<PAGE>
MORGAN STANLEY
GLOBAL OPPORTUNITY BOND FUND, INC.
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OFFICERS AND DIRECTORS
<TABLE>
<S> <C>
Peter A. Nadosy James W. Grisham
CHAIRMAN OF THE BOARD VICE PRESIDENT
OF DIRECTORS Harold J. Schaaff, Jr.
Warren J. Olsen VICE PRESIDENT
PRESIDENT AND DIRECTOR Joseph P. Stadler
Gerard E. Jones VICE PRESIDENT
DIRECTOR Valerie Y. Lewis
William G. Morton, Jr. SECRETARY
DIRECTOR Hilary D. Toole
Fergus Reid ASSISTANT SECRETARY
DIRECTOR James R. Rooney
Peter E. de Svastich TREASURER
DIRECTOR Timothy F. Osborne
ASSISTANT TREASURER
</TABLE>
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INVESTMENT ADVISER
Morgan Stanley Asset Management Inc.
1221 Avenue of the Americas
New York, New York 10020
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ADMINISTRATOR
The United States Trust Company of New York
73 Tremont Street
Boston, Massachusetts 02108
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CUSTODIANS
Morgan Stanley Trust Company
One Pierrepont Plaza
Brooklyn, New York 11201
The United States Trust Company of New York
770 Broadway
New York, New York 10003
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SHAREHOLDER SERVICING AGENT
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
(800) 278-4353
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LEGAL COUNSEL
Rogers & Wells
200 Park Avenue
New York, New York 10166
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INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
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-----------------------------------
MORGAN STANLEY
GLOBAL OPPORTUNITY
BOND FUND, INC.
-----------------------------------
FIRST QUARTER REPORT
MARCH 31, 1995
MORGAN STANLEY ASSET MANAGEMENT INC.
INVESTMENT ADVISER
<PAGE>
LETTER TO SHAREHOLDERS
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For the first quarter of 1995, the total return based on net asset value per
share of the Morgan Stanley Global Opportunity Bond Fund, Inc. was -7.67%. The
Fund's stock price ended the quarter at $11.25, down 6.87% (assuming
reinvestment of dividends) for the quarter. The high yield market was strong in
the first quarter of 1995. A strong Treasury market and a firm equity market
underpinned the good results in high yield. Ten year Treasury bond yields
declined over sixty basis points to 7.2% and the S&P 500 returned 9.7%.
Technical factors in the high yield market were also favorable. New issues were
light and mutual fund cash flows returned to positive territory after
experiencing outflows in 1994. The casino sector performed well in the first
quarter after suffering through most of 1994. A better outlook in Atlantic City
and the maturing in some of the Mississippi riverboat locations helped spur the
improvement in the sector. Chemicals also performed well as commodity prices
rose and pushed earnings to very high levels. IMC Global appears capable of
reaching investment grade over the intermediate term and Arcadian, another
fertilizer company, is selling equity to further strengthen its balance sheet.
We had one negative surprise in the portfolio. In our last report we said that
there were rumors that a major integrated oil company might acquire MAXUS
Energy. This turned out to be true, but the acquirer was YPF, the Argentine oil
giant whose bonds were depressed along with all of the emerging markets sector.
This brought down MAXUS bonds as well, but they have since risen back up to
pre-merger levels.
If the Federal Reserve is able to engineer a "soft-landing", the high yield
market should have a reasonable outlook, but if earnings soften very much, the
market could soften. We are maintaining a conservative stance in the high yield
portion of the portfolio.
At the end of last year we stated that we felt the casino sector was oversold.
This turned out to be the case as it was the best performing sector in the
market for the first quarter. Casinos are a large industry weighting, accounting
for about 3.6% of the Fund. We also continue to have a meaningful position in
the cable television and broadcasting sector, as well as in paper and packaging
and utilities. Pricing re-regulation is behind the cable industry and we like
the powerful cash flows these companies generate. Furthermore, we believe that
cable companies are well positioned in the emerging marketplace for video and
telephone services. The packaging sector has benefited from a strong cyclical
turn in volume and pricing to post very strong earnings gains. This has
translated into a strong bond performance also. The utility sector has performed
well because both Colombia Gas and El Paso Electric appear to be near the end of
their respective bankruptcies.
Several IPOs also buoyed the market during the quarter. Two of the large LBOs of
the 1980s, Fort Howard and American Standard, finally returned to the public
markets. In addition, Bell and Howell announced its intention to sell equity to
the public. Investors began to differentiate sector bets within the cyclicals.
For example, while paper companies performed well in the marketplace, steel
credits have weakened. Investors grew concerned that the steel industry had
peaked when Nucor announced price reductions on certain product lines. Finally,
the biggest news in the market occurred after the end of the quarter when the
McCaw family announced its intention to invest $1 billion in Nextel, a high
yield credit. Nextel and other technology bonds rallied sharply on this news and
helped highlight some of the asset values that exist in the high yield market.
The Mexican peso devaluation of December 20, 1994 set the tone for emerging debt
and equity markets in the new year. The first quarter saw violent swings in
Brady bond prices in the major developing countries. For the first quarter,
emerging markets debt dropped 11% on average as measured by the benchmark JP
Morgan Emerging Markets Bond Index.
The Mexican financial crisis was brought about by a combination of economic,
financial and political factors. An excessive reliance on short-term
2
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debt linked to the US dollar, current account deficits, an overvalued exchange
rate, a loose monetary policy, political and social tensions and a mismanaged
devaluation produced a financial crisis in Mexico leading to withdrawals by
foreign investors and a run on the country's foreign exchange reserves. A lack
of refinancing alternatives in a hostile external environment drove fixed income
and equity prices down as Mexico sought funds from its partners in NAFTA and the
multilateral agencies in order to avoid rescheduling its liabilities.
A high level of systemic risk in the market produced high volatility and
correlations across all emerging markets countries. The sell-off, at times
indiscriminate, created high correlations thereby reducing the benefits of
diversification in fund portfolios. Reactions to political and economic news and
events during periods of falling liquidity caused price volatilities to remain
at the high end of their ranges. Constant re-valuation of default risk
exacerbated by poor technical conditions (such as the need of broker/dealers to
hedge illiquid Eurobond and local currency debt with liquid Brady bonds and the
unwinding of structured notes, as prices hit stop-loss levels) caused asset
prices to decline precipitously.
We maintained our major Latin positions throughout the first quarter, with
weightings in Brazil (12%), Argentina (9%), Mexico (8%), Panama (3%) and
Venezuela (10%) at March 31. The investment strategy continues to be to
emphasize longer duration sovereign instruments--in most cases Brady bonds. We
believe the markets which along with Mexico were severely hurt in the first
quarter will be the outperformers in the second quarter.
The most significant change to the portfolio came with the addition of Mexican
peso-denominated T-bills (Cetes) which we scaled into over the quarter, reaching
an aggregate weighting of 4% at quarter-end.
The first quarter crash sobered both policy-makers and investors in emerging
markets. The central lesson learned from December 20, 1994 was that the market
will exact a severe penalty upon countries which stray from prudent, balanced
macroeconomic policies. We are impressed with the steps taken by emerging
countries in immediate response to the Mexican crisis. We believe the long-term
fundamentals of emerging markets are intact; the past three months have
instilled discipline, and valuations are compelling.
Sincerely,
[SIG]
Robert E. Angevine
PORTFOLIO MANAGER
[SIG]
Paul Ghaffari
PORTFOLIO MANAGER
May 8, 1995
3
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INVESTMENTS (UNAUDITED)
(Showing Percentage of Total Value of Investments)
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MARCH 31, 1995
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<C> <S> <C> <C>
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DEBT INSTRUMENTS (93.4%)
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ARGENTINA (8.8%)
BONDS
+++ Republic of Argentina Discount Bond
7.125%, 3/31/23 U.S.$3,000 U.S.$1,590
+++ Republic of Argentina Local Markets
Trust 13.375%, 8/15/01 2,750 1,918
+++ Republic of Argentina Par Bond
5.00%, 3/31/23 1,500 619
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4,127
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BRAZIL (11.6%)
BONDS
+++ Federative Republic of Brazil 'C'
Bond 'Euro' 8.00%, 4/15/14 PIK 12,240 4,559
+++ Federative Republic of Brazil New
Money Bond 6.75%, 4/15/09 1,500 679
Iochpe Maxion 12.375%, 11/8/02 250 216
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5,454
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BULGARIA (3.4%)
BOND
+++ The Republic of Bulgaria Discount
Bond 'A' 7.5625%, 7/28/24 3,750 1,603
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INDONESIA (3.3%)
BOND
Polysindo Eka Perkasa 13.00%,
6/15/01 1,700 1,564
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MEXICO (4.1%)
BONDS
Petroleos Mexicanos 8.625%, 12/1/23 2,750 1,361
United Mexican States 8.50%,
9/15/02 1,000 545
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1,906
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MOROCCO (8.4%)
LOAN AGREEMENT
+++ Kingdom of Morocco Restructuring
and Consolidation Agreement `A'
1990 7.375%, 1/1/09
(Participation: Goldman Sachs,
Salomon Brothers) 6,700 3,920
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</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
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<C> <S> <C> <C>
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PANAMA (3.3%)
LOAN AGREEMENT
Republic of Panama
Unrestructured Loan Agreement U.S.$3,960 U.S.$1,564
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UNITED STATES (40.5%)
BONDS
Ackerley Communications, Inc.,
Series A 10.75%, 10/1/03 800 802
AES Corp. 9.75%, 6/15/00 1,000 982
Arcadian Partners, L.P. 10.75%,
5/1/05 1,250 1,239
Aztar Corp. 11.00%, 10/1/02 1,300 1,245
Cablevision Systems Corp. 9.875%,
2/15/13 1,300 1,250
Corporate Express, Inc. 9.125%,
3/15/04 1,300 1,235
Doehler Jarvis Inc. 11.875%, 6/1/02 1,300 1,344
IMC Global, Inc. 9.25%, 10/1/00 1,450 1,457
Marvel Holdings, Inc. 0%, 4/15/98 3,000 1,901
MAXUS Energy Corp. 11.50%, 11/15/15 2,000 1,698
Moran Transportation Co. 11.75%,
7/15/04 500 482
Owens-Illinois, Inc. 9.95%,
10/15/04 500 492
Penn Traffic Co. 10.25%, 2/15/02 650 658
Penn Traffic Co. 9.625%, 4/15/05 650 600
Plantronics, Inc. 10.00%, 1/15/01 500 502
Repap Wisconsin, Inc. 9.25%, 2/1/02 500 472
Triangle Pacific Corp. 10.50%,
8/1/03 1,000 984
Westpoint Stevens, Inc. 9.375%,
12/15/05 300 275
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17,618
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UNITS
Petro PSC Properties 12.50%, 6/1/02
(Sr. Note + 1 Warrant) 1,000 1,000
Trump Taj Mahal PIK 11.35%,
11/15/99 (Bond + 1 Taj Mahal
Holding Corp. `B' Common Stock) 500 379
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1,379
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18,997
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</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
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<C> <S> <C> <C>
- - ------------
VENEZUELA (10.0%)
BONDS
+++ Republic of Venezuela Debt
Conversion Bond `DL' 7.6875%,
12/18/07 U.S.$ 4,000 U.S.$ 1,690
+++ Republic of Venezuela Front-Loaded
Interest Reduction Bond `A'
8.875%, 3/31/07 5,000 2,125
+++ Republic of Venezuela Front-Loaded
Interest Reduction Bond `B'
8.875%, 3/31/07 2,000 850
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4,665
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TOTAL DEBT INSTRUMENTS
(Cost U.S.$51,898) 43,800
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SHORT TERM INVESTMENTS (6.6%)
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MEXICO (4.0%)
MEXICAN CETES
6/1/95 MXN 4,930 640
8/24/95 6,000 671
8/31/95 2,363 261
2/22/96 3,336 287
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1,859
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UNITED STATES (2.6%)
REPURCHASE AGREEMENT
U.S. Trust, 6.00%, dated 3/31/95,
due 4/3/95, to be repurchased at
U.S. $1,211, collateralized by
U.S. $1,165 Government National
Mortgage Association 9.50% to
10.00%, due 10/15/09 to 11/15/09,
valued at U.S. $1,255 U.S.$ 1,210 1,210
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TOTAL SHORT TERM INVESTMENTS
(Cost U.S.$3,572) 3,069
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TOTAL INVESTMENTS (100.0%)
(Cost $55,470) 46,869
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<CAPTION>
AMOUNT VALUE
(000) (000)
<C> <S> <C> <C>
- - ------------------------------------------------------------------------
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OTHER ASSETS AND LIABILITIES
Other Assets U.S.$ 2,320
Liabilities (4,031) U.S.$ (1,711)
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NET ASSETS
Applicable to 4,130,049 issued and
outstanding U.S.$.01 par values shares
(100,000,000 shares authorized) U.S.$ 45,158
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NET ASSET VALUE PER SHARE U.S.$ 10.93
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<FN>
+++ Variable/floating rate security - rate disclosed is as of
March 31, 1995
PIK--Payment-in-Kind
MXN--Mexican New Peso
</TABLE>
5
