<PAGE>
- -------------------------------------------------------------------------------
THE
MORGAN STANLEY
HIGH YIELD
FUND, INC.
- -------------------------------------------------------------------------------
FIRST QUARTER REPORT
MARCH 31, 1999
MORGAN STANLEY DEAN WITTER INVESTMENT 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 AND ACTING SECRETARY
Harold J. Schaaff, Jr.
VICE PRESIDENT
Joseph P. Stadler
VICE PRESIDENT
Joanna M. Haigney
TREASURER
Belinda A. Brady
ASSISTANT TREASURER
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
INVESTMENT ADVISER
Morgan Stanley Dean Witter Investment Management Inc.
1221 Avenue of the Americas
New York, New York 10020
- -------------------------------------------------------------------------------
ADMINISTRATOR
The Chase Manhattan Bank
73 Tremont Street
Boston, Massachusetts 02108
- -------------------------------------------------------------------------------
CUSTODIANS
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 or visit our website at
www.msdw.com/institutional/investmentmanagement.
<PAGE>
LETTER TO SHAREHOLDERS
- ---------
For the three months ended March 31, 1999, The Morgan Stanley High Yield
Fund, Inc. (the "Fund") had a total return, based on net asset value per
share, of 3.44% compared to 1.64% for the CS First Boston High Yield Index
(the "Index"). For the period since the Fund's commencement of operations on
November 30, 1993 through March 31, 1999, the Fund's total return, based on
net asset value per share, was 78.61% compared to 52.35% for the Index. On
March 31, 1999, the closing price of the Fund's shares on the New York Stock
Exchange was $15 3/4, representing a 14.5% premium to the Fund's net asset
value per share.
The high yield market outperformed high quality bonds in the first quarter as
investors continued to be more willing to bear risk. Despite volatility and a
sell off in the Treasury market, robust merger and acquisition activity,
evidence of a stronger than expected U.S. economy, and solid inflows into high
yield mutual funds contributed to the strength in the sector. In addition, a
strong equity market, rising energy prices and relative stability in the
emerging markets also helped the performance of high yield bonds.
The positive results versus the Index were primarily a result of a large
overweight in the telecommunications sector, which continued to demonstrate
strong performance. Results also benefited from security selection across
sectors, exposure to non-U.S. issues, and from an underweight in the energy
sector, which performed poorly. Exposure to the healthcare sector, which is
under pressure, and an underweight in cyclical issues, which started to rebound
in the first quarter of 1999, detracted from relative performance.
Consolidation, equity investments by higher quality companies and initial public
offerings demonstrate the inherent asset values in many of the companies in the
telecommunications and cable sectors. Nextel Communications, a leading player in
the domestic wireless business and one of our largest holdings, performed well
on speculation regarding a possible combination with a higher quality company.
Similarly, the Fund benefited as long distance providers Qwest, Level Three,
Dolphin Telecom and Global Crossing have either entered into a strategic
combination or partnership or have raised additional capital in a very favorable
market environment. Internet data and access providers such as PSINet, Rhythms
Net and Concentric held in the Fund also performed well. In contrast, small
exposure to satellite communications companies including Iridium and American
Mobile Satellite detracted slightly from returns as these companies performed
poorly due to a disappointing launch experience and slow customer uptake of
service.
Equity investments and actual or proposed merger and acquisition activity
propelled the cable and media sectors as well. For example, the Fund benefited
from Microsoft's $500 million investment in NTL, a U.K. cable company. Cable
holdings in general benefited from Comcast's merger with Media One and from
Microsoft co-founder Paul Allen's multi-billion dollar investments in cable
systems throughout the world. Regarding positive developments in other holdings,
Adelphia Communications in the cable sector was buoyed by a ratings upgrade and
Chancellor Media rallied when it announced it was exploring alternatives to
enhance shareholder value. The positive developments in the cable sector are
starting to price many of the cable issues out of the high yield market.
After concern early in the first quarter of 1999 over the much anticipated
devaluation of the Brazilian currency, emerging market issues benefited from the
upgrade of Korean sovereign debt to investment grade and from reduced fear of
contagion from Brazil. The gaming industry has also demonstrated a sound
earnings trend and the securities in that sector have generally performed well.
Cyclical issues rebounded somewhat in the period. While the Fund has benefited
as certain individual cyclical credits have done well, being underweighted in
these issues was a negative for returns. Pricing has been somewhat better in
many product lines, but security prices may be a bit ahead of the fundamentals
in some cases. For example, capacity utilization in steel is still at
unacceptable levels and the likelihood of strong profitability is questionable
for many companies. However, the level of imports is declining and some price
increases are taking hold. We have been underweighted in these issues, which has
been a large positive for returns over recent years, but have been gradually
reducing this bet by adding names such as Pacific Papers, National Steel and DR
Horton.
The weakest sectors have been healthcare and energy as weak industry pricing has
put serious pressure on the most leveraged competitors. The price of Vencor, a
holding in the long-term care segment, has fallen dramatically due to difficulty
adjusting to a new regulatory pricing scheme. In addition, Columbia HCA, an
important holding that we believe is a sound credit, sold off when it lost its
investment grade rating by S&P. Until recently, weak oil prices depressed the
energy sector. OPEC pledged to reduce production and several major oil companies
have announced mergers with the likely result that combined drilling plans will
be reduced significantly. This should be beneficial for the exploration and
production companies that survive, but spells continued problems for drilling
companies and other service companies.
2
<PAGE>
Even with the rebound in the high yield market relative to high quality bonds,
we continue to believe that the sector offers attractive relative value. Spread
levels versus high quality bonds are still at levels that are wider than long
term averages at a time when the economy and credit quality of most issuers is
strong. High yield bonds also appear compelling versus equities on a risk
adjusted expected return basis.
Sincerely,
/s/ Michael F. Klein
Michael F. Klein
PRESIDENT AND DIRECTOR
April 1999
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.
- -------------------------------------------------------------------------------
IN APRIL 1999, GORDON W. LOERY JOINED IN THE PRIMARY RESPONSIBILITY FOR
MANAGING THE FUND'S ASSETS. MR. LOERY, CURRENTLY A PRINCIPAL OF MORGAN
STANLEY DEAN WITTER INVESTMENT MANAGEMENT INC., JOINED THE COMPANY AS A FIXED
INCOME ANALYST IN 1990.
DAILY NET ASSET AND MARKET VALUES, AS WELL AS MONTHLY PORTFOLIO CHARACTERISTICS,
CAN NOW BE ACCESSED AT WWW.MSDW.COM/INSTITUTIONAL/INVESTMENTMANAGEMENT.
3
<PAGE>
The Morgan Stanley High Yield Fund, Inc.
Investment Summary as of March 31, 1999 (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 4.88% -- 3.44% -- 1.64% --
One Year 14.15 14.15% 2.55 2.55% -0.75 -0.75%
Five Year 108.62 15.84 84.72 13.06 52.07 8.74
Since Inception* 90.59 12.85 78.61 11.49 52.35 8.22
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
- --------------------------------------------------------------------------------
RETURNS AND PER SHARE INFORMATION
[GRAPH]
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED
MARCH 31,
1993* 1994 1995 1996 1997 1998 1999
----- ---- ---- ---- ---- ---- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value Per Share.... $14.10 $11.96 $13.63 $14.45 $15.19 $13.62 $13.76
Market Value Per Share ...... $14.75 $11.38 $12.88 $14.63 $16.06 $15.38 $15.75
Premium/(Discount)........... 4.6% -4.8% -5.5% 1.3% 5.7% 12.9% 14.5%
Income Dividends............. -- $1.37 $ 1.27 $ 1.42 $ 1.36 $ 1.42 $ 0.35
Capital Gains Distributions.. -- -- -- -- $ 0.48 $ 0.83 --
Fund Total Return (2)........ 0.00% -5.53% 26.07% 17.52% 18.48% 4.12% 3.44%
Index Total Return (1)(3).... 1.26% -0.97% 17.39% 12.39% 12.65% 0.58% 1.64%
</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.
4
<PAGE>
The Morgan Stanley High Yield Fund, Inc.
Portfolio Summary as of March 31, 1999 (Unaudited)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
DIVERSIFICATION OF TOTAL INVESTMENTS
[CHART]
<TABLE>
<S> <C>
Debt Instruments (94.6%)
Equity Securities (2.4%)
Short-Term Investments (3.0%)
</TABLE>
- -------------------------------------------------------------------------------
SECTORS
[CHART]
<TABLE>
<S> <C>
Cable (8.7%)
Communications (20.0%)
Gaming (3.5%)
General Industrial (6.3%)
Health Care (7.2%)
Hotels/Lodging/Restaurants (2.8%)
Packaging (3.7%)
Retail (6.8%)
Sovereign and Emerging Markets (18.9%)
Transportation (3.1%)
Other (19.0%)
</TABLE>
- -------------------------------------------------------------------------------
TEN LARGEST HOLDINGS*
<TABLE>
PERCENT OF
TOTAL
INVESTMENTS
-----------
<S> <C>
1. Columbia /HCA Healthcare 3.9%
2. DR Securitized Lease Trust 3.1
3. Nextel Communications, Inc. 2.8
4. Rogers Communications, Inc. 2.6
5. Tenet Healthcare Corp. 2.5
6. Jet Equipment Trust 2.1
7. RSL Communications Ltd. 2.0
8. TV Azteca 1.8
9. CSC Holdings, Inc. 1.7
10. Station Casinos, Inc. 1.7
----
24.2%
----
----
</TABLE>
* Excludes short-term investments.
5
<PAGE>
FINANCIAL STATEMENTS
- ---------
STATEMENT OF NET ASSETS (UNAUDITED)
(SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENTS)
- ---------
MARCH 31, 1999
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- -----------------------------------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS AND NOTES (68.9%)
- -----------------------------------------------------------------------------------------
CABLE(8.7%)
(a) Adelphia Communications
8.375%, 2/1/08 $ 300 $ 308
Adelphia Communications 'B'
8.375%, 2/1/08 800 822
9.875%, 3/1/07 200 220
Adelphia Communications Corp.
7.50%, 1/15/04 160 160
CSC Holdings, Inc.
7.875%, 12/15/07 575 606
9.875%, 5/15/06 1,955 2,148
Global Crossing Holdings Ltd.
9.625%, 5/15/08 1,405 1,566
Lenfest Communications, Inc.
(a) 7.625%, 2/15/08 800 825
8.375%, 11/1/05 975 1,045
(b) NTL, Inc.
0.00%, 4/1/08 2,325 1,581
Rogers Cablesystems
10.125%, 9/1/12 650 726
Rogers Cablesystems 'B'
10.00%, 3/15/05 1,505 1,697
Rogers Communications, Inc.
8.875%, 7/15/07 750 779
9.125%, 1/15/06 800 840
-------------
13,323
-------------
- -----------------------------------------------------------------------------------------
CHEMICALS (0.9%)
ISP Holdings, Inc. 'B'
9.00%, 10/15/03 1,350 1,389
-------------
- -----------------------------------------------------------------------------------------
COMMUNICATIONS (18.4%)
(a) American Cellular Corp.
10.50%, 5/15/08 775 808
AMSC Acquisition Co., Inc. 'B'
12.25%, 4/1/08 1,725 867
(a) Centennial Cellular
10.75%, 12/15/08 805 861
(a) Dial Call Communications 'B'
0.00%, 12/15/05 560 582
Dobson Communications Corp.
11.75%, 4/15/07 1,045 1,123
(b) Dolphin Telecommunications plc
0.00%, 6/1/08 ECU 1,520 795
Echostar DBS Corp.
9.375%, 2/1/09 $ 1,625 1,686
Espirit Telecom Group 'DM'
11.50%, 12/15/07 DEM 665 777
Globalstar LP
11.375%, 2/15/04 $ 1,050 688
Hermes Europe Railtel B.V.
10.375%, 1/15/09 250 266
(b) Hyperion Telecommunications, Inc.
0.00%, 4/15/03 955 790
(b) Intermedia Communications, Inc. 'B'
0.00%, 7/15/07 3,400 2,592
Iridium LLC/Capital Corp. 'A'
13.00%, 7/15/05 1,385 596
Level Three Communications, Inc.
9.125%, 5/1/08 1,125 1,128
(a) Metromedia Fiber Network
10.00%, 11/15/08 790 847
Nextel Communications, Inc.
(b) 0.00%, 8/15/04 315 328
(b) 0.00%, 9/15/07 4,620 3,384
(b) 0.00%, 2/15/08 1,000 700
NEXTLINK Communications, Inc.
(b) 0.00%, 4/15/08 2,500 1,600
(a) 10.75%, 11/15/08 225 242
Primus Telecommunications Group 'B'
9.875%, 5/15/08 1,000 965
Primus Telecommunications Group, Inc.
11.25%, 1/15/09 560 578
PSINet, Inc. 'B'
10.00%, 2/15/05 800 854
(b) Qwest Communications International Inc.
0.00%, 10/15/07 500 396
(b) Qwest Communications International, Inc. 'B'
0.00%, 2/1/08 1,000 769
(b) RCN Corp.
0.00%, 10/15/07 3,000 2,025
(b) Rhythms NetConnections Inc. 'B'
0.00%, 5/15/08 1,335 748
(a,b) Viatel, Inc.
0.00%, 4/15/08 1,180 723
Vintage Petroleum, Inc.
9.75%, 6/30/09 485 495
-------------
28,213
-------------
- -----------------------------------------------------------------------------------------
ENERGY (2.5%)
CMS Energy Corp.
7.50%, 1/15/09 1,290 1,313
(a,b) Husky Oil Ltd.
8.90%, 8/15/28 885 841
(a) Snyder Oil Corp.
8.75%, 6/15/07 1,700 1,704
-------------
3,858
-------------
- -----------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- -----------------------------------------------------------------------------------------
<S> <C> <C>
FINANCIAL (1.3%)
Fuji JGB Investment LLC
9.87%, 12/31/49 $ 1,200 $ 1,068
(a,b) SB Treasury Co. LLC
9.40%, 12/29/49 1,010 990
-------------
2,058
-------------
- -----------------------------------------------------------------------------------------
FOOD AND BEVERAGE (0.7%)
Smithfield Foods, Inc.
7.625%, 2/15/08 1,175 1,134
-------------
- -----------------------------------------------------------------------------------------
GAMING (3.5%)
Harrahs Operating Co., Inc.
7.875%, 12/5/05 1,500 1,511
Park Place Entertainment
7.875%, 12/15/05 1,195 1,176
Station Casinos, Inc.
10.125%, 3/15/06 2,555 2,711
-------------
5,398
-------------
- -----------------------------------------------------------------------------------------
GENERAL INDUSTRIAL (6.3%)
Allied Waste North America 'B'
7.875%, 1/1/09 475 464
American Standard Cos., Inc.
7.375%, 2/1/08 1,080 1,055
Applied Power Inc.
8.75%, 4/1/09 480 485
(a) Axia, Inc.
10.75%, 7/15/08 585 590
(a) CEX Holdings, Inc.
9.625%, 6/1/08 1,065 1,001
Geberit International
10.125%, 4/15/07 DEM 869 1,078
(a) Hayes Lemmerz International, Inc.
8.25%, 12/15/08 $ 1,345 1,348
(b) Norcal Waste Systems, Inc.
13.50%, 11/15/05 1,600 1,776
(a) Nortek, Inc.
8.875%, 8/1/08 750 771
(a) Sirona Dental Systems
9.125%, 7/15/08 DEM 844 970
Vencor, Inc.
9.875%, 5/1/05 $ 1,180 177
-------------
9,715
-------------
- -----------------------------------------------------------------------------------------
HEALTH CARE (7.2%)
Columbia/HCA Healthcare
6.91%, 6/15/05 2,650 2,419
7.00%, 7/1/07 2,025 1,821
7.58%, 9/15/25 2,120 1,777
Fresenius Medical Capital Trust II
7.875%, 2/1/08 1,195 1,180
Tenet Healthcare Corp.
(a) 8.125%, 12/1/08 1,000 971
8.625%, 1/15/07 2,955 2,929
-------------
11,097
-------------
- -----------------------------------------------------------------------------------------
HOTELS/LODGING/RESTAURANTS (2.8%)
Hilton Hotels
7.95%, 4/15/07 1,510 1,547
HMH Properties 'A'
7.875%, 8/1/05 2,530 2,470
Host Marriott LP
8.375%, 2/15/06 250 251
-------------
4,268
-------------
- -----------------------------------------------------------------------------------------
MEDIA AND ENTERTAINMENT (2.8%)
CB Richard Ellis Services
8.875%, 6/1/06 185 185
Chancellor Media Corp. 'B'
8.125%, 12/15/07 2,420 2,456
Outdoor Systems, Inc.
8.875%, 6/15/07 1,480 1,584
-------------
4,225
-------------
- -----------------------------------------------------------------------------------------
METALS (1.9%)
(a) Impress Metal Packaging
9.875%, 5/29/07 DEM 1,611 1,939
(a) Murrin Murrin Holdings Property Ltd.
9.375%, 8/31/07 $ 1,075 968
-------------
2,907
-------------
- -----------------------------------------------------------------------------------------
PACKAGING (3.7%)
Norampac, Inc.
9.50%, 2/1/08 1,485 1,545
Pacific Papers, Inc.
10.00%, 3/15/09 1,405 1,445
SD Warren Co. 'B'
12.00%, 12/15/04 2,235 2,419
Tembec Industries, Inc.
8.625%, 6/30/09 285 289
-------------
5,698
-------------
- -----------------------------------------------------------------------------------------
REAL ESTATE/BUILDING (1.0%)
D.R. Horton Inc.
8.00%, 2/1/09 1,490 1,468
-------------
- -----------------------------------------------------------------------------------------
RETAIL (3.6%)
(a) CA FM Lease Trust
8.50%, 7/15/17 1,410 1,518
(a) HMV Media Group plc
10.875%, 5/15/08 GBP 1,035 1,755
- -----------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- -----------------------------------------------------------------------------------------
<S> <C> <C>
RETAIL (CONTINUED)
Musicland Group, Inc.
9.00%, 6/15/03 $ 590 $ 596
Musicland Group, Inc. 'B'
9.875%, 3/15/08 1,600 1,636
-------------
5,505
-------------
- -----------------------------------------------------------------------------------------
TRANSPORTATION(2.1%)
Jet Equipment Trust 'C1'
11.79%, 6/15/13 1,500 1,907
(a) Jet Equipment Trust 'D-95'
11.44%, 11/1/14 1,100 1,385
-------------
3,292
-------------
- -----------------------------------------------------------------------------------------
UTILITIES(1.5%)
AES Corp.
8.50%, 11/1/07 1,430 1,411
(a) RAS Laffan Liquid Natural Gas
8.294%, 3/15/14 950 894
-------------
2,305
-------------
- -----------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS AND NOTES
(Cost $105,854) 105,853
-------------
- -----------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES (5.3%)
- -----------------------------------------------------------------------------------------
COMMERCIAL SERVICES (1.1%)
DLJ Mortgage Acceptance Corp. 1997-CF2 S
0.357%, 10/15/30 32,592 713
First Home Mortgage Acceptance Corp., 1996-B, Class C
7.929%, 11/1/18 1,312 997
-------------
1,710
-------------
- -----------------------------------------------------------------------------------------
RETAIL (3.2%)
DR Securitized Lease Trust
1993-K1 A1 6.66%, 8/15/10 1,287 1,226
1994-K1 A1 7.60%, 8/15/07 3,141 3,140
1994-K2 A2 9.35%, 8/15/19 500 521
-------------
4,887
-------------
- -----------------------------------------------------------------------------------------
TRANSPORTATION (1.0%)
Aircraft Lease Portfolio Securitization Ltd.
1996-1 P1D 12.75%, 6/15/06 1,594 1,594
-------------
- -----------------------------------------------------------------------------------------
TOTAL ASSET-BACKED SECURITIES
(Cost $7,734) 8,191
-------------
- -----------------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS (1.7%)
- -----------------------------------------------------------------------------------------
ASSET - BACKED CORPORATE (1.4%)
Long Beach Auto 1997-1, 'B'
14.22%, 10/26/03 1,183 1,172
(a) OHA Auto Grantor Trust 1997-1, 'B'
11.00%, 9/15/03 1,045 1,013
-------------
2,185
-------------
- -----------------------------------------------------------------------------------------
COMMERCIAL SERVICES (0.3%)
GMAC IO 1996-C1 CL X2 REMIC
1.916%, 3/15/21 6,323 421
-------------
- -----------------------------------------------------------------------------------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost $2,925) 2,606
-------------
- -----------------------------------------------------------------------------------------
SOVEREIGN AND EMERGING MARKETS (18.7%)
- -----------------------------------------------------------------------------------------
APP Fin II Mauritius Ltd.
12.00%, 2/15/04 U.S.$ 865 415
(a) AST Research Inc.
7.45%, 10/1/02 925 871
(b) CTI Holdings
0.00%, 4/15/08 1,300 721
Glencore Nickel Property Ltd.
9.00%, 12/1/14 935 801
Grupo Minero Mexico 'A'
8.25%, 4/1/08 590 493
(a) Hermes Europe Railtel B.V.
11.50%, 8/15/07 945 1,035
Indah Kiat Finance
10.00%, 7/1/07 1,950 1,092
Korea Development Bank
6.625%, 11/21/03 2,460 2,340
Multicanal
10.50%, 2/1/07 1,705 1,526
(a) Multicanal 'C'
10.50%, 4/15/18 725 604
National Steel Corp.
9.875%, 3/1/09 705 724
9.875%, 3/1/09 365 375
(a) NSM Steel, Inc.
12.25%, 2/1/08 825 50
(b) Occidente y Caribe
0.00%, 3/15/04 3,125 2,266
Philippine Long Distance Telephone
9.25%, 6/30/06 1,725 1,639
(a) Pindo Deli Finance
10.75%, 10/1/07 1,955 1,095
(b) PTC International Finance B.V.
0.00%, 7/1/07 2,150 1,564
Quezon Power Ltd.
8.86%, 6/15/17 1,000 760
- -----------------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- -----------------------------------------------------------------------------------------
<S> <C> <C>
(a) RBS Participacoes
11.00%, 4/1/07 $ 850 $ 450
(b) Republic of Argentina 'L'
6.188%, 3/31/05 1,791 1,535
(b) Republic of Argentina Pre 4 Bocon PIK
5.198%, 9/1/02 1,098 1,158
RSL Communications plc
9.125%, 3/1/08 1,165 1,153
(a) 12.00%, 11/1/08 900 1,008
RSL Communications, Ltd.
(b) 0.00%, 3/15/08 DEM 1,380 963
12.25%, 11/15/06 $ 88 97
(a) Satelites Mexicanos 'B'
10.125%, 11/1/04 565 452
TV Azteca 'B'
10.50%, 2/15/07 3,460 2,872
United Mexican States Par Bond 'W-A'
6.25%, 12/31/19 770 605
- -----------------------------------------------------------------------------------------
TOTAL SOVEREIGN AND EMERGING MARKETS
(Cost $31,956) 28,664
-------------
- -----------------------------------------------------------------------------------------
<CAPTION>
SHARES
- -----------------------------------------------------------------------------------------
<S> <C> <C>
PREFERRED STOCK (2.1%)
- -----------------------------------------------------------------------------------------
COMMUNICATIONS (1.5%)
Concentric Network Corp. 'B' 8 917
IXC Communications, Inc. 'B' 1,285 1,388
Viatel, Inc., Series 'A' 10.00% 5,171 85
-------------
2,390
-------------
- -----------------------------------------------------------------------------------------
MEDIA AND ENTERTAINMENT (0.6%)
Paxson Communications Corp. 10,500 874
-------------
- -----------------------------------------------------------------------------------------
TOTAL PREFERRED STOCK
(Cost $2,787) 3,264
-------------
- -----------------------------------------------------------------------------------------
<CAPTION>
NO. OF
WARRANTS
- -----------------------------------------------------------------------------------------
<S> <C> <C>
WARRANTS (0.3%)
- -----------------------------------------------------------------------------------------
COMMUNICATIONS (0.1%)
(a) American Mobile Satellite Corp.,
expiring 4/1/08 17,250 6
(a) Globalstar Telecom, expiring
2/15/04 1,000 48
(a) Iridium World Communications, Inc.,
expiring 7/15/05 840 48
- -----------------------------------------------------------------------------------------
<CAPTION>
NO. OF VALUE
WARRANTS (000)
- -----------------------------------------------------------------------------------------
<S> <C> <C>
(a) Nextel Communications, expiring 4/25/99 2,500 $ --
Rhythms NetConnections Inc., expiring 5/15/08 12,000 48
-------------
150
-------------
SOVEREIGN AND EMERGING MARKETS (0.2%)
(a) NSM Steel, Inc., expiring 2/1/08 5,223,013 5
(a) Occidente y Caribe, expiring 3/15/04 12,500 219
----------- -------------
224
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- -----------------------------------------------------------------------------------------
TOTAL WARRANTS
(Cost $9) 374
-------------
- -----------------------------------------------------------------------------------------
<CAPTION>
FACE
AMOUNT
(000)
- -----------------------------------------------------------------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (3.0%)
- -----------------------------------------------------------------------------------------
REPURCHASE AGREEMENT (3.0%)
Chase Securities, Inc. 4.65%,
dated 3/31/99, due 4/1/99,
to be repurchased at $4,584,
collateralized by $3,435
United States Treasury Bonds,
10.375%, due 11/15/12,
valued at $4,718
(Cost $4,583) $ 4,583 $ 4,583
-------------
- -----------------------------------------------------------------------------------------
TOTAL INVESTMENTS (100.0%)
(Cost $155,848) 153,535
-------------
- -----------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES
Other Assets $ 4,632
Liabilities (36,630) (31,998)
----------- -------------
- -----------------------------------------------------------------------------------------
NET ASSETS
Applicable to 8,832,863 issued and
outstanding $0.01 par value shares
(100,000,000 shares authorized) $ 121,537
-------------
-------------
- -----------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $ 13.76
-------------
-------------
- -----------------------------------------------------------------------------------------
</TABLE>
(a) -- 144A Security - certain conditions for public sale may exist.
(b) -- Step Bond--coupon rate increases in increments to maturity. Rate
disclosed is as of March 31, 1999. 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.
IO -- Interest Only
9
