-----------------------------
OMB APPROVAL
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OMB Number: 3235-0570
Expires: November 30, 2005
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hours per response....... 5.0
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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 811-07694
---------------------------------------------
Morgan Stanley Emerging Markets Debt 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: 6/30/03
-------------------------
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 DEBT FUND, INC.
JUNE 30, 2003
DIRECTORS
MICHAEL BOZIC RONALD E. ROBISON
CHARLES A. FIUMEFREDDO EXECUTIVE VICE PRESIDENT
EDWIN J. GARN AND PRINCIPAL EXECUTIVE
WAYNE E. HEDIEN OFFICER
JAMES F. HIGGINS
DR. MANUEL H. JOHNSON JOSEPH McALINDEN
JOSEPH J. KEARNS VICE PRESIDENT
MICHAEL NUGENT
PHILIP J. PURCELL BARRY FINK
FERGUS REID VICE PRESIDENT
OFFICERS STEFANIE V. CHANG
CHARLES A. FIUMEFREDDO VICE PRESIDENT
CHAIRMAN OF THE BOARD
JAMES W. GARRETT [MORGAN STANLEY LOGO]
MITCHELL M. MERIN TREASURER AND CHIEF
PRESIDENT FINANCIAL OFFICER
MICHAEL LEARY
ASSISTANT TREASURER MORGAN STANLEY
EMERGING MARKETS DEBT FUND,
MARY E. MULLIN INC.
SECRETARY
INVESTMENT ADVISER
MORGAN STANLEY INVESTMENT MANAGEMENT INC.
1221 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10020
ADMINISTRATOR
JPMORGAN INVESTOR SERVICES
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
(800) 278-4353
LEGAL COUNSEL
CLIFFORD CHANCE US 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 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) 2003 MORGAN STANLEY INVESTMENT ADVISER
MORGAN STANLEY EMERGING MARKETS DEBT FUND, INC.
Overview
LETTER TO STOCKHOLDERS
PERFORMANCE
For the six months ended June 30, 2003, the Morgan Stanley Emerging Markets Debt
Fund, Inc. (the "Fund") had a total return of 20.38%, compared to 17.34% for the
J.P. Morgan Emerging Markets Bond Global Index (the "Index"). On June 30, 2003,
the closing price of the Fund's shares on the New York Stock Exchange was $8.62,
representing a 12.2% discount to the Fund's net asset value per share.
FACTORS AFFECTING PERFORMANCE
- The emerging markets debt (EMD) asset class markets continued the
strong rally in the first half of 2003 that began in October of last
year. This has been one of the best nine month periods in the history
of the asset class. This strong performance can be attributed to
significant inflows into the asset class, as generally improving
credit fundamentals and flush global liquidity drove investors to seek
out these higher yielding investments.
- In EMD, many of the more "riskier" countries provided the highest
returns including Brazil, Argentina, Ecuador and Uruguay. Russia also
performed very well, driven mostly by continued strong fundamentals.
Some of the lower returning countries either experienced negative news
(Dominican Republic and Turkey) or were of higher quality and just
lagged in the strong rally (South Korea, Chile and Poland)
- For the reporting period, relative performance versus the Index was
enhanced by underweights in South Korea and Poland as well as
overweights in Russia and Brazil. In addition, our corporate bond
holdings in Indonesia and security selection in Mexico also added to
results. Relative performance was hurt by an underweight in both
Ecuador and Argentina and by security selection in Brazil.
MANAGEMENT STRATEGIES
- During the period, we looked for opportunities in Russia, Mexico,
Panama and Peru, where we believed there was good value. Our main
underweights were in South Korea, Malaysia, Ecuador and Turkey.
Sincerely,
/s/ Ronald E. Robison
Ronald E. Robison
Executive Vice President and Principal Executive Officer
July 2003
2
MORGAN STANLEY EMERGING MARKETS DEBT FUND, INC.
STATEMENT OF NET ASSETS
June 30, 2003 (unaudited)
STATEMENT OF NET ASSETS
(SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENTS)
FACE
AMOUNT VALUE
(000) (000)
-----------------------------------------------------------------------------------------------------------
DEBT INSTRUMENTS (100.0%)
===========================================================================================================
ARGENTINA (1.5%)
SOVEREIGN (1.5%)
Republic of Argentina
75.219%, 4/10/05 $ 4,290(d),(f) $ 1,544
Republic of Argentina Par Bond, 'L-GP'
6.00%, 3/31/23 3,370(d),(f) 1,778
-----------------------------------------------------------------------------------------------------------
3,322
===========================================================================================================
BRAZIL (17.2%)
SOVEREIGN (17.2%)
Federative Republic of Brazil Bond, 'C' PIK
8.00%, 4/15/14 2,912 2,570
Federative Republic of Brazil Global Bond
8.875%, 4/15/24 9,120 7,095
10.00%, 1/16/07 3,590(e) 3,689
11.25%, 7/26/07 1,730 1,804
12.00%, 4/15/10 18,650 19,424
12.25%, 3/6/30 860 864
12.75%, 1/15/20 1,860 1,920
-----------------------------------------------------------------------------------------------------------
37,366
===========================================================================================================
BULGARIA (3.8%)
SOVEREIGN (3.8%)
Republic of Bulgaria
8.25%, 1/15/15 5,270 6,218
8.25%, 1/15/15 1,699(b) 2,005
-----------------------------------------------------------------------------------------------------------
8,223
===========================================================================================================
CHILE (2.0%)
CORPORATE (2.0%)
Empresa Nacional De Petroleo
6.75%, 11/15/12 3,870(b) 4,359
===========================================================================================================
COLOMBIA (6.8%)
SOVEREIGN (6.8%)
Republic of Colombia
9.75%, 4/9/11 6,633 7,545
10.00%, 1/23/12 3,040 3,405
10.50%, 7/9/10 950 1,092
10.75%, 1/15/13 1,270 1,486
11.75%, 2/25/20 1,110 1,382
-----------------------------------------------------------------------------------------------------------
14,910
===========================================================================================================
EL SALVADOR (0.4%)
SOVEREIGN (0.4%)
Republic of El Salvador
8.25%, 4/10/32 840 817
===========================================================================================================
INDIA (0.0%)
CORPORATE (0.0%)
Surashtra Cement and Chemical Ltd.
19.00% INR 30,000(d),(f),(g) --@
===========================================================================================================
INDONESIA (2.4%)
CORPORATE (2.4%)
Pindo Deli Finance (Mauritius)
10.75%, 10/1/07 $ 11,610(b),(d),(f) $ 2,990
Tjiwi Kimia Finance Mauritius Ltd.
10.00%, 8/1/04 1,630(d),(f) 526
Tjiwi Kimia International Global Bond
13.25%, 8/1/49 4,990(d),(f) 1,609
-----------------------------------------------------------------------------------------------------------
5,125
===========================================================================================================
IVORY COAST (0.2%)
SOVEREIGN (0.2%)
Republic of Ivory Coast Bond
2.00%, 3/29/18 2,045(c),(d),(f) 384
===========================================================================================================
MEXICO (24.6%)
CORPORATE (5.6%)
Pemex Project Funding Master Trust
8.625%, 2/1/22 1,720 1,965
9.125%, 10/13/10 4,040 4,888
Petroleos Mexicanos
9.50%, 9/15/27 2,700 3,362
Satelites Mexicanos SA de CV, 'B'
10.125%, 11/1/04 4,245 1,953
-----------------------------------------------------------------------------------------------------------
12,168
-----------------------------------------------------------------------------------------------------------
SOVEREIGN (19.0%)
United Mexican States (MTN)
8.30%, 8/15/31 8,840 10,179
United Mexican States, Discount Bond, 'A'
9.875%, 2/1/10 4,300 5,515
United Mexican States Global Bond
10.375%, 2/17/09 4,550 5,885
11.375%, 9/15/16 13,510 19,657
-----------------------------------------------------------------------------------------------------------
41,236
-----------------------------------------------------------------------------------------------------------
53,404
===========================================================================================================
NIGERIA (1.2%)
SOVEREIGN (1.2%)
Central Bank of Nigeria Par Bond
6.25%, 11/15/20 3,000(c) 2,565
===========================================================================================================
PANAMA (2.8%)
SOVEREIGN (2.8%)
Republic of Panama
9.375%, 4/1/29 3,980 4,597
9.625%, 2/8/11 1,370 1,589
-----------------------------------------------------------------------------------------------------------
6,186
===========================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
3
MORGAN STANLEY EMERGING MARKETS DEBT FUND, INC.
STATEMENT OF NET ASSETS
June 30, 2003 (unaudited)
STATEMENT OF NET ASSETS (CONT'D)
FACE
AMOUNT VALUE
(000) (000)
-----------------------------------------------------------------------------------------------------------
PERU (5.1%)
SOVEREIGN (5.1%)
Republic of Peru
9.125%, 2/21/12 $ 2,040 $ 2,175
9.875%, 2/6/15 8,200 8,999
-----------------------------------------------------------------------------------------------------------
11,174
===========================================================================================================
PHILIPPINES (4.4%)
SOVEREIGN (4.4%)
Republic of Philippines
9.375%, 1/18/17 3,090 3,391
9.875%, 1/15/19 3,400 3,753
10.625%, 3/16/25 2,070 2,409
-----------------------------------------------------------------------------------------------------------
9,553
===========================================================================================================
QATAR (0.8%)
SOVEREIGN (0.8%)
State of Qatar
9.75%, 6/15/30 1,260 1,751
===========================================================================================================
RUSSIA (20.6%)
SOVEREIGN (20.6%)
Russian Federation
5.00%, 3/31/30 13,915(c) 13,498
5.00%, 3/31/30 4,684(b),(c) 4,544
8.75%, 7/24/05 3,970 4,426
12.75%, 6/24/28 13,350 22,428
-----------------------------------------------------------------------------------------------------------
44,896
===========================================================================================================
SOUTH KOREA (0.7%)
SOVEREIGN (0.7%)
Republic of South Korea
4.25%, 6/1/13 1,525 1,485
===========================================================================================================
TUNISIA (0.4%)
SOVEREIGN (0.4%)
Banque Centrale de Tunisie
7.375%, 4/25/12 750 874
===========================================================================================================
UKRAINE (1.3%)
SOVEREIGN (1.3%)
Ukraine Government
11.00%, 3/15/07 2,516 2,771
===========================================================================================================
URUGUAY (0.3%)
SOVEREIGN (0.3%)
Republic of Uruguay
7.25%, 2/15/11 896 712
===========================================================================================================
VENEZUELA (3.5%)
SOVEREIGN (3.5%)
Republic of Venezuela
9.25%, 9/15/27 6,190 4,581
Republic of Venezuela Debt Conversion
Bond, 'DL'
1.875%, 12/18/07 3,690(a),(d).(f) 2,966
Republic of Venezuela Oil-Linked Payment
Obligation
3.22%, 4/15/20 $ 11(a) $ --@
-----------------------------------------------------------------------------------------------------------
7,547
===========================================================================================================
TOTAL DEBT INSTRUMENTS
(Cost $196,265) 217,424
===========================================================================================================
NO. OF
WARRANTS
-----------------------------------------------------------------------------------------------------------
WARRANTS (0.0%)
COLOMBIA (0.0%)
Occidente y Caribe Celular, 69,200(f),(g) --@
expiring 3/15/04
===========================================================================================================
NIGERIA (0.0%)
Central Bank of Nigeria,
expiring 11/15/20 8,750(f),(g) --@
===========================================================================================================
TOTAL WARRANTS
(Cost $44) --@
===========================================================================================================
FACE
AMOUNT
(000)
-----------------------------------------------------------------------------------------------------------
FOREIGN CURRENCY ON DEPOSIT WITH
CUSTODIAN(0.0%)
Euro
(Cost $54) EUR 46 53
===========================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
4
MORGAN STANLEY EMERGING MARKETS DEBT FUND, INC.
STATEMENT OF NET ASSETS
June 30, 2003 (unaudited)
STATEMENT OF NET ASSETS (CONT'D)
AMOUNT VALUE
(000) (000)
-----------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (100.0%)
(Cost $196,363) $ 217,477
===========================================================================================================
OTHER ASSETS
Interest Receivable $ 4,742
Due from Broker 3,351
Other 20 8,113
===========================================================================================================
LIABILITIES
Payable For:
Dividends Declared (3,307)
Investments Purchased (2,941)
Reverse Repurchase Agreements (1,879)
Bank Overdraft (837)
Investment Advisory Fees (182)
Directors' Fees and Expenses (70)
Stockholder Reporting Expenses (39)
Professional Fees (34)
Custodian Fees (15)
Administrative Fees (10)
Other Liabilities (8) (9,322)
===========================================================================================================
NET ASSETS
Applicable to 22,046,681, issued and
outstanding $ 0.01 par value shares
(100,000,000 shares authorized) $ 216,268
===========================================================================================================
NET ASSET VALUE PER SHARE $ 9.81
===========================================================================================================
AT JUNE 30, 2003, NET ASSETS CONSISTED OF:
Common Stock $ 220
Paid-in Capital 279,080
Undistributed (Distributions in Excess of) Net
Investment Income 1,101
Accumulated Net Realized Gain (Loss) (85,275)
Unrealized Appreciation (Depreciation) on
Investments, Futures and Foreign Currency
Translations 21,142
===========================================================================================================
TOTAL NET ASSETS $ 216,268
===========================================================================================================
(a) -- Variable/floating rate security - rate disclosed is as of June 30, 2003.
(b) -- 144A Security - Certain conditions for public sale may exist.
(c) -- Step Bond - coupon rate increases in increments to maturity. Rate
disclosed is as of June 30, 2003. Maturity date disclosed is ultimate
maturity.
(d) -- Security is in default.
(e) -- Denotes all or a portion of securities subject to repurchase under the
Reverse Repurchase Agreements as of June 30, 2003. See note A-3 to
financial statements.
(f) -- Non-income producing.
(g) -- Securities valued at fair value - see note A-1 to financial statements.
At June 30, 2003, the Fund held fair-valued securities representing less
than 0.01% of net assets.
@ -- Amount is less than $500.
EUR -- Euro
INR -- Indian Rupee
MTN -- Medium Term Note
PIK -- Payment-in-kind. Income may be paid to additional securities or cash
at the discretion of the issuer.
FUTURES CONTRACTS:
The Fund had the following futures contracts open at period end:
NET
UNREALIZED
NUMBER GAIN
OF VALUE EXPIRATION (LOSS)
CONTRACTS (000) DATE (000)
-------------------------------------------------------------------
SHORT:
5 Year U.S.
Treasury Note 934 $ 107,527 Sept-03 $ 7
10 Year U.S.
Treasury Note 227 26,658 Sept-03 16
-------------------------------------------------------------------
$ 23
===================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
5
MORGAN STANLEY EMERGING MARKETS DEBT FUND, INC.
Financial Statements
STATEMENT OF OPERATIONS
SIX MONTHS ENDED
JUNE 30, 2003
(UNAUDITED)
(000)
-------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Interest (net of $11 of foreign taxes withheld) $ 9,880
===============================================================================================================================
EXPENSES
Investment Advisory Fees 1,007
Interest Expense on Reverse Repurchase Agreements 62
Professional Fees 52
Interest on Loans Expense 42
Administrative Fees 30
Custodian Fees 22
Directors' Fees and Expenses 9
Stockholder Reporting Expenses 3
Bank Overdraft Expense 2
Other Expenses 44
===============================================================================================================================
TOTAL EXPENSES 1,273
===============================================================================================================================
NET INVESTMENT INCOME 8,607
===============================================================================================================================
NET REALIZED GAIN (LOSS) ON:
Investments 11,025
Foreign Currency Transactions (64)
Futures (3,431)
===============================================================================================================================
NET REALIZED GAIN (LOSS) 7,530
===============================================================================================================================
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) ON:
Investments 20,048
Foreign Currency Translations (1)
Futures 390
===============================================================================================================================
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) 20,437
===============================================================================================================================
NET REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) 27,967
===============================================================================================================================
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 36,574
===============================================================================================================================
STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS ENDED
JUNE 30, 2003 YEAR ENDED
(UNAUDITED) DECEMBER 31, 2002
(000) (000)
-------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net Investment Income $ 8,607 $ 14,837
Net Realized Gain (Loss) 7,530 4,226
Change in Unrealized Appreciation (Depreciation) 20,437 (117)
===============================================================================================================================
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 36,574 18,946
===============================================================================================================================
Distributions from and/or in excess of:
Net Investment Income (6,614) (14,551)
===============================================================================================================================
TOTAL INCREASE (DECREASE) 29,960 4,395
===============================================================================================================================
Net Assets:
Beginning of Period 186,308 181,913
===============================================================================================================================
END OF PERIOD (INCLUDING UNDISTRIBUTED (DISTRIBUTIONS IN EXCESS OF) NET INVESTMENT
INCOME OF $1,101 AND $(892), RESPECTIVELY) $ 216,268 $ 186,308
===============================================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
6
MORGAN STANLEY EMERGING MARKETS DEBT FUND, INC.
Financial Statements
STATEMENT OF CASH FLOWS
SIX MONTHS ENDED
JUNE 30, 2003
(UNAUDITED)
(000)
-------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Proceeds from Sales and Maturities of Long-Term Investments $ 217,693
Purchases of Long-Term Investments (211,932)
Net (Increase) Decrease in Short-Term Investments 1,803
Net Realized Gain (Loss) on Foreign Currency Translations (64)
Net Realized Gain (Loss) on Futures Contracts (3,431)
Net Investment Income 8,607
ADJUSTMENTS TO RECONCILE NET INVESTMENT INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
Net (Increase) Decrease in Receivables Related to Operations (778)
Net Increase (Decrease) in Payables Related to Operations 35
Accretion/Amortization of Discounts and Premiums (1,134)
-------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 10,799
-------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash Received (Paid) for Reverse Repurchase Agreements (5,299)
Cash Distributions Paid (6,614)
-------------------------------------------------------------------------------------------------------------------------------
Net Cash Used for Financing Activities (11,913)
-------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash (1,114)
CASH AT BEGINNING OF PERIOD 277
-------------------------------------------------------------------------------------------------------------------------------
CASH AT END OF PERIOD $ (837)
===============================================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
7
MORGAN STANLEY EMERGING MARKETS DEBT FUND, INC.
Financial Highlights
SELECTED PER SHARE DATA AND RATIOS
SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 2003 ------------------------------------------------------
(UNAUDITED) 2002 2001 2000 1999 1998
-----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.45 $ 8.25 $ 8.22 $ 8.36 $ 7.01 $ 15.21
-----------------------------------------------------------------------------------------------------------------------------
Net Investment Income 0.39+ 0.67+ 0.80 1.23 1.09 1.27
Net Realized and Unrealized Gain (Loss) on
Investments 1.27 0.19 0.08 (0.29) 1.27 (5.12)
-----------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 1.66 0.86 0.88 0.94 2.36 (3.85)
-----------------------------------------------------------------------------------------------------------------------------
Distributions from and/or in excess of:
Net Investment Income (0.30) (0.66) (0.85) (1.08) (1.01) (1.41)
Net Realized Gain -- -- -- -- -- (2.94)
-----------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.30) (0.66) (0.85) (1.08) (1.01) (4.35)
-----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 9.81 $ 8.45 $ 8.25 $ 8.22 $ 8.36 $ 7.01
=============================================================================================================================
PER SHARE MARKET VALUE, END OF PERIOD $ 8.62 $ 7.55 $ 7.40 $ 6.88 $ 6.81 $ 7.19
=============================================================================================================================
TOTAL INVESTMENT RETURN:
Market Value 18.24%** 11.11% 20.65% 16.49% 8.55% (32.04)%
Net Asset Value (1) 20.38%** 11.54% 12.50% 13.50% 36.58% (33.00)%
=============================================================================================================================
RATIOS, SUPPLEMENTAL DATA:
-----------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (THOUSANDS) $ 216,268 $ 186,308 $ 181,913 $ 181,134 $ 184,269 $ 153,084
-----------------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets 1.27%* 1.34% 1.61% 2.32% 2.28% 2.75%
Ratio of Expenses Excluding Interest Expense to
Average Net Assets 1.20%* 1.29% 1.41% 1.34% 1.35% 1.47%
Ratio of Net Investment Income to Average Net
Assets 8.55%* 8.11% 9.73% 14.31% 14.53% 12.50%
Portfolio Turnover Rate 101%** 149% 233% 272% 178% 308%
-----------------------------------------------------------------------------------------------------------------------------
(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
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
8
MORGAN STANLEY EMERGING MARKETS DEBT FUND, INC.
June 30, 2003 (unaudited)
NOTES TO FINANCIAL STATEMENTS
Morgan Stanley Emerging Markets Debt Fund, Inc. (the "Fund") was
incorporated in Maryland on May 6, 1993, and is registered as a non-diversified,
closed-end management investment company under the Investment Company Act of
1940, as amended. The Fund's primary investment objective is to produce high
current income and as a secondary objective, to seek capital appreciation,
through investments primarily in debt securities.
A. ACCOUNTING POLICIES: The following significant accounting policies are in
conformity with accounting principles generally accepted in the United States of
America. Such policies are consistently followed by the Fund in the preparation
of its financial statements. Accounting principles generally accepted in the
United States of America 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 sale
price on the valuation date, or if there was no sale on such date, at the
mean between the current bid and asked prices or the bid price if only bid
quotations are available. Securities which are traded over-the-counter are
valued at the mean of the current bid and asked prices obtained from
reputable brokers. Securities may be valued by independent pricing
services. The prices provided by a pricing service take into account broker
dealer market price quotations for institutional size trading in similar
groups of securities, security quality, maturity, coupon and other security
characteristics as well as any developments related to the specific
securities. Short-term securities which mature in 60 days or less are
valued at amortized cost. For all other securities and investments for
which market values are not readily available, including restricted
securities, and where prices determined in accordance with the
aforementioned procedures are not reflective of fair market value, values
are determined in good faith, under fair valuation procedures adopted by
the Board of Directors, although actual calculations may be done by others.
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.
The Fund, along with other affiliated investment companies, may utilize a
joint trading account for the purpose of entering into one or more
repurchase agreements.
3. REVERSE REPURCHASE AGREEMENTS: The Fund may enter into reverse repurchase
agreements with institutions that the Fund's investment adviser has
determined are creditworthy. Under a reverse repurchase agreement, the Fund
sells securities and agrees to repurchase them at a mutually agreed upon
date and price. Reverse repurchase agreements involve the risk that the
market value of the securities purchased with the proceeds from the sale of
securities received by the Fund may decline below the price of the
securities the Fund is obligated to repurchase. Reverse repurchase
agreements also involve credit risk with the counterparty to the extent
that the value of securities subject to repurchase exceed the Fund's
liability under the reverse repurchase agreement. Securities subject to
repurchase under reverse repurchase agreements, if any, are designated as
such in the Statement of Net Assets.
At June 30, 2003, the Fund had reverse repurchase agreements outstanding
with Lehman Brothers as follows:
MATURITY IN
LESS THAN
365 DAYS
--------------------------------------------------------------
Value of Securities Subject to Repurchase $ 1,880,000
Liability Under Reverse Repurchase Agreement $ 1,879,000
Weighted Average Days to Maturity 17
The weighted average daily balance of reverse repurchase agreements outstanding
during the six months ended June 30, 2003, was approximately $8,718,000 at a
weighted average interest rate of 1.20%.
9
MORGAN STANLEY EMERGING MARKETS DEBT FUND, INC.
June 30, 2003 (unaudited)
NOTES TO FINANCIAL STATEMENTS (CONT'D)
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 translations for the period is reflected in the Statement of
Operations.
A significant portion of the Fund's net assets consist of securities of
issuers located in emerging markets or which are denominated in foreign
currencies. Such investments may be concentrated in a limited number of
countries and regions and may vary throughout the year. Changes in currency
exchange rates will affect the value of and investment income from foreign
currency denominated 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 securities may be subject to substantial governmental involvement in
the economy and greater social, economic and political uncertainty.
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:
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. 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
10
MORGAN STANLEY EMERGING MARKETS DEBT FUND, INC.
June 30, 2003 (unaudited)
NOTES TO FINANCIAL STATEMENTS (CONT'D)
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.
7. 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, government or other
liquid 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 its 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.
8. 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.
9. 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 and discounts and premiums on
investments purchased are accreted or amortized in accordance with the
effective yield method over their respective lives, except where collection
is in doubt. 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 and Management Agreement (the "Agreement"). Under the Agreement, the
Adviser is paid a fee computed weekly and payable monthly at an annual rate of
1.00% 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 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 and its affiliates serve 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. 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.
11
MORGAN STANLEY EMERGING MARKETS DEBT FUND, INC.
June 30, 2003 (unaudited)
NOTES TO FINANCIAL STATEMENTS (CONT'D)
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 2002 and 2001 were as follows: _
2002 DISTRIBUTIONS 2001 DISTRIBUTIONS
PAID FROM: PAID FROM:
(000) (000)
------------------------------------ -----------------------
LONG-TERM LONG-TERM
ORDINARY CAPITAL ORDINARY CAPITAL
INCOME GAIN INCOME GAIN
-----------------------------------------------------------------
$ 14,551 $ -- $ 18,740 $ --
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 of
America. 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 differences may result in reclassifications among undistributed
(distributions in excess of) net investment income, accumulated net realized
gain (loss) and paid-in capital. Adjustments for permanent book-tax differences,
if any, are not reflected in ending undistributed (distributions in excess of)
net investment income for the purpose of calculating net investment income
(loss) per share in the financial highlights.
At December 31, 2002, the components of distributable earnings on a tax basis
were as follows:
UNDISTRIBUTED UNDISTRIBUTED
ORDINARY INCOME LONG-TERM CAPITAL GAIN
(000) (000)
----------------------------------------------------
$ 1,145 $ --
----------------------------------------------------
At June 30, 2003, the U.S. Federal income tax cost basis of securities was
approximately $196,309,000 and, accordingly, net unrealized appreciation for
U.S. Federal income tax purposes was $21,115,000 of which $25,017,000 related to
appreciated securities and $3,902,000 related to depreciated securities.
At December 31, 2002, the Fund had a capital loss carryforward for U.S. Federal
income tax purposes of approximately $92,832,000 available to offset future
capital gains, of which $75,550,000 will expire on December 31, 2006,
$13,135,000 will expire on December 31, 2007 and $4,147,000 will expire on
December 31, 2009. To the extent that capital gains are offset, such gains will
not be distributed to the stockholders. During the year ended December 31, 2002,
the Fund utilized capital loss carryforwards for U.S. Federal income tax
purposes of $1,887,000.
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, 2002, the Fund did not defer any
post-October losses to January 1, 2003, for U.S. Federal income tax purposes.
F. OTHER: During the six months ended June 30, 2003, the Fund made purchases and
sales totaling approximately $209,095,000 and $217,051,000 respectively, of
investment securities other than long-term U.S. Government securities, purchased
options and short-term investments. There were no purchases or sales of
long-term U.S. Government securities.
These investments may be traded by one market maker who may also be utilized by
the Fund to provide pricing information used to value such securities. The
amounts which will be realized upon disposition of the securities may differ
from the value reflected on the Statement of Net Assets and the differences
could be material.
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, 2003, the deferred fees payable under the Plan totaled $69,000
and are included in Payable for Directors' Fees and Expenses on the Statement of
Net Assets. The deferred portion of Directors' Fees and Expenses shown on the
Statement of Operations is impacted by fluctuations in the market value of the
investments selected by each Director. For the six months ended June 30, 2003,
Directors' Fees and Expenses were increased by $6,200 due to these fluctuations.
12
MORGAN STANLEY EMERGING MARKETS DEBT FUND, INC.
June 30, 2003 (unaudited)
NOTES TO FINANCIAL STATEMENTS (CONT'D)
On June 17, 2003, the Board of Directors declared a distribution of $0.15 per
share, derive from net investment income, payable on July 15, 2003, to
stockholders of record on June 30, 2003.
PROPOSAL:
1. To elect the following Directors, effective July 31, 2003:
VOTES IN VOTES
FAVOR OF AGAINST
----------------------
1) Michael Bozic 18,723,432 653,637
2) Charles A. Fiumefreddo 18,724,432 652,637
3) Edwin J. Garn 18,724,432 652,637
4) Wayne E. Hedien 18,724,932 652,137
5) James F. Higgins 18,724,932 652,137
6) Dr. Manuel H. Johnson 18,724,932 652,137
7) Philip J. Purcell 18,724,932 652,637
Also effective July 31, 2003, John D. Barrett II, Thomas P. Gerrity, Gerard E.
Jones, Vincent R. McLean, C. Oscar Morong, Jr. and William G. Morton, Jr. have
resigned from the Board of Directors.
13
MORGAN STANLEY EMERGING MARKETS DEBT 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 Debt 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
14
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. [RESERVED.]
ITEM 9. CONTROLS AND PROCEDURES.
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.
There were no significant changes or corrective actions with regard to
significant deficiencies or material weaknesses in the Fund's internal controls
or in other factors that could significantly affect the Fund's internal controls
subsequent to the date of their evaluation.
ITEM 10. 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 Debt Fund, Inc.
By: Ronald E. Robison
Name: Ronald E. Robison
Title: Principal Executive Officer
Date: August 19, 2003
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: Ronald E. Robison
Name: Ronald E. Robison
Title: Principal Executive Officer
Date: August 19, 2003
By: James W. Garrett
Name: James W. Garrett
Title: Principal Financial Officer
Date: August 19, 2003