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<SEC-DOCUMENT>0000912057-02-033864.txt : 20020828
<SEC-HEADER>0000912057-02-033864.hdr.sgml : 20020828
<ACCEPTANCE-DATETIME>20020828170405
ACCESSION NUMBER:		0000912057-02-033864
CONFORMED SUBMISSION TYPE:	N-30D
PUBLIC DOCUMENT COUNT:		1
CONFORMED PERIOD OF REPORT:	20020630
FILED AS OF DATE:		20020828

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			MORGAN STANLEY DEAN WITTER EMERGING MARKETS DEBT FUND INC
		CENTRAL INDEX KEY:			0000904112
		IRS NUMBER:				133713706
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		N-30D
		SEC ACT:		1940 Act
		SEC FILE NUMBER:	811-07694
		FILM NUMBER:		02751524

	BUSINESS ADDRESS:	
		STREET 1:		1221 AVENUE OF THE AMERICAS
		STREET 2:		8TH FLOOR
		CITY:			NEW YORK
		STATE:			NY
		ZIP:			10020
		BUSINESS PHONE:		6175578742

	MAIL ADDRESS:	
		STREET 1:		1221 AVENUE OF THE AMERIAS
		STREET 2:		8TH FLOOR
		CITY:			NEW YORK
		STATE:			NY
		ZIP:			10020

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	MORGAN STANLEY EMERGING MARKETS DEBT FUND INC
		DATE OF NAME CHANGE:	19930714
</SEC-HEADER>
<DOCUMENT>
<TYPE>N-30D
<SEQUENCE>1
<FILENAME>a2083633zn-30d.txt
<DESCRIPTION>N-30D
<TEXT>
<Page>

                                                              SEMI-ANNUAL REPORT
MORGAN STANLEY EMERGING MARKETS DEBT FUND, INC.
                                                              JUNE 30, 2002
DIRECTORS AND OFFICERS
BARTON M. BIGGS           WILLIAM G. MORTON, JR.
CHAIRMAN OF THE           DIRECTOR
BOARD OF DIRECTORS
                          MICHAEL NUGENT
RONALD E. ROBISON         DIRECTOR
PRESIDENT AND DIRECTOR
                          FERGUS REID
JOHN D. BARRETT II        DIRECTOR
DIRECTOR
                          STEFANIE V. CHANG
THOMAS P. GERRITY         VICE PRESIDENT
DIRECTOR
                          LORRAINE TRUTEN
GERARD E. JONES           VICE PRESIDENT
DIRECTOR
                          JAMES W. GARRETT       [MORGAN STANLEY LOGO]
JOSEPH J. KEARNS          TREASURER
DIRECTOR
                          MARY E. MULLIN
VINCENT R. MCLEAN         SECRETARY
DIRECTOR                                         MORGAN STANLEY EMERGING
                          BELINDA A. BRADY       MARKETS DEBT FUND, INC.
C. OSCAR MORONG, JR.      ASSISTANT TREASURER
DIRECTOR

INVESTMENT ADVISER
MORGAN STANLEY INVESTMENT MANAGEMENT INC.
1221 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10020

ADMINISTRATOR
JPMORGAN CHASE BANK
73 TREMONT STREET
BOSTON, MASSACHUSETTS 02108

CUSTODIAN
JPMORGAN CHASE BANK
3 CHASE METROTECH CENTER
BROOKLYN, NEW YORK 11245

STOCKHOLDER SERVICING AGENT
AMERICAN STOCK TRANSFER & TRUST COMPANY
59 MAIDEN LANE
NEW YORK, NEW YORK 10030
(800) 278-4353

LEGAL COUNSEL
CLIFFORD CHANCE ROGERS & WELLS LLP
200 PARK AVENUE
NEW YORK, NEW YORK 10166

INDEPENDENT AUDITOR
ERNST & YOUNG LLP
200 CLARENDON STREET
BOSTON, MASSACHUSETTS 02116
                                                  MORGAN STANLEY
FOR ADDITIONAL FUND INFORMATION, INCLUDING THE    INVESTMENT MANAGEMENT INC.
FUND'S NET ASSET VALUE PER SHARE AND              INVESTMENT ADVISER
INFORMATION REGARDING THE INVESTMENTS
COMPRISING THE FUND'S PORTFOLIO, PLEASE CALL
1-800-221-6726 OR VISIT OUR WEBSITE AT
www.morganstanley.com/im.

<Page>

                                 MORGAN STANLEY EMERGING MARKETS DEBT FUND, INC.

                                 OVERVIEW

LETTER TO STOCKHOLDERS

For the six months ended June 30, 2002, the Morgan Stanley Emerging Markets Debt
Fund, Inc. (the "Fund") had a total return, based on net asset value per share,
of 0.98% compared to 0.91% for the J.P. Morgan Emerging Markets Bond Global
Index (the "Index"). On June 30, 2002, the closing price of the Fund's shares on
the New York Stock Exchange was $7.08, representing a 11.1% discount to the
Fund's net asset value per share.

MARKET REVIEW

After a strong first quarter, political uncertainty in Brazil coupled with
rising global risk aversion led to a significant sell off in emerging markets
debt (EMD) asset class during May and June. The pace of economic activity in the
U.S. moderated after a robust first quarter as investors wondered whether the
U.S. economy was about to enter a prolonged period of slow growth. Global equity
and credit markets reacted negatively to the reduced expectations for global
growth and the negative sentiment was exacerbated by accounting scandals in the
U.S. The decline in the U.S. dollar, during the quarter, renewed fears about the
ramifications of a disorderly adjustment in the level of the U.S. dollar.

Politics in Brazil was the focus of the market's attention over the last
quarter, as Inacio Lula DaSilva, a populist leader with unorthodox economic
views, maintained a strong lead in pre-election polls. Particularly in June and
for much of the quarter, Brazilian assets led most Latin American credits lower,
while most Asian and a number of Eastern European credits remained unaffected
and posted positive returns. During the month of June, Brazilian policy makers
took steps to calm Brazilian financial markets including drawing down an unused
International Monetary Fund facility to bolster reserves, but political
uncertainty overwhelmed the positive effects of these measures. To a lesser
extent political tension in Turkey and Ecuador also pushed the market lower. An
overweight in Brazil for most of the second quarter, which was reduced to a
neutral weighting by mid-June, was the main reason for the Fund's recent
underperformance. In addition, an underweight in the higher quality Asian
countries and South Africa also detracted from returns. Conversely, an
underweight in Turkey and overweights in the Dominican Republic and Qatar,
enhanced relative returns. An overweight in Indonesian assets and good security
selection in Russia also bolstered returns during the quarter.

MARKET OUTLOOK

In the near-term, we expect political uncertainty in emerging markets to prevail
as the electoral calendar is heavy during the second half of 2002. In addition,
global financial markets will most likely remain nervous in expectation of
additional accounting disclosures. If the damage to investor sentiment (both
real and portfolio) and to corporate balance sheets leads to a permanent, rather
than temporary, decrease in capital flows to emerging market countries, then
undoubtedly, the risks in the EMD asset class have gone up. However, there is
mounting evidence that the economic recovery in the U.S. and particularly in
non-Japan Asia continues, albeit at a less robust pace. Small increases in Asian
demand are likely to lead to large changes in global commodity prices, which
would be very supportive for the more vulnerable emerging market credits and
particularly for Latin America. Therefore, short-term prospects for emerging
market countries looks uncertain while the medium-term prospects may actually
look promising. These conflicting cross currents have led us to take a more
neutral risk posture relative to the benchmark until we gain greater clarity on
some of these issues.

Sincerely,

/s/ Ronald E. Robison
Ronald E. Robison
President and Director

                                                                       July 2002

- --------------------------------------------------------------------------------
THE FUND ANNOUNCED IN JULY 2002, THAT IT WILL BE MANAGED BY THE TAXABLE FIXED
INCOME TEAM. CURRENT MEMBERS OF THE TEAM INCLUDE STEPHEN F. ESSER, MANAGING
DIRECTOR, ABIGAIL L. MCKENNA, EXECUTIVE DIRECTOR AND ERIC J. BAURMEISTER, VICE
PRESIDENT.

2
<Page>

                                 MORGAN STANLEY EMERGING MARKETS DEBT FUND, INC.

                                 JUNE 30, 2002

INVESTMENT SUMMARY

Historical Information (Unaudited)

<Table>
<Caption>
                                                     TOTAL RETURN (%)
                      -----------------------------------------------------------------------------
                           MARKET VALUE(1)         NET ASSET VALUE(2)             INDEX(3)
                      -----------------------------------------------------------------------------
                                     AVERAGE                   AVERAGE                      AVERAGE
                      CUMULATIVE      ANNUAL    CUMULATIVE      ANNUAL  CUMULATIVE          ANNUAL
- ---------------------------------------------------------------------------------------------------
<S>                       <C>          <C>          <C>          <C>        <C>               <C>
Year to Date                0.13%         --          0.98%         --        0.91%              --
One Year                    5.14        5.14%         7.01        7.01%      (3.34)           (3.34)%
Five Year                  12.13        2.32         20.39        3.78       30.70             5.50
Since Inception*          146.30       10.61        176.91       12.06      138.28            10.20
</Table>

Past performance is not predictive of future performance.

[CHART]

<Table>
<Caption>
                        MORGAN STANLEY EMERGING              J.P. MORGAN EMERGING MARKETS
                      MARKETS DEBT FUND, INC.(2)          BOND GLOBAL INDEX TOTAL RETURN(3)
<S>                   <C>                                 <C>
1993                          35.96%                                  18.67%
1994                         -25.95%                                 -18.35%
1995                          26.85%+                                 26.38%
1996                          50.98%                                  35.23%
1997                          21.71%                                  11.95%
1998                         -33.00%                                 -11.54%
1999                          36.58%                                  24.18%
2000                          13.50%                                  14.41%
2001                          12.50%                                   1.36%
Six Months Ended
June 30, 2002                  0.98%                                   0.91%
</Table>

Returns and Per Share Information

<Table>
<Caption>
                                                                                                                    SIX
                                                                                                                   MONTHS
                                                                                                                   ENDED
                                                              YEAR ENDED DECEMBER 31,                             JUNE 30,
                             -----------------------------------------------------------------------------------------------
                              1993*        1994     1995     1996     1997     1998     1999     2000     2001       2002
- ----------------------------------------------------------------------------------------------------------------------------
<S>                          <C>        <C>       <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   $ 8.22   $ 8.25   $   7.96
- ----------------------------------------------------------------------------------------------------------------------------
Market Value Per Share       $18.13     $ 11.38   $12.50   $15.13   $15.38  $  7.19   $ 6.81   $ 6.88   $ 7.40   $   7.08
- ----------------------------------------------------------------------------------------------------------------------------
Premium/(Discount)             (4.4)%      (7.0)%    0.8%   (12.6)%    1.1%     2.6%   (18.5)%  (16.3)%  (10.3)%    (11.1)%
- ----------------------------------------------------------------------------------------------------------------------------
Income Dividends             $ 0.16     $  1.49   $ 1.72   $ 1.08   $ 1.27  $  1.41   $ 1.01   $ 1.08   $ 0.85   $   0.36
- ----------------------------------------------------------------------------------------------------------------------------
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%   13.50%   12.50%      0.98%
- ----------------------------------------------------------------------------------------------------------------------------
Index Total Return(3)         18.67%     (18.35)%  26.38%   35.23%   11.95%  (11.54)%  24.18%   14.41%    1.36%      0.91%
- ----------------------------------------------------------------------------------------------------------------------------
</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
    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.
(3) The J.P. Morgan Emerging Markets Bond Global Index (the "JPM EMB Global
    Index") tracks total returns for U.S. dollar-denominated debt instruments
    issued by emerging markets sovereign and quasi-sovereign entities: Brady
    bonds, loans, Eurobonds and local market instruments. The JPM EMB Global
    Index includes coverage of 27 emerging market countries. Because JPM EMB
    Global Index was not available prior to January 1, 1994, the performance of
    the J.P. Morgan Emerging Markets Bond Index is shown for the period July 23,
    1993 to December 31, 1993, and used for purposes of computing cumulative
    performance of the benchmark index for that period.
  * 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.

    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. IN ADDITION, INVESTING IN EMERGING
    MARKETS MAY INVOLVE A RELATIVE HIGHER DEGREE OF VOLATILITY.

                                                                               3
<Page>

                                 MORGAN STANLEY EMERGING MARKETS DEBT FUND, INC.

                                 JUNE 30, 2002 (UNAUDITED)

PORTFOLIO SUMMARY

[CHART]

Allocation of Total Investments*

<Table>
- ---------------------------------
<S>                          <C>
Debt Securities              99.9%
Equity Secruities             0.1
- ---------------------------------
</Table>

[CHART]

Country Weightings*

<Table>
- ---------------------------------------------------------
<S>                                                  <C>
Mexico                                               21.7%
Brazil                                               17.0
Russia                                               16.5
Malaysia                                              4.5
Venezuela                                             4.2
South Korea                                           3.9
Philippines                                           3.1
Peru                                                  3.1
Argentina                                             2.9
Dominican Republic                                    2.7
Other                                                20.4
- ---------------------------------------------------------
</Table>

Ten Largest Holdings**

<Table>
<Caption>
                                                        PERCENT OF
                                                             TOTAL
                                                       INVESTMENTS
- ------------------------------------------------------------------
<S>  <C>                                                      <C>
 1.  United Mexican States Discount Bond 'A'
       9.875%, 2/1/10 (Mexico)                                 7.7%

 2.  Russian Federation
       12.75%, 6/24/28 (Russia)                                6.1

 3.  United Mexican States Global Bond
       11.375%, 9/15/16 (Mexico)                               5.3

 4.  Government of Malaysia
       7.50%, 7/15/11 (Mexico)                                 4.5

 5.  Federative Republic of Brazil Bond PIK 'C'
       8.00%, 4/15/14 (Brazil)                                 3.9

 6.  Federative Republic of Brazil Global Bond
       8.875%, 4/15/24 (Brazil)                                3.8%

 7.  Federative Republic of Brazil Bond 'Z-L'
       3.062%, 4/15/24 (Brazil)                                3.7

 8.  United Mexican States Global Bond
       11.50%, 5/15/26 (Mexico)                                3.3

 9.  Russian Federation
       10.00%, 6/26/07 (Russia)                                3.1

10.  Federative Republic of Brazil Debt Conversion Bond 'L'
       3.125%, 4/15/12 (Brazil)                                2.8
                                                              ----
                                                              44.2%
                                                              ====
</Table>

     * Percent of Total Investments
    ** Excludes Short-Term Investments

4
<Page>

                                 MORGAN STANLEY EMERGING MARKETS DEBT FUND, INC.

                                 FINANCIAL STATEMENTS
                                 JUNE 30, 2002 (UNAUDITED)

STATEMENT OF NET ASSETS
(SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENTS)

<Table>
<Caption>
                                                             FACE
                                                           AMOUNT            VALUE
                                                            (000)            (000)
- ----------------------------------------------------------------------------------
<S>                                                    <C>               <C>
DEBT INSTRUMENTS(99.9%)
- ----------------------------------------------------------------------------------
ALGERIA (0.8%)
SOVEREIGN (0.8%)

  Algerian Loan Agreement Tranche 1
    7.188%, 3/31/10                                    $    1,631        $   1,468
- ----------------------------------------------------------------------------------
ARGENTINA (2.9%)
SOVEREIGN (2.9%)

  Republic of Argentina
    11.375%, 3/15/10                                        8,020            1,524
    11.75%, 4/7/09                                          4,340              824
    11.75%, 6/15/15                                         2,010              347

  Republic of Argentina Par Bond, 'L-GP'
    6.00%, 3/31/23                                          5,470            2,352
- ----------------------------------------------------------------------------------
                                                                             5,047
==================================================================================
BRAZIL (17.0%)
SOVEREIGN (17.0%)

  Federative Republic of Brazil Bond 'L'
    3.125%, 4/15/09                                         4,587 (a)        2,936

  Federative Republic of Brazil Bond 'Z-L'
    3.062%, 4/15/24                                        11,200 (a)        6,636

  Federative Republic of Brazil Bond PIK 'C'
    8.00%, 4/15/14                                         10,941            6,920

  Federative Republic of Brazil Debt
    Conversion Bond 'L'
    3.00%, 4/15/12                                          2,570 (a)        1,368
    3.125%, 4/15/12                                         9,220 (a)        4,910

  Federative Republic of Brazil Global Bond
    8.875%, 4/15/24                                        13,910            6,746
    11.00%, 8/17/40                                         1,000              570
- ----------------------------------------------------------------------------------
                                                                            30,086
==================================================================================
BULGARIA (1.9%)
SOVEREIGN (1.9%)

  Republic of Bulgaria
    8.25%, 1/15/15                                          1,699 (b)        1,690

  Republic of Bulgaria Front-
    Loaded Interest Reduction Bond 'A'
    2.813%, 7/28/12                                         1,900 (a)        1,729
- ----------------------------------------------------------------------------------
                                                                             3,419
==================================================================================
COLOMBIA (2.2%)
SOVEREIGN (2.2%)

  Republic of Colombia Notes
    10.00%, 1/23/12                                         4,190            3,955
==================================================================================
CROATIA (0.8%)
SOVEREIGN (0.8%)

  Croatia Government International Bond
    2.875%, 7/31/10                                         1,391 (a)        1,386
==================================================================================
DOMINICAN REPUBLIC (2.7%)
SOVEREIGN (2.7%)

  Dominican Republic Bond
    9.50%, 9/27/06                                     $    4,570        $   4,849
==================================================================================
ECUADOR (0.9%)
SOVEREIGN (0.9%)

  Republic of Ecuador
    5.00%, 8/15/30                                          2,980 (c)        1,505
==================================================================================
INDIA (0.0%)
CORPORATE (0.0%)

  Surashtra Cement and Chemical Ltd.
    19.00%, 6/26/00                                    INR 30,000               --@
==================================================================================
INDONESIA (1.4%)
CORPORATE (1.4%)

  Pindo Deli Finance (Mauritius)
    10.75%, 10/1/07                                    $    4,500 (b)        1,035

  Tjiwi Kimia Finance Mauritius Ltd.
    10.00%, 8/1/04                                          1,280              307

  Tjiwi Kimia International
    Global Bond, 13.25%                                     4,990 (d)        1,198
- ----------------------------------------------------------------------------------
                                                                             2,540
==================================================================================
IVORY COAST (1.0%)
SOVEREIGN (1.0%)

  Republic of Ivory Coast Bond
    2.00%, 3/29/18                                          4,525              879

  Republic of Ivory Coast Front
    -Loaded Interest Reduction Bond
    2.00%, 3/29/18                                          3,677 (c,d)        809
- ----------------------------------------------------------------------------------
                                                                             1,688
==================================================================================
JAMAICA (1.0%)
SOVEREIGN (1.0%)

  Government of Jamaica
    10.625%, 2/6/17                                         1,720            1,823
==================================================================================
MALAYSIA (4.5%)
SOVEREIGN (4.5%)

  Government of Malaysia
    7.50%, 7/15/11                                          7,495            7,964
==================================================================================
MEXICO (21.6%)
CORPORATE (4.1%)

  Grupo Iusacell SA de CV
    14.25%, 12/1/06                                         1,100              825

  Pemex Master Trust
    8.625%, 2/1/22                                          1,720 (b)        1,681

  Pemex Project Funding
    Master Trust
    9.125%, 10/13/10                                        1,770            1,859

    THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.

                                                                               5
<Page>

                                 MORGAN STANLEY EMERGING MARKETS DEBT FUND, INC.

STATEMENT OF NET ASSETS          FINANCIAL STATEMENTS
                                 JUNE 30, 2002 (UNAUDITED)

<Caption>
                                                             FACE
                                                           AMOUNT            VALUE
                                                            (000)            (000)
- ----------------------------------------------------------------------------------
<S>                                                    <C>               <C>
MEXICO (CONTINUED)
CORPORATE (CONTINUED)

  Petroleos Mexicanos
    9.50%, 9/15/27                                     $    2,700        $   2,788
- ----------------------------------------------------------------------------------
                                                                             7,153
- ----------------------------------------------------------------------------------
SOVEREIGN (17.5%)

  United Mexican States Discount Bond 'A'
    9.875%, 2/1/10                                         12,240 (e)       13,678

  United Mexican States Global Bond
    10.375%, 2/17/0                                         1,740            1,992
    11.375%, 9/15/16                                        7,670            9,453
    11.50%, 5/15/26                                         4,650            5,899
- ----------------------------------------------------------------------------------
                                                                            31,022
- ----------------------------------------------------------------------------------
                                                                            38,175
==================================================================================
MOROCCO (2.6%)
SOVEREIGN (2.6%)

  Morocco R&C, 'A'
    2.75%, 1/5/09                                           5,258 (a)        4,654
==================================================================================
NIGERIA (1.1%)
SOVEREIGN (1.1%)

  Central Bank of Nigeria Par Bond
    6.25%, 11/15/20                                         2,000 (c)        1,336

  Nigeria Promissory Notes, 'RC'
    5.092%, 1/5/10                                          1,780 (a)          641
- ----------------------------------------------------------------------------------
                                                                             1,977
==================================================================================
PANAMA (2.2%)
SOVEREIGN (2.2%)

  Republic of Panama
    9.375%, 4/1/29                                          1,000            1,000
    9.625%, 2/8/11                                          2,100            2,037

  Republic of Panama, Past Due
    Interest PIK Bond
    2.625%, 7/17/16                                         1,031              773
- ----------------------------------------------------------------------------------
                                                                             3,810
==================================================================================
PERU (3.1%)
SOVEREIGN (3.1%)

  Republic of Peru Front-Loaded Interest
    Reduction Bond
    4.00%, 3/7/17                                           3,470 (c)        2,290

  Republic of Peru, Past Due Interest Bond
    4.50%, 3/7/17                                           4,435 (c)        3,194
- ----------------------------------------------------------------------------------
                                                                             5,484
==================================================================================
PHILIPPINES (3.1%)
SOVEREIGN (3.1%)

  Republic of Philippines Global Bond
    8.375%, 3/12/09                                         2,510            2,500
    9.375%, 1/18/17                                         2,980            3,040
- ----------------------------------------------------------------------------------
                                                                             5,540
==================================================================================
POLAND (0.1%)
CORPORATE (0.1%)

  Netia Holdings II BV, 'B'
    13.125%, 6/15/09                                   $    1,400        $     224
==================================================================================
QATAR (1.7%)
SOVEREIGN (1.7%)

  State of Qatar
    9.75%, 6/15/30                                          2,430            2,955
==================================================================================
RUSSIA (16.5%)
SOVEREIGN (16.5%)

  Russian Federation
    5.00%, 3/31/30                                          5,744 (b,c)      3,989
    5.00%, 3/31/30                                          1,500            1,042
    10.00%, 6/26/07                                         5,180            5,488
    12.75%, 6/24/28                                         9,000           10,822

  Russian Federation
    (Unex) FTO, NPL                                         2,192 (d)        1,685

  Russian Federation (Tekser                                1,466 (d)        1,125
    Insatt) FTO, NPL

  Russian Federation
    (Sojuzzdravexport)
    FTO, NPL                                                6,749 (d)        5,125
- ----------------------------------------------------------------------------------
                                                                            29,276
==================================================================================
SOUTH KOREA (3.9%)
CORPORATE (3.2%)

  Korea Electric Power Corp.
    6.375%, 12/1/03                                         3,510            3,658
    7.75%, 4/1/13                                           1,850            2,055
- ----------------------------------------------------------------------------------
                                                                             5,713
==================================================================================
SOVEREIGN (0.7%)

  Republic of South Korea
    8.875%, 4/15/08                                           950            1,128
- ----------------------------------------------------------------------------------
                                                                             6,841
==================================================================================
TUNISIA (1.3%)
SOVEREIGN (1.3%)

  Central Bank of Tunisia
    7.375%, 4/25/12                                         2,440            2,355
==================================================================================
TURKEY (0.8%)
SOVEREIGN (0.8%)

  Republic of Turkey
    12.375%, 6/15/09                                        1,580            1,461
==================================================================================
UKRAINE (0.6%)
SOVEREIGN (0.6%)

  Ukraine Government
    11.00%, 3/15/07                                         1,041            1,057
==================================================================================

    THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.

6
<Page>

                                 MORGAN STANLEY EMERGING MARKETS DEBT FUND, INC.

STATEMENT OF NET ASSETS          FINANCIAL STATEMENTS
                                 JUNE 30, 2002 (UNAUDITED)

<Caption>
                                                             FACE
                                                           AMOUNT            VALUE
                                                            (000)            (000)
- ----------------------------------------------------------------------------------
<S>                                                    <C>               <C>
VENEZUELA (4.2%)
SOVEREIGN (4.2%)

  Republic of Venezuela Debt
    Conversion Bond 'DL'
    2.875%, 12/18/07                                   $    1,964 (a)    $   1,473

  Republic of Venezuela Global Bond
    9.25%, 9/15/27                                          6,690            4,181

  Republic of Venezuela Par Bond
    6.75%, 3/31/20                                          2,270            1,711
- ----------------------------------------------------------------------------------
                                                                             7,365
==================================================================================
TOTAL DEBT INSTRUMENTS
  (Cost $185,441)                                                          176,904
==================================================================================

<Caption>
                                                           NO. OF
                                                           RIGHTS
- ----------------------------------------------------------------------------------
<S>                                                    <C>                     <C>
RIGHTS (0.1%)
==================================================================================
MEXICO (0.1%)

  United Mexican States Value Recovery
    Rights, 06/30/03
    (Cost $--@)                                        41,421,000 (f)          108
==================================================================================

<Caption>
                                                           NO. OF
                                                         WARRANTS
- ----------------------------------------------------------------------------------
<S>                                                        <C>                  <C>
WARRANTS (0.0%)
==================================================================================
COLOMBIA (0.0%)

  Occidente y Caribe, expiring
    12/31/04                                               69,200 (b,f)          7
==================================================================================
NIGERIA (0.0%)

  Central Bank of Nigeria,                                  7,750 (f)           --@
    expiring 11/15/20
==================================================================================
VENEZUELA (0.0%)

  Republic of Venezuela, expiring                          11,350 (f)           --@
    04/15/20
==================================================================================
TOTAL WARRANTS
  (Cost $44)                                                                     7
==================================================================================

<Caption>
                                                             FACE
                                                           AMOUNT
                                                            (000)
- ----------------------------------------------------------------------------------
<S>                                                    <C>                     <C>
SHORT-TERM INVESTMENT (0.0%)
==================================================================================
UNITED STATES (0.0%)
REPURCHASE AGREEMENT

  J.P. Morgan Securities Inc., 1.95%, dated
    6/28/02, due 7/01/02
    (Cost $102)                                        $      102 (g)          102
==================================================================================

<Caption>
                                                                             VALUE
                                                                             (000)
- ----------------------------------------------------------------------------------
  <S>                                                                    <C>
  TOTAL INVESTMENTS (100.0%)
    (Cost $185,587)                                                      $ 177,121
==================================================================================

<Caption>
                                                            VALUE
                                                            (000)
- ----------------------------------------------------------------------------------
<S>                                                    <C>               <C>
OTHER ASSETS

  Receivable for Investments Sold                      $    6,511
  Interest Receivable                                       3,482
  Other                                                        27           10,020
==================================================================================
LIABILITIES

  Payable For:
    Investments Purchased                                  (7,260)
    Dividends Declared                                     (3,307)
    Reverse Repurchase Agreements                            (739)
    Investment Advisory Fees                                 (151)
    Directors' Fees and Expenses                              (72)
    Stockholder Reporting Expenses                            (55)
    Professional Fees                                         (35)
    Administrative Fees                                       (19)
    Custodian Fees                                            (15)
  Other Liabilities                                           (86)         (11,739)
==================================================================================
NET ASSETS

  Applicable to 22,046,681, issued and outstanding
    $ 0.01 par value shares
    (100,000,000 shares authorized)                                      $ 175,402
==================================================================================
NET ASSET VALUE PER SHARE                                                $    7.96
==================================================================================
AT JUNE 30, 2002, NET ASSETS CONSISTED OF:

  Common Stock                                                           $     220
  Paid-in Capital                                                          279,105
  Undistributed Net Investment Income (Loss)                                (2,809)
  Accumulated Net Realized Gain (Loss)                                     (92,652)
  Unrealized Appreciation (Depreciation) on
    Investments and Foreign Currency Translations                           (8,462)
==================================================================================
TOTAL NET ASSETS                                                         $ 175,402
==================================================================================
</Table>

    THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.

                                                                               7
<Page>

                                 MORGAN STANLEY EMERGING MARKETS DEBT FUND, INC.

STATEMENT OF NET ASSETS          FINANCIAL STATEMENTS
                                 JUNE 30, 2002 (UNAUDITED)

(a) -- Variable/floating rate security - rate disclosed is as of June 30, 2002.
(b) -- 144A Security - Certain conditions for public sale may exist.
(c) -- Step Bond - coupon rate increases in increments to maturity. Rate
       disclosed is as of June 30, 2002. Maturity date disclosed is ultimate
       maturity.
(d) -- Security is in default.
(e) -- Denotes all or a portion of securities subject to repurchase under the
       Reverse Repurchase Agreements as of June 30, 2002. See note A-4 to
       financial statements
(f) -- Non-income producing.
(g) -- The repurchase agreement is fully collateralized by U.S. government
       and/or agency obligations based on market prices at the date of this
       statemnent of net assets. The investment in the repurchase agreement is
       through participation in a joint account with affiliated funds.
PIK -- Payment-in-Kind. Income may be paid in additional securities or cash at
       the discretion of the issuer.
@ --   Amount is less than $500.
FTO -- Foreign Trade Obligation
INR -- Indian Rupee
NPL -- Non-Performing Loan

    THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.

8
<Page>

                                 MORGAN STANLEY EMERGING MARKETS DEBT FUND, INC.

                                 FINANCIAL STATEMENTS

<Table>
<Caption>
                                                                            SIX MONTHS ENDED
                                                                               JUNE 30, 2002
                                                                                 (UNAUDITED)
STATEMENT OF OPERATIONS                                                                (000)
- --------------------------------------------------------------------------------------------
<S>                                                                              <C>
INVESTMENT INCOME
  Interest (net of $11 of foreign taxes withheld)                                $     6,922
  Dividends                                                                              636
============================================================================================
    TOTAL INCOME                                                                       7,558
============================================================================================
EXPENSES
  Investment Advisory Fees                                                               938
  Administrative Fees                                                                    108
  Interest Expense on Borrowings                                                          63
  Stockholder Reporting Expenses                                                          62
  Professional Fees                                                                       54
  Transfer Agent Fees                                                                     22
  Custodian Fees                                                                          21
  Directors' Fees and Expenses                                                             3
  Other Expenses                                                                          27
============================================================================================
    TOTAL EXPENSES                                                                     1,298
============================================================================================
      NET INVESTMENT INCOME (LOSS)                                                     6,260
============================================================================================
NET REALIZED GAIN (LOSS) ON:
  Investments                                                                          4,450
============================================================================================
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) ON:
  Investments                                                                         (9,291)
  Foreign Currency Translations                                                            7
============================================================================================
    CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION)                                  (9,284)
============================================================================================
NET REALIZED GAIN AND CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION)                (4,834)
============================================================================================
  NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS                $     1,426
============================================================================================
</Table>

<Table>
<Caption>
                                                                            SIX MONTHS ENDED
                                                                               JUNE 30, 2002             YEAR ENDED
                                                                                 (UNAUDITED)      DECEMBER 31, 2000
STATEMENT OF CHANGES IN NET ASSETS                                                     (000)                  (000)
- -------------------------------------------------------------------------------------------------------------------
<S>                                                                                <C>                    <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
  Net Investment Income                                                            $   6,260              $  17,659
  Net Realized Gain (Loss)                                                             4,450                 (2,457)
  Change in Unrealized Appreciation (Depreciation)                                    (9,284)                 4,317
===================================================================================================================
    NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS                    1,426                 19,519
===================================================================================================================
Distributions from and/or in excess of:
  Net Investment Income                                                               (7,937)               (18,740)
===================================================================================================================
  TOTAL INCREASE (DECREASE)                                                           (6,511)                   779
===================================================================================================================
Net Assets:
  Beginning of Period                                                                181,913                181,134
===================================================================================================================
  END OF PERIOD (INCLUDING UNDISTRIBUTED NET INVESTMENT INCOME (LOSS) OF
    $(2,809) AND $(14,132), RESPECTIVELY)                                          $ 175,402              $ 181,913
===================================================================================================================
</Table>

    THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.

                                                                               9
<Page>

                                 MORGAN STANLEY EMERGING MARKETS DEBT FUND, INC.

                                 FINANCIAL STATEMENTS

<Table>
<Caption>
                                                                                                   SIX MONTHS ENDED
                                                                                                      JUNE 30, 2002
                                                                                                        (UNAUDITED)
STATEMENT OF CASH FLOWS                                                                                       (000)
- -------------------------------------------------------------------------------------------------------------------
<S>                                                                                                       <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Proceeds from Sales and Maturities of Investments                                                       $ 191,608
  Purchases of Investments                                                                                 (178,899)
  Net Increase in Short-Term Investments                                                                       (102)
  Net Investment Income                                                                                       6,260
  ADJUSTMENTS TO RECONCILE NET INVESTMENT INCOME TO NET CASH USED BY OPERATING ACTIVITIES:
    Net Decrease in Receivables Related to Operations                                                           863
    Net Increase in Payables Related to Operations                                                                4
    Accretion/Amortization of Discounts and Premiums                                                           (703)
- -------------------------------------------------------------------------------------------------------------------
  Net Cash Provided by Operating Activities                                                                  19,031
- -------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Cash Paid for Reverse Repurchase Agreements                                                                (9,257)
  Cash Distributions Paid                                                                                    (9,480)
- -------------------------------------------------------------------------------------------------------------------
  Net Cash Used for Financing Activities                                                                    (18,737)
- -------------------------------------------------------------------------------------------------------------------
  Net Increase in Cash                                                                                          294
CASH AT BEGINNING OF PERIOD                                                                                    (294)
- -------------------------------------------------------------------------------------------------------------------
CASH AT END OF PERIOD                                                                                     $      --
===================================================================================================================
</Table>

    THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.

10
<Page>

                                 MORGAN STANLEY EMERGING MARKETS DEBT FUND, INC.

                                 FINANCIAL HIGHLIGHTS

SELECTED PER SHARE DATA AND RATIOS

<Table>
<Caption>
                                             SIX MONTHS
                                                ENDED                         YEAR ENDED DECEMBER 31,
                                            JUNE 30, 2002 ----------------------------------------------------------
                                             (UNAUDITED)       2001         2000        1999        1998        1997
- --------------------------------------------------------------------------------------------------------------------
<S>                                           <C>         <C>          <C>         <C>         <C>         <C>
NET ASSET VALUE, BEGINNING OF PERIOD          $   8.25    $    8.22    $    8.36   $    7.01   $   15.21   $   17.31
- --------------------------------------------------------------------------------------------------------------------
Net Investment Income                             0.28         0.80         1.23        1.09        1.27        1.34
Net Realized and Unrealized Gain (Loss)
   on Investments                                (0.21)        0.08        (0.29)       1.27       (5.12)       1.27
- --------------------------------------------------------------------------------------------------------------------
     Total from Investment Operations             0.07         0.88         0.94        2.36       (3.85)       2.61
- --------------------------------------------------------------------------------------------------------------------
Distributions fron and/or in excess of:
   Net Investment Income                         (0.36)       (0.85)       (1.08)      (1.01)      (1.41)      (1.27)
   Net Realized Gain                                --           --           --          --       (2.94)      (3.44)
- --------------------------------------------------------------------------------------------------------------------
     Total Distributions                         (0.36)       (0.85)       (1.08)      (1.01)      (4.35)      (4.71)
- --------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD                $   7.96    $    8.25    $    8.22   $    8.36   $    7.01   $   15.21
====================================================================================================================
PER SHARE MARKET VALUE, END OF PERIOD         $   7.08    $    7.40    $    6.88   $    6.81   $    7.19   $   15.38
====================================================================================================================
TOTAL INVESTMENT RETURN:
   Market Value                                   0.13%+      20.65%       16.49%       8.55%     (32.04)%     40.81%
   Net Asset Value (1)                            0.98%+      12.50%       13.50%      36.58%     (33.00)%     21.71%
====================================================================================================================
RATIOS, SUPPLEMENTAL DATA:
- --------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (THOUSANDS)         $175,402    $ 181,913    $ 181,134   $ 184,269   $ 153,084   $ 327,556
- --------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets           1.38%*       1.61%        2.32%       2.28%       2.75%       2.27%
Ratio of Expenses Excluding Interest
   Expense to Average Net Assets                  1.32%*       1.41%        1.34%       1.35%       1.47%       1.51%
Ratio of Net Investment Income to
   Average Net Assets                             6.10%*       9.73%       14.31%      14.53%      12.50%       8.80%
Portfolio Turnover Rate                             93%+        233%         272%        178%        308%        361%
- --------------------------------------------------------------------------------------------------------------------
</Table>

 +  Not annualized
 *  Annualized
(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.

    THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.

                                                                              11
<Page>

                                 MORGAN STANLEY EMERGING MARKETS DEBT FUND, INC.

                                 JUNE 30, 2002 (UNAUDITED)

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, 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 generally accepted accounting principles. 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 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, if any), 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 approved by the Board of Directors.

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.

     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.

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 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 Statement of Net Assets.

     At June 30, 2002, the Fund had reverse repurchase agreements outstanding
     with Lehman Brothers as follows:

<Table>
<Caption>
                                                              MATURITY IN
                                                                LESS THAN
                                                                 365 DAYS
     --------------------------------------------------------------------
     <S>                                                        <C>
     Value of Securities Subject to Repurchase                  $ 735,000
     Liability  Under Reverse Repurchase Agreement              $ 739,000
     Interest Rate                                                   1.75%
</Table>

     The average weekly balance of reverse repurchase agreements outstanding
     during the six months ended June 30, 2002, was approximately $9,582,000 at
     a weighted average interest rate of 4.26%.

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

12
<Page>

                                 MORGAN STANLEY EMERGING MARKETS DEBT FUND, INC.

                                 JUNE 30, 2002 (UNAUDITED)

NOTES TO FINANCIAL STATEMENTS (CONT'D)

     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 counter-parties 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

                                                                              13
<Page>

                                 MORGAN STANLEY EMERGING MARKETS DEBT FUND, INC.

                                 JUNE 30, 2002 (UNAUDITED)

NOTES TO FINANCIAL STATEMENTS (CONT'D)

     differ from, and be 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: The Fund may enter into swap agreements to exchange the
     return generated by one security, instrument or basket of instruments for
     the return generated by another security, instrument or basket of
     instruments. The following summarizes swaps which may be entered into by
     the Fund:

     INTEREST RATE SWAPS: Interest rate swaps involve the exchange of
     commitments to pay and receive interest based on a notional principal
     amount. 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
     unrealized appreciation or depreciation 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. To the
     extent the total return of the security, instrument or basket of
     instruments underlying the transaction exceeds or falls short of the
     offsetting interest obligation, the Fund will receive a payment from or
     make a payment to the counterparty, respectively. Total return swaps are
     marked-to-market daily based upon quotations from market makers and the
     change, if any, is recorded as unrealized gains or losses in the Statement
     of Operations. Periodic payments received or made at the end of each
     measurement period, but prior to termination, are recorded as realized
     gains or losses 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

14
<Page>

                                 MORGAN STANLEY EMERGING MARKETS DEBT FUND, INC.

                                 JUNE 30, 2002 (UNAUDITED)

NOTES TO FINANCIAL STATEMENTS (CONT'D)

     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 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.  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 Net Assets. 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.

14.  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 months ended June 30, 2002, the Fund's investments in derivative
instruments included foreign currency exchange contracts, futures, structured
securities and over-the-counter trading.

15.  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.

     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.

                                                                              15
<Page>

                                 MORGAN STANLEY EMERGING MARKETS DEBT FUND, INC.

                                 JUNE 30, 2002 (UNAUDITED)

NOTES TO FINANCIAL STATEMENTS (CONT'D)

     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.   ADVISER: 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.   ADMINISTRATOR: JPMorgan Chase Bank, through its corporate affiliate J.P.
Morgan Investor 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 for certain out-of-pocket
expenses incurred by the Administrator on its behalf.

D.   CUSTODIAN: JPMorgan Chase Bank and its affiliates serve 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.   OTHER: During the six months ended June 30, 2002, the Fund made purchases
and sales totaling approximately $179,950,000 and $191,539,000 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, 2002, the U.S. Federal income
tax cost basis of securities was approximately $185,588,000 and, accordingly,
net unrealized depreciation for U.S. Federal income tax purposes was $8,466,000,
of which $10,750,000 related to appreciated securities and $19,216,000 related
to depreciated securities. At December 31, 2001, the Fund had a capital loss
carryforward for U.S. Federal income tax purposes of approximately $94,790,000
available to offset future capital gains, of which $78,125,000 will expire on
December 31, 2006, $13,135,000 will expire on December 31, 2007 and $3,530,000
will expire on December 31, 2009. To the extent that capital gains are offset,
such gains will not be distributed to the stockholders. Net capital and currency
losses incurred after October 31, and within the taxable year are deemed to
arise on the first business day of the Fund's next taxable year. For the year
ended December 31, 2001, the Fund deferred to January 1, 2002, for U.S. Federal
income tax purposes, post-October capital losses of $1,240,000.

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.

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, 2002, the deferred fees payable under the Plan totaled $72,000
and are included in Payable for Directors' Fees and Expenses on the Statement of
Net Assets.

On June 14, 2002, the Officers of the Fund, pursuant to authority granted by the
Board of Directors declared a distribution of $0.15 per share, derived from net
investment income, payable on July 15, 2002, to stockholders of record on June
28, 2002.

F.   SUPPLEMENTAL PROXY INFORMATION:

The Annual Meeting of the Stockholders of the Fund was held on June 6, 2002. The
following is a summary of the proposal presented and the total number of shares
voted:

PROPOSAL:

1. To elect the following Directors:

<Table>
<Caption>
                                VOTES IN             VOTES
                                FAVOR OF             AGAINST
- ---------------------------------------------------------------
<S>                             <C>                  <C>
Ronald E. Robison               18,846,590           188,222
Michael Nugent                  18,846,590           188,222
Joseph J. Kearns                18,846,590           188,222
Fergus Reid                     18,846,590           188,222
</Table>

16
<Page>

                                 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. 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, 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
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, NY 10030
1-800-278-4353

                                                                              17

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