SEMI-ANNUAL REPORT
MORGAN STANLEY EMERGING MARKETS FUND, INC.
JUNE 30, 2002
DIRECTORS AND OFFICERS
BARTON M. BIGGS WILLIAM G. MORTON, JR.
CHAIRMAN OF THE DIRECTOR
BOARD OF DIRECTORS
MICHAEL NUGENT
RONALD E. ROBISON DIRECTOR
PRESIDENT AND DIRECTOR
FERGUS REID
JOHN D. BARRETT II DIRECTOR
DIRECTOR
STEFANIE V. CHANG
THOMAS P. GERRITY VICE PRESIDENT
DIRECTOR
LORRAINE TRUTEN
GERARD E. JONES VICE PRESIDENT
DIRECTOR
JAMES W. GARRETT
JOSEPH J. KEARNS TREASURER [MORGAN STANLEY LOGO]
DIRECTOR
MARY E. MULLIN
VINCENT R. MCLEAN SECRETARY
DIRECTOR MORGAN STANLEY EMERGING
BELINDA A. BRADY MARKETS FUND, INC.
C. OSCAR MORONG, JR. ASSISTANT TREASURER
DIRECTOR
INVESTMENT ADVISER
MORGAN STANLEY INVESTMENT MANAGEMENT INC.
1221 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10020
ADMINISTRATOR
JPMORGAN CHASE BANK
73 TREMONT STREET
BOSTON, MASSACHUSETTS 02108
CUSTODIAN
JPMORGAN CHASE BANK
3 CHASE METROTECH CENTER
BROOKLYN, NEW YORK 11245
STOCKHOLDER SERVICING AGENT
AMERICAN STOCK TRANSFER & TRUST COMPANY
59 MAIDEN LANE
NEW YORK, NEW YORK 10030
(800) 278-4353
LEGAL COUNSEL
CLIFFORD CHANCE ROGERS & WELLS LLP
200 PARK AVENUE
NEW YORK, NEW YORK 10166
INDEPENDENT AUDITORS
ERNST & YOUNG LLP
200 CLARENDON STREET
BOSTON, MASSACHUSETTS 02116
FOR ADDITIONAL FUND INFORMATION, INCLUDING MORGAN STANLEY
THE FUND'S NET ASSET VALUE PER SHARE AND INVESTMENT MANAGEMENT INC.
INFORMATION REGARDING THE INVESTMENTS INVESTMENT ADVISER
COMPRISING THE FUND'S PORTFOLIO, PLEASE CALL
1-800-221-6726 OR VISIT OUR WEBSITE AT
www.morganstanley.com/im.
MORGAN STANLEY EMERGING MARKETS FUND, INC.
OVERVIEW
LETTER TO STOCKHOLDERS
For the six months ended June 30, 2002, the Morgan Stanley Emerging Markets
Fund, Inc. (the "Fund") had a total return, based on net asset value per share,
of 4.68% compared with 1.94% for the Morgan Stanley Capital International (MSCI)
Emerging Markets Free Net Index. On June 30, 2002, the closing price of the
Fund's shares on the New York Stock Exchange was $9.57, representing a 14.4%
discount to the Fund's net asset value per share.
MARKET REVIEW
The Fund's outperformance relative to the Index was attributable to both country
allocation and stock selection. Stock selection in India, Israel and South
Africa were positive contributors to relative performance, while selection in
Russia and Mexico detracted slightly from performance. On a country allocation
basis, our overweight position in Indonesia (+65.2% Index return) and South
Korea (+24.8%) coupled with our underweight stance in Argentina (-64.7%) and
Chile (-16.0%) added to relative performance, while country allocations in
Turkey (-38.4%) and Thailand (+37.2%) detracted from performance.
During the first quarter of 2002, emerging markets equities gained a relatively
strong 12.4% as markets in the region were supported by expectations of a
U.S.-led economic recovery and positive economic data from select emerging
markets countries. However, after outperforming during the first quarter, and
rebounding 44.3% from September lows, emerging market equities, hampered by a
sharp decline in Latin America (-21.2%) and on profit taking within cyclical
markets such as South Korea and Taiwan, fell 8.4% during the second quarter of
2002. Risk aversion increased on a global basis during the second quarter,
dominated by negative sentiment toward Brazil and greater uncertainty over the
global backdrop. Increased reports of corporate accounting fraud and concerns
over the strength of the U.S. economic recovery coupled with geo-political risks
in the Asian sub-continent and the Middle East served to undermine investor
confidence.
MARKET OUTLOOK
Overall, emerging markets equities have been relatively resilient despite global
market turmoil and continue to offer attractive valuations. We believe that the
global economic turnaround and corporate restructuring should continue to
support earnings growth in the emerging markets universe. The global market sell
off related to deterioration in investor confidence reflects more accounting
uncertainties than economic risks. Outlook uncertainty has increased but
recovery momentum is likely to prevail. We believe the emerging markets are well
positioned to both continue to outperform global markets and, once sentiment has
stabilized, to rebound sharply due to extremely cheap relative valuations and
leveraged exposure to the pick-up in global economic activity. Convergence
opportunities, natural resource providers and domestic demand generators are all
part of the case for emerging markets. In Brazil, the path from today until
elections in October will remain rocky and we expect continued volatility in
equity and currency markets. Nevertheless, a rally is possible in the market
from its current oversold levels if the political outlook improves. We continue
focusing on earnings visibility as a driver of medium-term returns.
Sincerely,
/s/ Ronald E. Robison
Ronald E. Robison
President and Director
July 2002
2
MORGAN STANLEY EMERGING MARKETS FUND, INC.
JUNE 30, 2002
INVESTMENT SUMMARY
Historical Information (Unaudited)
TOTAL RETURN (%)
---------------------------------------------------------------------
MARKET VALUE(1) NET ASSET VALUE(2) INDEX(3)
---------------------------------------------------------------------
AVERAGE AVERAGE AVERAGE
CUMULATIVE ANNUAL CUMULATIVE ANNUAL CUMULATIVE ANNUAL
-------------------------------------------------------------------------------------------------
Year to Date 10.89% -- 4.68% -- 1.94% --
One Year 8.75 8.75% 4.29 4.29% 1.08 1.08%
Five Year (21.07) (4.62) (18.16) (3.93) (35.66) (8.44)
Ten Year 57.28 4.63 78.92 5.99 28.01 2.50
Since Inception* 88.75 6.14 120.51 7.69 50.64 3.92
Past performance is not predictive of future performance.
[CHART]
MORGAN STANLEY EMERGING MSCI EMERGING MARKETS FREE
MARKETS FUND, INC.(2) NET INDEX(3)
1992 13.94% 11.40%
1993 95.22%+ 74.84%
1994 -5.33% -7.32%
1995 -16.30%+ -5.21%
1996 13.84% 6.03%
1997 -0.97% -11.59%
1998 -19.61% -25.34%
1999 105.81% 66.48%
2000 -36.74% -30.97%
2001 -3.17% -2.62%
Six Months Ended
June 30, 2002 4.68% 1.94%
Returns and Per Share Information
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------
1992 1993 1994 1995 1996 1997 1998
----------------------------------------------------------------------------------------------------------------
Net Asset Value Per Share $16.74 $28.20 $20.30 $14.69 $15.69 $ 15.52 $ 10.33
----------------------------------------------------------------------------------------------------------------
Market Value Per Share $18.13 $31.63 $21.50 $15.50 $13.88 $ 13.06 $ 8.13
----------------------------------------------------------------------------------------------------------------
Premium/(Discount) 8.3% 12.2% 5.9% 5.5% (11.5)% (15.9)% (21.3)%
----------------------------------------------------------------------------------------------------------------
Income Dividends $ 0.01 -- -- -- $ 0.05 $ 0.01 $ 0.11
----------------------------------------------------------------------------------------------------------------
Capital Gains Distributions $ 0.01 $ 1.49 $ 6.50 $ 1.29 $ 0.98 $ 0.01 $ 2.18
----------------------------------------------------------------------------------------------------------------
Fund Total Return(2) 13.94% 95.22%+ (5.33)% (16.30)%+ 13.84% (0.97)% (19.61)%
----------------------------------------------------------------------------------------------------------------
Index Total Return(3) 11.40% 74.84% (7.32)% (5.21)% 6.03% (11.59)% (25.34)%
----------------------------------------------------------------------------------------------------------------
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------------------
1999 2000 2001 2002
--------------------------------------------------------------------------------
Net Asset Value Per Share $ 21.26 $ 11.03 $ 10.68 $ 11.18
--------------------------------------------------------------------------------
Market Value Per Share $ 16.31 $ 8.75 $ 8.63 $ 9.57
--------------------------------------------------------------------------------
Premium/(Discount) (23.3)% (20.7)% (19.2)% (14.4)%
--------------------------------------------------------------------------------
Income Dividends -- -- -- --
--------------------------------------------------------------------------------
Capital Gains Distributions -- $ 2.31 -- --
--------------------------------------------------------------------------------
Fund Total Return(2) 105.81% (36.74)% (3.17)% 4.68%
--------------------------------------------------------------------------------
Index Total Return(3) 66.48% (30.97)% (2.62)% 1.94%
--------------------------------------------------------------------------------
(1) Assumes dividends and distributions, if any, were reinvested.
(2) Total investment return based on net asset value per share reflects the
effects of changes in net asset value on the performance of the Fund during
each period, and assumes dividends and distributions, if any, were
reinvested. These percentages are not an indication of the performance of a
stockholder's investment in the Fund based on market value due to
differences between the market price of the stock and the net asset value
per share of the Fund.
(3) The Morgan Stanley Capital International Emerging Markets Free Net Index is
a market capitalization weighted index comprised of companies that are
representative of the market structure of developing countries in Latin
America, Asia, Eastern Europe, the Middle East and Africa. Dividends are
assumed to be reinvested after deduction of withholding tax, applying the
rate applicable to non-resident individuals who do not benefit from double
taxation treaties.
* The Fund commenced operations on November 1, 1991.
+ This return does not include the effect of the rights issued in connection
with the rights offering.
FOREIGN INVESTING INVOLVES CERTAIN RISKS, INCLUDING CURRENCY FLUCTUATIONS
AND CONTROLS, RESTRICTIONS ON FOREIGN INVESTMENTS, LESS GOVERNMENTAL
SUPERVISION AND REGULATION, LESS LIQUIDITY AND THE POTENTIAL FOR MARKET
VOLATILITY AND POLITICAL INSTABILITY. IN ADDITION, INVESTING IN EMERGING
MARKETS MAY INVOLVE A RELATIVE HIGHER DEGREE OF VOLATILITY.
3
MORGAN STANLEY EMERGING MARKETS FUND, INC.
JUNE 30, 2002 (UNAUDITED)
PORTFOLIO SUMMARY
[CHART]
Allocation of Total Investments
--------------------------------------------
Equity Securities 96.8%
Short-Term Investments 3.2
--------------------------------------------
[CHART]
Industries
--------------------------------------------
Semiconductor Equipment & Products 12.3%
Banks 11.6
Metals & Mining 10.7
Oil & Gas 8.8
Wireless Telecommunication Services 6.4
Diversified Telecommunication Services 5.5
Automobiles 3.6
Diversified Financials 3.3
Pharmaceuticals 3.0
Beverages 3.0
Other 31.8
--------------------------------------------
[CHART]
Country Weightings
--------------------------------------------
South Korea 23.6%
Taiwan 11.8
South Africa 10.6
Mexico 9.0
Brazil 6.9
China/Hong Kong 6.1
India 5.4
Russia 5.1
Malaysia 4.6
Israel 4.2
Other 12.7
--------------------------------------------
Ten Largest Holdings*
PERCENT OF
NET ASSETS
----------------------------------------------------------------------
1. Samsung Electronics Co., Ltd. (South Korea) 7.4%
2. Anglo American plc (South Africa) 3.6
3. Telmex (Mexico) 2.5
4. Taiwan Semiconductor Manufacturing Co., Ltd. (Taiwan) 2.4
5. SK Telecom Co., Ltd. (South Korea) 2.2
6. China Mobile (Hong Kong) Ltd. (China/Hong Kong) 2.2
7. Teva Pharamaceutical Industries Ltd. (Israel) 2.0
8. Hyundai Motor Co., Ltd. (South Korea) 1.9
9. POSCO (South Korea) 1.8
10. LUKoil Holdings (Russia) 1.7
----
27.7%
====
* Excludes short-term investments
4
MORGAN STANLEY EMERGING MARKETS FUND, INC.
FINANCIAL STATEMENTS
JUNE 30, 2002 (UNAUDITED)
STATEMENT OF NET ASSETS
VALUE
SHARES (000)
--------------------------------------------------------------------------------
COMMON STOCKS (96.2%)
(UNLESS OTHERWISE NOTED)
================================================================================
BRAZIL (6.9%)
AEROSPACE & DEFENSE
Embraer ADR 32,258 $ 690
--------------------------------------------------------------------------------
BANKS
Banco Bradesco SA (Preferred) 105,112,143 419
Banco Brandesco SA 15,756 311
Banco Itau SA (ADR) 9,260 259
Banco Itau SA (Preferred) 25,245,000 1,425
Banco Nacional SA (Preferred) 61,598,720 (a,b) --@
--------------------------------------------------------------------------------
2,414
--------------------------------------------------------------------------------
BEVERAGES
Companhia de Bebidas das Americas 1,346,000 211
Companhia de Bebidas das Americas ADR 122,129 1,898
--------------------------------------------------------------------------------
2,109
--------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES
Brasil Telecom Participacoes SA
(Preferred) 4,286,445 24
Brasil Telecom Participacoes SA
(Preferred) ADR 1,612 46
Brasil Telecom SA (Preferred) 8,331,048 33
Tele Norte Leste Participacoes SA
(Preferred) 44,416,000 449
Tele Norte Leste Participacoes SA
(Preferred) ADR 26,700 266
--------------------------------------------------------------------------------
818
--------------------------------------------------------------------------------
ELECTRIC UTILITIES
CEMIG ADR 37,484 421
CEMIG SA (Preferred) 31,141,035 352
Eletrobras 18,074,000 188
Eletrobras (Preferred) 'B' 23,958,000 229
Eletrobras (Preferred) ADR 20,900 99
--------------------------------------------------------------------------------
1,289
--------------------------------------------------------------------------------
METALS & MINING
CVRD (ADR) 12,600 (a) 349
CVRD (Preferred) 'A' 38,351 994
CVRD (Preferred) ADR 35,662 925
--------------------------------------------------------------------------------
2,268
--------------------------------------------------------------------------------
MULTILINE RETAIL
Lojas Arapua SA (Preferred) 30,412,000 (a,b) $ --@
Lojas Arapua SA (Preferred) ADR 31,540 (a,b) --@
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
OIL & GAS
Petrobras 3,900 74
Petrobras SA (Preferred) 84,496 1,479
Petrobras SA (Preferred) ADR 42,870 746
Petrobras SA ADR 85,970 1,621
--------------------------------------------------------------------------------
3,920
--------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS
Votorantim Celulose e Papel SA ADR 20,600 (a) 389
--------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES
Celular CRT (Preferred) 'A' 3,612,547 526
Tele Celular Sul ADR 6,432 71
--------------------------------------------------------------------------------
597
--------------------------------------------------------------------------------
14,494
================================================================================
CHILE (0.3%)
DIVERSIFIED TELECOMMUNICATION SERVICES
Telefonica CTC Chile ADR 49,740 (a) 610
--------------------------------------------------------------------------------
ELECTRIC UTILITIES
Enersis SA ADR 8,500 (a) 49
--------------------------------------------------------------------------------
659
================================================================================
CHINA/HONG KONG (6.1%)
AIRLINES
China Eastern Airlines, 'H' 2,550,000 428
China Southern Airlines Co., Ltd. 1,086,000 442
--------------------------------------------------------------------------------
870
--------------------------------------------------------------------------------
CHEMICALS
Sinopec Shanghai
Petrochemical Co., Ltd., 'H' 4,814,000 (a) 716
--------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS
Legend Group Ltd. 862,000 315
TPV Technology Ltd. 756,000 274
--------------------------------------------------------------------------------
589
--------------------------------------------------------------------------------
ELECTRIC UTILITIES
Huaneng Power International, Inc., 'H' 950,000 780
Shandong International Power
Development Co., Ltd., 'H' 1,776,000 478
--------------------------------------------------------------------------------
1,258
--------------------------------------------------------------------------------
FOOD PRODUCTS
People's Food Holdings Ltd. 1,010,000 720
--------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
5
MORGAN STANLEY EMERGING MARKETS FUND, INC.
FINANCIAL STATEMENTS
JUNE 30, 2002 (UNAUDITED)
STATEMENT OF NET ASSETS
VALUE
SHARES (000)
--------------------------------------------------------------------------------
CHINA/HONG KONG (CONTINUED)
INDUSTRIAL CONGLOMERATES
China Merchants Holdings
International Co., Ltd. 387,000 $ 298
Shanghai Industrial Holdings Ltd. 212,000 409
--------------------------------------------------------------------------------
707
--------------------------------------------------------------------------------
METALS & MINING
Yanzhou Coal Mining Co., Ltd. 1,412,000 520
--------------------------------------------------------------------------------
OIL & GAS
CNOOC Ltd. 950,000 1,273
PetroChina Co., Ltd. 2,892,000 615
--------------------------------------------------------------------------------
1,888
--------------------------------------------------------------------------------
SOFTWARE
Travelsky Technology Ltd. 538,000 (a) 369
--------------------------------------------------------------------------------
TRANSPORTATION INFRASTRUCTURE
Cosco Pacific Ltd. 810,000 644
--------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES
China Mobile (Hong Kong) Ltd. ADR 1,519,000 (a) 4,499
--------------------------------------------------------------------------------
12,780
================================================================================
HUNGARY (1.5%)
BANKS
OTP Bank Rt. 100,051 791
OTP Bank Rt. GDR 24,200 (a) 404
--------------------------------------------------------------------------------
1,195
--------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES
Matav Rt. 85,699 275
Matav Rt. ADR 23,699 379
--------------------------------------------------------------------------------
654
--------------------------------------------------------------------------------
OIL & GAS
MOL Magyar Olaj-es Gazipari Rt. 25,357 482
MOL Magyar Olaj-es Gazipari Rt. GDR 710 13
--------------------------------------------------------------------------------
495
--------------------------------------------------------------------------------
PHARMACEUTICALS
Gedeon Richter Rt. 5,290 305
Gedeon Richter Rt. GDR 6,273 384
--------------------------------------------------------------------------------
689
--------------------------------------------------------------------------------
3,033
================================================================================
INDIA (5.0%)
AUTOMOBILES
Hero Honda Motors Ltd. 148,200 935
Tata Engineering & Locomotive Co., Ltd. 82,000 (a) 261
--------------------------------------------------------------------------------
1,196
--------------------------------------------------------------------------------
BANKS
HDFC Bank Ltd. 30,700 $ 126
HDFC Bank Ltd. ADR 18,200 (a) 235
State Bank of India Ltd. 217,550 1,096
--------------------------------------------------------------------------------
1,457
--------------------------------------------------------------------------------
CHEMICALS
Reliance Industries Ltd. 63,933 353
--------------------------------------------------------------------------------
CONSTRUCTION MATERIALS
Gujarat Ambuja Cements Ltd. 102,500 428
--------------------------------------------------------------------------------
DIVERSIFIED FINANCIALS
Housing Development Finance Corp., Ltd. 29,210 390
Housing Development Finance
Corp., Ltd. ADR 90 1
--------------------------------------------------------------------------------
391
--------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES
Mahanagar Telephone Nigam Ltd. 137,430 400
--------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT
Bharat Heavy Electricals Ltd. 119,700 435
--------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES
Oil and Natural Gas Corp., Ltd. 34,500 230
--------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS
Colgate-Palmolive (India) Ltd. 73,190 211
Hindustan Lever Ltd. 134,000 530
--------------------------------------------------------------------------------
741
--------------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES
India Info.com PCL 116,052 (a,b) --@
--------------------------------------------------------------------------------
IT CONSULTING & SERVICES
Infosys Technologies Ltd. 13,950 938
Wipro Ltd. 5,000 151
Wipro Ltd. ADR 6,000 180
--------------------------------------------------------------------------------
1,269
--------------------------------------------------------------------------------
METALS & MINING
Hindalco Industries Ltd. 28,100 409
Tata Iron & Steel Co., Ltd. 190,000 546
--------------------------------------------------------------------------------
955
--------------------------------------------------------------------------------
OIL & GAS
Bharat Petroleum Corp., Ltd. 61,850 338
Hindustan Petroleum Corp., Ltd. 71,500 388
--------------------------------------------------------------------------------
726
--------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
6
MORGAN STANLEY EMERGING MARKETS FUND, INC.
FINANCIAL STATEMENTS
JUNE 30, 2002 (UNAUDITED)
STATEMENT OF NET ASSETS
VALUE
SHARES (000)
--------------------------------------------------------------------------------
INDIA (CONTINUED)
PHARMACEUTICALS
Dabur India Ltd. 42,151 $ 44
Dr. Reddy's Laboratories Ltd. 20,000 387
Ranbaxy Laboratories Ltd. 29,500 533
--------------------------------------------------------------------------------
964
--------------------------------------------------------------------------------
ROAD & RAIL
Container Corporation of India Ltd. 107,600 657
--------------------------------------------------------------------------------
TOBACCO
ITC Ltd. 8,800 115
ITC Ltd. GDR 14,750 190
--------------------------------------------------------------------------------
305
--------------------------------------------------------------------------------
10,507
================================================================================
INDONESIA (2.8%)
AUTOMOBILES
PT Astra International Tbk 3,649,000 (a) 1,780
--------------------------------------------------------------------------------
BANKS
PT Bank Central Asia Tbk 2,635,500 787
--------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES
PT Telekomunikasi Indonesia 3,058,500 1,316
--------------------------------------------------------------------------------
TOBACCO
PT Bentoel Internasional Investama Tbk 6,661,500 (a) 210
PT Hanjaya Mandala Sampoerna Tbk 3,538,500 1,665
--------------------------------------------------------------------------------
1,875
--------------------------------------------------------------------------------
5,758
================================================================================
ISRAEL (4.2%)
COMMUNICATIONS EQUIPMENT
ECI Telecom Ltd. 180,332 (a) 541
--------------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES
RADWARE Ltd. 48,025 (a) 418
--------------------------------------------------------------------------------
IT CONSULTING & SERVICES
Check Point Software Technologies Ltd. 193,244 (a) 2,620
--------------------------------------------------------------------------------
PHARMACEUTICALS
Taro Pharmaceutical Industries, Ltd. 7,700 (a) 189
Teva Pharmaceutical Industries Ltd. 12,420 825
Teva Pharmaceutical Industries Ltd. ADR 51,207 3,420
--------------------------------------------------------------------------------
4,434
--------------------------------------------------------------------------------
SOFTWARE
TTI Team Telecom International Ltd. 43,037 (a) 689
--------------------------------------------------------------------------------
8,702
================================================================================
MALAYSIA (4.6%)
AUTO COMPONENTS
UMW Holdings Berhad 107,000 $ 220
--------------------------------------------------------------------------------
AUTOMOBILES
Perusahaan Otomobi Nasional Bhd 154,000 387
Tan Chong Motor Holdings Bhd 415,000 148
--------------------------------------------------------------------------------
535
--------------------------------------------------------------------------------
BANKS
Malayan Banking Bhd 919,900 2,130
Public Bank Bhd 854,300 733
--------------------------------------------------------------------------------
2,863
--------------------------------------------------------------------------------
CONSTRUCTION & ENGINEERING
Gamuda Bhd 673,000 1,107
--------------------------------------------------------------------------------
DIVERSIFIED FINANCIALS
AMMB Holdings Bhd 351,000 494
--------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES
Technology Resources Industries Bhd 1,853,000 (a) 1,229
Telekom Malaysia Bhd 106,000 222
--------------------------------------------------------------------------------
1,451
--------------------------------------------------------------------------------
HOTELS RESTAURANTS & LEISURE
Magnum Corp. Bhd 1,136,000 801
Resorts World Bhd 240,000 670
--------------------------------------------------------------------------------
1,471
--------------------------------------------------------------------------------
REAL ESTATE
SP Setia Bhd 489,000 450
--------------------------------------------------------------------------------
SEMICONDUCTOR EQUIPMENT & PRODUCTS
Malaysian Pacific Industries Bhd 118,000 469
--------------------------------------------------------------------------------
TOBACCO
British American Tobacco
(Malaysia) Bhd 44,200 413
--------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES
Maxis Communications Bhd 76,000 (a,b) 97
--------------------------------------------------------------------------------
9,570
================================================================================
MEXICO (9.0%)
BANKS
Bancomer 'O' 2,660,981 (a) 2,173
--------------------------------------------------------------------------------
BEVERAGES
Coca-Cola Femsa ADR 26,005 624
Femsa ADR 8,839 347
Femsa UBD 449,775 1,760
--------------------------------------------------------------------------------
2,731
--------------------------------------------------------------------------------
CONSTRUCTION MATERIALS
Cemex SA ADR 10,990 290
Cemex SA CPO 246,507 1,305
--------------------------------------------------------------------------------
1,595
--------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
7
MORGAN STANLEY EMERGING MARKETS FUND, INC.
FINANCIAL STATEMENTS
JUNE 30, 2002 (UNAUDITED)
STATEMENT OF NET ASSETS
VALUE
SHARES (000)
--------------------------------------------------------------------------------
MEXICO (CONTINUED)
DIVERSIFIED TELECOMMUNICATION SERVICES
Telmex 'L' ADR 164,175 $ 5,267
--------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES
Grupo Carso SA 'A1' 23,274 (a) 70
--------------------------------------------------------------------------------
MEDIA
Grupo Televisa CPO GDR 35,350 (a) 1,322
--------------------------------------------------------------------------------
MULTILINE RETAIL
Wal-mart de Mexico 'C' 304,748 703
Wal-mart de Mexico 'V' 266,419 723
Wal-mart de Mexico ADR 28,162 (a) 765
--------------------------------------------------------------------------------
2,191
--------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS
Kimberly-Clark de Mexico SA 'A' 309,058 824
--------------------------------------------------------------------------------
TRANSPORTATION INFRASTRUCTURE
Grupo Aeroportuario del
Sureste SA ADR 28,350 (a) 366
Grupo Aeroportuario
del Sureste SA `B' 149,200 (a) 195
--------------------------------------------------------------------------------
561
--------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES
America Movil SA de CV ADR 154,627 2,072
--------------------------------------------------------------------------------
18,806
================================================================================
POLAND (1.6%)
BANKS
Bank Pekao SA 46,132 (a) 1,059
--------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES
Telekomunikacja Polska SA 36,751 (a) 100
Telekomunikacja Polska SA GDR 115,117 (a) 314
--------------------------------------------------------------------------------
414
--------------------------------------------------------------------------------
METALS & MINING
KGHM Polska Miedz A 56,819 (a) 185
--------------------------------------------------------------------------------
MULTILINE RETAIL
Eastbridge 33,600 (a,b) 1,506
--------------------------------------------------------------------------------
OIL & GAS
Polski Koncern Naftowy 36,581 (a) 161
--------------------------------------------------------------------------------
3,325
================================================================================
RUSSIA (5.1%)
ELECTRIC UTILITIES
Unified Energy Systems GDR 70,994 709
--------------------------------------------------------------------------------
METALS & MINING
Norilsk Nickel (ADR) 49,970 (a) 1,043
--------------------------------------------------------------------------------
OIL & GAS
Gazprom ADR 94,000 $ 1,541
LUKoil Holdings ADR 54,549 3,539
Surgutneftegaz ADR (Preferred) 20,620 436
Surgutneftegaz ADR 108,925 2,116
Yukos 8,378 1,158
Yukos ADR 1,085 150
--------------------------------------------------------------------------------
8,940
--------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS
Alliance Cellulose Ltd. 'B' 156,075 (a,b) --@
--------------------------------------------------------------------------------
10,692
================================================================================
SOUTH AFRICA (10.6%)
BANKS
FirstRand Ltd. 537,520 400
Nedcor Ltd. 25,500 290
Standard Bank Investment Corp., Ltd. 171,280 534
--------------------------------------------------------------------------------
1,224
--------------------------------------------------------------------------------
BEVERAGES
South African Breweries plc 116,030 920
South African Breweries plc
(London Shares) 31,903 251
--------------------------------------------------------------------------------
1,171
--------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES
Barlow Ltd. 186,110 1,141
Bidvest Group Ltd. 134,715 (a) 603
--------------------------------------------------------------------------------
1,744
--------------------------------------------------------------------------------
INSURANCE
Liberty Group Ltd. 38,720 211
Old Mutual plc (London Shares) 821,178 1,173
Sanlam Ltd. 682,310 570
--------------------------------------------------------------------------------
1,954
--------------------------------------------------------------------------------
METALS & MINING
Anglo American Platinum Corp., Ltd. 46,470 1,832
Anglo American plc 206,188 3,451
Anglo American plc (London Shares) 238,867 3,991
AngloGold Ltd. 8,443 450
AngloGold Ltd. ADR 7,940 207
Gold Fields Ltd. 136,300 1,616
Harmony Gold Mining Co., Ltd. 62,610 865
Impala Platinum Holdings Ltd. 14,920 830
--------------------------------------------------------------------------------
13,242
--------------------------------------------------------------------------------
OIL & GAS
Sasol Ltd. 162,770 1,742
--------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
8
MORGAN STANLEY EMERGING MARKETS FUND, INC.
FINANCIAL STATEMENTS
JUNE 30, 2002 (UNAUDITED)
STATEMENT OF NET ASSETS
VALUE
SHARES (000)
--------------------------------------------------------------------------------
SOUTH AFRICA (CONTINUED)
PAPER & FOREST PRODUCTS
Sappi Ltd. 49,970 $ 705
Sappi Ltd. ADR 11,970 168
--------------------------------------------------------------------------------
873
--------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES
M-Cell Ltd. 206,340 (a) 235
--------------------------------------------------------------------------------
22,185
================================================================================
SOUTH KOREA (23.6%)
AEROSPACE & DEFENSE
LG Chem Ltd. 56,320 2,037
--------------------------------------------------------------------------------
AUTO COMPONENTS
Hyundai Mobis 94,240 1,990
--------------------------------------------------------------------------------
AUTOMOBILES
Hyundai Motor Co., Ltd. (Preferred) 47,900 526
Hyundai Motor Co., Ltd. 114,260 3,433
--------------------------------------------------------------------------------
3,959
--------------------------------------------------------------------------------
BANKS
Hana Bank 21,086 301
Kookmin Bank 66,548 3,231
Shinhan Financial Group Co., Ltd. 176,980 (a) 2,501
--------------------------------------------------------------------------------
6,033
--------------------------------------------------------------------------------
CONSTRUCTION & ENGINEERING
Hyundai Development Co. 177,190 (a) 1,130
--------------------------------------------------------------------------------
DIVERSIFIED FINANCIALS
Good Morning Securities Co., Ltd. 92,870 (a) 445
Samsung Securities Co., Ltd. 12,880 (a) 368
Seoul Securities Co., Ltd. 136,200 521
--------------------------------------------------------------------------------
1,334
--------------------------------------------------------------------------------
ELECTRIC UTILITIES
Korea Electric Power Corp. 39,920 730
--------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT & INSTRUMENTS
Samsung Electro -
Mechanics Co., Ltd. 28,787 1,395
--------------------------------------------------------------------------------
FOOD PRODUCTS
Tongyang Confectionery Co. 14,000 614
--------------------------------------------------------------------------------
HOUSEHOLD DURABLES
Humax Co., Ltd. 18,381 401
LG Electronics Ltd. 57,347 (a) 2,288
--------------------------------------------------------------------------------
2,689
--------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS
CJ39 Shopping Corp. 15,038 1,030
LG Household & Health Care Ltd. 18,790 565
--------------------------------------------------------------------------------
1,595
--------------------------------------------------------------------------------
INSURANCE
Hyundai Marine & Fire
Insurance Co., Ltd. (HDMF) 20,940 623
--------------------------------------------------------------------------------
METALS & MINING
POSCO 33,720 3,742
--------------------------------------------------------------------------------
MULTILINE RETAIL
Shinsegae Co., Ltd. 5,680 963
--------------------------------------------------------------------------------
PHARMACEUTICALS
Yuhan Corp. 3,503 159
--------------------------------------------------------------------------------
SEMICONDUCTOR EQUIPMENT & PRODUCTS
Samsung Electronics Co., Ltd. 50,412 13,787
Samsung Electronics Co.,
Ltd. (Preferred) 12,660 1,715
--------------------------------------------------------------------------------
15,502
--------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES
SK Telecom Co., Ltd. 20,660 4,628
SK Telecom Co., Ltd. ADR 2,000 50
--------------------------------------------------------------------------------
4,678
--------------------------------------------------------------------------------
49,173
================================================================================
TAIWAN (11.8%)
AIRLINES
Eva Airways Corp 1,290,000 (a) 525
--------------------------------------------------------------------------------
BANKS
Fubon Financial Holding
Co., Ltd. 1,389,087 1,389
Taipei Bank 836,000 668
Taishin Financial Holdings
Co., Ltd. 2,226,000 (a) 1,199
--------------------------------------------------------------------------------
3,256
--------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT
Accton Technology Corp. 833,000 (a) 1,434
--------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS
Asustek Computer, Inc. 429,553 (a) 1,292
Benq Corp. 468,160 757
Compal Electronics, Inc. 280,000 269
Largan Precision Co., Ltd. 67,000 (a) 475
Quanta Computer, Inc. 248,000 698
--------------------------------------------------------------------------------
3,491
--------------------------------------------------------------------------------
CONSTRUCTION MATERIALS
Taiwan Cement Corp. 952,000 (a) 313
--------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
9
MORGAN STANLEY EMERGING MARKETS FUND, INC.
FINANCIAL STATEMENTS
JUNE 30, 2002 (UNAUDITED)
STATEMENT OF NET ASSETS
VALUE
SHARES (000)
--------------------------------------------------------------------------------
TAIWAN (CONTINUED)
DIVERSIFIED FINANCIALS
Chinatrust Financial Holding Co. 3,310,748 (a) $ 2,923
Sinopac Holdings Co. 2,130,313 (a) 931
--------------------------------------------------------------------------------
3,854
--------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT
Phoenixtec Power Co., Ltd. 456,000 354
--------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT & INSTRUMENTS
Yageo Corp. 308,000 (a) 136
--------------------------------------------------------------------------------
FOOD & DRUG RETAILING
President Chain Store Corp. 103,782 194
--------------------------------------------------------------------------------
METALS & MINING
China Steel Corp. 698,840 360
--------------------------------------------------------------------------------
SEMICONDUCTOR EQUIPMENT & PRODUCTS
Advanced Semiconductor
Engineering, Inc. 497,000 (a) 330
Novatek Microelectronics Corp., Ltd. 174,000 (a) 469
Orient Semiconductor
Electronics Ltd. 1,069,000 (a) 331
Siliconware Precision
Industries Co. 836,692 (a) 586
Taiwan Semiconductor
Manufacturing Co., Ltd. 2,433,334 (a) 4,953
United Microelectronics Corp. 2,525,730 (a) 3,031
--------------------------------------------------------------------------------
9,700
--------------------------------------------------------------------------------
TEXTILES & APPAREL
Formosa Chemicals & Fibre Corp. 494,720 450
--------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES
Taiwan Cellular Corp. 510,818 (a) 653
--------------------------------------------------------------------------------
24,720
================================================================================
THAILAND (1.1%)
CONSTRUCTION MATERIALS
Siam Cement PCL 38,900 (a) 890
--------------------------------------------------------------------------------
MEDIA
BEC World PCL 77,100 446
--------------------------------------------------------------------------------
OIL & GAS
PTT Exploration &
Production PCL 177,200 512
--------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES
Advanced Info Service PCL (Foreign) 504,600 486
--------------------------------------------------------------------------------
2,334
================================================================================
TURKEY (1.7%)
BANKS
Akbank TAS 346,335,800 (a) $ 1,116
Turkiye Garanti Bankasi AS 156,685,000 (a) 196
Turkiye Is Bankasi 105,475,000 (a) 273
Yapi ve Kredi Bankasi AS 150,639,975 (a) 150
--------------------------------------------------------------------------------
1,735
--------------------------------------------------------------------------------
BEVERAGES
Anadolu Efes Biracilik ve
Malt Sanayii AS 9,117,000 (a) 178
--------------------------------------------------------------------------------
HOUSEHOLD DURABLES
Arcelik AS 63,177,000 (a) 399
Vestel Elektronik Sanayi ve
Ticaret AS 155,610,836 (a) 315
--------------------------------------------------------------------------------
714
--------------------------------------------------------------------------------
INSURANCE
Aksigorta AS 115,734,000 322
--------------------------------------------------------------------------------
MEDIA
Hurriyet Gazetecilik ve
Matbaacilik AS 202,581,175 (a) 608
--------------------------------------------------------------------------------
3,557
================================================================================
VENEZUELA (0.3%)
DIVERSIFIED TELECOMMUNICATION SERVICES
Compania Anonima Nacional Telefonos de
Venezuela ADR 45,243 644
================================================================================
TOTAL COMMON STOCKS
(Cost $202,645) 200,939
================================================================================
INVESTMENT COMPANIES (0.4%)
================================================================================
INDIA (0.4%)
Morgan Stanley Growth Fund (Cost $891) 4,694,400 (a,c) 865
================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
10
MORGAN STANLEY EMERGING MARKETS FUND, INC.
FINANCIAL STATEMENTS
JUNE 30, 2002 (UNAUDITED)
STATEMENT OF NET ASSETS
FACE
AMOUNT VALUE
(000) (000)
--------------------------------------------------------------------------------
DEBT INSTRUMENTS (0.0%)
================================================================================
INDIA (0.0%)
METALS & MINING
DCM Shriram Investments
Ltd. 0.00%, 2/12/02 INR 330 (b,d) $ --@
DCM Shriran Industrials
0.00%, 2/21/01 $ 335 (b,d) --@
Shri Ishar Alloy Steels Ltd.
15.00%, 4/21/01 581 (b,d) --@
--------------------------------------------------------------------------------
TOTAL DEBT INSTRUMENTS
(Cost $1,495) --@
================================================================================
SHORT-TERM INVESTMENT (2.8%)
================================================================================
UNITED STATES (2.8%)
REPURCHASE AGREEMENT
J.P. Morgan Securities Inc., 1.95%, dated
6/28/02, due 7/01/02
(Cost $5,751) $ 5,751 (e) 5,751
================================================================================
FOREIGN CURRENCY ON DEPOSIT WITH
CUSTODIAN (0.4%)
================================================================================
Brazilian Real BRL 77 27
China Renminbi CNY 73 9
Euro EUR 43 43
Hong Kong Dollar HKD 487 63
Hungarian Forint HUF 26,685 108
Indian Rupee INR 1,230 25
Malaysian Ringgit MYR 404 107
Mexican Peso MXN 4 --@
Moroccan Dirham MAD 68 --@
Taiwan Dollar TWD 13,438 402
South African Rand ZAR 3 --@
Turkish Lira TRL 115,957,084 73
--------------------------------------------------------------------------------
TOTAL FOREIGN CURRENCY
(Cost $845) 857
================================================================================
TOTAL INVESTMENTS (99.8%)
(Cost $211,627) 208,412
================================================================================
VALUE VALUE
(000) (000)
--------------------------------------------------------------------------------
OTHER ASSETS (1.0%)
Cash $ 848
Receivable for Investments Sold 692
Dividends Receivable 418
Tax Reclaim Receivable 141
Other 44 $ 2,143
================================================================================
LIABILITIES (-0.8%)
Payable For:
Investments Purchased (1,040)
Investment Advisory Fees (219)
Custodian Fees (157)
Administrative Fees (64)
Stockholder Reporting Expenses (61)
Directors' Fees and Expenses (60)
Professional Fees (35)
Other Liabilities (126) (1,762)
================================================================================
NET ASSETS (100%)
Applicable to (18,669,740, issued and
outstanding $0.01 par value shares
(100,000,000 shares authorized) $208,793
================================================================================
NET ASSET VALUE PER SHARE $ 11.18
================================================================================
AT JUNE 30, 2002, NET ASSETS CONSISTED OF:
Common Stock $ 187
Paid-in Capital 291,645
Undistributed Net Investment Income (Loss) 350
Accumulated Net Realized Gain (Loss) (81,589)
Unrealized Appreciation (Depreciation) on
Investments and Foreign Currency Translations (1,800)
================================================================================
TOTAL NET ASSETS $208,793
================================================================================
(a) -- Non-income producing.
(b) -- Investments valued at fair value- see Note A-1 to financial statements.
At June 30, 2002, the Portfolio held $1,506,000 of fair-valued
securities, representing 0.7% of net assets.
(c) -- Fund is advised by an affiliate.
(d) -- Security is in default.
(e) -- The repurchase agreement is fully collateralized by U.S. government
and/or agency obligations based on market prices at the date of this
statement of net assets. The investment in the repurchase agreement is
through participation in a joint account with affiliated funds.
@ -- Value less than $500.
ADR -- American Depositary Receipt
GDR -- Global Depositary Receipt
INR -- Indian Rupee
TRL -- Turkish Lira
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
11
MORGAN STANLEY EMERGING MARKETS FUND, INC.
FINANCIAL STATEMENTS
JUNE 30, 2002 (UNAUDITED)
STATEMENT OF NET ASSETS
================================================================================
FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION:
The Fund had the following foreign currency exchange contracts open at period
end:
CURRENCY IN NET
TO EXCHANGE UNREALIZED
DELIVER VALUE SETTLEMENT FOR VALUE GAIN (LOSS)
(000) (000) DATE (000) (000) (000)
=====================================================================
US$ 33 $ 33 7/01/02 INR 1,598 $ 33 $ --@
US$ 45 45 7/01/02 INR 2,176 45 --@
US$ 50 50 7/01/02 INR 2,429 50 --@
US$ 55 55 7/01/02 INR 2,698 55 --@
US$ 38 38 7/01/02 INR 1,854 38 --@
US$ 38 38 7/01/02 INR 1,835 38 --@
US$ 120 120 7/01/02 TRL 191,922,124 121 1
---------------------------------------------------------------------
$ 379 $ 380 $ 1
---------------------------------------------------------------------
SUMMARY OF TOTAL INVESTMENTS BY INDUSTRY
CLASSIFICATION -- JUNE 30, 2002
PERCENT
VALUE OF NET
INDUSTRY (000) ASSETS
------------------------------------------------------------------
Aerospace & Defense $ 2,727 1.3%
Auto Components 2,210 1.1
Automobiles 7,470 3.6
Banks 24,196 11.6
Beverages 6,189 3.0
Computers & Peripherals 4,080 2.0
Construction & Engineering 2,237 1.1
Construction Materials 3,226 1.5
Diversified Financials 6,073 2.9
Diversified Telecommunication Services 11,574 5.5
Electric Utilities 4,035 1.9
Household Durables 3,403 1.6
Household Products 2,336 1.1
Industrial Conglomerates 2,521 1.2
Insurance 2,899 1.4
IT Consulting & Services 3,889 1.9
Media 2,376 1.1
Metals & Mining 22,315 10.7
Multiline Retail 4,660 2.2
Oil & Gas 18,384 8.8
Paper & Forest Products 2,086 1.0
Pharmaceuticals 6,246 3.0
Semiconductor Equipment & Products 25,671 12.3
Tobacco 2,593 1.2
Wireless Telecommunication Services 13,317 6.4
Other 21,699 10.4
------------------------------------------------------------------
$ 208,412 99.8%
==================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
12
MORGAN STANLEY EMERGING MARKETS FUND, INC.
FINANCIAL STATEMENTS
SIX MONTHS ENDED
JUNE 30, 2002
(UNAUDITED)
STATEMENT OF OPERATIONS (000)
---------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of $162 of foreign taxes withheld) $ 2,650
Interest 41
=====================================================================================================================
TOTAL INCOME 2,691
=====================================================================================================================
EXPENSES
Investment Advisory Fees 1,362
Custodian Fees 193
Administrative Fees 133
Professional Fees 68
Stockholder Reporting Expenses 62
Country Tax Expense 21
Transfer Agent Fees 16
Directors' Fees and Expenses 2
Other Expenses 33
=====================================================================================================================
TOTAL EXPENSES 1,890
=====================================================================================================================
NET INVESTMENT INCOME (LOSS) 801
=====================================================================================================================
NET REALIZED GAIN (LOSS) ON:
Investments (1,124)
Foreign Currency Transactions (1,179)
=====================================================================================================================
NET REALIZED GAIN (LOSS) (2,303)
=====================================================================================================================
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) ON:
Investments 9,836
Foreign Currency Translations 931
=====================================================================================================================
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) 10,767
=====================================================================================================================
TOTAL NET REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) 8,464
=====================================================================================================================
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 9,265
=====================================================================================================================
SIX MONTHS ENDED
JUNE 30, 2002 YEAR ENDED
(UNAUDITED) DECEMBER 31, 2001
STATEMENT OF CHANGES IN NET ASSETS (000) (000)
---------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net Investment Income (Loss) $ 801 $ 419
Net Realized Gain (Loss) (2,303) (60,086)
Change in Unrealized Appreciation (Depreciation) 10,767 51,864
=====================================================================================================================
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 9,265 (7,803)
=====================================================================================================================
Capital Share Transactions:
Repurchase of Shares (169,864 and 494,740 shares, respectively) (1,589) (4,285)
=====================================================================================================================
TOTAL INCREASE (DECREASE) 7,676 (12,088)
=====================================================================================================================
Net Assets:
Beginning of Period 201,117 213,205
=====================================================================================================================
END OF PERIOD (INCLUDING UNDISTRIBUTED NET INVESTMENT INCOME (LOSS) OF
$350 AND ($451), RESPECTIVELY) $ 208,793 $ 201,117
=====================================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
13
MORGAN STANLEY EMERGING MARKETS FUND, INC.
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 2002 ---------------------------------------------------------------------
(UNAUDITED) 2001 2000 1999 1998 1997
---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.68 $ 11.03 $ 21.26 $ 10.33 $ 15.52 $ 15.69
---------------------------------------------------------------------------------------------------------------------------------
Net Investment Income (Loss) 0.04 0.03 (0.15) (0.03) 0.04 0.03
Net Realized and Unrealized Gain (Loss)
on Investments 0.44 (0.43) (8.04) 10.87 (3.05) (0.18)
---------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.48 (0.40) (8.19) 10.84 (3.01) (0.15)
---------------------------------------------------------------------------------------------------------------------------------
Distributions from and/or in excess of:
Net Investment Income -- -- -- -- (0.11) (0.01)
Net Realized Gain -- -- (2.31) -- (2.18) (0.01)
---------------------------------------------------------------------------------------------------------------------------------
Total Distributions -- -- (2.31) -- (2.29) (0.02)
---------------------------------------------------------------------------------------------------------------------------------
Anti--Dilutive Effect of Shares
Repurchased 0.02 0.05 0.27 0.09 0.11 --
---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 11.18 $ 10.68 $ 11.03 $ 21.26 $ 10.33 $ 15.52
=================================================================================================================================
PER SHARE MARKET VALUE, END OF
PERIOD $ 9.57 $ 8.63 $ 8.75 $ 16.31 $ 8.13 $ 13.06
=================================================================================================================================
TOTAL INVESTMENT RETURN:
Market Value 10.89%+ (1.37)% (34.60)% 100.77% (24.88)% (5.75)%
Net Asset Value (1) 4.68%+ (3.17)% (36.74)% 105.81% (19.61)% (0.97)%
=================================================================================================================================
RATIOS, SUPPLEMENTAL DATA:
---------------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD
(THOUSANDS) $ 208,793 $ 201,117 $ 213,205 $ 435,795 $ 221,609 $ 354,137
---------------------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets 1.74%* 1.85% 1.64% 1.76% 1.96% 1.84%
Ratio of Net Investment Income to
Average Net Assets 0.74%* 0.21% (0.73)% (0.20)% 0.36% 0.15%
Portfolio Turnover Rate 34%+ 83% 81% 121% 101% 90%
---------------------------------------------------------------------------------------------------------------------------------
+ Not annualized
* Annualized
(1) Total investment return based on net asset value per share reflects the
effects of changes in net asset value on the performance of the Fund during
each period, and assumes dividends and distributions, if any, were
reinvested. This percentage is not an indication of the performance of a
stockholder's investment in the Fund based on market value due to
differences between the market price of the stock and the net asset value
per share of the Fund.
The accompanying notes are an integral part of the financial statements.
14
MORGAN STANLEY EMERGING MARKETS FUND, INC.
JUNE 30, 2002 (UNAUDITED)
NOTES TO FINANCIAL STATEMENTS
The Morgan Stanley Emerging Markets Fund, Inc. (the "Fund") was incorporated
on August 27, 1991 and is registered as a non-diversified, closed-end management
investment company under the Investment Company Act of 1940, as amended. The
Fund's investment objective is long-term capital appreciation through
investments primarily in equity securities.
A. ACCOUNTING POLICIES: The following significant accounting policies, which
are in conformity with generally accepted accounting principles. Such policies
are consistently followed by the Fund in the preparation of its financial
statements. Generally accepted accounting principles may require management to
make estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results may differ from those estimates.
1. SECURITY VALUATION: In valuing the Fund's assets, all listed securities for
which market quotations are readily available are valued at the last sales
price on the valuation date, or if there was no sale on such date, at the
mean between the current bid and asked prices. Securities which are traded
over-the-counter are valued at the mean of current bid and asked prices
obtained from reputable brokers. Short-term securities which mature in 60
days or less are valued at amortized cost. All other securities and assets
for which market values are not readily available (including investments
which are subject to limitations as to their sale, if any), and those
securities for which it is inappropriate to determine prices in accordance
with the aforementioned procedures, are valued at fair value as determined
in good faith under procedures approved by the Board of Directors.
2. TAXES: It is the Fund's intention to continue to qualify as a regulated
investment company and distribute all of its taxable income. Accordingly, no
provision for U.S. Federal income taxes is required in the financial
statements.
The Fund may be subject to taxes imposed by countries in which it invests.
Such taxes are generally based on income and/or capital gains earned or
repatriated. Taxes are accrued and applied to net investment income, net
realized gains and net unrealized appreciation as such income and/or gains
are earned.
3. REPURCHASE AGREEMENTS: The Fund may enter into repurchase agreements under
which the Fund lends excess cash and takes possession of securities with an
agreement that the counterparty will repurchase such securities. In
connection with transactions in repurchase agreements, a bank as custodian
for the Fund takes possession of the underlying securities (collateral),
with a market value at least equal to the amount of the repurchase
transaction, including principal and accrued interest. To the extent that
any repurchase transaction exceeds one business day, the value of the
collateral is marked-to-market on a daily basis to determine the adequacy of
the collateral. In the event of default on the obligation to repurchase, the
Fund has the right to liquidate the collateral and apply the proceeds in
satisfaction of the obligation. In the event of default or bankruptcy by the
counterparty to the agreement, realization and/ or retention of the
collateral or proceeds may be subject to legal proceedings.
4. FOREIGN CURRENCY TRANSLATION: The books and records of the Fund are
maintained in U.S. dollars. Foreign currency amounts are translated into
U.S. dollars at the mean of the bid and asked prices of such currencies
against U.S. dollars last quoted by a major bank as follows:
- investments, other assets and liabilities - at the prevailing rates of
exchange on the valuation date;
- investment transactions and investment income - at the prevailing rates of
exchange on the dates of such transactions.
Although the net assets of the Fund are presented at the foreign exchange
rates and market values at the close of the period, the Fund does not
isolate that portion of the results of operations arising as a result of
changes in the foreign exchange rates from the fluctuations arising from
changes in the market prices of the securities held at period end.
Similarly, the Fund does not isolate the effect of changes in foreign
exchange rates from the fluctuations arising from changes in the market
prices of securities sold during the period. Accordingly, realized and
unrealized foreign currency gains (losses) due to securities transactions
are included in the reported net realized and unrealized gains (losses) on
investment transactions and balances.
Net realized gains (losses) on foreign currency transactions represent net
foreign exchange gains (losses) from sales and maturities of foreign
currency exchange contracts, disposition of foreign currencies, currency
gains or losses realized between the trade and settlement dates on
securities transactions, and the difference between the amount of investment
income and foreign withholding taxes recorded on the Fund's books and the
U.S. dollar equivalent amounts actually received or paid. Net unrealized
currency gains (losses) from valuing foreign currency denominated assets and
liabilities at period end exchange rates are reflected as a component of
unrealized appreciation (depreciation) on investments and foreign currency
translations in the Statement of Net Assets. The change in net unrealized
currency gains (losses) on foreign currency
15
MORGAN STANLEY EMERGING MARKETS FUND, INC.
JUNE 30, 2002 (UNAUDITED)
NOTES TO FINANCIAL STATEMENTS (CONT'D)
translations for the period is reflected in the Statement of Operations.
Foreign security and currency transactions may involve certain
considerations and risks not typically associated with those of U.S. dollar
denominated transactions as a result of, among other factors, the
possibility of lower levels of governmental supervision and regulation of
foreign securities markets and the possibility of political or economic
instability.
The Fund may use derivatives to achieve its investment objectives. The Fund may
engage in transactions in futures contracts on foreign currencies, stock
indices, as well as in options, swaps and structured notes. Consistent with the
Fund's investment objectives and policies, the Fund may use derivatives for
non-hedging as well as hedging purposes.
Following is a description of derivative instruments that the Fund may utilize
and their associated risks:
5. FOREIGN CURRENCY EXCHANGE CONTRACTS: The Fund may enter into foreign
currency exchange contracts generally to attempt to protect securities and
related receivables and payables against changes in future foreign exchange
rates and, in certain situations, to gain exposure to a foreign currency. A
foreign currency exchange contract is an agreement between two parties to
buy or sell currency at a set price on a future date. The market value of
the contract will fluctuate with changes in currency exchange rates. The
contract is marked-to-market daily and the change in market value is
recorded by the Fund as unrealized gain or loss. The Fund records realized
gains or losses when the contract is closed equal to the difference between
the value of the contract at the time it was opened and the value at the
time it was closed. Risk may arise upon entering into these contracts from
the potential inability of counterparties to meet the terms of their
contracts and is generally limited to the amount of unrealized gain on the
contracts, if any, at the date of default. Risks may also arise from
unanticipated movements in the value of a foreign currency relative to the
U.S. dollar.
6. FORWARD COMMITMENTS AND WHEN-ISSUED/DELAYED DELIVERY SECURITIES: The Fund
may make forward commitments to purchase or sell securities. Payment and
delivery for securities which have been purchased or sold on a forward
commitment basis can take place a month or more (not to exceed 120 days)
after the date of the transaction. Additionally, 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, and no income
accrues to the Fund on such securities prior to delivery. When the Fund
enters into a purchase transaction on a when-issued or delayed delivery
basis, it either establishes a segregated account in which it maintains
liquid assets in an amount at least equal in value to the Fund's commitments
to purchase such securities or denotes such assets as segregated on the
Fund's records. Purchasing securities on a forward commitment or when-issued
or delayed-delivery basis may 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.
7. SWAP AGREEMENTS: The Fund may enter into swap agreements to exchange the
return generated by one security, instrument or basket of instruments for
the return generated by another security, instrument or basket of
instruments. The following summarizes swaps which may be entered into by the
Fund:
INTEREST RATE SWAPS: Interest rate swaps involve the exchange of commitments
to pay and receive interest based on a notional principal amount. Net
periodic interest payments to be received or paid are accrued daily and are
recorded in the Statement of Operations as an adjustment to interest income.
Interest rate swaps are marked-to-market daily based upon quotations from
market makers and the change, if any, is recorded as unrealized appreciation
or depreciation in the Statement of Operations.
TOTAL RETURN SWAPS: Total return swaps involve commitments to pay interest
in exchange for a market-linked return based on a notional amount. To the
extent the total return of the security, instrument or basket of instruments
underlying the transaction exceeds or falls short of the offsetting interest
obligation, the Fund will receive a payment from or make a payment to the
counterparty, respectively. Total return swaps are marked-to-market daily
based upon quotations from market makers and the change, if any, is recorded
as unrealized gains or losses in the Statement of Operations. Periodic
payments received or made at the end of each measurement period, but prior
to termination, are recorded as realized gains or losses in the Statement of
Operations.
Realized gains or losses on maturity or termination of interest rate and
total return swaps are presented in the Statement of Operations. Because
there is no organized market for these swap agreements, the value reported
in the Statement of Net Assets may differ from that which would be realized
in the event the Fund terminated its position in the agreement. Risks may
arise upon entering into these agreements from the potential inability of
the counterparties to meet the terms of the agreements and are generally
limited to the amount of net
16
MORGAN STANLEY EMERGING MARKETS FUND, INC.
JUNE 30, 2002 (UNAUDITED)
NOTES TO FINANCIAL STATEMENTS (CONT'D)
interest payments to be received and/or favorable movements in the value of
the underlying security, instrument or basket of instruments, if any, at the
date of default.
Risks also arise from potential losses from adverse market movements, and
such losses could exceed the related amounts shown in the Statement of Net
Assets.
8. FUTURES: The Fund may purchase and sell futures contracts. Futures contracts
provide for the sale by one party and purchase by another party of a
specified amount of a specified security, index, instrument or basket of
instruments. Futures contracts (secured by cash or government securities
deposited with brokers or custodians as "initial margin") are valued based
upon their quoted daily settlement prices; changes in initial settlement
value (represented by cash paid to or received from brokers as "variation
margin") are accounted for as unrealized appreciation (depreciation). When
futures contracts are closed, the difference between the opening value at
the date of purchase and the value at closing is recorded as realized gains
or losses in the Statement of Operations.
The Fund may use futures contracts in order to manage exposure to the stock
and bond markets, to hedge against unfavorable changes in the value of
securities or to remain fully invested and to reduce transaction costs.
Futures contracts involve market risk in excess of the amounts recognized in
the Statement of Net Assets. Risks arise from the possible movements in
security values underlying these instruments. The change in value of futures
contracts primarily corresponds with the value of their underlying
instruments, which may not correlate with the change in value of the hedged
investments. In addition, there is the risk that the Fund may not be able to
enter into a closing transaction because of an illiquid secondary market.
9. STRUCTURED SECURITIES: The Fund may invest 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 of
specified instruments and the issuance by that entity of one or more classes
of securities ("Structured Securities") backed by, or representing interests
in, the underlying instruments. Structured Securities generally will expose
the Fund to credit risks of the underlying instruments as well as of the
issuer of the Structured Security. Structured Securities are typically sold
in private placement transactions with no active trading market. Investments
in Structured Securities may be more volatile than their underlying
instruments, however, any loss is limited to the amount of the original
investment.
10. OVER-THE-COUNTER TRADING: Securities and other derivative instruments that
may be purchased or sold by the Fund may consist of instruments not traded
on an exchange. The risk of nonperformance by the obligor on such an
instrument may be greater, and the ease with which the Fund can dispose of
or enter into closing transactions with respect to such an instrument may be
less, than in the case of an exchange-traded instrument. In addition,
significant disparities may exist between bid and asked prices for
derivative instruments that are not traded on an exchange. Derivative
instruments not traded on exchanges are also not subject to the same type of
government regulation as exchange traded instruments, and many of the
protections afforded to participants in a regulated environment may not be
available in connection with such transactions.
During the six months ended June 30, 2002, the Fund's investments in derivative
instruments described above included foreign currency exchange contracts only.
11. OTHER: Security transactions are accounted for on the date the securities
are purchased or sold. Realized gains and losses on the sale of investment
securities are determined on the specific identified cost basis. Interest
income is recognized on the accrual basis. Dividend income is recorded on
the ex-dividend date, net of applicable withholding taxes.
The amount and character of income and capital gain distributions to be paid
by the Fund are determined in accordance with Federal income tax
regulations, which may differ from generally accepted accounting principles.
The book/tax differences are either considered temporary or permanent in
nature.
Temporary differences are attributable to differing book and tax treatments
for the timing of the recognition of gains and losses on certain investment
transactions and the timing of the deductibility of certain expenses.
Permanent book and tax basis differences may result in reclassifications
among undistributed net investment income (loss), accumulated net realized
gain (loss) and paid-in capital.
Adjustments for permanent book-tax differences, if any, are not reflected in
ending undistributed net investment income (loss) for the purpose of
calculating net investment income (loss) per share in the financial
highlights.
B. ADVISER: Morgan Stanley Investment Management Inc. (the "Adviser") provides
investment advisory services to the Fund under the terms of an Investment
Advisory Agreement (the "Agreement"). Under the Agreement, the Adviser is paid a
fee computed weekly
17
MORGAN STANLEY EMERGING MARKETS FUND, INC.
JUNE 30, 2002 (UNAUDITED)
NOTES TO FINANCIAL STATEMENTS (CONT'D)
and payable monthly at an annual rate of 1.25% of the Fund's average weekly net
assets.
C. ADMINISTRATOR: JPMorgan Chase Bank, through its corporate affiliate J.P.
Morgan Investor Services Company (the "Administrator"), provides administrative
services to the Fund under an Administration Agreement. Under the Administration
Agreement, the Administrator is paid a fee computed weekly and payable monthly
at an annual rate of 0.08% of the Fund's average weekly net assets, plus $65,000
per annum. In addition, the Fund is charged for certain out-of-pocket expenses
incurred by the Administrator on its behalf.
D. CUSTODIAN: JPMorgan Chase Bank serves as custodian for the Fund. Custody
fees are payable monthly based on assets held in custody, investment purchase
and sales activity and account maintenance fees, plus reimbursement for certain
out-of-pocket expenses.
E. OTHER: During the six months ended June 30, 2002, the Fund made purchases
and sales totaling approximately $72,134,000 and $73,403,000, respectively, of
investment securities other than long-term U.S. Government securities and
short-term investments. There were no purchases or sales of long-term U.S.
Government securities. At June 30, 2002, the U.S. Federal income tax cost basis
of investments (excluding foreign currency) was $210,782,000 and, accordingly,
net unrealized depreciation for U.S. Federal income tax purposes was $3,228,000
of which $29,544,000 related to appreciated securities and $32,772,000 related
to depreciated securities. At December 31, 2001, the Fund had a capital loss
carry-forward for U.S. Federal income tax purposes of approximately $65,987,000
available to offset future capital gains of which $65,987,000 will expire on
December 31, 2009. Net capital and currency losses incurred after October 31,
and within the taxable year are deemed to arise on the first business day of the
Fund's next taxable year. For the year ended December 31, 2001, the Fund
deferred to January 1, 2002, for U.S. Federal income tax purposes, post-October
passive foreign investment company losses of $30,000, post-October currency
losses of $151,000 and post-October capital losses of $5,953,000. The realized
gain distribution amount shown in the Statement of Changes in Net Assets for the
year ended December 31, 2001 includes short-term realized gains which are
treated as ordinary income for tax purposes of $7,848.
A substantial portion of the Fund's net assets consist of securities of issuers
located in emerging markets or which are denominated in foreign currencies.
Changes in currency exchange rates will affect the value of and investment
income from such securities. Emerging market securities are often subject to
greater price volatility, limited capitalization and liquidity, and higher rates
of inflation than U.S. securities. In addition, emerging market issuers may be
subject to substantial governmental involvement in the economy and greater
social, economic and political uncertainty. Such securities may be concentrated
in a limited number of countries and regions and may vary throughout the year.
Accordingly, the price which the Fund may realize upon sale of securities in
such markets may not be equal to its value as presented in the financial
statements.
Each Director of the Fund who is not an officer of the Fund or an affiliated
person as defined under the Investment Company Act of 1940, as amended, may
elect to participate in the Directors' Deferred Compensation Plan (the "Plan").
Under the Plan, such Directors may elect to defer payment of a percentage of
their total fees earned as a Director of the Fund. These deferred portions are
treated, based on an election by the Director, as if they were either invested
in the Fund's shares or invested in U.S. Treasury Bills, as defined under the
Plan. At June 30, 2002, the deferred fees payable, under the Plan, totaled
$60,000 and are included in Payable for Directors' Fees and Expenses on the
Statement of Net Assets.
For the six months ended June 30, 2002, the Fund incurred $8,000 of brokerage
commissions with Morgan Stanley & Co., an affiliate of the Adviser.
On July 30, 1998, the Fund commenced a share repurchase program for purposes of
enhancing stockholder value and reducing the discount at which the Fund's shares
traded from their net asset value. For the six months ended June 30, 2002, the
Fund repurchased 169,864 of its shares at an average discount of 16.06% from net
asset value per share. Since the inception of the program, the Fund has
repurchased 4,154,604 of its shares at an average discount of 20.44% from net
asset value per share. The Fund expects to continue to repurchase its
outstanding shares at such time and in such amounts as it believes will further
the accomplishment of the foregoing objectives, subject to review by the Board
of Directors.
F. SUPPLEMENTAL PROXY INFORMATION:
The Annual Meeting of the Stockholders of the Fund was held on June 6, 2002. The
following is a summary of the proposal presented and the total number of shares
voted:
PROPOSAL:
1. To elect the following Directors:
VOTES IN VOTES
FAVOR OF AGAINST
------------------------------------------------------------------------------
Ronald E. Robison 15,798,996 371,634
Joseph J. Kearns 15,863,152 307,477
Michael Nugent 15,864,376 306,254
Fergus Reid 15,798,996 371,634
18
MORGAN STANLEY EMERGING MARKETS FUND, INC.
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
Pursuant to the Dividend Reinvestment and Cash Purchase Plan (the "Plan"), each
stockholder will be deemed to have elected, unless American Stock Transfer &
Trust Company (the "Plan Agent") is otherwise instructed by the stockholder in
writing, to have all distributions automatically reinvested in Fund shares.
Participants in the Plan have the option of making additional voluntary cash
payments to the Plan Agent, annually, in any amount from $100 to $3,000, for
investment in Fund shares.
Dividend and capital gain distributions will be reinvested on the reinvestment
date. If the market price per share equals or exceeds net asset value per share
on the reinvestment date, the Fund will issue shares to participants at net
asset value. If net asset value is less than 95% of the market price on the
reinvestment date, shares will be issued at 95% of the market price. If net
asset value exceeds the market price on the reinvestment date, participants will
receive shares valued at market price. The Fund may purchase shares of its
Common Stock in the open market in connection with dividend reinvestment
requirements at the discretion of the Board of Directors. Should the Fund
declare a dividend or capital gain distribution payable only in cash, the Plan
Agent will purchase Fund shares for participants in the open market as agent for
the participants.
The Plan Agent's fees for the reinvestment of dividends and distributions will
be paid by the Fund. However, each participant's account will be charged a pro
rata share of brokerage commissions incurred on any open market purchases
effected on such participant's behalf. A participant will also pay brokerage
commissions incurred on purchases made by voluntary cash payments. Although
stockholders in the Plan may receive no cash distributions, participation in the
Plan will not relieve participants of any income tax which may be payable on
such dividends or distributions.
In the case of stockholders, 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
stockholder as representing the total amount registered in the stockholder's
name and held for the account of beneficial owners who are participating in the
Plan.
Stockholders who do not wish to have distributions automatically reinvested
should notify the Plan Agent in writing. There is no penalty for
non-participation or withdrawal from the Plan, and stockholders who have
previously withdrawn from the Plan may rejoin at any time. Requests for
additional information or any correspondence concerning the Plan should be
directed to the Plan Agent at:
Morgan Stanley Emerging Markets Fund, Inc.
American Stock Transfer & Trust Company
Dividend Reinvestment and Cash Purchase Plan
59 Maiden Lane
New York, NY 10030
1-800-278-4353
19