[ANNOTATED FORM N-CSR FOR ANNUAL REPORTS]
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 America's 22nd Floor New York, NY 10020
--------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Ronald E. Robison
1221 Avenue of the Americas, 33rd Floor New York, New York 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: 12/31/04
--------------------------------------------------------------
Form N-CSR is to be used by management investment companies to file
reports with the Commission not later than 10 days after the transmission to
stockholders of any report that is required to be transmitted to stockholders
under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1).
The Commission may use the information provided on Form N-CSR in its
regulatory, disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form
N-CSR, and the Commission will make this information public. A registrant is
not required to respond to the collection of information contained in Form
N-CSR unless the Form displays a currently valid Office of Management and
Budget ("OMB") control number. Please direct comments concerning the accuracy
of the information collection burden estimate and any suggestions for reducing
the burden to Secretary, Securities and Exchange Commission, 450 Fifth Street,
NW, Washington, DC 20549-0609. The OMB has reviewed this collection of
information under the clearance requirements of 44 U.S.C. Section 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
The Fund's annual report transmitted to shareholders pursuant to Rule 30e-1
under the Investment Company Act of 1940 is as follows:
2004 ANNUAL REPORT
DECEMBER 31, 2004
[MORGAN STANLEY LOGO]
MORGAN STANLEY
EMERGING MARKETS DEBT FUND, INC.
MORGAN STANLEY
INVESTMENT MANAGEMENT INC.
INVESTMENT ADVISER
MORGAN STANLEY EMERGING MARKETS DEBT FUND, INC.
Overview
LETTER TO STOCKHOLDERS
PERFORMANCE
For the year ended December 31, 2004, the Fund had a total return, based on net
asset value per share of 11.24%, net of fees, compared to 11.73% for the J.P.
Morgan Emerging Markets Bond Global Index (the "Index"). On December 31, 2004,
the closing price of the Fund's shares on the New York Stock Exchange was $9.61,
representing a 7.5% discount to the Fund's net asset value per share.
FACTORS AFFECTING PERFORMANCE
- In sharp contrast to the relatively gloomy end-2003 market expectations,
2004 turned out to be a surprisingly good year for emerging markets debt
(EMD). The largely anticipated impact of higher global interest rates on
global liquidity and hence on credit products in general and EMD in
particular did not materialize, as interest rates in the U.S. increased
in line with market expectations. Interest rates rose across the shorter
end of the yield curve as the U.S. economy grew at a healthy 4% pace
without generating significant inflationary pressures. Longer-term
interest rates remained stable. Furthermore, the surprisingly orderly
depreciation of the U.S. dollar did not disrupt markets despite the
magnitude of its decline.
- EMD spreads compressed to new absolute lows in 2004 reflecting the asset
class' higher average rating, continued large inflows from strategic
investors, a supportive environment for credit product and fundamental
improvements in most of the countries that constitute the EMD investable
universe. The abundance of financial market liquidity greatly benefited
emerging economies, lifting EMD in spite of tight absolute valuations at
the beginning of the year. High global growth, low global interest
rates, high commodity prices and a weak U.S. dollar together with a
marked improvement in the quality of economic management proved to be a
powerful mix. Despite the historically low spread level for the Index,
EMD remains cheap relative to comparable corporate credits. In fact,
BBB, BB and B credits in EMD are about 60, 160 and 100 basis points
wider, respectively, than comparable corporate credits in the U.S.
- In addition, most emerging economies took advantage of the expansionary
global cycle to strengthen their external and fiscal accounts and reduce
(and/or improve the composition and duration) their net external
liabilities, while benefiting from high growth and low unemployment at
home. The export-led growth trickled down to the domestic economy
helping to appease social and political pressures in most emerging
countries.
- The benign international environment benefited high beta credits that
were in distress at the end of 2003, including Uruguay (+ 34%), the
Dominican Republic (+27%) and Argentina (+19.8%). High oil prices lifted
Venezuela's bonds by 23% and Ecuador's debt by 21%. Among the largest
countries, Brazil returned 14.33%, Russia 11.51% and Mexico 8.56%.
Turkey (+ 10%), benefited from cautious policies and the European Union
invitation to start accession negotiation on October 3, 2005. Investment
grade emerging market credits lagged the market during 2004, returning
8.8%, while the overall Index returned 11.7%.
- Performance for 2004 was negatively impacted by the Fund's more
defensive positioning relative to its benchmark during the second and
third quarters. The Fund's management team emphasized defensive credits
and deemphasized bonds of countries dependant on ample global liquidity
conditions. Unfortunately, weaker than expected U.S. economic data and
the perception that the U.S. Federal Reserve would slow down the pace of
interest rate hikes, had the effect of increasing investor risk appetite
throughout the summer months. Lower-rated credits such as Brazil, Turkey
and Venezuela led the advance during July and August and handily
outperformed the market. An underweight in Brazil during the second
quarter detracted from the Fund's relative returns. Brazilian bonds rose
more than 14% between the end of May and the end of August, as strong
economic data in Brazil helped drive spreads back toward their low point
for the year. The Fund's underweight in Uruguayan and Venezuelan debt
also adversely impacted relative performance. The Fund's overweights in
Turkish local currency debt aided relative performance during the fourth
quarter, as did overweights in select distressed credits in Mexico and
Indonesia.
MANAGEMENT STRATEGIES
- We believe next year is likely to benefit from the last leg of the
current global expansionary cycle. We expect 2005 to deliver an
above-trend global real gross domestic product growth rate, albeit at a
somewhat lower level than in 2004. Consequently, we expect a respectable
growth rate in trade volumes (albeit lower than in 2004) and relatively
stable commodity prices (from a high base in 2004). We also expect
global real interest rates to remain below their historical average
(albeit slightly positive in contrast with negative real rates in 2004),
in spite of the expected hikes in policy rates in the U.S. As such,
global liquidity will most likely remain abundant in 2005. We are
relatively agnostic vis-a-vis the U.S. dollar as there are powerful
offsetting forces playing against each other.
2
MORGAN STANLEY EMERGING MARKETS DEBT FUND, INC.
Overview
LETTER TO STOCKHOLDERS (CONT'D)
- In all, we expect benign external conditions to continue supporting
emerging countries in 2005, which together with cautious financial
policies could result in a further improvement in macro-economic
fundamentals and payment capacity. Nonetheless, there are several risks
to our otherwise benign external 2005 outlook. First, inflationary
pressures are building up in the U.S. and there is a risk that investors
may adjust their expectations about the likely pace and magnitude of
interest rate hikes--just as they did in April/May 2004--particularly if
the Fed is perceived to be behind the curve. Second, the large fiscal
and external imbalances in the U.S. economy pose a risk to what so far
has been an orderly (and hence beneficial) depreciation of the U.S.
dollar. We believe sharp movements in interest and exchange rates in the
U.S. could adversely affect risk taking, global growth, capital flows,
trade flows and commodity prices.
- We believe that a cautious management of interest rate risk together
with selective allocation of resources in countries that still offer
fundamental value will be the best strategy to maximize returns in 2005.
We also believe that certain local markets, which have yet to fully
reflect the ongoing improvement in economic fundamentals, may provide
good investment opportunities in 2005.
Sincerely,
/s/ Ronald E. Robison
Ronald E. Robison
Executive Vice President--
Principal Executive Officer
January 2005
3
MORGAN STANLEY EMERGING MARKETS DEBT FUND, INC.
December 31, 2004
PORTFOLIO OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENTS)
FACE
AMOUNT VALUE
(000) (000)
------------------------------------------------------------------------------------------
DEBT INSTRUMENTS(100.0%)
ARGENTINA (3.9%)
SOVEREIGN (3.9%)
Republic of Argentina
6.00%, 3/31/23 $ (a)1,724 $ 983
11.375%, 3/15/10-1/30/17 (a)2,599 897
11.75%, 4/7/09-6/15/15 (a)11,850 4,087
12.125%, 5/21/05 (a)1,500 475
Republic of Argentina (Linked Variable Rate)
100.744%, 4/10/05 (a)(b)7,090 2,836
------------------------------------------------------------------------------------------
9,278
==========================================================================================
BRAZIL (17.0%)
SOVEREIGN (17.0%)
Federative Republic of Brazil
3.063%, 4/15/24 (b)5,280 4,884
6.00%, 4/15/24 (b)1,490 1,386
8.00%, 4/15/14 (c)8,289 8,491
8.875%, 4/15/24 4,435 4,612
10.50%, 7/14/14 3,920 4,655
11.00%, 8/17/40 4,700 5,583
14.50%, 10/15/09 8,360 11,189
------------------------------------------------------------------------------------------
40,800
==========================================================================================
BULGARIA (1.7%)
SOVEREIGN (1.7%)
Republic of Bulgaria
8.25%, 1/15/15 1,699 2,132
Republic of Bulgaria (Registered)
8.25%, 1/15/15 1,490 1,870
------------------------------------------------------------------------------------------
4,002
==========================================================================================
CHILE (1.9%)
CORPORATE (1.9%)
Empresa Nacional de Petroleo
6.75%, 11/15/12 (d)4,170 4,646
==========================================================================================
COLOMBIA (3.8%)
SOVEREIGN (3.8%)
Republic of Colombia
9.75%, 4/9/11 2,833 3,272
10.375%, 1/28/33 1,750 2,030
11.75%, 2/25/20 3,015 3,889
------------------------------------------------------------------------------------------
9,191
==========================================================================================
ECUADOR (1.3%)
SOVEREIGN (1.3%)
Republic of Ecuador
8.00%, 8/15/30 $ (e)3,690 $ 3,201
==========================================================================================
INDIA (0.0%)
CORPORATE (0.0%)
Surashtra Cement and Chemical Ltd.
19.00% (expired maturity) INR (a)(f)30,000 @--
==========================================================================================
INDONESIA (2.7%)
CORPORATE (2.7%)
Pindo Deli Finance (Mauritius)
10.75%, 10/1/07 $ (a)(d)11,610 3,657
Tjiwi Kimia Finance Mauritius Ltd.
10.00% (expired maturity) (a)2,130 884
Tjiwi Kimia International Global Bond
13.25% (expired maturity) (a)4,990 2,021
------------------------------------------------------------------------------------------
6,562
==========================================================================================
IVORY COAST (0.2%)
SOVEREIGN (0.2%)
Republic of Ivory Coast
2.00%, 3/29/18 (a)2,045 363
==========================================================================================
MALAYSIA (1.8%)
SOVEREIGN (1.8%)
Government of Malaysia
8.75%, 6/1/09 3,740 4,441
==========================================================================================
MEXICO (20.8%)
CORPORATE (7.9%)
Pemex Project Funding Master Trust
3.79%, 6/15/10 (b)(d)4,250 4,371
9.125%, 10/13/10 4,040 4,854
Petroleos Mexicanos
9.50%, 9/15/27 4,650 5,861
Petroleos Mexicanos (Registered)
8.625%, 12/1/23 1,740 2,020
Satelites Mexicanos SA de CV, 'B'
10.125%, (expired maturity) (a)3,343 1,856
------------------------------------------------------------------------------------------
18,962
------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
4
MORGAN STANLEY EMERGING MARKETS DEBT FUND, INC.
December 31, 2004
PORTFOLIO OF INVESTMENTS (CONT'D)
(SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENTS)
FACE
AMOUNT VALUE
(000) (000)
------------------------------------------------------------------------------------------
MEXICO (CONT'D)
SOVEREIGN (12.9%)
United Mexican States
8.00%, 9/24/22 $ 1,200 $ 1,387
8.125%, 12/30/19 4,180 4,916
8.30%, 8/15/31 2,170 2,549
8.375%, 1/14/11 (c)10,210 12,017
10.375%, 2/17/09 3,430 4,202
11.50%, 5/15/26 3,939 6,036
------------------------------------------------------------------------------------------
31,107
------------------------------------------------------------------------------------------
50,069
==========================================================================================
NIGERIA (1.2%)
SOVEREIGN (1.2%)
Central Bank of Nigeria Par Bond
6.25%, 11/15/20 (e)3,000 2,835
==========================================================================================
PANAMA (3.2%)
SOVEREIGN (3.2%)
Republic of Panama
8.875%, 9/30/27 2,150 2,376
9.375%, 4/1/29 1,890 2,230
9.625%, 2/8/11 1,870 2,216
10.75%, 5/15/20 710 926
------------------------------------------------------------------------------------------
7,748
==========================================================================================
PERU (2.4%)
SOVEREIGN (2.4%)
Republic of Peru
4.50%, 3/7/17 (b)1,700 1,590
8.375%, 5/3/16 1,610 1,811
9.875%, 2/6/15 1,965 2,417
------------------------------------------------------------------------------------------
5,818
==========================================================================================
PHILIPPINES (3.4%)
SOVEREIGN (3.4%)
Republic of Philippines
8.875%, 3/17/15 8,060 8,080
==========================================================================================
QATAR (0.8%)
SOVEREIGN (0.8%)
State of Qatar (Registered)
9.75%, 6/15/30 1,260 1,833
==========================================================================================
RUSSIA (19.2%)
SOVEREIGN (19.2%)
Aries Vermoegensverwaltungs GmbH
9.60%, 10/25/14 4,250 5,249
Russian Federation
5.00%, 3/31/30 (d)(e)4,684 4,848
Russian Federation (Registered)
5.00%, 3/31/30 $ (e)5,315 $ 5,501
8.25%, 3/31/10 3,820 4,230
11.00%, 7/24/18 7,051 9,801
12.75%, 6/24/28 10,080 16,481
------------------------------------------------------------------------------------------
46,110
==========================================================================================
TUNISIA (0.4%)
SOVEREIGN (0.4%)
Banque Centrale de Tunisie
7.375%, 4/25/12 750 861
==========================================================================================
TURKEY (8.4%)
SOVEREIGN (8.4%)
Citigroup Global Markets Holdings, Inc.
(Turkish Lira Index Linked)
Zero Coupon, 2/23/06 2,210 2,689
Zero Coupon, 2/23/06 4,680 5,824
Zero Coupon, 2/23/06 1,690 2,178
Republic of Turkey
11.00%, 1/14/13 4,770 6,093
11.50%, 1/23/12 2,700 3,483
------------------------------------------------------------------------------------------
20,267
==========================================================================================
UKRAINE (1.1%)
SOVEREIGN (1.1%)
Republic of Ukraine
5.33%, 8/5/09 (b)2,480 2,623
==========================================================================================
VENEZUELA (4.8%)
SOVEREIGN (4.8%)
Republic of Venezuela
8.50%, 10/8/14 1,510 1,605
9.25%, 9/15/27 1,480 1,565
9.375%, 1/13/34 2,380 2,524
10.75%, 9/19/13 4,890 5,868
------------------------------------------------------------------------------------------
11,562
==========================================================================================
TOTAL DEBT INSTRUMENTS
(Cost $227,132) 240,290
==========================================================================================
NO. OF
WARRANTS
------------------------------------------------------------------------------------------
WARRANTS (0.0%)
NIGERIA (0.0%)
Central Bank of Nigeria,
expiring 11/15/20 (f)(g)8,750 @--
==========================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
5
MORGAN STANLEY EMERGING MARKETS DEBT FUND, INC.
December 31, 2004
PORTFOLIO OF INVESTMENTS (CONT'D)
(SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENTS)
NO. OF VALUE
WARRANTS (000)
------------------------------------------------------------------------------------------
VENEZUELA (0.0%)
Republic of Venezuela Oil-Linked
Payment Obligation, expiring
4/15/20 (g)11,350 $ @--
==========================================================================================
TOTAL WARRANTS
(Cost $@--) @--
==========================================================================================
TOTAL INVESTMENTS (100.0%)
(Cost $227,132) 240,290
==========================================================================================
LIABILITIES IN EXCESS OF OTHER ASSETS (11,246)
==========================================================================================
NET ASSETS $ 229,044
==========================================================================================
(a) Security is in default.
(b) Variable/Floating Rate Security -- Interest rate changes on these
instruments are based on changes in designated base rates. The rates shown
are those in effect on December 31, 2004.
(c) Denotes all or a portion of securities subject to repurchase under the
Reverse Repurchase Agreements as of December 31, 2004. See note A-3 to
financial statements.
(d) 144A Security - Certain conditions for public sale may exist. Unless
otherwise noted, these securities are deemed to be liquid.
(e) Step Bond - Coupon rate increases in increments to maturity. Rate disclosed
is as of December 31, 2004. Maturity date disclosed is ultimate maturity.
(f) Security was valued at fair value - At December 31, 2004, the Fund held
fair-valued securities, each valued at less than $500, representing less
than 0.05% of net assets.
(g) Non-income producing security.
@ Face Amount/Value is less than $500.
FUTURES CONTRACTS:
The Fund had the following futures contract(s) open at period end:
NET
UNREALIZED
NUMBER APPRECIATION
OF VALUE EXPIRATION (DEPRECIATION)
CONTRACTS (000) DATE (000)
----------------------------------------------------------------------------------------
SHORT:
5 Year U.S.
Treasury Note 512 $ 56,080 March-05 $ 31
========================================================================================
GRAPHIC PRESENTATION OF PORTFOLIO HOLDINGS
The following graph depicts the Fund's holdings by country, as a percentage of
total investments.
[CHART]
Mexico 20.8%
Russia 19.2%
Brazil 17.0%
Turkey 8.4%
Venezuela 4.8%
Argentina 3.9%
Colombia 3.8%
Philippines 3.4%
Panama 3.2%
Other* 15.5%
* Countries which do not appear in the top 10 Countries, as well as those
which represent less than 3% of total investments, if applicable, are
included in the category labeled "Other".
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
6
MORGAN STANLEY EMERGING MARKETS DEBT FUND, INC.
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2004
(000)
-------------------------------------------------------------------------------------------------------------------------
ASSETS:
Investments, at Value (Cost $227,132) $ 240,290
Interest Receivable 4,332
Due from Broker 1,127
Foreign Currency, at Value (Cost $54) 62
Other Assets 7
-------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS 245,818
=========================================================================================================================
LIABILITIES:
Payable For:
Reverse Repurchase Agreements (8,503)
Dividends Declared (7,180)
Bank Overdraft (746)
Investment Advisory Fees (195)
Directors' Fees and Expenses (59)
Custodian Fees (11)
Administration Fees (8)
Other Liabilities (72)
-------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES (16,774)
=========================================================================================================================
NET ASSETS
Applicable to 22,046,681, Issued and Outstanding $0.01
Par Value Shares (100,000,000 Shares Authorized) $ 229,044
=========================================================================================================================
NET ASSET VALUE PER SHARE $ 10.39
=========================================================================================================================
NET ASSETS CONSIST OF:
Common Stock $ 220
Paid-in Capital 279,066
Undistributed (Distributions in Excess of) Net Investment Income (1,242)
Accumulated Net Realized Gain (Loss) (62,202)
Unrealized Appreciation (Depreciation) on Investments, Foreign Currency Translations, and Futures
Contracts 13,202
-------------------------------------------------------------------------------------------------------------------------
NET ASSETS $ 229,044
=========================================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
7
MORGAN STANLEY EMERGING MARKETS DEBT FUND, INC.
Financial Statements
STATEMENT OF OPERATIONS
YEAR ENDED
DECEMBER 31, 2004
(000)
-------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Interest (Net of $3 Foreign Taxes Withheld) $ 20,963
=========================================================================================================================
EXPENSES
Investment Advisory Fees (Note B) 2,228
Interest Expense on Reverse Repurchase Agreements 110
Administration Fees (Note C) 104
Professional Fees 98
Custodian Fees (Note D) 53
Stockholder Reporting Expenses 50
Bank Overdraft Expense 28
Stockholder Servicing Agent 17
Directors' Fees and Expenses 7
Other Expenses 43
=========================================================================================================================
TOTAL EXPENSES 2,738
=========================================================================================================================
Waiver of Administration Fees (Note C) (17)
-------------------------------------------------------------------------------------------------------------------------
NET EXPENSES 2,721
=========================================================================================================================
NET INVESTMENT INCOME 18,242
=========================================================================================================================
NET REALIZED GAIN (LOSS) ON:
Investments 7,746
Futures (1,944)
=========================================================================================================================
NET REALIZED GAIN (LOSS) 5,802
=========================================================================================================================
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) ON:
Investments (2,638)
Foreign Currency Translations 4
Futures 935
=========================================================================================================================
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) (1,699)
=========================================================================================================================
NET REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) 4,103
=========================================================================================================================
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 22,345
=========================================================================================================================
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED
DECEMBER 31, 2004 DECEMBER 31, 2003
(000) (000)
---------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net Investment Income $ 18,242 $ 16,955
Net Realized Gain (Loss) 5,802 24,891
Change in Unrealized Appreciation (Depreciation) (1,699) 14,196
=================================================================================================================================
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 22,345 56,042
=================================================================================================================================
Distributions from and/or in Excess of:
Net Investment Income (19,085) (16,566)
=================================================================================================================================
TOTAL INCREASE (DECREASE) 3,260 39,476
=================================================================================================================================
Net Assets:
Beginning of Period 225,784 186,308
=================================================================================================================================
END OF PERIOD (INCLUDING UNDISTRIBUTED (DISTRIBUTIONS IN EXCESS OF) NET
INVESTMENT INCOME OF $(1,242) AND $(523), RESPECTIVELY) $ 229,044 $ 225,784
=================================================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
8
MORGAN STANLEY EMERGING MARKETS DEBT FUND, INC.
Financial Statements
STATEMENT OF CASH FLOWS
YEAR ENDED
DECEMBER 31, 2004
(000)
-------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Proceeds from Sales and Maturities of Long-Term Investments $ 272,816
Purchases of Long-Term Investments (267,488)
Net Realized Gain (Loss) on Futures Contracts (1,944)
Net Investment Income 18,242
ADJUSTMENTS TO RECONCILE NET INVESTMENT INCOME TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES:
Net (Increase) Decrease in Receivables Related to Operations 881
Net Increase (Decrease) in Payables Related to Operations 747
Accretion/Amortization of Discounts and Premiums (4,420)
-------------------------------------------------------------------------------------------------------------------------
Net Cash Provided (Used) by Operating Activities 18,834
-------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash Received for Reverse Repurchase Agreements 413,888
Cash Paid for Reverse Repurchase Agreements (414,838)
Cash Distributions Paid (17,889)
-------------------------------------------------------------------------------------------------------------------------
Net Cash Provided (Used) for Financing Activities (18,839)
-------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash (5)
CASH AT BEGINNING OF PERIOD 5
-------------------------------------------------------------------------------------------------------------------------
CASH AT END OF PERIOD $ --
=========================================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
9
MORAN STANLEY EMERGING MARKETS DEBT FUND, INC.
Financial Highlights
SELECTED PER SHARE DATA AND RATIOS
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
2004 2003 2002 2001 2000
-----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.24 $ 8.45 $ 8.25 $ 8.22 $ 8.36
-----------------------------------------------------------------------------------------------------------------------------
Net Investment Income 0.83+ 0.77+ 0.67+ 0.80 1.23
Net Realized and Unrealized Gain (Loss) on Investments 0.19 1.77 0.19 0.08 (0.29)
-----------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 1.02 2.54 0.86 0.88 0.94
-----------------------------------------------------------------------------------------------------------------------------
Distributions from and/or in Excess of:
Net Investment Income (0.87) (0.75) (0.66) (0.85) (1.08)
-----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.39 $ 10.24 $ 8.45 $ 8.25 $ 8.22
=============================================================================================================================
PER SHARE MARKET VALUE, END OF PERIOD $ 9.61 $ 9.76 $ 7.55 $ 7.40 $ 6.88
=============================================================================================================================
TOTAL INVESTMENT RETURN:
Market Value 7.95% 40.21% 11.11% 20.65% 16.49%
Net Asset Value (1) 11.24% 31.44% 11.54% 12.50% 13.50%
=============================================================================================================================
RATIOS, SUPPLEMENTAL DATA:
NET ASSETS, END OF PERIOD (THOUSANDS) $ 229,044 $ 225,784 $ 186,308 $ 181,913 $ 181,134
-----------------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets 1.22% 1.25% 1.34% 1.61% 2.32%
Ratio of Expenses Excluding Interest
Expense to Average Net Assets 1.16% 1.20% 1.29% 1.41% 1.34%
Ratio of Net Investment Income to Average Net Assets 8.18% 8.04% 8.11% 9.73% 14.31%
Portfolio Turnover Rate 118% 187% 149% 233% 272%
-----------------------------------------------------------------------------------------------------------------------------
Ratios Before Expenses Waived by Administrator:
Ratio of Expenses to Average Net Assets 1.23% N/A N/A N/A N/A
Ratio of Net Investment Income to Average Net Assets 8.17% N/A N/A N/A N/A
-----------------------------------------------------------------------------------------------------------------------------
(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.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
10
MORGAN STANLEY EMERGING MARKETS DEBT FUND, INC.
December 31, 2004
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 (the
"1940 Act"), 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 U.S. generally accepted accounting principles for investment
companies. Such policies are consistently followed by the Fund in the
preparation of its financial statements. U.S. generally accepted accounting
principles may require management to make estimates and assumptions that affect
the reported amounts and disclosures in the financial statements. Actual results
may differ from those estimates.
1. SECURITY VALUATION: Equity securities listed on a U.S. exchange are valued
at the latest quoted sales price on the valuation date. Equity securities
listed or traded on NASDAQ, for which market quotations are available, are
valued at the NASDAQ Official Closing Price. Securities listed on a foreign
exchange are valued at their closing price. Unlisted securities and listed
securities not traded on the valuation date for which market quotations are
readily available are valued at the mean between the current bid and asked
prices obtained from reputable brokers. Bonds and other fixed income
securities may be valued according to the broadest and most representative
market. In addition, bonds and other fixed income securities may be valued
on the basis of prices provided by a pricing service. 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. Debt securities purchased
with remaining maturities of 60 days or less are valued at amortized cost,
if it approximates value.
All other securities and investments for which market values are not readily
available, including restricted securities, and those securities for which
it is inappropriate to determine prices in accordance with the
aforementioned procedures, are valued at fair value as determined in good
faith under procedures adopted by the Board of Directors, although the
actual calculations may be done by others. Factors considered in making this
determination may include, but are not limited to, information obtained by
contacting the issuer, analysts, or the appropriate stock exchange (for
exchange-traded securities), analysis of the issuer's financial statements
or other available documents and, if necessary, available information
concerning other securities in similar circumstances.
Most foreign markets close before the New York Stock Exchange (NYSE).
Occasionally, developments that could affect the closing prices of
securities and other assets may occur between the times at which valuations
of such securities are determined (that is, close of the foreign market on
which the securities trade) and the close of business on the NYSE. If these
developments are expected to materially affect the value of the securities,
the valuations may be adjusted to reflect the estimated fair value as of the
close of the NYSE, as determined in good faith under procedures established
by the Board of Directors.
2. REPURCHASE AGREEMENTS: The Fund may enter into repurchase agreements under
which the Fund lends excess cash and takes possession of securities with an
agreement that the counterparty will repurchase such securities. In
connection with transactions in repurchase agreements, a bank as custodian
for the Fund takes possession of the underlying securities (collateral),
with a market value at least equal to the amount of the repurchase
transaction, including principal and accrued interest. To the extent that
any repurchase transaction exceeds one business day, the value of the
collateral is marked-to-market on a daily basis to determine the adequacy of
the collateral. In the event of default on the obligation to repurchase, the
Fund has the right to liquidate the collateral and apply the proceeds in
satisfaction of the obligation. In the event of default or bankruptcy by the
counterparty to the agreement, realization and/or retention of the
collateral or proceeds may be subject to legal proceedings.
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
11
MORGAN STANLEY EMERGING MARKETS DEBT FUND, INC.
December 31, 2004
NOTES TO FINANCIAL STATEMENTS (CONT'D)
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 Portfolio of
Investments.
At December 31, 2004, the Fund had reverse repurchase agreements outstanding
with Lehman Brothers as follows:
MATURITY IN
LESS THAN
365 DAYS
-------------------------------------------------------------------------
Value of Securities Subject to Repurchase $ 8,486,000
Liability Under Reverse Repurchase Agreement $ 8,503,000
Weighted Average Days to Maturity 8.95
The weighted average weekly balance of reverse repurchase agreements
outstanding during the year ended December 31, 2004, was approximately
$10,105,000 at a weekly weighted average interest rate of 0.87%.
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 Assets and Liabilities. 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
12
MORGAN STANLEY EMERGING MARKETS DEBT FUND, INC.
December 31, 2004
NOTES TO FINANCIAL STATEMENTS (CONT'D)
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 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 Assets and Liabilities. 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. INVESTMENT ADVISORY FEES: 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. ADMINISTRATION FEES: Prior to November 1, 2004, JPMorgan Chase Bank, through
its corporate affiliate, J.P. Morgan Investor Services Co. ("JPMIS"), provided
administrative services to the Fund under an Administration Agreement. JPMIS was
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 was charged for certain out-of-pocket expenses incurred by JPMIS on its
behalf.
Effective November 1, 2004, Morgan Stanley Investment Management Inc. (MSIM)
serves as Administrator to the Fund pur-
13
MORGAN STANLEY EMERGING MARKETS DEBT FUND, INC.
December 31, 2004
NOTES TO FINANCIAL STATEMENTS (CONT'D)
suant to a new Administrative Agreement. Under the new Administrative Agreement,
the new administrative fee will be 0.08% of the Fund's average weekly net
assets. As approved by the Board of Directors, MSIM has agreed to limit the new
administration fee so that it will be no greater than the old administrative fee
of 0.02435% of the Fund's average weekly net assets plus $24,000 per annum. This
waiver is voluntary and may be terminated at any time. For the year ended
December 31, 2004, $17,000 of administration fees were waived pursuant to this
arrangement. Administrative costs (including out-of-pocket expenses incurred in
the ordinary course of providing services under the Agreement, which were
previously borne by Fund), except pricing services and extraordinary expenses,
will now be covered under the Administration Fee. JPMIS will continue to provide
fund accounting and other services pursuant to a sub-administrative agreement,
dated November 1, 2004, with MSIM and receives compensation from MSIM for these
services.
D. CUSTODIAN FEES: JPMorgan Chase Bank and its affiliates serve as custodian
for the Fund. The Custodian holds cash, securities, and other assets of the Fund
as required by the 1940 Act. Custody fees are payable monthly based on assets
held in custody, investment purchases and sales activity and account maintenance
fees, plus reimbursement for certain out-of-pocket expenses.
E. FEDERAL INCOME TAXES: It is the Fund's intention to continue to qualify as a
regulated investment company and distribute all of its taxable income.
Accordingly, no provision for Federal income taxes is required in the financial
statements. Dividend income and distributions to stockholders are recorded on
the ex-dividend date.
The Fund may be subject to taxes imposed by countries in which it invests. Such
taxes are generally based on income and/or capital gains earned or repatriated.
Taxes are accrued and applied to net investment income, net realized gains and
net unrealized appreciation as such income and/or gains are earned.
The tax character of distributions paid may differ from the character of
distributions shown on the Statement of Changes in Net Assets due to short-term
capital gains being treated as ordinary income for tax purposes. The tax
character of distributions paid during 2004 and 2003 were as follows:
2004 DISTRIBUTIONS 2003 DISTRIBUTIONS
PAID FROM: PAID FROM:
(000) (000)
------------------------ ------------------------
LONG-TERM LONG-TERM
ORDINARY CAPITAL ORDINARY CAPITAL
INCOME GAIN INCOME GAIN
----------------------------------------------------
$ 19,085 $ -- $ 16,566 $ --
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 U.S. generally accepted accounting principles. 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 are generally due to paydown adjustments and cost basis
adjustment for defaulted bonds. Permanent book and tax basis differences may
result in reclassifications among undistributed (distributions in excess of) net
investment income (or accumulated net investment loss), accumulated net realized
gain (loss) and paid-in capital.
At December 31, 2004, the components of distributable earnings on a tax basis
were as follows:
UNDISTRIBUTED UNDISTRIBUTED
ORDINARY INCOME LONG-TERM CAPITAL GAIN
(000) (000)
----------------------------------------------------
$ 285 $ --
----------------------------------------------------
At December 31, 2004, the U.S. Federal income tax cost basis of securities was
approximately $227,189,000 and, accordingly, net unrealized appreciation for
U.S. Federal income tax purposes was $13,101,000 of which $20,705,000 related to
appreciated securities and $7,604,000 related to depreciated securities.
At December 31, 2004, the Fund had a capital loss carryforward for U.S. Federal
income tax purposes of approximately $62,802,000 available to offset future
capital gains, of which $46,209,000 will expire on December 31, 2006,
$13,135,000 will expire on December 31, 2007 and $3,458,000 will expire on
December 31, 2009. During the year ended December 31, 2004, the Fund utilized
capital loss carryforward for U.S. Federal income tax purposes of approximately
$6,693,000.
To the extent that capital loss carryforwards are used to offset any future
capital gains realized during the carryover period as pro-
14
MORGAN STANLEY EMERGING MARKETS DEBT FUND, INC.
December 31, 2004
NOTES TO FINANCIAL STATEMENTS (CONT'D)
vided by U.S. Federal income tax regulations, no capital gains tax liability
will be incurred by the Fund for gains realized and not distributed. To the
extent that capital gains are offset, such gains will not be distributed to the
stockholders.
Net capital, currency and passive foreign investment company losses incurred
after October 31, and within the taxable year are deemed to arise on the first
day of the Fund's next taxable year. For the year ended December 31, 2004, the
Fund did not defer any post-October capital, currency and passive foreign
investment company losses to January 1, 2005, for U.S. Federal income tax
purposes.
F. CONTRACTUAL OBLIGATIONS: The Fund enters into contracts that contain a
variety of indemnifications. The Fund's maximum exposure under these
arrangements is unknown. However, the Fund has not had prior claims or losses
pursuant to these contracts and expects the risk of loss to be remote.
G. OTHER: During the year ended December 31, 2004, the Fund made purchases and
sales totaling approximately $267,488,000 and $271,268,000 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 Assets and Liabilities and the
differences could be material.
On December 14, 2004 the Officers of the Fund, pursuant to authority granted by
the Board of Directors declared a distribution of $0.3257 per share, derived
from net investment income, payable on January 7, 2005, to stockholders of
record on December 23, 2004.
REPORTING TO STOCKHOLDERS (UNAUDITED)
Each Morgan Stanley Fund provides a complete schedule of portfolio holdings in
its semi-annual and annual reports within 60 days of the end of the Fund's
second and fourth fiscal quarters by filing the schedule electronically with the
Securities and Exchange Commission (SEC). The semi-annual reports are filed on
Form N-CSRS and the annual reports are filed on Form N-CSR. Morgan Stanley also
delivers the semi-annual and annual reports to Fund shareholders and makes these
reports available on its public website, www.morganstanley.com. Each Morgan
Stanley Fund also files a complete schedule of portfolio holdings with the SEC
for the Fund's first and third fiscal quarters on Form N-Q. Morgan Stanley does
not deliver the reports for the first and third fiscal quarters to shareholders,
nor are the reports posted to the Morgan Stanley public website. You may,
however, obtain the Form N-Q filings (as well as the Form N-CSR and N-CSRS
filings) by accessing the SEC's website, www.sec.gov. You may also review and
copy them at the SEC's Public Reference Room in Washington, DC. Information on
the operation of the SEC's Public Reference Room may be obtained by calling the
SEC at 1(800) SEC-0330. You can also request copies of these materials, upon
payment of a duplicating fee, by electronic request at the SEC's email address
(publicinfo@sec.gov) or by writing the Public Reference section of the SEC,
Washington, DC 20549-0102.
PROXY VOTING POLICIES AND PROCEDURES AND PROXY VOTING RECORD (UNAUDITED)
A copy of (1) the Fund's policies and procedures with respect to the voting of
proxies relating to the Fund's portfolio securities; and (2) how the Fund voted
proxies relating to portfolio securities during the most recent twelve-month
period ended June 30 is available without charge, upon request, by calling
1(800)548-7786 or by visiting our website at www.morganstanley.com/im. This
information is also available on the SEC's website at www.sec.gov.
15
MORGAN STANLEY EMERGING MARKETS DEBT FUND, INC.
December 31, 2004
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE STOCKHOLDERS AND BOARD OF DIRECTORS OF
MORGAN STANLEY EMERGING MARKETS DEBT FUND, INC.
We have audited the accompanying statement of assets and liabilities of Morgan
Stanley Emerging Markets Debt Fund, Inc. (the "Fund"), including the portfolio
of investments, as of December 31, 2004, and the related statements of
operations and cash flows for the year then ended, the statement of changes in
net assets for each of the two years in the period then ended, and the financial
highlights for each of the five years in the period then ended. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the Fund's
internal control over financial reporting. Accordingly, we express no such
opinion. An audit also includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements and financial
highlights, assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. Our procedures included confirmation of securities owned as of
December 31, 2004, by correspondence with the custodian and brokers or by other
appropriate auditing procedures where replies from brokers were not received. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Morgan
Stanley Emerging Markets Debt Fund, Inc. at December 31, 2004, the results of
its operations and its cash flows for the year then ended, the changes in its
net assets for each of the two years in the period then ended, and the financial
highlights for each of the five years in the period then ended, in conformity
with U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
February 11, 2005
16
MORGAN STANLEY EMERGING MARKETS DEBT FUND, INC.
December 31, 2004
DIRECTOR AND OFFICER INFORMATION (UNAUDITED)
INDEPENDENT DIRECTORS:
NUMBER OF
PORTFOLIOS IN
TERM OF FUND
OFFICE AND COMPLEX
POSITION(S) LENGTH OF OVERSEEN
NAME, AGE AND ADDRESS OF HELD WITH TIME PRINCIPAL OCCUPATION(S) DURING BY OTHER DIRECTORSHIPS
DIRECTOR REGISTRANT SERVED* PAST 5 YEARS DIRECTOR** HELD BY DIRECTOR
--------------------------- ----------- ---------- ---------------------------------- ------------- -------------------------
Michael Bozic (63) Director Director Private investor; Director or 197 Director of various
c/o Kramer Levin Naftalis & since 2003 Trustee of the Retail Funds business organizations.
Frankel LLP (since April 1994) and the
Counsel to the Independent Institutional Funds (since July
Directors 2003); formerly Vice Chairman of
919 Third Avenue Kmart Corporation (December
New York, NY 10022 1998-October 2000), Chairman and
Chief Executive Officer of Levitz
Furniture Corporation (November
1995-November 1998) and President
and Chief Executive Officer of
Hills Department Stores (May
1991-July 1995); formerly
variously Chairman, Chief
Executive Officer, President and
Chief Operating Officer
(1987-1991) of the Sears
Merchandise Group of Sears
Roebuck & Co.
Edwin J. Garn (72) Director Director Consultant. Director or Trustee 197 Director of Franklin
1031 N. Chartwell Court since 2003 of the Retail Funds (since Covey (time management
Salt Lake City, UT 84103 January 1993) and the systems), BMW Bank of
Institutional Funds (since July North America, Inc.
2003); member of the Utah (industrial loan
Regional Advisory Board of corporation), Escrow
Pacific Corp.; formerly Managing Bank USA (industrial
Director of Summit Ventures LLC loan corporation),
(2000-2004); United States United Space Alliance
Senator (R-Utah) (1974-1992) and (joint venture between
Chairman, Senate Banking Lockheed Martin and The
Committee (1980-1986), Mayor of Boeing Company) and
Salt Lake City, Utah (1971-1974), Nuskin Asia Pacific
Astronaut, Space Shuttle (multilevel marketing);
Discovery (April 12-19, 1985), member of the board of
and Vice Chairman, Huntsman various civic and
Corporation (chemical company). charitable organizations.
Wayne E. Hedien (70) Director Director Retired; Director or Trustee of 197 Director of the PMI
c/o Kramer Levin Naftalis & since 2003 the Retail Funds (since September Group Inc. (private
Frankel LLP 1997) and the Institutional Funds mortgage insurance);
Counsel to the Independent (since July 2003); formerly Trustee and Vice
Directors associated with the Allstate Chairman of The Field
919 Third Avenue Companies (1966-1994), most Museum of Natural
New York, NY 10022 recently as Chairman of The History; director of
Allstate Corporation (March various other business
1993-December 1994) and Chairman and charitable
and Chief Executive Officer of organizations.
its wholly-owned subsidiary,
Allstate Insurance Company (July
1989-December 1994).
Dr. Manuel H. Johnson (55) Director Director Senior Partner, Johnson Smick 197 Director of NVR, Inc.
c/o Johnson Smick since 2003 International, Inc., a consulting (home construction),
International, Inc. firm; Chairman of the Audit Director of KFX Energy;
2099 Pennsylvania Avenue, Committee and Director or Trustee Director of RBS Greenwich
NW Suite 950 of the Retail Funds (since July Capital Holdings
Washington, D.C. 20006 1991) and the Institutional Funds (financial holdings
(since July 2003); Co-Chairman company).
and a founder of the Group of
Seven Council (G7C), an
international economic
commission; formerly Vice
Chairman of the Board of
Governors of the Federal Reserve
System and Assistant Secretary of
the U.S. Treasury.
Joseph J. Kearns (62) Director Director President, Kearns & Associates 198 Director of Electro Rent
c/o Kearns & Associates since 2001 LLC (investment consulting); Corporation (equipment
LLC Deputy Chairman of the Audit leasing), The Ford Family
PMB754 Committee and Director or Trustee Foundation and the UCLA
23852 Pacific Coast Hwy. of the Retail Funds (since July Foundation.
Malibu, CA 90265 2003) and the Institutional Funds
(since August 1994); previously
Chairman of the Audit Committee
of the Institutional Funds
(October 2001 - July 2003);
formerly CFO of the J. Paul Getty
Trust.
Michael E. Nugent (68) Director Director General Partner of Triumph 197 Director of various
c/o Triumph Capital, L.P. since 2001 Capital, L.P., a private business organizations.
445 Park Avenue, 10th Floor investment partnership; Chairman
New York, NY 10022 of the Insurance Committee and
Director or Trustee of the Retail
Funds (since July 1991) and the
Institutional Funds (since July
2001); formerly Vice President,
Bankers Trust Company and BT
Capital Corporation (1984-1988).
17
MORGAN STANLEY EMERGING MARKETS DEBT FUND, INC.
December 31, 2004
DIRECTOR AND OFFICER INFORMATION (CONT'D)
INDEPENDENT DIRECTORS: (CONT'D)
NUMBER OF
PORTFOLIOS IN
TERM OF FUND
OFFICE AND COMPLEX
POSITION(S) LENGTH OF OVERSEEN
NAME, AGE AND ADDRESS OF HELD WITH TIME PRINCIPAL OCCUPATION(S) DURING BY OTHER DIRECTORSHIPS
DIRECTOR REGISTRANT SERVED* PAST 5 YEARS DIRECTOR** HELD BY DIRECTOR
--------------------------- ----------- ---------- ---------------------------------- ------------- -------------------------
Fergus Reid (72) Director Director Chairman of Lumelite Plastics 198 Trustee and Director of
c/o Lumelite Plastics since 2000 Corporation; Chairman of the certain investment
Corporation Governance Committee and Director companies in the J.P.
85 Charles Coleman Blvd. or Trustee of the Retail Funds Morgan Funds complex
Pawling, NY 12564 (since July 2003) and the managed by J.P. Morgan
Institutional Funds (since June Investment Management
1992). Inc.
INTERESTED DIRECTORS:
Charles A. Fiumefreddo (71) Chairman Chairman Chairman and Director or Trustee 197 None.
c/o Morgan Stanley Funds and and of the Retail Funds (since July
Harborside Financial Center Director of Director 1991) and the Institutional Funds
Plaza Two 3rd Floor the Board since (since July 2003); formerly Chief
Jersey City, NJ 07311 2003 Executive Officer of the Retail
Funds (until September 2002).
James F. Higgins (56) Director Director Director or Trustee of the Retail 197 Director of AXA
c/o Morgan Stanley Funds since 2003 Funds (since June 2000) and the Financial, Inc. and The
Harborside Financial Center Institutional Funds (since July Equitable Life Assurance
Plaza Two 2nd Floor 2003); Senior Advisor of Morgan Society of the United
Jersey City, NJ 07311 Stanley (since August 2000); States (financial
Director of Morgan Stanley services).
Distributors Inc. and Dean Witter
Realty Inc.; previously President
and Chief Operating Officer of
the Private Client Group of
Morgan Stanley (May 1999-August
2000), and President and Chief
Operating Officer of Individual
Securities of Morgan Stanley
(February 1997-May 1999).
* Each Director serves an indefinite term, until his or her successor is
elected.
** The Fund Complex includes all funds advised by Morgan Stanley Investment
Management Inc. and funds that have an investment advisor that is an
affiliated entity of Morgan Stanley Investment Management Inc. (including,
but not limited to, Morgan Stanley Investments LP and Morgan Stanley
Investment Advisors Inc.).
OFFICERS:
TERM OF OFFICE AND
POSITION(S) HELD LENGTH OF TIME
NAME, AGE AND ADDRESS OF EXECUTIVE OFFICER WITH REGISTRANT SERVED* PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
------------------------------------------- ---------------- ------------------ -------------------------------------------
Mitchell M. Merin (51) President President since President and Chief Operating Officer of
Morgan Stanley Investment Management Inc. 2003 Morgan Stanley Investment Management Inc.;
1221 Avenue of the Americas 33rd Floor President, Director and Chief Executive
New York, NY 10020 Officer of Morgan Stanley Investment
Advisors Inc. and Morgan Stanley Services
Company Inc.; Chairman and Director of
Morgan Stanley Distributors Inc.; Chairman
and Director of Morgan Stanley Trust;
Director of various Morgan Stanley
subsidiaries; President of the
Institutional Funds (since July 2003) and
President of the Retail Funds (since May
1999); Trustee (since July 2003) and
President (since December 2002) of the Van
Kampen Closed-End Funds; Trustee (since
May 1999) and President (since October
2002) of the Van Kampen Open-End Funds.
Ronald E. Robison (65) Executive Vice Executive Vice Principal Executive Officer of Funds in
Morgan Stanley Investment Management Inc. President and President and the Fund complex (since May 2003);
1221 Avenue of the Americas 33rd Floor Principal Principal Managing Director of Morgan Stanley & Co.
New York, NY 10020 Executive Executive Officer Incorporated, Managing Director of Morgan
Officer since 2003 Stanley; Managing Director, Chief
Administrative Officer and Director of
Morgan Stanley Investment Advisors Inc.
and Morgan Stanley Services Company Inc.;
Director of Morgan Stanley Trust; Managing
Director and Director of Morgan Stanley
Distributors Inc.; Executive Vice
President and Principal Executive Officer
of the Retail Funds (since April 2003) and
the Institutional Funds (since July 2003);
previously President and Director of the
Retail Funds (March 2001 - July 2003) and
Chief Global Operations Officer and
Managing Director of Morgan Stanley
Investment Management Inc.
18
MORGAN STANLEY EMERGING MARKETS DEBT FUND, INC.
December 31, 2004
DIRECTOR AND OFFICER INFORMATION (CONT'D)
OFFICERS: (CONT'D)
TERM OF OFFICE AND
POSITION(S) HELD LENGTH OF TIME
NAME, AGE AND ADDRESS OF EXECUTIVE OFFICER WITH REGISTRANT SERVED* PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
------------------------------------------- ---------------- ------------------ -------------------------------------------
Joseph J. McAlinden (61) Vice President Vice President Managing Director and Chief Investment
Morgan Stanley Investment Management Inc. since 2003 Officer of Morgan Stanley Investment
1221 Avenue of the Americas 33rd Floor Advisors Inc. and Morgan Stanley Investment
New York, NY 10020 Management Inc.; Director of Morgan Stanley
Trust; Chief Investment Officer of the Van
Kampen Funds; Vice President of the
Institutional Funds (since July 2003)
and the Retail Funds (since July 1995).
Barry Fink (49) Vice President Vice President General Counsel (since May 2000) and
Morgan Stanley Investment Management Inc. since 2003 Managing Director (since December 2000)
1221 Avenue of the Americas 22nd Floor of Morgan Stanley Investment Management;
New York, NY 10020 Managing Director (since December 2000),
Secretary (since February 1997) and
Director (since July 1998) of Morgan
Stanley Investment Advisors Inc. and
Morgan Stanley Services Company Inc.;
Vice President of the Retail Funds;
Assistant Secretary of Morgan Stanley DW
Inc.; Vice President of the
Institutional Funds (since July 2003);
Managing Director, Secretary and
Director of Morgan Stanley Distributors
Inc.; previously Secretary of the Retail
Funds and General Counsel (February
1997-April 2004) of the Retail Funds;
Vice President and Assistant General
Counsel of Morgan Stanley Investment
Advisors Inc. and Morgan Stanley
Services Company Inc. (February 1997-
December 2001).
Amy R. Doberman (42) Vice President Vice President Managing Director and General Counsel,
Morgan Stanley Investment Management Inc. since July 2004 U.S. Investment Management; Managing
1221 Avenue of the Americas 22nd Floor Director of the Investment Manager and
New York, NY 10020 Morgan Stanley Investment Advisor Inc.;
Vice President of the Institutional and
Retail Funds (since July 2004); Vice
President of the Van Kampen Funds (since
August 2004); previously, Managing
Director and General Counsel - Americas,
UBS Global Asset Management (July
2000-July 2004) and General Counsel,
Aeltus Investment Management, Inc.
(January 1997-July 2000).
Carsten Otto (41) Chief Chief Compliance Executive Director and U.S. Director of
Morgan Stanley Investment Management Inc. Compliance Officer since Compliance for Morgan Stanley Investment
1221 Avenue of the Americas 22nd Floor Officer 2004 Management (since October 2004);
New York, NY 10020 Executive Director of Morgan Stanley
Investment Advisors Inc. and Morgan
Stanley Investment Management Inc.;
formerly Assistant Secretary and
Assistant General Counsel of the Morgan
Stanley Retail Funds.
Stefanie V. Chang (38) Vice President Vice President Executive Director of Morgan Stanley & Co.
Morgan Stanley Investment Management Inc. since 2001 Incorporated, Morgan Stanley Investment
1221 Avenue of the Americas 22nd Floor Management Inc. and Morgan Stanley
New York, NY 10020 Investment Advisors Inc.; Vice President of
the Institutional Funds and the Retail
Funds; formerly practiced law with the New
York law firm of Rogers & Wells (now
Clifford Chance US LLP).
James W. Garrett (36) Treasurer and Treasurer since Executive Director of Morgan Stanley & Co.
Morgan Stanley Investment Management Inc. Chief Financial 2002 and Incorporated and Morgan Stanley Investment
1221 Avenue of the Americas 34th Floor Officer Chief Financial Management Inc.; Treasurer and Chief
New York, NY 10020 Officer since Financial Officer of the Institutional
2003 Funds; previously with PriceWaterhouse LLP
(now PriceWaterhouseCoopers LLP).
Michael J. Leary (38) Assistant Assistant Assistant Director and Vice President of
J.P. Morgan Investor Services Co. Treasurer Treasurer since Fund Administration, J.P. Morgan Investor
73 Tremont Street 2003 Services Co. (formerly Chase Global Funds
Boston, MA 02108 Company); formerly Audit Manager at Ernst &
Young LLP.
Mary E. Mullin (37) Secretary Secretary since Executive Director of Morgan Stanley & Co.
Morgan Stanley Investment Management Inc. 2001 Incorporated, Morgan Stanley Investment
1221 Avenue of the Americas 22nd Floor Management Inc. and Morgan Stanley
New York, NY 10020 Investment Advisors Inc.; Secretary of the
Institutional Funds and (since July 2003)
the Retail Funds; formerly practiced law
with the New York law firms of McDermott,
Will & Emery and Skadden, Arps, Slate,
Meagher & Flom LLP.
* Each Officer serves an indefinite term, until his or her successor is
elected.
19
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
20
MORGAN STANLEY EMERGING MARKETS DEBT FUND, INC.
DIRECTORS
CHARLES A. FIUMEFREDDO
MICHAEL BOZIC
EDWIN J. GARN
WAYNE E. HEDIEN
JAMES F. HIGGINS
DR. MANUEL H. JOHNSON
JOSEPH J. KEARNS
MICHAEL NUGENT
FERGUS REID
OFFICERS
CHARLES A. FIUMEFREDDO
CHAIRMAN OF THE BOARD
MITCHELL M. MERIN
PRESIDENT
RONALD E. ROBISON
EXECUTIVE VICE PRESIDENT
AND PRINCIPAL EXECUTIVE
OFFICER
JOSEPH J. MCALINDEN
VICE PRESIDENT
BARRY FINK
VICE PRESIDENT
AMY R. DOBERMAN
VICE PRESIDENT
STEFANIE V. CHANG
VICE PRESIDENT
JAMES W. GARRETT
TREASURER AND CHIEF
FINANCIAL OFFICER
CARSTEN OTTO
CHIEF COMPLIANCE OFFICER
MICHAEL J. LEARY
ASSISTANT TREASURER
MARY E. MULLIN
SECRETARY
INVESTMENT ADVISER AND ADMINISTRATOR
MORGAN STANLEY INVESTMENT MANAGEMENT INC.
1221 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10020
CUSTODIAN
JPMORGAN CHASE BANK
270 PARK AVENUE
NEW YORK, NEW YORK 10017
STOCKHOLDER SERVICING AGENT
AMERICAN STOCK TRANSFER & TRUST COMPANY
59 MAIDEN LANE
NEW YORK, NEW YORK 10030
1 (800) 278-4353
LEGAL COUNSEL
CLIFFORD CHANCE US LLP
31 WEST 52ND STREET
NEW YORK, NEW YORK 10019
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ERNST & YOUNG LLP
200 CLARENDON STREET
BOSTON, MASSACHUSETTS 02116
FOR ADDITIONAL FUND INFORMATION, INCLUDING THE FUND'S NET ASSET VALUE PER SHARE
AND INFORMATION REGARDING THE INVESTMENTS COMPRISING THE FUND'S PORTFOLIO,
PLEASE CALL 1(800)221-6726 OR VISIT OUR WEBSITE AT www.morganstanley.com/im.
(C) 2005 MORGAN STANLEY
Item 2. Code of Ethics.
(a) The Fund has adopted a code of ethics (the "Code of Ethics") that
applies to its principal executive officer, principal financial officer,
principal accounting officer or controller, or persons performing similar
functions, regardless of whether these individuals are employed by the Fund or a
third party.
(b) No information need be disclosed pursuant to this paragraph.
(c) The Fund has amended its Code of Ethics during the period covered by
the shareholder report presented in Item 1 hereto to delete from the end of the
following paragraph on page 2 of the Code the phrase "to the detriment of the
Fund."
(d) Not applicable.
(e) Not applicable.
(f)
(1) The Fund's Code of Ethics is attached hereto as Exhibit A.
(2) Not applicable.
(3) Not applicable.
Item 3. Audit Committee Financial Expert.
The Fund's Board of Directors has determined that it has two "audit committee
financial experts" serving on its audit committee, each of whom are
"independent" Directors: Dr. Manuel H. Johnson and Joseph J. Kearns. Under
applicable securities laws, a person who is determined to be an audit committee
financial expert will not be deemed an "expert" for any purpose, including
without limitation for the purposes of Section 11 of the Securities Act of 1933,
as a result of being designated or identified as an audit committee financial
expert. The designation or identification of a person as an audit committee
financial expert does not impose on such person any duties, obligations, or
liabilities that are greater than the duties, obligations, and liabilities
imposed on such person as a member of the audit committee and Board of Directors
in the absence of such designation or identification.
Item 4. Principal Accountant Fees and Services.
(a)(b)(c)(d) and (g). Based on fees billed for the periods shown:
2004 REGISTRANT COVERED ENTITIES(1)
AUDIT FEES $ 73,000 N/A
NON-AUDIT FEES
AUDIT-RELATED FEES $ $ 115,000 (2)
TAX FEES $ 2,700 (3) $ 100,829 (4)
ALL OTHER FEES $ $ 60,985 (6)
TOTAL NON-AUDIT FEES $ 2,700 $ 276,814
TOTAL $ 75,700 $ 276,814
2003 REGISTRANT COVERED ENTITIES(1)
AUDIT FEES $ 69,525 N/A
NON-AUDIT FEES
AUDIT-RELATED FEES $ $ 93,000 (2)
TAX FEES $ 2,575 (3) $ 163,414 (5)
ALL OTHER FEES $ $ 341,775 (6)
TOTAL NON-AUDIT FEES $ 2,575 $ 598,189
TOTAL $ 72,100 $ 598,189
N/A- Not applicable, as not required by Item 4.
(1) Covered Entities include the Adviser (excluding sub-advisors) and any entity
controlling, controlled by or under common control with the Adviser that
provides ongoing services to the Registrant.
(2) Audit-Related Fees represent assurance and related services provided that
are reasonably related to the performance of the audit of the financial
statements of the Covered Entities' and funds advised by the Adviser or its
affiliates, specifically attestation services provided in connection with a SAS
70 Report.
(3) Tax Fees represent tax advice and compliance services provided in connection
with the review of the Registrant's tax returns.
(4) Tax Fees represent tax advice services provided to Covered Entities,
including research and identification of PFIC entities.
(5) All Other Fees represent attestation services provided in connection with
performance presentation standards.
(6) All Other Fees represent attestation services provided in connection with
performance presentation standards, general industry education seminars
provided, and a regulatory review project performed.
(e)(1) The audit committee's pre-approval policies and procedures are as
follows:
AUDIT COMMITTEE
AUDIT AND NON-AUDIT SERVICES
PRE-APPROVAL POLICY AND PROCEDURES
OF THE
MORGAN STANLEY RETAIL AND INSTITUTIONAL FUNDS
AS ADOPTED AND AMENDED JULY 23, 2004,(1)
- Statement of Principles
The Audit Committee of the Board is required to review and, in its sole
discretion, pre-approve all Covered Services to be provided by the Independent
Auditors to the Fund and Covered Entities in order to assure that services
performed by the Independent Auditors do not impair the auditor's independence
from the Fund.
The SEC has issued rules specifying the types of services that an independent
auditor may not provide to its audit client, as well as the audit committee's
administration of the engagement of the independent auditor. The SEC's rules
establish two different approaches to pre-approving services, which the SEC
considers to be equally valid. Proposed services either: may be pre-approved
without consideration of specific case-by-case services by the Audit Committee
("GENERAL PRE-APPROVAL"); or require the specific pre-approval of the Audit
Committee or its delegate ("SPECIFIC PRE-APPROVAL"). The Audit Committee
believes that the combination of these two approaches in this Policy will result
in an effective and efficient procedure to pre-approve services performed by the
Independent Auditors. As set forth in this Policy, unless a type of service has
received general pre-approval, it will require specific pre-approval by the
Audit Committee (or by any member of the Audit Committee to which pre-approval
authority has been delegated) if it is to be provided by the Independent
Auditors. Any proposed services exceeding pre-approved cost levels or budgeted
amounts will also require specific pre-approval by the Audit Committee.
The appendices to this Policy describe the Audit, Audit-related, Tax and All
Other services that have the general pre-approval of the Audit Committee. The
term of any general pre-approval is 12 months from the date of pre-approval,
unless the Audit Committee considers and provides a different period and states
otherwise. The Audit Committee will annually review and pre-approve the services
that may be provided by the Independent Auditors without obtaining specific
pre-approval from the Audit Committee. The Audit Committee will add to or
subtract from the list of general pre-approved services from time to time, based
on subsequent determinations.
----------
(1) This Audit Committee Audit and Non-Audit Services Pre-Approval Policy and
Procedures (the "POLICY"), adopted as of the date above, supersedes and
replaces all prior versions that may have been adopted from time to time.
The purpose of this Policy is to set forth the policy and procedures by which
the Audit Committee intends to fulfill its responsibilities. It does not
delegate the Audit Committee's responsibilities to pre-approve services
performed by the Independent Auditors to management.
The Fund's Independent Auditors have reviewed this Policy and believes that
implementation of the Policy will not adversely affect the Independent Auditors'
independence.
- Delegation
As provided in the Act and the SEC's rules, the Audit Committee may delegate
either type of pre-approval authority to one or more of its members. The member
to whom such authority is delegated must report, for informational purposes
only, any pre-approval decisions to the Audit Committee at its next scheduled
meeting.
- Audit Services
The annual Audit services engagement terms and fees are subject to the specific
pre-approval of the Audit Committee. Audit services include the annual financial
statement audit and other procedures required to be performed by the Independent
Auditors to be able to form an opinion on the Fund's financial statements. These
other procedures include information systems and procedural reviews and testing
performed in order to understand and place reliance on the systems of internal
control, and consultations relating to the audit. The Audit Committee will
approve, if necessary, any changes in terms, conditions and fees resulting from
changes in audit scope, Fund structure or other items.
In addition to the annual Audit services engagement approved by the Audit
Committee, the Audit Committee may grant general pre-approval to other Audit
services, which are those services that only the Independent Auditors reasonably
can provide. Other Audit services may include statutory audits and services
associated with SEC registration statements (on Forms N-1A, N-2, N-3, N-4,
etc.), periodic reports and other documents filed with the SEC or other
documents issued in connection with securities offerings.
The Audit Committee has pre-approved the Audit services in Appendix B.1. All
other Audit services not listed in Appendix B.1 must be specifically
pre-approved by the Audit Committee (or by any member of the Audit Committee to
which pre-approval has been delegated).
- Audit-related Services
Audit-related services are assurance and related services that are reasonably
related to the performance of the audit or review of the Fund's financial
statements and, to the extent they are Covered Services, the Covered Entities or
that are traditionally performed by the Independent Auditors. Because the Audit
Committee believes that the provision of Audit-related services does not impair
the independence of the auditor and is consistent with the SEC's rules on
auditor independence, the Audit Committee may grant general pre-approval to
Audit-related services. Audit-related services include, among others, accounting
consultations related to accounting, financial reporting or disclosure matters
not classified as "Audit services"; assistance with understanding and
implementing new accounting and financial reporting guidance from rulemaking
authorities; agreed-upon or expanded audit procedures related to accounting
and/or billing records required to respond to or comply with financial,
accounting or regulatory reporting matters; and assistance with internal control
reporting requirements under Forms N-SAR and/or N-CSR.
The Audit Committee has pre-approved the Audit-related services in Appendix B.2.
All other Audit-related services not listed in Appendix B.2 must be specifically
pre-approved by the Audit Committee (or by any member of the Audit Committee to
which pre-approval has been delegated).
- Tax Services
The Audit Committee believes that the Independent Auditors can provide Tax
services to the Fund and, to the extent they are Covered Services, the Covered
Entities, such as tax compliance, tax planning and tax advice without impairing
the auditor's independence, and the SEC has stated that the Independent Auditors
may provide such services.
Pursuant to the preceding paragraph, the Audit Committee has pre-approved the
Tax Services in Appendix B.3. All Tax services in Appendix B.3 must be
specifically pre-approved by the Audit Committee (or by any member of the Audit
Committee to which pre-approval has been delegated).
- All Other Services
The Audit Committee believes, based on the SEC's rules prohibiting the
Independent Auditors from providing specific non-audit services, that other
types of non-audit services are permitted. Accordingly, the Audit Committee
believes it may grant general pre-approval to those permissible non-audit
services classified as All Other services that it believes are routine and
recurring services, would not impair the independence of the auditor and are
consistent with the SEC's rules on auditor independence.
The Audit Committee has pre-approved the All Other services in Appendix B.4.
Permissible All Other services not listed in Appendix B.4 must be specifically
pre-approved by the Audit Committee (or by any member of the Audit Committee to
which pre-approval has been delegated).
- Pre-Approval Fee Levels or Budgeted Amounts
Pre-approval fee levels or budgeted amounts for all services to be provided by
the Independent Auditors will be established annually by the Audit Committee.
Any proposed services exceeding these levels or amounts will require specific
pre-approval by the Audit Committee. The Audit Committee is mindful of the
overall relationship of fees for audit and non-audit services in determining
whether to pre-approve any such services.
- Procedures
All requests or applications for services to be provided by the Independent
Auditors that do not require specific approval by the Audit Committee will be
submitted to the Fund's Chief Financial Officer and must include a detailed
description of the services to be
rendered. The Fund's Chief Financial Officer will determine whether such
services are included within the list of services that have received the general
pre-approval of the Audit Committee. The Audit Committee will be informed on a
timely basis of any such services rendered by the Independent Auditors. Requests
or applications to provide services that require specific approval by the Audit
Committee will be submitted to the Audit Committee by both the Independent
Auditors and the Fund's Chief Financial Officer, and must include a joint
statement as to whether, in their view, the request or application is consistent
with the SEC's rules on auditor independence.
The Audit Committee has designated the Fund's Chief Financial Officer to monitor
the performance of all services provided by the Independent Auditors and to
determine whether such services are in compliance with this Policy. The Fund's
Chief Financial Officer will report to the Audit Committee on a periodic basis
on the results of its monitoring. Both the Fund's Chief Financial Officer and
management will immediately report to the chairman of the Audit Committee any
breach of this Policy that comes to the attention of the Fund's Chief Financial
Officer or any member of management.
- Additional Requirements
The Audit Committee has determined to take additional measures on an annual
basis to meet its responsibility to oversee the work of the Independent Auditors
and to assure the auditor's independence from the Fund, such as reviewing a
formal written statement from the Independent Auditors delineating all
relationships between the Independent Auditors and the Fund, consistent with
Independence Standards Board No. 1, and discussing with the Independent Auditors
its methods and procedures for ensuring independence.
- Covered Entities
Covered Entities include the Fund's investment adviser(s) and any entity
controlling, controlled by or under common control with the Fund's investment
adviser(s) that provides ongoing services to the Fund(s). Beginning with
non-audit service contracts entered into on or after May 6, 2003, the Fund's
audit committee must pre-approve non-audit services provided not only to the
Fund but also to the Covered Entities if the engagements relate directly to the
operations and financial reporting of the Fund. This list of Covered Entities
would include:
MORGAN STANLEY RETAIL FUNDS
Morgan Stanley Investment Advisors Inc.
Morgan Stanley & Co. Incorporated
Morgan Stanley DW Inc.
Morgan Stanley Investment Management Inc.
Morgan Stanley Investment Management Limited
Morgan Stanley Investment Management Private Limited
Morgan Stanley Asset & Investment Trust Management Co., Limited
Morgan Stanley Investment Management Company
Van Kampen Asset Management
Morgan Stanley Services Company, Inc.
Morgan Stanley Distributors Inc.
Morgan Stanley Trust FSB
MORGAN STANLEY INSTITUTIONAL FUNDS
Morgan Stanley Investment Management Inc.
Morgan Stanley Investment Advisors Inc.
Morgan Stanley Investment Management Limited
Morgan Stanley Investment Management Private Limited
Morgan Stanley Asset & Investment Trust Management Co., Limited
Morgan Stanley Investment Management Company
Morgan Stanley & Co. Incorporated
Morgan Stanley Distribution, Inc.
Morgan Stanley AIP GP LP
Morgan Stanley Alternative Investment Partners LP
(e)(2) Beginning with non-audit service contracts entered into on or after May
6, 2003, the audit committee also is required to pre-approve services to Covered
Entities to the extent that the services are determined to have a direct impact
on the operations or financial reporting of the Registrant. 100% of such
services were pre-approved by the audit committee pursuant to the Audit
Committee's pre-approval policies and procedures (attached hereto).
(f) Not applicable.
(g) See table above.
(h) The audit committee of the Board of Directors has considered whether the
provision of services other than audit services performed by the auditors to the
Registrant and Covered Entities is compatible with maintaining the auditors'
independence in performing audit services.
Item 5. Audit Committee of Listed Registrants.
(a) The Fund has a separately-designated standing audit committee established in
accordance with Section 3(a)(58)(A) of the Exchange Act whose members are:
Michael Bozic, Edwin J. Garn, Wayne E. Hedien, Manual H. Johnson, Joseph J.
Kearns, Michael Nugent and Fergus Reid.
(b) Not applicable.
Item 6. Schedule of Investments
Refer to Item 1.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
"THE TRUST/FUND INVESTS IN EXCLUSIVELY NON-VOTING SECURITIES AND THEREFORE THIS
ITEM IS NOT APPLICABLE TO THE TRUST/FUND."
MORGAN STANLEY INVESTMENT MANAGEMENT
PROXY VOTING POLICY AND PROCEDURES
I. POLICY STATEMENT
INTRODUCTION - Morgan Stanley Investment Management's ("MSIM") policies and
procedures for voting proxies with respect to securities held in the accounts of
clients applies to those MSIM entities that provide discretionary Investment
Management services and for which a MSIM entity has the authority to vote their
proxies. The policies and procedures and general guidelines in this section will
be reviewed and, as necessary, updated periodically to address new or revised
proxy voting issues. The MSIM entities covered by these policies and procedures
currently include the following: Morgan Stanley Investment Advisors Inc., Morgan
Stanley Alternative Investment Partners, L.P., Morgan Stanley AIP GP LP, Morgan
Stanley Investment Management Inc., Morgan Stanley Investment Group Inc., Morgan
Stanley Investment Management Limited, Morgan Stanley Investment Management
Company, Morgan Stanley Asset & Investment Trust Management Co., Limited, Morgan
Stanley Investment Management Private Limited, Morgan Stanley Investments LP,
Morgan Stanley Hedge Fund Partners GP LP, Morgan Stanley Hedge Fund Partners LP,
Van Kampen Investment Advisory Corp., Van Kampen Asset Management Inc., and Van
Kampen Advisors Inc. (each a "MSIM Affiliate" and collectively referred to as
the "MSIM Affiliates").
Each MSIM Affiliate will vote proxies as part of its authority to manage,
acquire and dispose of account assets. With respect to the MSIM registered
management investment companies (Van Kampen, Institutional and Advisor
Funds)(collectively referred to as the "MSIM Funds"), each MSIM Fund will vote
proxies pursuant to authority granted under its applicable investment advisory
agreement or, in the absence of such authority, as authorized by its Board of
Directors or Trustees. A MSIM Affiliate will not vote proxies if the "named
fiduciary" for an ERISA account has reserved the authority for itself, or in the
case of an account not governed by ERISA, the Investment Management Agreement
does not authorize the MSIM Affiliate to vote proxies. MSIM Affiliates will, in
a prudent and diligent manner, vote proxies in the best interests of clients,
including beneficiaries of and participants in a client's benefit plan(s) for
which we manage assets, consistent with the objective of maximizing long-term
investment returns ("Client Proxy Standard"). In certain situations, a client or
its fiduciary may provide a MSIM Affiliate with a statement of proxy voting
policy. In these situations, the MSIM Affiliate will comply with the client's
policy unless to do so would be inconsistent with applicable laws or regulations
or the MSIM Affiliate's fiduciary responsibility.
PROXY RESEARCH SERVICES - To assist the MSIM Affiliates in their responsibility
for voting proxies and the overall global proxy voting process, Institutional
Shareholder Services ("ISS") and the Investor Responsibility Research Center
("IRRC") have been retained as experts in the proxy voting and corporate
governance area. ISS and IRRC are
independent advisers that specialize in providing a variety of fiduciary-level
proxy-related services to institutional investment managers, plan sponsors,
custodians, consultants, and other institutional investors. The services
provided to MSIM Affiliates include in-depth research, global issuer analysis,
and voting recommendations. In addition to research, ISS provides vote
execution, reporting, and recordkeeping. MSIM's Proxy Review Committee (see
Section IV.A. below) will carefully monitor and supervise the services provided
by the proxy research services.
VOTING PROXIES FOR CERTAIN NON-US COMPANIES - While the proxy voting process is
well established in the United States and other developed markets with a number
of tools and services available to assist an investment manager, voting proxies
of non-US companies located in certain jurisdictions, particularly emerging
markets, may involve a number of problems that may restrict or prevent a MSIM
Affiliate's ability to vote such proxies. These problems include, but are not
limited to: (i) proxy statements and ballots being written in a language other
than English; (ii) untimely and/or inadequate notice of shareholder meetings;
(iii) restrictions on the ability of holders outside the issuer's jurisdiction
of organization to exercise votes; (iv) requirements to vote proxies in person,
(v) the imposition of restrictions on the sale of the securities for a period of
time in proximity to the shareholder meeting; and (vi) requirements to provide
local agents with power of attorney to facilitate the MSIM Affiliate's voting
instructions. As a result, clients' non-U.S. proxies will be voted on a best
efforts basis only, consistent with the Client Proxy Standard. ISS has been
retained to provide assistance to the MSIM Affiliates in connection with voting
their clients' non-US proxies.
II. GENERAL PROXY VOTING GUIDELINES
To ensure consistency in voting proxies on behalf of its clients, MSIM
Affiliates will follow (subject to any exception set forth herein) these Proxy
Voting Policies and Procedures, including the guidelines set forth below. These
guidelines address a broad
range of issues, including board size and composition, executive compensation,
anti-takeover proposals, capital structure proposals and social responsibility
issues and are meant to be general voting parameters on issues that arise most
frequently. The MSIM Affiliates, however, may vote in a manner that is contrary
to the following general guidelines, pursuant to the procedures set forth in
Section IV. below, provided the vote is consistent with the Client Proxy
Standard.
III. GUIDELINES
A. MANAGEMENT PROPOSALS
1. When voting on routine ballot items the following proposals are
generally voted in support of management, subject to the review and
approval of the Proxy Review Committee, as appropriate.
Selection or ratification of auditors.
Approval of financial statements, director and auditor reports.
Election of Directors.
Limiting Directors' liability and broadening indemnification of
Directors.
- Requirement that a certain percentage (up to 66 2/3%) of its
Board's members be comprised of independent and unaffiliated
Directors.
- Requirement that members of the company's compensation,
nominating and audit committees be comprised of independent or
unaffiliated Directors.
Recommendations to set retirement ages or require specific levels of
stock ownership by Directors.
General updating/corrective amendments to the charter.
Elimination of cumulative voting.
Elimination of preemptive rights.
Provisions for confidential voting and independent tabulation of
voting results.
Proposals related to the conduct of the annual meeting except those
proposals that relate to the "transaction of such other
business which may come before the meeting."
2. The following non-routine proposals, which potentially may have a
substantive financial or best interest impact on a shareholder, are
generally voted in support of management, subject to the review and
approval of the Proxy Review Committee, as appropriate.
CAPITALIZATION CHANGES
Capitalization changes that eliminate other classes of stock and
voting rights.
Proposals to increase the authorization of existing classes of
common stock (or securities convertible into common stock) if:
(i) a clear and legitimate business purpose is stated; (ii)
the number of shares requested is reasonable in relation to
the purpose for which authorization is requested; and (iii)
the authorization does not exceed 100% of shares currently
authorized and at least 30% of the new authorization will be
outstanding.
Proposals to create a new class of preferred stock or for issuances
of preferred stock up to 50% of issued capital.
Proposals for share repurchase plans.
Proposals to reduce the number of authorized shares of common or
preferred stock, or to eliminate classes of preferred stock.
Proposals to effect stock splits.
Proposals to effect reverse stock splits if management
proportionately reduces the authorized share amount set forth
in the corporate charter. Reverse stock splits that do not
adjust proportionately to the authorized share amount will
generally be approved if the resulting increase in authorized
shares coincides with the proxy guidelines set forth above for
common stock increases.
COMPENSATION
Director fees, provided the amounts are not excessive relative to
other companies in the country or industry.
Employee stock purchase plans that permit discounts up to 15%, but
only for grants that are part of a broad based employee plan,
including all non-executive employees.
Establishment of Employee Stock Option Plans and other employee
ownership plans.
ANTI-TAKEOVER MATTERS
- Modify or rescind existing supermajority vote requirements to
amend the charters or bylaws.
- Adoption of anti-greenmail provisions provided that the
proposal: (i) defines greenmail; (ii) prohibits buyback offers
to large block holders not made to all shareholders or not
approved by disinterested shareholders; and (iii) contains no
anti-takeover measures or other provisions restricting the
rights of shareholders.
3. The following non-routine proposals, which potentially may have a
substantive financial or best interest impact on the shareholder,
are generally voted AGAINST (notwithstanding management support),
subject to the review and approval of the Proxy Review Committee, as
appropriate.
- Capitalization changes that add classes of stock which
substantially dilute the voting interests of existing
shareholders.
- Proposals to increase the authorized number of shares of
existing classes of stock that carry preemptive rights or
supervoting rights.
- Creation of "blank check" preferred stock.
- Changes in capitalization by 100% or more.
- Compensation proposals that allow for discounted stock options
that have not been offered to employees in general.
- Amendments to bylaws that would require a supermajority
shareholder vote to pass or repeal certain provisions.
- Proposals to indemnify auditors.
4. The following types of non-routine proposals, which potentially may
have a potential financial or best interest impact on an issuer, are
voted as determined by the Proxy Review Committee.
CORPORATE TRANSACTIONS
- Mergers, acquisitions and other special corporate transactions
(i.e., takeovers, spin-offs, sales of assets, reorganizations,
restructurings and recapitalizations) will be examined on a
case-by-case basis. In all cases, ISS and IRRC research and
analysis will be used along with MSIM Affiliates' research and
analysis, based on, among other things, MSIM internal
company-specific knowledge.
- Change-in-control provisions in non-salary compensation plans,
employment contracts, and severance agreements that benefit
management and would be costly to shareholders if triggered.
- Shareholders rights plans that allow appropriate offers to
shareholders to be blocked by the board or trigger provisions
that prevent legitimate offers from proceeding.
Executive/Director stock option plans. Generally, stock option plans
should meet the following criteria:
(i) Whether the stock option plan is incentive based;
(ii) For mature companies, should be no more than 5% of the
issued capital at the time of approval;
(iii) For growth companies, should be no more than 10% of the
issued capital at the time of approval.
ANTI-TAKEOVER PROVISIONS
Proposals requiring shareholder ratification of poison pills.
Anti-takeover and related provisions that serve to prevent the
majority of shareholders from exercising their rights or
effectively deter the appropriate tender offers and other
offers.
B. SHAREHOLDER PROPOSALS
1. The following shareholder proposals are generally supported, subject
to the review and approval of the Proxy Review Committee, as
appropriate:
- Requiring auditors to attend the annual meeting of
shareholders.
- Requirement that members of the company's compensation,
nominating and audit committees be comprised of independent or
unaffiliated Directors.
- Requirement that a certain percentage of its Board's members
be comprised of independent and unaffiliated Directors.
- Confidential voting.
- Reduction or elimination of supermajority vote requirements.
2. The following shareholder proposals will be voted as determined by
the Proxy Review Committee.
- Proposals that limit tenure of directors.
- Proposals to limit golden parachutes.
- Proposals requiring directors to own large amounts of stock to
be eligible for election.
- Restoring cumulative voting in the election of directors.
- Proposals that request or require disclosure of executive
compensation in addition to the disclosure required by the
Securities and Exchange Commission ("SEC") regulations.
- Proposals that limit retirement benefits or executive
compensation.
- Requiring shareholder approval for bylaw or charter
amendments.
- Requiring shareholder approval for shareholder rights plan or
poison pill.
- Requiring shareholder approval of golden parachutes.
- Elimination of certain anti-takeover related provisions.
- Prohibit payment of greenmail.
3. The following shareholder proposals are generally not supported,
subject to the review and approval of the Committee, as appropriate.
- Requirements that the issuer prepare reports that are costly
to provide or that would require duplicative efforts or
expenditures that are of a non-business nature or would
provide no pertinent information from the perspective of
institutional shareholders.
- Restrictions related to social, political or special interest
issues that impact the ability of the company to do business
or be competitive and that have a significant financial or
best interest impact to the shareholders.
- Proposals that require inappropriate endorsements or corporate
actions.
IV. ADMINISTRATION OF PROXY POLICIES AND PROCEDURES
A. PROXY REVIEW COMMITTEE
1. The MSIM Proxy Review Committee ("Committee") is responsible for
creating and implementing MSIM's Proxy Voting Policy and Procedures
and, in this regard, has expressly adopted them. Following are some
of the functions and responsibilities of the Committee.
(a) The Committee, which will consist of members designated by
MSIM's Chief Investment Officer, is responsible for
establishing MSIM's proxy voting policies and guidelines and
determining how MSIM will vote proxies on an ongoing basis.
(b) The Committee will periodically review and have the authority
to amend as necessary MSIM's proxy voting policies and
guidelines (as expressed in these Proxy Voting Policy and
Procedures) and establish and direct voting positions
consistent with the Client Proxy Standard.
(c) The Committee will meet at least monthly to (among other
matters): (1) address any outstanding issues relating to
MSIM's Proxy Voting Policy and Procedures; and (2) generally
review proposals at upcoming shareholder meetings of MSIM
portfolio companies in accordance with this Policy and
Procedures including, as appropriate, the voting results of
prior shareholder meetings of the same issuer where a similar
proposal was presented to shareholders. The Committee, or its
designee, will timely communicate to ISS MSIM's Proxy Voting
Policy and Procedures (and any amendments to them and/or any
additional guidelines or procedures it may adopt).
(d) The Committee will meet on an ad hoc basis to (among other
matters): (1) authorize "split voting" (i.e., allowing certain
shares of the same issuer that are the subject of the same
proxy solicitation and held by one or more MSIM portfolios to
be voted differently than other shares) and/or "override
voting" (i.e., voting
all MSIM portfolio shares in a manner contrary to the
Procedures); (2) review and approve upcoming votes, as
appropriate, for matters for which specific direction has been
provided in Sections I, II, and III above; and (3) determine
how to vote matters for which specific direction has not been
provided in Sections I, II and III above. Split votes will
generally not be approved within a single Global Investor
Group team. The Committee may take into account ISS
recommendations and the research provided by IRRC as well as
any other relevant information they may request or receive.
(e) In addition to the procedures discussed above, if the
Committee determines that an issue raises a potential material
conflict of interest, or gives rise to the appearance of a
potential material conflict of interest, the Committee will
designate a special committee to review, and recommend a
course of action with respect to, the conflict(s) in question
("Special Committee"). The Special Committee may request the
assistance of the Law and Compliance Departments and will have
sole discretion to cast a vote. In addition to the research
provided by ISS and IRRC, the Special Committee may request
analysis from MSIM Affiliate investment professionals and
outside sources to the extent it deems appropriate.
(f) The Committee and the Special Committee, or their designee(s),
will document in writing all of their decisions and actions,
which documentation will be maintained by the Committee and
the Special Committee, or their designee(s) for a period of at
least 6 years. To the extent these decisions relate to a
security held by a MSIM U.S. registered investment company,
the Committee and Special Committee, or their designee(s),
will report their decisions to each applicable Board of
Trustees/Directors of those investment companies at each
Board's next regularly Scheduled Board meeting. The report
will contain information concerning decisions made by the
Committee and Special Committee during the most recently ended
calendar quarter immediately preceding the Board meeting.
(g) The Committee and Special Committee, or their designee(s),
will timely communicate to applicable PMs, the Compliance
Departments and, as necessary to ISS, decisions of the
Committee and Special Committee so that, among other things,
ISS will vote proxies consistent with their decisions.
Item 8. Portfolio Managers of Closed-End Management Investment Companies
Not Applicable
Required disclosure beginning with fiscal year end 12/31/05.
Item 9. Closed-End Fund Repurchases
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 11. Controls and Procedures
(a) The Fund's principal executive officer and principal financial officer have
concluded that the Fund's disclosure controls and procedures are sufficient to
ensure that information required to be disclosed by the Fund in this Form N-CSR
was recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's rules and forms, based
upon such officers' evaluation of these controls and procedures as of a date
within 90 days of the filing date of the report.
(b) There were no changes in the registrant's internal control over financial
reporting that occurred during the registrant's most recent fiscal half-year
(the registrant's second fiscal half-year in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
Item 12. Exhibits
(a) The Code of Ethics for Principal Executive and Senior Financial Officers is
attached hereto.
(b) A separate certification for each principal executive officer and principal
financial officer of the registrant are 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.
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By: /s/ Ronald E. Robison
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Name: Ronald E. Robison
Title: Principal Executive Officer
Date: 2/17/2005
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed by the following
persons on behalf of the registrant and in the capacities and on the dates
indicated.
By: /s/ Ronald E. Robison
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Name: Ronald E. Robison
Title: Principal Executive Officer
Date: 2/17/2005
By: /s/ James W. Garrett
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Name: James W. Garrett
Title: Chief Financial Officer
Date: 2/17/2005