-----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, MBVvkoBJwsu7VdlP/Y/FiMCbS9kuM/SbSNUfAD4MTdxRY7uw8NBmtalDq5BvlT/U BeReBD21D/6HWM0JqqI9uA== 0000912057-96-028663.txt : 19961210 0000912057-96-028663.hdr.sgml : 19961210 ACCESSION NUMBER: 0000912057-96-028663 CONFORMED SUBMISSION TYPE: N-30B-2 PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961209 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: 96677501 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 Michael F. Klein OF DIRECTORS VICE PRESIDENT Warren J. Olsen Harold J. Schaaff, Jr. PRESIDENT AND DIRECTOR VICE PRESIDENT Peter J. Chase Joseph P. Stadler DIRECTOR VICE PRESIDENT John W. Croghan Valerie Y. Lewis DIRECTOR SECRETARY David B. Gill James R. Rooney DIRECTOR TREASURER Graham E. Jones Belinda A. Brady DIRECTOR ASSISTANT TREASURER 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 73 Tremont Street Boston, Massachusetts 02108 - --------------------------------------------------------- CUSTODIANS Morgan Stanley Trust Company One Pierrepont Plaza Brooklyn, New York 11201 The Chase Manhattan Bank 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. --------------------- THIRD QUARTER REPORT SEPTEMBER 30, 1996 MORGAN STANLEY ASSET MANAGEMENT INC. INVESTMENT ADVISER LETTER TO SHAREHOLDERS - -------- For the nine months ended September 30, 1996, the Morgan Stanley Emerging Markets Debt Fund, Inc. had a total return, based on net asset value per share, of 38.25% compared to 25.15% for the J.P. Morgan Emerging Markets Bond Index. For the period since the Fund's commencement of operations on July 23, 1993 through September 30, 1996, the Fund's total return, based on net asset value per share, was 76.56% compared with 54.04% for the Index. On September 30, 1996, the closing price of the Fund's shares on the New York Stock Exchange was 14 1/8, representing a 10.9% discount to the Fund's net asset value per share. The long term outlook for emerging markets debt still remains positive. Improving economic fundamentals in most of the emerging market countries, a positive to neutral global liquidity environment and attractive valuations relative to other fixed income asset classes should continue to buoy asset prices. In the short run, we are concerned about sloppy trading conditions that are typically seen during the fourth quarter of each year. This year the fourth quarter effect could be more pronounced than others, as the trading community and hedge funds will be anxious to lock in gains of over 40%. A reduction for risk appetite and a feeling that spreads in the market had come in to fair levels would leave the potential supply of paper looking for the ever reluctant marginal buyer. Further the economic picture should be perceived to be improving from just a cyclical bounce from recession troughs to a more sustainable long run secular expansion of economic activity for continued spread convergence and the jury is still out on this specific issue. Data from the fourth quarter should give us a better idea about the trend of economic growth. Since the beginning of the third quarter our strategy had been to overweight countries such as Venezuela, Panama, Peru, Morocco and Russia and move in and out of the core Latin American markets of Argentina, Mexico and Brazil. We increased allocations to these countries when we believed that the cyclical economic recoveries were taking hold and market perceptions regarding the credit risks of these countries would improve based on dramatic improvements in year-over-year performances during the middle of the quarter. We reduced positions to these markets as they got fully valued and the market got ahead of itself in pricing in all the fundamental improvements that had taken place. Allocations were increased in the oil-exporting sector of the market as firmer oil prices dramatically improved the cash flow situations of countries like Nigeria and Algeria. Cash positions were gradually increased during the quarter as we prepared for more attractive buying opportunities in the fourth quarter. During 1997, Mexico has to engineer a reduction in real interest rates, weaken the currency and increase the rate of growth. The precise combination of economic policies to bring about this result is yet unknown and will keep financial markets guessing. Our sense is that in an election year the Mexican government will struggle for a while in finding the optimal policy mix. Meanwhile the Peso and fixed income assets will remain volatile. Holdings of Peso denominated paper were reduced in anticipation of fourth quarter volatility in the currency. We do not anticipate changing our exposure to Mexico until such time as their preference and choice of policy instruments is clear. Argentina is more or less in the same boat as Mexico but without the degree of freedom in its macroeconomic policy framework. Argentine policy makers have however concentrated on improving microeconomic efficiency by focusing on improving tax revenue collection and reform of labor laws. President Menem is under political pressure to increase employment generation and the pace of economic recovery. Corruption scandals and political jostling could muddy the waters for a while. At some point assets will cheapen relative to other benchmarks in the market to warrant an increased allocation. Argentine allocations were increased marginally during the quarter as the perception of a strong economic recovery taking root spread in the marketplace. We remain cautious as concrete signs of such a recovery are yet to emerge. Brazil on a fundamental level remains the strongest economic story in the region. Post Real Plan stabilization challenges remain. Some of these include the securing of long run fiscal stabilization, reforming the social security and tax systems and reducing the burden that monetary and exchange rate policy have to bear in the absence of progress on the fiscal side. The strategy of using real exchange rate appreciation and high real interest rates to control inflation may come under question in the future as the current account deteriorates. Allocations were gradually reduced during the quarter as asset prices firmed in advance of potential sovereign issuance and repurchase of Brady bonds. Russia remains the greatest source of risk and reward in the market. A murky political situation with contenders for power jockeying for position in public has coincided with lower than targeted revenue collection this fiscal 2 year and could potentially jeopardize the stabilization achieved so far. The IMF could suspend disbursements under the EFF facility if it believes sufficient progress is not being made to remedy the situation. A withdrawal of multi-lateral support will leave Russia with no financing alternatives but the monetization of the fiscal deficit. The upside potential comes from a low indebted country on the threshold of growth and stabilization and one which will attract significant amounts of capital in the future. We believe that in the short run there are bound to be problems which will appear insurmountable at that time, but once political uncertainty abates the economic picture should improve. The Russian position in the non-performing loan segment was trimmed as valuation levels moved from cheap to fair and market participants became excessively bullish about economic prospects for the country. Outside the main countries, we are invested in the oil producing countries of Venezuela, Ecuador and Nigeria and expect to remain exposed to them as oil prices remain firm. Peru and Panama will continue to trade expensive to the rest of the market due to the small size of their Brady debt and the restructuring of their economies that is currently underway. We will continue to retain our exposures to these credits. Bulgaria flirted with a potential default when the country delayed implementing a restructuring of the banking system and closing down some loss making state owned enterprises. Allocations were increased towards the end of the quarter to just over 2% as bond prices touched levels which we believed were attractive. The government has moved slowly to implement the conditions laid down by the IMF and the World Bank for a resumption in lending. Sincerely, [SIGNATURE] Warren J. Olsen PRESIDENT AND DIRECTOR [SIGNATURE] Paul Ghaffari PORTFOLIO MANAGER October 31, 1996 3 Morgan Stanley Emerging Markets Debt Fund, Inc. Investment Summary as of September 30, 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 22.22% -- 38.25% -- 25.15% -- ONE YEAR 37.84+ 37.84%+ 48.60+ 48.60%+ 37.92 37.92% SINCE INCEPTION* 57.34+ 15.26+ 76.56+ 19.50+ 54.04 14.49
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. - -------------------------------------------------------------------------------- RETURNS AND PER SHARE INFORMATION A BAR CHART REFLECTING THE DATA BELOW IS REFLECTED HERE.
YEARS ENDED DECEMBER 31: NINE MONTHS ENDED 1993* 1994 1995 SEPTEMBER 30, 1996 (UNAUDITED) Net Asset Value Per Share $ 18.96 $ 12.23 $ 12.40 $ 15.85 Market Value Per Share $ 18.13 $ 11.38 $ 12.50 $ 14.13 Premium/(Discount) -4.4% -7.0% 0.8% -10.9% Income Dividends $0.16 $1.49 $1.72 $1.08 Capital Gains Distributions - $0.41 - - Morgan Stanley Emerging Markets Debt Fund, Inc. (2) 35.96% -25.95% 26.85%+ 38.25% J. P. Morgan Emerging Markets Bond Index (1)(3)** 18.67% -18.68% 27.54% 25.15%
(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. 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) The J.P. Morgan Emerging Markets Bond Index is a market weighted index composed of all Brady bonds outstanding and includes Argentina, Brazil, Bulgaria, Mexico, Nigeria, the Philippines, Poland and Venezuela. * 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 September 30, 1996 (Unaudited) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PORTFOLIO INVESTMENTS DIVERSIFICATION EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC Debt Instruments 95.8% Short-Term Investments 3.6% Purchased Options 0.6%
- -------------------------------------------------------------------------------- COUNTRY WEIGHTINGS EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC Mexico 18.1% Argentina 13.9% Brazil 12.7% Russia 10.1% Venezuela 8.9% Panama 7.5% Jamaica 4.9% Algeria 4.2% Morocco 3.4% Peru 3.3% Nigeria 3.0% Ecuador 2.8% Bulgaria 2.4% South Africa 1.1% Other 3.7%
- -------------------------------------------------------------------------------- TEN LARGEST HOLDINGS
PERCENT OF TOTAL INVESTMENTS --------------- 1. Republic of Argentina Debt 11.5% 2. Republic of Brazil Debt 11.4 3. Republic of Russia Debt 10.1 4. Republic of Venezuela Debt 8.9 5. Republic of Panama Debt 7.5 PERCENT OF TOTAL INVESTMENTS --------------- 6. Government of Jamaica Debt 4.9% 7. United Mexican States Debt 4.3 8. Algeria Debt 4.2 9. Kingdom of Morocco Debt 3.4 10. Central Bank of Nigeria Debt 3.0 --- 69.2% --- ---
5 INVESTMENTS (UNAUDITED) (Showing Percentage of Total Value of Investments) - ------------ SEPTEMBER 30, 1996
FACE AMOUNT VALUE (000) (000) - ------------------------------------------------------------------------------ - ------------ DEBT INSTRUMENTS (95.8%) - ------------------------------------------------------------------------------ - ---------- ALGERIA (4.2%) LOAN AGREEMENT Algeria Reprofiled Loan Agreement 'A' 1992 7.00%, 12/31/00 U.S.$22,773 U.S.$ 15,884 ------------- - ------------------------------------------------------------------------------ - ------------- ARGENTINA (13.7%) BONDS (12.8%) Industrias Pescarmona S.A. 11.75%, 3/27/98 1,000 1,021 Metrogas S.A. `B' 10.875%, 5/15/01 4,000 4,090 Republic of Argentina Bocon Pre 4 Zero Coupon, 9/1/02 10,900 10,926 +Republic of Argentina Discount Bond 6.44%, 3/31/23 6,400 4,736 +Republic of Argentina 'L' Bond 'Euro' 6.63%, 3/31/05 26,157 21,939 Republic of Argentina Par Bond 5.25%, 3/31/23 9,900 5,792 ------------- 48,504 ------------- NOTE (0.9%) Nortel Inversora 'A' 6.00%, 3/31/07 6,723 3,580 ------------- 52,084 ------------- - ------------------------------------------------------------------------------ - ------------- BRAZIL (12.3%) BONDS Comtel Brasiliera Ltd. `A' 10.75%, 9/26/04 4,500 4,601 Federative Republic of Brazil 'C' Bond PIK `Euro' 8.00%, 4/15/14 23,489 16,560 Federative Republic of Brazil 'C' Bond PIK 8.00%, 4/15/14 11,501 8,108 Federative Republic of Brazil Discount Bond 'Z-L' 6.50%, 4/15/24 10,500 8,038 Federative Republic of Brazil 'L' Bond 6.75%, 4/15/12 12,500 9,438 ------------- 46,745 ------------- - ------------------------------------------------------------------------------ - ------------- BULGARIA (2.4%) BONDS Republic of Bulgaria Discount Bond 'A' 6.75%, 7/28/24 5,200 2,647 Republic of Bulgaria Front-Loaded Interest Reduction Bond 'A' 'Euro' 2.25%, 7/28/12 20,200 6,628 ------------- 9,275 ------------- - ------------------------------------------------------------------------------ - ------------- ECUADOR (2.8%) BONDS Republic of Ecuador Par Bond 3.00%, 2/28/25 65 26 Republic of Ecuador Par Bond `Euro' 3.25%, 2/28/25 13,400 5,394 Republic of Ecuador Past Due Interest Bond PIK 6.50%, 2/27/15 9,828 5,043 ------------- 10,463 ------------- - ------------------------------------------------------------------------------ - ------------- INDIA (0.7%) BOND Saurashtra Cement Co. 17.00%, 9/7/97 INR 94,000 2,490 ------------- - ------------------------------------------------------------------------------ - ------------- FACE AMOUNT VALUE (000) (000) - ------------------------------------------------------------------------------ - ------------ JAMAICA (4.9%) BOND Government of Jamaica 12.00%, 7/19/99 U.S.$19,100 U.S.$ 18,527 ------------- - ------------------------------------------------------------------------------ - ------------- MEXICO (17.5%) BONDS Banamex Pagare Discount Bond, 4/3/97 MXP 28,045 3,238 Banamex Pagare Discount Bond, 10/9/97 29,671 3,013 Cemex S.A. 12.75%, 7/15/06 U.S.$20,000 21,900 Empresas ICA Sociedad Controladora S.A. 11.875, 5/30/01 8,500 8,920 Empresas La Moderna 11.375%, 1/25/99 6,500 6,792 Grupo Industrial Durango 12.625, 8/1/03 4,000 4,260 Nacional Financiera 17.00%, 2/26/99 ZAR 12,000 2,572 United Mexican States Global Bond 11.50%, 5/15/26 U.S.$12,700 12,622 United Mexican States Global Bond 11.375%, 9/15/16 3,100 3,088 ------------- 66,405 ------------- - ------------------------------------------------------------------------------ - ------------- MOROCCO (3.4%) LOAN AGREEMENT +Kingdom of Morocco Restructuring and Consolidation Agreement 'A' 1990 (Participation: Chase, J.P. Morgan) 6.44%, 1/1/09 16,200 12,758 ------------- - ------------------------------------------------------------------------------ - ------------- NIGERIA (3.0%) BOND (1.6%) Central Bank of Nigeria Par Bond 6.25%, 11/15/20 (Warrants Attached) 10,000 5,984 ------------- NOTE (1.4%) Central Bank of Nigeria Promissory Note 3.96%, 1/5/10 11,000 5,366 ------------- 11,350 ------------- - ------------------------------------------------------------------------------ - ------------- PANAMA (7.5%) BONDS Republic of Panama Interest Reduction Bond 3.50%, 7/17/14 31,183 19,723 +Republic of Panama Past Due Interest Bond PIK 6.75%, 7/17/16 12,448 8,558 ------------- 28,281 ------------- - ------------------------------------------------------------------------------ - ------------- PERU (3.3%) BOND (1.1%) Republic of Peru Past Due Interest Bond 12/29/49 6,500 3,786 ------------- LOAN AGREEMENT (0.3%) Republic of Peru -- Petroperu Working Capital Loan 2,000 1,310 ------------- NOTE (1.9%) +Peru Working Capital Lines 9,699 7,274 ------------- 12,370 ------------- - ------------------------------------------------------------------------------ - -------------
6
FACE AMOUNT VALUE (000) (000) - ------------------------------------------------------------------------------ - ------------- RUSSIA (10.1%) BOND (5.7%) Ministry of Finance Tranche IV, 3.00%, 5/14/03 U.S.$41,415 U.S.$ 21,665 ------------- LOAN AGREEMENTS (4.4%) Bank for Foreign Economic Affairs DEM 24,700 12,145 Bank for Foreign Economic Affairs U.S.$ 6,650 4,643 ------------- 16,788 ------------- 38,453 ------------- - ------------------------------------------------------------------------------ - ------------- SOUTH AFRICA (1.1%) BONDS Republic of South Africa Series 147, 11.50%, 5/30/00 ZAR 5,250 1,054 Series 150, 12.00%, 2/28/05 13,650 2,560 Series 175, 9.00%, 10/15/02 4,200 710 ------------- 4,324 ------------- - ------------------------------------------------------------------------------ - ------------- VENEZUELA (8.9%) BONDS +Republic of Venezuela Debt Conversion Bond 'DL' 6.63%, 12/18/07 U.S.$10,500 8,702 +Republic of Venezuela Front Loaded Interest Rate Reduction Bond 'A' 6.63%, 3/31/07 22,750 19,195 +Republic of Venezuela Front Loaded Interest Rate Reduction Bond 'B' 6.50%, 3/31/07 7,000 5,906 ------------- 33,803 ------------- - ------------------------------------------------------------------------------ - ------------- TOTAL DEBT INSTRUMENTS (Cost $336,645) 363,212 ------------- - ------------------------------------------------------------------------------ - ------------- CONTRACTS - ------------------------------------------------------------------------------ - ------------- PURCHASED OPTIONS (0.6%) - ------------------------------------------------------------------------------ - ------------ ARGENTINA (0.1%) Republic of Argentina Put, expiring 10/28/96, strike price 84.1875 233 385 ------------- - ------------------------------------------------------------------------------ - ------------- BRAZIL (0.4%) Federative Republic of Brazil `C' Bond Call expiring 11/27/96, strike price 65 200 1,234 ------------- - ------------------------------------------------------------------------------ - ------------- MEXICO (0.1%) United Mexican States Par Bond Put expiring 10/28/96, strike price 70.4375 238 465 ------------- - ------------------------------------------------------------------------------ - ------------- TOTAL PURCHASED OPTIONS (Cost $1,176) 2,084 ------------- - ------------------------------------------------------------------------------ - ------------- FACE AMOUNT VALUE (000) (000) - ------------------------------------------------------------------------------ - ------------- SHORT-TERM INVESTMENTS (2.6%) - ------------------------------------------------------------------------------ - ------------ ARGENTINA (0.1%) Argentine Cellular 18.00%, 10/25/96 U.S.$ 516 U.S.$ 516 ------------- - ------------------------------------------------------------------------------ - ------------- UNITED STATES (2.5%) REPURCHASE AGREEMENT Chase Securities Inc. 5.40%, dated 9/30/96, due 10/1/96, to be repurchased at U.S.$9,456, collateralized by U.S.$6,955 United States Treasury Notes 10.625%, due 8/15/15, valued at U.S.$9,572 (Cost U.S.$9,455) 9,455 9,455 ------------- - ------------------------------------------------------------------------------ - ------------- TOTAL SHORT-TERM INVESTMENTS (Cost $9,971) 9,971 ------------- - ------------------------------------------------------------------------------ - ------------- FOREIGN CURRENCY ON DEPOSIT WITH CUSTODIAN (1.0%) Deutsche Mark DEM 2,850 1,867 Mexican Peso MXP 15,000 1,990 ------------- (Cost $3,877) 3,857 ------------- - ------------------------------------------------------------------------------ - ------------- TOTAL INVESTMENTS (100%) (Cost $351,669) 379,124 ------------- - ------------------------------------------------------------------------------ - ------------- OTHER ASSETS AND LIABILITIES Other Assets U.S.$106,037 Liabilities (143,922) (37,885 ) ----------- ------------- - ------------------------------------------------------------------------------ - ------------- NET ASSETS Applicable to 21,531,260 issued and outstanding U.S.$0.01 par value shares (100,000,000 shares authorized) U.S.$341,239 ------------- ------------- - ------------------------------------------------------------------------------ - ------------- NET ASSET VALUE PER SHARE U.S.$ 15.85 ------------- ------------- - ----------------------------------------------------------------- - -------------
DEM -- Deutsche Mark INR -- Indian Rupee MXP -- Mexican Peso ZAR -- South African Rand + -- Variable/floating rate security--rate disclosed is as of September 30, 1996. PIK -- Payment-in-Kind. Income may be paid in additional securities or cash at the discretion of the issuer.
7 -----END PRIVACY-ENHANCED MESSAGE-----