<PAGE>
MORGAN STANLEY
EMERGING MARKETS DEBT FUND, INC.
- ---------------------------------------------
OFFICERS AND DIRECTORS
<TABLE>
<S> <C>
Barton M. Biggs Frederick B. Whittemore
CHAIRMAN OF THE BOARD DIRECTOR
OF DIRECTORS James W. Grisham
Warren J. Olsen VICE PRESIDENT
PRESIDENT AND DIRECTOR Harold J. Schaaff, Jr.
Peter J. Chase VICE PRESIDENT
DIRECTOR Joseph P. Stadler
John W. Croghan VICE PRESIDENT
DIRECTOR Valerie Y. Lewis
David B. Gill SECRETARY
DIRECTOR James R. Rooney
Graham E. Jones TREASURER
DIRECTOR Joanna M. Haigney
John A. Levin ASSISTANT TREASURER
DIRECTOR
William G. Morton, Jr.
DIRECTOR
</TABLE>
- ---------------------------------------------
INVESTMENT ADVISER
Morgan Stanley Asset Management Inc.
1221 Avenue of the Americas
New York, New York 10020
- ---------------------------------------------------------
ADMINISTRATOR
The Chase Manhattan Bank, N.A.
73 Tremont Street
Boston, Massachusetts 02108
- ---------------------------------------------------------
CUSTODIANS
Morgan Stanley Trust Company (International)
One Pierrepont Plaza
Brooklyn, New York 11201
The Chase Manhattan Bank, N.A. (Domestic)
770 Broadway
New York, New York 10003
- ---------------------------------------------------------
SHAREHOLDER SERVICING AGENT
The First National Bank of Boston
Investor Relations Department
P.O. Box 644, Mail Stop 46-02-09
Boston, Massachusetts 02102-0644
(617) 575-2900
- ---------------------------------------------------------
LEGAL COUNSEL
Rogers & Wells
200 Park Avenue
New York, New York 10166
- ---------------------------------------------------------
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
- ---------------------------------------------------------
For additional Fund information, including the Fund's net asset value per share
and information regarding the investments comprising the Fund's portfolio,
please call 1-800-221-6726.
------------------------
MORGAN STANLEY
EMERGING MARKETS
DEBT FUND, INC.
---------------------
THIRD QUARTER REPORT
SEPTEMBER 30, 1995
MORGAN STANLEY ASSET MANAGEMENT INC.
INVESTMENT ADVISER
<PAGE>
LETTER TO SHAREHOLDERS
- -------
For the three months ended September 30, 1995, the Morgan Stanley Emerging
Markets Debt Fund, Inc. had a total return, based on net asset value per share,
of 7.26% compared to 5.96% for the J.P. Morgan Emerging Markets Bond Index (the
"Index"). For the nine months ended September 30, 1995, the Fund's total return
was 18.31% compared to 15.74% for the Index. We believe that the markets'
two-quarter strength is extendable into the next several quarters--albeit not
nearly at the same pace as the last six months--by virtue of still broadly
attractive valuations which exist in the benchmark assets for the 14 countries
in which the Fund is invested.
Gains were extended in most of the major positions in the Fund, as overall
confidence in Latin and other emerging markets recovered following the Mexico
devaluation of December 1994. Although the trajectory of the recovery leveled
off in the third quarter relative to the very strong 30% move in the previous
quarter, several important developments in key countries contributed to the
market's strength.
We believe that Brazil will continue to stabilize and attract foreign capital.
Brazilian Brady bonds provided a total return of 11% in the third quarter.
Macroeconomic indicators strengthened across the board over the quarter: monthly
inflation reached 1 1/2% in August; the key trade deficit reversed during the
summer, going from a $800 million deficit in June to a $325 million surplus in
August; the country's reserves have continued to swell, reaching a hefty $48
billion at the end of September. On the political reform front, President
Cardoso is slowly but surely guiding key political and administrative measures
into and through Congress. Amid steady progress on both the economic and
political fronts Brazilian bonds provide a generous spread premium of 900-1200
basis points over U.S. Treasuries. These assets represent one of the most
attractive risk/return profiles in any fixed income market today.
Mexican assets are going to go through a long recovery process. The move to
macroeconomic stability, in the wake of extremely severe dislocations in the
Mexican economy, will necessarily be a multi-year process. We believe that
ultimately Mexico will achieve economic stability over the next several
quarters, most probably by mid-1996, but the road toward equilibrium is indeed a
bumpy ride. And political turbulence will continue to afflict both Mexican debt
and equity markets. In this atmosphere we have focused on assets within Mexico
which appear to be the most oversold and undervalued. Some of these are Mexico
peso-denominated Treasury bills--Cetes--which are providing the Fund with yields
(in pesos) of 40-45%.
Our view is that in a 1996 growth recovery environment in Mexico, accompanied by
very strict fiscal and monetary policies, the inflationary trends point
downwards; hence the currently very high real interest rates of 20-25% on these
instruments are very attractive over a 12-month horizon.
We continued along the path of reducing the Fund's weighting in Argentina over
the quarter. In mid-May the weighting in Argentina stood at 20%; by September 30
the allocation had declined to 6.2% of the Fund. The medium- to long-term
fundamental outlook for this country looks great: vast natural resources, a
well-educated, professional middle-class, huge gains in structural reform over
the last five years, and a consensus commitment to sustaining the hard-fought
economic gains of the President Menem/ Finance Minister Cavallo era. But
overshadowing this rosy long-term outlook are short-term worries of a dual
nature; political, in the form of backbiting between the Menem, Cavallo and
other intense political interests in Buenos Aires; and secondly, and more
fundamentally, the Argentine economy is currently in the midst of a sharp
recession, with attendant upward pressure on unemployment, sharply lower
industrial production, and a lot of nervousness in the
1
<PAGE>
local markets. We await the dust to settle in Argentina before reallocating a
significant portion of the Fund to that country.
Elsewhere we are holding 14% of the Fund's assets in Russia in the form of
non-performing dollar-denominated loans. These loans are slated to be
restructured within the next nine months, at which point they will become
dollar-denominated bonds, obligations of the Russian federation. Given the
dramatic turnaround in the macroeconomic fortunes of Russia, plus the clear
commitment by authorities to rectify the country's external debt situation, we
forecast strong upward movement in the process of Russian assets, in both the
fixed income and equity sectors.
SUMMARY
Our view remains that emerging debt prices, while staging a powerful rally since
mid-March, have further upside potential based on the simple but powerful
combination of extremely attractive valuations-- largely dollar bonds yielding
12% to 18%, along with a sometimes fitful but surely improving outlook for the
world's major developing countries.
Effective for the first quarterly dividend payable in 1996, the Fund's Directors
have set the Fund's quarterly dividend paid to shareholders at approximately
$0.36 per share, subject to the Fund having sufficient earnings. As required to
maintain the Fund's favorable tax status, ordinary income earned in excess of
the quarterly amount (and capital gains, if any) not previously distributed to
shareholders will be declared annually as part of the fourth quarter
distribution.
Sincerely,
[SIG]
Barton M. Biggs
CHAIRMAN
[SIG]
Paul Ghaffari
FUND MANAGER
November 7, 1995
2
<PAGE>
Morgan Stanley Emerging Markets Debt Fund, Inc.
Investment Summary as of September 30, 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HISTORICAL
INFORMATION
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>
CURRENT QUARTER 8.91% -- 7.26% -- 5.96% --
FISCAL YEAR TO DATE 22.01 -- 18.31 -- 15.74 --
ONE YEAR 12.34 12.34% 10.21 10.21% 6.04 6.04%
SINCE INCEPTION* 14.25 6.27 18.92 8.24 11.69 5.18
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
- --------------------------------------------------------------------------------
RETURNS AND PER SHARE INFORMATION (2)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
PERIODS ENDED SEPTEMBER 30: 1993* 1994 9 MONTHS ENDED 9/30/95 (UNAUDITED)
<S> <C> <C> <C>
Net Asset Value $ 18.96 $ 12.23 $ 11.97
Income Dividends 0.16 1.49 1.24
Capital Gains and Other Distributions - 0.41 -
Fund Total Return (2) 35.96% (25.95%) 18.31%
Index Total Return (1) 18.67% (18.68%) 15.74%
</TABLE>
(1)Assumes dividends and distributions, if any, were reinvested.
(2)Total investment return based on per share net asset value reflects the
effects of changes in net asset value on the performance of the Fund during
each period, and assumes dividends and distributions, if any, were
reinvested. 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 of the Fund.
(3)JP Morgan Emerging Markets Bond Index
* The Fund commenced operations on July 23, 1993.
3
<PAGE>
Morgan Stanley Emerging Markets Debt Fund, Inc.
Portfolio Summary as of September 30, 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO INVESTMENTS DIVERSIFICATION
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Debt Instruments 84.5%
Short-Term Investments 15.5%
</TABLE>
- --------------------------------------------------------------------------------
COUNTRY WEIGHTINGS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Algeria 2.2%
Argentina 6.2%
Brazil 17.4%
Bulgaria 3.6%
Ecuador 4.1%
India 1.1%
Mexico 6.8%
Morocco 6.0%
Nigeria 6.4%
Panama 3.2%
Peru 0.4%
Poland 4.0%
Russia 14.1%
Venezuela 9.0%
Other 15.5%
</TABLE>
- --------------------------------------------------------------------------------
TEN LARGEST HOLDINGS
<TABLE>
<C> <S>
1. Bank for Foreign Economic Affairs (USD)
2. Federative Republic of Brazil 'C' Bond
'Euro' 8.00%, 4/15/14 PIK
3. Central Bank of Nigeria Par Bond 6.25%,
11/15/20
4. Petroleos Mexicanos 8.625%, 12/1/23
5. Kingdom of Morocco Restructuring and
Consolidation Agreement 'A' 1990 6.6875%,
1/1/09
6. Republic of Venezuela Debt Conversion Bond
'DL' 6.8125%, 12/18/07
7. Federative Republic of Brazil 'C' Bond
8.00%, 4/15/14 PIK
8. Republic of Panama Unrestructured Loans
9. Republic of Argentina 'L' Bond 'Euro'
6.8125%, 3/31/05
10. Bank for Foreign Economic Affairs (DEM)
</TABLE>
4
<PAGE>
INVESTMENTS (UNAUDITED)
(Showing Percentage of Total Value of Investments)
- ------------
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
FACE AMOUNT VALUE
(000) (000)
<S> <C> <C> <C>
- ---------------------------------------------------------
- ------------
DEBT INSTRUMENTS (84.4%)
- --------------------------------------------------
- ----------
ALGERIA (2.2%)
LOAN AGREEMENTS
+++Algeria Loan Agreement
1989, 7.625%, 12/31/96 FRF 27,830 U.S.$ 2,119
+++Algeria Reprofiled Loan
Agreement 'A' 1992
8.3125%, 12/31/00 U.S.$ 10,220 4,292
-----------
6,411
-----------
- -----------------------------------------------------------------
- -------------
ARGENTINA (6.2%)
BONDS
Compania Austral de
Inversiones (Convertible)
7.00%, 3/7/96 1,000 1,249
Nortel Inversora `A' 6.00%,
3/31/07 11,541 6,088
+++Republic of Argentina
'L' Bond 'Euro' 6.8125%,
3/31/05 14,500 9,008
+++Republic of Argentina
Discount Bond 6.875%,
3/31/23 3,000 1,748
-----------
18,093
-----------
- -----------------------------------------------------------------
- -------------
BRAZIL (17.4%)
BONDS
+++Federative Republic of
Brazil 'C' Bond 'Euro'
8.00%, 4/15/14 PIK 53,008 28,227
+++Federative Republic of
Brazil 'C' Bond 8.00%,
4/15/14 PIK 18,337 9,764
+++Federative Republic of
Brazil 'YL4' Bond 4.25%,
4/15/24 13,250 6,443
+++Federative Republic of
Brazil 'YL3' Bond 4.25%,
4/15/24 1,500 729
+++Federative Republic of
Brazil Eligible Interest
Bond 'Euro' 7.25%, 4/15/06 2,250 1,496
+++Federative Republic of
Brazil `New' Money Bond
7.3125%, 4/15/09 6,250 3,813
-----------
50,472
-----------
- -----------------------------------------------------------------
- -------------
<CAPTION>
FACE AMOUNT VALUE
(000) (000)
<S> <C> <C> <C>
- ---------------------------------------------------------
- ------------
BULGARIA (3.6%)
BONDS
+++Republic of Bulgaria
Front-Loaded Interest
Reduction Bond 'A' 'Euro'
2.00%, 7/28/12 U.S.$ 4,500 U.S.$ 1,187
+++Republic of Bulgaria
Discount Bond 'A' 6.75%,
7/28/24 49 25
+++Republic of Bulgaria
Discount Bond 'B' 7.25%,
7/28/24 880 444
+++Republic of Bulgaria
Interest Arrears Bond
6.75%, 7/28/11 3,024 1,366
+++Republic of Bulgaria
Interest Arrears Bond
'Euro' 6.75%, 7/28/11 16,648 7,523
-----------
10,545
-----------
- -----------------------------------------------------------------
- -------------
ECUADOR (4.1%)
BONDS
+++Republic of Ecuador
Discount Bond 6.8125%,
2/28/25 792 390
+++Republic of Ecuador
Discount Bond 'Euro'
6.8125%, 2/28/25 15,115 7,444
+++Republic of Ecuador
Eligible Interest Bond
`Euro' 6.75%, 12/21/04 688 410
+++Republic of Ecuador Par
Bond 3.00%, 2/28/25 65 21
+++Republic of Ecuador Past
Due Interest Bond 6.8125%,
2/27/15 11,277 3,651
-----------
11,916
-----------
- -----------------------------------------------------------------
- -------------
INDIA (1.1%)
BONDS
+++Saurashtra Cement Co.
17.00%, 3/1/97 INR 940,000 3,117
-----------
- -----------------------------------------------------------------
- -------------
MEXICO (6.8%)
BONDS
Grupo Industrial Durango
12.00%, 7/15/01 U.S.$ 5,500 5,087
Petroleos Mexicanos 8.625%,
12/1/23 20,000 14,500
-----------
19,587
-----------
- -----------------------------------------------------------------
- -------------
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
FACE AMOUNT VALUE
(000) (000)
- ---------------------------------------------------------
- ------------
<S> <C> <C> <C>
MOROCCO (6.0%)
LOAN AGREEMENTS
+++Kingdom of Morocco
Restructuring and
Consolidation Agreement
'A' 1990 8.5175%, 12/31/00
(Participation: Salomon
Brothers) JPY 792,741 U.S.$ 4,112
+++Kingdom of Morocco
Restructuring and
Consolidation Agreement
'A' 1990 6.6875%, 1/1/09
(Participation: Goldman
Sachs, Lehman Brothers,
Paribas, Salomon Brothers) U.S.$ 21,500 13,437
-----------
17,549
-----------
- -----------------------------------------------------------------
- -------------
NIGERIA (6.4%)
BOND
Central Bank of Nigeria Par
Bond 6.25%, 11/15/20
(includes 35,250 warrants) 32,500 14,578
-----------
NOTE
Central Bank of Nigeria
Promissory Note 4.16%,
1/5/10 11,000 3,905
-----------
18,483
-----------
- -----------------------------------------------------------------
- -------------
PANAMA (3.2%)
LOAN AGREEMENT
Republic of Panama
Unrestructured Loans 15,483 9,271
-----------
- -----------------------------------------------------------------
- -------------
PERU (0.4%)
LOAN AGREEMENT
Republic of Peru --
Petroperu Working Capital
Loan 2,000 1,280
-----------
- -----------------------------------------------------------------
- -------------
POLAND (4.0%)
BONDS
+++Republic of Poland Past
Due Interest Bond 3.25%,
10/27/14 8,796 5,569
+++Republic of Poland Past
Due Interest Bond 'Euro'
3.25%, 10/27/14 1,500 950
-----------
6,519
-----------
INDEXED NOTE
Morgan Guaranty Trust
Company of New York Polish
Zloty Linked Note, zero
coupon, due 11/29/95 5,000 5,101
-----------
11,620
-----------
- -----------------------------------------------------------------
- -------------
RUSSIA (14.0%)
LOAN AGREEMENTS
Bank for Foreign Economic
Affairs 98,150 32,160
Bank for Foreign Economic
Affairs DEM 34,500 8,480
-----------
40,640
-----------
- -----------------------------------------------------------------
- -------------
<CAPTION>
FACE AMOUNT VALUE
(000) (000)
<S> <C> <C> <C>
- ---------------------------------------------------------
- ------------
VENEZUELA (9.0%)
BONDS
+++Republic of Venezuela
Debt Conversion Bond 'DL'
6.8125%, 12/18/07 U.S.$ 21,500 U.S.$10,871
+++Republic of Venezuela
Discount Bond 'A' 7.1875%,
3/31/20 3,000 1,586
+++Republic of Venezuela
Discount Bond 'B' 6.9375%,
3/31/20 5,000 2,644
Republic of Venezuela Par
Bond 'A' 6.75%, 3/31/20 10,500 5,368
Republic of Venezuela Par
Bond 'B' 6.75%, 3/31/20 11,000 5,624
-----------
26,093
-----------
- -----------------------------------------------------------------
- -------------
TOTAL DEBT INSTRUMENTS
(Cost $241,180) 245,077
-----------
- -----------------------------------------------------------------
- -------------
SHARES
- ---------------------------------------------------------
- ------------
PURCHASED OPTIONS (0.1%)
- ---------------------------------------------------------
- ------------
RUSSIA (0.1%)
Vnesh call, expiring
10/16/95, strike price DEM
31.25 DEM 80 244
-----------
- -----------------------------------------------------------------
- -------------
VENEZUELA (0.0%)
Venezuela Debt Conversion
Bond call, expiring
10/23/95, strike price
U.S.$51.625 U.S.$ 11,000 67
-----------
- -----------------------------------------------------------------
- -------------
TOTAL PURCHASED OPTIONS
(Cost $293) 311
-----------
- -----------------------------------------------------------------
- -------------
FACE
AMOUNT
(000)
- ---------------------------------------------------------
- ------------
SHORT TERM INVESTMENTS (15.4%)
- ---------------------------------------------------------
- ------------
MEXICO (8.6%)
MEXICAN CETES
12/21/95 MXN 24,000 3,475
1/11/96 30,719 4,358
1/18/96 75,884 10,698
2/8/96 20,000 2,767
2/22/96 12,093 1,653
7/25/96 15,839 1,901
-----------
24,852
-----------
- -----------------------------------------------------------------
- -------------
UNITED STATES (6.8%)
REPURCHASE AGREEMENT
Chase Manhattan Bank, N.A.,
6.00%, dated 9/29/95, due
10/2/95 to be repurchased
at U.S.$19,672,
collateralized by
U.S.$18,530 United States
Treasury Bond, 7.25%, due
5/15/16, valued at
U.S.$20,059 (Cost
U.S.$19,662). U.S.$ 19,662 19,662
-----------
- -----------------------------------------------------------------
- -------------
TOTAL SHORT TERM INVESTMENTS
(Cost U.S.$45,802) 44,514
-----------
- -----------------------------------------------------------------
- -------------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
AMOUNT VALUE
(000) (000)
<S> <C> <C> <C>
- ---------------------------------------------------------
- ------------
FOREIGN CURRENCY ON DEPOSIT WITH CUSTODIAN (0.1%)
French Franc FRF 262 U.S.$ 53
Indian Rupee INR 8,660 255
-----------
(Cost U.S.$330) 308
-----------
- -----------------------------------------------------------------
- -------------
TOTAL INVESTMENTS (100.0%)
(Cost $287,605) 290,210
-----------
- -----------------------------------------------------------------
- -------------
OTHER ASSETS AND LIABILITIES
Other Assets U.S.$ 46,283
Liabilities (79,289) (33,006)
---------------------- -----------
- -----------------------------------------------------------------
- -------------
NET ASSETS
Applicable to 21,481,113
issued and outstanding
U.S.$.01 par values shares
(100,000,000 shares
authorized) U.S.$257,204
---------------------
- -----------------------------------------------------------------
- -------------
NET ASSET VALUE PER SHARE U.S.$ 11.97
---------------------
- -----------------------------------------------------------------
- -------------
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<S> <C> <C> <C>
- ---------------------------------------------------------
- ------------
SECURITY SOLD SHORT
United Mexican States Par
Bond 'A' 6.25%, 12/31/19
(Includes 12,000 Mexican
Recovery Rights) (Proceeds
U.S.$7,003) U.S.$ 12,000 U.S.$ 7,305
-------------
- -----------------------------------------------------------------
- -------------
</TABLE>
+++ -- Variable/floating rate or step coupon security -- rate disclosed is as of
September 30, 1995
PIK -- Payment-in-Kind
DEM -- Deutsche Mark
JPY -- Japanese Yen
MXN -- Mexican New Peso
7