<PAGE>
MORGAN STANLEY
GLOBAL OPPORTUNITY BOND FUND, INC.
- ---------------------------------------------
OFFICERS AND DIRECTORS
<TABLE>
<S> <C>
Barton M. Biggs John A. Levin
CHAIRMAN OF THE BOARD DIRECTOR
OF DIRECTORS William G. Morton, Jr.
Frederick B. Whittemore DIRECTOR
VICE-CHAIRMAN OF THE BOARD James W. Grisham
OF DIRECTORS VICE PRESIDENT
Warren J. Olsen Harold J. Schaaff, Jr.
PRESIDENT AND DIRECTOR VICE PRESIDENT
Peter J. Chase Joseph P. Stadler
DIRECTOR VICE PRESIDENT
John W. Croghan Valerie Y. Lewis
DIRECTOR SECRETARY
David B. Gill James R. Rooney
DIRECTOR TREASURER
Graham E. Jones Joanna M. Haigney
DIRECTOR ASSISTANT TREASURER
</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
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
(800) 278-4353
- ---------------------------------------------------------
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
GLOBAL OPPORTUNITY
BOND FUND, INC.
---------------------
FIRST QUARTER REPORT
MARCH 31, 1996
MORGAN STANLEY ASSET MANAGEMENT INC.
INVESTMENT ADVISER
<PAGE>
LETTER TO SHAREHOLDERS
- --------
For the three months ended March 31, 1996, the Morgan Stanley Global Opportunity
Bond Fund, Inc. had a total return based on net asset value per share of 2.93%
compared with 3.76% for the J.P. Morgan Emerging Markets Bond Index. For the
period since the Fund's commencement of operations on May 27, 1994 through March
31, 1996, the Fund's total return based on net asset value per share is 15.91%
compared with 23.79% for the Index. On March 29, 1996, the closing price of the
Fund's shares on the New York Stock Exchange was $13.00, representing a 0.23%
premium to the Fund's net asset value per share.
The positive momentum that emerging markets debt witnessed in the first few
weeks of the year faded as the U.S. bond markets re-evaluated the likely future
direction of U.S. interest rates. The U.S. yield curve at that point of time was
discounting continued easing of monetary policy, given the weak state of the
economy. The inventory adjustment combined with a restrictive fiscal stance and
weak conditions in the external sector had produced sub-par growth for the
fourth quarter of 1995. The continuation of these conditions into 1996 was
questioned by bond market participants at the beginning of the year and
leveraged investors unwound positions in the short end of the market and
initiated the reversal in yields. This back-up in yields was exacerbated by a
spate of economic releases which suggested that the economy was in fact picking
up steam in the first quarter. Rates eventually increased by 120 basis points in
the short end and 80 basis points at the long end of the yield curve.
The reversal in the fortunes of the U.S. bond market had an adverse impact on
emerging market debt asset prices. Deleveraging and a reduction in risk
exposures to the asset class prompted a 10% correction in prices over a course
of four weeks. Fixed rate collateralized bonds, bonds with the highest interest
rate duration, were the hardest hit. Floating-rate non-collateralized bonds
outperformed due to their low interest rate durations.
The Fund's performance over the quarter resulted as it was defensively
positioned for the move in interest rates, overweight positions in money market
and floating rate assets with low durations and a sizable cash position during
the correction in the market. Our country allocations also were defensive in
nature; underweight in Argentina, Mexico and Brazil, the countries whose assets
were most likely to be negatively affected by overall market conditions, and
overweight in Russia, Morocco, Venezuela and Panama, countries with lower than
average market exposure.
Over the quarter, Bulgaria, Argentina, Mexico and Russia underperformed the
overall index and Peru, Panama, Poland, Venezuela and Ecuador outperformed the
market on average. Poland received an investment grade rating from S&P and
became the first emerging country to migrate from the asset class. Polish Brady
bonds rallied strongly on the news as rating action recognized the strong
performance of the economy and the implementation of structural reforms over the
last four years. Panama and Peru outperformed as they continued with their
steady economic performance and underweight investors sought to increase their
exposures to these countries. Some questions were raised about the
sustainability of growth in Peru, given the continuation of large current
account deficits and a strong exchange rate. Remedial action in the form of a
tightening of monetary policy to cool aggregate demand should alleviate these
concerns. We had retained our overweight positions in Panama for most of the
quarter and had reduced some of our exposure into market strength. We remain
positive on the credit and will seek to maintain our current exposure.
Venezuela continued to make slow and steady progress towards implementing an
orthodox stabilization program. Progress was not without hiccups as the
political leadership postponed making harsh economic decisions, until there were
really no alternatives left to rescue the economy from an implosion resulting
from a severe decline in confidence. The eventual program had most of the
elements of an orthodox stabilization program. Venezuelan bonds rallied into the
news of the impending program as default risk was sharply reduced. We increased
our exposure to Venezuela during a bout of market skepticism and will retain our
aggressive overweight position to capture high yields and possible further
tightening of credit spreads.
2
<PAGE>
Argentina underperformed during the first quarter by 500 basis points as
continued weakness in the economy, resulting from the tequila affect induced
1995 recession, produced another round of political wrangling between the
President and his Finance Minister over policy alternatives available to jump
start growth in 1996. Economic growth should gather steam as the year
progresses, as firms rebuild inventories and consumer expenditures pick up. We
reduced our exposure to Argentina in the middle of the quarter as we became more
defensive on the market and increased it again towards the end of the quarter as
political problems appeared to have been sorted out.
Mexican Brady bonds underperformed the market as it was affected by concerns
over the impact of higher interest rates on the domestic economy. Our exposure
is limited primarily to local currency denominated treasury bills, which
performed well as the currency strengthened in nominal terms and interest rates
came down from the lofty levels seen at the beginning of the year. Mexican Brady
bonds trade at relatively tight spreads compared to the rest of the market and
we do not believe they offer value at such levels. The export-led economic
recovery seems to be taking a firmer hold and a drastic reduction in inflation
towards the second half of the year should result in a virtuous cycle of low
inflation, low interest rates and higher growth. The economy, however, remains
vulnerable to external shocks and the recent appreciation of the peso could
portend trouble ahead. We remain cautious on Mexico and believe higher yields
elsewhere in the market are more attractive.
Brazil continues to be the solid performer of the market. A strong vibrant
private sector, reasonable economic growth, lower inflation, and high foreign
reserves make it a safer place to invest in the long term. In the short run,
however, momentum to implement reforms that would increase the long term
viability of the Real plan, such as the measures to reform social security and
the administrative machinery of the state, appears to be getting caught in the
politics as usual pre-election atmosphere of the Brazilian congress. Significant
progress on these issues is necessary to contain the fiscal deficit and maintain
economic stability. Brazil will remain a core holding in our portfolio, but we
will not overweight Brazil in the absence of any real chance of the leadership
regaining the upper hand in its attempt to push through necessary reform
measures in 1996.
Russia remains one of our largest positions. Russian loans underperformed in the
first quarter as concerns over a possible Communist victory in the Presidential
elections depressed prices. We believe that the incumbent President will gain
ground as the election date approaches and prices should rally in the next
quarter. Current valuations suggest that Russian non-performing loans trade at
wider spreads than Bulgaria. Based on credit fundamentals fair value should be
at least 500 basis points tighter than current levels.
We remain cautiously optimistic on emerging markets debt. Despite a negative
U.S. rate environment in the first quarter, emerging debt has performed well.
This has been true because of a contraction of credit spreads based on improving
economic stories. Management of portfolio duration remains a key aspect of
performance. Credit spreads are likely to be volatile in an environment when
interest rates are likely to go up. Our exposure to money market instruments in
local currencies should provide us with some diversification benefits.
The high yield market performed well in the face of a sharp rise in Treasury
yields during the first quarter of 1996. Once again, this performance
demonstrates the high yield markets resiliency and that it does not correlate
well with general interest rate movements. The latter points out the
diversification benefits and value-added that high yield bonds can provide an
investor.
While the quarter was good for high yield, some pressure became evident by
mid-March. Mutual fund inflows began to slow a bit yet new issuance continued at
a strong pace. Spreads had narrowed considerably through February as ten-year
Treasury bonds had already risen fifty basis points since the beginning of the
year, on their way to a seventy basis point widening by the end of the quarter.
This rate rise finally caused a negative return for the month of March but still
less than the loss incurred by the Treasury market. At the end of March, the
3
<PAGE>
spread of the First Boston High Yield Index was 418 basis points over Treasuries
versus a spread of 484 basis points at the beginning of the year.
Lower rated credits, traditionally less interest rate sensitive than better
quality bonds, did best in this environment. The spread between BB and B rated
bonds narrowed at least twenty basis points. Even lower rated bonds tightened to
a greater extent. Gaming continued to be a strong sector.
Earnings momentum in the casinos is good and enabled Donald Trump to consolidate
and refinance two of his Atlantic City properties.
The restaurant sector also performed well. A few distressed issues rallied
sharply and others held their price while accruing interest at very high levels.
Underperformers tended to be longer duration, better quality bonds. Fitting into
this category were airlines, utilities and media bonds.
Looking forward, we see value in some of the cyclical issues in the marketplace.
Issuers in the steel, paper and auto sectors represent intriguing opportunities.
While the earnings outlook in these sectors is either poor or at best uncertain,
bond prices reflect much if not more than the anticipated problems. We also
continue to like the cable and communications sectors and will maintain an
exposure to emerging markets.
Sincerely,
[SIGNATURE]
Warren J. Olsen
PRESIDENT AND DIRECTOR
[SIGNATURE]
Robert E. Angevine
PORTFOLIO MANAGER
[SIGNATURE]
Paul Ghaffari
PORTFOLIO MANAGER
April 29, 1996
4
<PAGE>
Morgan Stanley Global Opportunity Bond Fund, Inc.
Investment Summary as of March 31, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HISTORICAL
INFORMATION (UNAUDITED)
TOTAL RETURN (%)
----------------------------------------------------------------------------------------
MARKET VALUE (1) NET ASSET VALUE (2) INDEX (1)(3)
---------------------------- ---------------------------- ----------------------------
AVERAGE AVERAGE AVERAGE
CUMULATIVE ANNUAL CUMULATIVE ANNUAL CUMULATIVE ANNUAL
<S> <C> <C> <C> <C> <C> <C>
---------------------------- ---------------------------- ----------------------------
FISCAL YEAR TO DATE 7.21% -- 2.93% -- 3.76% --
ONE YEAR 30.86 30.86% 34.38 34.38% 48.80 48.80%
SINCE INCEPTION* 16.18 8.46 15.91 8.32 23.79 12.25
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
- --------------------------------------------------------------------------------
RETURNS AND PER SHARE INFORMATION
A BAR CHART REFLECTING THE DATA BELOW IS REFLECTED HERE.
<TABLE>
<CAPTION>
THREE MONTHS
<S> <C> <C> <C>
Years ended December 31: Ended 3/31/96**
1994* 1995 (Unaudited)
Net Asset Value Per Share $12.25 $12.99 $12.97
Market Value Per Share $12.50 $12.50 $13.00
Premium/(Discount) 2.0% -3.8% 0.2%
Income Dividends $0.91 $1.59 $0.40
Fund Total Return (2) -6.42% 20.34% 2.93%
Index Total Return (1)
(3)** -6.45% 27.54% 3.76%
</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
per share of the Fund.
(3) JP Morgan Emerging Markets Bond Index
* The Fund commenced operations on May 27, 1994.
** Unaudited.
5
<PAGE>
Morgan Stanley Global Opportunity Bond Fund, Inc.
Portfolio Summary as of March 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO INVESTMENTS DIVERSIFICATION
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Debt Securities 97.9%
Short-Term Investments 2.1%
</TABLE>
- --------------------------------------------------------------------------------
COUNTRY WEIGHTINGS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
United States 28.5%
Russia 20.1%
Argentina 11.3%
Venezuela 9.0%
Mexico 8.7%
Brazil 6.0%
South Africa 4.0%
Morocco 3.5%
Poland 3.2%
Bulgaria 2.5%
Turkey 2.1%
Ecuador 2.0%
Panama 1.3%
Canada 0.5%
Other -2.7%
</TABLE>
- --------------------------------------------------------------------------------
TEN LARGEST HOLDINGS
<TABLE>
<CAPTION>
PERCENT OF
NET ASSETS
-----------
<C> <S> <C>
1. Government of Russia Debt 20.1%
2. Government of Venezuela Debt 9.0
3. Government of Argentina Debt 9.0
4. Banamex Pagare Discount,
Zero Coupon 10/23/97 6.8
5. Government of Brazil Debt 4.1
6. Government of South Africa Debt 4.0
<CAPTION>
PERCENT OF
NET ASSETS
-----------
<C> <S> <C>
7. Kingdom of Morocco Restructuring and
Consolidation Agreement 'A' 1990
5.59375%, 1/1/09 3.5%
8. Republic of Poland Note,
Zero Coupon 1/8/97 3.3
9. Six Flags Theme Parks Inc.,
12.25%, 6/15/05 2.6
10. The Republic of Bulgaria Discount 'A'
6.25%, 7/28/24 2.5
-----
64.9%
-----
-----
</TABLE>
6
<PAGE>
INVESTMENTS (UNAUDITED)
- ---------
MARCH 31, 1996
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
DEBT INSTRUMENTS (100.5%)
- --------------------------------------------------
- ----------
ARGENTINA (11.3%)
BONDS
IMPSA 11.75%, 3/27/98 U.S.$ 1,250 U.S.$ 1,250
Republic of Argentina 'L' 6.31%,
3/31/05 6,683 4,820
--------------
6,070
--------------
- ---------------------------------------------------------
- ------------
BRAZIL (6.0%)
BONDS
Federative Republic of Brazil 'C'
8.00%, 4/15/14 PIK 3,729 2,200
Iochpe Maxion 12.375%, 11/8/02 1,750 1,050
--------------
3,250
--------------
- ---------------------------------------------------------
- ------------
BULGARIA (2.5%)
BOND
The Republic of Bulgaria Discount 'A'
6.25%, 7/28/24 2,750 1,370
--------------
- ---------------------------------------------------------
- ------------
CANADA (0.5%)
BOND
Rogers Communications, Inc.
9.125%, 1/15/06 250 244
--------------
- ---------------------------------------------------------
- ------------
ECUADOR (2.0%)
BOND
Republic of Ecuador
Discount 6.06%, 2/28/25 2,000 1,083
--------------
- ---------------------------------------------------------
- ------------
MEXICO (8.7%)
BONDS
Banamex Pagare Discount, Zero Coupon
10/23/97 MXP 45,124 3,664
National Financiera, 17.00%, 2/26/99 4,000 996
--------------
4,660
--------------
- ---------------------------------------------------------
- ------------
MOROCCO (3.5%)
LOAN AGREEMENT
Kingdom of Morocco Restructuring and
Consolidation
Agreement 'A' 1990
6.59375%, 1/1/09
(Participation: Goldman Sachs,
Lehman Brothers) U.S.$ 2,700 1,880
--------------
- ---------------------------------------------------------
- ------------
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
PANAMA (1.3%)
BOND
Republic of Panama,
6.75%, 5/10/02 U.S.$ 750 U.S.$ 671
--------------
- ---------------------------------------------------------
- ------------
POLAND (3.2%)
NOTE
Republic of Poland
Zero Coupon, 1/8/97 2,039 1,745
--------------
- ---------------------------------------------------------
- ------------
RUSSIA (20.1%)
BOND
Ministry of Finance
Tranche IV, 3.00%, 5/14/03 13,050 5,424
--------------
LOAN AGREEMENTS
Bank for Foreign
Economic Affairs CHF 10,000 2,824
Bank for Foreign
Economic Affairs U.S.$ 7,500 2,559
--------------
5,383
--------------
10,807
--------------
- ---------------------------------------------------------
- ------------
SOUTH AFRICA (4.0%)
BONDS
Republic of South Africa,
Series 147 11.50%, 5/30/00 ZAR 1,000 226
Series 153 13.00%, 8/31/10 5,240 1,148
Series 162 12.50%, 1/15/02 2,320 528
Series 175 9.00%, 10/15/02 800 151
Series 177 9.50%, 5/15/07 600 105
--------------
2,158
--------------
- ---------------------------------------------------------
- ------------
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- ---------------------------------------------------------
- ------------
<S> <C> <C>
UNITED STATES (28.4%)
BONDS
Ackerley Communications, Inc.,
'A', 10.75%, 10/1/03 U.S.$ 800 U.S.$ 848
AES Corp. 9.75%, 6/15/00 1,000 1,023
AMF Group, Inc. Zero Coupon, 3/15/06 130 71
APP International Finance 11.75%,
10/1/05 175 172
Beverly Enterprises, Inc. 9.00%,
2/15/06 80 77
Cablevision Systems Corp. 9.875%,
2/15/13 1,300 1,352
Corporate Express, Inc. "B' 9.125%,
3/15/04 1,300 1,329
Crown Paper 11.00%, 9/1/05 135 125
Echostar Satellite
Broadcast 0%, 3/15/04 160 96
IMC Global, Inc., 9.25%, 10/1/00 450 477
La Quinta Inns, Inc.,
9.25%, 5/15/03 80 84
Lenfest Communications 8.375%, 11/1/05 300 289
Marcus Cable Co 0%, 12/15/05 150 97
Marvel Holdings, Inc.,
Zero Coupon, 4/15/98 1,150 874
Maxus Energy Corp.
11.50%, 11/15/15 1,000 1,028
MFS Communications
0%, 1/15/06 185 116
Norcal Waste Systems, Inc. 12.50%,
11/15/05 500 516
Owens-Illinois, Inc. 9.75%, 8/15/04 500 514
9.95%, 10/15/04 500 517
Pilgrim's Pride Corp.
10.875%, 8/1/03 500 474
Plantronics, Inc. 10.00%, 1/15/01 500 511
Reliance Group Holdings, Inc.
9.00%, 11/15/00 195 198
Revlon Worldwide Corp.
Zero Coupon, 3/15/98 160 126
Riverwood International 10.25%, 4/1/06 65 65
RJR Nabisco 8.75%, 8/15/05 185 180
SD Warren Company
12.00%, 12/15/04 145 153
Sheffield Steel Corp.
12.00%, 11/1/01 150 134
Six Flags Theme Parks, Inc. 12.25%,
6/15/05 1,700 1,394
Telewest plc
Zero Coupon, 10/1/07 180 109
TLC Beatrice, 11.50%, 10/1/05 105 107
Unisys Corp., 12.00%, 4/15/03 220 219
Viacom, Inc., 8.00%, 7/7/06 1,000 947
Westpoint Stevens, Inc. 9.375%,
12/15/05 1,050 1,045
--------------
15,267
--------------
- ---------------------------------------------------------
- ------------
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
VENEZUELA (9.0%)
BONDS
Republic of Venezuela Par Bond 'A'
6.75%, 3/31/20
(Oil Warrants Attached) U.S.$ 4,250 U.S.$ 2,407
Republic of Venezuela
Debt Conversion Bond
'DL' 6.56%, 12/18/07 4,000 2,425
--------------
4,832
--------------
- ---------------------------------------------------------
- ------------
TOTAL DEBT INSTRUMENTS
(Cost $54,329) 54,037
--------------
- ---------------------------------------------------------
- ------------
<CAPTION>
NO. OF
WARRANTS
<S> <C> <C>
- ---------------------------------------------------------
- ------------
WARRANTS (0.1%)
- ---------------------------------------------------------
- ------------
UNITED STATES (0.1%)
Petro Shopping Centers L.P., expiring
6/1/97 1,000 33
Sheffield Steel Corp.,
expiring 11/1/01 750 2
--------------
35
--------------
- ---------------------------------------------------------
- ------------
TOTAL WARRANTS
(Cost $5) 35
--------------
- ---------------------------------------------------------
- ------------
<CAPTION>
FACE
AMOUNT
(000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
SHORT TERM INVESTMENTS (2.1%)
- ---------------------------------------------------------
- ------------
TURKEY (2.1%)
TREASURY BILLS
Zero Coupon 6/19/96 TRL42,670,000 492
Zero Coupon 7/10/96 60,000,000 659
--------------
(Cost $1,280) 1,151
--------------
- ---------------------------------------------------------
- ------------
<CAPTION>
AMOUNT
(000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
TOTAL INVESTMENTS (102.7%)
(Cost $55,614) 55,223
--------------
- ---------------------------------------------------------
- ------------
OTHER ASSETS AND LIABILITIES (-2.7%)
Other Assets U.S.$ 2,820
Liabilities (4,282) (1,462)
--------------- --------------
- ---------------------------------------------------------
- ------------
NET ASSETS (100.0% )
Applicable to 4,145,999, issued
and outstanding U.S.$0.01
par value shares (100,000,000
shares authorized) U.S.$ 53,761
--------------
--------------
- ---------------------------------------------------------
- ------------
NET ASSET VALUE PER SHARE U.S.$ 12.97
--------------
--------------
- ---------------------------------------------------------
- ------------
</TABLE>
CHF -- Swiss Franc
MXP -- Mexican Peso
TRL -- Turkish Lira
ZAR -- South African Rand
8
