Emerging Markets Fund, Inc.
Issuable Upon Exercise.of Rights
to Subscribe for Such Shares of Common Stock
Morgan Stanley Emerging Markets Fund, Inc. (the "Fund") is issuing to its shareholders of record
as of the close of business on May 30, 1996 (the "Record Date") transferable rights ("Rights") entitling
the holders thereof to subscribe for up to an aggregate of 5,800,000 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 June 13, 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 Now York Stock Bxchange (the “NYSE"). The Fund's Common
Stock is traded on the NYSE under the symbol "MSF”. The Rights will be traded under the symbol
“MSF.RT”. See "The Offer." THE SUBSCRIPTION PRICE PER SHARE (THE "SUBSCRIPTION
PRICE") WILL BE $14.00.
THE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK TIME, ON June 20, 1995, unless extended
as described herein. The Fund announced the Offer after the close of trading on the NYSE on April 21,
1995. The net asset value per share of Common Stock at the close of business on April 21, 1995 and May
30, 1995 was $17.05 and $17.89, respectively, and the last reported sale price of a share of Common
Stock on the NYSE on such dates was $18.125 and $18.50, respectively.
The Fund is a non-diversified, closed-end management investment company. The Fund's investment
objective is long-term capital appreciation through investment primarily in emerging country equity
securities. See "Investment Objective and Policies." There can be no assurance that the Fund's
investment objective will be achieved. Investment in the Fund involves special considerations and risks
that are not typically associated with investments in tbe securities of U.S. issuers, sucb as controls on
foreign investment, currency excbange rate fluctuations and greater social, economic and political
uncertainty. Emerging country securities markets are generally cbaracterized by a relatively small
number of equity issues and low trading volumes, resulting in comparatively greater price volatility
and lesser liquidity of portfolio investments. In addition the securities of certain companies in wbicb
the Fund may invest may be considered speculative. See “Risk Factors and Special Considerations.”
Morgan Stanley Asset Management Inc. serves as the Fund's Investment Manager. The address bf 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
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.
Subscription Price Sales Load (1) to the Fund(2)
Per Share $14.00(3) $0.525 $13,475
Total $81,200,000 $3,046,000 $78,163,000(4)
(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.
May 30, 1995
Employee Plan Considerations
Shareholders that are employee benefit plans subject to the Employee Retirement income Security Act of 1974,
as amended ("ERISA”), (including corporate savings and 401 (k) plans), Keogh or H.R.10 plans of self-employed
individuals and Individual Retirement Accounts ("IRAs") and other plans eligible for special tax treatment under the
Code or subject to Section 4975 of the Code (collectively, "Plans") should be aware that additional contributions of
cash to the Plan (other than rollover contributions or trustee-to-trustee transfers from other Plans) in order to exercise
Rights would be treated as Plan contributions and, when taken together with contributions previously made, may
subject a Plan to excise taxes for excess or nondeductible 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, should also 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:
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 $14.00 is 21.7% below the Fund's net asset value of $17.89 per share
as of May 30, 1995, the Fund's net asset value per share would be reduced by approximately $1.17 per share.
Foreign Currency Considerations
The Fund's assets are invested principally in equity 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 tamed 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 13.7% 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.
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, 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
stocks, write covered call options on stocks and enter into stock index futures contracts and related options. For a
description of such hedging strategies, see "Investment Objective and Policies -Foreign Currency Hedging
Transactions and Stock Options and Index Futures Contracts" 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
Investment and Repatriation Restrictions
Some emerging countries have laws and regulations that currently limit or preclude direct foreign investment in
the securities of their companies. However, indirect foreign investment in the securities of companies listed and
traded on the stock exchanges in these countries is permitted by certain emerging countries through specially
authorized investment funds. The Fund may invest in these investment funds subject to the provisions of the 1940
Act as discussed below under "Investment Restrictions." If the Fund invests in such investment funds, the Fund's
shareholders will bear not only their proportionate share of the expenses of the Fund (including operating expenses
and the fees of the Investment Manager), but also will indirectly bear similar expenses of the underlying investment
funds. See also "Taxation - U.S. Federal Income Taxes - Passive Foreign Investment Companies." Consequently, the
costs and expenses of the Fund of investing in such countries may be higher than the cost and expenses of investing
in countries that permit direct foreign investment.
Certain of the investment funds referred to in the preceding paragraph are advised by the Investment Manager.
The Fund may, to the extent permitted under the 1940 Act, invest in these investment funds. If the
Fund does elect to make an investment in such an investment fund, it will only purchase the securities of such
investment fund in the secondary market.
In addition to the foregoing investment restrictions, prior governmental approval for foreign investments may
be required under certain circumstances in some emerging countries, and the extent of foreign investment in
domestic companies may be subject to limitation in other emerging countries. Foreign ownership limitations also
may be imposed by the charters of individual companies in emerging countries to prevent, among other concerns,
violation of foreign investment limitations.
Repatriation of investment income, capital and the proceeds of sales by foreign investors may require
governmental registration and/or approval in some emerging countries. The Fund could be adversely affected by
delays in or a refusal to grant any required governmental registration or approval for such repatriation or by
withholding taxes imposed by emerging ma , rket countries on interest. or dividends paid on* securities held by the
Fund or gains from the disposition of such securities. If for. any reason the Fund were unable to distribute an amount
equal to substantially all of its investment company. taxable income (as defined for U.S. federal tax purposes) within
applicable time periods, the Fund would cease to qualify for the favorable tax treatment afforded to regulated
investment companies under the Code. See "Taxation - U.S. Federal Income Taxes."
Emerging Country Securities Markets
Trading volume in emerging country securities markets is substantially less than that in the United States.
Further, securities of some emerging country companies are less liquid and more volatile than securities of
comparable U.S. companies. A high proportion of the shares of many emerging country issuers may be held by a
limited number of persons, which may limit the number of shares available for investment by the Fund. A limited
number of issuers in most emerging country securities markets may represent a disproportionately large percentage
of market capitalization and trading value. In addition, the application of certain 1940 Act provisions may limit the
Fund's ability to invest in certain emerging country issuers and to participate in public offerings in emerging markets.
The limited liquidity of emerging country securities markets may also affect the Fund's ability to acquire or dispose
of securities at the price and time it wishes to do so. In addition, certain emerging country securities markets are
susceptible to being influenced by large investors trading significant blocks of securities or making large dispositions
of securities resulting from the failure to meet margin calls when due. Commissions for trading on emerging country
stock exchanges are generally higher than commissions for trading on U.S. exchanges, although the Fund endeavors
to achieve the most favorable net results on its portfolio transactions and may, in certain instances, be able to
purchase its portfolio investments on other stock exchanges where commissions are negotiable.
In addition to their smaller size, lesser liquidity and greater volatility, disclosure and regulatory standards in
emerging country securities markets are in many respects less stringent than U.S. standards. Furthermore, there is a
low level of monitoring and regulation of the markets and the activities of investors in such markets, and
enforcement of existing regulations has been extremely limited. Consequently, the prices at which the Fund may
acquire investments may be affected by other market participants' anticipation of the Fund's investing, by trading by
persons with material non-public information and by securities transactions by brokers in anticipation of transactions
by the Fund in particular securities.
Companies 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. companies. In
particular, the assets and profits appearing on the financial statements of an emerging country issuer may not reflect
its financial position or results of operations in the way they would be reflected had such financial statements been
prepared in accordance with United States generally accepted accounting principles. In addition, for companies that
keep accounting records in local currency, inflation accounting rules in some emerging countries require, for both tax
and accounting purposes, that certain assets and liabilities be restated on the company's balance sheet in order to
express items in terms of currency of constant purchasing power. Inflation accounting may indirectly generate losses
or profits. As a result, financial data may be materially affected by restatements for inflation and may not accurately
reflect the real condition of companies and securities markets. Also, there may be less publicly available information
about an emerging country company
than about a U.S. company and there is generally less government supervision and regulation of foreign stock
exchanges, brokers and listed companies than in the United States.
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 economics 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 investment
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 the region. Thus, 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 Now 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.
Net Asset Value Discount; Non-Diversification
Since the Fund's initial public offering on October 25, 1991, 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 "Financial Highlights -
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.
The Fund may invest in non-publicly traded securities, engage in foreign currency hedging transactions,
and enter into stock options and stock index futures transactions, each of which may involve special risks. See
"Investment Objective and Policies." 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 shams at a premium
over prevailing market prices. See "Common Stock."
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is long-term capital appreciation. The Fund seeks to achieve this
objective by investing primarily in emerging country equity securities. The Fund's investment objective is a
fundamental policy which may not be changed without the approval of a majority of the Fund's outstanding
voting securities. Income is not a consideration in selecting investments or an investment objective. 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 (H) more than
50% of the outstanding shares. There is no assurance the Fund will be able to achieve its investment objective.
Under normal conditions, at least 65% of the Fund's total assets are invested in emerging country equity
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. There are currently over 169 countries which are considered to be emerging
countries, approximately 47 of which currently have stock 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 complete list of the countries not failing within the World Bank definition of an merging
country is set forth in Appendix E.
Currently, investing in many emerging countries is not feasible or may involve unacceptable political
risks. The Fund focuses its investments on those emerging countries in which it believes the economics are
developing strongly and in which the markets are becoming more sophisticated. The Fund intends to invest
primarily in some or all of the following emerging countries:
Algeria Costa Rica Indonesia Nigeria Russia Tunisia
Argentina Czech Republic Ivory Coast Pakistan Slovakia Turkey
Botswana Dominican Republic Jamaica Panama South Africa Uruguay
Brazil Ecuador Jordan Paraguay South Korea Venezuela
Bulgaria Egypt Malaysia Peru Sri Lanka Zaire
Chile Greece Mexico Philippines Thailand Zimbabwe
China Hungary Morocco Poland Trinidad &
Colombia India Nicaragua Portugal Tobago
In addition, the Fund has made, and intends to continue to make, investments in Hong Kong, Israel,
Germany, United Kingdom, Singapore and Taiwan, which are not regarded as emerging countries.
As markets in other countries develop, the Fund expects to expand and further diversify the emerging
countries in which it invests. The Fund does not intend to invest in any security in a country where the
currency is not freely convertible to U.S. dollars, unless the Fund has obtained the necessary governmental
licensing to convert such currency or other appropriately licensed or sanctioned contractual guarantee to
protect such investment against loss of that currency's external value, or the Fund has a reasonable expectation
at the time the investment is made that such governmental licensing or other appropriately licensed or
sanctioned guarantee would be obtained or that the currency in which the security is quoted would be freely
convertible at the time of any proposed sale of the security by the Fund.
An emerging country equity security is defined as common and preferred stock (including convertible preferred
stock), bonds, notes and debentures convertible into common or preferred stock, stock purchase warrants and rights,
equity interests in trusts and partnerships and American, Global or other types of Depositary Receipts of companies:
(i) the principal securities trading market for which is in an emerging country, (ii) that alone or on a consolidated
basis derive 50% or more of their annual revenue from either goods produced, sales made or services performed in
emerging countries, or (iii) that are organized under the laws of, and with a principal office in, an emerging country.
Determinations as to eligibility will be made by the Investment Manager based on publicly available information and
inquiries made to the - companies. (See "Risk Factors and Special Considerations" for a discussion of the nature of
information publicly available for non-U.S. companies.)
The Fund's definition of emerging country equity securities includes securities of companies that may have
characteristics and business relationships common to compames in a country or countries other than an emerging
country. As a result, the value of the securities of such companies may reflect economic and market forces applicable
to other countries, as well as to an emerging country. The Fund believes, however, that investment in such companies
is appropriate because the Fund invests only in those companies which, in its view, have sufficiently strong,exposure
to economic and market forces in an emerging country such that their value tends to reflect developments in such
emerging country to a greater extent than developments in another country or countries. For example, the Fund may
invest in companies organized and located in countries other than an emerging country, including companies having
their entire production facilities outside of an emerging country, when securities of such companies meet one or more
elements of the Fund's definition of an emerging country equity security and so long as the Fund believes at the time
of investment that the value of the company's securities will reflect principally conditions in such emerging country.
To the extent that the Fund's assets are not invested in emerging country equity securities, the remainder of the
assets are invested in (i) debt securities denominated in the currency of an emerging country or issued or guaranteed
by an emerging country company or the government of an emerging country, (ii) equity or debt securities of
corporate or governmental issuers located in industrialized countries, and (iii) short-term and medium-term debt
securities of the type described below under "Temporary Investments." The Fund's assets may be invested in debt
securities when the Fund believes that, based upon factors such as relative interest rate levels and foreign exchange
rates, such debt securities offer opportunities for long-term capital appreciation. It is likely that many of the debt
securities in which the Fund will invest will be unrated, and whether or not rated, such securities may have
speculative characteristics. The Fund will not invest in debt securities rated below investment grade or, if unrated,
considered by the Investment Manager to be of less than investment grade quality. In addition, for temporary
defensive purposes, the Fund may invest less than 65% of its assets in emerging country equity securities, in which
case the Fund may invest in other equity securities or may invest in debt securities of the kind described under
"Temporary Investments" below.
The Fund invests indirectly in securities of emerging country issuers through sponsored or unsponsored
American Depositary Receipts ("ADRs"), Global Depositary Receipts ("GDRs") and other types of Depositary
Receipts (which, together with ADRs and GI)Rs, are hereinafter referred to as "Depositary Receipts"). Depositary
Receipts may not necessarily be denominated in the same currency as the underlying securities into which they may
be converted. In addition, the issuers of the stock of unsponsored Depositary Receipts are not obligated to disclose
material information in the United States and, therefore, there may not be a correlation between such information and
the market value of the Depositary Receipts. ADRs are Depositary Receipts typically issued by a United States bank
or trust company which evidence ownership of underlying securities issued by a foreign corporation. GDRs and
other types of Depositary Receipts are typically issued by foreign banks or trust companies, although they also may
be issued by United States banks or trust companies, and evidence ownership of underlying securities issued by
either a foreign or a United States corporation. Generally, Depositary Receipts in registered form are designed for
use in the United States securities markets and Depositary Receipts in bearer form are designed for use in securities
the United States. For purposes of the Fund's investment policies, the Fund's investments in ADRs, GDRs and other
types of Depositary Receipts will be deemed to be -investments in the underlying securities.
The Fund purchases and holds securities for long-tem capital appreciation and does not trade for shortterm
gain. The portfolio turnover rate for a year is calculated by dividing the lesser of sales or purchases of portfolio
securities during that year by the average monthly value of the Fund's portfolio securities, excluding money market
instruments. The rate of portfolio turnover will not be a limiting factor when the Fund deems it appropriate to
purchase or sell securities for the Fund. However, the U.S. federal tax requirement that the Fund derive less than
30% of its pus income from the sale or disposition of securities held less than three months may limit the Fund's
ability to dispose of its securities. See "Taxation - U.S. Federal Income Taxes." The Fund’s portfolio turnover rates
for the years ended December 31, 1992, 1993 and 1994 were 60%, 68% and 52%, respectively.
Non-Publicly Traded Securities
Securities in which the Fund may invest include those that are neither listed on a stock exchange nor traded
over-the-counter. As a result of the absence of a public trading market for these securities, they may be less liquid
than publicly traded securities. Although these securities may be resold in privately, negotiated transactions, the
prices realized from that sales could be less than those originally paid by the Fund or less than what may be
considered the fair value of such securities. Furthermore, companies whose securities are not publicly traded may
not be subject to the disclosure and other investor protection requirements which may be applicable if their
securities were publicly traded. If such securities 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. The Fund, in
addition to investing as described above, may hold illiquid securities and securities that are not registered under the
Securities Act, but that can be sold to "qualified institutional buyers" in accordance with Rule 144A under the
Securities Act. Although as a general matter there is no limitation on the Fund's investments in non-publicly traded
securities, the Fund does not intend to invest more than 25% of its total assets in non-publicly traded securities.
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 equity and other
securities and invest in certain 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 or emerging country governments, their respective
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 shortterm corporate debt obligations of U.S. and
emerging country corporations meeting the Fund's credit quality standards; and (e) repurchase agreements with
banks and broker-dealers with respect to such securities. The Fund intends to invest only in short-term and
medium-term debt securities that the Investment Manager believes to be of high quality, i.e., subject to relatively
low risk of loss of interest or principal (there is currenty no rating system for debt securities in most emerging
Repurchase agreements with respect to the securities described in the preceding paragraph are contract 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 is required to maintain the value of the securities subject to the
repurchase agreement at not less than their repurchase price. The Investment Manager wi? 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 or insolvency the seller, including possible delays
or restrictions I upon the Fund's ability to dispose of the underlying securities.
Foreign Currency Hedging Transactions and Stock Options and Index Futures Contracts
In order to hedge against foreign currency exchange rate risks; the Fund may enter into forward foreign currency
exchange contracts and foreign currency futures contracts, as well as purchase put or call options on foreign
currency-, however, at present, for the currencies of most emerging countries, there is not a viable market in which
the Fund may engage in these transactions. In addition, the Fund may seek to increase its return or may hedge all or a
portion of its portfolio investments- through stock options and stock index futures contracts with respect to securities
in which the Fund may invest. There currently are limited options and stock index futures markets in emerging
countries and the nature of the strategies adopted by the Investment manager and the extent to which those strategies
are used will depend on the development of stock option and stock index futures contracts by emerging country stock
exchanges. The Fund only engages in transactions in stock options and stock index futures contracts which are traded
on a recognized securities or futures exchange. For a description of each of these instruments and an explanation of
the possible trading strategies the Fund may utilize in connection therewith, see Appendix D to this Prospectus.
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).
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 Objective 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 in paragraph 4 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, the Fund may 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. Make short sales of securities or maintain a short position (except that the Fund may maintain short positions in
foreign currency contracts, options and futures contracts).
3. Issue senior securities, borrow money or pledge its assets, except that the Fund may borrow from a lender (i) for
temporary or emergency purposes, (ii) for such short-term credits as may be necessary for the clearance or settlement
of the transactions, (iii) to finance repurchases of its shares (see "Common Stock"), in amounts not exceeding 10%
(taken at the lower of cost or current value) of its total assets (not including the amount borrowed), or (iv) to pay any
dividends required to be distributed in order for the Fund to maintain its qualification as a regulated investment
company under the Code or otherwise to avoid taxation under the Code, provided that the Fund will not purchase
additional portfolio securities when its borrowings exceed 5% of its assets. The Fund may pledge its assets to secure
4. 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.
5. Make any investment for the purpose of exercising control or management.
6. 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.
7. Make loans, except through repurchase agreements to the extent permitted under applicable law.
8. 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.
In addition to the restrictions described above, some emerging countries limit, or prohibit, all direct foreign
investment in the securities of their companies. See "Risk Factors and Special Considerations Investment and
Repatriation Restrictions." However, the governments of some emerging countries have authorized the organization
of investment funds to permit indirect foreign investment in such securities. Under the 1940 Act, the Fund may
neither invest more than 5% of its total assets in the securities of any one investment fund nor acquire more than 3%
of the outstanding voting securities of any such fund. In addition, the Fund may not invest more than 10% of its total
assets in securities issued by all investment funds. These provisions may limit the ability of the Fund to invest in
some of the special emerging country investment funds. To the extent that this restriction limits the Fund's
investments in emerging countries, and subject to the approval of the Securities and Exchange Commission (as to
which no assurance can be given), the Fund may create its own investment fund or may exceed these limits.
MANAGEMENT OF THE FUND
The Investment Manager
The Fund employs Morgan Stanley Asset Management Inc. (the "Investment Manager"), a wholly owned
subsidiary of Morgan Stanley Group Inc., pursuant to an Investment Advisory and Management Agreement, dated as
of October 25, 1991 (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 provides portfolio management and named fiduciary services to various closedend 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 December 31, 1994, the
Investment Manager, together with its affiliated investment management companies, had assets under management
(including assets under fiduciary advisory control) totaling approximately $48.7 billion, of which approximately $6.3
billion was invested in emerging countries. 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.
I In providing advisory services to the Fund, the Investment Manager first analyzes and assesses the investment
outlook for the various emerging countries in which the Fund is considering an investment. Based on this assessment,
the Investment Manager allocates the Fund's assets among the various emerging countries. In determining the desired
allocations, the Investment Manager evaluates, among other things, an emerging country's prospects for economic
and corporate earnings growth, the direction of government policies, capital resources and political stability.
The allocation process described above is performed by members of the Investment Manager's senior
management, including Messrs. Barton M. Biggs and Madhav Dhar and Ms. Marianne L. Hay. Within the