<PAGE>
-----------------------------------------------------------
MORGAN STANLEY
DEAN WITTER
EMERGING MARKETS
DEBT FUND, INC.
-----------------------------------------------------------
SEMI-ANNUAL REPORT
JUNE 30, 2000
MORGAN STANLEY DEAN WITTER
INVESTMENT MANAGEMENT INC.
INVESTMENT ADVISER
MORGAN STANLEY DEAN WITTER
EMERGING MARKETS DEBT FUND, INC.
================================================================================
DIRECTORS AND OFFICERS
Barton M. Biggs
CHAIRMAN OF THE BOARD OF DIRECTORS
Harold J. Schaaff, Jr.
PRESIDENT AND DIRECTOR
John D. Barrett II
DIRECTOR
Gerard E. Jones
DIRECTOR
Graham E. Jones
DIRECTOR
John A. Levin
DIRECTOR
Andrew McNally IV
DIRECTOR
William G. Morton, Jr.
DIRECTOR
Samuel T. Reeves
DIRECTOR
Fergus Reid
DIRECTOR
Frederick O. Robertshaw
DIRECTOR
Stefanie V. Chang
VICE PRESIDENT
Arthur J. Lev
VICE PRESIDENT
Joseph P. Stadler
VICE PRESIDENT
Mary E. Mullin
SECRETARY
Belinda A. Brady
TREASURER
Robin L. Conkey
ASSISTANT TREASURER
================================================================================
INVESTMENT ADVISER
Morgan Stanley Dean Witter Investment Management Inc.
1221 Avenue of the Americas
New York, New York 10020
--------------------------------------------------------------------------------
ADMINISTRATOR
The Chase Manhattan Bank
73 Tremont Street
Boston, Massachusetts 02108
--------------------------------------------------------------------------------
CUSTODIAN
The Chase Manhattan Bank
3 Chase MetroTech Center
Brooklyn, New York 11245
--------------------------------------------------------------------------------
SHAREHOLDER SERVICING AGENT
Boston Equiserve
Investor Relations Department
P.O. Box 644
Boston, Massachusetts 02102-0644
(800) 730-6001
--------------------------------------------------------------------------------
LEGAL COUNSEL
Clifford Chance Rogers & Wells LLP
200 Park Avenue
New York, New York 10166
--------------------------------------------------------------------------------
INDEPENDENT ACCOUNTANTS
Ernst & Young LLP
787 Seventh Avenue
New York, New York 10019
================================================================================
For additional Fund information, including the Fund's net asset value per share
and information regarding the investments comprising the Fund's portfolio,
please call 1-800-221-6726 or visit our website at www.msdw.com/im.
<PAGE>
LETTER TO SHAREHOLDERS
---------
For the six months ended June 30, 2000, the Morgan Stanley Dean Witter Emerging
Markets Debt Fund, Inc. (the "Fund") had a total return, based on net asset
value per share, of 7.21% compared to 6.95% for the J.P. Morgan Emerging Markets
Bond Global Index (the "Index") and 8.10% for the J.P. Morgan Emerging Markets
Bond Plus Index. For the period from the Fund's commencement of operations on
July 23, 1993 through June 30, 2000, the Fund's total return, based on net asset
value per share, was 130.24% compared to 117.79% for the Index and 123.96% for
the J.P. Morgan Emerging Markets Bond Plus Index. On March 31, 2000, the Fund
changed its index for performance comparison purposes to the J.P. Morgan
Emerging Markets Bond Global Index as it has more comprehensive coverage of
geographic regions and types of securities in which the Fund may invest. On June
30, 2000, the closing price of the Fund's shares on the New York Stock Exchange
was $7 1/16, representing a 16.4% discount to the Fund's net asset value per
share.
The performance of emerging markets debt experienced wide shifts during the
first half of 2000. The first quarter of 2000 was very positive with a return in
the Index of 6.57%. This good performance was impressive considering the
volatility in equity markets, surging swap spreads, and a deterioration in all
other fixed income credit spreads. There were many positive events in the first
quarter of 2000 including improving credit ratings as Mexico, Russia, South
Africa, Hungary, and Tunisia were all upgraded. Furthermore, global growth was
better than expected and we continued to have a very supportive commodity price
environment.
In April and May of 2000, the environment changed and the returns, as measured
by the Index, were -4.11%. The increase in rates by the Federal Reserve, a
sell-off in the U.S. equity markets, and the general consensus that emerging
markets debt prices had risen too much in comparison to U.S. high yield and
other spread products, all caused the asset class to perform poorly during these
two months. Fortunately, the market had a big rebound in June 2000 as investors
began feeling that the Federal Reserve may be near the end of their rate-hike
cycle. The Index rose 4.66% in June 2000, increasing the return for the six
months to +6.95%, far outpacing all other fixed income asset classes. In
comparison, the Fund had a return of +7.21% for the six months ended June 30,
2000. Bolstering Fund returns were overweight positions in Russia, Mexico,
Brazil, and Bulgaria at the right times during the second quarter of 2000. Also
helping our results was an overall defensive portfolio strategy that
we established in late March 2000. Finally, underweight positions in Argentina
and Korea, and a zero-weighting in Nigeria helped performance as these
countries performed worse than the Index. Detracting from the Fund's return were
overweight positions in Colombia, the Philippines, and our emerging markets
corporate positions.
In the near term, the outlook for emerging markets debt will likely be
influenced by three important considerations. The first consideration is the
continued favorable sentiment generated by the successful Mexican elections. As
the spreads on Mexican bonds tighten, asset prices of a number of higher rated
countries (e.g., Peru, Philippines, and Panama) should benefit also. The second
influence will be that of new supply. Continued external market stability will
most certainly prompt even more issuance by Argentina and Brazil, as well as
other sovereigns. Finally, our market will remain hostage to global financial
market developments. Insofar as the three influences are offsetting and thus
rendering no clear direction, the team is currently staying with a neutral
stance hoping to, in the interim, out-perform the Index. Longer term, we are
very positive on emerging markets debt due to good global economic growth,
improving fiscal policies by many of these countries, and the continued
advancement of structural reform agendas. We will become more aggressive when
more favorable market conditions exist.
Sincerely,
/s/ Harold J. Schaaff, Jr.
Harold J. Schaaff, Jr.
PRESIDENT AND DIRECTOR
July 2000
THE INFORMATION CONTAINED IN THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR
INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO
PURCHASE OR SELL THE SECURITIES MENTIONED.
FOREIGN INVESTING INVOLVES CERTAIN RISKS, INCLUDING CURRENCY FLUCTUATIONS AND
CONTROLS, RESTRICTIONS ON FOREIGN INVESTMENTS, LESS GOVERNMENTAL SUPERVISION AND
REGULATION, LESS LIQUIDITY AND THE POTENTIAL FOR MARKET VOLATILITY AND POLITICAL
INSTABILITY.
--------------------------------------------------------------------------------
DAILY NET ASSET AND MARKET VALUES, AS WELL AS MONTHLY PORTFOLIO INFORMATION FOR
THE FUND, ARE AVAILABLE ON OUR WEBSITE AT www.msdw.com/im.
2
<PAGE>
Morgan Stanley Dean Witter Emerging Markets Debt Fund, Inc.
Investment Summary as of June 30, 2000 (Unaudited)
================================================================================
<TABLE>
<CAPTION>
HISTORICAL
INFORMATION TOTAL RETURN (%)
-------------------------------------------------------------------------------------------
MARKET VALUE(1) NET ASSET VALUE(2) JPM EMB GLOBAL INDEX(3) JPM EMB PLUS INDEX(4)
------------------ -------------------- ----------------------- ------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
CUMULATIVE ANNUAL CUMULATIVE ANNUAL CUMULATIVE ANNUAL CUMULATIVE ANNUAL
---------- ------- ---------- --------- ---------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
YEAR TO DATE 10.13% -- 7.21% -- 6.95% -- 8.10% --
ONE YEAR 0.06 0.06% 27.99 27.99% 20.74 20.74% 23.16 23.16%
FIVE YEAR 83.71 12.93 107.66 15.74 107.11 15.67 112.84 16.31
SINCE INCEPTION* 92.72 9.91 130.24 12.76 117.79 11.87 123.96 12.33
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
--------------------------------------------------------------------------------
RETURNS AND PER SHARE INFORMATION
[CHART]
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS
ENDED
JUNE 30,
1993* 1994 1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ---- ---- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value Per Share .................. $18.96 $12.23 $12.40 $17.31 $15.21 $7.01 $8.36 $8.45
Market Value Per Share ..................... $18.13 $11.38 $12.50 $15.13 $15.38 $7.19 $6.81 $7.06
Premium/(Discount) ......................... -4.4% -7.0% 0.8% -12.6% 1.1% 2.6% -18.5% -16.4%
Income Dividends ........................... $0.16 $1.49 $1.72 $1.08 $1.27 $1.41 $1.01 $0.45
Capital Gains Distributions ................ -- $0.41 -- -- $3.44 $2.94 -- --
Fund Total Return (2) ...................... 35.96% -25.95% 26.85%+ 50.98% 21.71% -33.00% 36.58% 7.21%
JPM EMB Global Index Total Return (3) ...... 18.67% -18.35% 26.38% 35.23% 11.95% -11.54% 24.18% 6.95%
JPM EMB Plus Index Total Return (4) ........ 18.67% -18.93% 26.77% 39.31% 13.02% -14.35% 25.97% 8.10%
</TABLE>
(1) Assumes dividends and distributions, if any, were reinvested.
(2) Total investment return based on net asset value per share reflects the
effects of changes in net asset value on the performance of the Fund during
each period, and assumes dividends and distributions, if any, were
reinvested. These percentages are not an indication of the performance of a
shareholder's investment in the Fund based on market value due to
differences between the market price of the stock and the net asset value
per share of the Fund.
(3) On March 31, 2000, the Fund began using this index for performance
comparison purposes as it has more comprehensive coverage of the
geographic regions and types of securities in which the Fund may invest. The
J.P. Morgan Emerging Markets Bond Global Index (the "JPM EMB Global Index")
tracks total returns for U.S. dollar-denominated debt instruments issued by
emerging markets sovereign and quasi-sovereign entities: Brady bonds, loans,
Eurobonds and local market instruments. The JPM EMB Global Index includes
coverage of 27 emerging market countries. Because JPM EMB Global Index was
not available prior to January 1, 1994, the performance of the J.P. Morgan
Emerging Markets Bond Index is shown for the period July 23, 1993 to
December 31, 1993, and used for purposes of computing cumulative performance
of the benchmark index for that period.
(4) The J.P. Morgan Emerging Markets Bond Plus Index (the "JPM EMB Plus Index")
is a market weighted index composed of all Brady bonds, outstanding loans
and Eurobonds, as well as U.S. Dollar local market instruments of Argentina,
Brazil, Bulgaria, Colombia, Ecuador, Mexico, Morocco, Nigeria, Panama, Peru,
the Philippines, Poland, Russia, South Korea and Venezuela. Because the JPM
EMB Plus Index was not available prior to January 1, 1994, the performance
of the J.P. Morgan Emerging Markets Bond Index is shown for the period July
23, 1993 to December 31, 1993, and used for purposes of computing cumulative
performance of the benchmark index for that period.
* The Fund commenced operations on July 23, 1993.
+ This return does not include the effect of the rights issued in connection
with the rights offering.
3
<PAGE>
Morgan Stanley Dean Witter Emerging Markets Debt Fund, Inc.
Portfolio Summary as of June 30, 2000 (Unaudited)
================================================================================
DIVERSIFICATION OF TOTAL INVESTMENTS
[CHART]
<TABLE>
<S> <C>
Short-Term Investments (5.4%)
Debt Securities (94.6%)
</TABLE>
--------------------------------------------------------------------------------
COUNTRY WEIGHTINGS
[CHART]
<TABLE>
<S> <C>
Other (8.0%)
Venezuela (2.4%)
Peru (3.2%)
Bulgaria (3.2%)
Turkey (3.7%)
Colombia (5.2%)
Philippines (6.0%)
Russia (10.9%)
Brazil (21.4%)
Argentina (20.3%)
Mexico (15.7%)
</TABLE>
--------------------------------------------------------------------------------
TEN LARGEST HOLDINGS*
<TABLE>
<CAPTION>
PERCENT OF
TOTAL
INVESTMENTS
-----------
<S> <C>
1. United Mexican States Discount Bonds 12/31/19 (Mexico) 8.9%
2. Republic of Argentina 11.75%, 6/15/15 (Argentina) 8.3
3. Russia Principal Note, PIK 7.938%, 12/15/20 (Russia) 7.2
4. Federative Republic of Brazil Global Bond 14.50%, 10/15/09 (Brazil) 5.4
5. Republic of Philippines 10.625%, 3/16/25 (Philippines) 4.7
6. Republic of Colombia 11.75%, 2/25/20 (Colombia) 4.3
7. Federative Republic of Brazil Bond 12.25%, 3/06/30 (Brazil) 4.2
8. Republic of Argentina 11.75%, 4/07/09 (Argentina) 4.0
9. Russian Federation (Registered) 12.75%, 6/24/28 3.4
10. Republic of Argentina 'L' 7.375%, 3/31/05 (Argentina) 3.1
----
53.5%
====
</TABLE>
* Excludes short-term investments.
4
<PAGE>
FINANCIAL STATEMENTS
---------
STATEMENT OF NET ASSETS (UNAUDITED)
(SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENTS)
---------
JUNE 30, 2000
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
--------------------------------------------------------------------------------
<S> <C> <C>
DEBT INSTRUMENTS (94.6%)
--------------------------------------------------------------------------------
ALGERIA (2.1%)
SOVEREIGN (2.1%)
Republic of Algeria, Tranche 1
Zero Coupon, 3/31/10 U.S.$ 1,400 U.S.$ 1,153
Republic of Algeria, Tranche 3
Zero Coupon, 3/31/10 4,800 3,732
-------------
4,885
-------------
--------------------------------------------------------------------------------
ARGENTINA (16.5%)
CORPORATE (1.2%)
(b)Cablevision SA
13.75%, 5/1/09 500 456
(b)CIA International Telecom
10.375%, 8/1/04 ARP 2,620 2,301
-------------
2,757
-------------
SOVEREIGN (15.3%)
(e)Republic of Argentina
11.75%, 4/7/09 U.S.$ 9,910 9,233
11.75%, 6/15/15 20,934 19,050
(c,e)Republic of Argentina 'L'
7.375%, 3/31/05 7,840 7,158
-------------
35,441
-------------
38,198
--------------
--------------------------------------------------------------------------------
BRAZIL (21.4%)
CORPORATE (1.1%)
(c)Banco Nacional de Desenvolvi
12.554%, 6/16/08 2,700 2,538
-------------
SOVEREIGN (20.3%)
Federal Republic of Brazil
12.25%, 3/6/30 10,500 9,607
Federal Republic of Brazil
'C' Bond 'L'
8.00%, 4/15/14 1,970 1,430
(c)Federal Republic of Brazil
Discount Bond
7.375%, 4/15/24 5,200 4,114
(d)Federal Republic of Brazil
'Z-L' Bond
6.00%, 4/15/24 1,500 981
(c)Federative Republic of Brazil
Bond 'EI' (Registered)
7.375%, 4/15/06 3,302 3,011
(c)Federative Republic of Brazil
Bond 'EI-L'
7.375%, 4/15/06 2,883 2,629
(c)Federative Republic of Brazil
Bond 'NMB'
7.438%, 4/15/09 910 762
(e)Federative Republic of Brazil
Bond PIK 'C'
8.00%, 4/15/14 7,741 5,617
(c)Federative Republic of Brazil
Debt Conversion Bond 'L'
7.438%, 4/15/12 5,260 3,878
(c)Federative Republic of Brazil
Debt Conversion Bond 'L'
(Registered)
7.438%, 4/15/12 2,290 1,688
(e)Federative Republic of Brazil
Global Bond
14.50%, 10/15/09 11,667 12,358
(c)Federative Republic of Brazil
New Money Bond 'L'
7.438%, 4/15/09 790 662
-------------
46,737
-------------
49,275
-------------
--------------------------------------------------------------------------------
BULGARIA (3.2%)
SOVEREIGN (3.2%)
(c)Republic of Bulgaria Discount
Bond 'A' Euro
7.063%, 7/28/24 4,550 3,606
(c,e)Republic of Bulgaria Past
Due Interest Bond
7.063%, 7/28/11 4,800 3,810
-------------
7,416
-------------
--------------------------------------------------------------------------------
COLOMBIA (5.2%)
CORPORATE (0.3%)
(b,d)Occidente y Caribe 'B'
14.00%, 3/15/04 1,050 745
-------------
SOVEREIGN (4.9%)
Republic of Colombia
(e)9.75%, 4/23/09 1,700 1,339
11.75%, 2/25/20 11,950 9,829
-------------
11,168
-------------
11,913
-------------
--------------------------------------------------------------------------------
ECUADOR (0.7%)
SOVEREIGN (0.7%)
(c,f)Republic of Ecuador
Discount Bond
6.75%, 2/28/25 4,020 1,598
-------------
--------------------------------------------------------------------------------
INDIA (0.2%)
CORPORATE (0.2%)
(g)Surashtra Cement and
Chemical Ltd.
19.00%, 6/26/00 INR 30,000 411
-------------
--------------------------------------------------------------------------------
INDONESIA (1.8%)
CORPORATE (1.8%)
Indah Kiat International
Finance 'B'
11.875%, 6/15/02 U.S.$ 900 729
--------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
--------------------------------------------------------------------------------
<S> <C> <C>
INDONESIA (CONTINUED)
CORPORATE (CONTINUED)
Tjiwi Kimia International
Global Bond
13.25%, 8/1/01 U.S.$ 3,800 U.S.$ 3,344
-------------
4,073
-------------
--------------------------------------------------------------------------------
IVORY COAST (0.2%)
SOVEREIGN (0.2%)
(d)Republic of Ivory Coast Front
Load Interest Reduction Bond
2.00%, 3/29/18 3,100 496
-------------
--------------------------------------------------------------------------------
JORDAN (0.4%)
SOVEREIGN (0.4%)
(b,c)Jordan Discount Bond
7.75%, 12/23/23 1,061 822
-------------
--------------------------------------------------------------------------------
MEXICO (15.7%)
CORPORATE (3.9%)
(b)Grupo Elektra SA
12.00%, 4/1/08 900 819
(b)Grupo Iusacell SA de CV
14.25%, 12/1/06 1,300 1,359
Petroleos Mexicanos
9.50%, 9/15/27 2,900 2,940
(b)Sanluis Corp. SA
8.875%, 3/18/08 2,400 2,196
(b)TV Azteca 'B'
10.50%, 2/15/07 1,900 1,700
-------------
9,014
-------------
SOVEREIGN (11.8%)
(b,c)United Mexican States
7.50%, 3/8/10 EUR 1,650 1,519
(c)United Mexican States
Discount Bond 'A'
7.313%, 12/31/19 U.S.$ 7,600 7,467
(c)United Mexican States
Discount Bond 'B'
7.603%, 12/31/19 13,350 13,116
United Mexican States Par
Bond 'W-B'
6.25%, 12/31/19 6,200 5,154
-------------
27,256
-------------
36,270
-------------
--------------------------------------------------------------------------------
MOROCCO (1.3%)
SOVEREIGN (1.3%)
(c)Morocco R&C 'A'
7.75%, 1/1/09 3,293 2,964
-------------
--------------------------------------------------------------------------------
PANAMA (0.3%)
SOVEREIGN (0.3%)
(c)Republic of Panama Past
Due Interest Bond PIK
7.063%, 7/17/16 U.S.$ 940 777
-------------
--------------------------------------------------------------------------------
PERU (3.2%)
SOVEREIGN (3.2%)
(d)Peru Past Due Interest Bond
4.50%, 3/7/17 2,520 1,690
(b,d)Republic of Peru Front Loaded
Interest Reduction Bond
3.75%, 3/7/17 9,398 5,709
-------------
7,399
-------------
--------------------------------------------------------------------------------
PHILIPPINES (6.0%)
CORPORATE (0.6%)
(b)Bayan Telecommunications, Inc.
13.50%, 7/15/06 2,400 1,404
-------------
SOVEREIGN (5.4%)
Republic of Philippines
9.875%, 1/15/19 2,100 1,722
10.625%, 3/16/25 12,550 10,772
-------------
12,494
-------------
13,898
-------------
--------------------------------------------------------------------------------
POLAND (1.0%)
CORPORATE (1.0%)
(b)Netia Holdings II BV
13.125%, 6/15/09 1,500 1,410
(b)PTC International Finance II SA
11.25%, 12/1/09 1,000 1,015
-------------
2,425
-------------
--------------------------------------------------------------------------------
RUSSIA (10.9%)
SOVEREIGN (10.9%)
(c)Russia Interest Arrears Notes
7.938%, 12/15/15 1,950 605
(c)Russia Principal Note, PIK
7.938%, 12/15/20 54,146 16,650
Russian Federation (Registered)
12.75%, 6/24/28 9,000 7,819
-------------
25,074
-------------
--------------------------------------------------------------------------------
TURKEY (2.1%)
CORPORATE (0.9%)
(b)Cellco Finance NV
15.00%, 8/1/05 1,910 2,053
-------------
SOVEREIGN (1.2%)
Turkey Linked Structured Note
8/7/00 2,700 2,815
-------------
4,868
-------------
--------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
--------------------------------------------------------------------------------
<S> <C> <C>
VENEZUELA (2.4%)
SOVEREIGN (2.4%)
Republic of Venezuela
6.75%, 3/31/20 U.S.$ 2,100 U.S.$ 1,470
(c)Republic of Venezuela Debt
Conversion Bond 'DL'
7.00%, 12/18/07 1,429 1,161
Republic of Venezuela Global Bond
9.25%, 9/15/27 4,400 2,900
-------------
5,531
-------------
--------------------------------------------------------------------------------
TOTAL DEBT INSTRUMENTS
(Cost U.S.$212,947) 218,293
-------------
--------------------------------------------------------------------------------
<CAPTION>
NO. OF
WARRANTS
--------------------------------------------------------------------------------
<S> <C> <C>
WARRANTS (0.0%)
COLOMBIA (0.0%)
(a,b)Occidente y Caribe,
expiring 3/15/04
(Cost U.S.$27) 41,200 15
-------------
--------------------------------------------------------------------------------
<CAPTION>
FACE
AMOUNT
(000)
--------------------------------------------------------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (5.4%)
--------------------------------------------------------------------------------
ARGENTINA (3.8%)
COMMERCIAL PAPER
Republic of Argentina 5.00%,
07/08/00 U.S.$ 9,000 8,807
-------------
--------------------------------------------------------------------------------
TURKEY (1.6%)
BILLS
Turkey Treasury Bill
08/23/00 TRL 2,525,000,000 3,598
-------------
--------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS
(Cost U.S.$13,043) 12,405
-------------
--------------------------------------------------------------------------------
TOTAL INVESTMENTS (100.0%)
(Cost U.S.$226,017) 230,713
-------------
--------------------------------------------------------------------------------
<CAPTION>
AMOUNT AMOUNT
(000) (000)
--------------------------------------------------------------------------------
<S> <C> <C>
OTHER ASSETS
Receivable for Investments
Sold U.S.$ 23,163
Due from Broker 8,312
Interest Receivable 5,079
Other 28 U.S.$ 36,582
------------- -------------
--------------------------------------------------------------------------------
LIABILITIES
Securities Sold Short, at Value
(Proceeds U.S.$ 7,934) (8,077)
Deferred Country Taxes (49)
Payable For:
Reverse Repurchase Agreements (34,355)
Investments Purchased (31,525)
Dividends Declared (4,630)
Bank Overdraft (1,800)
Investment Advisory Fees (155)
Directors' Fees and Expenses (77)
Shareholder Reporting Expenses (52)
Professional Fees (51)
Administrative Fees (40)
Custodian Fees (29)
Net Unrealized Loss on Foreign
Currency Exchange Contracts (8)
Other Liabilities (149) (80,997)
------------- -------------
--------------------------------------------------------------------------------
NET ASSETS
Applicable to 22,046,681, issued and
outstanding U.S.$ 0.01 par value shares
(100,000,000 shares authorized) U.S.$ 186,298
=============
--------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE U.S.$ 8.45
=============
--------------------------------------------------------------------------------
AT JUNE 30, 2000, NET ASSETS CONSISTED OF:
--------------------------------------------------------------------------------
Common Stock U.S.$ 220
Capital Surplus 279,105
Undistributed Net Investment Income 1,907
Accumulated Net Realized Loss (99,430)
Unrealized Appreciation on Investments and
Foreign Currency Translations (net of
accrued foreign taxes of U.S.$49 on
unrealized appreciation) 4,496
--------------------------------------------------------------------------------
TOTAL NET ASSETS U.S.$ 186,298
=============
--------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
--------------------------------------------------------------------------------
(a) -- Non-income producing.
(b) -- 144A Security -- Certain conditions for public sale may exist
(c) -- Variable/floating rate security -- rate disclosed is as of June 30, 2000.
(d) -- Step Bond -- coupon rate increases in increments to maturity. Rate
disclosed is as of June 30, 2000. Maturity date disclosed is ultimate
maturity.
(e) -- Denotes all or a portion of securities subject to repurchase under
Reverse Repurchase Agreements as of June 30, 2000. See note A-4 to
financial statements.
(f) -- Security is in default.
(g) -- Security valued at fair value -- see note A-1 to financial statements.
PIK -- Payment-in-Kind. Income may be paid in additional securities or cash at
the discretion of the issuer.
--------------------------------------------------------------------------------
JUNE 30, 2000 EXCHANGE RATES:
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ARP Argentine Peso 0.999= U.S.$1.00
INR Indian Rupee 44.650= U.S.$1.00
EUR Euro 1.048= U.S.$1.00
TRL Turkish Lira 620,445= U.S.$1.00
--------------------------------------------------------------------------------
</TABLE>
FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION:
Under the terms of foreign currency exchange contracts open at June 30, 2000,
the Fund is obligated to deliver or is to receive foreign currency in exchange
for U.S. dollars as indicated below:
<TABLE>
<CAPTION>
CURRENCY IN NET
TO EXCHANGE UNREALIZED
DELIVER VALUE SETTLEMENT FOR VALUE GAIN (LOSS)
(000) (000) DATE (000) (000) (000)
----------- ----------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
EUR 1,296 U.S.$ 1,236 07/05/00 U.S.$ 1,227 U.S.$ 1,227 U.S.$ (9)
EUR 2,522 2,406 07/05/00 U.S.$ 2,352 2,352 (54)
U.S.$ 2,348 2,348 07/05/00 EUR 2,522 2,406 58
U.S.$ 1,171 1,171 07/05/00 EUR 1,225 1,168 (3)
EUR 1,222 1,168 08/07/00 U.S.$ 1,168 1,168 --
----------- ----------- -----------
U.S.$ 8,329 U.S.$ 8,321 U.S.$ (8)
=========== =========== ===========
--------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
--------------------------------------------------------------------------------
<S> <C> <C>
SECURITIES SOLD SHORT
ARGENTINA BOND
Republic of Argentina
Global Bond
11.375%, 01/30/17
(Total Proceeds U.S.$7,934) U.S.$ 9,000 U.S.$ 8,077
-------------
--------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 2000
(UNAUDITED)
STATEMENT OF OPERATIONS (000)
---------------------------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
Interest ...................................................................................... U.S.$ 14,241
Dividends ..................................................................................... 455
Less: Foreign Taxes Withheld .................................................................. (9)
---------------------------------------------------------------------------------------------------------------------------
Total Income .................................................................................. 14,687
---------------------------------------------------------------------------------------------------------------------------
EXPENSES
Investment Advisory Fees ...................................................................... 938
Interest Expense on Borrowings ................................................................ 913
Country Tax Expense ........................................................................... 373
Administrative Fees ........................................................................... 114
Shareholder Reporting Expenses ................................................................ 79
Professional Fees ............................................................................. 64
Custodian Fees ................................................................................ 51
Transfer Agent Fees ........................................................................... 19
Directors' Fees and Expenses .................................................................. 17
Other Expenses ................................................................................ 23
---------------------------------------------------------------------------------------------------------------------------
Total Expenses ................................................................................ 2,591
---------------------------------------------------------------------------------------------------------------------------
Net Investment Income ......................................................................... 12,096
---------------------------------------------------------------------------------------------------------------------------
NET REALIZED GAIN (LOSS)
Investment Securities Sold .................................................................... 17,076
Foreign Currency Transactions ................................................................. (2,525)
---------------------------------------------------------------------------------------------------------------------------
Net Realized Gain ............................................................................. 14,551
---------------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION
Depreciation on Investments ................................................................... (14,777)
Appreciation on Foreign Currency Translations ................................................. 79
---------------------------------------------------------------------------------------------------------------------------
Change in Unrealized Appreciation/Depreciation ................................................ (14,698)
---------------------------------------------------------------------------------------------------------------------------
Net Realized Gain and Change in Unrealized Appreciation/Depreciation .......................... (147)
---------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS .......................................... U.S.$ 11,949
===========================================================================================================================
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, 2000 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1999
STATEMENT OF CHANGES IN NET ASSETS (000) (000)
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net Investment Income ......................................................... U.S.$ 12,096 U.S.$ 23,978
Net Realized Gain (Loss) ...................................................... 14,551 (930)
Change in Unrealized Appreciation/Depreciation ................................ (14,698) 28,818
---------------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations .......................... 11,949 51,866
---------------------------------------------------------------------------------------------------------------------------
Distributions:
Net Investment Income ......................................................... (9,920) (21,876)
In Excess of Net Investment Income ............................................ -- (269)
---------------------------------------------------------------------------------------------------------------------------
Total Distributions ........................................................... (9,920) (22,145)
---------------------------------------------------------------------------------------------------------------------------
Capital Share Transactions:
Reinvestment of Distributions (0 and 195,910 shares, respectively) ............ -- 1,464
---------------------------------------------------------------------------------------------------------------------------
Total Increase ................................................................ 2,029 31,185
Net Assets:
Beginning of Period ........................................................... 184,269 153,084
---------------------------------------------------------------------------------------------------------------------------
End of Period (including undistributed/(distributions in excess of) net
investment income of U.S.$1,907 and U.S.$(269), respectively) ................. U.S.$ 186,298 U.S.$ 184,269
===========================================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 2000
(UNAUDITED)
STATEMENT OF CASH FLOWS (000)
---------------------------------------------------------------------------------------------------------------------------
<S> <C>
CASH FLOWS FROM INVESTING AND OPERATING ACTIVITIES:
Proceeds from Sales of Investments ................................................................. U.S. $ 290,080
Purchases of Investments ........................................................................... (286,442)
Net Decrease in Short-Term Investments ............................................................. 3,296
Net Realized Loss on Foreign Currency Transactions ................................................. (2,525)
Investment Income .................................................................................. 11,622
Interest Expense Paid .............................................................................. (985)
Operating Expenses Paid ............................................................................ (1,749)
---------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Investing and Operating Activities ............................................ 13,297
---------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash Paid for Reverse Repurchase Agreements ........................................................ (4,432)
Cash Distributions Paid ............................................................................ (11,604)
Net Cash Received from Bank ........................................................................ 1,800
---------------------------------------------------------------------------------------------------------------------------
Net Cash Used for Financing Activities ............................................................. (14,236)
---------------------------------------------------------------------------------------------------------------------------
Net Decrease in Cash ............................................................................... (939)
CASH AT BEGINNING OF PERIOD ........................................................................ 939
---------------------------------------------------------------------------------------------------------------------------
CASH AT END OF PERIOD .............................................................................. U.S. $ --
===========================================================================================================================
RECONCILIATION OF NET INVESTMENT INCOME TO NET CASH PROVIDED BY INVESTING AND OPERATING ACTIVITIES
---------------------------------------------------------------------------------------------------------------------------
Net Investment Income .............................................................................. U.S. $ 12,096
Proceeds from Sales of Investments ................................................................. 290,080
Purchases of Investments ........................................................................... (286,442)
Net Decrease in Short-Term Investments ............................................................. 3,296
Net Realized Loss on Foreign Currency Transactions ................................................. (2,525)
Net Increase in Receivables Related to Operations .................................................. 1,157
Net Decrease in Payables Related to Operations ..................................................... (127)
Accretion/Amortization of Discounts and Premiums ................................................... (4,238)
---------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Investing and Operating Activities ............................................ U.S. $ 13,297
===========================================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
SELECTED PER SHARE DATA SIX MONTHS
AND RATIOS: ENDED YEARS ENDED DECEMBER 31,
JUNE 30, 2000 --------------------------------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD .... U.S.$ 8.36 U.S.$ 7.01 U.S.$ 15.21 U.S.$ 17.31 U.S.$ 12.40 U.S.$ 12.23
------------------------------------------------------------------------------------------------------------------------------------
Offering Costs .......................... -- -- -- -- -- (0.02)
------------------------------------------------------------------------------------------------------------------------------------
Net Investment Income ................... 0.55 1.09 1.27 1.34 1.75 1.76
Net Realized and Unrealized Gain
(Loss) on Investments ................... (0.01) 1.27 (5.12) 1.27 4.24 1.16
------------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations ........ 0.54 2.36 (3.85) 2.61 5.99 2.92
------------------------------------------------------------------------------------------------------------------------------------
Distributions:
Net Investment Income ................... (0.45) (1.00) (1.39) (1.27) (1.08) (1.69)
In Excess of Net Investment Income ...... -- (0.01) (0.02) -- -- (0.03)
Net Realized Gain ....................... -- -- -- (3.44) -- --
In Excess of Net Realized Gain .......... -- -- (2.94) -- -- --
------------------------------------------------------------------------------------------------------------------------------------
Total Distributions ..................... (0.45) (1.01) (4.35) (4.71) (1.08) (1.72)
------------------------------------------------------------------------------------------------------------------------------------
Decrease in Net Asset Value due to
Rights Offering ......................... -- -- -- -- -- (1.01)
------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD .......... U.S.$ 8.45 U.S.$ 8.36 U.S.$ 7.01 U.S.$ 15.21 U.S.$ 17.31 U.S.$ 12.40
====================================================================================================================================
PER SHARE MARKET VALUE, END OF PERIOD ... U.S.$ 7.06 U.S.$ 6.81 U.S.$ 7.19 U.S.$ 15.38 U.S.$ 15.13 U.S.$ 12.50
====================================================================================================================================
TOTAL INVESTMENT RETURN:
Market Value ............................ 10.13% 8.55% (32.04)% 40.81% 30.86% 37.48%+
Net Asset Value (1) ..................... 7.21% 36.58% (33.00)% 21.71% 50.98% 26.85%+
====================================================================================================================================
RATIOS, SUPPLEMENTAL DATA:
------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (THOUSANDS) ... U.S.$186,298 U.S.$184,269 U.S.$153,084 U.S.$327,556 U.S.$372,644 U.S.$266,295
------------------------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets . 2.75%* 2.28% 2.75% 2.27% 2.59% 1.89%
Ratio of Expenses Excluding Interest
Expense and Country Tax Expense to
Average Net Assets ...................... 1.37%* 1.35% 1.47% 1.51% 1.38% 1.50%
Ratio of Net Investment Income to
Average Net Assets ...................... 12.85%* 14.53% 12.50% 8.80% 12.14% 15.21%
Portfolio Turnover Rate ................. 153% 178% 308% 361% 373% 348%
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
+ This return does not include the effect of the rights issued in connection
with the Rights Offering.
(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
shareholder's investment in the Fund based on market value due to
differences between the market price of the stock and the net asset value
per share of the Fund.
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000 (UNAUDITED)
---------
Morgan Stanley Dean Witter Emerging Markets Debt Fund, Inc. (the "Fund")
was incorporated in Maryland on May 6, 1993, and is registered as a
non-diversified, closed-end management investment company under the Investment
Company Act of 1940, as amended. The Fund's primary investment objective is to
produce high current income and as a secondary objective, to seek capital
appreciation, through investments primarily in debt securities.
A. The following significant accounting policies are in conformity with
generally accepted accounting principles for investment companies. Such policies
are consistently followed by the Fund in the preparation of its financial
statements. 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: In valuing the Fund's assets, all listed securities for
which market quotations are readily available are valued at the last sale
price on the valuation date, or if there was no sale on such date, at the
mean between the current bid and asked prices or the bid price if only bid
quotations are available. Securities which are traded over-the-counter are
valued at the average of the mean of the current bid and asked prices
obtained from reputable brokers. Securities may be valued by independent
pricing services. The prices provided by a pricing service take into
account broker dealer market price quotations for institutional size
trading in similar groups of securities, security quality, maturity, coupon
and other security characteristics as well as any developments related to
the specific securities. Short-term securities which mature in 60 days or
less are valued at amortized cost. All other securities and assets for
which market values are not readily available (including investments which
are subject to limitations as to their sale) are valued at fair value as
determined in good faith under procedures approved by the Board of
Directors, although the actual calculations may be done by others.
2. 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 U.S. Federal income taxes is required in the financial
statements.
The Fund may be subject to taxes imposed by countries in which it invests.
Such taxes are generally based on either income earned or repatriated. The
Fund accrues such taxes when the related income is earned.
3. 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.
4. REVERSE REPURCHASE AGREEMENTS: The Fund may enter into reverse repurchase
agreements with institutions that the Fund's investment adviser has
determined are creditworthy. Under a reverse repurchase agreement, the Fund
sells securities and agrees to repurchase them at a mutually agreed upon
date and price. Reverse repurchase agreements involve the risk that the
market value of the securities purchased with the proceeds from the sale of
securities received by the Fund may decline below the price of the
securities the Fund is obligated to repurchase. Reverse repurchase
agreements also involve credit risk with the counter party to the extent
that the value of securities subject to repurchase exceed the Fund's
liability under the reverse repurchase agreement. Securities subject to
repurchase under reverse repurchase agreements, if any, are designated as
such in the Statement of Net Assets.
At June 30, 2000, the Fund had reverse repurchase agreements outstanding
with Lehman Brothers and J.P. Morgan as follows:
<TABLE>
<CAPTION>
MATURITY IN
LESS THAN
365 DAYS
-------------
<S> <C>
Value of Securities Subject to
Repurchase ...................................... $ 46,128,000
Liability Under Reverse
Repurchase Agreement ............................ $ 34,355,000
Interest Rate ..................................... 6.875%
</TABLE>
The average weekly balance of reverse repurchase agreements outstanding during
the six months ended June 30, 2000 was approximately $8,574,000 at a weighted
average interest rate of 5.77%.
12
<PAGE>
5. FOREIGN CURRENCY TRANSLATION: The books and records of the Fund are
maintained in U.S. dollars. Foreign currency amounts are translated into
U.S. dollars at the mean of the bid and asked prices of such currencies
against U.S. dollars last quoted by a major bank as follows:
- investments, other assets and liabilities - at the prevailing rates of
exchange on the valuation date;
- investment transactions and investment income - at the prevailing
rates of exchange on the dates of such transactions.
Although the net assets of the Fund are presented at the foreign exchange
rates and market values at the close of the period, the Fund does not
isolate that portion of the results of operations arising as a result of
changes in the foreign exchange rates from the fluctuations arising from
changes in the market prices of the securities held at period end.
Similarly, the Fund does not isolate the effect of changes in foreign
exchange rates from the fluctuations arising from changes in the market
prices of securities sold during the period. Accordingly, realized and
unrealized foreign currency gains (losses) due to securities transactions
are included in the reported net realized and unrealized gains (losses) on
investment transactions and balances.
Net realized gains (losses) on foreign currency transactions represent net
foreign exchange gains (losses) from sales and maturities of foreign
currency exchange contracts, disposition of foreign currencies, currency
gains or losses realized between the trade and settlement dates on
securities transactions, and the difference between the amount of
investment income and foreign withholding taxes recorded on the Fund's
books and the U.S. dollar equivalent amounts actually received or paid. Net
unrealized currency gains (losses) from valuing foreign currency
denominated assets and liabilities at period end exchange rates are
reflected as a component of unrealized appreciation (depreciation) on
investments and foreign currency translations in the Statement of Net
Assets. The change in net unrealized currency gains (losses) on foreign
currency translations for the period is reflected in the Statement of
Operations.
Foreign security and currency transactions may involve certain
considerations and risks not typically associated with those of U.S. dollar
denominated transactions as a result of, among other factors, the
possibility of lower levels of governmental supervision and regulation of
foreign securities markets and the possibility of political or economic
instability.
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 may utilize
and their associated risks:
6. FOREIGN CURRENCY EXCHANGE CONTRACTS: The Fund may enter into foreign
currency exchange contracts generally to attempt to protect securities and
related receivables and payables against changes in future foreign exchange
rates and, in certain situations, to gain exposure to a foreign currency. A
foreign currency exchange contract is an agreement between two parties to
buy or sell currency at a set price on a future date. The market value of
the contract will fluctuate with changes in currency exchange rates. The
contract is marked-to-market daily and the change in market value is
recorded by the Fund as unrealized gain or loss. The Fund records realized
gains or losses when the contract is closed equal to the difference between
the value of the contract at the time it was opened and the value at the
time it was closed. Risk may arise upon entering into these contracts from
the potential inability of counterparties to meet the terms of their
contracts and is generally limited to the amount of unrealized gain on the
contracts, if any, at the date of default. Risks may also arise from
unanticipated movements in the value of a foreign currency relative to the
U.S. dollar.
7. LOAN AGREEMENTS: The Fund may invest in fixed and floating rate loans
("Loans") arranged through private negotiations between an issuer of
sovereign debt obligations and one or more financial institutions
("Lenders") deemed to be creditworthy by the investment adviser. The Fund's
investments in Loans may be in the form of participations in Loans
("Participations") or assignments of all or a portion of Loans
("Assignments") from third parties. The Fund's investment in Participations
typically results in the Fund having a contractual relationship with only
the Lender and not with the borrower. The Fund has the right to receive
payments of principal, interest and any fees to which it is entitled only
from the Lender selling the Participation and only upon receipt by the
Lender of the payments from the borrower. The Fund generally has no right
to enforce compliance by the borrower with the terms of the loan agreement.
As a result, the Fund may be subject to the credit risk of both the
borrower and the Lender that is selling the Participation and any
intermediaries between the Lender and the Fund. When the Fund purchases
Assignments from Lenders it acquires direct rights against the borrower on
the Loan. Because Assignments are arranged through private negotiations
between potential assignees and potential assignors, the rights and
obligations acquired by the Fund as the purchaser of an Assignment may
differ from, and be
13
<PAGE>
more limited than, those held by the assigning Lender.
8. FORWARD COMMITMENTS AND WHEN-ISSUED/DELAYED DELIVERY SECURITIES: The Fund
may make forward commitments to purchase or sell securities. Payment and
delivery for securities which have been purchased or sold on a forward
commitment basis can take place a month or more (not to exceed 120 days)
after the date of the transaction. Additionally, the Fund may purchase
securities on a when-issued or delayed delivery basis. Securities purchased
on a when-issued or delayed delivery basis are purchased for delivery
beyond the normal settlement date at a stated price and yield, and no
income accrues to the Fund on such securities prior to delivery. When the
Fund enters into a purchase transaction on a when-issued or delayed
delivery basis, it either establishes a segregated account in which it
maintains liquid assets in an amount at least equal in value to the Fund's
commitments to purchase such securities or denotes such assets as
segregated on the Fund's records. Purchasing securities on a forward
commitment or when-issued or delayed-delivery basis may involve a risk that
the market price at the time of delivery may be lower than the agreed upon
purchase price, in which case there could be an unrealized loss at the time
of delivery.
9. SECURITIES SOLD SHORT: The Fund may sell securities short. A short sale is
a transaction in which the Fund sells securities it may or may not own,
but has borrowed, in anticipation of a decline in the market price of the
securities. The Fund is obligated to replace the borrowed securities at
their market price at the time of replacement. The Fund may have to pay a
premium to borrow the securities as well as pay any dividends or interest
payable on the securities until they are replaced. The Fund's obligation to
replace the securities borrowed in connection with a short sale will
generally be secured by collateral deposited with the broker that consists
of cash, U.S. government securities or other liquid, high grade debt
obligations. In addition, the Fund will either place in a segregated
account with its custodian or denote as pledged on the custody records an
amount of cash, U.S. government securities or other liquid high grade debt
obligations equal to the difference, if any, between (1) the market value
of the securities sold at the time they were sold short and (2) any cash,
U.S. government securities or other liquid high grade debt obligations
deposited as collateral with the broker in connection with the short sale
(not including the proceeds of the short sale). Short sales by the Fund
involve certain risks and special considerations. Possible losses from
short sales differ from losses that could be incurred from a purchase of a
security because losses from short sales may be unlimited, whereas losses
from purchases cannot exceed the total amount invested.
10. WRITTEN OPTIONS: The Fund may write covered call options in an attempt to
increase the Fund's total return. The Fund will receive premiums that are
recorded as liabilities and subsequently adjusted to the current value of
the options written. Premiums received from writing options which expire
are treated as realized gains. Premiums received from writing options which
are exercised or are closed are added to or offset against the proceeds or
amount paid on the transaction to determine the net realized gain or loss.
By writing a covered call option, the Fund foregoes in exchange for the
premium the opportunity for capital appreciation above the exercise price
should the market price of the underlying security increase.
11. SWAP AGREEMENTS: A swap is an agreement to exchange the return generated
by one instrument for the return generated by another instrument. The
following summarizes the types of swaps that the Fund may enter into:
INTEREST RATE SWAPS: Interest rate swaps involve the exchange of
commitments to pay and receive interest based on a notional principal
amount. The Fund may utilize interest rate swaps in an attempt to
increase income while limiting the Fund's exposure to market
fluctuations in interest rates. Net periodic interest payments to be
received or paid are accrued daily and are recorded in the Statement of
Operations as an adjustment to interest income. Interest rate swaps are
marked-to-market daily based upon quotations from market makers and the
change, if any, is recorded as an unrealized gain or loss in the
Statement of Operations.
TOTAL RETURN SWAPS: Total return swaps involve commitments to pay interest
in exchange for a market-linked return based on a notional amount and pro
vide the Fund with the full benefit on an investment in a security without
an initial cash outlay. To the extent the total return of the security or
index underly ing the transaction exceeds or falls short of the offsetting
interest rate obligation, the Fund will receive a payment from or make a
payment to the coun terparty, respectively. Total return swaps are marked-
to-market daily based upon quotations from market makers and the change, if
any, is recorded as an unrealized gain or loss in the Statement of
Operations. Payments received or made at the end of each measurement period
are recorded as realized gain or loss in the Statement of Operations.
Realized gains or losses on maturity or termination of interest rate and
total return swaps are presented in the Statement of Operations. Because
there is no organized market for these swap agreements, the value reported
in the Statement of Net Assets may differ from that which would be realized
in the event the Fund terminated its position in the agreement. Risks may
arise upon entering into these agreements from the potential inability of
the counterparties to meet
14
<PAGE>
the terms of the agreements and are generally limited to the amount of net
interest payments to be received and/or favorable movements in the value of
the underlying security, instrument or basket of instruments, if any, at
the date of default.
Risks also arise from potential losses from adverse market movements, and
such losses could exceed the related amounts shown in the Statement of Net
Assets.
12. 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.
13. 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.
During the six month period ended June 30, 2000, the Fund's investments in the
derivative instruments described above only included foreign currency exchange
contracts, securities sold short and structured securities.
14. 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 shareholders are recorded on the ex-dividend
date.
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 generally accepted accounting
principles. The book/tax differences are either considered 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 book and tax basis differences may result in reclassifications
among undistributed net investment income (loss), accumulated net realized
gain (loss) and paid-in capital.
Adjustments for permanent book-tax differences, if any, are not reflected
in ending undistributed net investment income (loss) for the purpose of
calculating net investment income (loss) per share in the financial
highlights.
B. Morgan Stanley Dean Witter 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. The Chase Manhattan Bank, through its corporate affiliate Chase Global
Funds Services Company (the "Administrator"), provides administrative services
to the Fund under an Administration Agreement. Under the Administration
Agreement, the Administrator is paid a fee computed weekly and payable monthly
at an annual rate of 0.06% of the Fund's average weekly net assets, plus
$100,000 per annum. In addition, the Fund is charged certain out-of-pocket
expenses by the Administrator.
D. The Chase Manhattan Bank serves as custodian for the Fund. Custody fees
are payable monthly based on assets held in custody, investment purchase and
sales activity and account maintenance fees, plus reimbursement for certain
out-of-pocket expenses.
E. During the six month period ended June 30, 2000, the Fund made purchases
and sales totaling approximately $318,010,000 and $309,863,000 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. At June 30, 2000, the U.S. Federal income
tax cost basis of securities was approximately $226,017,000 and, accordingly,
net unrealized appreciation for U.S. Federal income tax purposes was $4,696,000,
of which $10,654,000 related to appreciated securities and $5,958,000 related to
depreciated securities. At December
15
<PAGE>
31, 1999, the Fund had a capital loss carryforward for U.S. Federal income tax
purposes of approximately $106,955,000 available to offset future capital gains,
of which $93,820,000 will expire on December 31, 2006 and $13,135,000 will
expire on December 31, 2007. To the extent that capital gains are offset, such
gains will not be distributed to the shareholders.
F. 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.
These investments may be traded by one market maker who may also be utilized by
the Fund to provide pricing information used to value such securities. The
amounts which will be realized upon disposition of the securities may differ
from the value reflected on the statement of net assets and the differences
could be material.
G. Each Director of the Fund who is not an officer of the Fund or an
affiliated person as defined under the Investment Company Act of 1940, as
amended, may elect to participate in the Directors' Deferred Compensation Plan
(the "Plan"). Under the Plan, such Directors may elect to defer payment of a
percentage of their total fees earned as a Director of the Fund. These deferred
portions are treated, based on an election by the Director, as if they were
either invested in the Fund's shares or invested in U.S. Treasury Bills, as
defined under the Plan. At June 30, 2000, the deferred fees payable, under the
Plan totaled $77,000 and are included in Payable for Directors' Fees and
Expenses on the Statement of Net Assets.
H. During June 2000, the Board of Directors declared a distribution of $0.21
per share, derived from net investment income, payable on July 14, 2000, to
shareholders of record on June 30, 2000.
I. Supplemental Proxy Information
The Annual Meeting of the Stockholders of the Fund was held on June 15, 2000.
The following is a summary of the proposal presented and the total number of
shares voted:
<TABLE>
<CAPTION>
VOTES IN VOTES VOTES
PROPOSAL: FAVOR OF AGAINST ABSTAINED
--------- ---------- ------- ---------
<S> <C> <C> <C>
1. To elect the following Directors: Andrew McNally IV ................. 19,831,274 281,154 --
Frederick O. Robertshaw ........... 19,842,281 270,147 --
Harold J. Schaaff, Jr. ............ 19,824,425 288,003 --
Fergus Reid ....................... 19,812,333 300,095 --
Graham E. Jones ................... 19,840,014 272,414 --
John D. Barrett II ................ 19,832,102 280,326 --
Samuel T. Reeves .................. 19,801,555 310,873 --
Gerard E. Jones ................... 19,824,541 287,887 --
</TABLE>
The Annual Meeting of the Stockholders of the Fund was reconvened on August 1,
2000. The following is a summary of the proposal presented and the total number
of shares voted:
<TABLE>
<CAPTION>
VOTES IN VOTES VOTES
PROPOSAL: FAVOR OF AGAINST ABSTAINED
--------- ---------- ------- ---------
<S> <C> <C> <C>
2. To ratify the selection of Ernst & Young LLP as independent
accountants of the Fund .............................................. 19,390,895 48,845 67,694
</TABLE>
--------------------------------------------------------------------------------
CHANGE IN INDEPENDENT ACCOUNTANTS:
ON JULY 5, 2000, PRICEWATERHOUSECOOPERS LLP RESIGNED AS INDEPENDENT ACCOUNTANTS
OF THE FUND. THE REPORTS OF PRICEWATERHOUSECOOPERS LLP ON THE FINANCIAL
STATEMENTS OF THE FUND FOR THE PAST TWO FISCAL YEARS CONTAINED NO ADVERSE
OPINION OR DISCLAIMER OF OPINION AND WERE NOT QUALIFIED OR MODIFIED AS TO
UNCERTAINTY, AUDIT SCOPE OR ACCOUNTING PRINCIPLE. IN CONNECTION WITH ITS AUDITS
FOR THE TWO MOST RECENT FISCAL YEARS AND THROUGH JULY 5, 2000, THERE HAVE BEEN
NO DISAGREEMENTS WITH PRICEWATERHOUSECOOPERS LLP ON ANY MATTER OF ACCOUNTING
PRINCIPLES OR PRACTICES, FINANCIAL STATEMENT DISCLOSURE, OR AUDITING SCOPE OR
PROCEDURE, WHICH DISAGREEMENTS, IF NOT RESOLVED TO THE SATISFACTION OF
PRICEWATERHOUSECOOPERS LLP, WOULD HAVE CAUSED THEM TO MAKE REFERENCE THERETO IN
THEIR REPORT ON THE FINANCIAL STATEMENTS FOR SUCH YEARS. THE FUND, WITH THE
APPROVAL OF ITS BOARD OF DIRECTORS, AUDIT COMMITTEE AND SHAREHOLDERS, ENGAGED
ERNST & YOUNG LLP AS INDEPENDENT ACCOUNTANTS AS OF AUGUST 1, 2000.
16
<PAGE>
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
Pursuant to the Dividend Reinvestment and Cash Purchase Plan (the "Plan"),
each shareholder will be deemed to have elected, unless Boston Equiserve (the
"Plan Agent") is otherwise instructed by the shareholder 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. 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
shareholders 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 shareholders, such as banks, brokers or nominees, which 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
shareholder as representing the total amount registered in the shareholder's
name and held for the account of beneficial owners who are participating in the
Plan.
Shareholders 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 shareholders 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 Dean Witter Emerging Markets Debt Fund, Inc.
Boston Equiserve
Dividend Reinvestment Unit
P.O. Box 1681
Boston, MA 02105-1681
1-800-730-6001
17
