<PAGE>
- ------------------------------------------------------------------
DIRECTORS OFFICERS
Barton M. Biggs Stefanie V. Chang
CHAIRMAN OF THE BOARD VICE PRESIDENT
Chairman and Director, Morgan Stanley Asset Management Harold J. Schaaff, Jr.
Inc. and Morgan Stanley VICE PRESIDENT
Asset Management Limited; Managing Joseph P. Stadler
Director, Morgan Stanley & Co. Incorporated VICE PRESIDENT
Michael F. Klein Valerie Y. Lewis
DIRECTOR AND PRESIDENT SECRETARY
Principal, Morgan Stanley Asset Management Inc. and Karl O. Hartmann
Morgan Stanley & Co. Incorporated ASSISTANT SECRETARY
John D. Barrett II Joanna M. Haigney
Chairman and Director, TREASURER
Barrett Associates, Inc. Belinda A. Brady
Gerard E. Jones ASSISTANT TREASURER
Partner, Richards & O'Neil LLP
Andrew McNally IV
River Road Partners
Samuel T. Reeves
Chairman of the Board and Chief Executive Officer,
Pinacle L.L.C.
Fergus Reid
Chairman and Chief Executive Officer, LumeLite
Plastics Corporation
Frederick O. Robertshaw
Of Counsel, Copple, Chamberlin &
Boehm, P.C.
- ------------------------------------------------------------------
INVESTMENT ADVISER AND ADMINISTRATOR
Morgan Stanley Asset Management Inc.
1221 Avenue of the Americas
New York, New York 10020
- ---------------------------------------------------------
DISTRIBUTOR
Morgan Stanley & Co. Incorporated
1221 Avenue of the Americas
New York, New York 10020
- ---------------------------------------------------------
CUSTODIANS
The Chase Manhattan Bank
3 Chase MetroTech Center
Brooklyn, New York 11245
Morgan Stanley Trust Company
One Pierrepont Plaza
Brooklyn, New York 11210
- ---------------------------------------------------------
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, Pennsylvania 19103
- ---------------------------------------------------------
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
- ---------------------------------------------------------
For current performance, current net asset value, or for assistance with your
account, please contact the Fund at (800) 548-7786. This report is authorized
for distribution only when preceded or accompanied by prospectuses of the Morgan
Stanley Institutional Fund, Inc.
[LOGO] MORGAN STANLEY
INSTITUTIONAL FUND, INC.
P.O. Box 2798
Boston, MA 02208-2798
[LOGO] MORGAN STANLEY
INSTITUTIONAL FUND, INC.
HIGH YIELD PORTFOLIO
THIRD QUARTER REPORT
SEPTEMBER 30, 1998
<PAGE>
LETTER TO SHAREHOLDERS
- -------
PERFORMANCE COMPARED TO THE CS FIRST BOSTON HIGH YIELD INDEX(1)
- ----------------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
----------------------------------------------------
AVERAGE
ONE ANNUAL AVERAGE ANNUAL
YTD YEAR FIVE YEARS SINCE INCEPTION
--------- ----------- ----------- ---------------
<S> <C> <C> <C> <C>
PORTFOLIO--CLASS A...... -2.32% -0.51% 10.04% 11.26%
PORTFOLIO--CLASS B...... -2.49 -0.08 N/A 9.65
INDEX--CLASS A.......... -2.10 -0.52 8.51 9.66
INDEX--CLASS B.......... -2.10 -0.52 N/A 8.10
</TABLE>
1. The CS First Boston High Yield Index is an unmanaged index of high yield
corporate bonds.
2. Total returns for the Portfolio reflect expenses waived and reimbursed, if
applicable, by the Adviser. Without such waiver and reimbursement, total
returns would be lower.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
- ------------------------------
THE INFORMATION CONTAINED IN THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR
INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO
PURCHASE OR SELL THE SECURITIES MENTIONED. INVESTING IN HIGH YIELD FIXED INCOME
SECURITIES, OTHERWISE KNOWN AS "JUNK BONDS" IS SPECULATIVE AND INCLUDES GREATER
RISK OF LOSS OF PRINCIPAL AND INTEREST. THE PERFORMANCE RESULTS PROVIDED ARE FOR
INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE OF THE
PORTFOLIO'S FUTURE PERFORMANCE. PAST PERFORMANCE SHOWN IS NOT PREDICTIVE OF
FUTURE PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT
AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. YIELDS WILL FLUCTUATE AS MARKET CONDITIONS CHANGE.
The High Yield Portfolio seeks to maximize total return by investing in a
diversified portfolio of high yield fixed income securities that offer a yield
above that generally available on debt securities in the four highest rating
categories.
For the nine months ended September 30, 1998, the Portfolio had a total return
of -2.32% for the Class A shares and -2.49% for the Class B shares compared to a
total return of -2.10% for the CS First Boston High Yield Index (the "Index").
For the one year ended September 30, 1998, the Portfolio had a total return of
- -0.51% for the Class A shares and -0.08% for the Class B shares compared to
- -0.52% for the Index. For the five-year period ended September 30, 1998, the
average annual total return of Class A was 10.04% compared to 8.51% for the
Index. From inception on September 28, 1992 through September 30, 1998, the
average annual total return of Class A was 11.26% compared to 9.66% for the
Index. From inception on January 2, 1996 through September 30, 1998, the average
annual total return of Class B was 9.65% compared to 8.10% for the Index. As of
September 30 1998, the Portfolio had an SEC 30-day yield of 11.02% for the Class
A shares and 10.76% for the Class B shares.
The financial markets were very volatile in the third quarter. As has been
extensively reported, there has been a massive flight to quality due to the
global worries over emerging markets of Asia, Latin America and of course
Russia. In the developed countries, there continues to be concern over Japan's
inability to come to grips with its problems, particularly in the banking
sector. Even in the U.S., fears intensified over problems at hedge funds, most
notably Long Term Capital Management. Stocks of financial companies, banks and
brokerages, took a pounding based on fears of widespread exposure to hedge
funds. These concerns over the health of the financial system pushed the Federal
Reserve to lower short-term interest rates twenty five basis points at its last
meeting.
In this unsettled environment, U.S. Treasuries were one of the few markets that
performed well. Ten year Treasuries returned slightly over 9% for the third
quarter compared to a loss of 7% in the stock market averages (and more for many
mutual fund investors) and a loss of 6.15% in the high yield market. As a result
of the diverging moves of the high yield and Treasury markets, high yield
spreads widened to over 600 basis points, levels not seen in the market in many
years. The high yield market is pricing a recession for the U.S. economy, an
event not yet evident in the financial statements of the companies we invest in
nor in the aggregate economic statistics.
For the three months ended September 30, 1998, the Portfolio had a total return
of -6.16% for the Class A shares and -6.16% for the Class B shares compared to
- -6.15% for the Index. The best performing sectors in
2
<PAGE>
the market were the most defensive, higher quality credits in less cyclical
industries. Our focus on larger capitalization public companies helped support
the domestic side of the Portfolio. The losers in the quarter were emerging
markets bonds and venture-capital-like telecom bonds, European issuers and
companies of weaker credit quality. The emerging markets exposure most affected
our results relative to the Index. While we are exposed to emerging markets, we
avoided the disasters of Russia and Venezuela. Unfortunately, the Russia
problems and those in Southeast Asia earlier have caused a widespread contagion.
Interestingly, in the month of September, the emerging markets sector rallied
and has continued into October while the domestic market continues to decline.
The market has become quite illiquid. Dealers are trying to keep inventories
low, mutual fund flows are low to negative and some hedge funds have been
attempting to sell. As a result it is very difficult to reposition the
Portfolio. We have made some minor moves to buy some out of favor cyclical
bonds, but we also have interest in better quality cable bonds or energy bonds
that have also cheapened sharply in the market.
While we may not be at a market bottom yet, the high yield market looks as
attractive as it has in quite some time. One may generally now earn in three
years in the high yield market what it would take to earn in five years in the
Treasury market.
Robert Angevine
PORTFOLIO MANAGER
Thomas L. Bennett
PORTFOLIO MANAGER
Stephen F. Esser
PORTFOLIO MANAGER
October 1998
3
<PAGE>
INVESTMENTS (UNAUDITED)
- ----------
SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- ---------- ----------
<C> <S> <C>
CORPORATE BONDS AND NOTES (81.0%)
BROADCAST-RADIO & TELEVISION (9.5%)
$ 2,200 CSC Holdings, Inc., 9.875%, 5/15/06 $ 2,387
2,025 CSC Holdings, Inc., 7.875%, 12/15/07 2,096
(e)910 Lenfest Communications, Inc., 7.625%, 2/15/08 919
1,985 Paramount Communications, Inc., 8.25%, 8/01/22 2,128
1,760 Rogers Cablesystems Ltd., Series B, 10.00%,
3/15/05 1,914
185 Rogers Cablesystems of America, 10.125%, 9/01/12 200
2,620 Rogers Cantel, Inc., 8.30%, 10/01/07 2,502
1,325 Rogers Communications, Inc., 9.125%, 1/15/06 1,332
3,600 TV Azteca, 10.50%, 2/15/07 2,574
1,000 Viacom, Inc., 8.00%, 7/07/06 1,015
----------
17,067
----------
BUILDING MATERIALS & COMPONENTS (2.4%)
3,310 American Standard Cos., Inc., 7.375%, 2/01/08 3,344
1,000 Outdoor Systems, Inc., 8.875%, 6/15/07 1,033
----------
4,377
----------
COMPUTERS (0.4%)
1,290 Wam!Net, Inc., (Step Bond) 0.00%, 3/01/05 703
----------
CHEMICALS (1.4%)
2,400 ISP Holdings, Inc., Series B, 9.00%, 10/15/03 2,496
----------
CONSUMER STAPLES (1.3%)
2,210 Kmart Corp., 8.80%, 7/01/10 2,353
----------
ELECTRONICS (0.9%)
(e)975 Hyundai Semiconductor, 8.625%, 5/15/07 685
(e)1,370 Samsung Electronics Co., 7.45%, 10/01/02 1,004
----------
1,689
----------
ENERGY (3.4%)
(e)1,195 Cia Energitica Sao Paulo, (Step Bond) 9.125%,
6/26/07 813
(e)1,270 Husky Oil Ltd., 8.90%, 8/15/28 1,289
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- ---------- ----------
<C> <S> <C>
$ 370 Korea Electric Power, 7.75%, 4/01/13 $ 238
1,380 Quezon Power Ltd., 8.86%, 6/15/17 876
(e)2,855 Snyder Oil Corp., 8.75%, 6/15/07 2,912
----------
6,128
----------
ENVIRONMENTAL CONTROLS (0.8%)
1,380 Norcal Waste Systems, Inc., Series B, (Step Bond)
13.50%, 11/15/05 1,511
----------
FINANCIAL SERVICES (3.1%)
(e)1,195 Fuji JGB Investments LLC, 9.87%, 12/31/49 568
(e)690 Indah Kiat Financial Mauritius, 10.00%, 7/01/07 310
1,485 Navistar Financial Corp., 9.00%, 6/01/02 1,546
3,535 PTC International Finance BV, (Step Bond) 0.00%,
7/01/07 2,121
1,320 Western Financial Bank, 8.875%, 8/01/07 1,096
----------
5,641
----------
FOOD (0.6%)
1,000 Smithfield Foods, Inc., 7.625%, 2/15/08 980
----------
GAMING & LODGING (2.1%)
2,335 Grand Casinos, Inc., 10.125%, 12/01/03 2,475
496 Louisiana Casino Cruises, Inc., 11.50%, 12/01/98 496
820 Station Casinos, Inc., 10.125%, 3/15/06 816
----------
3,787
----------
HEALTH CARE SUPPLIES & SERVICES (4.6%)
(e)1,765 American Cellular Corp., 10.50%, 5/15/08 1,712
895 Columbia/HCA Healthcare Corp., 8.13%, 8/04/03 928
2,260 Columbia/HCA Healthcare Corp., 6.91%, 6/15/05 2,205
1,570 Columbia/HCA Healthcare Corp., 7.25%, 5/20/08 1,534
1,775 Tenet Healthcare Corp., 8.625%, 1/15/07 1,842
----------
8,221
----------
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- ---------- ----------
<C> <S> <C>
HOSPITAL MANAGEMENT (0.9%)
$ (e)1,730 Fresenius Medical Capital Trust II, 7.875%,
2/01/08 $ 1,618
----------
METALS (1.4%)
1,050 Jet Equipment Trust, Series C-1, 11.79%, 6/15/13 1,456
(e)525 Jet Equipment Trust, Series 95-D, 11.44%,
11/01/14 724
(e)910 NSM Steel Ltd., 12.25%, 2/01/08 409
----------
2,589
----------
MULTI-INDUSTRY (18.1%)
1,845 AMSC Acquisition Co., Inc., 12.25%, 4/01/08 1,070
(e)1,950 American Commercial Lines LLC, 10.25%, 6/30/08 1,911
970 Asia Pulp & Paper Co., Ltd., 12.00%, 2/15/04 369
(e)950 Axia Inc., 10.75%, 7/15/08 912
2,175 CSC Holdings, Inc., 7.25%, 7/15/08 2,164
(e)2,150 Cex Holdings Inc., 9.625%, 6/01/08 2,053
(e)880 Chancellor Media Corp., 9.00%, 10/01/08 889
1,035 Chancellor Media Corp., Series B, 8.125%,
12/15/07 1,004
440 Chesapeake Energy Corp., Series B, 9.625%,
5/01/05 394
900 Comcast Cellular Corp., Series B, 9.50%, 5/01/07 925
1,075 Dobson Communications Corp., 11.75%, 4/15/07 1,048
(e)1,200 Entex Telecom Group plc, 12.50%, 8/01/06 1,170
(e)830 HYLSA S.A. de C.V., 9.25%, 9/15/07 539
1,300 Mosaic Re, Class A, 10.10%, 7/09/99 1,287
1,640 Multicanal, 10.50%, 2/01/07 1,110
(e)2,855 Murrin Murrin Holdings, PTY, (Yankee Bond),
9.375%, 8/31/07 2,370
500 Musicland Group, Inc., 9.00%, 6/15/03 475
2,245 Musicland Group, Inc., 9.875%, 3/15/08 2,144
2,345 Norampac, Inc., 9.50%, 2/01/08 2,304
(e)2,270 Nortek, Inc., 8.875%, 8/01/08 2,202
1,120 Psinet Inc., 10.00%, 2/15/05 1,117
(e)1,470 RBS Participacoes, 11.00%, 4/01/07 735
(e) 404 RG Receivables Ltd., 9.60%, 2/10/05 287
(e)2,270 Samsonite Corp., 10.75%, 6/15/08 1,725
3,150 Vencor, Inc., 9.875%, 5/01/05 2,520
----------
32,724
----------
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- ---------- ----------
<C> <S> <C>
PACKAGING & CONTAINER (0.7%)
$ 1,145 SD Warren Co., 12.00%, 12/15/04 $ 1,254
----------
PERSONAL CARE PRODUCTS (0.7%)
1,220 Revlon Consumer Products, 8.125%, 2/01/06 1,202
----------
REAL ESTATE (1.2%)
900 CB Richard Ellis Services Group, Inc., 8.875%,
6/01/06 882
965 HMH Properties, Inc., Series A, 7.875%, 8/01/05 977
445 Murrin Murrin Holdings, Senior Notes, 9.375%,
8/31/07 369
----------
2,228
----------
RETAIL-GENERAL (2.7%)
1,750 Fred Meyer, Inc., 7.375%, 3/01/05 1,825
3,760 Southland Corp., 5.00%, 12/15/03 3,121
----------
4,946
----------
TECHNOLOGY (0.6%)
(e)1,350 AST Research, Inc., 7.45%, 10/01/02 1,011
----------
TELECOMMUNICATIONS (21.4%)
(e)2,425 Dolphin Telecom Series plc, (Step Bond) 0.00%,
6/01/08 1,091
600 Esprit Telecom Group plc, 11.50%, 12/15/07 561
(e)965 Esprit Telecom Group plc, 10.875%, 6/15/08 873
1,735 Flag Ltd., 8.25%, 1/30/08 1,648
(e)2,075 Global Crossing Holdings, 9.625%, 5/15/08 2,033
1,200 Globalstar Capital Corp., 11.375%, 2/15/04 816
(e)1,105 Globo Communicacoes e Participacoes Ltd., 10.50%,
12/20/06 580
1,645 IXC Communications, Inc., 9.00%, 4/15/08 1,620
1,505 Intermedia Communications, Series B, (Step Bond)
0.00%, 7/15/07 1,083
1,620 Iridium LLC/Capital Corp., Series A, 13.00%,
7/15/05 1,401
1,400 Level 3 Communications, Inc., 9.125%, 5/01/08 1,327
(e)2,350 NTL, Inc., 0.00%, 4/01/08 1,410
2,585 Nextel Communications, Inc., (Step Bond) 0.00%,
8/15/04 2,488
6,100 Nextel Communications, Inc., (Step Bond) 0.00%,
9/15/07 3,874
1,335 Nextel Communications, Inc., (Step Bond) 0.00%,
2/15/08 798
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- ---------- ----------
<C> <S> <C>
TELECOMMUNICATIONS (CONTINUED)
$ 3,785 NEXTLINK Communications, Inc., (Step Bond) 0.00%,
4/15/08 $ 2,167
2,275 Occidente y Caribe Cellular, (Step Bond) 0.00%,
3/15/04 1,649
(e)1,290 Onepoint Communications Corp., 14.50%, 6/01/08 974
2,470 Philippine Long Distance Telephone, Global Bond,
9.25%, 6/30/06 1,828
1,250 Philippine Long Distance Telephone, Global Bond,
Series E, 7.85%, 3/06/07 956
1,315 Primus Telecommunications Group, Inc., 9.875%,
5/15/08 1,141
1,565 Qwest Communications International, Inc., (Step
Bond) 0.00%, 10/15/07 1,205
510 Qwest Communications International, Inc., Series
B, 10.875%, 4/01/07 585
1,565 RCN Corp., (Step Bond) 0.00%, 10/15/07 853
(e)2,265 RCN Corp., (Step Bond) 0.00%, 2/15/08 1,178
51 RSL Communications plc, (Step Bond) 12.25%,
11/15/06 53
2,975 RSL Communications plc, (Step Bond) 9.125%,
3/01/08 2,588
(e)3,450 Rhythms Netconnections, (Step Bond) 0.00%,
5/15/08 1,380
(e)1,070 Viatel, Inc., (Step Bond) 0.00%, 4/15/08 514
----------
38,674
----------
TRANSPORTATION (1.0%)
1,760 Hermes Europe Railtel BV, 11.50%, 8/15/07 1,866
----------
UTILITIES (1.8%)
1,780 AES Corp., 8.50%, 11/01/07 1,673
496 Niagara Mohawk Power Corp., Series G, 7.75%,
10/01/08 529
1,420 Niagara Mohawk Power Corp., Series H, (Step Bond)
0.00%, 7/01/10 1,030
----------
3,232
----------
TOTAL CORPORATE BONDS AND NOTES (Cost $161,166) 146,297
----------
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- ---------- ----------
<C> <S> <C>
ASSET BACKED SECURITIES (6.2%)
AEROSPACE & DEFENSE (1.0%)
$ 1,878 Aircraft Lease Portfolio Securitization Ltd.,
Series 96-1 P1, Class D, 12.75%, 6/15/06 $ 1,869
----------
BANKING (0.6%)
(e)1,110 SB Treasury Co. LLC, (Step Bond) 9.40%, 12/29/49 977
----------
FINANCIAL SERVICES (4.6%)
(e)1,673 CA FM Lease Trust, 8.50%, 7/15/17 1,882
1,114 DR Securitized Finance, Series 93-K1, Class A1,
6.66%, 8/15/10 1,068
2,262 DR Securitized Finance, Series 94-K1, Class A1,
7.60%, 8/15/07 2,286
1,175 DR Securitized Finance, Series 94-K1, Class A2,
8.375%, 8/15/15 1,148
(e)875 FMAC Loan Receivables Trust, Series 96-B, Class
C, (Floating Rate), 7.929%, 11/01/18 670
1,208 Long Beach Auto, Series 97-1, Class B, 14.22%,
10/26/03 1,203
----------
8,257
----------
TOTAL ASSET BACKED SECURITIES (Cost $10,600) 11,103
----------
FOREIGN GOVERNMENT BONDS (7.3%)
(e)1,655 CTI Holdings, (Step Bond) 0.00%, 4/15/08 703
(e)1,235 Cathay International Ltd., 13.00%, 4/15/08 710
815 Grupo Minero Mexico, 8.25%, 4/01/08 680
1,010 Indah Kiat International Finance, 10.00%, 7/01/07 454
(e)830 Multicanal, 10.50%, 4/15/18 546
2,445 Pindo Deli Financial Mauritius, 10.75%, 10/01/07 1,076
1,929 Republic of Argentina, (Floating Rate), (Bearer),
6.188%, 3/31/05 1,526
2,515 Republic of Korea, 8.875%, 4/15/08 2,168
(e)1,410 Samsung Electronics America, 9.75%, 5/01/03 1,067
3,173 Republic of Argentina, 6.188%, 3/31/05 2,511
(e)2,480 Satelites Mexicanos, 10.125%, 11/01/04 1,674
----------
TOTAL FOREIGN GOVERNMENT BONDS (Cost $16,891) 13,115
----------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ---------- ----------
<C> <S> <C>
COMMON STOCK (0.0%)
FOOD SERVICE & LODGING (0.0%)
(e)1,300 Motels of America, Inc. (Cost $85) $ 14
----------
PREFERRED STOCKS (3.0%)
FINANCIAL SERVICES (1.2%)
935 Sinclair Broadcast Group, Inc., 9.00%, 7/15/07 935
12,500 Sinclair Capital, 11.625%, 3/15/09 1,319
----------
2,254
----------
TELECOMMUNICATIONS (1.8%)
6,960 Concentric Network Corp., PIK, 13.50%, 6/1/10 616
1,304 IXC Communications, Inc., Series B, PIK, 12.50%,
8/15/09 1,389
(e)9,500 Paxson Communications Corp., PIK, 13.25%,
11/15/06 902
(e)3,200 Paxson Communications Corp., PIK, 9.75% 12/31/06 320
----------
3,227
----------
TOTAL PREFERRED STOCKS (Cost $5,341) 5,481
----------
<CAPTION>
NO. OF
WARRANTS
- ----------
<C> <S> <C>
WARRANTS (0.3%)
COMPUTERS (0.0%)
3,870 Wam!Net, Inc., expiring 3/1/05 17
----------
GAMING & LODGING (0.0%)
(e)1,725 Louisiana Casino Cruises, Inc., expiring 12/01/98 --
----------
METALS (0.0%)
(e)576,115 NSM Steel Ltd., expiring 2/1/08 1
----------
TELECOMMUNICATIONS (0.3%)
(e)1,845 American Mobile Satellite Corp., expiring 4/1/08 1
130 Concentric Network Corp., expiring 12/15/07 1
(e)600 Globalstar Telecommunications Ltd., expiring
2/15/04 18
(e)605 Iridium World Communications, Inc., expiring
07/15/05 88
2,800 Nextel Communications, Inc., expiring 4/25/99 --
<CAPTION>
NO. OF VALUE
WARRANTS (000)
- ---------- ----------
<C> <S> <C>
(e)9,100 Occidente y Caribe Cellular, expiring 3/15/04 $ 386
(e)1,024 Paxson Communications Corp., expiring 6/30/03 --
538 Viatel, Inc., expiring 4/15/10 3
----------
497
----------
TOTAL WARRANTS (Cost $11) 515
----------
TOTAL INVESTMENTS (97.8%) (Cost $194,094) 176,525
----------
</TABLE>
<TABLE>
<S> <C>
OTHER ASSETS AND LIABILITIES (2.2%)
Other Assets 7,449
Liabilities (3,522)
----------
3,927
----------
NET ASSETS (100.0%) $ 180,452
----------
----------
CLASS A:
- --------
NET ASSETS $ 120,023
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 11,228,654 outstanding $0.001 par value Shares
(authorized 500,000,000 shares) $ 10.69
----------
----------
CLASS B:
- --------
NET ASSETS $ 60,429
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 5,664,946 outstanding $0.001 par value shares
(authorized 500,000,000 shares) $ 10.67
----------
----------
</TABLE>
- ------------------------------
(e) -- 144A Security -- certain conditions for public sale may exist.
PIK -- Payment-in-Kind. Income may be paid in additional
securities or cash at the discretion of the issuer.
Floating Rate -- Interest rate changes on these instruments
are based on changes in a designated base rate. The rates
shown are those in effect on September 30, 1998.
Step Bond -- Coupon rate increases in increments to
maturity. Rate disclosed is as of September 30, 1998. Maturity
date disclosed is the ultimate maturity date.
7
