<PAGE>
- --------------------------------------------------------------------------------
THE
MORGAN STANLEY
HIGH YIELD
FUND, INC.
- --------------------------------------------------------------------------------
THIRD QUARTER REPORT
SEPTEMBER 30, 1998
MORGAN STANLEY ASSET MANAGEMENT INC.
INVESTMENT ADVISER
THE MORGAN STANLEY
HIGH YIELD FUND, INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DIRECTORS AND OFFICERS
Barton M. Biggs
CHAIRMAN OF THE BOARD
OF DIRECTORS
Michael F. Klein
PRESIDENT AND DIRECTOR
Peter J. Chase
DIRECTOR
John W. Croghan
DIRECTOR
David B. Gill
DIRECTOR
Graham E. Jones
DIRECTOR
John A. Levin
DIRECTOR
William G. Morton, Jr.
DIRECTOR
Stefanie V. Chang
VICE PRESIDENT
Harold J. Schaaff, Jr.
VICE PRESIDENT
Joseph P. Stadler
VICE PRESIDENT
Valerie Y. Lewis
SECRETARY
Joanna M. Haigney
TREASURER
Belinda A. Brady
ASSISTANT TREASURER
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
Morgan Stanley Asset Management Inc.
1221 Avenue of the Americas
New York, New York 10020
- --------------------------------------------------------------------------------
ADMINISTRATOR
The Chase Manhattan Bank
73 Tremont Street
Boston, Massachusetts 02108
- --------------------------------------------------------------------------------
CUSTODIANS
Morgan Stanley Trust Company
One Pierrepont Plaza
Brooklyn, New York 11201
The Chase Manhattan Bank
3 Chase MetroTech Center
Brooklyn, New York 11245
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICING AGENT
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
(800) 278-4353
- --------------------------------------------------------------------------------
LEGAL COUNSEL
Rogers & Wells LLP
200 Park Avenue
New York, New York 10166
- --------------------------------------------------------------------------------
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers 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.
<PAGE>
LETTER TO SHAREHOLDERS
- ---------
For the nine months ended September 30, 1998, The Morgan Stanley High Yield
Fund, Inc. (the "Fund") had a total return, based on net asset value per
share, of -3.84% compared to -2.10% for the CS First Boston High Yield Index
(the "Index"). For the one year ended September 30, 1998, and, for the
period since the Fund's commencement of operations on November 30, 1993
through September 30, 1998, the Fund's total return, based on net asset value
per share, was -0.45% and 62.88%, respectively, compared to -0.52% and
45.88%, respectively, for the Index. On September 30, 1998, the closing
price of the Fund's shares on the New York Stock Exchange was $13 7/8,
representing a 0.4% discount to the Fund's net asset value per share.
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 recent meeting.
In this unsettled environment, the U.S. Treasuries market was 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 most 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 Fund had a total return,
based on net asset value per share, of -6.53% compared to -6.15% for the
Index. The best performing sectors in 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 can now earn in three years in
the high yield market what it would take to earn in five years in the
Treasury market. With the market now yielding about 11%, double digit
returns could be in our not too distant future.
Sincerely,
/s/ Michael F. Klein
Michael F. Klein
PRESIDENT AND DIRECTOR
/s/ Robert Angevine
Robert Angevine
PORTFOLIO MANAGER
October 1998
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.
2
<PAGE>
The Morgan Stanley High Yield Fund, Inc.
Investment Summary as of September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HISTORICAL TOTAL RETURN (%)
INFORMATION ------------------------------------------------------------------------------------
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>
Fiscal Year to Date 7.49% -- -3.84% -- 2.10% --
One Year 0.52 0.52% -0.45 -0.45% -0.52 0.52%
Since Inception* 62.24 10.52 62.88 10.62 45.88 8.13
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
- --------------------------------------------------------------------------------
RETURNS AND PER SHARE INFORMATION
[GRAPH]
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS
ENDED
SEPTEMBER 30,
1993* 1994 1995 1996 1997 1998
------- ------- ------- ------- ------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value Per Share..... $ 14.10 $ 11.96 $ 13.63 $ 14.45 $ 15.19 $ 13.93
Market Value Per Share........ $ 14.75 $ 11.38 $ 12.88 $ 14.63 $ 16.06 $ 13.88
Premium/(Discount)............ 4.6% -4.8% -5.5% 1.3% 5.7% -0.4%
Income Dividends.............. -- $ 1.37 $ 1.27 $ 1.42 $ 1.36 $ 0.99
Capital Gains Distributions... -- -- -- -- $0.48 $ 0.04
Fund Total Return (2)......... 0.00% -5.53% 26.07% 17.52% 18.48% -3.84%
Index Total Return (1)(3)..... 1.26% -0.98% 17.39% 12.40% 12.65% -2.10%
</TABLE>
(1) Assumes dividends and distributions, if any, were reinvested.
(2) Total investment return based on net asset value per share reflects the
effects of changes in net asset value on the performance of the Fund during
each period, and assumes dividends and distributions, if any, were
reinvested. These percentages are not an indication of the performance of a
shareholder's investment in the Fund based on market value due to
differences between the market price of the stock and the net asset value
per share of the Fund.
(3) The CS First Boston High Yield Index is an unmanaged index of high yield
corporate bonds.
* The Fund commenced operations on November 30, 1993.
3
<PAGE>
The Morgan Stanley High Yield Fund, Inc.
Investment Summary as of September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DIVERSIFICATION OF TOTAL INVESTMENTS
[CHART]
<TABLE>
<S> <C>
Debt Instruments 98.4%
Equity Securities 1.6%
</TABLE>
- --------------------------------------------------------------------------------
SECTORS
[CHART]
<TABLE>
<S> <C>
Other 22.7%
Telecommunications 22.4%
Broadcast -- Radio & Television 10.5%
Multi-Industry 9.7%
Health Care Supplies & Services 7.6%
Asset Backed Securities 6.0%
Foreign Government Bonds 5.1%
Financial Services 4.8%
Metals 3.9%
Retail -- General 3.7%
Coal, Gas & Oil 3.6%
</TABLE>
- --------------------------------------------------------------------------------
TEN LARGEST HOLDINGS*
<TABLE>
<CAPTION>
PERCENT OF
TOTAL
INVESTMENTS
-----------
<S> <C>
1. DR Securitized Lease Trust 4.1%
2. Nextel Communications, Inc. 3.9
3. Tenet Healthcare Corp. 3.3
4. Rogers Communications, Inc. 3.3
5. Snyder Oil Corp. 2.9
6. Columbia /HCA Healthcare 2.8
7. Jet Equipment Trust 2.5
8. CSC Holdings, Inc. 2.4
9. Southland Corp. 2.4
10. Republic of Korea 2.3
----
29.9%
----
----
</TABLE>
* Excludes short-term investments.
4
<PAGE>
FINANCIAL STATEMENTS
- -------------
STATEMENT OF NET ASSETS (Unaudited)
(SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENTS)
- -------------
SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS AND NOTES (84.3%)
- --------------------------------------------------------------------------------
AEROSPACE & DEFENSE (2.5%)
Jet Equipment Trust
'C1' 11.79%, 6/15/13 $ 1,500 $ 2,080
(a) 'D-95' 11.44%, 11/1/14 1,100 1,518
3,598
-------------
- --------------------------------------------------------------------------------
BANKING (0.5%)
Western Financial Bank
8.875%, 8/1/07 885 734
-------------
- --------------------------------------------------------------------------------
BROADCAST -- RADIO & TELEVISION (10.5%)
(a) Chancellor Media Corp.
9.00%, 10/1/08 450 455
Comcast Cellular Holdings 'B'
9.50%, 5/1/07 650 668
CSC Holdings, Inc.
7.25%, 7/15/08 695 692
7.875%, 12/15/07 575 595
9.875%, 5/15/06 1,955 2,121
Lenfest Communications, Inc.
(a)7.625%, 2/15/08 800 808
8.375%, 11/1/05 2,010 2,105
(a) RBS Participacoes
11.00%, 4/1/07 (Brazil) 850 425
Rogers Cablesystems
10.125%, 9/1/12 650 703
Rogers Cablesystems 'B'
10.00%, 3/15/05 2,210 2,403
Sinclair Broadcast Group
9.00%, 7/15/07 1,370 1,370
TV Azteca 'B'
10.50%, 2/15/07 (Mexico) 3,460 2,474
-------------
14,819
-------------
- --------------------------------------------------------------------------------
BUILDING MATERIALS & COMPONENTS (1.8%)
American Standard Cos., Inc.
7.375%, 2/1/08 2,560 2,586
-------------
- --------------------------------------------------------------------------------
BUSINESS SERVICES (2.2%)
Outdoor Systems, Inc.
8.875%, 6/15/07 2,955 3,051
-------------
- --------------------------------------------------------------------------------
COAL, GAS & OIL (3.6%)
(a,c) Husky Oil, Ltd.
8.90%, 8/15/28 885 898
(a) Snyder Oil Corp.
8.75%, 6/15/07 4,050 4,131
-------------
5,029
-------------
- --------------------------------------------------------------------------------
CONSTRUCTION & HOUSING (0.2%)
(a) Cathay International Ltd.
13.00%, 4/15/08 (China) 525 302
-------------
- --------------------------------------------------------------------------------
ELECTRONIC COMPONENTS & INSTRUMENTS (0.1%)
(a) AST Research Inc.
7.45%, 10/1/02 175 131
-------------
- --------------------------------------------------------------------------------
ENERGY (1.3%)
Quezon Power Ltd.
8.86%, 6/15/17 (Philippines) 2,900 1,841
-------------
- --------------------------------------------------------------------------------
ENVIRONMENTAL CONTROLS (1.2%)
(c) Norcal Waste Systems, Inc.
13.50%, 11/15/05 1,600 1,752
-------------
- --------------------------------------------------------------------------------
FINANCIAL SERVICES (3.7%)
Geberit International
10.125%, 4/15/07 (Germany) DEM 1,700 1,125
Indah Kiat Finance
(a)10.00%, 7/1/07 (Indonesia) $ 420 189
10.00%, 7/1/07 (Indonesia) 1,530 689
Navistar Financial Corp. 'B'
9.00%, 6/1/02 755 786
(c) PTC International Finance B.V.
0.00%, 7/1/07 (Russia) 2,470 1,482
(a,c) SB Treasury Co. LLC
9.40%, 12/29/49 1,010 889
-------------
5,160
-------------
- --------------------------------------------------------------------------------
FOOD SERVICE & LODGING (1.1%)
Fred Meyer, Inc.
7.375%, 3/1/05 400 417
Smithfield Foods, Inc.
7.625%, 2/15/08 1,175 1,152
-------------
1,569
-------------
- --------------------------------------------------------------------------------
FOREST PRODUCTS & PAPER (0.2%)
APP Fin II Mauritius Ltd.
12.00%, 2/15/04 (Indonesia) 865 329
-------------
- --------------------------------------------------------------------------------
GAMING & LODGING (3.1%)
Grand Casinos
10.125%, 12/1/03 1,495 1,585
Louisiana Casino Cruise
11.50%, 12/1/98 318 318
Station Casinos, Inc.
10.125%, 3/15/06 2,485 2,473
-------------
4,376
-------------
- --------------------------------------------------------------------------------
HEALTH CARE SUPPLIES & SERVICES (7.6%)
Columbia/HCA Healthcare
6.91%, 6/15/05 2,350 2,293
7.00%, 7/1/07 1,705 1,649
Fresenius Medical Capital Trust II
7.875%, 2/1/08 1,195 1,117
- --------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
HEALTH CARE SUPPLIES & SERVICES (CONTINUED)
Sirona Dental Systems
9.125%, 7/15/08 (Germany) DEM 1,650 $ 969
Tenet Healthcare Corp.
(a)8.125%, 12/1/08 $ 1,000 1,007
8.625%, 1/15/07 3,555 3,688
-------------
10,723
-------------
- --------------------------------------------------------------------------------
METALS (3.9%)
Grupo Minero Mexico 'A'
8.25%, 4/1/08 (Mexico) 590 492
(a) Hylsa
9.25%, 9/15/07 (Mexico) 700 455
Impress Metal Packaging
(a)9.875%, 5/29/07 (Netherlands) DEM 2,750 1,655
9.875%, 5/29/07 400 241
(a) Murrin Murrin Holdings Property Ltd.
9.375%, 8/31/07 (Australia) $ 2,785 2,312
(a) NSM Steel, Inc.
12.25%, 2/1/08 825 371
-------------
5,526
-------------
- --------------------------------------------------------------------------------
MULTI-INDUSTRY (9.7%)
AMSC Acquisition Co., Inc. 'B'
12.25%, 4/1/08 1,725 1,000
(a) Axia Inc.
10.75%, 7/15/08 585 562
(a) CA FM Lease Trust
8.50%, 7/15/17 1,434 1,613
(a) CEX Holdings, Inc.
9.625%, 6/1/08 1,065 1,017
Chancellor Media Corp. 'B'
8.125%, 12/15/07 1,035 1,004
ISP Holdings, Inc. 'B'
9.00%, 10/15/03 1,725 1,794
Multicanal
10.50%, 2/1/07 (Argentina) 1,705 1,154
(a)10.50%, 4/15/18 (Argentina) 725 477
(a) Reliance Industries Ltd.
9.375%, 6/24/26 (India) 445 363
Revlon, Inc.
(a)8.125%, 2/1/06 765 754
8.125%, 2/1/06 240 236
(a) Samsonite Corp.
10.75%, 6/15/08 1,720 1,307
SD Warren Co. 'B'
12.00%, 12/15/04 2,235 2,447
-------------
13,728
-------------
- --------------------------------------------------------------------------------
REAL ESTATE (2.2%)
CB Richard Ellis Services
8.875%, 6/1/06 700 686
HMH Properties 'A'
7.875%, 8/1/05 2,380 2,409
-------------
3,095
-------------
- --------------------------------------------------------------------------------
RETAIL -- GENERAL (3.6%)
Musicland Group, Inc.
9.00%, 6/15/03 325 309
Musicland Group, Inc. 'B'
9.875%, 3/15/08 1,600 1,528
Southland Corp.
5.00%, 12/15/03 4,000 3,320
-------------
5,157
-------------
- --------------------------------------------------------------------------------
TELECOMMUNICATIONS (21.9%)
(c) Dial Call Communications 'B'
0.00%, 12/15/05 560 554
Dobson Communications Corp.
11.75%, 4/15/07 720 702
Espirit Telecom Group 'DM'
11.50%, 12/15/07
(United Kingdom) DEM 1,300 693
Flag Ltd.
8.25%, 1/30/08 $ 900 855
(a) Global Crossing Holdings, Ltd.
9.625%, 5/15/08 1,615 1,583
Globalstar LP
11.375%, 2/15/04 1,000 680
(a) Globopar
10.625%, 12/5/08 (Brazil) 650 341
(c) Intermedia Communications, Inc. 'B'
0.00%, 7/15/07 3,000 2,160
Iridium LLC/Capital Corp. 'A'
13.00%, 7/15/05 1,285 1,112
IXC Communications, Inc.
9.00%, 4/15/08 895 882
IXC Communications, Inc. 'B' PIK
0.00%, 1/1/01 2 1,805
Level 3 Communications, Inc.
9.125%, 5/1/08 1,100 1,042
(c) Nextel Communications, Inc.
0.00%, 8/15/04 2,075 1,997
0.00%, 9/15/07 5,520 3,505
(c) NEXTLINK Communications, Inc.
0.00%, 4/15/08 2,500 1,431
(c) Occidente y Caribe
0.00%, 3/15/04 (Columbia) 3,125 2,266
Philippine Long Distance Telephone
9.25%, 6/30/06 (Philippines) 1,725 1,276
Primus Telecommunications Group 'B'
9.875%, 5/15/08 1,000 867
Qwest Communications International
10.875%, 4/1/07 775 889
- --------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
TELECOMMUNICATIONS (CONTINUED)
(c) Qwest Communications International,
Inc. 'B'
0.00%, 2/1/08 $ 1,000 $ 743
(c) RCN Corp.
0.00%, 10/15/07 2,385 1,300
Rogers Communications, Inc.
8.875%, 7/15/07 750 743
9.125%, 1/15/06 800 804
RSL Communications plc
9.125%, 3/1/08 1,165 1,014
RSL Communications, Ltd.
(c)0.00%, 3/15/08
(United Kingdom) DEM 2,700 776
12.25%, 11/15/06 $ 88 91
(a) Satelites Mexicanos
10.125%, 11/1/04 (Mexico) 565 381
(a,c) Viatel, Inc.
0.00%, 4/15/08 980 470
-------------
30,962
-------------
- --------------------------------------------------------------------------------
TRANSPORTATION (0.7%)
Hermes Europe Railtel B.V.
11.50%, 8/15/07 (Indonesia) 945 1,002
-------------
- --------------------------------------------------------------------------------
UTILITIES (2.7%)
AES Corp.
8.50%, 11/1/07 1,430 1,344
Korea Electric Power Corp.
7.75%, 4/1/13 1,810 1,166
Niagara Mohawk Power 'G'
7.75%, 10/1/08 433 462
(c) Niagara Mohawk Power 'H'
0.00%, 7/1/10 1,245 903
-------------
3,875
-------------
- --------------------------------------------------------------------------------
TOTAL CORPORATE BONDS AND NOTES
(Cost $127,923) 119,345
-------------
- --------------------------------------------------------------------------------
ASSET-BACKED SECURITIES (6.0%)
- --------------------------------------------------------------------------------
United States
Aircraft Lease Portfolio Securitization Ltd.
1996-1 P1D 12.75%, 6/15/06 1,702 1,702
DR Securitized Lease Trust
1993-K1 A1 6.66%, 8/15/10 2,056 1,970
1994-K1 A1 7.60%, 8/15/07 3,271 3,307
1994-K2 A2 9.35%, 8/15/19 500 517
(a) First Home Mortgage Acceptance Corp.,
1996-B, Class C 7.929%, 11/1/18 1,312 1,006
-------------
8,502
-------------
- --------------------------------------------------------------------------------
TOTAL ASSET-BACKED SECURITIES
(Cost $7,817) 8,502
-------------
- --------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS (2.9%)
- --------------------------------------------------------------------------------
United States
DLJ Mortgage Acceptance Corp.
1997-CF2 S
0.357%, 10/15/30 32,766 795
GMAC IO 1996-C1 CL X2 REMIC
1.916%, 3/15/21 6,546 479
Long Beach Auto 1997-1, 'B'
14.22%, 10/26/03 1,753 1,746
OHA Auto Grantor Trust 1997-1, 'B'
11.00%, 9/15/03 1,132 1,101
-------------
4,121
-------------
- --------------------------------------------------------------------------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost $4,376) 4,121
-------------
- --------------------------------------------------------------------------------
FOREIGN GOVERNMENT BONDS (5.1%)
- --------------------------------------------------------------------------------
Argentina (1.8%)
(b) Republic of Argentina
6.188%, 3/31/05 361 285
(b) Republic of Argentina 'L'
6.188%, 3/31/05 1,449 1,146
(b) Republic of Argentina Pre 4
Bocon PIK
0.00%, 9/1/02 1,100 1,189
-------------
2,620
-------------
- --------------------------------------------------------------------------------
INDONESIA (0.6%)
(a) Pindo Deli Finance (Mauritius)
10.75%, 10/1/07 1,955 860
-------------
- --------------------------------------------------------------------------------
Korea (2.3%)
Republic of Korea
8.875%, 4/15/08 3,700 3,190
-------------
- --------------------------------------------------------------------------------
Mexico (0.4%)
United Mexican States Par Bond 'W-A'
6.25%, 12/31/19 770 572
-------------
- --------------------------------------------------------------------------------
TOTAL FOREIGN GOVERNMENT BONDS
(Cost $8,461) 7,242
-------------
- --------------------------------------------------------------------------------
SHARES
- --------------------------------------------------------------------------------
PREFERRED STOCK (1.2%)
- --------------------------------------------------------------------------------
Financial Services (1.2%)
Sinclair Capital 11.625% 15,290 1,613
-------------
- --------------------------------------------------------------------------------
Telecommunications(0.0%)
Viatel, Inc., Series 'A' 10.00% 493 3
-------------
- --------------------------------------------------------------------------------
TOTAL PREFERRED STOCK
(Cost $1,522) 1,616
-------------
- --------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
NO. OF VALUE
WARRANTS (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
WARRANTS (0.5%)
- --------------------------------------------------------------------------------
GAMING & LODGING (0.0%)
(a) Louisiana Casino Cruises, 1,108 $ --
expiring 12/1/98
-------------
- --------------------------------------------------------------------------------
METALS -- STEEL (0.0%)
(a) NSM Steel, Inc., expiring 2/1/08 522,301 1
-------------
- --------------------------------------------------------------------------------
TELECOMMUNICATIONS (0.5%)
(a) American Mobile Satellite 1,725 1
Corp., expiring 4/1/08
(a) Globalstar Telecom, expiring 2/15/04 1,000 30
(a) Iridium World Communications, Inc., 840 122
expiring 7/15/05
Nextel Communications, 2,500 --
expiring 4/25/99
(a) Occidente y Caribe, expiring
3/15/04 (Columbia) 12,500 531
-------------
684
- --------------------------------------------------------------------------------
TOTAL WARRANTS
(Cost $0) 685
-------------
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS (100.0%)
(Cost $150,099) 141,511
-------------
- --------------------------------------------------------------------------------
AMOUNT
(000)
- --------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES
Other Assets $ 5,448
Liabilities (24,483) (19,035)
------------ ------------
- --------------------------------------------------------------------------------
NET ASSETS
Applicable to 8,794,881 issued and
outstanding $0.01 par value shares
(100,000,000 shares authorized) $122,476
-------------
-------------
- --------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $ 13.93
-------------
-------------
- --------------------------------------------------------------------------------
</TABLE>
(a) -- 144A Security - certain conditions for public sale may exist.
(b) -- Variable/floating rate security -- rate disclosed is as of
September 30, 1998.
(c) -- Step Bond -- coupon rate increases in increments to maturity.
Rate disclosed is as of September 30, 1998. Maturity date
disclosed is the ultimate maturity.
PIK -- Payment-in-Kind. Income may be paid in additional securities
or cash at the discretion of the issuer.
8
