N-30B-2 1 n-30b_2.txt N-30B-2 -------------------------------- MORGAN STANLEY DEAN WITTER EMERGING MARKETS DEBT FUND, INC. -------------------------------- FIRST QUARTER REPORT MARCH 31, 2000 MORGAN STANLEY DEAN WITTER INVESTMENT MANAGEMENT INC. INVESTMENT ADVISER MORGAN STANLEY DEAN WITTER EMERGING MARKETS DEBT FUND, INC. ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- DIRECTORS AND OFFICERS Barton M. Biggs CHAIRMAN OF THE BOARD OF DIRECTORS Harold J. Schaaff, Jr. PRESIDENT AND DIRECTOR Peter J. Chase DIRECTOR John W. Croghan DIRECTOR Graham E. Jones DIRECTOR John A. Levin DIRECTOR William G. Morton, Jr. DIRECTOR Stefanie V. Chang VICE PRESIDENT Joseph P. Stadler VICE PRESIDENT Mary E. Mullin SECRETARY Belinda A. Brady TREASURER Robin L. Conkey ASSISTANT TREASURER ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- INVESTMENT ADVISER Morgan Stanley Dean Witter Investment Management Inc. 1221 Avenue of the Americas New York, New York 10020 ------------------------------------------------------------------------------- ADMINISTRATOR The Chase Manhattan Bank 73 Tremont Street Boston, Massachusetts 02108 ------------------------------------------------------------------------------- CUSTODIAN The Chase Manhattan Bank 3 Chase MetroTech Center Brooklyn, New York 11245 ------------------------------------------------------------------------------- SHAREHOLDER SERVICING AGENT Boston Equiserve Investor Relations Department P.O. Box 644 Boston, Massachusetts 02102-0644 (800) 730-6001 ------------------------------------------------------------------------------- LEGAL COUNSEL Rogers & Wells LLP 200 Park Avenue New York, New York 10166 ------------------------------------------------------------------------------- INDEPENDENT ACCOUNTANTS PricewaterhouseCoopers LLP 1177 Avenue of the Americas New York, New York 10036 ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- 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.msdw.com/institutional/investmentmanagement. LETTER TO SHAREHOLDERS --------- For the three months ended March 31, 2000, the Morgan Stanley Dean Witter Emerging Markets Debt Fund, Inc. (the "Fund") had a total return, based on net asset value per share, of 8.87% compared to 6.57% for the J.P. Morgan Emerging Markets Bond Global Index (the "Index") and 7.62% for the J.P. Morgan Emerging Markets Bond Plus Index. For the period from the Fund's commencement of operations on July 23, 1993 through March 31, 2000, the Fund's total return, based on net asset value per share, was 133.70% compared to 117.01% for the Index and 122.97% for the J.P. Morgan Emerging Markets Bond Plus Index. Commencing with this report, the Fund's performance will be compared to the J.P. Morgan Emerging Markets Bond Global Index as it has more comprehensive coverage of geographic regions and types of securities in which the Fund may invest. On March 31, 2000, the closing price of the Fund's shares on the New York Stock Exchange was $7 5/8, representing a 13.5% discount to the Fund's net asset value per share. During the past year, investors have been slowly--but surely--reassessing emerging markets risk. The realization that emerging market debt had been overly penalized during the 1998 Russian crisis coupled with broadly improving macro-economic fundamentals resulted in a dramatic tightening of emerging debt spreads. The extreme undervaluation of emerging bond spreads in 1999 left it immune to the spread-widening trend in virtually every other fixed income sector. Appropriately, the process, which had started with the Russia crisis, appears to have concluded there as well. The rally in Russia largely contributed to the 6.57% percent return in the Index. Mexico was another strong contributor to the Index as it was upgraded to investment grade by Moody's. The Fund's overweight-Russia position during the first quarter largely contributed to the outperformance. Within that overweight, a large holding of Russia Principal Notes was instrumental. To a lesser extent, the favorable reassessment of Brazilian and Mexican credit fundamentals--countries in which the Fund was overweighted--contributed to excess returns. Also helping was the Fund's structural Asian underweight--a position reflecting our view that the region's good news, while certainly impressive, had already been priced in. Detracting from the Fund's returns were the overweights in Argentina--where we were disappointed by the absence of a growth pick-up--and the Philippines--where a political scandal soured investor sentiment and offset favorable economic fundamentals. By the middle of March, emerging market debt spreads compared unfavorably to other fixed income alternatives. Indeed, triple-B and double-B corporate spreads had widened to levels fairly close to that of a number of emerging market credits. Simply put, emerging market debt was no longer cheap. We believe that the risk of non-dedicated investors reducing their exposures to emerging market debt in order to take advantage of historically cheap valuation elsewhere was quite high. While emerging market credit fundamentals remained quite supportive, the ongoing dislocations in other fixed income sectors, the extreme volatility in global equity markets and the less attractive relative valuations, caused us to position the Fund more defensively. In mid-March, we reduced the Fund's exposure to emerging market debt by reducing spread duration and by emphasizing lower beta countries. That said, we reiterate our constructive long-term view of emerging markets. As we have been noting in recent commentaries, we remain encouraged--and, indeed, pleasantly surprised--by the commitment of major emerging economies to an orthodox set of policy parameters. Indeed, the strong growth being enjoyed by many emerging market countries this year, has not resulted in reform fatigue. Fortunately, continued macroeconomic prudence--typically costly in socio-economic terms--is being buffeted by rising global demand and the return of capital inflows. We hope that the return of stability to G3 financial markets will herald a resumption of the rally in emerging markets later this year. Sincerely, /s/ Harold J. Schaaff, Jr.* Harold J. Schaaff, Jr.* PRESIDENT AND DIRECTOR April 2000 THE INFORMATION CONTAINED IN THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO PURCHASE OR SELL THE SECURITIES MENTIONED. ------------------------------------------------------------------------------- DAILY NET ASSET AND MARKET VALUES, AS WELL AS MONTHLY PORTFOLIO INFORMATION FOR THE FUND, ARE AVAILABLE ON OUR WEBSITE AT www.msdw.com/institutional/investmentmanagement. * HAROLD J. SCHAAFF, JR. WAS ELECTED PRESIDENT AND DIRECTOR OF THE FUND ON MARCH 20, 2000. MR. SCHAAFF JOINED MORGAN STANLEY DEAN WITTER IN 1989 AND IS A MANAGING DIRECTOR OF MORGAN STANLEY & CO. INCORPORATED AND MORGAN STANLEY DEAN WITTER INVESTMENT MANAGEMENT INC. HE FORMERLY SERVED AS GENERAL COUNSEL AND SECRETARY OF MORGAN STANLEY DEAN WITTER INVESTMENT MANAGEMENT INC. 2 MORGAN STANLEY DEAN WITTER EMERGING MARKETS DEBT FUND, INC. INVESTMENT SUMMARY AS OF MARCH 31, 2000 (UNAUDITED) ------------------------------------------------------------------------------- -------------------------------------------------------------------------------
HISTORICAL INFORMATION TOTAL RETURN (%) ------------------------------------------------------------------------- MARKET VALUE (1) NET ASSET VALUE (2) INDEX (3) ----------------------- --------------------- ---------------------- AVERAGE AVERAGE AVERAGE CUMULATIVE ANNUAL CUMULATIVE ANNUAL CUMULATIVE ANNUAL ---------- ------- ---------- ------- ---------- ------- Fiscal Year to Date 15.45% -- 8.87% -- 6.57% -- One Year 16.38 16.38% 39.46 39.46% 25.76 25.76% Five Year 123.37 17.44 174.52 22.38 150.52 20.16 Since Inception* 102.04 11.09 133.70 13.53 117.01 12.28
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. ------------------------------------------------------------------------------- RETURNS AND PER SHARE INFORMATION [GRAPH]
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31, 1993* 1994 1995 1996 1997 1998 1999 2000 ----- ------ ------ ------ ------ ------ ------ ------------ Net Asset Value Per Share .............. $18.96 $12.23 $12.40 $17.31 $15.21 $7.01 $8.36 $8.82 Market Value Per Share ................. $18.13 $11.38 $12.50 $15.13 $15.38 $7.19 $6.81 $7.63 Premium/(Discount) ..................... -4.4% -7.0% 0.8% -12.6% 1.1% 2.6% -18.5% -13.5% Income Dividends ....................... $0.16 $1.49 $1.72 $1.08 $1.27 $1.41 $1.01 $0.24 Capital Gains Distributions ............ -- $0.41 -- -- $3.44 $2.94 -- -- Fund Total Return (2) .................. 35.96% -25.95% 26.85%+ 50.98% 21.71% -33.00% 36.58% 8.87% JPM EMB Global Index Total Return (3) .. 18.67% -18.35% 26.38% 35.23% 11.95% -11.54% 24.18% 6.57% JPM EMB Plus Index Total Return (4) .... 18.67% -18.93% 26.77% 39.31% 13.02% -14.35% 25.97% 7.62%
(1) Assumes dividends and distributions, if any, were reinvested. (2) Total investment return based on net asset value per share reflects the effects of changes in net asset value on the performance of the Fund during each period, and assumes dividends and distributions, if any, were reinvested. These percentages are not an indication of the performance of a shareholder's investment in the Fund based on market value due to differences between the market price of the stock and the net asset value per share of the Fund. (3) The J.P. Morgan Emerging Markets Bond Global Index (the "JPM EMB Global Index") tracks total returns for U.S. dollar-denominated debt instruments issued by emerging markets sovereign and quasi-sovereign entities: Brady bonds, loans, Eurobonds and local market instruments. The JPM EMB Global Index includes coverage of 27 emerging market countries. Because JPM EMB Global Index was not available prior to January 1, 1994, the performance of the J.P. Morgan Emerging Markets Bond Index is shown for the period July 23, 1993 to December 31, 1993, and used for purposes of computing cumulative performance of the benchmark index for that period. (4) The J.P. Morgan Emerging Markets Bond Plus Index (the "JPM EMB Plus Index") is a market weighted index composed of all Brady bonds, outstanding loans and Eurobonds, as well as U.S. Dollar local market instruments of Argentina, Brazil, Bulgaria, Colombia, Ecuador, Mexico, Morocco, Nigeria, Panama, Peru, the Philippines, Poland, Russia, South Korea and Venezuela. Because the JPM EMB Plus Index was not available prior to January 1, 1994, the performance of the J.P. Morgan Emerging Markets Bond Index is shown for the period July 23, 1993 to December 31, 1993, and used for purposes of computing cumulative performance of the benchmark index for that period. * The Fund commenced operations on July 23, 1993. + This return does not include the effect of the rights issued in connection with the Rights Offering. 3 Morgan Stanley Dean Witter Emerging Markets Debt Fund, Inc. Portfolio Summary as of March 31, 2000 (Unaudited) ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- DIVERSIFICATION OF TOTAL INVESTMENTS [CHART] Debt Securities (97.6%) Short-Term Investments (2.4%)
------------------------------------------------------------------------------- COUNTRY WEIGHTINGS [CHART] Argentina (21.1%) Mexico (17.3%) Brazil (16.7%) Russia (12.3%) Peru (5.2%) Philippines (5.0%) Colombia (4.1%) Venezuela (3.2%) Indonesia (2.1%) Bulgaria (1.9%) Other (11.1%)
------------------------------------------------------------------------------- TEN LARGEST HOLDINGS*
PERCENT OF TOTAL INVESTMENTS 1. Russia Principal Note, PIK 6.906% 12/15/20 (Russia) 7.3% 2. United Mexican States Discount Bond 'B' 5.875% 12/31/19 (Mexico) 6.5 3. Republic of Argentina Par Bond 'L-GP' 6.00%, 3/31/23 (Argentina) 6.2 4. Republic of Argentina 11.75%, 4/7/09 (Argentina) 4.6 5. Federative Republic of Brazil Global Bond 14.50%, 10/15/09 (Brazil) 4.5 6. Republic of Peru Front Loaded Interest Reduction Bond 3.25%, 3/7/17 (Peru) 4.1% 7. Republic of Argentina 'L' 7.375%, 3/31/05 (Argentina) 4.0 8. Federative Republic of Brazil Bond 6.938%, 4/15/06 (Brazil) 3.8 9. United Mexican States Global Bond 11.375%, 9/15/16 (Mexico) 3.4 10. Republic of Argentina 12.00%, 2/1/20 (Argentina) 3.2 ---- 47.6% ---- ----
* Excludes short-term investments. 4 FINANCIAL STATEMENTS ------ STATEMENT OF NET ASSETS (UNAUDITED) (SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENTS) ------ MARCH 31, 2000
FACE AMOUNT VALUE (000) (000) ------------------------------------------------------------------------------- DEBT INSTRUMENTS(97.6%) ------------------------------------------------------------------------------- ARGENTINA (21.1%) CORPORATE (3.1%) (a)Cablevision S.A. 13.75%, 5/1/09 U.S.$ 500 U.S.$ 495 (a)CIA International Telecom 10.375%, 8/1/04 ARP 2,370 2,152 10.375%, 8/1/04 250 227 Nortel Inversora 'A' 6.00%, 3/31/07 U.S.$ 5,678 3,413 --------------- 6,287 --------------- SOVEREIGN (18.0%) Republic of Argentina 11.75%, 4/7/09 9,360 9,243 12.00%, 2/1/20 6,350 6,423 (b)Republic of Argentina 'L' 7.375%, 3/31/05 8,624 8,076 Republic of Argentina Par Bond 'L-GP' 6.00%, 3/31/23 17,750 12,464 --------------- 36,206 --------------- 42,493 --------------- ------------------------------------------------------------------------------- BRAZIL (16.7%) SOVEREIGN (16.7%) Federal Republic of Brazil 12.25%, 3/6/30 2,600 2,515 12.75%, 1/15/20 2,700 2,670 Federal Republic of Brazil 'C' Bond 8.00%, 4/15/14 1,941 1,459 Federative Republic of Brazil Bond 'EI' (Registered) 6.938%, 4/15/06 3,337 3,036 Federative Republic of Brazil Bond 'EI-L' 6.938%, 4/15/06 4,982 4,532 Federative Republic of Brazil Bond PIK 'C' 8.00%, 4/15/14 5,564 4,183 (b)Federative Republic of Brazil Debt Conversion Bond 'L' 7.00%, 4/15/12 2,760 2,098 (b)Federative Republic of Brazil Debt Conversion Bond 'L' (Registered) 7.00%, 4/15/12 2,290 1,740 Federative Republic of Brazil Global Bond 14.50%, 10/15/09 8,317 9,074 ------------------------------------------------------------------------------- SOVEREIGN (CONTINUED) (b)Federative Republic of Brazil New Money Bond 'L' 7.00%, 4/15/09 U.S.$ 2,700 U.S.$ 2,291 --------------- 33,598 --------------- ------------------------------------------------------------------------------- BULGARIA (1.9%) SOVEREIGN (1.9%) (b)Republic of Bulgaria Discount Bond 'A' Euro 7.063%, 7/28/24 4,800 3,899 --------------- ------------------------------------------------------------------------------- COLOMBIA (4.1%) CORPORATE (0.3%) (a,c)Occidente y Caribe 'B' 0.00%, 3/15/04 1,050 630 --------------- SOVEREIGN (3.8%) Republic of Colombia 9.75%, 4/23/09 1,700 1,505 11.75%, 2/25/20 6,250 6,062 --------------- 7,567 --------------- 8,197 --------------- ------------------------------------------------------------------------------- ECUADOR (0.8%) SOVEREIGN (0.8%) (b)Republic of Ecuador Discount Bond 6.75%, 2/28/25 4,020 1,678 --------------- ------------------------------------------------------------------------------- INDIA (0.3%) CORPORATE (0.3%) Surashtra Cement and Chemical Ltd. 19.00%, 6/26/00 INR 30,000 642 --------------- ------------------------------------------------------------------------------- INDONESIA (2.1%) CORPORATE (2.1%) Indah Kiat International Finance 'B' 11.875%, 6/15/02 U.S.$ 900 783 Tjiwi Kimia International Global Bond 13.25%, 8/1/01 3,300 2,970 13.25%, 8/1/01 500 450 --------------- 4,203 ------------------------------------------------------------------------------- IVORY COAST (0.5%) SOVEREIGN (0.5%) (b)Republic of Ivory Coast Front Load Interest Reduction Bond 2.00%, 3/29/18 5,500 990 --------------- ------------------------------------------------------------------------------- 5 FACE AMOUNT VALUE (000) (000) ------------------------------------------------------------------------------- JORDAN (0.4%) SOVEREIGN (0.4%) (a,b)Jordan Discount Bond 0.00%, 12/23/23 U.S.$ 1,061 U.S.$ 859 --------------- ------------------------------------------------------------------------------- MEXICO (17.3%) CORPORATE (3.1%) Grupo Elektra S.A. 12.00%, 4/1/08 900 864 (a)Nuevo Grupo Iusacell S.A. 14.25%, 12/1/06 1,300 1,402 (a)Sanluis Corp. S.A. 8.875%, 3/18/08 2,400 2,217 (a)TV Azteca 'B' 10.50%, 2/15/07 1,900 1,795 --------------- 6,278 --------------- SOVEREIGN (14.2%) United Mexican States 7.50%, 3/8/10 EUR 1,650 1,604 (b)United Mexican States Discount Bond 'B' 5.875%, 12/31/19 U.S.$ 13,350 13,183 United Mexican States Euro Bond 10.375%, 2/17/09 1,550 1,675 United Mexican States Global Bond 11.375%, 9/15/16 5,776 6,881 United Mexican States Par Bond 'W-B' 6.25%, 12/31/19 6,200 5,289 --------------- 28,632 --------------- 34,910 --------------- ------------------------------------------------------------------------------- MOROCCO (1.3%) SOVEREIGN (1.3%) (b)Morocco R&C 'A' 6.844%, 1/1/09 2,993 2,702 --------------- ------------------------------------------------------------------------------- PANAMA (0.8%) SOVEREIGN (0.8%) Republic of Panama Global Bond 8.875%, 9/30/27 850 750 (b)Republic of Panama Past Due Interest Bond PIK 7.063%, 7/17/16 929 791 --------------- 1,541 --------------- ------------------------------------------------------------------------------- PERU (5.2%) SOVEREIGN (5.2%) (c)Peru Past Due Interest Bond 4.50%, 3/7/17 2,920 1,953 ------------------------------------------------------------------------------- SOVEREIGN (CONTINUED) Republic of Peru Front Loaded Interest Reduction Bond (c)3.75%, 3/7/17 U.S.$ 13,250 U.S.$ 8,215 (b)3.75%, 3/7/17 498 309 --------------- 10,477 --------------- ------------------------------------------------------------------------------- PHILIPPINES (5.0%) CORPORATE (1.0%) (a)Bayan Telecommunications, Inc. 13.50%, 7/15/06 2,400 2,070 --------------- SOVEREIGN (4.0%) Republic of Philippines 9.875%, 1/15/19 2,100 1,916 10.625%, 3/16/25 6,400 6,122 --------------- 8,038 --------------- 10,108 --------------- ------------------------------------------------------------------------------- POLAND (1.2%) CORPORATE (1.2%) (a)Netia Holdings II B.V. 13.125%, 6/15/09 1,500 1,485 (a)PTC International Finance II S.A. 11.25%, 12/1/09 1,000 1,025 --------------- 2,510 --------------- ------------------------------------------------------------------------------- RUSSIA (12.3%) SOVEREIGN (12.3%) (b)Russia Interest Arrears Notes 6.906%, 12/15/15 1,950 578 (b)Russia Principal Note, PIK 6.906%, 12/15/20 50,346 14,647 Russian Federation (Registered) 10.00%, 6/26/07 6,350 4,731 12.75%, 6/24/28 5,700 4,852 --------------- 24,808 --------------- ------------------------------------------------------------------------------- SOUTH AFRICA (0.9%) SOVEREIGN (0.9%) Republic of South Africa 13.00%, 8/31/10 ZAR 12,400 1,787 --------------- ------------------------------------------------------------------------------- SOUTH KOREA (1.5%) SOVEREIGN (1.5%) Korea Monetary Stab Bond Zero Coupon, 7/31/00 U.S.$ 3,500,000 3,091 --------------- ------------------------------------------------------------------------------- TURKEY (1.0%) CORPORATE (1.0%) (a)Cellco Finance NV 15.00%, 8/1/05 1,910 2,034 --------------- ------------------------------------------------------------------------------- 6 FACE AMOUNT VALUE (000) (000) ----------------------------------------------------------------------------- VENEZUELA (3.2%) SOVEREIGN (3.2%) (b)Republic of Venezuela Debt Conversion Bond 'DL' 7.00%, 12/18/07 U.S.$ 3,048 U.S.$ 2,459 Republic of Venezuela Global Bond 9.25%, 9/15/27 5,900 3,900 --------------- 6,359 --------------- ------------------------------------------------------------------------------- TOTAL DEBT INSTRUMENTS (Cost U.S.$186,259) 196,886 --------------- ------------------------------------------------------------------------------- NO. OF RIGHTS ------------------------------------------------------------------------------- RIGHTS (0.0%) ------------------------------------------------------------------------------- MEXICO United Mexican States Value Recovery Rights, expiring 06/30/03 (Cost U.S.$--@) 20,567,000 -- @ --------------- ------------------------------------------------------------------------------- NO. OF WARRANTS ------------------------------------------------------------------------------- WARRANTS(0.0%) ------------------------------------------------------------------------------- COLOMBIA (0.0%) Occidente y Caribe, expiring 3/15/04 (Cost U.S.$27) 41,200 62 --------------- ------------------------------------------------------------------------------- FACE AMOUNT (000) ------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS(2.4%) ------------------------------------------------------------------------------- TURKEY (1.8%) BILLS Turkey Treasury Bill 08/23/00 TRL 2,525,000,000 3,519 --------------- ------------------------------------------------------------------------------- FACE AMOUNT VALUE (000) (000) ------------------------------------------------------------------------------- UNITED STATES (0.6%) REPURCHASE AGREEMENT Chase Securities, Inc. 5.90%, dated 3/31/00, due 4/03/00, to be repurchased at U.S.$1,266 United States Federal Home Loan Note, 7.10%, due 3/21/02, valued at U.S.$1,291 U.S.$ 1,265 U.S.$ 1,265 --------------- ------------------------------------------------------------------------------- TOTAL SHORT-TERM INVESTMENTS (Cost U.S.$5,074) 4,784 --------------- ------------------------------------------------------------------------------- TOTAL INVESTMENTS(100.0%) (Cost U.S.$191,360) 201,732 --------------- ------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES Other Assets 63,369 Liabilities (70,675) (7,306) ----------------------------------- ------------------------------------------------------------------------------- NET ASSETS Applicable to 22,046,681 issued and outstanding U.S.$0.01 par value shares (100,000,000 shares authorized) U.S.$ 194,426 --------------- ------------------------------------------------------------------------------- NET ASSET VALUE PER SHARE U.S.$ 8.82 --------------- -------------------------------------------------------------------------------
(a) -- 144A Security--certain conditions for public sale may exist. (b) -- Variable/floating rate security--rate disclosed is as of March 31, 2000. (c) -- Step Bond--coupon rate increases in increments to maturity. Rate disclosed is as of March 31, 2000. Maturity date disclosed is ultimate maturity. @ -- Amount is less than U.S.$500. PIK -- Payment-in-Kind. Income may be paid in additional securities or cash at the discretion of the issuer.