<PAGE>
MORGAN STANLEY
GLOBAL OPPORTUNITY BOND FUND, INC.
- ---------------------------------------------
DIRECTORS AND OFFICERS
<TABLE>
<S> <C>
Barton M. Biggs William G. Morton, Jr.
CHAIRMAN OF THE BOARD DIRECTOR
OF DIRECTORS James W. Grisham
VICE PRESIDENT
Michael F. Klein 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 Joanna M. Haigney
DIRECTOR TREASURER
Graham E. Jones Belinda A. Brady
DIRECTOR ASSISTANT TREASURER
John A. Levin
DIRECTOR
</TABLE>
- ---------------------------------------------
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
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.
---------------------
SEMI-ANNUAL REPORT
JUNE 30, 1997
MORGAN STANLEY ASSET MANAGEMENT INC.
INVESTMENT ADVISER
<PAGE>
LETTER TO SHAREHOLDERS
- --------
For the six months ended June 30, 1997, the Morgan Stanley Global Opportunity
Bond Fund, Inc. (the "Fund") had a total return, based on net asset value per
share, of 13.06% compared to 8.08% for the Fund's benchmark (described below).
For the one year ended June 30, 1997, the Fund had a total return, based on net
asset value per share, of 33.57% compared with 23.60% for the benchmark. For the
period since the Fund's commencement of operations on May 27, 1994 through June
30, 1997, the Fund's total return, based on net asset value per share, was
67.39% compared with 65.03% for the benchmark. The Fund uses as its benchmark,
for purpose of comparing its performance, a composite comprised of 50% of the
J.P. Morgan Emerging Markets Bond Plus Index and 50% of the CS First Boston High
Yield Index. However, the Fund's weightings in these asset classes are not
restricted and will, under normal circumstances, fluctuate depending on market
conditions. At June 30, 1997 the Fund's net assets were comprised of 79.9% of
Emerging Markets debt securities and 25.0% U.S. high yield securities.
On June 30, 1997, the closing price of the Fund's shares on the New York Stock
Exchange was $16.25, representing a 2.4% premium to the Fund's net asset value
per share.
The emerging debt market recovered from its late first quarter correction buoyed
by falling U.S. interest rates and a renewed investor appetite for yield. U.S.
interest rates fell by 35 to 40 basis points across the yield curve. This
decline in rates was prompted by signs of moderating economic growth and the
lack of evidence of any inflationary pressures in the system. These factors
reassured investors that the Federal Reserve would not increase interest rates
anytime soon. In addition to the positive interest rate environment, a
confluence of events both fundamental and technical in nature bolstered the
performance of emerging markets debt. On the fundamental front, improving
macro-economic outlooks and rating upgrades by major U.S. ratings agencies in
Argentina, Brazil, the Philippines, Uruguay and Venezuela provided support.
While on the technical front, a continuation of the trend of Brady bond
retirement and debt buybacks as well as a strong inflow of funds from
non-dedicated or "crossover" investors caused spreads on emerging markets debt
to tighten back to levels not seen since 1993.
During the second quarter of 1997, Bulgaria, Russia and Peru outperformed the
universe of emerging market debt, while the Philippines, Poland and Nigeria were
the performance laggards. The Fund's overweight positions in Bulgaria and Russia
as well as underweights in Nigeria, the Philippines and Poland allowed the
portfolio to outperform the broad market benchmark.
Bulgarian bonds were the best performing in the emerging country universe during
the second quarter. The election of a reformist democratic government in April
assured investors that prudent macro-economic policy measures would be enacted.
The new government secured technical and financial help from the IMF and the
World Bank and adopted a policy framework to facilitate the July first
introduction of a currency board monetary system. As prices of Bulgarian Brady
bonds rose, we reduced our exposure to the credit but remained overweight. We
expect continued outperformance next quarter from our Bulgarian positions albeit
at a more gradual pace.
Russian bonds benefited from a positive change in the political dynamics, as
President Yeltzin shook up his cabinet and replaced key ministers with a new
guard of aggressive reformers. The other outperforming credit, Peru, reacted to
the release of above consensus GDP growth numbers of over 7% for the first 6
months of the year.
Our value-oriented investment style steered us away from the debt of the
Philippines and Poland which both trade at fully valued levels. Both countries
suffered from their proximity to the turbulence of neighboring currency markets
and both were forced to keep local interest rates high in a defensive move
against possible speculative attacks on their own currencies. We will monitor
both situation closely and may increase our exposure should valuations become
more attractive.
Deteriorating political dynamics caused us to avoid Nigerian debt which suffered
from its failed involvement in the unrest in neighboring Sierra Leone. The
Nigerian's inability to install the former civilian government has undermined
political stability in Nigeria. Also, lack of progress on economic reforms has
reduced the prospect of a new IMF agreement and consequently, debt forgiveness.
2
<PAGE>
The U.S. high yield market was affected by most of the same factors that
affected the emerging markets, namely lower U.S. Treasury rates and investors
renewed desire for yield. The soaring stock market also provided further
confidence for high yield investors.
The cable television and communications sectors continued to perform well for
the Fund. A notable highlight during the period was the announcement by
Microsoft of its intention to invest $1 billion in Comcast. This sent higher the
bond and stock prices of virtually all of the cable operators.
Nextel also continued to be a strong performer for the Fund. Nextel is a
wireless phone operator controlled by industry pioneer Craig McCaw. Recently
McCaw exercised options to solidify his control and the company accelerated the
buildout of its national coverage.
Our outlook remains cautiously positive. The benign U.S. rate environment,
improving economic fundamentals and growing investor interest in the emerging
debt and high yield asset class should cause risk premiums to come down and
prices to rise over the medium term. Over the short term, however, we will be
watching for signs of fatigue as spreads are near historic lows and we expect
some profit taking. Additionally, some emerging countries in Asia and eastern
Europe are experiencing considerable local currency volatility and we will be
monitoring the potential contagion effects on emerging debt.
Sincerely,
[SIGNATURE]
Michael F. Klein
PRESIDENT AND DIRECTOR
[SIGNATURE]
Robert E. Angevine
PORTFOLIO MANAGER
[SIGNATURE]
Paul Ghaffari
PORTFOLIO MANAGER
July 1997
3
<PAGE>
Morgan Stanley Global Opportunity Bond Fund, Inc.
Investment Summary as of June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HISTORICAL
INFORMATION
TOTAL RETURN (%)
----------------------------------------------------------------------------------------
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 17.62% -- 13.06% -- 8.08% --
ONE YEAR 37.98 37.98% 33.57 33.57% 23.60 23.60%
SINCE INCEPTION* 71.39 19.58 67.39 18.10 65.03 17.56
</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>
TOTAL RETURN
YEARS ENDED DECEMBER 31:
1994* 1995 1996 SIX MONTHS ENDED JUNE 30, 1997
<S> <C> <C> <C> <C>
Net Asset Value Per Share $12.25 $12.99 $14.86 $15.87
Market Value Per Share $12.50 $12.50 $14.63 $16.25
Premium/(Discount) 2.0% -3.8% -1.5% 2.4%
Income Dividends $0.91 $1.59 $1.49 $0.72
Capital Gains Distributions _ _ $0.50 $0.18
Fund Total Return (2) -6.42% 20.34% 31.45% 13.06%
Index Total Return (3) -0.46% 22.37% 25.36% 8.08%
Morgan Stanley Global Opportunity Bond Fund, Inc. (2)
Global Opportunity Blended Composite (3)
J.P. Morgan Emerging Markets Bond Index
</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) Prior to fiscal year 1997, the Fund used the J.P. Morgan Emerging Markets
Bond Index for performance purposes. Beginning in 1997, the Fund is now
using a Global Opportunity Blended Composite comprised of 50% of the JP
Morgan Emerging Markets Bond Plus Index and 50% of the CS First Boston High
Yield Index for the purpose of performance comparisons. This composite
better represents the investment strategy of the Fund. However, the Fund's
weighting in these asset classes is not restricted and will, under normal
circumstances, fluctuate depending on market conditions. As of June 30,
1997, the Fund's net assets were comprised of 79.9% emerging market debt
securities and 25.0% U.S. high yield securities.
* The Fund commenced operations on May 27, 1994.
4
<PAGE>
Morgan Stanley Global Opportunity Bond Fund, Inc.
Portfolio Summary as of June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO INVESTMENTS DIVERSIFICATION
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Debt Securities 94.6%
Equity Securities 2.1%
Short-Term Investments 3.3%
</TABLE>
- --------------------------------------------------------------------------------
COUNTRY WEIGHTINGS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
United States 28.4%
Mexico 15.1%
Russia 13.9%
Argentina 12.4%
Brazil 11.4%
Venezuela 8.4%
Jamaica 3.9%
Bulgaria 3.8%
Ivory Coast 2.9%
Morocco 2.6%
Other -2.8%
</TABLE>
- --------------------------------------------------------------------------------
TEN LARGEST HOLDINGS
<TABLE>
<CAPTION>
PERCENT OF NET
ASSETS
---------------
<C> <S> <C>
1. Ministry of Finance Tranche IV 3.00%,
5/14/03 6.1%
2. Republic of Argentina 6.75%, 3/31/05 5.9
3. Federative Republic of Brazil Debt
Conversion 'L' Bond 6.94%, 4/15/12 4.5
4. Republic of Venezuela Debt Conversion Bond
'DL' 6.75%, 12/18/07 4.2
5. Salomon Brothers Federative Republic of
Brazil Credit Linked Enhanced Note 9.00%,
1/5/99 3.8
<CAPTION>
PERCENT OF NET
ASSETS
---------------
<C> <S> <C>
6. Empresas ICA Sociedad Controladora 144A
11.875%, 5/30/01 3.3%
7. Russia Principal Note, Zero Coupon,
12/31/99 3.1
8. The Chase Manhattan Bank United Mexican
States Stripped Discount Note 6.375%,
9/9/97 2.7
9. Kingdom of Morocco Restructuring and
Consolidation Agreement 'A'
(Participation: J.P. Morgan) 6.375%,
1/1/09 2.6
10. Bancomext Global Bond 7.25%, 2/2/04 2.4
-----
38.6%
-----
-----
</TABLE>
5
<PAGE>
FINANCIAL STATEMENTS
- ---------
STATEMENT OF NET ASSETS (UNAUDITED)
- ---------
JUNE 30, 1997
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
DEBT INSTRUMENTS (96.2%)
- ---------------------------------------------------------
- ------------
ARGENTINA (12.4%)
BONDS
Industrias Pescarmona S.A.
11.75%, 3/27/98 U.S.$ 1,250 U.S.$ 1,299
Metrogas S.A. 'B' 10.875%,
5/15/01 1,000 1,100
(c)Republic of Argentina
6.75%, 3/31/05 4,123 3,878
Republic of Argentina 11.00%,
10/9/06 800 890
Republic of Argentina 144A
11.75%, 2/12/07 ARP 450 502
(f)Republic of Argentina Par
Bond 5.50%, 3/31/23 U.S.$ 700 485
------------
8,154
------------
- ---------------------------------------------------------
- ------------
BRAZIL (7.6%)
BONDS
Federative Republic of Brazil
Global Bond 10.13%, 5/15/27 1,295 1,248
Federative Republic of Brazil
'C' Bond PIK 8.00%, 4/15/04 1,009 811
(c)Federative Republic of
Brazil Debt Conversion 'L'
Bond 6.94%, 4/15/12 3,550 2,938
------------
4,997
------------
- ---------------------------------------------------------
- ------------
BULGARIA (3.8%)
BONDS
(c)Republic of Bulgaria
Discount Bond 'A' Euro
6.56%, 7/28/24 1,300 959
(f)Republic of Bulgaria Front
Loaded Interest Reduction
Bond 2.25%, 7/28/12 2,250 1,285
(c)Republic of Bulgaria Past
Due Interest Bond 6.56%,
7/28/11 340 246
------------
2,490
------------
- ---------------------------------------------------------
- ------------
COLOMBIA (0.6%)
BOND
(f)Occidente y Caribe 0.00%,
3/15/04 525 389
------------
- ---------------------------------------------------------
- ------------
ECUADOR (0.8%)
BOND
Conecel 144A 14.00%,
5/1/02 500 531
------------
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- ---------------------------------------------------------
- ------------
<S> <C> <C>
IVORY COAST (2.9%)
LOAN AGREEMENTS
(b)Republic of Ivory Coast
Syndicated Loan U.S.$ 450 U.S.$ 189
(b)Republic of Ivory Coast
Syndicated Loan DEM 1,105 266
(b)Republic of Ivory Coast
Syndicated Loan FRF 18,100 1,460
------------
1,915
------------
- ---------------------------------------------------------
- ------------
JAMAICA (3.9%)
BONDS
Government of Jamaica 9.63%,
7/2/02 U.S.$ 1,500 1,509
Mechala Group Jamaica, Ltd.
'B' 144A 12.75%, 12/30/99 1,000 1,058
------------
2,567
------------
- ---------------------------------------------------------
- ------------
MEXICO (12.4%)
BONDS
Bancomext Global Bond 7.25%,
2/2/04 1,700 1,587
Empresas ICA Sociedad
Controladora 144A 11.875%,
5/30/01 2,000 2,185
Nacional Financiera 17.00%,
2/26/99 ZAR 4,000 882
United Mexican States 11.50%,
5/15/26 U.S.$ 1,100 1,257
(c)United Mexican States
Discount Bond 6.87%,
12/31/19 900 838
United Mexican States Global
Bond 6.25%, 12/31/19 1,500 1,160
United Mexican States Par Bond
'A' 6.25%, 12/31/19 300 232
------------
8,141
------------
- ---------------------------------------------------------
- ------------
MOROCCO (2.6%)
LOAN AGREEMENTS
(c,e)Kingdom of Morocco
Restructuring and
Consolidation Agreement 'A'
(Participation: J.P. Morgan)
6.375%, 1/1/09 1,900 1,742
------------
- ---------------------------------------------------------
- ------------
PANAMA (0.8%)
BONDS
(c)Republic of Panama Interest
Reduction Bond Euro 144A
3.50%, 7/17/14 550 425
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- ---------------------------------------------------------
- ------------
<S> <C> <C>
PANAMA (CONTINUED)
BONDS (continued)
(c)Republic of Panama Past Due
Interest Bond PIK 6.56%,
7/17/16 U.S.$ 101 U.S.$ 89
------------
514
------------
- ---------------------------------------------------------
- ------------
PERU (1.6%)
BOND
(f)Republic of Peru Front
Loaded Interest Reduction
Bond 13.25%, 3/7/17 1,750 1,046
------------
- ---------------------------------------------------------
- ------------
RUSSIA (13.9%)
BONDS (7.1%)
Ministry of Finance Tranche IV
3.00%, 5/14/03 5,949 3,992
Ministry of Finance Tranche VI
3.00%, 5/14/06 1,300 706
------------
4,698
------------
LOAN AGREEMENTS (2.8%)
(b,d)Bank for Foreign Economic
Affairs (Participation:
Chase Securities, Inc.) 600 551
(d)International Bank for
Economic Cooperation 1,000 625
(d)International Bank for
Economic Cooperation DEM 1,750 627
------------
1,803
------------
NOTES (4.0%)
(g)Russia Interest Arrears
Note U.S.$ 750 573
(g)Russia Principal Note, Zero
Coupon, 12/31/99 3,100 2,068
------------
2,641
------------
9,142
------------
- ---------------------------------------------------------
- ------------
SOUTH AFRICA (1.7%)
BOND
Republic of South Africa '150'
12.00%, 2/28/05 ZAR 5,800 1,141
------------
- ---------------------------------------------------------
- ------------
UNITED STATES (22.8%)
ASSET-BACKED SECURITIES (1.5%)
Aircraft Lease Portfolio
Securitization Ltd., 1996-1
P1D 12.75%, 6/15/06 U.S.$ 374 403
DR Securitized Lease Trust
1993-K1 A1 6.66%, 8/15/10 164 143
1994-K1 A1 7.60%, 8/15/07 487 458
------------
1,004
------------
BONDS (20.4%)
Advanced Micro Devices, Inc.
11.00%, 8/1/03 260 290
Amresco, Inc. '97-A' 10.00%,
3/15/04 100 103
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- ---------------------------------------------------------
- ------------
<S> <C> <C>
Anthem Insurance 144A 9.00%,
4/1/27 U.S.$ 375 U.S.$ 386
Big Flower Press Holdings,
Inc. 144A 8.875%, 7/1/07 275 270
Brooks Fiber Properties
(f)0.00%, 11/1/06 30 20
(f)0.00%, 3/1/06 700 477
10.00%, 6/1/07 144A 50 51
CA FM Lease Trust 144A 8.50%,
7/15/17 248 254
Cablevision Systems Corp.
9.875%, 5/15/06 405 431
Comcast Cellular Corp. 144A
9.50%, 5/1/07 300 304
Courtyard By Marriott 'B'
10.75%, 2/1/08 300 325
(f)Dial Call Communications
'B' 0.00%, 12/15/05 165 130
Digital Equipment Corp.
8.625%, 11/1/12 125 124
(f)Echostar Satellite
Broadcast 0.00%, 3/15/04 145 103
EES Coke Battery Co., Inc.
144A 9.38%, 4/15/07 100 102
First Nationwide
9.125%, 1/15/03 100 103
10.625%, 10/1/03 144A 170 187
Gaylord Container Corp.
11.50%, 5/15/01 500 526
Grand Casinos 10.125%, 12/1/03 400 418
HMC Acquisition Properties
9.00%, 12/15/07 350 356
Horseshoe Gaming L.L.C. 144A
9.375%, 6/15/07 250 253
Host Marriott Travel 9.50%,
5/15/05 450 470
ISP Holdings, Inc. 'B' 9.00%,
10/15/03 395 408
IXC Communications, Inc.
12.50%, 10/1/05 165 189
Jet Equipment Trust 'C-1' 144A
11.79%, 6/15/13 175 218
KMart Corp. 7.75%, 10/1/12 125 115
Midland Cogeneration Ventures
'C-94' 10.33%, 7/23/02 188 201
Midland Funding Corp. I 'C-91'
10.33%, 7/23/02 24 26
Midland Funding Corp. II 'A'
11.75%, 7/23/05 80 93
Navistar Financial Corp. 144A
9.00%, 6/1/02 65 67
(f)Nextel Communications
0.00%, 8/15/04 1,010 773
(f)Norcal Waste Systems Inc.
13.00%, 11/15/05 500 567
Nuevo Energy Co. 9.50%,
4/15/06 240 251
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- ---------------------------------------------------------
- ------------
<S> <C> <C>
UNITED STATES (CONTINUED)
BONDS (continued)
Outdoor Systems Inc. 144A
8.875%, 6/15/07 U.S.$ 275 U.S.$ 267
Paramount Communications
8.25%, 8/1/22 175 167
Qwest Communications
International 144A 10.875%,
4/1/07 235 255
Riggs Capital Trust II 144A
8.875%, 3/15/27 140 142
RJR Nabisco Inc. 8.75%,
4/15/04 265 270
Rogers Cablesystems 'B'
10.00%, 3/15/05 425 460
Rogers Communications, Inc.
9.125%, 1/15/06 90 91
SD Warren Co. 'B' 12.00%,
12/15/04 215 241
Sinclair Broadcast Group 144A
9.00%, 7/15/07 110 107
Snyder Oil Corp. 8.75%,
6/15/07 175 174
Southland Corp. 5.00%,
12/15/03 290 246
Station Casinos, Inc. 144A
9.75%, 4/15/07 270 267
(f)TCI Satellite Entertainment
144A 0.00%, 2/15/07 615 366
Tele-Communications, Inc.
9.25%, 1/15/23 425 443
(f)Teleport Communications
0.00%, 7/1/07 555 401
Tenet Healthcare Corp. 8.625%,
1/15/07 200 204
TLC Beatrice International
Holdings 11.50%, 10/1/05 255 286
(b,f)Transamerican Energy 144A
0.00%, 6/15/02 100 72
Viacom, Inc. 8.00%, 7/7/06 390 379
------------
13,429
------------
COLLATERALIZED MORTGAGE OBLIGATIONS (0.9%)
First Home Mortgage Acceptance
Corp., 1996-B, Class C 144A
7.9289%, 11/1/18 250 221
Long Beach Auto 1997-1,
'B' 144A 14.22%, 10/26/03 350 355
------------
576
------------
15,009
------------
- ---------------------------------------------------------
- ------------
VENEZUELA (8.4%)
BONDS
(c)Republic of Venezuela Debt
Conversion Bond 'DL' 6.75%,
12/18/07 3,000 2,784
(c)Republic of Venezuela
Discount Bond 'A' 6.81%,
3/31/20 900 798
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- ---------------------------------------------------------
- ------------
<S> <C> <C>
(c)Republic of Venezuela
Discount Bond 'B' 6.81%,
3/31/20 U.S.$ 700 U.S.$ 620
(f)Republic of Venezuela Front
Loaded Interest Reduction
Bond 'A' 6.75%, 3/31/07 714 665
(f)Republic of Venezuela Front
Loaded Interest Reduction
Bond 'B' 6.75%, 3/31/07 714 665
------------
5,532
------------
- ---------------------------------------------------------
- ------------
TOTAL DEBT INSTRUMENTS
(Cost U.S.$60,157) 63,310
------------
- ---------------------------------------------------------
- ------------
STRUCTURED INVESTMENTS (6.5%)
- ---------------------------------------------------------
- ------------
BRAZIL (3.8%)
Salomon Brothers Federative
Republic of Brazil Credit
Linked Enhanced Note
9.00%, 1/5/99 2,500 2,476
------------
- ---------------------------------------------------------
- ------------
MEXICO (2.7%)
The Chase Manhattan Bank
United Mexican States
Stripped Discount Note
6.375%, 9/9/97 2,500 1,811
------------
- ---------------------------------------------------------
- ------------
TOTAL STRUCTURED INVESTMENTS
(Cost U.S.$4,245) 4,287
------------
<CAPTION>
- ---------------------------------------------------------
- ------------
NO. OF
UNITS
<S> <C> <C>
- ---------------------------------------------------------
- ------------
UNITS (0.5%)
- ---------------------------------------------------------
- ------------
UNITED STATES
Globalstar L.P. 144A 11.375%,
2/15/04
(Sr. Notes + 1 Warrant)
(Cost U.S.$328) 330,000 330
------------
<CAPTION>
- ---------------------------------------------------------
- ------------
NO. OF
WARRANTS
<S> <C> <C>
- ---------------------------------------------------------
- ------------
WARRANTS (0.0%)
- ---------------------------------------------------------
- ------------
COLOMBIA (0.0%)
(a) Occidente y Caribe 144A,
expiring 3/15/04 2,100 --@
------------
- ---------------------------------------------------------
- ------------
VENEZUELA (0.0%)
(a) Republic of Venezuela
Oil, expiring 4/15/20 14,995 --@
------------
- ---------------------------------------------------------
- ------------
TOTAL WARRANTS
(Cost U.S.$0) --@
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
<TABLE>
<CAPTION>
NO. OF VALUE
RIGHTS (000)
- ---------------------------------------------------------
- ------------
<S> <C> <C>
RIGHTS (0.0%)
- ---------------------------------------------------------
- ------------
MEXICO (0.0%)
(a)United Mexican States Par
Bond Value Recovery Rights,
expiring 6/30/03
Cost (U.S.$0) 1,800,000 U.S.$ --@
------------
<CAPTION>
- ---------------------------------------------------------
- ------------
SHARES
<S> <C> <C>
- ---------------------------------------------------------
- ------------
PREFERRED STOCK (1.7%)
- ---------------------------------------------------------
- ------------
UNITED STATES
Sinclair Capital 144A 11.625% 2,050 217
TCI Communications, Inc. 5.00%
(Convertible) 1,775 182
Time Warner, Inc. Series 'M'
10.25% 683 749
------------
- ---------------------------------------------------------
- ------------
TOTAL PREFERRED STOCK
(Cost U.S.$1,039) 1,148
------------
<CAPTION>
- ---------------------------------------------------------
- ------------
FACE
AMOUNT
(000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
SHORT-TERM INVESTMENT (3.4%)
- ---------------------------------------------------------
- ------------
UNITED STATES
REPURCHASE AGREEMENT
Chase Securities, Inc., 5.70%,
dated 6/30/97, due 7/1/97, to
be repurchased at U.S.
$2,229, collateralized by
United States Treasury Notes,
5.625%, due 2/15/06, valued
at U.S. $2,267 (Cost
U.S.$2,229) U.S.$ 2,229 2,229
------------
- ---------------------------------------------------------
- ------------
FOREIGN CURRENCY ON DEPOSIT
WITH CUSTODIAN (0.2%)
- ---------------------------------------------------------
- ------------
French Franc
(Cost U.S. $131) FRF 770 131
------------
- ---------------------------------------------------------
- ------------
TOTAL INVESTMENTS (108.5%)
(Cost U.S.$68,129) 71,435
------------
- ---------------------------------------------------------
- ------------
OTHER ASSETS (16.2%)
Receivable for Investments
Sold U.S.$ 9,474
Interest Receivable 1,143
Dividends Receivable 20
Deferred Organization Costs 12
Other Assets 42 10,691
----------- ------------
<CAPTION>
AMOUNT AMOUNT
(000) (000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
LIABILITIES (-24.7%)
Payable for:
Investments Purchased U.S.$(13,000)
Dividends Declared (2,156)
Bank Overdraft (825)
Interest (81)
Investment Advisory Fees (55)
Shareholder Reporting
Expenses (51)
Professional Fees (40)
Directors' Fees and Expenses (27)
Custodian Fees (13)
Administration Fees (13)
Other Liabilities (3) U.S.$(16,264)
----------- ------------
- ---------------------------------------------------------
- ------------
NET ASSETS (100%)
Applicable to 4,149,498 issued and
outstanding U.S.$0.01 par value shares
(100,000,000 shares authorized) U.S.$ 65,862
------------
------------
- ---------------------------------------------------------
- ------------
NET ASSET VALUE PER SHARE U.S.$ 15.87
------------
------------
- ---------------------------------------------------------
- ------------
<CAPTION>
AMOUNT
(000)
<S> <C> <C>
- ---------------------------------------------------------
- ------------
AT JUNE 30, 1997, NET ASSETS CONSISTED OF:
- ---------------------------------------------------------
Common Stock U.S.$ 41
Capital Surplus 57,714
Accumulated Net Investment Loss (322)
Accumulated Net Realized Gain 5,124
Unrealized Appreciation on Investments and
Foreign Currency Translations 3,305
- ---------------------------------------------------------
- ------------
TOTAL NET ASSETS U.S.$ 65,862
------------
------------
- ---------------------------------------------------------
- ------------
</TABLE>
(a) -- Non-income producing.
(b) -- Non-income producing - in default.
(c) -- Variable/floating rate security - rate disclosed is as of June 30,
1997.
(d) -- Under restructuring at June 30, 1997 - see note A-8 to financial
statements.
(e) -- Participation interests were acquired through the financial
institutions indicated parenthetically.
(f) -- Step Bond - coupon rate increases in increments to maturity. Rate
dislcosed is as of June 30, 1997. Maturity date disclosed is the
ultimate maturity.
(g) -- When Issued Security - see note A-9 to financial statements.
144A -- 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.
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
<TABLE>
<S> <C> <C>
- ----------------------------------------------------
- ------------
JUNE 30, 1997 EXCHANGE RATES:
- ----------------------------------------------------
ARP Argentine Peso 0.99985 = U.S.$1.00
DEM German Mark 1.74335 = U.S.$1.00
FRF French Franc 5.87470 = U.S.$1.00
South African
ZAR Rand 4.53700 = U.S.$1.00
</TABLE>
- ---------------------------------------------
- ---------
SUMMARY OF TOTAL INVESTMENTS BY
INDUSTRY CLASSIFICATION -- JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PERCENT
VALUE OF NET
INDUSTRY (000) ASSETS
<S> <C> <C>
- ---------------------------------------------------------------
- ------------
Asset-Backed Securities U.S.$ 1,004 1.5%
Aerospace & Defense 218 0.3
Automobiles 102 0.1
Banking 1,877 2.9
Broadcast - Radio & Television 862 1.3
Chemicals 408 0.6
Coal, Gas & Oil 1,100 1.7
Collateralized Mortgage Obligations 576 0.9
Computers 414 0.6
Diversified 749 1.1
Energy 497 0.8
Entertainment & Leisure 350 0.5
Financial Services 784 1.2
Food 286 0.4
Foreign Currency 131 0.2
Foreign Government & Agency Obligations 40,572 61.6
Gaming & Lodging 1,732 2.6
Health Care Supplies & Services 204 0.3
Insurance 386 0.6
Loan Agreements 5,460 8.3
Multi -- Industry 4,521 6.9
Professional Services 270 0.4
Real Estate 356 0.6
Repurchase Agreement 2,229 3.4
Retail -- General 360 0.6
Services 1,213 1.8
Telecommunications 4,455 6.8
Utilities 319 0.5
------------ -------
U.S.$ 71,435 108.5%
------------ -------
------------ -------
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, 1997
(UNAUDITED)
STATEMENT OF OPERATIONS (000)
<S> <C>
- ---------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Interest................................................................................ U.S.$ 3,194
Dividends............................................................................... 33
- ---------------------------------------------------------------------------------------------------------------
Total Income.......................................................................... 3,227
- ---------------------------------------------------------------------------------------------------------------
EXPENSES
Investment Advisory Fees................................................................ 319
Administrative Fees..................................................................... 79
Shareholder Reporting Expenses.......................................................... 54
Professional Fees....................................................................... 43
Custodian Fees.......................................................................... 26
Directors' Fees and Expenses............................................................ 15
Interest Expense........................................................................ 10
Transfer Agent Fees..................................................................... 8
Other Expenses.......................................................................... 21
- ---------------------------------------------------------------------------------------------------------------
Total Expenses........................................................................ 575
- ---------------------------------------------------------------------------------------------------------------
Net Investment Income............................................................. 2,652
- ---------------------------------------------------------------------------------------------------------------
NET REALIZED GAIN (LOSS)
Investment Securities Sold.............................................................. 5,173
Foreign Currency Transactions........................................................... 20
Investment Securities Sold Short........................................................ (15)
Written Options......................................................................... 27
- ---------------------------------------------------------------------------------------------------------------
Net Realized Gain................................................................. 5,205
- ---------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION
Appreciation on Investments............................................................. 86
Depreciation on Foreign Currency Translations........................................... 8
- ---------------------------------------------------------------------------------------------------------------
Change in Unrealized Appreciation/Depreciation.................................... 94
- ---------------------------------------------------------------------------------------------------------------
Total Net Realized Gain and Change in Unrealized Appreciation/Depreciation.................. 5,299
- ---------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................................... U.S.$ 7,951
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, 1997 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1996
STATEMENT OF CHANGES IN NET ASSETS (000) (000)
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net Investment Income............................................... U.S.$ 2,652 U.S.$ 7,098
Net Realized Gain................................................... 5,205 6,865
Change in Unrealized Appreciation/Depreciation...................... 94 2,018
- ---------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations................ 7,951 15,981
- ---------------------------------------------------------------------------------------------------------------
Distributions:
Net Investment Income............................................... (2,986) (6,178)
Net Realized Gain................................................... (746) (2,059)
- ---------------------------------------------------------------------------------------------------------------
Total Distributions................................................. (3,732) (8,237)
- ---------------------------------------------------------------------------------------------------------------
Capital Share Transactions:
Reinvestment of Distributions (3,499 shares)........................ 52 --
- ---------------------------------------------------------------------------------------------------------------
Total Increase...................................................... 4,271 7,744
Net Assets:
Beginning of Period................................................. 61,591 53,847
- ---------------------------------------------------------------------------------------------------------------
End of Period (including accumulated undistributed net investment
income (loss) of U.S.$(322) and U.S.$12, respectively)............. U.S.$65,862 U.S.$61,591
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
SIX MONTHS PERIOD FROM
ENDED YEAR ENDED DECEMBER 31, MAY 27, 1994*
JUNE 30, 1997 --------------------------------- TO DECEMBER 31,
SELECTED PER SHARE DATA AND RATIOS: (UNAUDITED) 1996 1995 1994
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD...................... U.S.$ 14.86 U.S.$ 12.99 U.S.$ 12.25 U.S.$ 14.10
- -----------------------------------------------------------------------------------------------------------------------------------
Offering Costs............................................ -- -- -- (0.17)
- -----------------------------------------------------------------------------------------------------------------------------------
Net Investment Income..................................... 0.64 1.71 1.61 0.95
Net Realized and Unrealized Gain (Loss) on Investments.... 1.27 2.15 0.72 (1.72)
- -----------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations...................... 1.91 3.86 2.33 (0.77)
- -----------------------------------------------------------------------------------------------------------------------------------
Distributions:
Net Investment Income................................. (0.72) (1.49) (1.59) (0.91)
Net Realized Gain..................................... (0.18) (0.50) -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Total Distributions................................... (0.90) (1.99) (1.59) (0.91)
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD............................ U.S.$ 15.87 U.S.$ 14.86 U.S.$ 12.99 U.S.$ 12.25
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
PER SHARE MARKET VALUE, END OF PERIOD..................... U.S.$ 16.25 U.S.$ 14.63 U.S.$ 12.50 U.S.$ 12.50
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN:
Market Value.......................................... 17.62% 34.44% 13.49% (4.51)%
Net Asset Value (1)................................... 13.06% 31.45% 20.34% (6.42)%
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
RATIOS, SUPPLEMENTAL DATA:
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (THOUSANDS)..................... U.S.$ 65,862 U.S.$ 61,591 U.S.$ 53,847 U.S.$ 50,607
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of Expenses Before Interest Expense to Average Net
Assets................................................... 1.77%** 1.81% 1.95% 1.75%**
Ratio of Expenses After Interest Expense to Average Net
Assets................................................... 1.80%** 2.00% 2.06% 2.97%**
Ratio of Net Investment Income to Average Net Assets...... 8.32%** 12.17% 13.07% 11.90%**
Portfolio Turnover Rate................................... 176% 280% 160% 86%
- -----------------------------------------------------------------------------------------------------------------------------------
*Commencement of Operations.
**Annualized.
(1)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. This percentage is 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.
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997 (UNAUDITED)
- ------------
The Morgan Stanley Global Opportunity Bond Fund, Inc. (the "Fund"), was
incorporated in Maryland on March 31, 1994, and is registered as a
non-diversified, closed-end management investment company under the Investment
Company Act of 1940, as amended. The Fund's primary objective is to produce high
current income and as a secondary objective to seek capital appreciation through
investments primarily in high yield bonds.
A. The following significant accounting policies, which are in conformity with
generally accepted accounting principles for investment companies, are
consistently followed by the Fund in the preparation of its financial
statements. Generally accepted accounting principles may require management to
make estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results may differ from those estimates.
1. SECURITY VALUATION: In valuing the Fund's assets, all listed securities for
which market quotations are readily available are valued at the last sale
price on the valuation date, or if there was no sale on such date, at the
mean between the current bid and asked prices or the bid price if only bid
quotations are available. Securities which are traded over-the-counter are
valued at the average of the mean of the current bid and asked prices
obtained from reputable brokers. Securities may be valued by independent
pricing services which use prices provided by market-makers or estimates of
market values obtained from yield data relating to investments or securities
with similar characteristics. Certain securities may be valued on the basis
of bid prices provided by one principal market maker. Short-term securities
which mature in 60 days or less are valued at amortized cost. All other
securities and assets for which market values are not readily available
(including investments which are subject to limitations as to their sale)
are valued at fair value as determined in good faith by the Board of
Directors (the "Board") although the actual calculations may be done by
others.
2. TAXES: It is the Fund's intention to continue to qualify as a regulated
investment company and distribute all of its taxable income. Accordingly, no
provision for U.S. Federal income taxes is required in the financial
statements.
The Fund may be subject to taxes imposed by countries in which it invests.
Such taxes are generally based on either income or gains earned or
repatriated. Taxes are accrued and applied to net investment income, net
realized gains and net unrealized appreciation as such income and/or gains
are earned.
3. REPURCHASE AGREEMENTS: In connection with transactions in repurchase
agreements, a bank as custodian for the Fund takes possession of the
underlying securities, with a market value at least equal to the amount of
the repurchase transaction, including principal and accrued interest. To the
extent that any repurchase transaction exceeds one business day, the value of
the collateral is marked-to-market on a daily basis to determine the adequacy
of the collateral. In the event of default on the obligation to repurchase,
the Fund has the right to liquidate the collateral and apply the proceeds in
satisfaction of the obligation. In the event of default or bankruptcy by the
counter-party to the agreement, realization and/or retention of the
collateral or proceeds may be subject to legal proceedings.
4. REVERSE REPURCHASE AGREEMENTS: In order to leverage the Fund, the Fund may
enter into reverse repurchase agreements with institutions that the Fund's
investment adviser has determined are creditworthy. Under a reverse
repurchase agreement, the Fund sells securities and agrees to repurchase them
at a mutually agreed upon date and price. Reverse repurchase agreements
involve the risk that the market value of the securities purchased with the
proceeds from the sale of securities received by the Fund may decline below
the price of the securities the Fund is obligated to repurchase. Securities
subject to repurchase under reverse repurchase agreements, if any, are
designated as such in the Statement of Net Assets. There were no reverse
repurchase agreements outstanding at June 30, 1997.
5. FOREIGN CURRENCY TRANSLATION: The books and records of the Fund are
maintained in U.S. dollars. Foreign currency amounts are translated into U.S.
dollars at the mean of the bid and asked prices of such currencies against
U.S. dollars last quoted by a major bank as follows:
- investments, other assets and liabilities at the prevailing rates of
exchange on the valuation date;
- investment transactions and investment income at the prevailing rates of
exchange on the dates of such transactions.
Although the net assets of the Fund are presented at the foreign exchange
rates and market values at the close of the period, the Fund does not
isolate that portion of the results of operations arising as a result of
changes in the foreign exchange rates from the fluctuations arising from
changes in the market prices of the securities held at period end.
Similarly, the Fund does not isolate the effect of changes in foreign
exchange rates from the fluctuations arising from changes in the market
prices of securities sold during
13
<PAGE>
the period. Accordingly, realized and unrealized foreign currency gains
(losses) are included in the reported net realized and unrealized gains
(losses) on investment transactions and balances.
Net realized gains (losses) on foreign currency transactions represent net
foreign exchange gains (losses) from sales and maturities of foreign
currency exchange contracts, disposition of foreign currencies, currency
gains or losses realized between the trade and settlement dates on
securities transactions, and the difference between the amount of investment
income and foreign withholding taxes recorded on the Fund's books and the
U.S. dollar equivalent amounts actually received or paid. Net unrealized
currency gains (losses) from valuing foreign currency denominated assets and
liabilities at period end exchange rates are reflected as a component of
unrealized appreciation (depreciation) on investments and foreign currency
translations in the Statement of Net Assets. The change in net unrealized
currency gains (losses) for the period is reflected in the Statement of
Operations.
Foreign security and currency transactions may involve certain
considerations and risks not typically associated with those of U.S. dollar
denominated transactions as a result of, among other factors, the
possibility of lower levels of governmental supervision and regulation of
foreign securities markets and the possibility of political or economic
instability.
6. PURCHASED OPTIONS: The Fund may purchase call and put options on listed
securities or securities traded over the counter. The Fund may purchase call
options on securities to protect against an increase in the price of the
underlying security. The Fund may purchase put options on securities to
protect against a decline in the value of the underlying security. Risks may
arise from an imperfect correlation between the change in market value of
the securities held by the Portfolio and the prices of options relating to
the securities purchased or sold by the Portfolio and from the possible lack
of a liquid secondary market for an option. Possible losses from purchased
options cannot exceed the total amount invested. Realized gains or losses on
purchased options are included with net gain (loss) on investment securities
sold in the financial statements.
7. FOREIGN CURRENCY EXCHANGE CONTRACTS: The Fund may enter into foreign
currency exchange contracts to attempt to protect securities and related
receivables and payables against changes in future foreign exchange rates. A
foreign currency exchange contract is an agreement between two parties to
buy or sell currency at a set price on a future date. The market value of
the contract will fluctuate with changes in currency exchange rates. The
contract is marked-to-market daily and the change in market value is
recorded by the Fund as unrealized gain or loss. The Fund records realized
gains or losses when the contract is closed equal to the difference between
the value of the contract at the time it was opened and the value at the
time it was closed. Risk may arise upon entering into these contracts from
the potential inability of counterparties to meet the terms of their
contracts and is generally limited to the amount of unrealized gain on the
contracts, if any, at the date of default. Risks may also arise from
unanticipated movements in the value of a foreign currency relative to the
U.S. dollar.
8. LOAN AGREEMENTS: The Fund may invest in fixed and floating rate loans
("Loans") arranged through private negotiations between an issuer of
sovereign debt obligations and one or more financial institutions
("Lenders") deemed to be creditworthy by the investment adviser. The Fund's
investments in Loans may be in the form of participations in Loans
("Participations") or assignments of all or a portion of Loans
("Assignments") from third parties. The Fund's investment in Participations
typically results in the Fund having a contractual relationship with only
the Lender and not with the borrower. The Fund has the right to receive
payments of principal, interest and any fees to which it is entitled only
from the Lender selling the Participation and only upon receipt by the
Lender of the payments from the borrower. The Fund generally has no right to
enforce compliance by the borrower with the terms of the loan agreement. As
a result, the Fund may be subject to the credit risk of both the borrower
and the Lender that is selling the Participation. When the Fund purchases
Assignments from Lenders it acquires direct rights against the borrower on
the Loan. Because Assignments are arranged through private negotiations
between potential assignees and potential assignors, the rights and
obligations acquired by the Fund as the purchaser of an Assignment may
differ from, and be more limited than, those held by the assigning Lender.
9. WHEN-ISSUED/DELAYED DELIVERY SECURITIES: The Fund may purchase securities
on a when-issued or delayed delivery basis. Securities purchased on a
when-issued or delayed delivery basis are purchased for delivery beyond the
normal settlement date at a stated price and yield, and no income accrues to
the Fund on such securities prior to delivery. When the Fund enters into a
purchase transaction on a when-issued or delayed delivery basis, it
establishes a segregated account in which it maintains liquid assets in
14
<PAGE>
an amount at least equal in value to the Fund's commitments to purchase such
securities. Purchasing securities on a when-issued or delayed delivery basis
may involve a risk that the market price at the time of delivery may be
lower than the agreed-upon purchase price, in which case there could be an
unrealized loss at the time of delivery.
10. SECURITIES SOLD SHORT: The Fund may sell securities short. A short sale is
a transaction in which the Fund sells securities it may or may not own, but
has borrowed, in anticipation of a decline in the market price of the
securities. The Fund is obligated to replace the borrowed securities at
their market price at the time of replacement. The Fund may have to pay a
premium to borrow the securities as well as pay any dividends or interest
payable on the securities until they are replaced. The Fund's obligation to
replace the securities borrowed in connection with a short sale will
generally be secured by collateral deposited with the broker that consists
of cash, U.S. government securities or other liquid, high grade debt
obligations. In addition, the Fund will place in a segregated account with
its custodian an amount of cash, U.S. government securities or other liquid
high grade debt obligations equal to the difference, if any, between (1)
the market value of the securities sold at the time they were sold short
and (2) any cash, U.S. government securities or other liquid high grade
debt obligations deposited as collateral with the broker in connection with
the short sale (not including the proceeds of the short sale). Short sales
by the Fund involve certain risks and special considerations. Possible
losses from short sales differ from losses that could be incurred from a
purchase of a security because losses from short sales may be unlimited,
whereas losses from purchases cannot exceed the total amount invested.
11. WRITTEN OPTIONS: The Fund may write covered call options in an attempt to
increase the Fund's total return. The Fund will receive premiums that are
recorded as liabilities and subsequently adjusted to the current value of
the options written. Premiums received from writing options which expire
are treated as realized gains. Premiums received from writing options which
are exercised or are closed are offset against the proceeds or amount paid
on the transaction to determine the net realized gain or loss. By writing a
covered call option, the Fund forgoes in exchange for the premium the
opportunity for capital appreciation above the exercise price should the
market price of the underlying security increase.
12. OTHER: Security transactions are accounted for on the date the securities
are purchased or sold. Realized gains and losses on the sale of investment
securities are determined on the specific identified cost basis. Interest
income is recognized on the accrual basis and discounts and premiums on
investments purchased are accreted or amortized in accordance with the
effective yield method over their respective lives, except where collection
is in doubt. Distributions to shareholders are recorded on the ex-date.
The amount and character of income and capital gain distributions to be
paid are determined in accordance with Federal income tax regulations which
may differ from generally accepted accounting principles. These differences
are primarily due to differing book and tax treatments for foreign currency
transactions and the timing of the recognition of losses on securities.
Permanent book and tax basis differences relating to shareholder
distributions may result in reclassifications to undistributed net
investment income (loss), accumulated net realized gain (loss) and capital
surplus.
Adjustments for permanent book-tax differences, if any, are not reflected
in ending undistributed net investment income (loss) for the purpose of
calculating net investment income (loss) per share in the financial
highlights.
B. Morgan Stanley Asset Management Inc. (the "Adviser"), provides investment
advisory services to the Fund under the terms of an Investment Advisory and
Management Agreement (the "Agreement"). Under the Agreement, the Adviser is paid
a fee computed weekly and payable monthly at an annual rate of 1.00% of the
Fund's average weekly net assets.
C. The Chase Manhattan Bank, through its affiliate Chase Global Funds Services
Company (the "Administrator"), provides administrative services to the Fund
under an Administration Agreement. Under the Administration Agreement, the
Administrator is paid a fee computed weekly and payable monthly at an annual
rate of .08% of the Fund's average weekly net assets, plus $100,000 per annum.
In addition, the Fund is charged certain out-of-pocket expenses by the
Administrator. The Chase Manhattan Bank acts as custodian for the Fund's assets
held in the United States.
D. Morgan Stanley Trust Company (the "International Custodian"), an affiliate
of the Adviser, acts as custodian for the Fund's assets held outside the United
States in accordance with a Custody Agreement. Custodian fees are payable
monthly based on assets under custody, investment purchase and sale activity, an
account maintenance fee, plus reimbursement for certain out-of-pocket expenses.
Investment transaction fees vary by country and security type. For the six
months ended June 30, 1997, the Fund incurred International Custodian fees of
$19,000, of which $8,000 was payable to the International Custodian at June 30,
1997. In addition, for the six months
15
<PAGE>
ended June 30, 1997, the Fund has earned interest income of $5,000 and incurred
interest expense of $10,000 on balances with the International Custodian.
E. For the six months ended June 30, 1997, the Fund made purchases and sales
totaling $112,644,000 and $115,473,000, respectively, of investments other than
long-term U.S. Government securities and short-term investments. There were no
purchases and sales of long-term U.S. Government securities. At June 30, 1997,
the U.S. Federal income tax cost basis of securities was $67,998,000 and
accordingly, net unrealized appreciation for U.S. Federal income tax purposes
was $3,306,000 of which $3,600,000 related to appreciated securities and
$294,000 related to depreciated securities.
F. In connection with its organization and initial public offering of shares,
the Fund incurred $30,000 and $714,000 of organization and offering costs,
respectively. The organization costs are being amortized on a straight-line
basis over a five year period beginning May 27, 1994, the date the Fund
commenced operations. The offering costs were charged to capital.
G. At June 30, 1997, approximately 41% of the Fund's total investments consist
of high yield securities rated below investment grade. Investments in high yield
securities are accompanied by a greater degree of credit risk and the risk tends
to be more sensitive to economic conditions than higher-rated securities.
H. Each Director of the Fund who is not an officer of the Fund or an affiliated
person as defined under the Investment Company Act of 1940, as amended, may
elect to participate in the Directors' Deferred Compensation Plan (the "Plan").
Under the Plan, such Directors may elect to defer payment of a percentage of
their total fees earned as a Director of the Fund. These deferred portions are
treated, based on an election by the Director, as if they were either invested
in the Fund's shares or invested in U.S. Treasury Bills, as defined under the
Plan. The deferred fees payable, under the Plan, at June 30, 1997 totaled
$18,000 and are included in Payable for Directors' Fees and Expenses on the
Statement of Net Assets.
I. During June 1997, the Board declared a distribution of $0.34 per share,
derived from net investment income and $0.18 per share, derived from net
realized gains, payable on July 15, 1997, to shareholders of record on June 30,
1997.
J. During the six months ended June 30, 1997, the Fund's written covered call
option activity was as follows:
<TABLE>
<CAPTION>
FACE AMOUNT PREMIUM
(000) (000)
--------------- -------------
<S> <C> <C>
Options outstanding at January
1, 1997....................... $ -- $ --
Options written during the
period........................ 3,900 32
Options closed during the
period........................ (3,900) (32)
------ ---
Options outstanding at June 30,
1997.......................... $ -- $ --
------ ---
------ ---
</TABLE>
K. Supplemental Proxy Information
The Annual Meeting of the Stockholders of the Morgan Stanley Global Opportunity
Bond Fund, Inc. was held on April 30, 1997. The following is a summary of each
proposal presented and the total number of shares voted:
<TABLE>
<CAPTION>
VOTES IN VOTES VOTES VOTES
PROPOSAL: FAVOR OF AGAINST WITHHELD ABSTAINED
- ------------------------------------------------------------------------------- --------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
1. To elect the following Directors: John W. Croghan 3,870,496 23,225 -- --
Graham E. Jones 3,870,496 23,225 -- --
2. To ratify the selection of Price Waterhouse LLP as independent public
accountants of the Fund. 3,859,296 9,766 -- 24,659
3. To approve an Investment Advisory and Management Agreement between the Fund
and Morgan Stanley Asset Management Inc. 3,825,339 13,140 1 55,241
</TABLE>
16
<PAGE>
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
Pursuant to the Dividend Reinvestment and Cash Purchase Plan (the "Plan"),
each shareholder may elect by providing written instructions to American Stock
Transfer & Trust Company (the "Plan Agent") to have all distributions
automatically reinvested in Fund shares. Participants in the Plan have the
option of making additional voluntary cash payments to the Plan Agent,
quarterly, in any amount from $100 to $3,000, for investment in Fund shares.
Dividend and capital gain distributions will be reinvested on the
reinvestment date in full and fractional shares. If the market price per share
equals or exceeds net asset value per share on the reinvestment date, the Fund
will issue shares to participants at net asset value. If net asset value is less
than 95% of the market price on the reinvestment date, shares will be issued at
95% of the market price. If net asset value exceeds the market price on the
reinvestment date, participants will receive shares valued at market price. The
Fund may purchase shares of its Common Stock in the open market in connection
with dividend reinvestment requirements at the discretion of the Board of
Directors. Should the Fund declare a dividend or capital gain distribution
payable only in cash, the Plan Agent will purchase Fund shares for participants
in the open market as agent for the participants.
The Plan Agent's fees for the reinvestment of dividends and distributions
will be paid by the Fund. However, each participant's account will be charged a
pro rata share of brokerage commissions incurred on any open market purchases
effected on such participant's behalf. A participant will also pay brokerage
commissions incurred on purchases made by voluntary cash payments. Although
shareholders in the Plan may receive no cash distributions, participation in the
Plan will not relieve participants of any income tax which may be payable on
such dividends or distributions.
In the case of shareholders, such as banks, brokers or nominees, which hold
shares for others who are the beneficial owners, the Plan Agent will administer
the Plan on the basis of the number of shares certified from time to time by the
shareholder as representing the total amount registered in the shareholder's
name and held for the account of beneficial owners who are participating in the
Plan.
Participants who wish to withdraw from the Plan should notify the Plan Agent
in writing. There is no penalty for non-participation or withdrawal from the
Plan, and shareholders who have previously withdrawn from the Plan may rejoin at
any time. Requests for additional information or any correspondence concerning
the Plan should be directed to the Plan Agent at:
Morgan Stanley Global Opportunity Bond Fund, Inc.
American Stock Transfer & Trust Company
Dividend Reinvestment and Cash Purchase Plan
40 Wall Street
New York, NY 10005
1-800-278-4353
17
