-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Gs1W8qgGXtgll4DpqjtRpHJY3aFR70nNfNhs1MdvEYWeRCkhbOb5mdurdQOKKgQv z3MQu/LS7Qsi2Bkw7ld1Tw== 0000912057-96-011321.txt : 19960604 0000912057-96-011321.hdr.sgml : 19960604 ACCESSION NUMBER: 0000912057-96-011321 CONFORMED SUBMISSION TYPE: N-30B-2 PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960603 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MORGAN STANLEY EMERGING MARKETS DEBT FUND INC CENTRAL INDEX KEY: 0000904112 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 133713706 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30B-2 SEC ACT: 1940 Act SEC FILE NUMBER: 811-07694 FILM NUMBER: 96575827 BUSINESS ADDRESS: STREET 1: 1221 AVENUE OF THE AMERICAS CITY: NEW YORK STATE: NY ZIP: 10020 BUSINESS PHONE: 6175578742 MAIL ADDRESS: STREET 1: 1221 AVENUE OF THE AMERIAS CITY: NEW YORK STATE: NY ZIP: 10020 N-30B-2 1 N-30B-2 MORGAN STANLEY EMERGING MARKETS DEBT FUND, INC. - --------------------------------------------- OFFICERS AND DIRECTORS Barton M. Biggs William G. Morton, Jr. CHAIRMAN OF THE BOARD DIRECTOR OF DIRECTORS James W. Grisham Frederick B. Whittemore VICE PRESIDENT VICE-CHAIRMAN OF THE BOARD Harold J. Schaaff, Jr. OF DIRECTORS VICE PRESIDENT Warren J. Olsen Joseph P. Stadler PRESIDENT AND DIRECTOR VICE PRESIDENT Peter J. Chase Valerie Y. Lewis DIRECTOR SECRETARY John W. Croghan James R. Rooney DIRECTOR TREASURER David B. Gill Joanna M. Haigney DIRECTOR ASSISTANT TREASURER Graham E. Jones DIRECTOR John A. Levin DIRECTOR
- --------------------------------------------- INVESTMENT ADVISER Morgan Stanley Asset Management Inc. 1221 Avenue of the Americas New York, New York 10020 - --------------------------------------------------------- ADMINISTRATOR The Chase Manhattan Bank, N.A. 73 Tremont Street Boston, Massachusetts 02108 - --------------------------------------------------------- CUSTODIANS Morgan Stanley Trust Company (International) One Pierrepont Plaza Brooklyn, New York 11201 The Chase Manhattan Bank, N.A. (Domestic) 770 Broadway New York, New York 10003 - --------------------------------------------------------- SHAREHOLDER SERVICING AGENT Boston Equiserve Investor Relations Department P.O. Box 644 Boston, Massachusetts 02102-0644 (617) 575-3120 - --------------------------------------------------------- LEGAL COUNSEL Rogers & Wells 200 Park Avenue New York, New York 10166 - --------------------------------------------------------- INDEPENDENT ACCOUNTANTS Price Waterhouse 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. ------------------------ MORGAN STANLEY EMERGING MARKETS DEBT FUND, INC. --------------------- FIRST QUARTER REPORT MARCH 31, 1996 MORGAN STANLEY ASSET MANAGEMENT INC. INVESTMENT ADVISER LETTER TO SHAREHOLDERS - -------- For the three months ended March 31, 1996, the Morgan Stanley Emerging Markets Debt Fund, Inc. had a total return, based on net asset value per share, of 5.48% compared to 3.76% for the J.P. Morgan Emerging Markets Bond Index. For the period since the Fund's commencement of operations on July 23, 1993 through March 31, 1996, the Fund's total return based on net asset value per share is 34.71% compared with 27.70% for the Index. On March 29, 1996, the closing price of the Fund's shares on the New York Stock Exchange was $12 7/8, representing a 1.3% premium to the Fund's net asset value per share. The positive momentum that emerging markets debt witnessed in the first few weeks of the year faded as the U.S. bond markets re-evaluated the likely future direction of U.S. interest rates. The U.S. yield curve at that point of time was discounting continued easing of monetary policy, given the weak state of the economy. The inventory adjustment combined with a restrictive fiscal stance and weak conditions in the external sector had produced sub-par growth for the fourth quarter of 1995. The continuation of these conditions into 1996 was questioned by bond market participants at the beginning of the year and leveraged investors unwound positions in the short end of the market and initiated the reversal in yields. This back-up in yields was exacerbated by a spate of economic releases which suggested that the economy was in fact picking up steam in the first quarter. Rates eventually increased by 120 basis points in the short end and 80 basis points at the long end of the yield curve. The reversal in the fortunes of the U.S. bond market had an adverse impact on emerging market debt asset prices. Deleveraging and a reduction in risk exposures to the asset class prompted a 10% correction in prices over a course of four weeks. Fixed rate collateralized bonds, bonds with the highest interest rate duration, were the hardest hit. Floating-rate non-collateralized bonds outperformed due to their low interest rate durations. The Fund outperformed over the quarter as it was defensively positioned for the move in interest rates, overweight positions in money market and floating rate assets with low durations and had a sizable cash position during the correction in the market. Our country allocations also were defensive in nature; underweight in Argentina, Mexico and Brazil, the countries whose assets were most likely to be negatively affected by overall market conditions, and overweight in Russia, Morocco, Venezuela and Panama, countries with lower than average market exposure. Over the quarter, Bulgaria, Argentina, Mexico and Russia underperformed the overall index and Peru, Panama, Poland, Venezuela and Ecuador outperformed the market on average. Poland received an investment grade rating from S&P and became the first emerging country to migrate from the asset class. Polish Brady bonds rallied strongly on the news as rating action recognized the strong performance of the economy and the implementation of structural reforms over the last four years. Panama and Peru outperformed as they continued with their steady economic performance and underweight investors sought to increase their exposures to these countries. Some questions were raised about the sustainability of growth in Peru, given the continuation of large current account deficits and a strong exchange rate. Remedial action in the form of a tightening of monetary policy to cool aggregate demand should alleviate these concerns. We had retained our overweight position in Panama for most of the quarter and had reduced some of our exposure into market strength. We remain positive on the credit and will seek to maintain our current exposure. Venezuela continued to make slow and steady progress towards implementing an orthodox stabilization program. Progress was not without hiccups as the political leadership postponed making harsh economic decisions, until there were really no alternatives left to rescue the economy from an implosion resulting from a severe decline in confidence. The eventual program had most of the elements of an orthodox stabilization program. Venezuelan bonds rallied into the news of the impending program as default risk was sharply reduced. We increased our exposure to Venezuela during a bout of market skepticism and will retain our aggressive overweight position to capture high yields and possible further tightening of credit spreads. 2 Argentina underperformed during the first quarter by 500 basis points as continued weakness in the economy, resulting from the tequila affect induced 1995 recession, produced another round of political wrangling between the President and his Finance Minister over policy alternatives available to jump start growth in 1996. Economic growth should gather steam as the year progresses, as firms rebuild inventories and consumer expenditures pick up. We reduced our exposure to Argentina in the middle of the quarter as we became more defensive on the market and increased it again towards the end of the quarter as political problems appeared to have been sorted out. Mexican Brady bonds underperformed the market as it was affected by concerns over the impact of higher interest rates on the domestic economy. Our exposure is limited primarily to local currency denominated treasury bills, which performed well as the currency strengthened in nominal terms and interest rates came down from the lofty levels seen at the beginning of the year. Mexican Brady bonds trade at relatively tight spreads compared to the rest of the market and we do not believe they offer value at such levels. The export-led economic recovery seems to be taking a firmer hold and a drastic reduction in inflation towards the second half of the year should result in a virtuous cycle of low inflation, low interest rates and higher growth. The economy, however, remains vulnerable to external shocks and the recent appreciation of the peso could portend trouble ahead. We remain cautious on Mexico and believe higher yields elsewhere in the market are more attractive. Brazil continues to be the solid performer of the market. A strong vibrant private sector, reasonable economic growth, lower inflation, and high foreign reserves make it a safer place to invest in the long term. In the short run, however, momentum to implement reforms that would increase the long-term viability of the Real plan, such as the measures to reform social security and the administrative machinery of the state, appears to be getting caught in the politics as usual pre-election atmosphere of the Brazilian congress. Significant progress on these issues is necessary to contain the fiscal deficit and maintain economic stability. Brazil will remain a core holding in our portfolio, but we will not overweight Brazil in the absence of any real chance of the leadership regaining the upper hand in its attempt to push through necessary reform measures in 1996. Russia remains one of our largest positions. Russian loans underperformed in the first quarter as concerns over a possible Communist victory in the Presidential elections depressed prices. We believe that the incumbent President will gain ground as the election date approaches and prices should rally in the next quarter. Current valuations suggest that Russian non-performing loans trade at wider spreads than Bulgaria. Based on credit fundamentals fair value should be at least 500 basis points tighter than current levels. We remain cautiously optimistic on emerging markets debt. Despite a negative U.S. rate environment in the first quarter, emerging debt has performed well. This has been true because of a contraction of credit spreads based on improving economic stories. Management of portfolio duration remains a key aspect of performance. Credit spreads are likely to be volatile in an environment when interest rates are likely to go up. Our exposure to money market instruments in local currencies should provide us with some diversification benefits. Sincerely, [SIGNATURE] Warren J. Olsen PRESIDENT AND DIRECTOR [SIGNATURE] Paul Ghaffari PORTFOLIO MANAGER April 29, 1996 3 Morgan Stanley Emerging Markets Debt Fund, Inc. Investment Summary as of March 31, 1996 - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
HISTORICAL INFORMATION (UNAUDITED) TOTAL RETURN (%) --------------------------------------------------------------------------- MARKET VALUE (1) NET ASSET VALUE (2) INDEX (1)(3) ----------------------- ----------------------- ----------------------- AVERAGE AVERAGE AVERAGE CUMULATIVE ANNUAL CUMULATIVE ANNUAL CUMULATIVE ANNUAL ----------------------- ----------------------- ----------------------- FISCAL YEAR TO DATE 5.92% -- 5.48% -- 3.76% -- ONE YEAR 50.75+ 50.75%+ 58.24+ 58.24%+ 48.80 48.80% SINCE INCEPTION* 36.35+ 12.21+ 34.71+ 11.71+ 27.70 9.52
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. - -------------------------------------------------------------------------------- RETURNS AND PER SHARE INFORMATION EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
YEARS ENDED DECEMBER 31: THREE MONTHS ENDED 3/31/96 1993* 1994 1995 (UNAUDITED) Net Asset Value Per Share $ 18.96 $ 12.23 $ 12.40 $ 12.72 Market Value Per Share $ 18.13 $ 11.38 $ 12.50 $ 12.88 Premium/(Discount) -4.4% -7.0% 0.8% 1.3% Income Dividends $0.16 $1.49 $1.72 $0.36 Capital Gains Distributions - $0.41 - - Fund Total Return (2) 35.96% -25.95% 26.85%+ 5.48% Index Total Return (1)(3) ** 18.67% -18.68% 27.54% 3.76%
(1) Assumes dividends and distributions, if any, were reinvested. (2) Total investment return based on per share net asset value 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 return does not include the effect of dilution in connection with the Rights Offering. 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) JP Morgan Emerging Markets Bond Index. * The Fund commenced operations on July 23, 1993. ** Unaudited. + Adjusted for Rights Offering.
4 Morgan Stanley Emerging Markets Debt Fund, Inc. Portfolio Summary as of March 31, 1996 (Unaudited) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PORTFOLIO INVESTMENTS DIVERSIFICATION EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC Debt Instruments 92.7% Short-Term Investments 7.3%
- -------------------------------------------------------------------------------- COUNTRY WEIGHTINGS EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC Russia 20.9% Brazil 16.8% Argentina 14.1% Venezuela 11.7% Mexico 8.1% South Africa 4.0% Panama 3.9% Ecuador 3.7% Turkey 3.1% Bulgaria 2.4% Algeria 2.2% Peru 2.2% Nigeria 1.8% India 1.1% Poland 1.0% Other 3.0%
- -------------------------------------------------------------------------------- TEN LARGEST HOLDINGS
PERCENT OF TOTAL INVESTMENTS --------------- 1. Government of Russia Debt 20.9% 2. Government of Brazil Debt 16.8 3. Government of Venezuela Debt 11.7 4. Government of Argentina Debt 10.9 5. Government of South Africa Debt 4.1 PERCENT OF TOTAL INVESTMENTS --------------- 6. Government of Panama Debt 4.1% 7. Government of Ecuador Debt 3.9 8. Government of Turkey Debt 3.2 9. Government of Bulgaria Debt 2.6 10. Empresas La Moderna, 11.375%, 1/25/99 2.4 --- 80.6% --- ---
5 PORTFOLIO OF INVESTMENTS (UNAUDITED) (SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENTS) - ------------ MARCH 31, 1996
FACE AMOUNT VALUE (000) (000) - --------------------------------------------------------- - ------------ DEBT INSTRUMENTS (92.7%) - --------------------------------------------------------- - ------------ ALGERIA (2.2%) LOAN AGREEMENTS (2.2%) +Algeria Reprofiled Loan Agreement 'A' U.S.$ 11,614 U.S.$ 6,330 -------------- - --------------------------------------------------------- - ------------ ARGENTINA (14.1%) BONDS (12.0%) +Republic of Argentina Bocon Series 1 DL 3.188%, 4/1/01 1,000 935 +Republic of Argentina Bocon Pre 3 3.565%, 9/1/02 1,000 667 +Republic of Argentina Bocon Pre 1 3.565%, 4/1/07 1,000 692 Republic of Argentina Bocon Pre 4 Zero Coupon, 9/1/02 10,000 8,359 Banco de Galicia 10.875% 12/1/97 2,000 2,063 IMPSA 11.75%, 3/27/98 1,000 1,000 Republic of Argentina 'L' Bond 'Euro' 6.8125% 3/31/05 21,087 15,209 Republic of Argentina Discount Bond 6.5625% 3/31/23 4,400 2,830 Republic of Argentina Par Bond 5.00%, 3/31/23 4,400 2,285 -------------- 34,040 -------------- NOTE (2.1%) Nortel Inversora 'A' 6.00%, 3/31/07 11,541 6,117 -------------- 40,157 -------------- - --------------------------------------------------------- - ------------ BRAZIL (16.8%) BONDS (16.8%) +Federative Republic of Brazil 'C' Bond PIK 8.00%, 4/15/14 11,275 6,652 +Federative Republic of Brazil 'C' Bond PIK 'Euro' 8.00%, 4/15/14 26,849 15,841 +Federative Republic of Brazil Discount Bond 'Z-L' 6.81%, 4/15/24 24,500 15,711 +Federative Republic of Brazil Eligible Interest 'Euro' 6.81%, 4/15/06 199 146 +Federative Republic of Brazil Par Bond 'Z-L' 4.25%, 4/15/24 17,000 8,649 +Minas Gerais 7.88%, 2/10/99 1,000 895 -------------- 47,894 -------------- - --------------------------------------------------------- - ------------ FACE AMOUNT VALUE (000) (000) - --------------------------------------------------------- - ------------ BULGARIA (2.4%) BONDS (2.4%) +Bulgaria Discount 'A' 'Euro' 6.25%, 7/28/24 U.S.$ 5,000 U.S.$ 2,491 +The Republic of Bulgaria Discount Bond 'A' 6.25%, 7/28/24 49 24 +The Republic of Bulgaria Discount Bond 'B' 6.75%, 7/28/24 880 438 +The Republic of Bulgaria Interest Arrears Bond 'Euro' 6.25%, 7/28/11 6,124 2,706 +Bulgaria Interest Arrears Bond 6.25%, 7/28/11 3,024 1,336 -------------- 6,995 -------------- - --------------------------------------------------------- - ------------ ECUADOR (3.7%) LOAN AGREEMENTS (1.9%) +Republic of Ecuador IE Bond 'Euro' 6.50%, 12/21/04 7,901 5,452 -------------- BONDS (1.8%) +Republic of Ecuador Discount Bond 6.06%, 2/28/25 792 429 Republic of Ecuador Discount Bond 'Euro' 6.06%, 2/28/25 1,615 874 +Republic of Ecuador Par Bond 3.00%, 2/28/25 65 22 +Republic of Ecuador Past Due Interest Bond 6.06%, 2/27/15 9,939 3,851 -------------- 5,176 -------------- 10,628 -------------- - --------------------------------------------------------- - ------------ INDIA (1.1%) BOND (1.1%) +Saurashtra Cement Co. 17.00%, 9/7/97 INR 94,000 3,101 -------------- - --------------------------------------------------------- - ------------ MEXICO (6.9%) BONDS (6.9%) Banamex Pagare Discount Bond, 4/3/97 MXP 28,045 2,641 Banamex Pagare Discount Bond, 10/9/97 29,671 2,432 Empresas La Moderna 11.38%, 1/25/99 U.S.$ 6,500 6,628 Grupo Industrial Durango 12.00%, 7/15/01 4,500 4,326 Grupo Mexicano de DeSarrollo 8.25%, 2/17/01 1,000 520 National Finance SNC 17.00%, 2/26/99 MXP 12,000 2,989 -------------- 19,536 -------------- - --------------------------------------------------------- - ------------
6
FACE AMOUNT VALUE (000) (000) - --------------------------------------------------------- - ------------ NIGERIA (1.8%) BOND (0.2%) +Central Bank of Nigeria 6.25%, 11/15/20 (Warrants Attached) U.S.$ 1,000 U.S.$ 511 -------------- NOTE (1.6%) +Central Bank of Nigeria Promissory Note 5.09%, 1/5/10 11,000 4,593 -------------- 5,104 -------------- - --------------------------------------------------------- - ------------ PANAMA (3.9%) LOAN AGREEMENT (3.9%) Republic of Panama Loans 13,183 11,206 -------------- - --------------------------------------------------------- - ------------ PERU (2.2%) LOAN AGREEMENT (0.4%) Republic of Peru -- Petroperu Working Capital Loan 2,000 1,245 -------------- BOND (1.8%) +Peru Working Capital Lines, 12/29/49 9,699 4,910 -------------- 6,155 -------------- - --------------------------------------------------------- - ------------ POLAND (1.0%) NOTE (1.0%) Republic of Poland Note, Zero Coupon, 1/8/97 3,166 2,709 -------------- - --------------------------------------------------------- - ------------ RUSSIA (20.9%) LOAN AGREEMENTS (11.9%) +Bank for Foreign Economic Affairs CHF 31,077 8,777 DEM 80,000 20,384 U.S.$ 14,150 4,829 -------------- 33,990 -------------- BONDS (9.0%) Ministry of Finance Tranche III 3.00%, 5/14/99 7,560 5,472 Ministry of Finance Tranche IV 3.00%, 5/14/03 48,215 20,039 -------------- 25,511 -------------- 59,501 -------------- - --------------------------------------------------------- - ------------ FACE AMOUNT VALUE (000) (000) - --------------------------------------------------------- - ------------ SOUTH AFRICA (4.0%) BONDS (4.0%) Republic of South Africa Series 147, 11.50%, 5/30/00 ZAR 5,250 U.S.$ 1,189 Series 150, 12.00%, 2/28/05 14,490 3,103 Series 153, 13.00%, 8/31/10 13,020 2,854 Series 162, 12.50%, 1/15/02 12,180 2,774 Series 175, 9.00%, 10/15/02 4,200 794 Series 177, 9.50%, 5/15/07 3,150 549 -------------- 11,263 -------------- - --------------------------------------------------------- - ------------ VENEZUELA (11.7%) BONDS (11.7%) +Republic of Venezuela Debt Conversion Bond 'DL' 6.5625%, 12/18/07 U.S.$ 18,500 11,216 +Republic of Venezuela Par Bond 'A' 6.75%, 3/31/20 (Oil Warrants Attached) 15,000 8,494 +Republic of Venezuela Discount Bonds 'A' 6.6875%, 3/31/20 2,500 1,487 +Venezuela Flirbs 'A' 6.375%, 3/31/07 20,000 12,150 -------------- 33,347 -------------- - --------------------------------------------------------- - ------------ TOTAL DEBT INSTRUMENTS (Cost $261,954) 263,926 -------------- - --------------------------------------------------------- - ------------ SHORT-TERM INVESTMENTS (7.3%) - --------------------------------------------------------- - ------------ MEXICO (1.2%) BILLS (1.2%) Mexican Cetes, Zero Coupon, 7/25/96 MXP 15,839 1,866 Zero Coupon, 9/26/96 15,000 1,667 -------------- 3,533 -------------- - --------------------------------------------------------- - ------------ TURKEY (3.1%) BILLS (3.1%) Turkish T-Bill, Zero Coupon 6/26/96 TRL 464,675,000 5,281 Zero Coupon 7/10/96 312,000,000 3,425 -------------- 8,706 -------------- - --------------------------------------------------------- - ------------
7
FACE AMOUNT VALUE (000) (000) - --------------------------------------------------------- - ------------ UNITED STATES (3.0%) REPURCHASE AGREEMENT (3.0%) The Chase Manhattan Bank, N.A., 5.15%, dated 3/29/96, due 4/1/96, to be repurchased at U.S.$8,500, collateralized by U.S.$8,615 United States Treasury Notes 6.00%, due 8/31/97, valued at U.S.$8,669 U.S.$ 8,496 U.S.$ 8,496 -------------- - --------------------------------------------------------- - ------------ TOTAL SHORT-TERM INVESTMENTS (Cost $22,480) 20,735 -------------- - --------------------------------------------------------- - ------------ FOREIGN CURRENCY ON DEPOSIT WITH CUSTODIAN (0.0%) Indian Rupee (Cost $0) INR 5 -- -------------- - --------------------------------------------------------- - ------------ TOTAL INVESTMENTS (100.0%) (Cost $284,434) 284,661 -------------- - --------------------------------------------------------- - ------------ OTHER ASSETS AND LIABILITIES Other Assets U.S.$ 54,004 Liabilities (64,822) (10,818) -------------- - --------------------------------------------------------- - ------------ NET ASSETS Applicable to 21,531,260 issued and outstanding U.S.$0.01 par value shares (100,000,000 shares authorized) U.S.$ 273,843 ------------ - --------------------------------------------------------- - ------------ NET ASSET VALUE PER SHARE U.S.$ 12.72 ------------
- --------------------------------------------- - --------- CHF Swiss Franc DEM Deutsche Mark INR Indian Rupee MXP Mexican Peso TRL Turkish Lira ZAR South African Rand
+ -- Variable/floating rate security-rate disclosed as of March 31, 1996. PIK -- Payment-in-Kind. Income may be paid in additional securities or cash at the discretion of the issuer. 8 -----END PRIVACY-ENHANCED MESSAGE-----