of July , 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 $ 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 97% 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 Ratings Group of McGraw-Hill Corporation
("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 no borrowings outstanding. 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 Fund's portfolio. See "Risk Factors and Special Considera-
9
<PAGE> 12
tions -- 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 20.1%, 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 NET ASSET VALUE PREMIUM/
MARKET PRICE QUARTERLY (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
</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 , 1995 were
$ , $ and %, respectively.
CAPITALIZATION AT JUNE 30, 1995
<TABLE>
<CAPTION>
AMOUNT OUTSTANDING
EXCLUSIVE OF AMOUNT
AMOUNT AMOUNT HELD BY THE HELD BY THE FUND OR
TITLE OF CLASS AUTHORIZED FUND OR FOR ITS 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, 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 , 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 ,
1995, and ends at 5:00 p.m., New York time, on August , 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 , 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 $ per Share, the Investment Manager would receive
additional annual advisory fees of approximately $ . 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
$ 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
$ , after deducting offering expenses payable by the Fund estimated to be
approximately $ . 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 $ . 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 ,
1995 was $12.09 and $ , respectively, and the last reported sale price of a
share of the Common Stock on the NYSE on those dates was $12.00 and $ ,
respectively. The Subscription Price of $ is approximately a %
discount to the Fund's net asset value per share on July , 1995 and
approximately a % discount to the last reported sale price of a share of
Common Stock on the NYSE on July , 1995.
EXPIRATION OF THE OFFER
The Offer will expire at 5:00 p.m., New York time, on August , 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 $ , 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
15
<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
$ , 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 , 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 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 thereby in the name of the
transferee and to issue a new Subscription Certificate to the transferee
evidencing
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<PAGE> 19
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
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<PAGE> 20
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."
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 $ 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. 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
18
<PAGE> 21
shareholders or Rights Holders for such 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 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:
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<PAGE> 22
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.
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 , 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
20
<PAGE> 23
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 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
$ is % below the Fund's net asset value of $ per share as
of July , 1995, the Fund's net asset value per share would be reduced by
approximately $ 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 97% 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
21
<PAGE> 24
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.
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.
22
<PAGE> 25
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, 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 companies
in emerging countries and substantially all of the income received by the Fund
is in foreign currencies. However, 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. Therefore, 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 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
0.03% of the Fund's total assets was invested in securities denominated in
currencies other than the U.S. dollar, with all such currencies being 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 no borrowings
outstanding.
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 20.1%, 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 0.03% of the Fund's total assets was invested in securities
denominated in currencies other than the U.S. dollar, with all such currencies
being 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 no
borrowings outstanding.
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 above, the Fund may purchase and sell
financial futures contracts, it may purchase and sell (or write) exchange listed
and over-the-counter put and call options on securities, 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.
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. 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, State-
821-C San Mateo ments; Director of twelve investment compa-
Santa Fe, New Mexico 87505 nies 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 68 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;
Member of The International Advisory
Council of Investment Management Company
Chile S.A.; 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; and
Director of Global Securities, Inc.
</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 man-
02108 aged 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. Incorpo-
1221 Avenue of the rated and Morgan Stanley Asset Management
Americas Inc.; Officer of various investment
New York, New York 10020 companies managed by Morgan Stanley Asset
Management Inc.
Harold J. Schaaff, Jr.*... Vice President 34 Principal of Morgan Stanley & Co. Incorpo-
1221 Avenue of the rated; General Counsel and Secretary of
Americas 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 May 31, 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 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
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
45
<PAGE> 48
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 then listed, the next preceding trading day. If net asset value
exceeds the market price of the Common Stock at such time, participants in the
Plan will be deemed to have elected to receive shares of stock from the Fund,
valued at market price on the valuation date. 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
46
<PAGE> 49
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, 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 % 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 $ . 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 % 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.
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 % 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 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 , 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 , 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 X $ = $
Subscription / 3 = .000
------------------- ------------------- --------------------- --------------------
(Rights Exercised) (Full Shares of (Subscription Price) (Amount Required)
Common Stock
Requested)
/ / B. Over-Subscription X $ = $ (*)
Privilege .000
------------------- --------------------- --------------------
(Full Shares of (Subscription Price) (Amount Required)
Common Stock
Requested)
Amount of Check or Money Order Enclosed (total of A + B) = $
-------------------
</TABLE>
Make check payable to the order of "Morgan Stanley Emerging Markets Debt Fund,
Inc."
(*) 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 ( )
- --------------------------------------------------- telephone number -------------------------------
Signature of Subscriber(s)/Seller(s) 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 August , 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 , 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 , 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 , 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
$ 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 , 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
---------------------------- ---------------------------- ----------------------------
<C> <S> <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 neither purchase or write put options
on securities nor purchase call 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.
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 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-2
<PAGE> 68
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> 69
MORGAN STANLEY
EMERGING MARKETS
DEBT FUND, INC.
<PAGE> 70
PART C OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(1) Financial Statements
<TABLE>
<C> <S> <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.
++ To be filed by amendment.
(i)
<PAGE> 71
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...............................
Printing (other than stock certificates)..........................
Fees and expenses of qualification under state securities laws
(including fees of counsel).....................................
Accounting fees and expenses......................................
Legal fees and expenses...........................................
Dealer Manager expense reimbursement..............................
Information Agent's fees and expenses.............................
Subscription Agent's fees and expenses............................
NASD fee..........................................................
Miscellaneous.....................................................
-------
Total................................................... $
=======
</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> 72
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> 73
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> 74
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 5th day of July, 1995.
MORGAN STANLEY EMERGING MARKETS
DEBT FUND, INC.
By /s/ Warren J. Olsen
----------------------------------
Warren J. Olsen
President
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Warren J. Olsen and Harold J. Schaaff, Jr., and
each of them, his true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all Amendments (including pre-effective
and post-effective amendments) to this Registration Statement, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or either of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue thereof.
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>
/s/ Barton M. Biggs Director and Chairman of the Board July 5, 1995
- ----------------------------------------
BARTON M. BIGGS
/s/ Frederick B. Whittemore Director and Vice Chairman July 5, 1995
- ----------------------------------------
FREDERICK B. WHITTEMORE
/s/ Warren J. Olsen Director and President July 5, 1995
- ----------------------------------------
WARREN J. OLSEN
/s/ Peter J. Chase Director July 5, 1995
- ----------------------------------------
PETER J. CHASE
/s/ John W. Croghan Director July 5, 1995
- ----------------------------------------
JOHN W. CROGHAN
/s/ David B. Gill Director July 5, 1995
- ----------------------------------------
DAVID B. GILL
/s/ Graham E. Jones Director July 5, 1995
- ----------------------------------------
GRAHAM E. JONES
/s/ John A. Levin Director July 5, 1995
- ----------------------------------------
JOHN A. LEVIN
/s/ William G. Morton, Jr. Director July 5, 1995
- ----------------------------------------
WILLIAM G. MORTON, JR.
/s/ James R. Rooney Treasurer July 5, 1995
- ---------------------------------------- Principal Financial and
JAMES R. ROONEY Accounting Officer)
</TABLE>
(v)
<PAGE> 75
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.
++ To be filed by amendment.
<PAGE> 1
Exhibit (b)
================================================================================
MORGAN STANLEY EMERGING MARKETS DEBT FUND, INC.
A Maryland corporation
AMENDED AND RESTATED BY-LAWS
June 26, 1995
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1. Place of Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2. Annual Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.3. Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.4. Notice of Meetings of Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.5. Record Dates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.6. Quorum; Adjournment of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.7. Voting and Inspectors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 1.8. Conduct of Stockholders' Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 1.9. Concerning Validity of Proxies, Ballots, etc. . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 1.10. Action Without Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE II BOARD OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.1. Function of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.2. Number of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.3. Classes of Directors; Terms of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.4. Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2.5. Increase or Decrease in Number of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2.6. Place of Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2.7. Regular Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 2.8. Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 2.9. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 2.10. Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 2.11. Executive Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 2.12. Other Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 2.13. Telephone Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 2.14. Action Without a Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 2.15. Compensation of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE III OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.1. Executive Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.2. Term of Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.3. Powers and Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 3.4. Surety Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE IV CAPITAL STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 4.1. Certificates for Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 4.2. Transfer of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 4.3. Stock Ledgers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 4.4. Transfer Agents and Registrars . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 4.5. Lost, Stolen or Destroyed Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
</TABLE>
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TABLE OF CONTENTS
(Continued)
<TABLE>
<S> <C> <C>
ARTICLE V CORPORATE SEAL; LOCATION OF OFFICES; BOOKS;
NET ASSET VALUE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 5.1. Corporate Seal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 5.2. Location of Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 5.3. Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 5.4. Annual Statement of Affairs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 5.5. Net Asset Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE VI FISCAL YEAR AND ACCOUNTANT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 6.1. Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 6.2. Accountant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE VII INDEMNIFICATION AND INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 7.1. General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 7.2. Indemnification of Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 7.3. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE VIII CUSTODIAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE IX AMENDMENT OF BY-LAWS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
</TABLE>
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Exhibit (b)
MORGAN STANLEY EMERGING MARKETS DEBT FUND, INC.
By-Laws
ARTICLE I
Stockholders
Section 1.1. Place of Meeting. All meetings of the stockholders
should be held at the principal office of the Corporation in the State of
Maryland or at such other place within the United States as may from time to
time be designated by the Board of Directors and stated in the notice of such
meeting.
Section 1.2. Annual Meetings. The annual meeting of the
stockholders of the Corporation shall be held during the month of June of each
year on such date and at such hour as may from time to time be designated by the
Board of Directors and stated in the notice of such meeting, for the purpose of
electing directors for the ensuing year and for the transaction of such other
business as may properly be brought before the meeting.
Section 1.3. Special Meetings. Special meetings of the
stockholders for any purpose or purposes may be called by the Chairman of the
Board, the President, or a majority of the Board of Directors. Special meetings
of stockholders shall also be called by the Secretary upon receipt of the
request in writing signed by stockholders holding not less than 25% of the votes
entitled to be cast thereat. Such request shall state the purpose or purposes of
the proposed meeting and the matters proposed to be acted on at such proposed
meeting. The Secretary shall inform such stockholders of the reasonably
estimated costs of preparing and mailing such notice of meeting and upon payment
to the Corporation
<PAGE> 5
of such costs, the Secretary shall give notice as required in this Article to
all stockholders entitled to notice of such meeting. No special meeting of
stockholders need be called upon the request of the holders of common stock
entitled to cast less than a majority of all votes entitled to be cast at such
meeting to consider any matter which is substantially the same as a matter voted
upon at any special meeting of stockholders held during the preceding twelve
months.
Section 1.4. Notice of Meetings of Stockholders. Not less than
ten days' and not more than ninety days' written or printed notice of every
meeting of stockholders, stating the time and place thereof (and the purpose of
any special meeting), shall be given to each stockholder entitled to vote
thereat and to each other stockholder entitled to notice of the meeting by
leaving the same with such stockholder or at such stockholder's residence or
usual place of business or by mailing it, postage prepaid, and addressed to such
stockholder at such stockholder's address as it appears upon the books of the
Corporation. If mailed, notice shall be deemed to be given when deposited in the
mail addressed to the stockholder as aforesaid.
No notice of the time, place or purpose of any meeting of
stockholders need be given to any stockholder who attends in person or by proxy
or to any stockholder who, in writing executed and filed with the records of the
meeting, either before or after the holding thereof, waives such notice.
Section 1.5. Record Dates. The Board of Directors may fix, in
advance, a record date for the determination of
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<PAGE> 6
stockholders entitled to notice of or to vote at any stockholders meeting or to
receive a dividend or be allotted rights or for the purpose of any other proper
determination with respect to stockholders and only stockholders of record on
such date shall be entitled to notice of and to vote at such meeting or to
receive such dividends or rights or otherwise, as the case may be; provided,
however, that such record date shall not be prior to ninety days preceding the
date of any such meeting of stockholders, dividend payment date, date for the
allotment of rights or other such action requiring the determination of a record
date; and further provided that such record date shall not be prior to the close
of business on the day the record date is fixed, that the transfer books shall
not be closed for a period longer than 20 days, and that in the case of a
meeting of stockholders, the record date or the closing of the transfer books
shall not be less than ten days prior to the date fixed for such meeting.
Section 1.6. Quorum; Adjournment of Meetings. The presence in
person or by proxy of stockholders entitled to cast a majority of the votes
entitled to be cast thereat shall constitute a quorum at all meetings of the
stockholders, except as otherwise provided in the Articles of Incorporation. If,
however, such quorum shall not be present or represented at any meeting of the
stockholders, the holders of a majority of the stock present in person or by
proxy shall have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until the requisite amount of stock
entitled to vote at such meeting shall be present, to a date not more than 120
days
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<PAGE> 7
after the original record date. At such adjourned meeting at which the requisite
amount of stock entitled to vote thereat shall be represented, any business may
be transacted which might have been transacted at the meeting as originally
notified.
Any meeting of stockholders, annual or special, may adjourn
from time to time to reconvene at the same or some other place, and notice need
not be given of any such adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken. At the adjourned
meeting the Corporation may transact any business which might have been
transacted at the original meeting.
Section 1.7. Voting and Inspectors. At all meetings,
stockholders of record entitled to vote thereat shall have one vote for each
share of common stock standing in his name on the books of the Corporation (and
such stockholders of record holding fractional shares, if any, shall have
proportionate voting rights) on the date for the determination of stockholders
entitled to vote at such meeting, either in person or by proxy appointed by
instrument in writing subscribed by such stockholder or his duly authorized
attorney.
All elections shall be had and all questions decided by a
majority of the votes cast at a duly constituted meeting, except as otherwise
provided by statute or by the Articles of Incorporation or by these By-Laws.
At any election of Directors, the Chairman of the meeting may,
and upon the request of the holders of ten percent (10%) of the stock entitled
to vote at such election shall, appoint two
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<PAGE> 8
inspectors of election who shall first subscribe an oath or affirmation to
execute faithfully the duties of inspectors at such election with strict
impartiality and according to the best of their ability, and shall after the
election make a certificate of the result of the vote taken. No candidate for
the office of Director shall be appointed such Inspector.
Section 1.8. Conduct of Stockholders' Meetings. The
meetings of the stockholders shall be presided over by the Chairman of the
Board, or if he is not present, by the President, or if he is not present, by a
vice-president, or if none of them is present, by a Chairman to be elected at
the meeting. The Secretary of the Corporation, if present, shall act as a
Secretary of such meetings, or if he is not present, an Assistant Secretary
shall so act; if neither the Secretary nor the Assistant Secretary is present,
then the meeting shall elect its Secretary.
Section 1.9. Concerning Validity of Proxies, Ballots,
etc. At every meeting of the stockholders, all proxies shall be received and
taken in charge of and all ballots shall be received and canvassed by the
Secretary of the meeting, who shall decide all questions touching the
qualification of voters, the validity of the proxies and the acceptance or
rejection of votes, unless inspectors of election shall have been appointed by
the Chairman of the meeting, in which event such inspectors of election shall
decide all such questions. Unless a proxy provides otherwise, it is not valid
for more than eleven months after its date.
Section 1.10. Action Without Meeting. Any action to be taken by
stockholders may be taken without a meeting if (1) all
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<PAGE> 9
stockholders entitled to vote on the matter consent to the action in writing,
(2) all stockholders entitled to notice of the meeting but not entitled to vote
at it sign a written waiver of any right to dissent and (3) said consents and
waivers are filed with the records of the meetings of stockholders. Such consent
shall be treated for all purposes as a vote at the meeting.
ARTICLE II
Board of Directors
Section 2.1. Function of Directors. The business and affairs of
the Corporation shall be conducted and managed under the direction of its Board
of Directors. All powers of the Corporation shall be exercised by or under
authority of the Board of Directors except as conferred on or reserved to the
stockholders by statute.
Section 2.2. Number of Directors. The Board of Directors shall
consist of not more than fourteen Directors nor less than such number of
Directors as may be permitted under Maryland law, as may be determined from time
to time by vote of a majority of the Directors then in office. Directors need
not be stockholders.
Section 2.3. Classes of Directors; Term of Directors. The
Directors shall be divided into three classes, designated Class I, Class II and
Class III. All classes shall be as nearly equal in number as possible. The
Directors as initially classified shall hold office for terms as follows: the
Class I Directors shall hold office until the date of the annual meeting of
stockholders in 1996 or until their successors shall be elected and qualified;
the Class II Directors shall hold office until the date of the annual
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<PAGE> 10
meeting of stockholders in 1997 or until their successors shall be elected and
qualified; and the Class III Directors shall hold office until the date of the
annual meeting of stockholders in 1998 or until their successors shall be
elected and qualified. Upon expiration of the term of office of each class as
set forth above, the Directors in each such class shall be elected for a term of
three years to succeed the Directors whose terms of office expire. Each Director
shall hold office until the expiration of his term and until his successor shall
have been elected and qualified, or until his death, or until he shall have
resigned, or until December 31 of the year in which he shall have reached
seventy-three years of age, or until he shall have been removed as provided by
Statute or the Articles of Incorporation.
Section 2.4. Vacancies. In case of any vacancy in the Board of
Directors through death, resignation or other cause, other than an increase in
the number of Directors, subject to the provisions of law, a majority of the
remaining Directors, although a majority is less than a quorum, by an
affirmative vote, may elect a successor to hold office until the next annual
meeting of stockholders or until his successor is chosen and qualified.
Section 2.5. Increase or Decrease in Number of Directors. The
Board of Directors, by the vote of a majority of the entire Board, may increase
the number of Directors and may elect Directors to fill the vacancies created by
any such increase in the number of Directors until the next annual meeting of
stockholders or until their successors are duly chosen and qualified. The Board
of Directors, by the vote of a majority of
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<PAGE> 11
the entire Board, may likewise decrease the number of Directors to a number not
less than that permitted by law.
Section 2.6. Place of Meeting. The Directors may hold their
meetings within or outside the State of Maryland, at any office or offices of
the Corporation or at any other place as they may from time to time determine.
Section 2.7. Regular Meetings. Regular meetings of the Board of
Directors shall be held at such time and on such notice as the Directors may
from time to time determine.
The annual meeting of the Board of Directors shall be held as
soon as practicable after the annual meeting of the stockholders for the
election of Directors.
Section 2.8. Special Meetings. Special meetings of the Board of
Directors may be held from time to time upon call of the Chairman of the Board,
the President, the Secretary or two or more of the Directors, by oral or
telegraphic or written notice duly served on or sent or mailed to each Director
not less than one day before such meeting.
Section 2.9. Notices. Unless required by statute or otherwise
determined by resolution of the Board of Directors in accordance with these
By-laws, notices to Directors need not be in writing and need not state the
business to be transacted at or the purpose of any meeting, and no notice need
be given to any Director who is present in person or to any Director who, in
writing executed and filed with the records of the meeting either before or
after the holding thereof, waives such notice. Waivers of notice need not state
the purpose or purposes of such meeting.
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<PAGE> 12
Section 2.10. Quorum. One-third of the Directors then in office
shall constitute a quorum for the transaction of business, provided that if
there is more than one Director, a quorum shall in no case be less than two
Directors. If at any meeting of the Board there shall be less than a quorum
present, a majority of those present may adjourn the meeting from time to time
until a quorum shall have been obtained. The act of the majority of the
Directors present at any meeting at which there is a quorum shall be the act of
the Directors, except as may be otherwise specifically provided by statute or by
the Articles of Incorporation or by these By-Laws.
Section 2.11. Executive Committee. The Board of Directors may
appoint from the Directors an Executive Committee to consist of such number of
Directors (not less than two) as the Board may from time to time determine. The
Chairman of the Committee shall be elected by the Board of Directors. The Board
of Directors shall have power at any time to change the members of such
Committee and may fill vacancies in the Committee by election from the
Directors. When the Board of Directors is not in session, to the extent
permitted by law, the Executive Committee shall have and may exercise any or all
of the powers of the Board of Directors in the management and conduct of the
business and affairs of the Corporation. The Executive Committee may fix its own
rules of procedure, and may meet when and as provided by such rules or by
resolution of the Board of Directors, but in every case the presence of a
majority shall be necessary to constitute a quorum. During the absence of a
member of the Executive Committee, the
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<PAGE> 13
remaining members may appoint a member of the Board of Directors to act in his
place.
Section 2.12. Other Committees. The Board of Directors may
appoint from the Directors other committees which shall in each case consist of
such number of Directors (not less than two) and shall have and may exercise
such powers as the Board may determine in the resolution appointing them. A
majority of all the members of any such committee may determine its action and
fix the time and place of its meetings, unless the Board of Directors shall
otherwise provide. The Board of Directors shall have power at any time to change
the members and powers of any such committee, to fill vacancies and to discharge
any such committee.
Section 2.13. Telephone Meetings. Members of the Board of
Directors or a committee of the Board of Directors may participate in a meeting
by means of a conference telephone or similar communications equipment if all
persons participating in the meeting can hear each other at the same time.
Participation in a meeting by these means, subject to the provisions of the
Investment Company Act of 1940, as amended, constitutes presence in person at
the meeting.
Section 2.14. Action Without a Meeting. Any action required or
permitted to be taken at any meeting of the Board of Directors or any committee
thereof may be taken without a meeting, if a written consent to such action is
signed by all members of the Board or of such committee, as the case may be, and
such written consent is filed with the minutes of the proceedings of the Board
or such committee.
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<PAGE> 14
Section 2.15. Compensation of Directors. No Director shall
receive any stated salary or fees from the Corporation for his services as such
if such Director is, otherwise than by reason of being such Director, an
interested person (as such term is defined by the Investment Company Act of
1940, as amended) of the Corporation or of its investment manager or principal
underwriter. Except as provided in the preceding sentence, Directors shall be
entitled to receive such compensation from the Corporation for their services as
may from time to time be voted by the Board of Directors.
ARTICLE III
Officers
Section 3.1. Executive Officers. The executive officers of the
Corporation shall be chosen by the Board of Directors. These may include a
Chairman of the Board of Directors (who shall be a Director) and shall include a
President, a Secretary and a Treasurer. The Board of Directors or the Executive
Committee may also in its discretion appoint one or more Vice-Presidents,
Assistant Secretaries, Assistant Treasurers and other officers, agents and
employees, who shall have such authority and perform such duties as the Board of
Directors or the Executive Committee may determine. The Board of Directors may
fill any vacancy which may occur in any office. Any two offices, except those of
President and Vice-President, may be held by the same person, but no officer
shall execute, acknowledge or verify any instrument in more than one capacity,
if such instrument is required by law or
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<PAGE> 15
these By-Laws to be executed, acknowledged or verified by two or more officers.
Section 3.2. Term of Office. The term of office of all officers
shall be one year and until their respective successors are chosen and
qualified. Any officer may be removed from office at any time with or without
cause by the vote of a majority of the whole Board of Directors. Any officer may
resign his office at any time by delivering a written resignation to the
Corporation and, unless otherwise specified therein, such resignation shall take
effect upon delivery.
Section 3.3. Powers and Duties. The officers of the Corporation
shall have such powers and duties as shall be stated in a resolution of the
Board of Directors, or the Executive Committee and, to the extent not so stated,
as generally pertain to their respective offices, subject to the control of the
Board of Directors and the Executive Committee.
Section 3.4. Surety Bonds. The Board of Directors may require
any officer or agent of the Corporation to execute a bond (including, without
limitation, any bond required by the Investment Company Act of 1940, as amended,
and the rules and regulations of the Securities and Exchange Commission) to the
Corporation in such sum and with such surety or sureties as the Board of
Directors may determine, conditioned upon the faithful performance of his duties
to the Corporation, including responsibility for negligence and for the
accounting of any of the Corporation's property, funds or securities that may
come into his hands.
ARTICLE IV
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Capital Stock
Section 4.1. Certificates for Shares. Each stockholder of the
Corporation shall be entitled to a certificate or certificates for the full
number of shares of stock of the Corporation owned by him in such form as the
Board may from time to time prescribe.
Section 4.2. Transfer of Shares. Shares of the Corporation
shall be transferable on the books of the Corporation by the holder thereof in
person or by his duly authorized attorney or legal representative, upon
surrender and cancellation of certificates, if any, for the same number of
shares, duly endorsed or accompanied by proper instruments of assignment and
transfer, with such proof of the authenticity of the signature as the
Corporation or its agents may reasonably require; in the case of shares not
represented by certificates, the same or similar requirements may be imposed by
the Board of Directors.
Section 4.3. Stock Ledgers. The stock ledgers of the
Corporation, containing the names and addresses of the stockholders and the
number of shares held by them respectively, shall be kept at the principal
offices of the Corporation or, if the Corporation employs a Transfer Agent, at
the offices of the Transfer Agent of the Corporation.
Section 4.4. Transfer Agents and Registrars. The Board of
Directors may from time to time appoint or remove transfer agents and/or
registrars of transfers of shares of stock of the Corporation, and it may
appoint the same person as both transfer agent and registrar. Upon any such
appointment being made, all
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certificates representing shares of capital stock thereafter issued shall be
countersigned by one of such transfer agents or by one of such registrars of
transfers or by both and shall not be valid unless so countersigned. If the same
person shall be both transfer agent and registrar, only one countersignature by
such person shall be required.
Section 4.5. Lost, Stolen or Destroyed Certificates. The Board
of Directors or the Executive Committee or any officer or agent authorized by
the Board of Directors or Executive Committee may determine the conditions upon
which a new certificate of stock of the Corporation of any class may be issued
in place of a certificate which is alleged to have been lost, stolen or
destroyed; and may, in its discretion, require the owner of such certificate or
such owner's legal representative to give bond, with sufficient surety, to the
Corporation and each Transfer Agent, if any, to indemnify it and each such
Transfer Agent against any and all loss or claims which may arise by reason of
the issue of a new certificate in the place of the one so lost, stolen or
destroyed.
ARTICLE V
Corporate Seal; Location of
Offices; Books; Net Asset Value
Section 5.1. Corporate Seal. The Board of Directors may provide
for a suitable corporate seal, in such form and bearing such inscriptions as it
may determine. Any officer or director shall have the authority to affix the
corporate seal. If the Corporation is required to place its corporate seal to a
document, it shall be sufficient to place the word "(seal)" adjacent to the
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signature of the authorized officer of the Corporation signing the document.
Section 5.2. Location of Offices. The Corporation shall have a
principal office in the State of Maryland. The Corporation may, in addition,
establish and maintain such other offices as the Board of Directors or any
officer may, from time to time, determine.
Section 5.3. Books and Records. The books and records of the
Corporation shall be kept at the places, within or without the State of
Maryland, as the directors or any officer may determine; provided, however, that
the original or a certified copy of the by-laws, including any amendments to
them, shall be kept at the Corporation's principal executive office.
Section 5.4. Annual Statement of Affairs. The President or any
other executive officer of the Corporation shall prepare annually a full and
correct statement of the affairs of the Corporation, to include a balance sheet
and a financial statement of operations for the preceding fiscal year. The
statement of affairs should be submitted at the annual meeting of stockholders
and, within 20 days of the meeting, placed on file at the Corporation's
principal office.
Section 5.5. Net Asset Value. The value of the Corporation's
net assets shall be determined at such times and by such method as shall be
established from time to time by the Board of Directors.
ARTICLE VI
Fiscal Year and Accountant
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Section 6.1. Fiscal Year. The fiscal year of the Corporation,
unless otherwise fixed by resolution of the Board of Directors, shall begin on
the first day of January and shall end on the last day of December in each year.
Section 6.2. Accountant. The Corporation shall employ an
independent public accountant or a firm of independent public accountants as its
Accountant to examine the accounts of the Corporation and to sign and certify
financial statements filed by the Corporation. The employment of the Accountant
shall be conditioned upon the right of the Corporation to terminate the
employment forthwith without any penalty by vote of a majority of the
outstanding voting securities at any stockholders' meeting called for that
purpose.
ARTICLE VII
Indemnification and Insurance
Section 7.1. General. The Corporation shall indemnify
directors, officers, employees and agents of the Corporation against judgments,
fines, settlements and expenses to the fullest extent authorized and in the
manner permitted, by applicable federal and state law.
Section 7.2. Indemnification of Directors and Officers. The
Corporation shall indemnify to the fullest extent permitted by law (including
the Investment Company Act of 1940, as amended) as currently in effect or as the
same may hereafter be amended, any person made or threatened to be made a party
to any action, suit or proceeding, whether criminal, civil, administrative or
investigative, by reason of the fact that such person or such
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person's testator or intestate is or was a director or officer of the
Corporation or serves or served at the request of the Corporation any other
enterprise as a director or officer. To the fullest extent permitted by law
(including the Investment Company Act of 1940, as amended) as currently in
effect or as the same may hereafter be amended, expenses incurred by any such
person in defending any such action, suit or proceeding shall be paid or
reimbursed by the Corporation promptly upon receipt by it of an undertaking of
such person to repay such expenses if it shall ultimately be determined that
such person is not entitled to be indemnified by the Corporation. The rights
provided to any person by this Article VII shall be enforceable against the
Corporation by such person who shall be presumed to have relied upon it in
serving or continuing to serve as a director or officer as provided above. No
amendment of this Article VII shall impair the rights of any person arising at
any time with respect to events occurring prior to such amendment. For purposes
of this Article VII, the term "Corporation" shall include any predecessor of the
Corporation and any constituent corporation (including any constituent of a
constituent) absorbed by the Corporation in a consolidation or merger; the term
"other enterprises" shall include any corporation, partnership, joint venture,
trust or employee benefit plan; service "at the request of the Corporation"
shall include service as a director or officer of the Corporation which imposes
duties on, or involves services by, such director or officer with respect to an
employee benefit plan, its participants or beneficiaries; any excise taxes
assessed on a person with respect to an employee
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benefit plan shall be deemed to be indemnifiable expenses; and action by a
person with respect to any employee benefit plan which such person reasonably
believes to be in the interest of the participants and beneficiaries of such
plan shall be deemed to be action not opposed to the best interests of the
Corporation.
Section 7.3. Insurance. Subject to the provisions of the
Investment Company Act of 1940, as amended, the Corporation, directly, through
third parties or through affiliates of the Corporation, may purchase, or provide
through a trust fund, letter of credit or surety bond insurance on behalf of any
person who is or was a Director, officer, employee or agent of the Corporation,
or who, while a Director, officer, employee or agent of the Corporation, is or
was serving at the request of the Corporation as a Director, officer, employee,
partner, trustee or agent of another foreign or domestic corporation,
partnership joint venture, trust or other enterprise against any liability
asserted against and incurred by such person in any such capacity or arising out
of such person's position, whether or not the Corporation would have the power
to indemnify such person against such liability.
ARTICLE VIII
Custodian
The Corporation shall have as custodian or custodians one or
more trust companies or banks of good standing, foreign or domestic, as may be
designated by the Board of Directors, subject to the provisions of the
Investment Company Act of 1940, as amended, and other applicable laws and
regulations; and the funds and securities held by the Corporation shall be kept
in the custody
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of one or more such custodians, provided such custodian or custodians can be
found ready and willing to act, and further provided that the Corporation and/or
the Custodians may employ such subcustodians as the Board of Directors may
approve and as shall be permitted by law.
ARTICLE IX
Amendment of By-Laws
The By-Laws of the Corporation may be altered, amended, added
to or repealed only by majority vote of the entire Board of Directors.
19
<PAGE> 1
Exhibit (e)
MORGAN STANLEY EMERGING MARKETS DEBT FUND, INC.
AMENDED AND RESTATED
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
TERMS AND CONDITIONS
1. Each shareholder ("Shareholder") holding shares of common
stock of Morgan Stanley Emerging Markets Debt Fund, Inc. (the "Fund") may elect,
by written instruction to The First National Bank of Boston (the "Plan Agent"),
to be a participant in the Fund's Amended and Restated Dividend Reinvestment and
Cash Purchase Plan (the "Plan"), and to have all distributions automatically
reinvested by the Plan Agent in Fund shares pursuant to the Plan. A Shareholder
who does not wish to participate in the Plan will receive all distributions in
cash, net of any applicable U.S. withholding tax, and will be paid by check in
U.S. dollars mailed directly to such Shareholder by The First National Bank of
Boston, as dividend disbursing agent. The Plan Agent will act as agent for
individual Shareholders in administering the Plan and will open an account for
each Shareholder under the Plan in the same name as her or his shares of common
stock are registered.
2. Whenever the directors of the Fund declare an income
dividend or capital gains distribution payable either in shares of common stock
or cash, non-participating Shareholders will receive cash, and participating
Shareholders will take such dividend or distribution entirely in shares of
common stock to be issued by the Fund or to be purchased on the open market by
the Plan Agent, and the Plan Agent shall automatically receive such shares of
common stock, including fractions, for the Shareholder's account.
<PAGE> 2
Whenever the market price per share of common stock equals or exceeds the net
asset value per share at the time the shares of common stock are valued for the
purpose of determining the number of shares of common stock equivalent to the
dividend or distribution (the "Valuation Date"), participants will be issued
shares of common stock by the Fund valued at net asset value or, if the net
asset value is less than 95% of the market price on the Valuation Date, then
participants will be issued shares valued at 95% of the market price. If net
asset value per share on the Valuation Date exceeds the market price per share
on that date, the Plan Agent, as agent for the participants, will buy shares of
the Fund's common stock on the open market, on the New York Stock Exchange or
elsewhere in the United States, for the participants' accounts. If, before the
Plan Agent has completed such purchases, the market price exceeds the net asset
value per share, the average per share purchase price paid by the Plan Agent may
exceed the net asset value per share, resulting in the acquisition of fewer
shares than if the dividend or distribution had been paid in shares issued by
the Fund at net asset value. Additionally, if the market price exceeds the net
asset value per share before the Plan Agent has completed its purchases, the
Plan Agent is permitted to cease purchasing shares and the Fund may issue the
remaining shares at a price equal to the greater of (a) net asset value or (b)
95% of the then current market price. In a case where the Plan Agent has
terminated open market purchases and the Fund has issued the remaining shares,
the number of shares received by each participant in respect of the dividend or
distribution will be based on the
2
<PAGE> 3
weighted average of prices paid for shares purchased in the open market and the
price at which the Fund issues the remaining shares. The Valuation Date shall be
the dividend or distribution payment date or, if that date is not a New York
Stock Exchange trading day, the next preceding trading day.
3. Whenever the directors of the Fund declare an income
dividend or capital gains distribution payable only in cash, the Plan Agent, as
agent for the participants, will buy shares of the Fund's common stock on the
open market, on the New York Stock Exchange or elsewhere in the United States,
with the cash in respect of such dividend or distribution for the participants'
accounts, on, or shortly after, the payment date. To the extent the market price
exceeds the net asset value of the common stock when the Plan Agent makes such
purchases, participants may receive fewer shares of common stock than if the
dividend or distribution had been payable in common stock issued by the Fund.
4. Participants in the Plan have the option of making
additional cash payments to the Plan Agent, quarterly, in any amount from $100
to $3,000, for investment in shares of common stock of the Fund. The Plan Agent
will use all funds received from participants (as well as any dividends or
distributions received in cash) to purchase shares of common stock on the open
market, on or about the payment dates for each quarterly dividend or
distribution (which are expected to be approximately January 15, April 15, July
15 and October 15 of each year). Any voluntary cash payments received more than
30 days prior to such date will be returned by the Plan Agent, and interest will
not be paid on any such amounts.
3
<PAGE> 4
To avoid unnecessary cash accumulations, and also to allow ample time for
receipt and processing by the Plan Agent, participants should 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 48 hours before the payment is to be invested. All voluntary
cash payments should be made by check drawn on a U.S. bank (or a non-U.S. bank,
if the U.S. currency is imprinted on the check) payable in U.S. dollars, and
should be mailed to the Plan Agent, along with a properly executed cash
remittance form (copies of which will be provided by the Plan Agent to
participants), at The First National Bank of Boston, Dividend Reinvestment Unit,
Mail Stop 45-01-06, P.O. Box 1681, Boston, Massachusetts 02105-1681. If any
check is returned unpaid for any reason, the Plan Agent will be entitled to sell
any number of shares from the participant's account required to recoup any funds
expended to purchase shares for such participant's account.
5. The Plan Agent will apply all cash received as a dividend
or distribution or as a voluntary cash payment to purchase shares of common
stock on the open market as soon as practicable after the payment date of the
dividend or distribution, but in no event later than 30 days after such payment
date, except where necessary to comply with applicable provisions of the federal
securities laws. No participant will have any authority to direct the time or
price at which the Plan Agent may purchase shares of the Fund's common stock on
such participant's behalf.
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<PAGE> 5
6. For all purposes of the Plan: (a) the market price of
shares of common stock of the Fund on a particular date shall be the last sales
price on the New York Stock Exchange at the close of the previous trading day
or, if there is no sale on the New York Stock Exchange on that date, then the
mean between the closing bid and asked quotations for such stock on the New York
Stock Exchange on such date, (b) each Valuation Date shall be the dividend or
distribution payment date or, if that date is not a New York Stock Exchange
trading day, the next preceding trading day, and (c) the net asset value per
share of common stock on a particular date shall be as determined by or on
behalf of the Fund.
7. The open-market purchases provided for above may be made on
any securities exchange in the United States where the shares of common stock of
the Fund are traded, in the over-the-counter market or in negotiated
transactions, and may be on such terms as to price, delivery and otherwise as
the Plan Agent shall determine. Funds held by the Plan Agent will not bear
interest. In addition, it is understood that the Plan Agent shall have no
liability (other than as provided in paragraph 15 hereof) in connection with any
inability to purchase shares of common stock within 30 days after the payment
date of any dividend or distribution as herein provided or with the timing of
any purchases effected. The Plan Agent shall have no responsibility as to the
value of the shares of common stock of the Fund acquired for any Shareholder's
account.
8. The Plan Agent will hold shares of common stock acquired
pursuant to the Plan in non-certificated form in the name
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<PAGE> 6
of the Shareholder for whom such shares are being held and each Shareholder's
proxy will include those shares of common stock held pursuant to the Plan. The
Plan Agent will forward to each Shareholder participating in the Plan any proxy
solicitation material received by it. In the case of Shareholders, such as
banks, brokers or nominees, that 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 such Shareholders as representing the
total amount registered in the names of such Shareholders and held for the
account of beneficial owners who participate in the Plan. Upon a Shareholder's
written request, the Plan Agent will deliver to her or him, without charge and
within ten days, a certificate or certificates representing all full shares of
common stock held by the Plan Agent pursuant to the Plan for the benefit of such
Shareholder.
9. The Plan Agent will confirm, in writing, each acquisition
made for the account of a Shareholder as soon as practicable, but in any event
not later than 60 days after the date thereof. Such confirmation will indicate
the number of shares purchased and the price per share paid, and will include
any applicable tax information pertaining to such Shareholder's account. It is
understood that the reinvestment of dividends and distributions does not relieve
the participant of any income tax which may be payable on such dividends. Any
Shareholder who is subject to U.S. backup withholding tax, or who is a foreign
Shareholder subject to U.S. income tax withholding, will have the applicable tax
withheld from all dividends and distributions
6
<PAGE> 7
received and only the net amount will be reinvested in shares of the Fund's
common stock. Although a Shareholder may from time to time have an undivided
fractional interest (computed to three decimal places) in a share of common
stock of the Fund, no certificates for fractional shares will be issued.
However, distributions and dividends on fractional shares of common stock will
be credited to each Shareholder's account. In the event of termination of a
Shareholder's account under the Plan, the Plan Agent will adjust for any such
undivided fractional interest in cash at the current market value of the shares
of common stock at the time of termination.
10. Any stock dividends or split shares distributed by the
Fund on shares of common stock held by the Plan Agent for a Shareholder will be
credited to the Shareholder's account. In the event that the Fund makes
available to Shareholders rights to purchase additional shares of common stock
or other securities, the Plan Agent will forward to each Shareholder
participating in the Plan any materials received by it relating to such rights.
11. Shareholders 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 distributions. A Shareholder
will also pay brokerage commissions incurred in connection with purchases from
voluntary cash payments made by the Shareholder. 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
7
<PAGE> 8
stock for all participants in large blocks and prorating the lower
commission thus attainable.
12. A Shareholder may terminate her or his participation in
the Plan by notifying the Plan Agent. Such notifications should be made in
writing on a properly executed withdrawal/termination form (copies of which will
be provided by the Plan Agent to participants) mailed to the Plan Agent at The
First National Bank of Boston, Dividend Reinvestment Unit, Mail Stop 45-01-06,
P.O. Box 1681, Boston, Massachusetts 02105-1681. Such termination will be
effective immediately if notice is received by the Plan Agent prior to any
dividend or distribution record date; otherwise such termination will be
effective, with respect to any subsequent dividend or distribution, on the first
trading day after the dividend or distribution paid for such record date shall
have been credited to such Shareholder's account. The Plan may be terminated by
the Plan Agent or the Fund with respect to any voluntary cash payments made or
any dividends or distributions paid subsequent to the notice of termination in
writing mailed to the Shareholders at least 90 days prior to the quarterly
contribution date, in the case of voluntary cash payments, or the record date
for the payment of any dividend or distribution by the Fund. Upon any
termination, the Plan Agent will cause a certificate or certificates for the
full shares held for a Shareholder under the Plan, and cash adjustment for any
fractional shares to be delivered to her or him or, upon the request of such
Shareholder, will sell all of the shares held for the Shareholder under the
Plan, within ten days of receiving the Shareholder's instructions, and will
deliver the
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<PAGE> 9
proceeds less any brokerage commissions and transfer taxes to the Shareholder.
13. If any Shareholder has withdrawn shares from the Plan, or
acquires shares which have been withdrawn from the Plan, and wishes to have such
shares held through and subject to the Plan, such Shareholder may resubmit such
shares by notifying the Plan Agent at The First National Bank of Boston,
Dividend Reinvestment Unit, Mail Stop 45-01-06, P.O. Box 1681, Boston,
Massachusetts 02105-1681.
14. These terms and conditions may be amended or supplemented
by the Plan Agent or the Fund at any time or times but, except when necessary or
appropriate to comply with applicable law or the rules or policies of the
Securities and Exchange Commission or any other regulatory authority, only by
mailing to the Shareholders appropriate written notice at least 90 days prior to
the effective date thereof. The amendment or supplement shall be deemed to be
accepted by the Shareholders unless, prior to the effective date thereof, the
Plan Agent receives written notice of the termination of a Shareholder's account
under the Plan. Any such amendment may include an appointment by the Plan Agent
in its place and stead of a successor Plan Agent under these terms and
conditions, with full power and authority to perform all or any of the acts to
be performed by the Plan Agent under these terms and conditions. Upon any such
appointment of a successor Plan Agent for the purpose of receiving dividends and
distributions, the Fund will be authorized to pay to such successor Plan Agent,
for the Shareholders' accounts, all dividends and distributions payable on
9
<PAGE> 10
the shares of common stock held in the Shareholders' name or under the Plan for
retention or application by such successor Plan Agent as provided in these terms
and conditions.
15. The Plan Agent shall at all times act in good faith and
agree to use its best efforts within reasonable limits to ensure the accuracy of
all services performed under this Plan and to comply with applicable law, but
assumes no responsibility and shall not be liable for loss or damage due to
errors unless such error is caused by its negligence, bad faith or willful
misconduct or that of its employees.
10
<PAGE> 1
Exhibit (g)
INVESTMENT ADVISORY AND
MANAGEMENT AGREEMENT
Agreement, dated as of July 16, 1993, between MORGAN STANLEY
EMERGING MARKETS DEBT FUND, INC., a Maryland corporation (the "Fund"), and
MORGAN STANLEY ASSET MANAGEMENT INC., a Delaware corporation (the "Investment
Manager").
WHEREAS, the Fund is a closed-end, non-diversified management
investment company registered under the U.S. Investment Company Act of 1940,
as amended (the "1940 Act"), shares of common stock of which are registered
under the Securities Act of 1933, as amended; and
WHEREAS, the Fund's primary investment objective is to seek
high current income. As a secondary objective, the Fund will seek capital
appreciation. In seeking to achieve these objectives, the Fund will invest
primarily in debt securities of government and government-related issuers
located in emerging countries (including participations in loans between
governments and financial institutions), and 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 (the Fund's investment
objectives are more fully described in the Prospectus dated the date hereof
(the "Prospectus") contained in the Fund's Registration Statement on Form N-2
(File Nos. 33-62256 and 811-7694) (the "Registration Statement")); and
WHEREAS, the Fund desires to retain the Investment Manager to
render investment management services with respect to its assets and the
Investment Manager is willing to render such services.
NOW, THEREFORE, in consideration of the mutual covenants
hereafter contained, it is hereby agreed by and between the parties hereto as
follows:
1. Appointment of Investment Manager. (a) The Fund
hereby employs the Investment Manager for the period and on the terms and
conditions set forth herein, subject at all times to the supervision of the
Board of Directors of the Fund, to:
(i) Make all investment decisions for
the assets of the Fund and to manage the investment and reinvestment
of those assets in accordance with the investment objectives and
policies of the Fund, as set forth in the Fund's Prospectus, and
subject always to the restrictions of the Fund's Articles of
Incorporation and By-Laws, as amended
<PAGE> 2
or restated from time to time, the provisions of the 1940 Act and the
Fund's investment objectives and policies and investment restrictions,
as the same are set forth in the Fund's Prospectus. Should the Board
of Directors of the Fund at any time make any definite determination
as to investment policy and notify the Investment Manager thereof, the
Investment Manager shall be bound by such determination for the
period, if any, specified in such notice or until similarly notified
that such determination has been revoked. The Investment Manager
shall take, on behalf of the Fund, all actions which it deems
necessary to implement the investment policies of the Fund and to
place all orders for the purchase or sale of portfolio securities for
the Fund with brokers or dealers selected by it, and in connection
therewith, the Investment Manager is authorized as agent of the Fund
to give instructions to the custodians from time to time of the Fund's
assets as to deliveries of securities and payments of cash for the
account of the Fund. In connection with the selection of such brokers
or dealers and the placing of such orders, the Investment Manager is
directed at all times to seek to obtain for the Fund the most
favorable net results as determined by the Board of Directors of the
Fund. Subject to this requirement and the provisions of the 1940 Act,
the U.S. Securities Exchange Act of 1934, as amended, and any other
applicable provisions of law, nothing shall prohibit the Investment
Manager from selecting brokers or dealers with which it or the Fund is
affiliated or which provide the Investment Manager with investment
research services as described in the Fund's Prospectus;
(ii) Prepare and make available to the
Fund research and statistical data in connection therewith; and
(iii) Maintain or cause to be maintained
for the Fund all books and records required under the 1940 Act, to the
extent that such books and records are not maintained or furnished by
administrators, custodians or other agents of the Fund.
(b) The Investment Manager accepts such employment and
agrees during the term of this Agreement to render such services, to permit any
of its directors, officers or employees to serve without compensation as
directors or officers of the Fund if elected to such positions, and to assume
the obligations set forth herein for the compensation herein provided. The
Investment Manager shall for all purposes herein provided be deemed to be an
independent contractor and, unless otherwise expressly provided or authorized,
shall have no authority to act for or represent the Fund in any way or
otherwise be deemed an agent of the Fund.
2. Compensation. For the services and facilities
described in Section 1, the Fund agrees to pay in United States dollars to the
Investment Manager, a fee, computed weekly and
2
<PAGE> 3
payable monthly, at an annual rate of 1.00% of the Fund's average weekly net
assets. For the month and year in which this Agreement becomes effective or
terminates, there shall be an appropriate proration on the basis of the number
of days that this Agreement is in effect during such month and year,
respectively.
3. Investment in Fund Stock. The Investment Manager
agrees that it will not make a short sale of any capital stock of the Fund, or
purchase any share of the capital stock of the Fund other than for investment.
4. Non-Exclusivity of Services. Nothing herein shall be
construed as prohibiting the Investment Manager from providing investment
advisory services to, or entering into investment advisory agreements with, any
other clients (including other registered investment companies), including
clients which may invest in emerging country debt securities, so long as the
Investment Manager's services to the Fund are not impaired thereby.
5. Standard of Care; Indemnification. The Investment
Manager may rely on information reasonably believed by it to be accurate and
reliable. Neither the Investment Manager nor its officers, directors,
employees, agents or controlling persons (as defined in the 1940 Act) shall be
subject to any liability for any act or omission, error of judgment or mistake
of law, or for any loss suffered by the Fund, in the course of, connected with
or arising out of any services to be rendered hereunder, except by reason of
willful misfeasance, bad faith or gross negligence on the part of the
Investment Manager in the performance of its duties or by reason of reckless
disregard on the part of the Investment Manager of its obligations and duties
under this Agreement. Any person, even though also employed by the Investment
Manager, who may be or become an employee of the Fund shall be deemed, when
acting within the scope of his employment by the Fund, to be acting in such
employment solely for the Fund and not as an employee or agent of the
Investment Manager.
The Fund agrees to indemnify and hold harmless the Investment
Manager, its officers, directors, employees, agents, shareholders, controlling
persons or other affiliates (each an "Indemnified Party"), for any losses,
costs and expenses incurred or suffered by any Indemnified Party arising from
any action, proceeding or claims which may be brought against such Indemnified
Party in connection with the performance or non-performance in good faith of
its functions under this Agreement, except losses, costs and expenses resulting
from willful misfeasance, bad faith or gross negligence in the performance of
such Indemnified Party's duties or from reckless disregard on the part of such
Indemnified Party of such Indemnified Party's obligations and duties under this
Agreement.
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<PAGE> 4
6. Allocation of Charges and Expenses. (a) The
Investment Manager shall assume and pay for maintaining its staff and
personnel, and shall, at its own expense, provide the equipment, office space
and facilities necessary to perform its obligations hereunder. The Investment
Manager shall pay the salaries and expenses of such of the Fund's officers and
employees and any fees and expenses of such of the Fund's directors who are
directors, officers or employees of the Investment Manager or any of its
affiliates, provided, however, that the Fund, and not the Investment Manager,
shall bear travel expenses or an appropriate fraction thereof of directors and
officers of the Fund who are directors, officers or employees of the Investment
Manager to the extent that such expenses relate to attendance at meetings of
the Board of Directors of the Fund or any committees thereof.
(b) In addition to the fee of the Investment
Manager, the Fund shall assume and pay the following expenses: 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; New York Stock Exchange listing fees;
dues and expenses incurred in connection with membership in investment company
organizations; fees and expenses of the Fund's custodians, sub-custodians,
transfer agents and registrars; fees and expenses with respect to
administration, except as may be herein expressly provided otherwise; 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 or other costs of acquiring or disposing of any portfolio
holding of the Fund; expenses of preparation and distribution of reports,
notices and dividends to stockholders; expenses of the dividend reinvestment
and cash purchase plan; costs of stationery; any litigation expenses; and costs
of stockholders' and other meetings.
7. Potential Conflicts of Interest. (a) Subject to
applicable statutes and regulations, it is understood that directors, officers
or agents of the Fund are or may be interested in the Investment Manager as
directors, officers, employees, agents, shareholders or otherwise, and that the
directors, officers, employees, agents or shareholders of the Investment
Manager may be interested in the Fund as a director, officer, agent or
otherwise.
(b) If the Investment Manager considers the
purchase or sale of securities for the Fund and other advisory clients of the
Investment Manager at or about the same time, transactions in such securities
will be made for the Fund and such other clients in a manner equitable to the
Fund and such other
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<PAGE> 5
clients or, insofar as feasible, in accordance with guidelines which may be
adopted by the Board of Directors of the Fund.
8. Duration and Termination. (a) This Agreement shall
become effective for a period of two years from the date the Fund's
Registration Statement is declared effective by the U.S. Securities and
Exchange Commission, and will continue in effect from year to year thereafter,
provided that such continuance is specifically approved at least annually by
(i) a vote of a majority of the members of the Fund's Board of Directors who
are neither parties to this Agreement nor interested persons of the Fund or of
the Investment Manager or of any entity regularly furnishing investment
advisory services with respect to the Fund pursuant to an agreement with the
Investment Manager, cast in person at a meeting called for the purpose of
voting on such approval, and (ii) by vote of a majority of either the Fund's
Board of Directors or the Fund's outstanding voting securities.
(b) This Agreement may nevertheless be terminated
at any time without payment of penalty by the Fund or by the Investment Manager
upon 60 days' written notice. This Agreement shall automatically be terminated
in the event of its assignment, provided, however, that a transaction which
does not, in accordance with the 1940 Act, result in a change of actual control
or management of the Investment Manager's business shall not be deemed to be an
assignment for the purposes of this Agreement.
(c) Termination of this Agreement shall not (i)
affect the right of the Investment Manager to receive payments of any unpaid
balance of the compensation described in Section 2 earned prior to such
termination, or (ii) extinguish the Investment Manager's right of
indemnification under Section 5.
As used herein, the terms "interested person," "assignment,"
and "vote of a majority of the outstanding voting securities" shall have the
meanings set forth in the 1940 Act.
9. Amendment. This Agreement may be amended by mutual
agreement, but only after authorization of such amendment by the affirmative
vote of (i) the holders of a majority of the outstanding voting securities of
the Fund, and (ii) a majority of the members of the Fund's Board of Directors
who are not interested persons of the Fund or of the Investment Manager, cast
in person at a meeting called for the purpose of voting on such approval.
10. Governing Law. This Agreement shall be construed in
accordance with the laws of the State of New York, provided, however, that
nothing herein shall be construed as being inconsistent with the 1940 Act.
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<PAGE> 6
11. Notices. Any communication hereunder shall be in
writing and shall be delivered in person or by telex or facsimile (followed by
mailing such notice, air mail postage prepaid, on the date on which such telex
or facsimile is sent, to the address set forth below). Any communication or
document to be made or delivered by one person to another pursuant to this
Agreement shall be made or delivered to that other person at the following
relevant address (unless that other person has by fifteen (15) days' notice to
the other specified another address):
If to the Investment Manager:
Morgan Stanley Asset Management Inc.
1221 Avenue of the Americas
New York, New York 10020
Attention: General Counsel
Telex No.: (212) 680-1248
Facsimile No.: (212) 921-5477
Telephone No.: (212) 296-7100
If to the Fund:
Morgan Stanley Emerging Markets Debt Fund, Inc.
1221 Avenue of the Americas
New York, New York 10020
Attention: President
Telephone No.: (212) 296-7100
Facsimile No.: (212) 921-5477
Communications or documents made or delivered by personal delivery shall be
deemed to have been received on the day of such delivery. Communications or
documents made or delivered by telex or facsimile shall be deemed to have been
received, if by telex, when acknowledged by the addressee's correct answer back
code and, if by facsimile, upon production of a transmission report by the
machine from which the facsimile was sent which indicates that the facsimile
was sent in its entirety to the facsimile number of the recipient; provided
that a hard copy of the communication or document so made or delivered by telex
or facsimile was posted the same day as the communication or document was made
or delivered by electronic means.
12. Jurisdiction. Each party hereto irrevocably agrees
that any suit, action or proceeding against either of the Investment Manager or
the Fund arising out of or relating to this Agreement shall be subject
exclusively to the jurisdiction of the United States District Court for the
Southern District of New York or the Supreme Court of the State of New York,
New York County, and each party hereto irrevocably submits to the jurisdiction
of each such court in connection with any such suit, action or proceeding.
Each party hereto waives any objection to the laying of venue of any such suit,
action or proceeding in either such court, and waives any claim that such suit,
action or proceeding has been
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<PAGE> 7
brought in an inconvenient forum. Each party hereto irrevocably consents to
service of process in connection with any such suit, action or proceeding by
mailing a copy thereof in English by registered or certified mail, postage
prepaid, to their respective addresses as set forth in this Agreement.
13. Representation and Warranty of the Investment
Manager. The Investment Manager represents and warrants that it is duly
registered as an investment adviser under the U.S. Investment Advisers Act of
1940, as amended, and that it will use its reasonable efforts to maintain
effective its registration during the term of this Agreement.
14. Counterparts. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
15. Captions. The captions in this Agreement are
included for convenience of reference only and in no way define or delimit any
of the provisions hereof or otherwise affect their construction or effect.
IN WITNESS WHEREOF, the parties have executed this Investment
Advisory and Management Agreement by their officers thereunto duly authorized
as of the day and year first written above.
MORGAN STANLEY EMERGING MARKETS
DEBT FUND, INC.
By: /s/ Warren J. Olsen
-----------------------------
Name: Warren J. Olsen
Title: President
MORGAN STANLEY ASSET MANAGEMENT
INC.
By: /s/ Warren J. Olsen
-----------------------------
Name: Warren J. Olsen
Title: Vice President
7
<PAGE> 1
Exhibit (j)(1)
CUSTODY AGREEMENT
This Custody Agreement is dated July 16, 1993 between MORGAN STANLEY TRUST
COMPANY, a New York State chartered trust company (the "Custodian"), and MORGAN
STANLEY EMERGING MARKETS DEBT FUND, INC. (the "Client").
1. The Client hereby appoints the Custodian as a custodian of securities
and other property owned or under the control of the Client which are delivered
to the Custodian, or any Subcustodian as appointed below, from time to time to
be held in custody for the benefit of the Client. The Client instructs the
Custodian to establish on the books and records of the Custodian one or more
accounts (the "Accounts") in the name of the Client. The Custodian shall record
in the Accounts and shall have general responsibility for the safekeeping of
all securities ("Securities"), cash and other property (all such Securities,
cash and other property being collectively the "Property") of the Client so
delivered for custody. It is understood that the specific procedures the
Custodian will use in carrying out its responsibilities under this Agreement
are set forth in the procedures manual (the "Procedures Manual") prepared by
the Custodian and delivered to the Client, as such Procedures Manual may be
amended from time to time by the Custodian by written notice to the Client. The
Client acknowledges that the Procedures Manual constitutes an integral part of
this Agreement.
2. The Property may be held in custody and deposit accounts that have
been established by the Custodian with one or more domestic or foreign banks,
or through the facilities of one or more clearing agencies or central
securities depositories, as listed on Exhibit A hereto (the "Subcustodians"),
as such Exhibit may be amended from time to time by the Custodian by written
notice to the Client. The Custodian may hold Property for all of its customers
with a Subcustodian in a single account that is identified as belonging to the
Custodian for the benefit of its customers. Any Subcustodian may hold Property
in a securities depository and may utilize a clearing agency. The Client agrees
that the Property may be physically held outside the United States. The
Custodian shall not be liable for any loss resulting from the physical presence
of any Property in a foreign country including, but not limited to, losses
resulting from
1
<PAGE> 2
nationalization, expropriation, exchange controls or acts of war or terrorism.
Except as provided in the previous sentence, the liability of the Custodian for
losses incurred by the Client in respect of Securities shall not be affected by
the Custodian's use of Subcustodians.
3. With respect to Property held by a Subcustodian pursuant to Section 2:
(a) The Custodian will identify on its books as belonging to the Client
any Property held by a Subcustodian for the Custodian's account;
(b) The Custodian will hold Property through a Subcustodian only if (i)
such Subcustodian and any securities depository or clearing agency in which
such Subcustodian holds Property, or any of their creditors, may not
assert any right, charge, security interest, lien, encumbrance or other
claim of any kind to such Property except a claim of payment for its safe
custody or administration and (ii) beneficial ownership of such Property
may be freely transferred without the payment of money or value other than
for safe custody or administration;
(c) The Custodian shall require that Property held by the Subcustodian
for the Custodian's account be identified on the Subcustodian's books as
separate from any property held by the Subcustodian other than property of
the Custodian's customers and as held solely for the benefit of customers
of the Custodian; and
(d) In the event that the Subcustodian holds Property in a securities
depository or clearing agency, such Subcustodian will be required by its
agreement with the Custodian to identify on its books such Property as
being held for the account of the Custodian as a custodian for its
customers.
4. The Custodian shall allow the Client's accountants reasonable access
to the Custodian's records relating to the Property held by the Custodian as
such accountants may reasonably require in connection with their examination of
the Client's affairs. The Custodian shall also obtain from any Subcustodian
(and will require each Subcustodian to use reasonable efforts to obtain from
any securities depository learing agency in which it deposits Property) an
undertaking, to the extent consistent with local practice and the laws of the
jurisdiction orjurisdictions to which such Subcustodian, securities depository
or clearing agency is subject, to
2
<PAGE> 3
permit independent public accountants such reasonable access to the records of
such Subcustodian, securities depository or clearing agency as may be
reasonably required in connection with the examination of the Client's affairs
or to take such other action as the Custodian in its judgment may deem
sufficient to ensure such reasonable access.
5. The Custodian shall provide such reports and other information to the
Client and to such persons as the Client directs as the Custodian and the
Client may agree from time to time.
6. The Custodian shall make or cause any Subcustodian to make payments
from monies being held in the Accounts only:
(a) upon the purchase of Securities and then, to the extent
consistent with practice in the jurisdiction in which settlement
occurs, upon the delivery of such Securities;
(b) for payments to be made in connection with the conversion,
exchange or surrender of Securities;
(c) upon a request of the Client that the Custodian return monies
being held in the Accounts;
(d) upon a request of the Client that monies be exchanged for or
used to purchase monies denominated in a different currency;
(e) as provided in Section 8 and 12 hereof;
(f) upon termination of this Custody Agreement as hereinafter set
forth; and
(g) for any other purpose upon receipt of Authorized Instructions.
Except as provided in the last two sentences of this Section 6 and as
provided in Section 8, all payments pursuant to this Section 6 will be made
only upon receipt by the Custodian of Authorized Instructions. In the event
that it is not possible to make a payment in accordance with Authorized
Instructions, the Custodian shall proceed in accordance with the procedures set
forth in the Procedures Manual. Any payment pursuant to subsection (f) of this
Section 6 will be made in accordance with Section 16.
7. The Custodian shall make or cause any Subcustodian to make transfers,
exchanges or deliveries of Securities only:
(a) upon sale of such Securities and then, to the extent consistent
with practice in the jurisdiction in which settlement occurs, upon
receipt of payment therefor;
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<PAGE> 4
(b) upon exercise of conversion, subscription, purchase, exchange or
other similar rights pertaining to such Securities and, if applicable
to such exercise and if consistent with practice in the applicable
jurisdiction, only on receipt of substitute or additional securities to
be received upon such exercise;
(c) as provided in Section 8 hereof;
(d) upon the termination of this Custody Agreement as hereinafter set
forth; and
(e) for any other purpose upon receipt of Authorized Instructions.
Except as provided in the last two sentences of this Section 7 and as
provided in Section 8, all transfers, exchanges or deliveries of Securities
pursuant to this Section 7 will be made only upon receipt by the Custodian of
Authorized Instructions. In the event that it is not possible to transfer
Securities in accordance with Authorized Instructions, the Custodian shall
proceed in accordance with the procedures set forth in the Procedures Manual.
Any transfer or delivery pursuant to subsection (d) of this Section 7 will be
made in accordance with Section 16.
8. In the absence of Authorized Instructions to the contrary, the
Custodian may, and may authorize any Subcustodian to:
(a) make payments to itself or others for expenses of handling
Property or other similar items relating to its duties under this
Agreement, provided that all such payments shall be accounted for to
the Client;
(b) receive and collect all income and principal with respect to
Securities and to credit cash receipts to the Accounts;
(c) exchange Securities when the exchange is purely ministerial
(including, without limitation, the exchange of interim receipts or
temporary securities for securities in definitive form and the exchange
of warrants, or other documents of entitlement to securities, for the
securities themselves);
(d) surrender Securities at maturity or when called for redemption
upon receiving payment therefor;
(e) execute in the Client's name such ownership and other
certificates as may be required to obtain the payment of income from
Securities;
(f) pay or cause to be paid, from the Accounts, any and all taxes and
levies in the nature
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<PAGE> 5
of taxes imposed on Property by any governmental authority in
connection with custody of and transactions in such Property;
(g) endorse for collection, in the name of the Client, checks, drafts
and other negotiable instruments; and
(h) in general, attend to all nondiscretionary details in connection
with the custody, sale, purchase, transfer and other dealings with the
Property.
9. "Authorized Instructions" of the Client shall mean instructions
received by telecopy, tested telex, electronic link or other electronic means
or by such other means as may be agreed in writing pursuant to the Procedures
Manual or otherwise in advance between the Client and the Custodian. The
Custodian shall be entitled to act, and shall have no liability for acting, in
accordance with the terms of this Agreement or upon any instructions, notice,
request, consent, certificate or other instrument or paper believed by it to be
genuine and to have been properly executed by or on behalf of the Client.
10. Securities which must be held in registered form may be registered
in the name of the Custodian's nominee or, in the case of Securities in the
custody of an entity other than the Custodian, in the name of such entity's
nominee. The Client agrees to hold the Custodian and Subcustodians and any such
nominee harmless from any liability arising out of any such person acting as a
holder of record of such Securities. The Custodian may without notice to the
Client cause any Securities to cease to be registered in the name of any such
nominee and to be registered in the name of the Client.
11. All cash received by the Custodian for the Accounts shall be held
by the Custodian as a short-term credit balance in favor of the Client and, if
the Custodian and the Client have agreed in writing in advance that such credit
balances shall bear interest, the Client shall earn interest at the rates and
times as agreed between the Custodian and the Client. The Client understands
that any such credit balances will not be accompanied by the benefit of any
governmental insurance.
12. From time to time, the Custodian may arrange or extend short-term
credit for the Client which is (i) necessary in connection with payment and
clearance of securities and foreign exchange transactions or (ii) pursuant to
an agreed schedule, as and if set forth in the Procedures
5
<PAGE> 6
Manual, of credits for dividends and interest payments on Securities. All such
extensions of credit shall be repayable by the Client on demand. The Custodian
shall be entitled to charge the Client interest for any such credit extension at
rates to be agreed upon from time to time. In addition to any other remedies
available, the Custodian shall be entitled to a right of set-off against the
Property to satisfy the repayment of such credit extensions and the payment of
accrued interest thereon. The Custodian may act as the Client's agent in
foreign exchange transactions at such rates as are agreed from time to time
between the Client and the Custodian.
13. The Client represents that (i) the execution, delivery and performance
of this Agreement (including, without limitation, the ability to obtain the
short-term extensions of credit in accordance with Section 12) are within the
Client's power and authority and have been duly authorized by all requisite
action (corporate or otherwise) and (ii) this Agreement and each extension of
short-term credit extended or arranged for the benefit of the Client in
accordance with Section 12 will at all times constitute a legal, valid and
binding obligation of the Client and be enforceable against the Client in
accordance with their respective terms, except as may be limited by bankruptcy,
insolvency or other similar laws affecting the enforcement of creditors' rights
in general and subject to the effect of general principles of equity (regardless
of whether considered in a proceeding in equity or at law).
The Custodian represents that the execution, delivery and performance of
this Agreement is within the Custodian's power and authority and has been duly
authorized by all requisite action of the Custodian. This Agreement constitutes
the legal, valid and binding obligation of the Custodian enforceable against the
Custodian in accordance with its terms, except as may be limited by bankruptcy,
insolvency or other similar laws affecting the enforcement of creditors' rights
in general and subject to the effect of general principles of equity (regardless
of whether considered in a proceeding in equity or at law).
14. The Custodian shall be responsible for the performance of only such
duties as are set forth in this Agreement or the Procedures Manual or contained
in Authorized Instructions given to the Custodian which are not contrary to the
provisions of any relevant law or regulation. The Custodian shall not be liable
to the Client or to any other person for any action or
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<PAGE> 7
taken or omitted to be taken by it in connection with this Agreement in the
absence of negligence or willful misconduct on the part of the Custodian or a
Subcustodian. Upon the request of the Custodian, the Client agrees to deliver
to the Custodian a duly executed power of attorney, in form and substance
satisfactory to the Custodian, authorizing the Custodian to take any action or
execute any instrument on behalf of the Client as necessary or advisable to
accomplish the purposes of this Agreement.
15. The Client agrees to pay to the Custodian from time to time such
compensation for its services pursuant to this Agreement as may be mutually
agreed upon from time to time and the Custodian's out-of-pocket or incidental
expenses. The Client hereby agrees to hold the Custodian harmless from any
liability or loss resulting from any taxes or other governmental charges, and
any expenses related thereto, which may be imposed or assessed with respect to
the Accounts or any Property held therein. The Custodian is and any
Subcustodians are authorized to charge the Accounts for such items and the
Custodian shall have a lien, charge and security interest on any and all
Property for any amount owing to the Custodian from time to time under this
Agreement.
16. This Agreement may be terminated by the Client or the Custodian by 60
days written notice to the other, sent by registered mail. If notice of
termination is given, the Client shall, within 30 days following the giving of
such notice, deliver to the Custodian a statement in writing specifying the
successor custodian or other person to whom the Custodian shall transfer the
Property. In either event the Custodian, subject to the satisfaction of any
lien it may have, will transfer the Property to the person so specified. If the
Custodian does not receive such statement the Custodian, at its election, may
transfer the Property to a bank or trust company established under the laws of
the United States or any state thereof having aggregate capital, surplus and
undivided profits, as shown by its last published report, of not less than
twenty million dollars ($20,000,000) to be held and disposed of pursuant to the
provisions of this Agreement or may continue to hold the Property until such a
statement is delivered to the Custodian. In such event the Custodian shall be
entitled to fair compensation for its services during such period as the
Custodian remains in possession of any Property and the provisions of this
Agreement relating to the duties and obligations of the Custodian shall remain
in full
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<PAGE> 8
force and effect; provided, however, that the Custodian shall no longer settle
any transactions in securities for the Accounts.
17. The Custodian, its agents and employees will maintain the
confidentiality of information concerning the Property held in the Client's
account, including in dealings with affiliates of the Custodian. In the event
the Custodian or any Subcustodian is requested or required to disclose any
confidential information concerning the Property, the Custodian shall, to the
extent practicable and legally permissible, promptly notify the Client of such
request or requirement so that the Client may seek a protective order or waive
the Custodian's or such Subcustodian's compliance with this Section 17. In the
absence of such a waiver, if the Custodian or such Subcustodian is compelled, in
the opinion of its counsel, to disclose any confidential information, the
Custodian or such Subcustodian may disclose such information to such persons as,
in the opinion of counsel, is so required.
18. Any notice or other communication from the Client to the Custodian,
unless otherwise provided by this Agreement, shall be sent by certified or
registered mail to Morgan Stanley Trust Company, One Pierrepont Plaza, Brooklyn,
New York, 11201, Attention: President, and any notice from the Custodian to the
Client is to be mailed postage prepaid, addressed to the Client at the address
appearing below, or as it may hereafter be changed on the Custodian's records in
accordance with notice from the Client.
19. The Custodian may assign all of its rights and obligations hereunder
to any other entity which is qualified to act as custodian under the terms of
this Agreement and majority-owned, directly or indirectly, by Morgan Stanley
Group Inc., and upon the assumption of the rights and obligations hereunder by
such entity, such entity shall succeed to all of the rights and obligations of,
and be substituted for, the Custodian hereunder as if such entity had been
originally named as custodian herein. The Custodian shall give prompt written
notice to the Client upon the effectiveness of any such assignment.
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This Agreement shall bind the successors and assigns of the Client and the
Custodian and shall be governed by the laws of the State of New York applicable
to contracts executed in and to be performed in that state.
MORGAN STANLEY EMERGING
MARKETS DEBT FUND INC.
By /s/ Warren J. Olsen
---------------------------
Name: Warren J. Olsen
Title: President
Address for record: 1221 Avenue of the Americas
21st Floor
New York, New York 10020
Accepted:
MORGAN STANLEY TRUST COMPANY
By /s/ Gregory McGovern
-------------------------
Authorized Signature
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<PAGE> 1
Exhibit (j)(2)
DOMESTIC CUSTODY AGREEMENT
MORGAN STANLEY EMERGING MARKETS DEBT FUND, INC.
UNITED STATES TRUST COMPANY OF NEW YORK
JULY 16, 1993
<PAGE> 2
DOMESTIC CUSTODY AGREEMENT
THE MORGAN STANLEY EMERGING MARKETS DEBT FUND, INC.
TABLE OF CONTENTS
SECTION/PARAGRAPH PAGE
- ----------------- ----
1. Appointment 1
2. Delivery of Documents 1
3. Definitions 2
4. Delivery and Registration of the Property 3
5. Voting Rights 4
6. Receipt and Disbursement of Money 4
7. Receipt of Securities 5
8. Use of Securities Depository or the Book-Entry System 6
9. Instructions Consistent With The Articles, etc. 6
10. Transactions Not Requiring Instructions 8
11. Transactions Requiring Instructions 11
12. Purchase of Securities 12
13. Sales of Securities 12
14. Authorized Shares 13
15. Records 13
16. Cooperation with Accountants 13
17. Confidentiality 13
18. Equipment Failures 14
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DOMESTIC CUSTODY AGREEMENT
MORGAN STANLEY EMERGING MARKETS DEBT FUND, INC.
TABLE OF CONTENTS (CONTINUED)
SECTION/PARAGRAPH PAGE
- ----------------- ----
19. Right to Receive Advice 14
20. Compliance with Governmental Rules and Regulations 15
21. Compensation 15
22. Indemnification 15
23. Responsibility of U.S. Trust 16
24. Collection 17
25. Duration and Termination 17
26. Notices 18
27. Further Actions 19
28. Amendments 19
29. Miscellaneous 19
Signatures 19
Attachment A -- Fees
Attachment B -- Authorized Persons
-ii-
<PAGE> 4
DOMESTIC CUSTODY AGREEMENT
THIS AGREEMENT is made as of July 16, 1993, by and between The
MORGAN STANLEY EMERGING MARKETS DEBT FUND, INC., a Maryland corporation (the
"Fund"), and UNITED STATES TRUST COMPANY OF NEW YORK, a New York State
chartered bank and trust company ("U.S. Trust").
W I T N E S S E T H:
WHEREAS, the Fund is registered as a closed-end management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, the Fund desires to retain U.S. Trust to serve as the
Fund's custodian for its assets held within the United States and U.S. Trust is
willing to furnish such services;
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained, it is agreed between the parties hereto as follows:
1. Appointment. The Fund hereby appoints U.S. Trust to act as
custodian of its portfolio securities, cash and other property held within the
United States on the terms set forth in this Agreement. U.S. Trust accepts
such appointment and agrees to furnish the services herein set forth in return
for the compensation as provided in Paragraph 21 of this Agreement.
2. Delivery of Documents. The Fund will promptly furnish to U.S.
Trust such copies, properly certified or authenticated, of contracts, documents
and other related information that U.S. Trust may request or requires to
properly discharge its duties. Such documents may include but are not limited
to the following:
(a) Resolutions of the Fund's Directors authorizing the
appointment of U.S. Trust as Custodian of the portfolio securities, cash and
other property of the Fund and approving this Agreement;
(b) Incumbency and signature certificates identifying and
containing the signatures of the Fund's officers and/or the persons authorized
to sign Written Instructions, as hereinafter defined, on behalf of the Fund;
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<PAGE> 5
(c) The Fund's Articles of Incorporation filed with the Department
of Assessments of the State of Maryland and all amendments thereto (such
Articles of Incorporation, as currently in effect and as they shall from time
to time be amended, are herein called the "Articles");
(d) The Fund's By-Laws and all amendments thereto (such By-Laws,
as currently in effect and as they shall from time to time be amended, are
herein called the "By-Laws");
(e) Resolutions of the Fund's Directors and/or the Fund's
stockholders approving the Investment Advisory and Management Agreement between
the Fund and Morgan Stanley Asset Management Inc., the Fund's investment
adviser (the "Advisory Agreement");
(f) The Advisory Agreement; and
(g) The Fund's Registration Statement on Form N-2 under the 1940
Act and the Securities Act of 1933, as amended ("the 1933 Act") as filed with,
and declared effective by, the Securities and Exchange Commission (the "SEC")
and all amendments and supplements thereto.
The Fund will furnish U.S. Trust from time to time with copies of
all amendments of or supplements to the foregoing, if any. The Fund will also
furnish U.S. Trust with a copy of the opinion of counsel for the Fund with
respect to the validity of the shares of common stock, par value $.01 per share
(the "Shares"), of the Fund and the status of such Shares under the 1933 Act as
registered with the SEC, and under any other applicable federal law or
regulation.
3. Definitions.
(a) "Authorized Person". As used in this Agreement, the term
"Authorized Person" means the Fund's President, Vice-President, Treasurer and
any other person, whether or not any such person is an officer or employee of
the Fund, duly authorized by the Directors of the Fund to give Written
Instructions on behalf of the Fund and listed on Attachment B hereto which may
be amended from time to time.
(b) "Book-Entry System". As used in this Agreement, the term
"Book-Entry System" means the Federal Reserve/Treasury book-entry system for
United States and federal agency securities, its successor or successors and
its nominee or nominees.
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<PAGE> 6
(c) "Property". The term "Property", as used in this Agreement,
means:
(i) any and all securities, cash, and other property of the
Fund which the Fund may from time to time deposit, or cause to be
deposited, with U.S. Trust or which U.S. Trust may from time to
time hold for the Fund;
(ii) all income in respect of any such securities or other
property;
(iii) all proceeds of the sales of any of such securities
or other property; and
(iv) all proceeds of the sale of securities issued by the
Fund, which are received by U.S. Trust from time to time from or on
behalf of the Fund.
(d) "Securities Depository". As used in this Agreement, the term
"Securities Depository" shall mean The Depository Trust Company, a clearing
agency registered with the SEC, or its successor or successors and its nominee
or nominees; and shall also mean any other registered clearing agency, its
successor or successors, specifically identified in a certified copy of a
resolution of the Fund's Directors approving deposits by U.S. Trust therein.
(e) "Written Instructions". Means instructions
(i) delivered by mail, tested telegram, cable, telex or
facsimile sending device, and received by U.S. Trust, signed by two
Authorized Persons or by persons reasonably believed by U.S. Trust
to be Authorized Persons; or
(ii) transmitted electronically through the U.S. Trust
Asset Management System or any similar electronic instruction system
acceptable to U.S. Trust.
4. Delivery and Registration of the Property. The Fund will
deliver or cause to be delivered to U.S. Trust all Property owned by it which
is held within the United States, including cash received for the issuance of
its Shares, at any time during the period of this Agreement, except for
securities and monies to be delivered to any subcustodian appointed pursuant
to Paragraph 7 hereof. U.S. Trust will not be responsible for such securities
and such monies until actually received by U.S. Trust or by any subcustodian.
All securities delivered to U.S. Trust or to any such subcustodian (other than
in bearer form) shall be registered in the name of the Fund or in the name of a
nominee of the Fund or in the name of U.S. Trust or any nominee of U.S. Trust
(with or without indication of fiduciary status) or in the name of any
subcustodian or any nominee of such subcustodian appointed pursuant
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<PAGE> 7
to Paragraph 7 hereof or shall be properly endorsed and in form for transfer
satisfactory to U.S. Trust.
5. Voting Rights. With respect to all securities, however
registered, it is understood that the voting and other rights and powers shall
be exercised by the Fund. U.S. Trust's only duty shall be to mail to the Fund
any documents received, including proxy statements and offering circulars, with
any proxies for securities registered in a nominee name executed by such
nominee. Where warrants, options, tenders or other securities have fixed
expiration dates, the Fund understands that in order for U.S. Trust to act,
U.S. Trust must receive the Fund's instructions at its offices in New York
City, addressed as U.S. Trust may from time to time request, by no later than
noon (New York City time) at least one business day prior to the last scheduled
date to act with respect thereto (or such earlier date or time as permits the
Fund a reasonable period of time in which to respond after U.S. Trust notifies
the Fund of such date or time). Absent U.S. Trust's timely receipt of such
instructions, such instruments will expire without liability to U.S. Trust.
6. Receipt and Disbursement of Money.
(a) U.S. Trust shall open and maintain a custody account for the
Fund (the "Account") subject only to draft or order by U.S. Trust acting
pursuant to the terms of this Agreement, and shall hold in such Account, subject
to the provisions hereof, all cash received by it from or for the Fund. U.S.
Trust shall make payments of cash to, or for the account of, the Fund from such
cash only (i) for the purchase of securities for the Fund as provided in
paragraph 12 hereof; (ii) upon receipt of Written Instructions, for the payment
of dividends or other distributions of shares, or for the payment of interest,
taxes, administration, distribution or advisory fees or expenses which are to be
borne by the Fund under the terms of this Agreement, any Advisory Agreement, or
any administration agreement of the Fund; (iii) upon receipt of Written
Instructions for payments in connection with the conversion, exchange or
surrender of securities owned or subscribed to by the Fund and held by or to be
delivered to U. S. Trust; (iv) to a subcustodian pursuant to Paragraph 7 hereof;
or (v) upon receipt of Written Instructions for other corporate purposes.
(b) U.S. Trust is hereby authorized to endorse and collect all
checks, drafts or other orders for the payment of money received as custodian
for the Fund.
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<PAGE> 8
7. Receipt of Securities.
(a) Except as provided by Paragraph 8 hereof, U.S. Trust shall
hold all securities and non-cash Property received by it for the Fund. All
such securities and non-cash Property are to be held or disposed of by U.S.
Trust for the Fund pursuant to the terms of this Agreement. In the absence of
Written Instructions accompanied by a certified resolution authorizing the
specific transaction by the Fund's Directors, U.S. Trust shall have no power or
authority to withdraw, deliver, assign, hypothecate, pledge or otherwise
dispose of any such securities and non-cash Property, except in accordance with
the express terms provided for in this Agreement. In connection with its
duties under this Paragraph 7, U.S. Trust may, at its own expense, enter into
subcustodian agreements with other U.S. banks or trust companies for the
receipt of certain securities and cash to be held by U.S. Trust for the account
of the Fund pursuant to this Agreement; provided that each such bank or trust
company has an aggregate capital, surplus and undivided profits, as shown by
its last published report, of not less than twenty million dollars
($20,000,000) and that such bank or trust company agrees with U.S. Trust to
comply with all relevant provisions of the 1940 Act and applicable rules and
regulations thereunder.
(b) Promptly after the close of business on each day, U.S. Trust
shall furnish the Fund with confirmations and a summary of all transfers to or
from the account of the Fund during said day. Where securities are transferred
to the account of the Fund established at a Securities Depository or the Book
Entry System pursuant to Paragraph 8 hereof, U.S. Trust shall also by
book-entry or otherwise identify as belonging to the Fund the quantity of
securities that belongs to the Fund that are part of a fungible bulk of
securities registered in the name of U.S. Trust (or its nominee) or shown in
U.S. Trust's account on the books of a Securities Depository or the Book-Entry
System. At least monthly and from time to time, U.S. Trust shall furnish the
Fund with a detailed statement of the Property held for the Fund under this
Agreement.
8. Use of Securities Depository or the Book-Entry System. The
Fund shall deliver to U.S. Trust a certified resolution of the Directors of the
Fund approving, authorizing and instructing U.S. Trust on a continuous and
ongoing basis until instructed to the contrary by Written Instructions actually
received by U.S. Trust (i) to deposit in a
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<PAGE> 9
Securities Depository or the Book-Entry System all securities of the Fund
eligible for deposit therein and (ii) to utilize a Securities Depository or the
Book-Entry System to the extent possible in connection with the performance of
its duties hereunder, including without limitation, settlements of purchases
and sales of securities by the Fund, and deliveries and returns of securities
collateral in connection with borrowings. Without limiting the generality of
such use, it is agreed that the following provisions shall apply thereto:
(a) Securities and any cash of the Fund deposited in a Securities
Depository or the Book-Entry System will at all times be segregated from any
assets and cash controlled by U.S. Trust in other than a fiduciary or custodian
capacity but may be commingled with other assets held in such capacities. U.S.
Trust will effect payment for securities and receive and deliver securities in
accordance with accepted industry practices in the place where the transaction
is settled, unless the Fund has given U.S. Trust Written Instructions to the
contrary.
(b) All Books and records maintained by U.S. Trust which relate to
the Fund's participation in a Securities Depository or the Book-Entry System
will at all times during U.S. Trust's regular business hours be open to the
inspection of the Fund's duly authorized employees or agents, and the Fund will
be furnished with all information in respect of the services rendered to it as
it may require.
9. Instructions Consistent With The Articles, etc. Unless
otherwise provided in this Agreement, U.S. Trust shall act only upon Written
Instructions. U.S. Trust may assume that any Written Instructions received
hereunder are not in any way inconsistent with any provision of the Articles or
By-Laws of the Fund or any vote or resolution of the Fund's Directors, or any
committee thereof. U.S. Trust shall be entitled to rely upon any Written
Instructions actually received by U.S. Trust pursuant to this Agreement.
The Fund agrees that U.S. Trust shall incur no liability in acting in good
faith upon Written Instructions given to U.S. Trust. In accord with
instructions from the Fund, as required by accepted industry practice or as
U.S. Trust may elect in effecting the execution of Fund instructions, advances
of cash or other Property made by U.S. Trust, arising from the purchase, sale,
redemption, transfer or other disposition of Property of the Fund, or in
connection with the disbursement of funds to any party, or in payment of fees,
expenses,
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<PAGE> 10
claims or liabilities owed to U.S. Trust by the Fund, or to any other party
which has secured judgment in a court of law against the Fund which creates an
overdraft in the accounts or over-delivery of Property shall be deemed a loan
by U.S. Trust to the Fund, payable on demand, bearing interest at such rate
customarily charged by U.S. Trust for similar loans. The Fund agrees that test
arrangements, authentication methods or other security devices to be used with
respect to instructions which the Fund may give by telephone, telex, TWX,
facsimile transmission, bank wire or through an electronic instruction system,
shall be processed in accordance with terms and conditions for the use of such
arrangements, methods or devices as U.S. Trust may put into effect and modify
from time to time. The Fund shall safeguard any test keys, identification
codes or other security devices which U.S. Trust makes available to the Fund
and agrees that the Fund shall be responsible for any loss, liability or damage
incurred by U.S. Trust or by the Fund as a result of U.S. Trust's acting in
accordance with instructions from any unauthorized person using the proper
security device unless such loss, liability or damage was incurred as a result
of U.S. Trust's negligence or willful misconduct. U.S. Trust may
electronically record, but shall not be obligated to so record, any
instructions given by telephone and any other telephone discussions with
respect to the Account. In the event that the Fund uses U.S. Trust's Asset
Management System ("AMS"), the Fund agrees that U.S. Trust is not responsible
for the consequences of the failure of the AMS to perform for any reason,
beyond the reasonable control of U.S. Trust, or the failure of any
communications carrier, utility, or communications network. In the event the
AMS is inoperable, the Fund agrees that it will accept the communication of
transaction instructions by telephone, facsimile transmission on equipment
compatible to U.S. Trust's facsimile receiving equipment or by letter, at no
additional charge to the Fund.
10. Transactions Not Requiring Instructions. U.S. Trust is
authorized to take the following action without Written Instructions:
(a) Collection of Income and Other Payments. U.S. Trust shall:
(i) collect and receive for the account of the Fund, all
income and other payments and distributions, including (without
limitation) stock dividends, rights, warrants and similar items,
included or to be included in the Property of the Fund,
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<PAGE> 11
and promptly advise the Fund of such receipt and shall credit such
income, as collected, to the Fund. From time to time, U.S. Trust
may elect, but shall not be so obligated, to credit the Account
with interest, dividends or principal payments on payable or
contractual settlement date, in anticipation of receiving same from
a payor, central depository, broker or other agent employed by the
Fund or U.S. Trust. Any such crediting and posting shall be at the
Fund's sole risk, and U.S. Trust shall be authorized to reverse any
such advance posting in the event U.S. Trust does not receive good
funds from any such payor, central depository, broker or agent of
the Fund.
(ii) with respect to securities of foreign issuers held in
custody by U.S. Trust hereunder, if any, effect collection of
dividends, interest and other income, and to notify the Fund of any
call for redemption, offer of exchange, right of subscription,
reorganization, or other proceedings affecting such securities, or
any default in payments due thereon. It is understood, however,
that U.S. Trust shall be under no responsibility for any failure or
delay in effecting such collections or giving such notice with
respect to securities of foreign issuers, regardless of whether or
not the relevant information is published in any financial service
available to U.S. Trust unless such failure or delay is due to its
negligence or willful misconduct; provided that this sub-paragraph
(ii) shall not be construed as creating any such responsibility
with respect to securities of non-foreign issuers. Collections of
income in foreign currency are, to the extent possible, to be
converted into United States Dollars unless otherwise instructed in
writing, and in effecting such conversion U.S. Trust may use such
methods or agencies as it may see fit, including the facilities of
its own foreign division at customary rates. All risk and expenses
incident to such collection and conversion is for the account of
the Fund and U.S. Trust shall have no responsibility for
fluctuations in exchange rates affecting any such conversion.
(iii) endorse and deposit for collection in the name of the
Fund, checks, drafts, or other orders for the payment of money on
the same day as received;
(iv) receive and hold for the account of the Fund all
securities received by
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<PAGE> 12
the Fund as a result of a stock dividend, share split-up or
reorganization, recapitalization, readjustment or other
rearrangement or distribution of rights or similar securities
issued with respect to any portfolio securities of the Fund held by
U.S. Trust hereunder; and
(v) present for payment and collect the amount payable upon
all securities which may mature or be called, redeemed or retired,
or otherwise become payable on the date such securities become
payable;
(vi) take any action which may be necessary and proper in
connection with the collection and receipt of such income and other
payments and the endorsement for collection of checks, drafts and
other negotiable instruments;
(vii) with respect to domestic securities, to exchange
securities in temporary form for securities in definitive form, to
effect an exchange of the shares where the par value of stock is
changed, and to surrender securities at maturity or when advised of
earlier call for redemption, against payment therefor in accordance
with accepted industry practice. The Fund understands that U.S.
Trust subscribes to one or more nationally recognized services that
provide information with respect to calls for redemption of bonds
or other corporate actions. U.S. Trust shall not be liable for
failure to redeem any called bond or to take other action if notice
of such call or action was not provided by any service to which it
subscribes provided that U.S. Trust shall have acted in good faith
without negligence and in accordance with "Street Practice" (as is
customary in industry). U.S. Trust shall have no duty to notify
the Fund of any rights, duties, limitations, conditions or other
information set forth in any security (including mandatory or
optional put, call and similar provisions), but U.S. Trust shall
forward to the Fund any notices or other documents subsequently
received in regard to any such security. When fractional shares of
stock of a declaring corporation are received as a stock
distribution, unless specifically instructed to the contrary in
writing, U.S. Trust is authorized to sell the fraction received and
credit the Fund's account. Unless specifically instructed to the
contrary in writing, U.S. Trust is authorized to
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<PAGE> 13
exchange securities in bearer form for securities in registered
form. If any Property registered in the name of a nominee of U.S.
Trust is called for partial redemption by the issuer of such
Property, U.S. Trust is authorized to allot the called portion to
the respective beneficial holders of the Property in such manner
deemed to be fair and equitable by U.S. Trust in its sole
discretion.
(b) Miscellaneous Transactions. U.S. Trust is authorized to
deliver or cause to be delivered Property against payment or other
consideration or written receipt therefor in the following cases:
(i) for examination by a broker selling for the account of
the Fund in accordance with street delivery custom;
(ii) for the exchange of interim receipts or temporary
securities for definitive securities;
(iii) for transfer of securities into the name of the Fund
or U.S. Trust or a nominee of either, or for exchange of securities
for a different number of bonds, certificates, or other evidence,
representing the same aggregate face amount or number of units
bearing the same interest rate, maturity date and call provisions,
if any; provided that, in any such case, the new securities are to
be delivered to U.S. Trust.
If to the Fund: Warren J. Olsen
President
Morgan Stanley Emerging Markets Debt Fund, Inc.
1221 Avenue of the Americas
New York, New York 10020
If to U.S. Trust: Mr. Peter Arrighetti
Senior Vice President
U. S. Trust Company of New York
114 West 47th Street
New York, NY 10036
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<PAGE> 14
11. Transactions Requiring Instructions. Upon receipt of Written
Instructions and not otherwise, U.S. Trust, directly or through the use of a
Securities Depository or the Book-Entry System, shall:
(a) Execute and deliver to such persons as may be designated in
such Written Instructions, proxies, consents, authorizations, and any other
instruments whereby the authority of the Fund as owner of any securities may be
exercised;
(b) Deliver any securities held for the Fund against receipt of
other securities or cash issued or paid in connection with the liquidation,
reorganization, refinancing, merger, consolidation or recapitalization of any
corporation, or the exercise of any conversion privilege;
(c) Deliver any securities held for the Fund to any protective
committee, reorganization committee or other person in connection with the
reorganization, refinancing, merger, consolidation, recapitalization or sale of
assets of any corporation, against receipt of such certificates of deposit,
interim receipts or other instruments or documents as may be issued to it to
evidence such delivery;
(d) Make such transfers or exchanges of the assets of the Fund and
take such other steps as shall be stated in said instructions to be for the
purpose of effectuating any duly authorized plan of liquidation,
reorganization, merger, consolidation or recapitalization of the Fund;
(e) Release securities belonging to the Fund to any bank or trust
company for the purpose of pledge or hypothecation to secure any loan incurred
by the Fund; provided, however, that securities shall be released only upon
payment to U.S. Trust of the monies borrowed, except that in cases where
additional collateral is required to secure a borrowing already made, subject
to proper prior authorization, further securities may be released for that
purpose; and pay such loan upon redelivery to it of the securities pledged or
hypothecated therefor and upon surrender of the note or notes evidencing the
loan;
(f) Deliver any securities held for the Fund upon the exercise of
a covered call option written by the Fund on such securities; and
(g) Deliver securities held for the Fund pursuant to separate
security lending agreements concerning the lending of the Fund's securities
into which the Fund may enter,
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<PAGE> 15
from time to time.
12. Purchase of Securities. Promptly after each purchase of
securities by the Investment Adviser (or any sub-adviser), the Fund shall
deliver to U.S. Trust (as Custodian) Written Instructions specifying with
respect to each such purchase: (a) the name of the issuer and the title of
the securities, (b) the number of shares or the principal amount purchased and
accrued interest, if any, (c) the dates of purchase and settlement, (d) the
purchase price per unit, (e) the total amount payable upon such purchase and
(f) the name of the person from whom or the broker through whom the purchase
was made. U.S. Trust shall upon receipt of securities purchased by or for the
Fund pay out of the moneys held for the account of the Fund the total amount
payable to the person from whom or the broker through whom the purchase was
made, provided that the same conforms to the total amount payable as set forth
in such Written Instructions.
13. Sales of Securities. Promptly after each sale of securities
by the Investment Adviser, the Fund shall deliver to U.S. Trust (as Custodian)
Written Instructions, specifying with respect to each such sale: (a) the name
of the issuer and the title of the security, (b) the number of shares or
principal amount sold, and accrued interest, if any, (c) the date of sale, (d)
the sale price per unit, (e) the total amount payable to the Fund upon such
sale and (f) the name of the broker through whom or the person to whom the sale
was made. U.S. Trust shall deliver the securities upon receipt of the total
amount payable to the Fund upon such sale, provided that the same conforms to
the total amount payable as set forth in such Written Instructions. Subject to
the foregoing, U.S. Trust may accept payment in such form as shall be
satisfactory to it, and may deliver securities and arrange for payment in
accordance with the customs prevailing among dealers in securities.
14. Authorized Shares. The Fund has a fixed number of shares of
each class of its securities.
15. Records. The books and records pertaining to the Fund which
are in the possession of U.S. Trust shall be the property of the Fund. Such
books and records shall be prepared and maintained as required by the 1940 Act;
other applicable federal and state securities laws and rules and regulations;
and, any state or federal regulatory body having
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<PAGE> 16
appropriate jurisdiction. The Fund, or the Fund's authorized representatives,
shall have access to such books and records at all times during U.S. Trust's
normal business hours, and such books and records shall be surrendered to the
Fund promptly upon request. Upon reasonable request of the Fund, copies of any
such books and records shall be provided by U.S. Trust to the Fund or the
Fund's authorized representative at the Fund's expense.
16. Cooperation with Accountants. U.S. Trust shall cooperate with
the Fund's independent certified public accountants and shall take all
reasonable action in the performance of its obligations under this Agreement to
assure that the necessary information is made available to such accountants for
the expression of their unqualified opinion, including but not limited to the
opinion included in the Fund's semiannual report on Form N-SAR.
17. Confidentiality. U.S. Trust agrees on behalf of itself and
its employees to treat confidentially and as the proprietary information of the
Fund all records and other information relative to the Fund and its prior,
present or potential Shareholders and relative to the investment advisers and
its prior, present or potential customers, and not to use such records and
information for any purpose other than performance of its responsibilities and
duties hereunder, except after prior notification to and approval in writing by
the Fund, which approval shall not be unreasonably withheld and may not be
withheld where U.S. Trust may be exposed to civil or criminal contempt
proceedings for failure to comply, when requested to divulge such information
by duly constituted authorities, or when so requested by the Fund. Nothing
contained herein, however, shall prohibit U.S. Trust from advertising or
soliciting the public generally with respect to other products or services,
regardless of whether such advertisement or solicitation may include prior,
present or potential Shareholders of the Fund.
18. Equipment Failures. In the event of equipment failures beyond
U.S. Trust's control, U.S. Trust shall, at no additional expense to the Fund,
take reasonable steps to minimize service interruptions but shall not have
liability with respect thereto. U.S. Trust shall enter into and shall maintain
in effect with appropriate parties one or more agreements making reasonable
provision for back up emergency use of electronic
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<PAGE> 17
data processing equipment to the extent appropriate equipment is available.
19. Right to Receive Advice.
(a) Advice of Fund. If U.S. Trust shall be in doubt as to any
action to be taken or omitted by it, it may request, and shall receive, from
the Fund clarification or advice.
(b) Advice of Counsel. If U.S. Trust shall be in doubt as to any
question of law involved in any action to be taken or omitted by U.S. Trust, it
may request advice at its own cost from counsel of its own choosing (who may be
counsel for the Fund or U.S. Trust, at the option of U.S. Trust).
(c) Conflicting Advice. In case of conflict between directions or
advice received by U.S. Trust pursuant to subparagraph (a) of this paragraph
and advice received by U.S. Trust pursuant to subparagraph (b) of this
paragraph, U.S. Trust shall be entitled to rely on and follow the advice
received pursuant to the latter provision alone.
(d) Protection of U.S. Trust. U.S. Trust shall be protected in
any action or inaction which it takes or omits to take in reliance on any
directions or advice received pursuant to subparagraph (a) of this section
which U.S. Trust, after receipt of any such directions or advice, in good faith
believes to be consistent with such directions or advice. However, nothing in
this paragraph shall be construed as imposing upon U.S. Trust any obligation
(i) to seek such directions or advice, or (ii) to act in accordance with such
directions or advice when received, unless, under the terms of another
provision of this Agreement, the same is a condition to U.S. Trust's properly
taking or omitting to take such action. Nothing in this subparagraph shall
excuse U.S. Trust when an action or omission on the part of U.S. Trust
constitutes willful misfeasance, bad faith, gross negligence or reckless
disregard by U.S. Trust of its duties under this Agreement.
20. Compliance with Governmental Rules and Regulations. The Fund
assumes full responsibility for insuring that the contents of its registration
statement on Form N-2, as filed with, and declared effective by, the SEC, and
all amendments thereto, comply with all applicable requirements of the 1933
Act, the 1940 Act, and any laws, rules and regulations of governmental
authorities having jurisdiction.
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<PAGE> 18
21. Compensation. As compensation for the services described
within this Agreement and rendered by U.S. Trust during the term of this
Agreement, the Fund will pay to U.S. Trust, in addition to reimbursement of its
out-of-pocket expenses, monthly fees as outlined in Attachment A.
22. Indemnification. The Fund, as sole owner of the Property,
agrees to indemnify and hold harmless U.S. Trust and its nominees from all
taxes, charges, expenses, assessments, claims, and liabilities (including,
without limitation, liabilities arising under the 1933 Act, the Securities
Exchange Act of 1934 as amended, the 1940 Act, and any state and foreign
securities and blue sky laws, all as or to be amended from time to time) and
expenses, including (without limitation) attorney's fees and disbursements,
arising directly or indirectly (a) from the fact that securities included in
the Property are registered in the name of any such nominee or (b) without
limiting the generality of the foregoing clause (a) from any action or thing
which U.S. Trust takes or does or omits to take or do (i) at the request or on
the direction of or in reliance on the advice of the Fund given in accordance
with the terms of this Agreement, or (ii) upon Written Instructions; provided,
that neither U.S. Trust nor any of its nominees or subcustodians shall be
indemnified against any liability to the Fund or to its Shareholders (or any
expenses incident to such liability) arising out of (x) U.S. Trust's or such
nominee's or subcustodian's own willful misfeasance, bad faith, gross
negligence or reckless disregard of its duties under this Agreement or any
agreement between U.S. Trust and any nominee or subcustodian or (y) U.S.
Trust's own or its subcustodian's negligent failure to perform its duties under
this Agreement. In the event of any advance of cash for any purpose made by
U.S. Trust resulting from orders or Written Instructions of the Fund, or in the
event that U.S. Trust or its nominee or subcustodian shall incur or be assessed
any taxes, charges, expenses, assessments, claims or liabilities in connection
with the performance of this Agreement, except such as may arise from its or
its nominee's or subcustodian's own negligent action, negligent failure to act,
willful misconduct, or reckless disregard of its duties under this Agreement or
any agreement between U.S. Trust and any nominee or subcustodian, the Fund
shall promptly reimburse U.S. Trust for such advance of cash or such taxes,
charges, expenses, assessments, claims
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<PAGE> 19
or liabilities.
23. Responsibility of U.S. Trust. U.S. Trust shall be under no
duty to take any action on behalf of the Fund except as specifically set forth
herein or as may be specifically agreed to by U.S. Trust in writing. In the
performance of its duties hereunder, U.S. Trust shall be obligated to exercise
care and diligence and to act in good faith and to use its best efforts within
reasonable limits to insure the accuracy of all services performed under this
Agreement. U.S. Trust shall be responsible for its own negligent failure or
that of any subcustodian it shall appoint to perform its duties under this
Agreement but to the extent that duties, obligations and responsibilities are
not expressly set forth in this Agreement, U.S. Trust shall not be liable for
any act or omission which does not constitute willful misfeasance, bad faith,
or gross negligence on the part of U.S. Trust or reckless disregard of such
duties, obligations and responsibilities. Without limiting the generality of
the foregoing or of any other provision of this Agreement, U.S. Trust in
connection with its duties under this Agreement shall not be under any duty or
obligation to inquire into and shall not be liable for or in respect of (a) the
validity or invalidity or authority or lack thereof of any advice, direction,
notice or other instrument which conforms to the applicable requirements of
this Agreement, if any, and which U.S. Trust believes to be genuine, (b) the
validity of the issue of any securities purchased or sold by the Fund, the
legality of the purchase or sale thereof or the propriety of the amount paid or
received therefor, (c) the legality of the issue or sale of any Shares, or the
sufficiency of the amount to be received therefor, (d) the legality of the
redemption of any Shares, or the propriety of the amount to be paid therefor,
(e) the legality of the declaration or payment of any dividend or distribution
on Shares, or (f) delays or errors or loss of data occurring by reason of
circumstances beyond U.S. Trust's control, including acts of civil or military
authority, national emergencies, labor difficulties, fire, mechanical breakdown
(except as provided in Paragraph 18), flood or catastrophe, acts of God,
insurrection, war, riots, or failure of the mail, transportation systems,
communication systems or power supply.
24. Collection. All collections of monies or other property in
respect, or which are to become part, of the Property (but not the safekeeping
thereof upon receipt by
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<PAGE> 20
U.S. Trust) shall be at the sole risk of the Fund. In any case in which U.S.
Trust does not receive any payment due the Fund within a reasonable time after
U.S. Trust has made proper demands for the same, it shall so notify the Fund in
writing, including copies of all demand letters, any written responses thereto,
and memoranda of all oral responses thereto, and to telephonic demands, and
await instructions from the Fund. U.S. Trust shall not be obliged to take
legal action for collection unless and until reasonably indemnified to its
satisfaction. U.S. Trust shall also notify the Fund as soon as reasonably
practicable whenever income due on securities is not collected in due course.
25. Duration and Termination. This Agreement shall be effective
as of the date hereof and shall continue until termination by the Fund or by
U.S. Trust on 90 days' written notice. Upon any termination of this Agreement,
pending appointment of a successor to U.S. Trust or a vote of the Shareholders
of the Fund to dissolve or to function without a custodian of its cash,
securities or other property, U.S. Trust shall not deliver cash, securities or
other property of the Fund to the Fund, but may deliver them to a bank or trust
company of its own selection, having aggregate capital, surplus and undivided
profits, as shown by its last published report of not less than twenty million
dollars ($20,000,000) as a successor custodian for the Fund to be held under
terms similar to those of this Agreement, provided; however, that U.S. Trust
shall not be required to make any such delivery or payment until full payment
shall have been made by the Fund of all liabilities constituting a charge on or
against the properties then held by U.S. Trust or on or against U.S. Trust and
until full payment shall have been made to U.S. Trust of all of its fees,
compensation, costs and expenses, subject to the provisions of Paragraph 21 of
this Agreement.
26. Notices. All notices and other communications (collectively
referred to as "Notice" or "Notices" in this paragraph) hereunder shall be in
writing or by confirm in telegram, cable, telex, or facsimile sending device.
Notices shall be addressed (a) if to U.S. Trust, at U.S. Trust's address, 114
W. 47th Street, New York, New York, 10036; (b) if to the Fund, at the address
of the Fund, 1221 Avenue of the Americas, New York, New York 10020; or (c) if
to neither of the foregoing, at such other address as shall have been notified
to the sender of any such Notice or other communication. If the location of
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<PAGE> 21
the sender of a Notice and the address of the addressee thereof are, at the
time of sending, more than 100 miles apart, the Notice may be sent by
first-class mail, in which case it shall be deemed to have been given three
days after it is sent, or if sent by confirming telegram, cable, telex or
facsimile sending device, it shall be deemed to have been given immediately,
and, if the location of the sender of a Notice and the address of the addressee
thereof are, at the time of sending, not more than 100 miles apart, the Notice
may be sent by first-class mail, in which case it shall be deemed to have been
given two days after it is sent, of if sent by messenger, it shall be deemed to
have been given on the day it is delivered, or if sent by confirming telegram,
cable, telex or facsimile sending device, it shall be deemed to have been given
immediately. All postage, cable, telegram, telex and facsimile sending device
charges arising from the sending of a Notice hereunder shall be paid by the
sender.
27. Further Actions. Each party agrees to perform such further
acts and execute such further documents as are necessary to effectuate the
purposes hereof.
28. Amendments. This Agreement or any part hereof may be changed
or waived only by an instrument in writing signed by the party against which
enforcement of such change or waiver is sought.
29. Miscellaneous. This Agreement embodies the entire Agreement
and understanding between the parties hereto, and supersedes all prior
agreements and understandings relating to the parties hereto. The captions in
this Agreement are included for convenience of reference only and in no way
define or delimit any of the provisions hereof or otherwise affect their
construction or effect. This Agreement shall be deemed to be a contract made
in New York and governed by New York law. If any provision of this Agreement
shall be held or made invalid by a court decision, statute, rule or otherwise,
the remainder of this Agreement shall not be affected thereby. This Agreement
shall be binding upon and shall inure to the benefit of the parties hereto and
their respective successors.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed by their officers designated below as of the day and year first
above written.
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<PAGE> 22
MORGAN STANLEY EMERGING MARKETS DEBT FUND, INC.
Attest:/s/ Valerie Y. Lewis By:/s/ Harold Schaaf
------------------------- ----------------------------
Name: Valerie Y. Lewis Name: Harold Schaff
--------------------------- --------------------------
Title: Vice President
-------------------------
UNITED STATES TRUST COMPANY OF NEW YORK
Attest:/s/ Karl D. Hartmann By:/s/ Donald P. Hearn
------------------------- ----------------------------
Name: Karl D. Hartmann Name: Donald P. Hearn
--------------------------- --------------------------
Title: Senior Vice President
-------------------------
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<PAGE> 23
MORGAN STANLEY EMERGING MARKETS DEBT FUND, INC.
DOMESTIC CUSTODY AGREEMENT
JULY 16, 1993
ATTACHMENT A
FEES
For the services described in the Agreement, the Fund shall pay a custody
safekeeping fee and custody transaction fees as follows:
DOMESTIC CUSTODY SAFEKEEPING FEES
0.01% of the average daily net assets of the Fund, computed and
payable monthly
There is no Minimum Fee for the Fund
DOMESTIC CUSTODY TRANSACTION FEES
$15.00 per DTC, PTC or Fed Book Entry transaction
$40.00 per physical transaction
$40.00 per future or option wire
$8.00 per wire transfer
All out-of-pocket expenses related to the provision of services under the terms
of this Agreement will be billed to the Fund monthly and due upon billing.
A-1
<PAGE> 24
MORGAN STANLEY EMERGING MARKETS DEBT FUND, INC.
DOMESTIC CUSTODY AGREEMENT
JULY 16, 1993
ATTACHMENT B
AUTHORIZED PERSONS
B-1
<PAGE> 1
Exhibit (k)(1)
AGREEMENT
FOR STOCK TRANSFER 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 Sole Transfer Agent
and Registrar for the Common Stock of Morgan Stanley Emerging Markets Debt
Fund, Inc. (hereinafter referred to as Debt Fund).
A. TERM
The term of this Agreement shall be for a period of five (5) years,
commencing from the effective date of this Agreement, July 16, 1993.
B. FEE FOR STANDARD SERVICES
$ 5,000.00 BASE ADMINISTRATIVE FEE
ADMINISTRATIVE COORDINATION AND PLANNING WITH COUNSEL,
THE UNDERWRITER AND THE FUND RELATIVE TO THE PUBLIC
OFFERING AND ATTENDANCE AT CLOSING.
For the standard services as stated in Section C provided by Bank of Boston
under this Agreement, Debt Fund will be charged as follows:
$ 4,200.00 MONTHLY ADMINISTRATIVE FEE*
$ 4.00 PER ACCOUNT, PER ANNUM
$ 1.50 PER CERTIFICATE ISSUED
<PAGE> 2
MORGAN STANLEY EMERGING
MARKETS DEBT FUND, INC.
PAGE 2
C. STANDARD SERVICES
Bank of Boston agrees to provide the following services to Debt Fund in
accordance with the standard fees set forth in Section B hereinabove.
ACCOUNT MAINTENANCE:
1. Annual administrative services as Transfer Agent
2. Annual administrative services as Registrar
3. Maintaining shareholder accounts, including processing of new accounts
4. Posting and acknowledging address changes and processing other
routine file maintenance adjustments
5. Posting all transactions, including debit and credit certificates to
the stockholder file
6. Researching and responding to all stockholder inquiries
CERTIFICATE ISSUANCE:
7. Certificate issuance, cancellation and registration
8. Daily Transfer Reports
9. Processing window items, mail items and all legal transfers
10. Combining certificates into large denominations
11. Processing Indemnity Bonds and replacing lost certificates
12. Maintaining stop-transfers, including the placing and removing of same
MAILING, REPORTING AND MISCELLANEOUS SERVICES:
13. Addressing and enclosing Quarterly Reports, three (3) per annum for
registered shareholders
14. Preparing a full Statistical Report to reflect shareholder base by
geographic residence code, class code, and share group, one (1) per
annum
15. Coding "multiple" accounts at a single household to suppress mailing
of reports to same
16. Address, enclose and mail Semi-Annual Report
17. Address, enclose and mail Annual Report
ANNUAL MEETING SERVICES:
18. Preparing a full stockholder list as of the Annual Meeting Record Date
19. Addressing and mailing Broker Search Cards
20. Addressing proxy cards
21. Enclosing proxy card along with notice, statement, and return envelope
via Bipak envelope
22. Receiving, opening and examining returned proxies
<PAGE> 3
MORGAN STANLEY EMERGING
MARKETS DEBT FUND, INC.
PAGE 3
ANNUAL MEETING SERVICES (CONTINUED):
23. Writing in connection with unsigned or improperly executed proxies
24. Providing summary reports on status of tabulation on a daily basis
25. Responding to inquiries as to whether specific accounts have yet voted
26. Tabulating returned proxies to include up to three (3) proposals,
excess to be billed at $0.03 per account, per proposal
27. Preparing a final Annual Meeting List reflecting how each account has
voted on each proposal
28. Attending Annual Meeting as Inspector of Elections
RESPONDENT BANK SERVICES:
29. Annual administrative fee
30. Processing of each Respondent Bank Omnibus Proxy received
31. Mailing Respondent Bank Search Cards
DIVIDEND SERVICES:
As Dividend Disbursing Agent and Paying Agent (checks to be drawn on The
First National Bank of Boston and funds immediately available in-house on
mailing date), Bank of Boston will perform the following dividend related
services:
32. Preparing and mailing of dividends (check includes address change
feature)
33. Preparing and filing Federal Information Returns (Form 1099) of
dividends paid in a year and mailing a statement to each stockholder
34. Preparing and filing State Information Returns of dividends paid in
a year to stockholders resident within such state
35. Preparing and filing annual withholding return (Form 1042) and
payments to the government of income taxes withheld from Non-
Resident Aliens
36. Replacing lost dividend checks
37. Providing photocopies of cancelled checks when requested
38. Reconciling paid and outstanding checks
39. Coding "undeliverable" accounts to suppress mailing dividend checks
to same
40. Processing and recordkeeping of accumulated uncashed dividends
41. Furnishing requested dividend information to stockholders
42. Performing the following duties as required by the Interest and
Dividend Tax Compliance Act of 1983:
<PAGE> 4
MORGAN STANLEY EMERGING
MARKETS DEBT FUND, INC.
PAGE 4
DIVIDEND SERVICES (CONTINUED):
* Withholding tax from shareholder accounts not in compliance with the
provisions of the Act
* Reconciling and reporting taxes withheld, including additional 1099
reporting requirements, to the Internal Revenue Service
* Responding to shareholder inquiries regarding the Regulations
* Mailing to new accounts who have had taxes withheld, to inform them
of procedures to be followed to curtail subsequent back-up
withholding
* Annual mailing to pre-1984 accounts which have not yet been
certified
* Performing shareholder file adjustments to reflect certification of
accounts
DIVIDEND REINVESTMENT SERVICES:
As Administrator of your Dividend Reinvestment and Cash Purchase Plan
("DRP"), Bank of Boston will perform the following DRP related services:
43. Reinvestment and/or cash investment transactions of Dividend
Reinvestment Plan participant accounts
44. Preparing and mailing a dividend reinvestment detailed statement with
an additional enclosure to each DRP participant
45. Preparing and mailing a cash investment detailed statement with an
additional enclosure to each DRP participant
46. Maintaining DRP accounts and establishing new participant accounts
47. Processing termination requests
48. Processing withdrawal/redemption requests
49. Supplying summary reports for each reinvestment/investment to Debt
Fund
50. Certificate depository and safekeeping
51. Handling shareholder inquiries concerning the Plan
52. Preparing and mailing Form 1099DIV and 1099B to participants and
related filings with the IRS
D. * LIMITATIONS
Bank of Boston will be paid a minimum Annual fee of $20,000
<PAGE> 5
MORGAN STANLEY EMERGING
MARKETS DEBT FUND, INC.
PAGE 5
E. ITEMS NOT COVERED
Items not included in the fees set forth in this Agreement for "Standard
Services" such as payment of a stock dividend or split, or services
associated with a special project 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 telephone line charges associated with
toll free telephone calls, overprinting of proxy cards, insurance,
stationery, facsimile charges, cost of disposal of excess material, etc.
will be billed as incurred.
Good funds to cover postage expenses in excess of $5,000 for shareholder
mailings must be received by Bank of Boston by 1:00 p.m. Eastern Time on
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: proxy statements, annual, semi-
annual and quarterly reports, dividend enclosures and news releases.
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. BILLING DEFINITION OF ACCOUNT MAINTENANCE
For billing purposes, number of accounts will be based on open accounts on
file at beginning of each billing period, plus any new accounts added
during that period.
G. TERMINATION
This Agreement is terminable by thirty (30) days written notice by either
party. If this Agreement is terminated, there will be a termination charge
of 10% of the fees billed during the preceding twelve (12) months (minimum
charge $2,000.00). This charge will cover the coordination of Bank of
Boston's termination process and the cost of transferring Debt Fund's
records to a successor Transfer Agent or to Debt Fund.
Upon expiration of this Agreement, without termination by either party, it
shall continue in effect from month to month on the same terms unless and
until either party terminates by thirty (30) days written notice to the
other or until a new agreement superseding the within Agreement has been
executed.
<PAGE> 6
MORGAN STANLEY EMERGING
MARKETS DEBT FUND, INC.
PAGE 6
H. PAYMENT FOR SERVICES
It is agreed that invoices will be rendered and payable on a monthly basis.
Each billing period will, therefore, be of one (1) month duration.
I. 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 Debt Fund.
J. CONFIDENTIALITY
The information contained in this Agreement is confidential and proprietary
in nature. By receiving this Agreement, Debt Fund 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, Debt Fund 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, Debt Fund 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.
Notwithstanding the foregoing, the information contained in this Agreement
may be disclosed to such persons as may be required by law. In addition,
copies of this Agreement may be filed as an Exhibit to the Fund's
Registration Statement on Form N-2.
K. 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: /s/ Kenyon Bissell By: /s/ Warren J. Olsen
-------------------------- -----------------------------
Kenyon Bissell Warren J. Olsen
Title: Senior Account Manager Title: President
-------------------------- -----------------------------
Date: July 21, 1993 Date: July 16, 1993
-------------------------- -----------------------------
<PAGE> 1
Exhibit (k)(2)
FUND ADMINISTRATION AGREEMENT
- Fund Administration Services
- Fund Accounting Services
MORGAN STANLEY EMERGING MARKETS DEBT FUND, INC.
UNITED STATES TRUST COMPANY OF NEW YORK
JULY 16, 1993
<PAGE> 2
FUND ADMINISTRATION AGREEMENT
MORGAN STANLEY EMERGING MARAKETS DEBT FUND, INC.
TABLE OF CONTENTS
-----------------
SECTION/PARAGRAPH PAGE
----------------- ----
1. Appointment 1
2. Representations and Warranties 1
3. Delivery of Documents 3
4. Services Provided by the Administrator 3
5. Fees; Expenses; Expense Reimbursement 4
6. Proprietary and Confidential Information 5
7. Duties, Responsibilities and Limitation of Liability 6
8. Term 7
9. Hiring of Employees 8
10. Notices 8
11. Assignability 9
12. Waiver 9
13. Force Majeure 9
14. Use of Name 10
15. Amendments 10
16. Severability 10
17. Governing Law 10
Signatures 11
-i-
<PAGE> 3
FUND ADMINISTRATION AGREEMENT
MORGAN STANLEY EMERGING MARKETS DEBT FUND, INC.
TABLE OF CONTENTS (CONTINUED)
-----------------------------
SECTION/PARAGRAPH PAGE
- ----------------- ----
Schedule A -- Fees and Expenses A-1
Schedule B -- Fund Administration Service Description B-1
Schedule C -- Fund Accounting Service Description C-1
-ii-
<PAGE> 4
FUND ADMINISTRATION AGREEMENT
MORGAN STANLEY EMERGING MARKETS DEBT FUND, INC.
AGREEMENT made as of July 16, 1993 by and between Morgan Stanley
Emerging Markets Debt Fund, Inc., a Maryland Corporation (the "Fund"), and
United States Trust Company of New York, a bank and trust company chartered
under the laws of the State of New York (the "Administrator").
W I T N E S S E T H:
WHEREAS, the Fund is registered as a closed-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and
WHEREAS, the Fund wishes to retain the Administrator to provide certain
fund accounting and administration services, and the Administrator is willing
to furnish such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. The Fund hereby appoints the Administrator to
provide certain fund accounting and fund administration services for the Fund,
subject to the supervision of the Board of Directors of the Fund (the "Board"),
for the period and on the terms set forth in this Agreement. The Administrator
accepts such appointment and agrees to furnish the services herein set forth in
return for the compensation as provided in Paragraph 5 of and Schedule A to
this Agreement.
2. Representations and Warranties.
(a) The Administrator represents and warrants to the Fund that:
(i) the Administrator is a bank and trust company duly
chartered, organized and existing and in good standing under the laws of the
State of New York;
(ii) the Administrator is duly qualified to carry on its
business in the State of New York;
-1-
<PAGE> 5
(iii) the Administrator is empowered under applicable laws
and by its Certificate of Incorporation and By-Laws to enter into and perform
this Agreement;
(iv) all requisite corporate proceedings have been taken
to authorize the Administrator to enter into and perform this Agreement;
(v) the Administrator has, and will continue to have,
access to the facilities, personnel and equipment required to fully perform its
duties and obligations hereunder;
(vi) no legal or administrative proceedings have been
instituted or threatened which would impair the Administrator's ability to
perform its duties and obligations under this Agreement; and
(vii) the Administrator's entrance into this Agreement
shall not cause a material breach or be in material conflict with any other
agreement or obligation of the Administrator or any law or regulation
applicable to the Administrator;
(b) The Fund represents and warrants to the Administrator that:
(i) the Fund is a Maryland corporation, duly organized
and existing and in good standing under the laws of the State of Maryland;
(ii) the Fund is empowered under applicable laws and by
its Articles of Incorporation and By-laws to enter into and perform this
Agreement;
(iii) the Fund is an investment company properly registered
under the 1940 Act;
(iv) a registration statement under the Securities Act of
1933, as amended ("1933 Act") and the 1940 Act on Form N-2 has been filed and
will be effective and will remain effective during the term of this Agreement,
and all necessary filings under the laws of the states will have been made and,
as applicable, will be current during the term of this Agreement;
(v) no legal or administrative proceedings have been
instituted or threatened which would impair the Fund's ability to perform its
duties and obligations under this Agreement; and
(vi) the Fund's entrance into this Agreement shall not
cause a material breach or be in material conflict with any other agreement or
obligation of the Fund or any applicable law or regulation.
-2-
<PAGE> 6
3. Delivery of Documents. The Fund will promptly furnish to the
Administrator such copies, properly certified or authenticated, of contracts,
documents and other related information that the Administrator may request or
requires to properly discharge its duties. Such documents may include but are
not limited to the following:
(a) Resolutions of the Board authorizing the appointment of the
Administrator to provide certain fund accounting and administration services to
the Fund and approving this Agreement;
(b) The Fund's Articles of Incorporation;
(c) The Fund's By-laws ("By-laws");
(d) The Fund's Notification of Registration on Form N-8A under
the 1940 Act as filed with the Securities and Exchange Commission ("SEC");
(e) The Fund's registration statement, including exhibits, on
Form N-2 (the "Registration Statement") under the 1933 Act and the 1940 Act, as
filed with, and declared effective by, the SEC and all amendments and
supplements thereto;
(f) Copies of the Investment Advisory and Management Agreement
between the Fund and Morgan Stanley Asset Management Inc., the Fund's
investment adviser (the "Advisory Agreement");
(g) Opinions of counsel and auditors reports;
(h) The Fund's Prospectus and all amendments and supplements
thereto (such Prospectus as currently in use and such later prospectuses as may
from time to time be issued, herein called the "Prospectus"); and
(i) Such other agreements as the Fund may enter into from time to
time including securities lending agreements, futures and commodities account
agreements, brokerage agreements, and options agreements.
4. Services Provided by the Administrator. The Administrator will
provide the following services subject to the control, direction and
supervision of the Board and in compliance with the objectives, policies and
limitations set forth in the Fund's Registration Statement, Articles of
Incorporation and By-laws; applicable laws and regulations; and all resolutions
and policies implemented by the Board: (i) fund administration and (ii) fund
accounting. A detailed description of each of the above services is contained
in Schedules B and C, respectively, to this Agreement.
-3-
<PAGE> 7
5. Fees; Expenses; Expense Reimbursement.
(a) As compensation for the services rendered to the Fund
pursuant to this Agreement, the Fund shall pay the Administrator monthly fees
determined as set forth in Schedule A to this Agreement. Such fees are to be
computed weekly and paid monthly on the first business day of the month
following provision of the services. Upon any termination of this Agreement
before the end of any month, the fee for the part of the month before such
termination shall be prorated according to the proportion which such part bears
to the full monthly period and shall be payable upon the date of termination of
this Agreement.
(b) For the purpose of determining fees calculated as a function
of the Fund's assets, the value of the Fund's assets and net assets shall be
computed as required by its Prospectus, generally accepted accounting
principles and resolutions of the Board.
(c) The Administrator will from time to time employ or associate
with such person or persons as may be appropriate to assist the Administrator
in the performance of this Agreement. Such person or persons may be officers
and employees who are employed or designated as officers by both the
Administrator and the Fund. The compensation of such person or persons for
such employment shall be paid by the Administrator and no obligation will be
incurred by or on behalf of the Fund in such respect.
(d) The Administrator will generally bear all of its own
expenses in connection with the performance of its services under this
Agreement. The Fund agrees to promptly reimburse the Administrator for any
equipment and supplies specially ordered by or for the Fund through the
Administrator and for any other expenses not contemplated by this Agreement
that the Administrator may incur on the Fund's behalf at the Fund's request or
as consented to by the Fund. Such other expenses to be incurred in the
operation of the Fund and to be borne by the Fund, include, but are not limited
to: taxes; interest; brokerage fees and commissions; salaries and fees of
officers and directors who are not officers, directors, shareholders or
employees of the Administrator or the Fund's investment adviser; SEC and state
Blue Sky registration and qualification fees, levies, fines and other charges;
advisory and administration fees; charges and expenses of custodians; insurance
premiums including fidelity bond premiums; auditing and legal expenses; costs of
maintenance of corporate existence; expenses of typesetting and printing of
registration
-4-
<PAGE> 8
statement amendments, prospectuses and reports for regulatory purposes and for
distribution to current shareholders of the Fund; expenses of printing and
production costs of shareholders' reports and proxy statements and materials;
costs and expenses of Fund stationery and forms; costs and expenses of special
telephone and data lines and devices; costs associated with corporate,
shareholder, and Board meetings; and any extraordinary expenses and other
customary Fund expenses. In addition, the Administrator may utilize one or
more independent pricing services, approved from time to time by the Board, to
obtain securities prices and to act as backup to the primary pricing services,
in connection with determining the net asset values of the Fund, and the Fund
will reimburse the Administrator for the Fund's share of the cost of such
services based upon the actual usage, or a pro-rata estimate of the use, of the
services for the benefit of the Fund.
6. Proprietary and Confidential Information. The Administrator
agrees on behalf of itself and its employees to treat confidentially and as
proprietary information of the Fund, all records and other information relative
to the Fund's prior, present or potential shareholders, and to not use such
records and information for any purpose other than performance of the
Administrator's responsibilities and duties hereunder. The Administrator may
seek a waiver of such confidentiality provisions by furnishing reasonable prior
notice to the Fund and obtaining approval in writing from the Fund, which
approval shall not be unreasonably withheld and may not be withheld where the
Administrator may be exposed to civil or criminal contempt proceedings for
failure to comply, when requested to divulge such information by duly
constituted authorities. Waivers of confidentiality are automatically
effective without further action by the Administrator with respect to Internal
Revenue Service levies, subpoenas and similar actions, or with respect to any
request by the Fund.
-5-
<PAGE> 9
7. Duties, Responsibilities and Limitation of Liability.
(a) In the performance of its duties hereunder, the Administrator
shall be obligated to exercise due care and diligence and to act in good faith
in performing the services provided for under this Agreement. In performing
its services hereunder, the Administrator shall be entitled to rely on any oral
or written instructions, notices or other communications from the Fund and its
custodians, officers and directors, investors, agents, legal counsel and other
service providers which communications the Administrator reasonably believes to
be genuine, valid and authorized.
(b) Subject to the foregoing, the Administrator shall not be
liable for any error of judgement or mistake of law or for any loss or expense
suffered by the Fund, in connection with the matters to which this Agreement
relates, except for a loss or expense resulting from willful misfeasance, bad
faith or negligence on the Administrator's part in the performance of its
duties or from reckless disregard by the Administrator of its obligations and
duties under this Agreement. Any person, even though also an officer,
director, partner, employee or agent of the Administrator, who may be or become
an officer, director, partner, employee or agent of the Fund, shall be deemed
when rendering services to the Fund or acting on any business of the Fund
(other than services or business in connection with the Administrator's duties
hereunder) to be rendering such services to or acting solely for the Fund and
not as an officer, director, partner, employee or agent or person under the
control or direction of the Administrator even though paid by the
Administrator.
(c) Subject to Paragraphs 7 (a) and (b) above, the Administrator
shall not be responsible for, and the Fund shall indemnify and hold the
Administrator harmless from and against, any and all losses, damages, costs,
reasonable attorneys' fees and expenses, payments, expenses and liabilities
arising out of or attributable to:
(i) all actions of the Administrator or its officers or
agents required to be taken pursuant to this Agreement;
(ii) the reliance on or use by the Administrator or its
officers or agents of information, records, or documents which are received by
the Administrator or its officers or agents and furnished to it or them by or
on behalf of the Fund, and which have
-6-
<PAGE> 10
been prepared or maintained by the Fund or any other third party on behalf of
the Fund;
(iii) the Fund's refusal or failure to comply with the
terms of this Agreement or the Fund's lack of good faith, or its actions, or
lack thereof, involving negligence or willful misfeasance;
(iv) the breach of any representation or warranty of the
Fund hereunder;
(v) the taping or other form of recording of telephone
conversations or other forms of electronic communications with other agents of
the Fund, its investors and shareholders, or reliance by the Administrator on
telephone or other electronic instructions of any person acting on behalf of a
shareholder or shareholder account for which telephone or other electronic
services have been authorized; and
(vii) the offer or sale of shares by the Fund in violation
of any requirement under the Federal securities laws or regulations or the
securities laws or regulations of any state, or in violation of any stop order
or other determination or ruling by any Federal agency or any state agency with
respect to the offer or sale of such shares in such state resulting from
activities, actions, or omissions by the Fund's underwriters or existing or
arising out of activities, actions or omissions by or on behalf of the Fund
prior to the effective date of this Agreement.
(d) The Administrator shall indemnify and hold the Fund harmless
from and against any and all losses, damages, costs, charges, reasonable
attorneys' fees and expenses, payments, expenses and liability arising out of
or attributable to the Administrator's refusal or failure to comply with the
terms of this Agreement; the Administrator's breach of any representation or
warranty made by it herein; or the Administrator's lack of good faith, or acts
involving negligence, willful misfeasance or reckless disregard of its duties.
8. Term. This Agreement shall become effective on the date first
hereinabove written. This Agreement may be modified or amended from time to
time by mutual agreement between the parties hereto. This Agreement shall
continue in effect unless terminated by either party on 60 days prior written
notice. Upon termination of this Agreement, the Fund shall pay to the
Administrator such compensation and any reimbursable expenses as may be due
under the terms hereof as of the date of termination or the date that the
provision of services ceases, whichever is later.
-7-
<PAGE> 11
9. Hiring of Employees. The Fund and the Administrator agree that
they will not enter into discussions of employment or make offers of employment
to each others' employees without written approval from the other.
10. Notices. Any notice required or permitted hereunder shall be in
writing to the parties at the following address (or such other address as a
party may specify by notice to the other):
If to the Fund:
Morgan Stanley Emerging Markets Debt Fund, Inc.
1221 Avenue of the Americas
New York, NY 10020
Attention: President
Fax: (212) 421-5477
If to the Administrator:
United States Trust Company of New York
114 West 47th Street
New York, NY 10036
Attention: Division Director, Mutual Funds
Fax: (212) 852-1529
WITH A COPY TO:
Mutual Funds Service Company
126 High Street
Boston, MA 02110
Attention: General Counsel
Fax: (617) 728-7350
Notice shall be effective upon receipt if by mail, on the date of personal
delivery (by private messenger, courier service or otherwise) or upon confirmed
receipt of telex or facsimile, whichever occurs first.
-8-
<PAGE> 12
11. Assignability. This Agreement shall not be assigned by any of the
parties hereto without the prior consent in writing of the other party;
provided, however, that the Administrator may in its own discretion and without
limitation or prior consent of the Fund, whenever and on such terms and
conditions as the Administrator deems necessary or appropriate, subcontract,
delegate or assign its rights, duties, obligations and liabilities to
subsidiaries or affiliates of the Administrator; provided, further, that any
such subcontract, agreement or understanding shall not discharge the
Administrator or its affiliates or subsidiaries, as the case may be, from its
obligations hereunder. Similarly, the Administrator or its affiliated
subcontractor, designee, or assignee may at its discretion, without notice to
the Fund, enter into such subcontracts, agreements and understandings, whenever
and on such terms and conditions as the Administrator or they deem necessary or
appropriate to perform services hereunder, with non-affiliated third parties;
provided, that such subcontract, agreement or understanding shall not discharge
the Administrator, or its subcontractor, designee, or assignee, as the case may
be, from the Administrator's obligations hereunder.
12. Waiver. The failure of a party to insist upon strict adherence to
any term of this Agreement on any occasion shall not be considered a waiver nor
shall it deprive such party of the right thereafter to insist upon strict
adherence to that term or any term of this Agreement. Any waiver must be in
writing signed by the waiving party.
13. Force Majeure. The Administrator shall not be responsible or
liable for any failure or delay in performance of its obligations under this
Agreement arising out of or caused, directly or indirectly, by circumstances
beyond its control, including without limitation, acts of God, earthquakes,
fires, floods, wars, acts of civil or military authorities, or governmental
actions, nor shall any such failure or delay give the Fund the right to
terminate this Agreement.
14. Use of Name. The Fund and the Administrator agree not to use the
other's name nor the names of such other's affiliates, designees, or assignees
in any prospectus, sales literature or other printed material written in a
manner not previously, expressly approved
-9-
<PAGE> 13
in writing by the other or such other's affiliates, designees, or assignees
except where required by the SEC or any state agency responsible for securities
regulation.
15. Amendments. This Agreement may be modified or amended from time
to time by mutual written agreement between the parties. No provision of this
Agreement may be changed, discharged, or terminated orally, but only by an
instrument in writing signed by the party against which enforcement of the
change, discharge or termination is sought.
16. Severability. If any provision of this Agreement is invalid or
unenforceable, the balance of the Agreement shall remain in effect, and if any
provision is inapplicable to any person or circumstance it shall nevertheless
remain applicable to all other persons and circumstances.
17. Governing Law. This Agreement shall be governed by the laws of
the State of New York.
-10-
<PAGE> 14
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the date first written above.
MORGAN STANLEY EMERGING MARKETS DEBT FUND, INC.
Attest:/s/ Valerie Y. Lewis By:/s/ Harold Schaaf
------------------------- ----------------------------
Name: Valerie Y. Lewis Name: Harold Schaff
--------------------------- --------------------------
Title: Vice President
-------------------------
UNITED STATES TRUST COMPANY OF NEW YORK
Attest:/s/ Karl D. Hartmann By:/s/ Donald P. Hearn
------------------------- ----------------------------
Name: Karl D. Hartmann Name: Donald P. Hearn
--------------------------- --------------------------
Title: Senior Vice President
-------------------------
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FUND ADMINISTRATION AGREEMENT
Morgan Stanley Emerging Markets Debt Fund, Inc.
July 16, 1993
SCHEDULE A
FEES AND EXPENSES
FUND ACCOUNTING AND ADMINISTRATION FEES
For the services provided pursuant to this Agreement, the Fund shall pay to the
Administrator an annual fee of $100,000 plus 0.06% of the average weekly net
assets of the Fund, such fee to be computed weekly and payable monthly.
Out-of-pocket expenses including, but not limited to, the cost of security
pricing services, including backup pricing services, the preparation of Fund
Board materials and mailings, stationery and forms, statements and confirmation
forms, telecommunications and data facilities and lines, microfiche and proxy
processing, and postage will be billed to the Fund, payable upon receipt, on a
monthly basis.
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FUND ADMINISTRATION AGREEMENT
Morgan Stanley Emerging Markets Debt Fund, Inc.
July 16, 1993
SCHEDULE B
DESCRIPTION OF FUND ACCOUNTING SERVICES
The Administrator shall provide the following accounting services to the Fund:
A. Maintenance of the books and records and accounting controls for the
Fund's assets, including records of all securities transactions;
B. Weekly calculation and transmission of the Fund's Net Asset Value to
such entities as directed by the Fund;
C. Accounting for dividends and interest received and distributions made
by the Fund;
D. Preparation and filing of the Fund's tax returns and Semiannual
Reports on Form N-SAR;
E. Production of transaction data, financial reports and such other
periodic and special reports as the Board may reasonably request;
F. The preparation of financial statements for the quarterly, semi-annual
and annual reports and other shareholder communications;
G. Liaison with the Fund's independent auditors; and
H. Monitoring and administration of arrangements with the Fund's
custodians and depository banks.
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FUND ADMINISTRATION AGREEMENT
Morgan Stanley Emerging Markets Debt Fund, Inc.
July 16, 1993
SCHEDULE C
DESCRIPTION OF FUND ADMINISTRATION SERVICES
GENERAL ADMINISTRATION
A. Furnish a Chief Financial Officer or Treasurer for the Fund, to be
designated by the Administrator subject to reasonable Board approval.
B. Prepare Fund portfolio expense projections, establish accruals and
review on a periodic basis, including expenses based on a percentage
of Fund's average daily net assets (advisory and administrative fees)
and expenses based on actual charges annualized and accrued daily
(audit fees, directors' fees, etc.).
C. Coordinate communications and data collection with regards to any
regulatory examinations and yearly audits by independent accountants.
D. Provide office facilities with respect to the provision of the
services contemplated herein (which may be in the offices of the
Administrator or a corporate affiliate of the Administrator).
E. Provide or otherwise obtain personnel sufficient, in the
Administrator's sole discretion, for provision of the services
contemplated herein.
F. Furnish equipment and other materials which the Administrator, in its
sole discretion, believes are necessary or desirable for provision of
the services contemplated herein.
G. Keep records relating to the services provided hereunder in such form
and manner as the Administrator may otherwise deem appropriate or
advisable, all in accordance with the 1940 Act. To the extent
required by Section 31 of the 1940 Act and the rules thereunder, the
Administrator agrees that all such records prepared or maintained by
the Administrator relating to the services provided hereunder are the
property of the Fund and will be preserved for the periods prescribed
under Rule 31a-2 under the 1940 Act, maintained at the Fund's expense,
and made available in accordance with such Section and Rule. The
Administrator further agrees to surrender promptly to the Fund upon
its request and cease to retain in its records and files those records
and documents created and maintained by the Administrator pursuant to
this Agreement.
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