UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-06403 --------------------------------------------- Morgan Stanley Emerging Markets Fund, Inc. ------------------------------------------------------------------------------- (Exact name of registrant as specified in charter) 1221 AVENUE OF THE AMERICAS 22ND FLOOR NEW YORK, NY 10020 ------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) RONALD E. ROBISON 1221 AVENUE OF THE AMERICAS 34TH FLOOR NEW YORK, NY 10020 ------------------------------------------------------------------------------- (Name and address of agent for service) Registrant's telephone number, including area code: 1-800-221-6726 ---------------------------- Date of fiscal year end: 12/31 -------------------------- Date of reporting period: 6/30/04 ------------------------- Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles. A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget ("OMB") control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. Section 3507. ITEM 1. REPORTS TO STOCKHOLDERS. The Fund's semi-annual report transmitted to shareholders pursuant to Rule 30e-1 under the Investment Company Act of 1940 is as follows: SEMI-ANNUAL REPORT MORGAN STANLEY EMERGING MARKETS FUND, INC. JUNE 30, 2004 DIRECTORS CHARLES A. FIUMEFREDDO JOSEPH J. MCALINDEN MICHAEL BOZIC VICE PRESIDENT EDWIN J. GARN WAYNE E. HEDIEN BARRY FINK JAMES F. HIGGINS VICE PRESIDENT DR. MANUEL H. JOHNSON JOSEPH J. KEARNS STEFANIE V. CHANG MICHAEL NUGENT VICE PRESIDENT FERGUS REID AMY R. DOBERMAN OFFICERS VICE PRESIDENT CHARLES A. FIUMEFREDDO CHAIRMAN OF THE BOARD JAMES W. GARRETT TREASURER AND CHIEF MITCHELL M. MERIN FINANCIAL OFFICER PRESIDENT MICHAEL J. LEARY [MORGAN STANLEY LOGO] RONALD E. ROBISON ASSISTANT TREASURER EXECUTIVE VICE PRESIDENT AND PRINCIPAL EXECUTIVE MARY E. MULLIN MORGAN STANLEY OFFICER SECRETARY EMERGING MARKETS FUND, INC. INVESTMENT ADVISER MORGAN STANLEY INVESTMENT MANAGEMENT INC. 1221 AVENUE OF THE AMERICAS NEW YORK, NEW YORK 10020 ADMINISTRATOR JPMORGAN INVESTOR SERVICES COMPANY 73 TREMONT STREET BOSTON, MASSACHUSETTS 02108 CUSTODIAN JPMORGAN CHASE BANK 270 PARK AVENUE NEW YORK, NEW YORK 10017 STOCKHOLDER SERVICING AGENT AMERICAN STOCK TRANSFER & TRUST COMPANY 59 MAIDEN LANE NEW YORK, NEW YORK 10030 1 (800) 278-4353 LEGAL COUNSEL CLIFFORD CHANCE US LLP 31 WEST 52ND STREET NEW YORK, NEW YORK 10019 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ERNST & YOUNG LLP 200 CLARENDON STREET BOSTON, MASSACHUSETTS 02116 FOR ADDITIONAL FUND INFORMATION, INCLUDING THE FUND'S NET ASSET VALUE PER SHARE AND INFORMATION REGARDING THE INVESTMENTS COMPRISING THE FUND'S PORTFOLIO, PLEASE CALL 1-800-221-6726 OR VISIT OUR WEBSITE AT www.morganstanley.com/im. MORGAN STANLEY INVESTMENT MANAGEMENT INC. (C) 2004 MORGAN STANLEY INVESTMENT ADVISER MORGAN STANLEY EMERGING MARKETS FUND, INC. LETTER TO STOCKHOLDERS Overview PERFORMANCE For the six months ended June 30, 2004, the Morgan Stanley Emerging Markets Fund, Inc. (the "Fund") had a total return, based on net asset value per share of -1.82%, compared to -0.97% for the Morgan Stanley Capital International (MSCI) Emerging Markets Free Net Index (the "Index"). On June 30, 2004, the closing price of the Fund's shares on the New York Stock Exchange was $13.23, representing a 13.9% discount to the Fund's net asset value per share. FACTORS AFFECTING PERFORMANCE - Overall, stock selection was positive while country allocation detracted from performance. - Stock selection in Russia, Israel, Brazil and Mexico coupled with country allocation scores in Russia, Egypt and China were all positive contributors to relative performance. - Holdings in South Korea and Taiwan were among the strongest contributors last year, gave back gains in the severe market sell-off while our underweight stance in Israel (+19.1% Index return) and overweight position in the recently underperforming markets of Thailand (-13.7%) and Turkey added to overall declines. Thailand and Turkey were the best performing markets in 2003 and despite recent weakness we still remain overweight the market given attractive valuations and improving fundamentals. - Emerging Markets had mixed results for the six months ended June 30, 2004, leading the world for the first half of the period while underperforming in the in the second. Emerging Markets finished the period in review down 1.0%, the asset class' worst performance in over twelve months after gaining 55.8% in 2003 and another 9.6% in the first three months of 2004. - The asset class started the year strong as it continued to re-rate given a recovery in global growth, improved domestic economies, rising corporate earnings and attractive valuations. After many months of relative tranquility, volatility in the Emerging Markets spiked in the second quarter with the asset class coming under selling pressure in April and May before stabilizing in June. - The recent difficulties in Emerging Markets were primarily due to exogenous factors, namely fears of future U.S. interest rate hikes, instability in Iraq and slower global growth. Concerns of a Chinese economic slowdown also put significant pressure on commodity prices and major cyclical markets in Asia. - The recent sell-off, which saw stocks fall indiscriminately was not driven by usual triggers such as political scandal, debt default or even devaluation but by markets anticipating a change in liquidity conditions and the subsequent rise in global risk aversion. MANAGEMENT STRATEGIES - Long-term, we remain positive on Emerging Markets as valuations and fundamentals remain attractive. We believe markets are in a better position than in past times to withstand the tough global environment. - Balance of payment positions across many Emerging Market countries are superior and currently 9 of the top 10 Emerging Market countries are rated investment grade versus only 4 before the 1997 Asia crisis. - Markets are significantly cheaper while stronger fiscal positions and lower interest rates could be a boost to growth prospects. Aggregate gross domestic product growth is expected to average above 6.0% in 2004. - Emerging Market's growth has been both export-driven as well as consumer-led, which marks an improvement from foreign investment-led cycles of the late 1990s. Sincerely, /s/ Ronald E. Robison Ronald E. Robison Executive Vice President-- Principal Executive Officer July 2004 2 MORGAN STANLEY EMERGING MARKETS FUND, INC. STATEMENT OF NET ASSETS June 30, 2004 (unaudited) VALUE SHARES (000) ---------------------------------------------------------------------------- COMMON STOCKS (96.8%) (UNLESS OTHERWISE NOTED) ---------------------------------------------------------------------------- ARGENTINA (0.1%) ENERGY EQUIPMENT & SERVICES Tenaris SA ADR 9,300 $ 305 ---------------------------------------------------------------------------- BRAZIL (8.8%) AIRLINES Gol Linhas Aereas Inteligentes SA ADR (a)30,300 515 ---------------------------------------------------------------------------- COMMERCIAL BANKS Banco Bradesco SA ADR 16,786 771 Banco Bradesco SA (Preference) (a)25,775 1,189 Banco Itau Holding Financeira SA ADR 45,110 2,104 Banco Itau SA (Preference) 12,759,246 1,181 Unibanco GDR 42,100 832 ---------------------------------------------------------------------------- 6,077 ---------------------------------------------------------------------------- ELECTRIC UTILITIES CEMIG SA (Preference) 50,064,000 751 CEMIG SA ADR 51,200 769 ---------------------------------------------------------------------------- 1,520 ---------------------------------------------------------------------------- FOOD & DRUG RETAILING Cia Brasileira de Distribuicao Grupo Pao de Acucar ADR 26,200 453 ---------------------------------------------------------------------------- METALS & MINING CSN ADR 54,400 661 CVRD (Preference) ADR 76,113 2,976 CVRD ADR 3,000 143 ---------------------------------------------------------------------------- 3,780 ---------------------------------------------------------------------------- OIL & GAS Petrobras SA (Preference) 9,153 228 Petrobras SA (Preference) ADR 147,956 3,728 Petrobras SA ADR 86,663 2,433 ---------------------------------------------------------------------------- 6,389 ---------------------------------------------------------------------------- PAPER & FOREST PRODUCTS Aracruz Celulose SA ADR 21,500 702 Votorantim Celulose e Papel SA ADR 45,600 1,450 ---------------------------------------------------------------------------- 2,152 ---------------------------------------------------------------------------- PHARMACEUTICALS Natura Cosmeticos SA (a)35,000 565 ---------------------------------------------------------------------------- WIRELESS TELECOMMUNICATION SERVICES Telesp Celular Participacoes SA (Preference) (a)589,917,369 1,859 Telesp Celular Participacoes SA ADR (a)102,000 804 ---------------------------------------------------------------------------- 2,663 ---------------------------------------------------------------------------- 24,114 ============================================================================ CHILE (0.7%) ELECTRIC UTILITIES Enersis SA ADR 311,400 $ 1,856 ---------------------------------------------------------------------------- CHINA/HONG KONG (6.4%) AUTO COMPONENTS Norstar Founders Group Ltd. (a)971,000 271 Shougang Concord Century Holdings Ltd. 3,415,000 319 ---------------------------------------------------------------------------- 590 ---------------------------------------------------------------------------- AUTOMOBILES AviChina Industry & Technology Co., 'H' 2,963,000 346 ---------------------------------------------------------------------------- BUILDING PRODUCTS Asia Aluminum Holdings Ltd. 7,698,000 750 ---------------------------------------------------------------------------- COMPUTERS & PERIPHERALS TPV Technology Ltd. 2,038,000 1,447 ---------------------------------------------------------------------------- ELECTRIC UTILITIES China Resources Power Holdings Co. (a)707,000 399 Huaneng Power International, Inc., 'H' 1,292,000 1,151 ---------------------------------------------------------------------------- 1,550 ---------------------------------------------------------------------------- ELECTRONIC EQUIPMENT & INSTRUMENTS Byd Co., Ltd., 'H' 147,000 434 Kingboard Chemicals Holdings Ltd 401,000 697 ---------------------------------------------------------------------------- 1,131 ---------------------------------------------------------------------------- ENERGY EQUIPMENT & SERVICES China Oilfield Services Ltd., 'H' 3,291,000 939 ---------------------------------------------------------------------------- HEALTH CARE EQUIPMENT & SUPPLIES Moulin International Holdings Ltd 568,000 348 ---------------------------------------------------------------------------- HOUSEHOLD DURABLES Grande Holdings Ltd. 536,000 522 ---------------------------------------------------------------------------- INSURANCE Ping An Insurance Group Co. of China Ltd., 'H' (a)837,000 1,137 ---------------------------------------------------------------------------- INTERNET SOFTWARE & SERVICES Sina Corp. (a)8,200 271 Tom Online, Inc. (a)948,000 160 ---------------------------------------------------------------------------- 431 ---------------------------------------------------------------------------- METALS & MINING Yanzhou Coal Mining Co., Ltd., 'H' 622,000 678 ---------------------------------------------------------------------------- MULTILINE RETAIL Lianhua Supermarket Holdings Co., Ltd., 'H' 552,000 556 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 3 MORGAN STANLEY EMERGING MARKETS FUND, INC. STATEMENT OF NET ASSETS (CONT'D) June 30, 2004 (unaudited) VALUE SHARES (000) ---------------------------------------------------------------------------- CHINA/HONG KONG (CONT'D) MULTILINE RETAIL (CONT'D) Wumart Stores, Inc., 'H' (a)280,000 $ 538 ---------------------------------------------------------------------------- 1,094 ---------------------------------------------------------------------------- OIL & GAS China Petroleum & Chemical Corp., 'H' 1,594,000 582 CNOOC Ltd. 4,525,000 1,915 Sinopec Zhenhai Refining & Chemical Co., Ltd., 'H' 1,182,000 1,137 ---------------------------------------------------------------------------- 3,634 ---------------------------------------------------------------------------- TEXTILES, APPAREL & LUXURY GOODS Fountain Set Holdings Ltd. 1,239,000 826 Victory City International Holdings Ltd. 1,051,000 381 ---------------------------------------------------------------------------- 1,207 ---------------------------------------------------------------------------- TRANSPORTATION INFRASTRUCTURE China Merchants Holdings International Co., Ltd. 500,000 673 Hainan Meilan International Airport Co., Ltd., 'H' 636,000 485 Hopewell Highway Infrastructure Ltd. 1,296,000 769 ---------------------------------------------------------------------------- 1,927 ---------------------------------------------------------------------------- 17,731 ============================================================================ COLOMBIA (0.2%) COMMERCIAL BANKS BanColombia SA ADR 101,800 680 ============================================================================ EGYPT (1.5%) CONSTRUCTION & ENGINEERING Orascom Construction Industries (a)156,035 2,315 ---------------------------------------------------------------------------- WIRELESS TELECOMMUNICATION SERVICES MobiNil 148,552 1,788 ---------------------------------------------------------------------------- 4,103 ============================================================================ INDIA (4.6%) AUTOMOBILES Hero Honda Motors Ltd. 68,900 761 ---------------------------------------------------------------------------- COMMERCIAL BANKS Industrial Development Bank of India Ltd. 456,000 415 Punjab National Bank Ltd. 70,000 429 State Bank of India Ltd. (b)70,550 696 ---------------------------------------------------------------------------- 1,540 ---------------------------------------------------------------------------- DIVERSIFIED TELECOMMUNICATION SERVICES Mahanagar Telephone Nigam Ltd. 196,000 563 ---------------------------------------------------------------------------- ELECTRICAL EQUIPMENT ABB Ltd. 35,929 $ 525 Bharat Heavy Electricals Ltd. 138,700 1,514 ---------------------------------------------------------------------------- 2,039 ---------------------------------------------------------------------------- HOUSEHOLD PRODUCTS Hindustan Lever Ltd. 177,500 492 ---------------------------------------------------------------------------- INDUSTRIAL CONGLOMERATES Grasim Industries Ltd. 31,500 693 Siemens India Ltd. 13,000 249 ---------------------------------------------------------------------------- 942 ---------------------------------------------------------------------------- INTERNET SOFTWARE & SERVICES IndiaInfo.com PCL (b)116,052 @-- ---------------------------------------------------------------------------- INFORMATION TECHNOLOGY SERVICES Infosys Technologies Ltd. 10,227 1,229 ---------------------------------------------------------------------------- METALS & MINING Hindalco Industries Ltd. 19,600 426 Steel Authority of India Ltd. (a)565,066 336 Tata Iron & Steel Co., Ltd. 52,000 340 ---------------------------------------------------------------------------- 1,102 ---------------------------------------------------------------------------- OIL & GAS Hindustan Petroleum Corp., Ltd. 120,500 881 Mahindra & Mahindra Ltd. 42,000 404 Oil & Natural Gas Corp., Ltd. 37,700 516 ---------------------------------------------------------------------------- 1,801 ---------------------------------------------------------------------------- PHARMACEUTICALS Cipla Ltd. 163,000 753 GlaxoSmithkline Pharmaceuticals Ltd. 34,000 440 ---------------------------------------------------------------------------- 1,193 ---------------------------------------------------------------------------- ROAD & RAIL Container Corp. of India Ltd. 45,600 560 ---------------------------------------------------------------------------- THRIFTS & MORTGAGE FINANCE Housing Development Finance Corp., Ltd. 33,000 371 ---------------------------------------------------------------------------- 12,593 ============================================================================ INDONESIA (3.1%) AUTOMOBILES Astra International Tbk PT 2,062,538 1,207 ---------------------------------------------------------------------------- COMMERCIAL BANKS Bank Central Asia Tbk PT 3,951,000 789 Bank Internasional Indonesia Tbk PT (a)22,596,000 349 Bank Mandiri Persero Tbk PT 7,629,500 954 4 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. MORGAN STANLEY EMERGING MARKETS FUND, INC. STATEMENT OF NET ASSETS (CONT'D) June 30, 2004 (unaudited) VALUE SHARES (000) ---------------------------------------------------------------------------- INDONESIA (CONT'D) COMMERCIAL BANKS (CONT'D) Bank Rakyat Indonesia (a)4,627,500 $ 825 ---------------------------------------------------------------------------- 2,917 ---------------------------------------------------------------------------- CONSTRUCTION MATERIALS Indocement Tunggal Prakarsa Tbk PT (a)3,667,000 556 ---------------------------------------------------------------------------- DIVERSIFIED TELECOMMUNICATION SERVICES Telekomunikasi Indonesia Tbk PT (a)1,241,000 978 ---------------------------------------------------------------------------- METALS & MINING Bumi Resources Tbk PT 26,588,500 1,627 ---------------------------------------------------------------------------- MULTILINE RETAIL Ramayana Lestari Sentosa Tbk PT (a)1,800,500 853 ---------------------------------------------------------------------------- TOBACCO Gudang Garam Tbk PT (a)356,000 519 ---------------------------------------------------------------------------- 8,657 ============================================================================ ISRAEL (1.6%) AEROSPACE & DEFENSE Elbit Systems Ltd. 1 @-- ---------------------------------------------------------------------------- SOFTWARE Check Point Software Technologies Ltd. (a)159,144 4,295 ---------------------------------------------------------------------------- 4,295 ============================================================================ JAPAN ( 0.0%) HOUSEHOLD DURABLES Sansui Electric Co., Ltd. (a)268,000 84 ============================================================================ MALAYSIA (1.2%) COMMERCIAL BANKS Commerce Asset Holdings Bhd 532,000 681 ---------------------------------------------------------------------------- ELECTRIC UTILITIES YTL Corp. Bhd 419,000 518 ---------------------------------------------------------------------------- HOTELS, RESTAURANTS & LEISURE Magnum Corp. Bhd 1,145,000 732 Resorts World Bhd 222,000 523 ---------------------------------------------------------------------------- 1,255 ---------------------------------------------------------------------------- REAL ESTATE SP Setia Bhd 733,500 764 ---------------------------------------------------------------------------- 3,218 ============================================================================ MEXICO (7.8%) BEVERAGES Coca-Cola Femsa SA ADR 46,400 1,030 Femsa ADR 15,800 724 ---------------------------------------------------------------------------- 1,754 ---------------------------------------------------------------------------- CONSTRUCTION MATERIALS Cemex SA de CV 28,194 164 Cemex SA de CV ADR 70,590 $ 2,054 ---------------------------------------------------------------------------- 2,218 ---------------------------------------------------------------------------- DIVERSIFIED TELECOMMUNICATION SERVICES Telmex, 'L' ADR 28,135 936 ---------------------------------------------------------------------------- FOOD & STAPLES Wal-Mart de Mexico SA ADR 49,133 1,457 Wal-Mart de Mexico SA, 'V' 1,030,119 3,067 ---------------------------------------------------------------------------- 4,524 ---------------------------------------------------------------------------- MEDIA Grupo Televisa SA ADR 103,600 4,690 ---------------------------------------------------------------------------- WIRELESS TELECOMMUNICATION SERVICES America Movil SA de CV, 'L' ADR 200,277 7,284 ---------------------------------------------------------------------------- 21,406 ============================================================================ PERU (0.7%) METALS & MINING Cia de Minas Buenaventura SA ADR 91,600 2,024 ============================================================================ POLAND (1.1%) DIVERSIFIED TELECOMMUNICATION SERVICES Telekomunikacja Polska SA 160,878 666 Telekomunikacja Polska SA GDR 601,400 2,442 ---------------------------------------------------------------------------- 3,108 ============================================================================ RUSSIA (8.1%) DIVERSIFIED TELECOMMUNICATION SERVICES Uralsvyazinform ADR 100,700 775 ---------------------------------------------------------------------------- METALS & MINING MMC Norilsk Nickel ADR 37,900 2,104 ---------------------------------------------------------------------------- OIL & GAS Gazprom (Registered) ADR 134,100 3,848 LUKOIL ADR 47,719 5,020 Surgutneftegaz (Preferred) ADR 16,139 694 Surgutneftegaz ADR 71,372 2,334 YUKOS ADR 50,799 1,617 ---------------------------------------------------------------------------- 13,513 ---------------------------------------------------------------------------- PAPER & FOREST PRODUCTS Alliance Cellulose Ltd., 'B' (b)156,075 @-- ---------------------------------------------------------------------------- WIRELESS TELECOMMUNICATION SERVICES Mobile Telesystems ADR 16,100 1,964 Mobile Telesystems GDR (a)17,400 2,132 Vimpel-Communications ADR (a)10,300 993 VolgaTelecom ADR 132,000 739 ---------------------------------------------------------------------------- 5,828 ---------------------------------------------------------------------------- 22,220 ============================================================================ THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 5 MORGAN STANLEY EMERGING MARKETS FUND, INC. STATEMENT OF NET ASSETS (CONT'D) June 30, 2004 (unaudited) VALUE SHARES (000) ---------------------------------------------------------------------------- SOUTH AFRICA (13.3%) COMMERCIAL BANKS Standard Bank Group Ltd. 330,380 $ 2,307 ---------------------------------------------------------------------------- DIVERSIFIED FINANCIAL SERVICES African Bank Investments Ltd. 1,915,700 3,670 ---------------------------------------------------------------------------- DIVERSIFIED TELECOMMUNICATION SERVICES Telkom SA Ltd. 202,470 2,615 ---------------------------------------------------------------------------- FOOD & STAPLES Massmart Holdings Ltd. 398,026 2,113 Shoprite Holdings Ltd. 1,430,800 2,184 ---------------------------------------------------------------------------- 4,297 ---------------------------------------------------------------------------- HOUSEHOLD DURABLES Steinhoff International Holdings Ltd. 1,459,300 1,979 ---------------------------------------------------------------------------- INSURANCE African Life Assurance Co., Ltd. 640,800 1,373 ---------------------------------------------------------------------------- METALS & MINING Anglo American Platinum Corp., Ltd. 36,000 1,374 Anglo American plc 137,938 2,847 Anglo American plc (London Shares) 61,472 1,261 AngloGold Ashanti Ltd. 25,000 822 AngloGold Ashanti Ltd. ADR 14,492 466 Gold Fields Ltd. 44,300 470 Harmony Gold Mining Co., Ltd. 72,554 769 Harmony Gold Mining Co., Ltd. ADR 43,600 462 Impala Platinum Holdings Ltd. 22,535 1,723 Iscor Ltd. 206,100 1,292 Kumba Resources Ltd. 160,800 861 ---------------------------------------------------------------------------- 12,347 ---------------------------------------------------------------------------- PAPER & FOREST PRODUCTS Sappi Ltd. 136,800 2,103 Sappi Ltd. ADR 2,400 37 ---------------------------------------------------------------------------- 2,140 ---------------------------------------------------------------------------- SPECIALTY RETAIL Edgars Consolidated Stores Ltd. 60,600 1,456 ---------------------------------------------------------------------------- WIRELESS TELECOMMUNICATION SERVICES MTN Group Ltd. 955,940 4,424 ---------------------------------------------------------------------------- 36,608 ============================================================================ SOUTH KOREA (15.2%) AIRLINES Korean Air Lines Co., Ltd. (a)111,900 1,454 ---------------------------------------------------------------------------- AUTO COMPONENTS Hankook Tire Co., Ltd. 300,780 2,631 Hyundai Mobis 64,450 $ 2,864 ---------------------------------------------------------------------------- 5,495 ---------------------------------------------------------------------------- CAPITAL MARKETS Daishin Securities Co., Ltd. 107,900 1,219 Daishin Securities Co., Ltd. (Preferred) 49,260 286 LG Investment & Securities Co., Ltd. (a)259,490 1,859 ---------------------------------------------------------------------------- 3,364 ---------------------------------------------------------------------------- COMMERCIAL BANKS Kookmin Bank (a)18,690 581 Pusan Bank 92,520 513 Shinhan Financial Group Co., Ltd 53,890 784 ---------------------------------------------------------------------------- 1,878 ---------------------------------------------------------------------------- ELECTRONIC EQUIPMENT & INSTRUMENTS Samsung SDI Co., Ltd. 79,270 8,342 ---------------------------------------------------------------------------- FOOD PRODUCTS Orion Corp. 14,000 866 ---------------------------------------------------------------------------- MACHINERY Daewoo Shipbuilding & Marine Engineering Co., Ltd. 92,580 1,119 STX Shipbuilding Co., Ltd. 71,290 747 ---------------------------------------------------------------------------- 1,866 ---------------------------------------------------------------------------- MULTILINE RETAIL Hyundai Department Store Co., Ltd 58,800 1,459 ---------------------------------------------------------------------------- SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT Samsung Electronics Co., Ltd. 28,632 11,830 Samsung Electronics Co., Ltd. (Preferred) 7,060 1,853 ---------------------------------------------------------------------------- 13,683 ---------------------------------------------------------------------------- SPECIALTY RETAIL Handsome Co., Ltd. 109,500 907 ---------------------------------------------------------------------------- TEXTILES, APPAREL & LUXURY GOODS Cheil Industries, Inc. 91,620 1,063 ---------------------------------------------------------------------------- TOBACCO KT&G Corp. 53,780 1,244 ---------------------------------------------------------------------------- WIRELESS TELECOMMUNICATION SERVICES SK Telecom Co., Ltd. 1,310 216 ---------------------------------------------------------------------------- 41,837 ============================================================================ TAIWAN (10.7%) AUTO COMPONENTS Cheng Shin Rubber Industry Co., Ltd. 479,000 628 ---------------------------------------------------------------------------- COMMERCIAL BANKS China Development Financial Holding Corp. 3,002,000 1,538 6 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. MORGAN STANLEY EMERGING MARKETS FUND, INC. STATEMENT OF NET ASSETS (CONT'D) June 30, 2004 (unaudited) VALUE SHARES (000) ---------------------------------------------------------------------------- TAIWAN (CONT'D) COMMERCIAL BANKS (CONT'D) Chinatrust Financial Holding Co., Ltd. 1,591,250 $ 1,777 Taishin Financial Holdings Co., Ltd. 1,318,000 1,088 ---------------------------------------------------------------------------- 4,403 ---------------------------------------------------------------------------- COMPUTERS & PERIPHERALS Acer, Inc. 623,364 878 Infortrend Technology, Inc. 378,500 1,083 ---------------------------------------------------------------------------- 1,961 ---------------------------------------------------------------------------- CONSTRUCTION & ENGINEERING CTCI Corp. 1,532,000 757 ---------------------------------------------------------------------------- CONSTRUCTION MATERIALS Taiwan Cement Corp. 3,498,360 1,584 ---------------------------------------------------------------------------- DIVERSIFIED FINANCIAL SERVICES Fubon Financial Holding Co., Ltd. 1,060,000 925 Polaris Securities Co., Ltd. (a)1,987,520 1,048 ---------------------------------------------------------------------------- 1,973 ---------------------------------------------------------------------------- ELECTRICAL EQUIPMENT Catcher Technology Co., Ltd. 143,000 458 Phoenixtec Power Co., Ltd. (a)695,730 684 Richtek Technology Corp. (a)76,000 221 Waffer Technology Co., Ltd. 409,000 828 ---------------------------------------------------------------------------- 2,191 ---------------------------------------------------------------------------- ELECTRONIC EQUIPMENT & INSTRUMENTS Hon Hai Precision Industry Co., Ltd. 711,560 2,650 Ya Hsin Industrial Co., Ltd. 1,220,000 1,508 ---------------------------------------------------------------------------- 4,158 ---------------------------------------------------------------------------- INSURANCE Cathay Financial Holding Co., Ltd. 335,000 604 ---------------------------------------------------------------------------- LEISURE EQUIPMENT & PRODUCTS Asia Optical Co., Inc. 380,200 2,310 Largan Precision Co., Ltd. 121,830 1,169 ---------------------------------------------------------------------------- 3,479 ---------------------------------------------------------------------------- MACHINERY Kaulin Manufacturing Co., Ltd. 287,000 393 ---------------------------------------------------------------------------- MARINE Evergreen Marine Corp. 1,154,120 976 Taiwan Navigation Co., Ltd. 188,000 131 ---------------------------------------------------------------------------- 1,107 ---------------------------------------------------------------------------- SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT Faraday Technology Corp. 122,000 229 MediaTek, Inc. 217,000 1,732 Novatek Microelectronics Corp., Ltd. 245,550 $ 812 Sunplus Technology Co., Ltd. 459,000 800 ---------------------------------------------------------------------------- 3,573 ---------------------------------------------------------------------------- SOFTWARE Cyberlink Corp. 214,000 529 Springsoft, Inc. 344,000 789 ---------------------------------------------------------------------------- 1,318 ---------------------------------------------------------------------------- SPECIALTY RETAIL Tsann Kuen Enterprise Co., Ltd. 335,000 419 ---------------------------------------------------------------------------- WIRELESS TELECOMMUNICATION SERVICES Taiwan Cellular Corp. 1,075,000 1,025 ---------------------------------------------------------------------------- 29,573 ============================================================================ THAILAND (6.5%) AIRLINES Thai Airways International PCL (Foreign) 636,100 878 ---------------------------------------------------------------------------- CHEMICALS Thai Plastic & Chemicals PCL (Foreign) 66,100 299 ---------------------------------------------------------------------------- COMMERCIAL BANKS Bangkok Bank PCL (Foreign) (a)(b)1,336,100 3,215 Kasikornbank PCL (Foreign) (a)(b)1,022,600 1,299 Kasikornbank PCL NVDR (a)(b)746,600 921 Krung Thai Bank PCL (Foreign) 4,472,200 1,202 Siam City Bank PCL (Foreign) 476,600 289 Siam Commercial Bank PCL (Foreign) (b)712,700 805 ---------------------------------------------------------------------------- 7,731 ---------------------------------------------------------------------------- CONSTRUCTION & ENGINEERING Italian-Thai Development PCL (Foreign) 4,820,000 1,189 Sino Thai Engineering & Construction PCL (Foreign) 1,619,200 439 ---------------------------------------------------------------------------- 1,628 ---------------------------------------------------------------------------- ELECTRIC UTILITIES Ratchaburi Electricity Generating Holding PCL 292,000 264 ---------------------------------------------------------------------------- FOOD & STAPLES CP Seven Eleven PCL (Foreign) 512,200 770 ---------------------------------------------------------------------------- HOUSEHOLD DURABLES Land & Houses PCL (Foreign) 3,789,300 903 ---------------------------------------------------------------------------- METALS & MINING Banpu PCL (Foreign) 200,100 650 ---------------------------------------------------------------------------- MULTILINE RETAIL Siam Makro PCL (Foreign) 118,400 153 ---------------------------------------------------------------------------- OIL & GAS PTT PCL (Foreign) 448,000 1,685 ---------------------------------------------------------------------------- THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 7 MORGAN STANLEY EMERGING MARKETS FUND, INC. STATEMENT OF NET ASSETS (CONT'D) June 30, 2004 (unaudited) VALUE SHARES (000) ---------------------------------------------------------------------------- THAILAND (CONT'D) REAL ESTATE Asian Property Development PCL 3,878,600 $ 409 Lalin Property PCL (Foreign) 1,145,300 186 MBK PCL (Foreign) 207,300 256 ---------------------------------------------------------------------------- 851 ---------------------------------------------------------------------------- WIRELESS TELECOMMUNICATION SERVICES Advanced Info Service PCL (Foreign) 674,600 1,500 Total Access Communication PCL (a)228,000 590 ---------------------------------------------------------------------------- 2,090 ---------------------------------------------------------------------------- 17,902 ============================================================================ TURKEY (4.9%) BUILDING PRODUCTS Trakya Cam Sanayii AS 343,481,777 786 ---------------------------------------------------------------------------- COMMERCIAL BANKS Akbank TAS 548,075,115 2,011 Turkiye Garanti Bankasi AS (a)486,970,000 1,450 Turkiye Is Bankasi AS 338,005,600 1,229 Yapi ve Kredi Bankasi AS (a)452,614,000 1,082 ---------------------------------------------------------------------------- 5,772 ---------------------------------------------------------------------------- CONSTRUCTION MATERIALS Akcansa Cimento AS 483,468,125 976 ---------------------------------------------------------------------------- HOUSEHOLD DURABLES Arcelik AS (a)260,310,000 1,288 ---------------------------------------------------------------------------- INDUSTRIAL CONGLOMERATES Enka Insaat ve Sanayi AS 48,254,503 991 ---------------------------------------------------------------------------- MEDIA Hurriyet Gazetecilik ve Matbaacilik AS 566,253,000 1,553 ---------------------------------------------------------------------------- WIRELESS TELECOMMUNICATION SERVICES Turkcell Iletisim Hizmetleri AS 162,976,000 2,008 ---------------------------------------------------------------------------- 13,374 ============================================================================ VENEZUELA (0.3%) DIVERSIFIED TELECOMMUNICATION SERVICES CANTV, 'D' ADR 45,243 912 ============================================================================ TOTAL COMMON STOCKS (Cost $223,874) 266,600 ============================================================================ INVESTMENT COMPANIES (1.1%) ---------------------------------------------------------------------------- INDIA (0.5%) Morgan Stanley Growth Fund (c)4,694,400 1,365 ============================================================================ POLAND (0.6%) Norodowy Fundusz Inwestycyjny Hetman SA 762,586 $ 1,786 ============================================================================ TOTAL INVESTMENT COMPANIES (Cost $2,299) 3,151 ============================================================================ FACE AMOUNT (000) ---------------------------------------------------------------------------- DEBT INSTRUMENTS (0.0%) INDIA (0.0%) CONSTRUCTION MATERIALS DCM Shriram Industries Ltd. 0.00%,(expired maturity) INR (b)(d)335 @-- DCM Shriram Investments Ltd. 0.00%, (expired maturity) (b)(d)330 @-- ---------------------------------------------------------------------------- @-- ============================================================================ METALS & MINING Shri Ishar Alloy Steels Ltd. 15.00% (b)(d)581 @-- ---------------------------------------------------------------------------- TOTAL DEBT INSTRUMENTS (Cost $1,169) @-- ============================================================================ SHORT-TERM INVESTMENT (2.0%) UNITED STATES (2.0%) REPURCHASE AGREEMENT (2.0) J.P. Morgan Securities, Inc.,1.25%, dated 6/30/04, due 7/1/04, repurchase price $5,547 (Cost $5,547) $ (e)5,547 5,547 ============================================================================ 8 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. MORGAN STANLEY EMERGING MARKETS FUND, INC. STATEMENT OF NET ASSETS (CONT'D) June 30, 2004 (unaudited) VALUE (000) ---------------------------------------------------------------------------- TOTAL INVESTMENTS (99.9%) (Cost $232,889) $ 275,298 ============================================================================ AMOUNT (000) ---------------------------------------------------------------------------- OTHER ASSETS (1.2%) Foreign Currency (Cost $1,264) $ 1,269 Receivable for Investments Sold 1,141 Dividends Receivable 714 Tax Reclaim Receivable 88 Other 12 3,224 ============================================================================ LIABILITIES (-1.1%) Payable For: Investments Purchased (1,220) Bank Overdraft (743) Dividends Declared (404) Investment Advisory Fees (276) Country Tax Expense (163) Custodian Fees (48) Directors' Fees and Expenses (35) Administrative Fees (12) Net Unrealized Depreciation On Foreign Currency Exchange Contracts (2) Other Liabilities (144) (3,047) ============================================================================ NET ASSETS (100%) Applicable to 17,937,990, issued and outstanding $ 0.01 par value shares (100,000,000 shares authorized) $ 275,475 ============================================================================ NET ASSET VALUE PER SHARE $ 15.36 ============================================================================ AT JUNE 30, 2004, NET ASSETS CONSISTED OF: Common Stock $ 179 Paid-in Capital 284,361 Undistributed (Distributions in Excess of) Net Investment Income (130) Accumulated Net Realized Gain (Loss) (52,624) Unrealized Appreciation (Depreciation) on Investments, Foreign Currency Exchange Contracts and Translations (Net of $163 Deferred Country Tax) 43,689 ---------------------------------------------------------------------------- TOTAL NET ASSETS $ 275,475 ============================================================================ (a) Non-income producing. (b) Security was valued at fair value - At June 30, 2004, the Fund held $6,936,000 of fair-valued securities, representing 2.5% of net assets. (c) The Morgan Stanley India Growth Fund, acquired at a cost of $891,309, is advised by an affiliate of the Adviser. During the six months ended June 30, 2004, there were no purchases or sales of this security. The Fund derived $155,444 of income from this security during the six months ended June 30, 2004. (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 is less than $500. ADR American Depositary Receipt GDR Global Depositary Receipt INR Indian Rupee NVDR Non-Voting Depositary Receipt FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION: The Fund had the following foreign currency exchange contract(s) open at period end: NET CURRENCY IN UNREALIZED TO EXCHANGE APPRECIATION DELIVER VALUE SETTLEMENT FOR VALUE (DEPRECIATION) (000) (000) DATE (000) (000) (000) ---------------------------------------------------------------------------------- TRL 353,375,257 $ 238 7/1/04 US$ 236 $236 $(2) TRL 64,038,131 43 7/2/04 US$ 43 43 @-- US$ 45 45 7/1/04 BRL 139 45 @-- US$ 1 1 7/2/04 HKD 8 1 @-- US$ 64 64 7/2/04 THB 2,628 64 @-- US$ 104 104 7/2/04 THB 4,235 104 @-- --------------------------------------------------------------------------------- $ 495 $493 $(2) ================================================================================= BRL -- Brazilian Real HKD -- Hong Kong Dollar THB -- Thai Baht TRL -- Turkish Lira THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 9 MORGAN STANLEY EMERGING MARKETS FUND, INC. STATEMENT OF NET ASSETS (CONT'D) June 30, 2004 (unaudited) SUMMARY OF TOTAL INVESTMENTS BY INDUSTRY CLASSIFICATION - JUNE 30, 2004 PERCENT VALUE OF NET INDUSTRY (000) ASSETS ------------------------------------------------------------------- Commercial Banks $33,986 12.3% Wireless Telecommunication Services 27,326 9.9 Oil & Gas 27,022 9.8 Metals & Mining 24,312 8.8 Semiconductors & Semiconductor Equipment 17,256 6.3 Electronic Equipment & Instruments 13,631 5.0 Diversified Telecommunication Services 9,887 3.6 Food & Staples 9,591 3.5 Auto Components 6,713 2.4 Media 6,243 2.3 Electric Utilities 5,708 2.1 Diversified Financial Services 5,643 2.1 Software 5,613 2.0 Construction Materials 5,334 1.9 Household Durables 4,776 1.7 Construction & Engineering 4,700 1.7 Paper & Forest Products 4,292 1.6 Electrical Equipment 4,230 1.5 Multiline Retail 3,559 1.3 Leisure Equipment & Products 3,479 1.3 Computers & Peripherals 3,408 1.2 Capital Markets 3,364 1.2 Insurance 3,114 1.1 Airlines 2,847 1.0 Specialty Retail 2,782 1.0 Other 36,482 13.3 ------------------------------------------------------------------- $275,298 99.9% ------------------------------------------------------------------- 10 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. MORGAN STANLEY EMERGING MARKETS FUND, INC. Financial Statements SIX MONTHS ENDED JUNE 30, 2004 (UNAUDITED) STATEMENT OF OPERATIONS (000) ---------------------------------------------------------------------------------------------- INVESTMENT INCOME Dividends (net of $172 of foreign taxes withheld) $ 3,878 ---------------------------------------------------------------------------------------------- EXPENSES Investment Advisory Fees 1,811 Custodian Fees 252 Professional Fees 82 Administrative Fees 56 Stockholder Reporting Expenses 26 Stockholder Servicing Fees 8 Directors' Fees and Expenses 2 Other Expenses 61 ---------------------------------------------------------------------------------------------- TOTAL EXPENSES 2,298 ---------------------------------------------------------------------------------------------- NET INVESTMENT INCOME (LOSS) 1,580 ---------------------------------------------------------------------------------------------- NET REALIZED GAIN (LOSS) ON: Investments 25,931 Foreign Currency Transactions (86) ---------------------------------------------------------------------------------------------- NET REALIZED GAIN (LOSS) 25,845 ---------------------------------------------------------------------------------------------- CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) ON: Investments (Net of $163 Deferred Country Tax) (32,795) Foreign Currency Exchange Contracts and Translations (4) ---------------------------------------------------------------------------------------------- CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) (32,799) ---------------------------------------------------------------------------------------------- TOTAL NET REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) (6,954) ---------------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ (5,374) ---------------------------------------------------------------------------------------------- SIX MONTHS ENDED JUNE 30, 2004 YEAR ENDED (UNAUDITED) DECEMBER 31, 2003 STATEMENT OF CHANGES IN NET ASSETS (000) (000) ------------------------------------------------------------------------------------------------------------------------ INCREASE (DECREASE) IN NET ASSETS Operations: Net Investment Income (Loss) $ 1,580 $ 2,528 Net Realized Gain (Loss) 25,845 10,777 Change in Unrealized Appreciation (Depreciation) (32,799) 89,821 ------------------------------------------------------------------------------------------------------------------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (5,374) 103,126 ------------------------------------------------------------------------------------------------------------------------ Distributions from and/or in excess of: Net Investment Income (404) (2,982) ------------------------------------------------------------------------------------------------------------------------ Capital Share Transactions: Repurchase of Shares (62,267 and 499,537 shares, respectively) (843) (4,616) ------------------------------------------------------------------------------------------------------------------------ TOTAL INCREASE (DECREASE) (6,621) 95,528 ------------------------------------------------------------------------------------------------------------------------ Net Assets: Beginning of Period 282,096 186,568 ------------------------------------------------------------------------------------------------------------------------ END OF PERIOD (INCLUDING UNDISTRIBUTED (DISTRIBUTIONS IN EXCESS OF) NET INVESTMENT INCOME OF $(130) AND $(1,306), RESPECTIVELY) $275,475 $282,096 ------------------------------------------------------------------------------------------------------------------------ THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 11 MORGAN STANLEY EMERGING MARKETS FUND, INC. Financial Highlights SELECTED PER SHARE DATA AND RATIOS SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, 2004 -------------------------------------------------------- (UNAUDITED) 2003 2002 2001 2000 1999 ------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 15.67 $ 10.08 $ 10.68 $ 11.03 $ 21.26 $ 10.33 ------------------------------------------------------------------------------------------------------------------------- Net Investment Income (Loss) 0.09+ 0.14+ 0.03+ 0.03 (0.15) (0.03) Net Realized and Unrealized Gain (Loss) on Investments (0.39) 5.58 (0.65) (0.43) (8.04) 10.87 ------------------------------------------------------------------------------------------------------------------------- Total from Investment Operations (0.30) 5.72 (0.62) (0.40) (8.19) 10.84 ------------------------------------------------------------------------------------------------------------------------- Distributions from and/or in excess of: Net Investment Income (0.02) (0.17) (0.01) -- -- -- Net Realized Gain -- -- -- -- (2.31) -- ------------------------------------------------------------------------------------------------------------------------- Total Distributions (0.02) (0.17) (0.01) -- (2.31) -- ------------------------------------------------------------------------------------------------------------------------- Anti-Dilutive Effect of Share Repurchase Program 0.01 0.04 0.03 0.05 0.27 0.09 ------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 15.36 $ 15.67 $ 10.08 $ 10.68 $ 11.03 $ 21.26 ========================================================================================================================= PER SHARE MARKET VALUE, END OF PERIOD $ 13.23 $ 14.71 $ 8.34 $ 8.63 $ 8.75 $ 16.31 ========================================================================================================================= TOTAL INVESTMENT RETURN: Market Value (9.91)%** 78.24% (3.28)% (1.37)% (34.60)% 100.77% Net Asset Value (1) (1.82)%** 57.02% (5.49)% (3.17)% (36.74)% 105.81% ========================================================================================================================= RATIOS, SUPPLEMENTAL DATA: ------------------------------------------------------------------------------------------------------------------------- NET ASSETS, END OF PERIOD (THOUSANDS) $275,475 $282,096 $186,568 $201,117 $213,205 $435,795 ------------------------------------------------------------------------------------------------------------------------- Ratio of Expenses to Average Net Assets 1.58% * 1.67% 1.75% 1.85% 1.64% 1.76% Ratio of Net Investment Income to Average Net Assets 1.09% * 1.17% 0.23% 0.21% (0.73)% (0.20)% Portfolio Turnover Rate 33% ** 83% 75% 83% 81% 121% ------------------------------------------------------------------------------------------------------------------------- (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. + Per share amounts are based on average shares outstanding. * Annualized ** Not Annualized 12 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. MORGAN STANLEY EMERGING MARKETS FUND, INC. NOTES TO FINANCIAL STATEMENTS June 30, 2004 (unaudited) 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 (the "1940 Act"), 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 are in conformity with accounting principles generally accepted in the United States. Such policies are consistently followed by the Fund in the preparation of its financial statements. Accounting principles generally accepted in the United States 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: Equity securities listed on a U.S. exchange are valued at the latest quoted sales price on the valuation date. Equity securities listed or traded on NASDAQ, for which market quotations are available, are valued at the NASDAQ Official Closing Price. Securities listed on a foreign exchange are valued at their closing price. Unlisted securities and listed securities not traded on the valuation date for which market quotations are readily available are valued at the mean between the current bid and asked prices obtained from reputable brokers. Debt securities purchased with remaining maturities of 60 days or less are valued at amortized cost, if it approximates value. All other securities and investments for which market values are not readily available, including restricted securities, 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 adopted by the Board of Directors, although the actual calculations may be done by others. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, or the appropriate stock exchange (for exchange-traded securities), analysis of the issuer's financial statements or other available documents and, if necessary, available information concerning other securities in similar circumstances. Most foreign markets close before the New York Stock Exchange (NYSE). Occasionally, developments that could affect the closing prices of securities and other assets may occur between the times at which valuations of such securities are determined (that is, close of the foreign market on which the securities trade) and the close of business on the NYSE. If these developments are expected to materially affect the value of the securities, the valuations may be adjusted to reflect the estimated fair value as of the close of the NYSE, as determined in good faith under procedures established by the Board of Directors. 2. 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. 3. 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 13 MORGAN STANLEY EMERGING MARKETS FUND, INC. June 30, 2004 (unaudited) NOTES TO FINANCIAL STATEMENTS (CONT'D) 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 translations for the period is reflected in the Statement of Operations. 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. 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 has utilized and their associated risks: 4. 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. 5. 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, (except for certain dividends that may be recorded as soon as the Fund is informed of such dividends) net of applicable withholding taxes. Distributions to stockholders are recorded on the ex-dividend date. 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 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 Co. (the "Administrator"), provides administrative services to the Fund under an Administration Agreement. The Administrator is paid a fee computed weekly and payable monthly at an annual rate of 0.02435% of the Fund's average weekly net assets, plus $24,000 14 MORGAN STANLEY EMERGING MARKETS FUND, INC. June 30, 2004 (unaudited) NOTES TO FINANCIAL STATEMENTS (CONT'D) per annum. In addition, the Fund is charged for certain out-of-pocket expenses incurred by the Administrator on its behalf. An employee of the Administrator is an Officer of the Fund D. CUSTODIAN: JPMorgan Chase Bank serves as custodian for the Fund. The Custodian holds cash, securities, and other assets of the Fund as required by the 1940 Act. Custody fees are payable monthly based on assets held in custody, investment purchases and sales activity and account maintenance fees, plus reimbursement for certain out-of-pocket expenses. E. FEDERAL INCOME 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 Federal income taxes is required in the financial statements. Dividend income and distributions to stockholders are recorded on the ex-dividend date. 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. The tax character of distributions paid may differ from the character of distributions shown on the Statement of Changes in Net Assets due to short-term capital gains being treated as ordinary income for tax purposes. The tax character of distributions paid during 2003 and 2002 were as follows: 2003 DISTRIBUTIONS 2002 DISTRIBUTIONS PAID FROM: PAID FROM: (000) (000) ----------------------- ---------------------- LONG-TERM LONG-TERM ORDINARY CAPITAL ORDINARY CAPITAL INCOME GAIN INCOME GAIN ------------------------------------------------------ $2,982 $-- $137 $-- 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 accounting principles generally accepted in the United States. The book/tax differences are considered either 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 (distributions in excess of) net investment income (or accumulated net investment loss), accumulated net realized gain (loss) and paid-in capital. At December 31, 2003, the components of distributable earnings on a tax basis were as follows: UNDISTRIBUTED UNDISTRIBUTED ORDINARY INCOME LONG-TERM CAPITAL GAIN (000) (000) ------------------------------------------- $403 $-- ------------------------------------------- At June 30, 2004, the U.S. Federal income tax cost basis of investments was $232,889,000 and, accordingly, net unrealized appreciation for U.S. Federal income tax purposes was $42,409,000 of which $57,458,000 related to appreciated securities and $15,049,000 related to depreciated securities. At December 31, 2003, the Fund had a capital loss carry-forward for U.S. Federal income tax purposes of approximately $76,464,000 available to offset future capital gains of which $58,682,000 will expire on December 31, 2009 and $17,782,000 will expire on December 31, 2010. To the extent that capital loss carryforwards are used to offset any future capital gains realized during the carryforward period as provided by U.S. Federal income tax regulations, no capital gains tax liability will be incurred by the Fund for gains realized and not distributed. To the extent that capital gains are offset, such gains will not be distributed to the stockholders. Net 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, 2003, the Fund deferred to January 1, 2004, for U.S. Federal income tax purposes, post-October currency losses of $47,000. F. CONTRACTUAL OBLIGATIONS: The Fund enters into contracts that contain a variety of indemnifications. The Fund's maximum exposure under these arrangements is unknown. However, the Fund has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote. G. OTHER: During the six months ended June 30, 2004, the Fund made purchases and sales totaling approximately $94,487,000 and $93,658,000, 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. For the six months ended June 30, 2004, the Fund incurred $625 of brokerage commissions with Morgan Stanley & Co., an affiliate of the Adviser. 15 MORGAN STANLEY EMERGING MARKETS FUND, INC. June 30, 2004 (unaudited) NOTES TO FINANCIAL STATEMENTS (CONT'D) 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, 2004, the Fund repurchased 62,267 of its shares at an average discount of 14.51% from net asset value per share. Since the inception of the program, the Fund has repurchased 4,886,360 of its shares at an average discount of 19.69% 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. On June 21, 2004 the Officers of the Fund, pursuant to authority granted by the Board of Directors declared a distribution of $0.0225 per share, derived from net investment income, payable on July 15, 2004, to stockholders of record on June 30, 2004. H. SUPPLEMENTAL PROXY INFORMATION: The Annual Meeting of the Stockholders of the Fund was held on June 22, 2004. 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 ------------------------------------------------------- Wayne E. Hedien 15,164,989 651,047 James F. Higgins 15,164,989 651,047 Dr. Manuel H. Johnson 15,144,509 671,527 PROXY VOTING POLICIES AND PROCEDURES AND PROXY VOTING RECORD A copy of (1) the Fund's policies and procedures with respect to the voting of proxies relating to the Fund's portfolio securities; and (2) how the Fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30, 2004 is available without charge, upon request, by calling 1-800-548-7786 or by visiting our website at www.morganstanley.com/im. This information is also available on the Securities and Exchange Commission's website at www.sec.gov. 16 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 in full and fractional shares. 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, that hold shares for others who are the beneficial owners, the Plan Agent will administer the Plan on the basis of the number of shares certified from time to time by 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, New York 10030 1-800-278-4353 17 (This page intentionally left blank.) ITEM 2. CODE OF ETHICS. Not applicable for semi-annual reports. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. Not applicable for semi-annual reports. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. Not applicable for semi-annual reports. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Not applicable for semi-annual reports. ITEM 6. [RESERVED.] ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable for semi-annual reports. ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS MORGAN STANLEY CLOSED-END FUNDS SHARE REPURCHASE PROGRAM Morgan Stanley Emerging Markets Fund, Inc.* 1/1/04-6/30/04 TOTAL NUMBER OF SHARES MAXIMUM NUMBER OF PURCHASED AS PART OF SHARES THAT MAY YET BE TOTAL NUMBER OF AVERAGE PRICE PUBLICLY ANNOUNCED PURCHASED UNDER THE PERIOD SHARES PURCHASED PAID PER SHARE PLANS OR PROGRAMS PLANS OR PROGRAMS ------ ---------------- -------------- ---------------------- ---------------------- January -- -- -- Unlimited February -- -- -- Unlimited March 28,522 $14.63 28,522 Unlimited April -- -- -- Unlimited May 33,745 $12.52 33,745 Unlimited June -- -- -- Unlimited * The Share Repurchase Program commenced on 7/30/1998 ** 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. ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not Applicable. ITEM 10. CONTROLS AND PROCEDURES. (a) The Fund's principal executive officer and principal financial officer have concluded that the Fund's disclosure controls and procedures are sufficient to ensure that information required to be disclosed by the Fund in this Form N-CSR was recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, based upon such officers' evaluation of these controls and procedures as of a date within 90 days of the filing date of the report. (b) There were no changes in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. ITEM 11. EXHIBITS. (a) Code of Ethics - Not applicable for semi-annual reports. (b) Certifications of Principal Executive Officer and Principal Financial Officer attached hereto as part of EX-99.CERT. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (Registrant) Morgan Stanley Emerging Markets Fund, Inc. By: /s/ Ronald E. Robison Name: Ronald E. Robison Title: Principal Executive Officer Date: August 19, 2004 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ Ronald E. Robison Name: Ronald E. Robison Title: Principal Executive Officer Date: August 19, 2004 By: /s/ James W. Garrett Name: James W. Garrett Title: Principal Financial Officer Date: August 19, 2004